On the one hand, the market delivers the best for the least cost.
But on the other hand…. few are willing to call it as it is.
Yesterday’s National Housing Supply Report used coded language to hint at a ‘possible over-supply of housing’ due to housing investor tax breaks (p50).
However the usual suspects were missing from analysis when commenting on the role of vacancies:
Specific purposes include vacant stock awaiting sale, demolition or replacement, and holiday homes.
“Awaiting sale”. How very polite! People are screaming for housing and this is the best the nations peak body on housing supply can come up with?
Census data was used to show 830,374 properties as ‘awaiting sale’ or as holiday homes.
The said analysis focused on ABS statistics, which don’t include vacant land. This figure could easily be doubled if the nation’s residentially zoned land banks were included.
To bring the rental vacancy rate back to 3% – the rental market equilibrium, it is stated on p87 that:
The Council estimates that an additional 26,000 vacant private rental dwellings, mainly in New South Wales and Victoria, would be required in 2008.
We identified 14,149 here in Melbourne in a survey covering just 44% of Melbourne’s housing stock.
The ubiquitous Productivity Commission was quoted regarding the changing of the capital gains tax:
… has added to the recent housing price boom by encouraging investors to reduce current income in favour of longer term capital gains.
Only 830,000 vacant properties….but yet there is a possible shortfall of 200,000 dwellings by 2026???
And over at Rupert Murdoch’s Australian, Housing Shortfall Locking Out Thousands, the usual lines are run:
In a carefully worded criticism of the tax system, the report said the rules were skewed towards home buyers and mum and dad landlords at the expense of investors to build more medium-density housing for the future.
Medium density is mentioned twice in the report but from what i can see never is there a carefully worded mention along these lines.
Lower yields are of course mentioned. Is that why housing supply is dropping? What is the other hand saying? Shhhh…..
That’s what happens when you have a land boom. The pursuit of capital gains ensures that rental yields drop (slowly increasing rental income compared to Melbourne’s Dec 09 $70,000 jump in land prices).
In the final pages (p176), the report states:
In 2008, Port Hedland had a capital growth rate for property as at March 2008 of over 37 per cent according to Residex statistics.
Rising incomes and the Law of Rent demands that landlord’s can demand higher rents, as miners have the capacity to pay. It’s either that or go live in a shipping container house in 45 degree temperatures.
The Age’s Jason Dowling states:
The report also noted a large proportion of Australian homes were empty. It found one in 10 homes were unoccupied and that a quarter of these were holiday homes.
If one quarter of all vacancies are holiday homes (a mysterious stat we have been yearning for), this implies that 7.5% of Australia’s stock are speculative vacancies.
The pursuit of justice demands that we calculate the supply of speculative vacancies. Why didn’t the National Housing Supply Council? What was this ‘committee’ set up to do? (Fair enough they do say they will next time…when the bubble has popped)
That total is 622,781 properties.
622,781 speculative vacancies are holding the market to ransom, demanding their capital gain.
To emphasise, that is 3 times the supposed under-supply predicted in the far future of 2026.
To re-re-emphasise, these speculative vacancies could add 350% more to supply than was needed in 2008.
Until housing is seen as a human right rather than a speculative kite, the housing supply analysis will always have one hand behind its back.
Will Ken Henry have the ticker to recommend that higher and flatter land taxes replace payroll, halve income taxes and fund the abolition of the regressive GST? That is what is needed to restore the Great Aussie Dream.
7 Comments on “One Handed Housing Supply”
Hi Karl,
Indeed, but it’s potentially much worse than the numbers suggest.
Anyone out there know any 50-70 year olds living as a couple or alone in a three to five bedroom house? They brought the kids up there, and now it’s too big for them. They might be still coping well there, or the cleaning and maintenance might be getting a bit much.
Either way they worry about their kids and or grandkids ever being able to afford a home. Their kids support the idea of them hanging on to the family home. As they get older they will even come and help keep the place going. After all, it has been the best investment of their lives, and will only become more valuable. Somehow these families don’t quite make the connection.
This speculative bubble extends far beyond just the overt negative gearing specuvestors. Everybody who takes into account their belief that prices will continue to rise in deciding to stay in a house that is bigger than they need has a speculative component to their descision.
Sure, there is sentimental value there – probably enormous sentimental value. The herb or flower garden they planted decades ago. The shade tree they had the foresight to plant in their twenties. But would they consider taking cuttings of their favourite plants with them when they downsized if they believed that prices might fall a long way over a long time, or even just not go skyrocketing to the moon forever? Of course many of them would.
I have a few sets of elderly relatives living in ridiculously large houses that they simply cannot cope with any more. Most people do. Why are they there still? – there are a whole range of factors, but all of them come down to two things – government tax incentives and speculative beliefs about the future direction of prices.
If they sell, then the income they receive from investing their windfall profits will be heavily taxed, and they will stop getting government assistance. Why would they sell and pay tax and lose benefits when they believe are making a huge tax free profit as they are?
It’s time for a comprehensive land tax without exceptions. It’s time that housing wealth was taken into account in calculating social security payments. It’s time to take the burden of taxation off the young and poor and distribute it more evenly.
The end of this madness is going to be ugly, but not as ugly as its continuation.
Interesting analysis, however when was housing ever a human right?
Well put. Exactly what is happening. The more people that know this, the better. Good work.
HI Dan,
controversial but well said. My partner made the comment that under a land tax system there would be an incentive for the family to re-unite again as the aged parents get to this stage. Perhaps the huge back garden could be subdivided and the grannie flat built? The young family in the big house etc.
Hard decisions do need to be made but so many of our peers are eons behind in analysis or activism that these old time letter writers kick our asses on every occasion! Or the poor ole widow is rolled out into the spotlight by the think tanks.
To ZNOW – it could be argued that the right to a roof over your head is included in the the United Nations ‘Universal Declaration of Human Rights’ (1948). There are many ways to deliver effective housing diversity to a population – housing delivered via debt servitude and negative gearing as per the current Australia model is highly discriminatory and economically inefficient. In any event it is about to implode.
A new gypsy generation is rising, derelict workers. A flexible workforce needs a flexible housing supply. Don’t they get it? Contingent working has been the norm, so a good surplus of cheap rental housing is the absolutely needed. What we have is a government and estate sector permanently defiant and hedged against the best interest of the economy; investors are getting in the way of business sector, in favour of landlords and investors. Economy will shrink the boat sinks the river dry’s up