Stanhope / How the government drives up land prices

“Maintaining supply of land and housing in other Australian cities may indeed be very challenging, but it should not be a problem in the ACT,” writes columnist JON STANHOPE

BRAVO. Chris Bowen, the Shadow Federal Treasurer has added his considerable voice to those concerned about housing affordability in Australia. Bowen has declared that Australia has “become a nation that can no longer house its own children”.

Jon Stanhope

Jon Stanhope.

What he means, of course, is that we can no longer house those children from families whose household incomes place them in the bottom two and a half income quintiles. The rest are still okay, thank you, Jack. It is working-class Australians and the middle-class service professions and callings such as teaching, nursing, police, childcare, hospitality and retail who have been priced out of the housing market, most particularly for detached housing.

These are the very people who have traditionally constituted the ALP’s heartland. It is all the more surprising then that the ALP response to housing affordability, which Bowen describes as an issue that is at “crisis levels” before going on to exclaim that for young Australian families the great Australian dream had become “a pipedream”, has been so muted.

I would be the last person to disagree with Chris Bowen’s conclusion that housing affordability is “in crisis”. The questions that I think require more attention and analysis, most particularly in the ACT, are the causes of the crisis and the most appropriate response.

I say “most particularly in the ACT” not only because it is where I live and because it is my community, but also because of the very different circumstances that apply here. For instance the focus by Chris Bowen and Federal Labor on negative gearing is, while relevant, not nearly as significant in the ACT as it may be in other places. I would be concerned if a focus on negative gearing as the bogey man driving unaffordability detracts from the real cause of the affordability crisis in the ACT. Negative gearing does have an impact on affordability mainly because of constrained supply. Maintaining supply of land and housing in other Australian cities may indeed be very challenging, but it should not be a problem in the ACT.

Accepting that negative gearing does have an impact on house prices, it can be assumed that the decision by most who invest in housing, and negatively gear, is driven by their view on likely capital growth, whether in the asset or in rental yield. There is also an implicit understanding in Australia that governments will not, for political and social reasons, pursue policies that would bring the price of houses down.

If the housing market was operating efficiently then the returns would approximate the returns in other efficient markets such as stocks. If the housing market is not efficient because of (say) supply constraints and/or political imperatives such as not doing anything to drive down the price of existing dwellings or ensuring a cash return on land sales sufficient to pay for expensive transport infrastructure then investors will, of course, be attracted to invest in housing to reap the super returns that we currently see.

However, it would be reasonably straightforward for the unchecked price growth that is now a feature of the ACT detached-housing market to be avoided. The horse has, unfortunately, well and truly bolted but with the unique combination of levers at the disposal of the ACT government, namely monopoly control of land supply and full control over all the relevant planning arrangements, the prices could be stabilised and the effects of negative gearing negated.

The ACT government has clearly taken a conscious policy decision to constrain the supply of land for detached housing. I am not aware of the reasons for that decision. However, it was a deliberate political decision, one of the consequences of which is that the median price of a house in the ACT has increased by 25 per cent since 2011. The median price of a unit has barely moved in that same period. That is a clear indication of the consequences on Canberra house prices of deliberately limiting land supply.

Chris Bowen is correct. There is a housing affordability crisis in Australia. The best single response to the crisis in the ACT is not to tinker with negative gearing, but to simply ensure a supply of land equal to demand. All that needs to be done to achieve that is for Cabinet or the minister responsible for the LDA to reverse the direction the LDA must have been given to not do so.

Jon Stanhope was Chief Minister from 2001 to 2011 and represented  Ginninderra for the Labor Party from 1998. He is the only chief minister to have governed with a majority in the Assembly.

 

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