“The worth of a house is how much someone is prepared to pay for it, and that is not within the ACT government’s control.” JON STANHOPE and DR KHALID AHMED beg to differ with the Chief Minister. Here’s why…

DURING a recent hearing of the ACT Standing Committee on Public Accounts the Chief Minister and Treasurer, Andrew Barr, stated that “there is not a correlation between the price of housing in areas where land supply is exhausted and the land is finite”. 

Mr Barr went on to say: “Our land-release program has influence on the price of housing in (only) the areas in which the land is released”. 

Mr Barr apparently believes there are two separate housing markets in Canberra – one in established suburbs, and the other in newer, outer suburbs, and that there is no correlation between house prices in the two markets.

Not wishing to be impolite, but the Chief Minister is clearly mistaken, which may explain, in large measure, the current very serious failings in the ACT’s housing market. 

There has been extensive literature published over the last five decades on the notion of the vacancy chain in the housing market. While a detailed discussion of the concept is beyond the scope of this article, it is well understood that housing choices and consumption change through the life cycle of a household. 

For example, typically, a single person will transition from renting a unit to purchasing a unit or a small house after marrying or when starting a family. Such a household may then purchase a larger house as the family grows, but subsequently move into a smaller house as children leave home and establish households themselves. 

Housing stock is characterised by spatial immobility and durability. However, the housing market is characterised by mobility through the various transitions in the lifecycle of a household, and mobility between existing suburbs and new release suburbs. 

It is a fact that a large proportion of newly released land is purchased by existing homeowners seeking to transition into housing consistent with their changing needs, while the sale of established housing assists newly formed households and those moving into first home ownership.

The ACT government’s “Taxation Review” report revealed that more than three quarters (76 per cent) of existing housing stock in Canberra changed hands within 20 years and that a significant proportion of that stock was purchased by first homebuyers.

There are, obviously, several submarkets within the housing market, for example, units, townhouses and detached dwellings, existing and new release, rental housing and owner-occupied, etcetera. 

However, any suggestion, such as that conveyed by the Chief Minister, that what happens in one submarket has no bearing on any other betrays a worrying lack of understanding of the housing market.

According to data released by the ABS, there were around 9200 dwelling transfers in the ACT in 2021, representing around 5 per cent of housing stock. While the actual number of transfers has remained stable (with some fluctuations) over the past decade, the proportion of stock changing hands has declined due to an increase in dwelling stock. According to the “Affordable Housing Taskforce Report” in 2007, about 10 per cent of the stock, at that time, was transferred annually. A decrease of this magnitude in the proportion of housing stock in Canberra being transferred reveals a significant disruption in the vacancy chain. 

We are not aware of any research into why households are staying relatively longer in their existing dwelling. However, research into the housing preferences of Canberrans, commissioned by the ACT government (Winton “Sustainable Research Strategies”, 2015) provides an insight into the yawning disconnect between the government’s current land supply policies and those preferences. 

The Winton report revealed that 91 per cent of Canberra households advised that their preferred housing choice was a standalone dwelling. The government’s land release policy, as we highlighted in November, completely disregards the preferred housing choice of an overwhelming majority of Canberrans.

For example, total land supply in the ACT decreased from 5048 dwelling sites in 2010-11 to an average of around 3700 sites over the following 10 years. Supply of detached housing sites decreased from more than 3500 blocks in 2010-11 to a mere 329 blocks of land in 2014-15. 

It is hardly surprising then, that turnover in the established housing market has decreased. To the extent that there is a dissociation between the established and new release submarkets, it is because the government has deliberately slashed the supply of land for new housing.

Mr Barr, nevertheless, declared: “There are 185,000 dwellings in the ACT and land release is in the thousands each year. As I said, it is two per cent of the total market. So you cannot expect two per cent to shift to 98 per cent. There are other factors, including low interest rates and planning and zoning, and of course income levels. 

“In the end, the price of housing is the interaction of supply and demand. The worth of a house is how much someone is prepared to pay for it, and that is not within the ACT government’s control.”

We consider, with respect, that the Chief Minister’s analogy reflects a failure to understand the basic mechanics of supply and demand. The fallacy of the comparison the Chief Minister makes is readily illustrated if one, for example, was to assume that the existing 2 per cent new release supply were to be cut (say) to 1 per cent or zero. Is the Chief Minister seriously suggesting that if that was to occur that there would be no effect on house prices across the whole of Canberra.

However, we do agree with one statement made by the Chief Minister, namely that the price of housing is the “interaction of supply and demand”. 

But rather than blaming the unaffordable house prices in Canberra on the Reserve Bank for current monetary policy settings, or on Canberra households seeking to benefit from favourable financing conditions in order to enter the housing market, the Chief Minister and his Labor and Greens colleagues could do what is in their complete control, ie supply sufficient land to meet demand. 

We do, of course, recognise the precarious state of the ACT Budget, the high levels of net debt and the persistent deficits over a long period before the pandemic, primarily due to the government’s financial management practices and policy priorities. 

Constraint on land supply has very conveniently provided additional revenues through abnormal profits, as we highlighted previously, with the gross profit margin for the ACT’s land supply agency increasing from 25 per cent in 2010-11 to 84 per cent in 2017-18.

The social and economic costs of the harsh government constraint on land supply are significant and enduring. They include a barrier to mobility into homeownership, a permanent and increasing divide between the “haves” and “have nots”, high mortgage costs and long mortgages for young families, delayed retirement, and increased levels of poverty in retirement. 

The benefits of increasing house values for the existing homeowners are not only at the expense of others who cannot enter the housing market, they are also illusory. Rather than cheap and inane point scoring, these issues warrant serious deliberation and thoughtful policy responses.