It was interesting to read an article today by Housing Industry Association‘s Chief Economist, Harley Dale which echoes my own thoughts about the need for more land release in Australia if we want to achieve desirable house price affordability. The conclusion reached by Dale for the Australian housing market is it cannot ultimately benefit from the current falling interest rates and a tripling of grants unless more land is released. The past evidence for this conclusion can be found in the compelling statistics which show a rapid increase in land values arising from restrictive land release polices and burgeoning planning delays.
Tomorrow I think we will see our Reserve Bank of Australia make another large interest cut and I am betting on a 100 basis rate cut to add cumulatively to the 200 basic points already announced which has benefited borrowers with corresponding lower home mortgage rates. Concurrent to these official rate cuts the Federal government doubled the first home owner grant paid to recipients for first time home buyers for any existing properties amounting to $14,000, and a tripling to $21,000 for first new home buyers. The cash incentives are part of the government’s $10.4 billion economic stimulus package underpinning a welcome jump in new houses of 6.7 per cent for October.
Harley Dale said “Both new home sales and building approvals fell sharply over the first nine months of 2008. It will be a long road back, but it is hoped that an improvement in new home sales in October could mark the beginning of a stabilization followed by improvement in leading housing indicators over 2009,” Harley Dale then said. “The unfortunate and avoidable caveat is that any housing recovery that emerges over 2009 will be constrained by a lack of readily available land, planning delays, and the excessive cost of state and local government taxation on new homes”
Personally I think the highest level of dissatisfaction must be reserved for successive administrations over our country areas which gave little thought to new land releases to encourage a much higher proportion of migrant (up to 150,000 to 180,000 people arrive each year largely made up of the skilled migrants) intake to settle in the country rather than our overcrowded cites by investing in infrastructure and incentives for planned land development with co ordinated business regionalization
Australia is one of the most highly urbanized countries in the world. This situation is not sustainable.
Conservatism has prevented us from implementing the bold new initiatives which would immediately make land more affordable by addressing the lack of supply and give sensible consideration to relief from excessive imposts. Hence both residential and rural land in Australia is over valued and subject to unwieldy beurocracies who impose unnecessary restrictions and impose revenue targeted imposts.
In the longer term subsidies for first home buyers will simply increase a demand for land without a corresponding increase in supply. Hence Federal initiatives in consultation with existing state governments and their local councils need to implement policies which the remove self imposed supply restraints, eliminate bureaucratic restrictions and reduce the tax imposts if we are to avoid future rapid real land price escalation.
If you restrict anything so it underlying supply can never meet an underlying demand then the inevitable consequence must be a rise in real prices due to the operation of the price mechanism. It is clear that this purely relates to the land cost as the actual cost of building material and labor has remained constant in real terms over the past 30 years.
I do not imply the desirability of unrestricted releases of large landholdings or that you even need to own it, (since you could lease it) but rather I am drawing attention to the fact that in Australia our long term lack of affordability for housing has as it’s nemesis the self imposed artificial supply restraint on land acquisition with its labyrinth of unnecessary restrictions and unrelated revenue generating imposts.