Tuesday, July 10, 2007

Housing Affordability and Governments

Housing affordability is becoming an election issue, with both the Kevin Rudd and Prime Minister John Howard making comments. John Howard blames the states for not releasing land, especially in and on the fringes of greater metropolitan areas. Kevin Rudd proposes a low-taxed home savings account, so home buyers can save more.

Other "suggestions", not necessarily from politicians include include:
  • doubling the first homeowners' grant from $7000 to $14000
  • reducing state taxes, such as stamp duty.
  • reducing the charges on developers that passed on to buyers. For example councils charge developers for much of the costs of establishing new roads, water, sewerage; they are charged for electricity and gas mains; and telephone lines. All these are passed on to the buyer.
But the problem is much more complex, and it is not simply a case of reducing costs or giving bigger handouts, or releasing more land, to which there is a limit. The psyche of sellers (of existing houses); developers and buyers is that they will simply use the "extra" they get, or don't pay, to buy bigger or pay more.

Developers, of course want to build bigger, more luxurious houses, because they make more money of their investment. That's how business works, and no "adjustments" will change that.

Our society is a "me" society: we want the best, we want it all, and we want it now. Unless first home buyers change their tune to start with more modest houses, housing affordability will remain low. A two-storey "McMansion" with all mod cons, home theatre, multi-car garage and instant gardens is not the low-cost ideal for young(ish) first home buyers. Housing affordability will always be lower in large metropolitan areas, because that is where population growth is greatest, and so is demand, at the moment. Low interest rates might help, but it is the total cost of the houses that has the most impact on affordability at the moment.

Nevertheless, our politicians want to be seen to be doing "something", "anything" that might attract votes. We might get many comments and a lot of hot air, with little result. There is, after all, an election due in the next 6 months.