In his maiden Parliamentary speech, Family First senator, Bob Day (a former home builder), made the following comments in relation to Australia’s constipated land supply system [my emphasis]:
The single most important factor affecting housing affordability has been land. In no other area of the economy has the interference of government been so pronounced, so unsuccessful in its implementation and so catastrophic in its effect. The deliberate policy to limit urban growth—that is, limiting the supply of land on the urban fringes of our cities by introducing urban growth boundaries and, at the same time, promoting urban densification—has been a disaster socially, economically and environmentally. And it was all designed for one purpose: to make money. It had nothing to do with the environment, the cost of infrastructure, public transport or any other reason put forward.
Land developers, in cahoots with state government land management agencies, have made billions of dollars and, at the same time, ruined the home ownership prospects of a whole generation of young Australians. If there is one commodity Australia is not short of, it is land. Yet, to buy a block of land on which to build their first home, young couples are forced to camp out overnight by rent-seeking land developers and their state government cronies for the privilege of paying an exorbitant amount of money for a measly one-tenth of an acre of former farmland—land that developers and state governments between them managed to convert from $10,000 a hectare to $1 million a hectare. It leaves all other forms of price gouging in its wake. When challenged about this and asked, ‘Why are you letting this happen?’, a senior state government politician admitted, ‘We need the money’…
Since those comments were made in September last year, we have witnessed the release of the HIA’s latest land sales report, which revealed that the median vacant lot price across Australia had hit a record $212,727 as at September 2014 just as turnover (supply) in the national land market was in free-fall, down by 16.7% over the quarter (see next chart).
This data strongly supports Day’s contention, for if the supply system was working properly, the number of lots supplied would have risen to meet the rising demand, keeping prices in check. Instead, we have witnessed the alarming situation of falling lot sales and rising lot prices: bonafide evidence of supply-side bottlenecks.
Late last week, Fairfax’s Domain provided further anecdotal evidence in support of Day’s claims, reporting that buyers in Melbourne are camping-out and/or paying $1,000 to enter into lotteries in a bid to a secure house-and-land package on Melbourne’s fringe, which are in short supply:
Ballots, camp-outs and $1000 registration fees – like Willy Wonka’s golden tickets – are part of buying a house on the city fringes amid a new estates boom…
About 30 kilometres west of Melbourne at Plumpton on the Melton Highway, around 350 people keen to buy into the new Woodlea development packed into a winery last Saturday for a lotto-style ballot.
A random draw, with much fanfare, was necessary after 3000 inquiries for just 70 blocks of land.
About 185 families paid a registration of $1000 for the right to attend the event…
Families cheered and cried as [Livinia] Nixon plucked their names from a barrel, after which they chose their plot – priced at an average of $186,000 for 500 square metres – and signed contracts…
Again, only in a cartel-style market, whereby lots are drip-fed at extortionate prices, would such shenanigans occur.
It is also a prime reason why the rate of dwelling construction in Australia’s has collapsed over the past few decades:
And why Australia’s dwelling construction is increasingly skewed towards shoe-box apartments.
All of which makes the Senate’s rejection earlier this month of Day’s motion against “the deliberate restriction of land for new housing and subsequent price gouging by state and territory land management agencies” all the more disappointing, with Australia’s main political parties – Liberal, Labor and The Greens – remaining in complete denial that problems exist.
