Planning Gone Mad

My previous article, The Truth about the US Housing Market, has obviously divided opinion on the important issues of housing affordability and the causes of housing bubbles. In only 48 hours, this article has been read by over 5,000 people, making it my second most popular article of all time, behind Australian Housing: a Bubble in Search of a Prick (8,600 views).

Comments have ranged from highly complimentary to outright opposition. Regardless of your view, I appreciate your feedback and am honoured that so many people read my articles and use this blog as a forum for debate. I apologise that I don’t always post comments quickly. This is because I work full-time and cannot access my blog from work. I would turn the moderation function off, except that I receive lots of spam comments. But please rest assured that I post all comments received, both positive and negative, provided they are not abusive.

Anyway, on to today’s post. I want to take readers through an example of how excessive planning regulations, like those discussed in my previous post, are pushing-up the cost of fringe housing in Australia’s cities and significantly reducing housing affordability across-the-board. To illustrate this point, please consider the following examples taken from Victoria, Australia and Houston and Dallas, Texas.

Example 1: Wallan, Victoria (50kms north of Melbourne):

For readers not familiar with Wallan, it’s a country town 50kms north of Melbourne, just off the Hume Highway – the main roadway between Melbourne and Sydney. Wallan is around 25kms north of Craigieburn, which is on the outskirts of Melbourne.

Here is Wallan on a map:

And here is a shot of Wallan’s topography. As you can see, it’s nothing but flat paddocks all the way between Wallan and Craigieburn.

Given that Wallan is so far from Melbourne and surrounded by a plethora of flat paddocks, you would expect residential land blocks to be cheap, right? So, how much would you expect to pay for a small 476 square metre block? $10,000, $20,000, $30,000… keep going. $50,000, $100,000, $150,000. Close but no cigar. No, 476 square metre blocks are selling in Wallan for a whopping $155,000! Check out the below add for yourself:

And how much would you expect to pay for a new family home? Well these are selling in Wallan for an ‘affordable’ $320,000 plus (see below listings):

Note that the bottom add for $324,534 has land size of 476 square metres. So based on our $155,000 example above, nearly 50% of the cost of this home is in the land.

Example 2: Houston and Dallas, Texas:

Texas is the fastest growing state in the United States, having added a whopping 4.3 million people over the past decade. In fact Texas’ population, which stood at 25.1 million in 2010, is larger than the entire Australian population.

With these facts in mind, let’s consider new house and land packages in the coastal area of Houston, home to the largest city in Texas and the fourth largest city in the United States. The metropolitan population of Houston was around 5.9 million in 2009.

Amazingly, despite the rapid population growth, one can buy brand new large family homes within 50kms of Houston’s CBD for under $200,000. Check out the below example:

And the map for this home:

And check out these brand new homes – all priced below $200,000 – in the greater Houston area:

In fact, there are literally hundreds of new family homes for sale in the Houston area – all for under $200,000 and all closer to the CBD than Wallan. Search for yourself here.

Feeling ripped-off yet? Well how about the area of Dallas, Texas – the largest metropolitan area in the South and the fourth largest metropolitan area in the United States, with a population of some 6.9 million people.

Well, one can buy large new family homes here for under $180,000. Check out the below example, which is only around 30kms from the Dallas CBD:

And the map for this home:

Once again, search for yourself here.

Planning gone mad:

The fact remains that the discrepancy in housing affordability between Australia and Texas is largely due to differences in planning regimes. Australia (and New Zealand) operates restrictive urban planning structures, whereby the release of residential land plots are controlled and rationed by the government.  This control on supply restricts the market for land, in-turn enabling developers to land-bank and drip feed supply onto the market, thereby significantly raising its price. In turn, the higher land prices push-up the end cost of housing.

By contrast, liberal land markets like Texas are contestable, due to the lack of government interference. As a result, developers are unable to land-bank, since housing can be built down the road. As a result, large residential blocks typically sell for around $30,000 in Texas (versus $150,000 plus in Australia), which obviously keeps the cost of housing significantly lower. The contestable nature of the Texan land market also discourages speculation, since any meaningful rise in price is quickly met with increased supply.

The final word:

I hope that this post has illustrated just how ripped-off we Australians are with respect to housing. And that much of the house price inflation experienced in Australia is due to failed planning policies by Government, mixed with easy credit, heavy offshore borrowings by our banks, and tax-induced speculation (e.g. negative gearing).

I’ll dig deeper into these supply-side issues in my next post. In the meantime, I recommend that readers check out this article, Houston: we have a (housing affordability) problem, by Hugh Pavletich – Co-Author of the Demographia International Housing Affordability Survey (next survey due out on 24 January 2011).

Cheers Leith

Unconventional Economist
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  1. Leith,

    I am from the US and another thing you have to factor in which is huge is Stamp Duty. In the US you dont pay 7% Stamp Duty on a house. Ad that to your $320k house and it is now 342,400. The US pays property taxes but it is the same as rates in Australia. The other thing I noticed when buying a house in Australia compared to the US is all the other taxes the govt charges. I dont have the numbers but Australia killed us with govt tax fees for this and that. I have told people back home about the Stamp Duty that the government charges over here and they just cant believe it.


  2. Leith,
    there is a meme that land planning regs cause the high land prices.

    I don't buy it. When looking at Texas I put more weight on the lending regs in Texas that require 20% deposit.

    The Savings & Loan Debacle that hit the Texas banking industry particularly hard in the late 1980's / early 1990's may have contributed to the rationing of credit during the mid 2000's when other states, like California, were indulging in an orgy of credit and a house price bubble

  3. Leith van Onselen

    [email protected]. If Texas' credit rationing is the key cause of affordable housing, then how did fast growing Atlanta Georgia achieve the same result as Texas (i.e. no bubble and affordable housing), despite being hit hard by predatory lenders and easy credit? See Georgia on My Mind for a discussion on Georgia.

    My meme is that the supply side is as important as the demand side of the housing equation. In fact, bubbles are only possible if there is both restricted supply and easy credit. Take away either and housing bubbles are not possible.

  4. Sorry Lieth, but just picking two data points and leaping to a conclusion doesn't cut it.

    Where is your evidence that the difference in prices is driven by poor planning polices?

    I would have at least expected a breakdown in the price of the Wallan blocks to justify your conclusion.

    Even if we except prices of new release land are artificially high, where is the evidence that this is the driver of the wider Australia market?

    It's pretty disappointing you'd buy into such facile views and analysis without subjecting the argument to some intellectual rigour.

    What's more disappointing is that by letting the scandal of Australian house prices be hijacked by people with narrow political agendas, you overlook the much more serious discussion about how high property prices are affecting Australia's competitiveness and social fabric.

    Really Leith, if you're going to buy into this argument and stand on your qualifications and experience, you should do better than this.

  5. Leith van Onselen

    You make me laugh Anon. Unlike you, I have undertaken extensive study in this area. I was sceptical at first but after studying this issue in depth, I have come to the conclusions outlined in this blog. As for the claim that I am letting the issue of housing affordability be hijacked by political agendas, nothing could be further from the truth. Read my back catalogue of articles on negative gearing, banking policy, the Australian housing bubble, etc and you will quickly discover that your claims have little merit.

    And how about commenting under your real name. Or are you too afraid to be out in the open like me?

  6. Leith, I choose not to post under my own name for professional reasons, it doesn't change my argument.

    I'm regular reader of your blog and I appreciate your previous postings, it's why I'm disappointed at this and the the previous post.

    If you have this data, then post it to support your views. Simply taking two data points and drawing a conclusion is downright silly, you could equally come to the conclusion that cactus causes lower property prices.

    As I said in the above post, the issue of Australian property prices is seriously distorting and, in my view, damaging our international competitiveness.

    We need to have a sensible argument about the causes and cures for this situation rather than buying into a US driven agenda to deregulate the planning system.

    Incidentally, I don't support the Australian planning system. I believe it's corrupt and politically driven, but I'm yet to be convinced it's the cause of our property bubble.

  7. Developers shouldn't be allowed to purchase land in new areas at all. It should be up to local councils to plan, subdivide and provide services and then on sell the blocks to members of the public/builders who are limited in the number of blocks they can own at once. Councils are then encouraged to expand their population by selling affordable land.
    From what I've read its a system that works quite well in germany.

  8. Is there truly a supply-side constraint? An easy way to tell is to look at rental rate growth. If there is a shortage of housing rents will increase, no?

    The "lack of land" and "strict land use" mantras are alive and well in Vancouver Canada where I live. Yet rents have only kept pace with inflation. If there were truly a housing shortage, why aren't rents skyrocketing?

    That said, it does go to reason that an area with strict land use guidelines and other restrictions will, in certain times, see prices and rents run up, as I think happened recently in Perth and parts of Alberta Canada, but that effect does not necessarily translate to other cities with lower or more consistent population growth even with supply side "constraints".

  9. The main problem I have with supply side argument is that, while it seems (and is likely) to be a contributing factor to price swings, with other government policies in place, a tight supply constraint can be kept along side stable house prices. That is, allowing more building is not necessarily the only cure. I would hope that can be acknowledged through analysis of such examples in other parts of the world.

  10. That is fine, but the playing field has to level. If we free developers to build houses on the urban fringe, we should also free them to build units and townhouses over the aging housing stock of the middle and inner suburbs. Otherwise, the market will just be destorted into pushing most development to the fringe when there is a certain level of demand for other forms of housing.

  11. Leith,

    uhhh. To quote from the Georgia on My Mind link

    "Yet Texas has managed to avoid severe stress to either its housing market or its banking system, while Georgia is suffering severe post-bubble trauma. The share of mortgages with delinquent payments is higher in Georgia than in California; the percentage of Georgia homeowners with negative equity is well above the national average. And Georgia leads the nation in bank failures.

    So what’s the matter with Georgia? As I said, banks went wild, in a scene strongly reminiscent of the savings-and-loan excesses of the 1980s. High-flying bank executives aggressively expanded lending — and paid themselves lavishly — while relying heavily on “hot money” raised from outside investors rather than on their own depositors. "

    That article states BOTH Georgia and Texas had lax land planning regs.

    Geogia also had Lax lending standards. Texas did not.

    Georgia had a bubble. Texas did not.

    If you are interested in supply there are two sides to that coin.

    One is increasing supply. The other is decreasing supply

    Either decrease supply of credit OR population while increasing supply of land to decrease prices. Or Increase supply of credit and population while decreasing supply of land to increase prices.

    I'm not commenting under my real name. If you want to attack me coz I don't comment under my real name go ahead.

    If the choice is to either comment only under my real name or not comment I'll go with not comment and let your posts go unchallenged.
    (the first anon above. Not the second)

  12. Any person who pay 300+ for a property in the middle of absolutely nowhere is a complete moron…I mean seriously what is wrong with people now days? Bit of common sense?

    Its same stupid aussie mentality…you cant go wrong with property hehehe.

    Thanks for the article Leith. By the way I find it extremely hard finding articles such as this online hmmmm, wonder why.


  13. Leith, you are fantastic. I migrated to Oz over a year ago and was/am amazed by the prices (in general, but housing is particular) over here. It's great to see someone is actually looking across the border and do some rational reasoning. I recognize the fact that you have an extensive background in economic analysis but I especially appreciate the fact that you seem to be one of the few to actually use common sense!

    Like you show over and over again, houses in Oz are ridiculously overpriced. I'm not going to repeat my comment on the previous article "bubble in search of a prick" but I would like to confirm that the two highlighted examples are not cherry picking. Nowhere in the world are houses as expensive as they are in Australia, and that is a fact! I lived in Europe and it cost me a 'whopping' €150 net fortnightly in mortgage interest to own a home (not counting the €85 fortnightly put toward a fund for paying of the loan, thus converting savings to brick). Comparing my salary back then and now it's save to say that this was more or less equal to paying $150 fortnightly… to own a home. Consider this… even with those prices Europeans consider houses to be expensive and the market has therefore corrected itself over the last two years, unlike the market over here. Obviously this was a starterhome without any land to speak of but for the sake of argument I'll just compare this to the two-bedroom apartments starting at $500.000 I see being offered here in Adelaide. That should cancel out any of the size/land arguments.

    I am not sure about your statement about planning regulations though. In The Netherlands land release is HEAVILY regulated because everything is already in use. In Holland regulation hasn't driven up prices (as much) as in Australia. I would suggest, not counting the speculation, that it is not so much land regulation but the lack of decent alternatives available in Australia. The Netherlands has many privatised, not-for-profit housing trusts which offer highly affordable, decent to high quality rentals. These rentals are either replaced with new quality homes or sold off relatively cheaply every 50 years.
    Also, homes in The Netherlands are often developed by large companies building many homes at a time (which degrades individual style but improves affordability and quality).
    People over here do not seem to have these options (although I do recognize that renting seems the rational way to go at the moment, even with the high rents). Also, tenants have a lot more rights and options to settle in and feel at home in a rental property in The Netherlands. Over here it always feels as if you're house-sitting which I can see would make people go out and buy a house just to be able to feel at home.
    Mind you, I don't classify the lack of alternatives as "strong fundamentals" like some spuikers do. I think it is a reason why Australian houses will be a bit more expensive than US or EU houses for a while to come but it does not justify the current prices. The main reason I see for the current prices are the misleading promises which cause people to rush into debt thinking they are going to get rich easily. However, people over here are struggling and they are struggling badly. When people can no longer afford to own a home they will stop buying homes. Also, in the coming years more and more alternatives will become available as the babyboomers will start selling off their multiple homes. The simple fact is that the current situation is not sustainable and is only being preserved through denial with an added hint of miningboom. I'm gonna rent, save, enjoy life for a while first and get my home when prices have come down to sane levels which I know they will eventually. Not buying for a while though!

    Finally… please have a look at the quality of the US homes in your examples and compare that to the quality of all those $500.000 homes offered in Australia. Australians are being screwed over bigtime. I will not buy a cardboard home.

  14. Leith, this is just lame. So was the last post about the Demographia data, for reasons (gross population change) that I have already showed.

    The idea that high real estate prices are caused by zoning laws is simply untrue. Multiple causes are at work, and while zoning laws may be a factor, they're minor compared to issues like population changes, interest rates, credit availability, government subsidies and irrational behaviour on the part of market participants.

    If you expect to be taken seriously, you'll have to do *much* better than this.

  15. Leith, I think Anon's comment @ 7:30 am is probably not fair, nor accurate, but he (she?) does perhaps have a point that this post maybe lacks some of the more rigorous analysis which you have shown in other blog postings.

    While I think there is no doubt that your conclusions are correct regarding land-banking and the complicity of all levels of government in inflating property and land values, comparing Wallan to Houston and Dallas is not exactly in-depth research.

    As this blog isn't your job, I know you probably don't have the time, but a good study would be to compare land and property prices across a range of similar socio-economic areas in a number of different countries. Comparing US property prices to Australian ones directly isn't really an apples and apples comparison.

    What's the per capita income of Houston? How does that compare to residents of Wallan? How does that compare to property in those areas? Etc etc.

    I'm not saying you're wrong, or that you haven't looked extensively into this issue, just that you leave yourself open to attacks from people like Anon if your analysis has some holes in it. Otherwise keep up the good work.

  16. Leith

    then there is the issue of "who would want to live in Wallan and where do they work?"

    I'm betting that it will be part of an extensive commute to Melbourne and that just like in South East Queensland there will be people driving up and down the equivalent of our M1 to and from work.

    We've just taken urban sprawl to the level where satellite cities and their infrastructure costs add to the cost of living and take us even further away from sustainability.

    I have friends in manufacturing (not yet a dead industry here) and are trying to get premises in Brisbane which are in reasonable locations. Yesterday driving home I found one place selling commercial property in the middle of nowhere. They were asking $1,999,999 for a 500sqM property with no building on it yet.

    I should take a picture on the way home (if its not pissing rain again)

  17. First, I confess to a bias – I like some (not all but some) planning regulations. I think good public transport availability is going to become increasingly important in the future too. I agree that the supply side is important but I think you are focusing in the wrong place. Developers are sitting on many, many years worth of land – this IMHO is what we need to stop. Holding fees would likely get passed on to buyers so perhaps some kind of `use it or lose it' rule would be effective?

    • Dallas Beaufort

      Council, state and their regional plans include blocks within their counting to spin there is plenty available, but when you realize that government can’t force private property owners to up-zone to make their plans work pretty. What choice? And who said the governments were great at delivering homes through history? Public housing until lately was sold off as fast as they could build them while gaming the market and their funding sources. Who said these agencies should compete in the market space and regulate at the same time? Considering the affordable issues being fought over. Who has really made and attempt or wants to build for others or just wants to push and pull to get their own values up. If added supply produced greater choice delivered on the build desired outcomes who would care as long as we had a better choice instead of these don’t touch anything as you will break my valued view and sacred planning documents.

  18. Leith,

    Another thought provoking post. For now, I will disagree.

    Put simply, there has not been a coherent argument as to the exact mechanism and incentives that would restrict land supply. In Brisbane, there are literally tens of thousands of housing lots in estates that are being withheld from the market because demand is not sufficient to absorb the quantity of land without price falls.

    Supply competition will not reduce land prices, unlike most other markets.

    Think about the process for getting residential land onto the market. A 'developer' (or anyone for that matter) needs to buy a piece of land with a given subdivision potential, or development potential, at the market rate. That market rate is determined by the highest and best use of the land.

    If a block can be subdivided into 5 lots and similar lots are selling for $200,000 each, the developer will need to pay $1,000,000 less costs and profit for the initial block.

    At most a developer can become more efficient and reduce their costs, but this my no means results in a reduced price. For if he sells one of his 5 blocks at a discount, he has lost all the value in the other four by shifting the market down.

    The argument that slow approvals are a constraint is equally misleading. This is simply a time cost, and a well known one, that should be factored into initial calculation (as it always was when I worked for a big developer).

    Note that in this whole process the development of land by sales prices and volumes. Which of course are driven by easy credit.

    I fail to understand how a supply constraint, due to anything but the actions of private land holders ensuring their asset values do not fall.

    In fact, I have argued that government actions to relax planning constraints usually lead to land holders withholding from the market as they wait to gain from the next planning change.

    I would really like to hear you detailed explanation of the mechanism by which planning can impact prices.

  19. Leith, another great post

    Anon: Of course credit and credit policies can aggravate a housing bubble, they can aggravate any bubble. But something must set up the expectations of capital gain, and the systematic discounting of downside risk, which is at the centre of a bubble.

    Having planning policies that continually retard the ability of supply to respond to demand, creating a sustained pattern of rising prices, generate those expectations and discounting.

    Private research I did found there was no correlation in US metropolitan housing markets between population growth and housing affordability. There was a strong one between proportion of non-citizens and housing (un)affordability. It did not matter if lots of people were trying to move to your city, it did matter if they could not vote. Why? Because non-voters have an intense political discount: the interest of housing market entrants was massively discounted, leading to land rationing policies which protect the interests of housing market incumbents by raising supply.

    Such policies also generate rising revenue from land taxes and political donations from developers who have to “buy” access to the political system to get their needed approvals and who can them “game” the system.

    What Krugman called “the Zoned Zone” were disproportionally cities with strong positional goods (harbour views, beach views, hills) which therefore have strong demand for regulations to protect said positional goods. (In Australia, we might call that the “Harbour” and “Adelaide Hills” effect: those being the two cities that first adopted restrictive land-rationing policies in Australia.) Add that to the Zoned Zone cities also being “gateway” cities with lots of non-voting housing market entrants, and you are away. Land-rationing, housing price bubbles and all.

    The other, “Flatland”, states such as Texas avoided these problems, in large part probably due to the lack of positional goods in housing. Texas had the migrants, but it already has lots of Hispanic voters, so its Hispanic migrants could more easily “plug into” political networks.

    In Australia, all States and Territories eventually adopted the British/Californian system of land-rationing, none of them retained the Texan/German system of open markets in land use. The result is housing price bubbles, as in the UK and California, not the much more even house prices of Texas and Germany.

    Remembering that Texas has less land, more people, higher population growth, higher average incomes than Australia and crams a bigger proportion of its population into its five largest cities but both much lower (relative to income), and much more stable, house prices.

    Credit and tax policies cannot explain these differences, no matter how much they may have aggravating effects. Land rationing does, whether that land rationing is done by regulation or, as in Ireland, by a land cartel.

    It is widely accepted that price control, in the form of rent control, can have a very deleterious effect on housing markets. As the Swedish economist Assar Lindbeck famously wrote, “next to bombing, rent control seems to be the most efficient technique so far for destroying cities.” The notion that quantity controls are somehow benign or innocuous makes little sense.

  20. The "Anon" sounds like a land banker who doth protest too much. Leith, I think your article is close to the bone for a lot of people with vested interests. Well done.

  21. Hi Leith

    I haven't commented before but follow your blogs avidly. As a town planner in Queensland, could I suggest that you clarify what you mean by "restrictive planning regimes"? Queensland has a performance based not a prescriptive planning regime (although some prescription, like urban footprints, is required). NSW planners who come here to work are astounded by how "lax" QLD planning controls are (the Council I work for approves 99% of applications). Yet we still have unaffordable housing. By "planning regimes" are you referring to the release of development land by the State? While this is technically "planning" I would describe it more as land banking by the government!

    Keep up the good work Leith. As a non-economist, I am learning a lot!

  22. Leith, I am not an economist or a planner but I would be very careful about singing from the Demographia hymn book. I have no problem with the numbers they come up with as a rough guide but to then say that planning is the reason for difference in price is a little misguided.

    Look at the arguments the Demographia dude is making in that article you posted. Planning is "social engineering" (aka government intervention is socialism). The free market is better off left a lone to sort this stuff out. Do these themes sound familiar? They're free market zealots using tried and tested "correlation equals causation" quackery.

    Maybe the reason house prices in Dallas and Houston are that much lower is because they are terrible places to live. They don't feature highly on those "worlds best cities" surveys. They have the worlds largest freeway networks and they still have debilitating congestion. In the same way investors leveraged up debt based on real estate, they've leveraged up against cheap oil. The real cost of that land might appear soon enough.

    I'm not saying planning doesn't add costs to development but you do actually get something for your money. Planning is more than just a bureaucratic exercise. As John Stewart once said "Hey, why don't we stop storing the corpses next to the drinking water". Hey presto, you're planning.

    So how do we react to the extra cost planning imposes? In theory we should just buy less land. We have the largest houses in the world now, it's not going to kill us. Plus I suspect we get better infrastructure (schools, amenities, etc.) from our planning costs than the good people of Texas.

    Planning isn't solely responsible for our inflated real estate prices. And it's definitely not responsible in the way Demographia like to imply. If you are concerned that some big players have gamed the system to drive up prices, that's fair enough but unrestrained markets are perfectly capable of being cornered as well. I'll take proper regulation over no regulation any day.

  23. Anon: Maybe the reason house prices in Dallas and Houston are that much lower is because they are terrible places to live. Nonsense: they are both high population growth cities.

    Planning isn't solely responsible for our inflated real estate prices. And it's definitely not responsible in the way Demographia like to imply. Who said "solely"?: utter strawperson. I suggest you read the Glaesar and Gyourko paper that Leith links to, it has considerable evidence assembled by two serious economists.

    It so depends what you mean by 'planning'. One can have planning to provide infrastructure without having officials restricting the supply of land for housing.

  24. "The fact remains that the discrepancy in housing affordability between Australia and Texas is largely due to differences in planning regimes"

    Leith said it. Granted, he said "largely" but I think my point stands. Did it not occur to anyone that the people at Demographia peddling this theory are (or are employed by)property developers?

    One can have infrastructure without land restriction but it makes the infrastructure provision a hell of a lot easier if you aren't being asked to supply services to people who felt the need live in a distant paddock.

  25. Sorry to be off topic but could the Anon posters at least use a nickname, or name at the end of the post. So many Anon's with so much to say but near impossible to see who's argument/thread is who's. Keep your identity Anon, but allow your argument to be followed!!
    Ta Damian


    One of the rather amusing aspects of this issue of housing affordability and housing bubbles, is the difficulty too many people sadly have, following simple numbers……logically.

    The definition of an affordable housing market is on my website. It is extremely simple.

    The most important point to realize is that property prices should be a reflection of the underlying incomes supporting them.

    We know that if housing exceeds three times gross annual household incomes or about 1.5 times Gross Domestic / State / Metropolitan Product, that there is some impediments to supply that need to be dealt with.

    Now, we can strangle the supply of new housing and pump it to 5, 7 or 11 times annual household earnings (which Los Angeles got to). But thats simply illusory bubble wealth. Its a fiction.

    But most Aussies and Kiwis have now figured it out, that they are just being conned in to getting trapped in to grossly excessive mortgages. And most would know from their friends in Ireland, Florida and California, that one looks pretty dopey when bubbles crash and they get wiped out.

    Bubbles by definition are unsustainable and crash at some point – although one can never predict quite when.

    The most important thing is not to become a bubble bunny victim. Its an aweful way to find out just how many friends you have in this world, when that happens.

    Hugh Pavletich FDIA
    Co author – Annual Demographia International Housing Affordability Survey
    New Zealand

  27. David V says:
    It is amazing how religious some of the planning zealots here are.
    Of course restrictions on housing drive up prices and trigger speculative booms. If the planning zealots here were correct then we could restrict our whole country to just one house, but restrict credit so severely that we all could cheaply buy that one house and live happily ever after. What a crock!

    The planning zealots refuse to consider that government is the cause of the problem. Their religion is that government is the solution to all problems. "Surely more government restrictions on loans is the solution" they think.

    I'm pleased to see that Leith has discovered the truth. Government policy caused shortage. Shortage triggered boom. Credit fueled boom causing extremely high prices.
    Evidence of the shortage is rent. Rent of an ordinary 1970's Sydney house was 1/3 an ordinary income. Now that same house rents for 1/2 an ordinary income.

  28. You may or may not like Leith's example of discrepencies in international land/housing prices however, I bet it wouldn't be difficult to find plenty of other examples which show the ridiculous prices currently experienced in Australia. Take the Northwest of Australia for example. An expensive mortgage will typically last a number of commodity boom and bust cycles so I hope those with one (less so for those with alot more) maintain the ability to pay off their loans.
    After recently visiting Australia I was amazed at how my fellow countrymen have gotten used to paying excessive prices for many things. Since when did a pint of beer in the city cost $10? You can get one in London for about $5 or $6.

  29. "One can have infrastructure without land restriction but it makes the infrastructure provision a hell of a lot easier"

    This is a good point. In a jurisdiction whose infrastructure is mostly carried and funded by local and state government there is an incentive to plan expansion carefully.

    Examples of Houston and Dallas are fine but, for anyone who has visited these cities knows, they are thinly spread and highly reliant on cars. San Antonio's urban sprawl spreads for 50 miles. The reason pop growth is high there is socio-economic: a fast-growing Hispanic population has incentives to live close to Mexico; Texas and the US southwest's demographics are undergoing a big shift. You really have to visit there to appreciate how different a lifestyle it is; in many ways it's apples to oranges.

  30. "following simple numbers……logically"

    And yet the solutions, as has been pointed out, are far from simple. There is an endgame to removing supply side constraints that is apparently unpalatable to the electorate.

    And let's be very clear: LIVING in Australia is not expensive because one can rent; OWNING, however, is very expensive. It's a choice, regardless of one's overwhelming desire to own property. I certainly agree people are being conned into buying over-inflated assets but in some ways that speaks to more, not less, regulation. 🙂

  31. Lorenzo: you took issue with:

    Anon: Maybe the reason house prices in Dallas and Houston are that much lower is because they are terrible places to live. Nonsense: they are both high population growth cities.

    sure, so is New Deli … its still a terrible place to live.

  32. We have a massive bubble and it's just about to blow, secure the hatches.

    At the same time utilities are going to go through the roof and food will be at an all time high.

    Too many in the denial stage, I suggest you pull your head out of your backsides, the only interesting thing IMO will be which one of the big 4 banks will hit the wall first.

  33. obakesan: but house prices are a supply and demand issue, and Texas has high demand, so if its housing prices are relatively low, then clearly supply is able to keep up with demand. It is not as if Texans have low average incomes: indeed, their average incomes are higher than Australians.

    Jesse: The expectation of capital gains is created by the regulation. If we had the German situation of "the right to build" we would probably also have the German home ownership rates, which are much lower because there is no expectation of capital gain and people have long-term leases since landlords are not constantly re-assessing their rent/sell calculations.

    Also, the various forms of price-increasing quantity controls retard the provision of infrastructure, because it makes purchase of land for infrastructure much more expensive, encourages government to sell land set aside for infrastructure for the revenue while NIMBY (not in my backyard) and BANANA (build absolutely nothing anywhere near anyone) become worse as people defend their expected capital gains much more strongly. California is worse at providing infrastructure than Texas (then again, there is a long list of x's that California is worse at than Texas).

  34. Anon on Jan 7 at 10.54am referred to heavy planning regulations in the Netherlands, and the fact that house prices haven't risen much.
    I don't know the lie of the land there, however I suspect that there has not been huge population growth pressures there. Much of the immigration has probably been from the third world, therefore placing limited pressure on house buying demand. Much of the immigration to Aus and NZ has been cashed up upper middle class first worlders.

    JM on 7 Jan talked about planning regs in Queensland. My understanding is that Queensland as you say has relatively liberal planning controls as they apply to the existing urban area. This helps a bit, but is still not enough as land rationing means the urban land is expensive, plus the construction costs of multi level medium / high density housing are greater.

    Far more peri-urban land needs to be freed up. However I must add one strong caveat. Peri / ex-urban development must use the land preciously, if we are to free up land supply we can't repeat the flawed urban sprawl models of the past. We need low-medium density communities (preferably in self sufficient communities of around 15 – 20,000 people), some mixed use, and green building and infrastructure approaches. It might mean the house in Wallan costs 250K rather than 220K, but so be it. Power costs will be lower for a start.


  35. Leith,

    Most of your posts are devoid of balance. This one is also devoid of facts and any link between house prices and planning regs.

    A huge difference is the number of desirable popln centres. Most of us prefer to live within 20 mins of the CBD. The US is relatively homogeneous with 100s of CBDs, our desirable CBDs number only 5.

    Surely this is just one of many contributory factors that is far more significant than planning laws?

    I give you a 3/10…. must try harder 🙂


  36. I have always strongly believed that Aussie housing is unaffordable due to our being over-governed. We have less people that California, but more politicians and unproductive, paper and pencil pushing bureaucracies! California's going broke, when will it be our turn? We need tough politicians in Canberra to call a referendum to A) abolish state governments and B) amalgamate our too numerous local councils.

    State governments are nothing but a hinderance to ANY progress in Australia. Sydney has 42 city councils! Totally unnecessary for a city of 4.2 million! Australia's third largest city, Brisbane, has ONE council!

    All these paper pushers and politicians have to be paid. How do we do that? With excessive hidden taxes on insurance, cars and housing.

    Every state premier PROMISED ON TV in the 2000 COAG meeting that once they started getting GST revenue, they would abolish these state charges. Well they haven't and are now DOUBLE DIPPING and STILL can't balance their budgets!

    The result over the past 4 years has been unaffordable housing and now a rent crisis in every state capital! Labor blamed Howard and Costello, but NOTHING has changed since their defeat in '07. The problem with housing is all caused by incompetent State Governments and corrupt extortionate policies of having too many local councils!

    I lived 5.5 years in the US and still have friends there. One couple bought a 4 bed house for $135K in Florida, without having to settle for a rough neighbourhood or large distances from CBD/employment opportunity areas. This was way before the mortgage crash of '08.

    It's ludicrous that housing in Australia, a country with 2.8 people per square km, is less affordable that in many EU countries (56 people per square km in France, 250 people per square km in Germany). Even the USA has 13 people per square km, greater than Australia!

    Well done, Leith. See if you can come up with more info on the over-government angle.


  37. Re: Houston is a terrible place to live?

    Not according to my acquaintances who come from Houston.

    Plenty of opportunities if you work in the oil and gas industry, the shipping industry, or the aerospace industry (NASA etc), or the medical industry (Texas Medical Centre takes up a number of blocks and caters to all areas of medical treatment and research), or the performing arts (year round opera, theatre, ballet etc), or higher education (plus Austin is only 3 hours).

    One thing they don't have on us though are great beaches 😀