2012 Demographia International Housing Affordability Survey

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  1. For us laypeople, does the house price to income ratio use gross income, or disposable income ?

    Eg: for an income of (say) $100k, is an “affordable” house something under about $300k, or something under about $180k ?

      • This needs to be borne in mind when looking at the HKG figure. Income tax only 15% and no GST etc, so the “real” median multiple is comparatively much lower than it appears.

    • If the household income is 100k, then anything under 300k should be classified as affordable.

      Also, does it factor in deposit amounts (i.e. affordability based on loan amount or dwelling price?).

      Example in point would be that most banks are asking for a good 40-50k deposit on a house of 380k, meaning that the borrowing (and therefore ongoing affordability is only based on 340k).

      I would have thought that a 10% deposit (if not 20% deposit) would have to be taken into consideration on the affordability index.

      • The Median Multiple is a rule-of-thumb measure only. It does not take into consideration interest rates, deposit requirements, loan terms, etc. To do so would be overly complex, as the authors would need to know the various regimes/requirements in the different countries.

  2. The ArchitectMEMBER

    Just a heads up you missed Wollongong in the “20 Most Unaffordable Housing Markets (2012)” graph.

    should read

    9 out of the 20 most expensive housing markets identified in the Survey:

    not 8

  3. Australia is second last in the housing affordability challenge. Our land constraints must be of similar scale to Hong Kong’s: profound population pressure and non-existent land supply.

    Pig’s bum!

    We have been seized by a national speculative mania supercharged by overseas debt.

    Look at the tax base, which advantages land speculation over investment and work.

    Meanwhile the cashflow of young adults is bled by an over-reliance on income taxes, by HECS and Super (a Payroll Tax). Don’t look at them to keep prices up by committing their entire working lives to pay towering mortgages. They pass.

    The price falls can only stop when rents = mortgage payments at around 2.5 to 3 times earnings. That goal is far in the distance.

    Demographia blames high prices on planning restrictions. I see the end stage of a land bubble. Don’t Buy Now!

    • In the outer suburbs, a full house on a suburban block would have a mortgage repayment of $1,900 to $2,000.

      If the exact same house was rented out, the monthly rent would be $1,500.

      So it only works out an extra $100 a week to have a mortgage (maybe $150 a week if you include rates and home maintenance).

      Are you suggesting that the mortgage payment would have to come down to $1,500 a month? Or that rent would drop from $350 a week to $250 a week ?

      I think that falling rents would have a bigger impact on AU due to highly leveraged investors, then falling house prices – as house prices can fall with limited financial impacts unless the owner decides/gets forced to sell.

      • Sorry I try too hard to achieve simplicity.

        Clearly, this calculation must add in the compulsory extras that hog cash flow: rates, taxes, insurance, essential maintenance and on. This makes the gap between rents and repayments a gulf.

        I expect a gradual decline in rents. These will be disguised by inflation so may not change much in nominal terms.

      • So there is an expectation of inflation?

        I don’t believe that there will be much inflation in wages over the next 5 years – and indeed there could be a deflation.

        There will be an inflation in costs, but not in associated wages.

      • The Irish experience is/was that while house prices came off so did rents.

        I guess there is a linkage to unemployment and underemployment. Just a guess but I think renters generally would be more vulnerable to economic headwinds and the employment market.

      • “The Irish experience is/was that while house prices came off so did rents.”
        And the Houston experience was that building enough housing kept prices and rents low while others were booming and busting.
        What can we learn from that experience?

    • “…..Our land constraints must be of similar scale to Hong Kong’s: profound population pressure and non-existent land supply……”

      COLLYER – are you serious? Australia is as short of land as Hong Kong?

      The whole point, that you seem to have missed, is that REGULATIONS have indeed left the Australian housing market “as short of land as Hong Kong”, hence it is behaving the same way. Instead of wittering on about speculation and tax structures, you could simply agree with Demographia and stop helping the loony growth constraint crowd smokescreen the real issue.

      • Ah, I think I get it now. Collyer’s comment was not clearly satire as I read it, and he has for a long time been agnostic on the land supply angle. If he’s really “got it” now, that’s great.

  4. Important to note that our carrying costs are extortionate as well, e.g: my boss in Vancouver pays a 1.5% mortgage whereas I pay 6% here.

    His initial debt may be the same or more than mine, but mine takes a bigger chunk of wage to service it.

    • One of the things that is incredible about the Aussie house price bubble, is that the “low interest rates” that have applied while it has been inflating, have never borne any resemblance to the low interest rates of A Greenspan or just about anywhere else in the OECD.

      All the more proof, to my mind, that land supply is the causative factor and “low” interest rates are grossly over-rated as a factor. I argue that you could have NO CREDIT AT ALL, and prices would still inflate, a bit faster than most people could save money, and still end up similarly expensive relative to income. South Korea in the 1980’s tends to illustrate this.

  5. Here’s an additional explanation of the insane prices in Oz: the lack of a decent pension scheme, at least before mandatory super was introduced (although my gut feeling tells me the current scheme isn’t perfect either, just haven’t really done a comparison).

    People (especially the boomers) have become aware that they have no super whatsoever, leading to an investment frenzy fueled by government incentives. This has had the effect of driving up prices as the industry has been more than willing to fuel the notion that more houses equals more super.

    It also explains the ‘shortage’. Perhaps there was a demand shortage while demand for IP’s was high but now that property investment is quickly loosing its appeal the ‘shortage’ has quickly become a glut of supply on the market…

    MB often points at Germany as being a healthy property market. Guess what Germany also has? Decent pension schemes!

    I agree that restricted land supply drives prices up, but even compared to The Netherlands which is perhaps more constrained in this regard Oz is expensive. I believe land supply doesn’t explain the whole picture.

    My comment on the next survey will be about the moderating effect of decent rental schemes and rights on housing prices. 🙂

    • Rusty PennyMEMBER

      Australia has a very good pension scheme.

      It is a mean tested pension, and for someone who qualifies, it is an award of around 27% of AWOTE.

      Not bad for someone who adds nothing to productive output.

      By virtue of being old, they now get more than someone who receives income support.

      In a proper priced housing market, 27% of AWOTE is ample to pay for a 2br weatherboard unit and a vegetarian diet.

      Now this is the crux, this goes no where near the lifestyle boomers feel they are entitled to, so they have mad the “mad dash-for-cash” by leveraging up to capture $100 per flipping of a house.

      To ensure the flipping procedure works, their electoral power has ensured counter-productive policy has maintained this bubble.

      Bubbles however, burst, they can’t have any other outcome.

      • In a proper priced housing market, 27% of AWOTE is ample to pay for a 2br weatherboard unit and a vegetarian diet.

        Sorry, I must feel entitled as well then because I do not consider that the be a decent pension… With the boomers on that one. 🙂

        I read somewhere that the average boomer only has $100K in financial assets. No wonder they are all rushing to somehow increase that.

        Regardless of how the schemes compare, pension is an afterthought in Europe, whereas here it (pension, investing, money) is BBQ-conversation material. Big difference!

      • Rusty PennyMEMBER

        Sorry, I must feel entitled as well then because I do not consider that the be a decent pension… With the boomers on that one.

        27% of AWOTE can easily cover the cost of a 2br weatherboard PROPERLY priced dwelling and a sustaining vegetarian diet.

        I manage the fresh produce requirements of my 2adult, 1 infant family for an average of $30 week.

        A cash inflow of 2x AWOTE for a pensioner couple can cover this easily.

        If they want to travel, if they want to eat meat, get a job.

        I read somewhere that the average boomer only has $100K in financial assets. No wonder they are all rushing to somehow increase that.

        They are at peak earning powers, they are not required to blow it all on discretioanry items.

        Any retailer will tell you which demograph is pissing it up on $6,000 barbeuques and $5,000 outdoor furniture.

        $25,000 a year to their super fund for 10 years vastly enhances that $100,000 in existing financial assets.

        But that’s not what they are prepared to do.

        But the pure planning gain, all enacted by government policy, if pure rent seeking.

        They want something for nothing, and for it to be underwritten by younger generations.

        Regardless of how the schemes compare, pension is an afterthought in Europe, whereas here it (pension, investing, money) is BBQ-conversation material. Big difference!

        Yeah, current events in Europe however may change things in that regard.

      • $25,000 a year to their super fund for 10 years vastly enhances that $100,000 in existing financial assets.

        But that’s not what they are prepared to do.

        Which is exactly what I mean with a decent pension scheme! Why do you think pension is an afterthought in The Netherlands/Germany? Because everyone is contributing significant amounts during their working life! Furthermore, it’s a social insurance… Covered until death, whether that is early (bad luck) or late (hurrah!).

        But again, regardless of what our ideas are of what constitutes a pension, fact is people over here feel a need which isn’t covered hence there is a situation in which (property) investment is stimulated/popular, driving up prices.

      • P.S. Please don’t confuse the pension schemes I’m talking about with the lavish/unsustainable systems in Greece etc.

      • Rusty PennyMEMBER

        I’m not.

        What it seems we are talking about is the level of foregone consumption that leads towards retirement savings.

        I’m not of the belief boomers here are prepared for any type of foregone consumption.

        They are fooled into negative gearing under the premise they can get something for nothing.

        As far as fact is people over here feel a need which isn’t covered

        Well they recognise it, they just aren’t prepared do it… i.e. look after themselves.

        But I suspect we will also disagree on the notion of retiement savings. Its a demograph bubble in my mind.

        No matter how much they put away, it will still lead to too great a proportion of the population not working, with a load of financial assets.

        Too much cash (savings) pursuing too little product (due to lesser workers/capita).

        It Seems for the most part it will lead to inflation. This I think we can also attribute to the boomers, would were content to see the erosion of skills and training so they could get tax cuts once they were entrenched in the work place.

      • “….But the pure planning gain, all enacted by government policy, is pure rent seeking…..”

        EXACTLY. Welcome to the ranks of the enlightened.

        I call it a “regulatory GIVING” (the opposite of a regulatory taking).

      • By virtue of being old, they now get more than someone who receives income support.

        I think the “virtue” is more the preceding ~50 years of productive output, rather than just being “old”.

      • Rusty PennyMEMBER

        The preceding 50 years is chronology, not a virtue.

        To attach anything else to it belies the purpose of welfare.

        Welfare is aid to a person, who by unassisted means would slip below a quality of life we do not find acceptable.

        A person who is unemployed and requiers income support is in just as much need as someone who requires income support in old age.

        To pay virtue to this chronology slips the old aged pension into the category of long service leave, thus an entitlement.

      • A person who is unemployed and requiers income support is in just as much need as someone who requires income support in old age.

        The unemployed young person has a lot more opportunities to not only find work to satisfy his immediate needs, but also his future ones.

        The 65+ retiree, does not. Even ignoring ageism, the list of jobs that can be physically and/or mentally performed is vastly smaller.

      • DR Smithy,

        mate people that have been working for X-Years are all enjoying the fruits of the collectives labor in the market.

        I think Rusty Penny nailed your argument to the wall and called it the weasel it is!

      • Unemployment benefits are actually an insurance policy for the well off. Without it you end up with a much higher crime rate where everybody suffers.

      • RobJM,

        Actually, criminals often regard welfare as a subsidy. There are numerous factors that create a criminal, and welfarism is actually one of them. Balance is needed.

    • AnonNL, I understand from a number of academic books and papers, that the Netherlands long ago worked out that to constrain property prices, maintain intergenerational equity, and keep their economy competitive, they needed to utilise government powers of compulsory acquisition of land for development.
      I think it says a lot for Dutch common sense, that they have accepted this approach.

      It is actually a perversion of the principle of “property rights”, to insist that a “regulatory giving” via planning and regulating, is a “property right”. The most stupid thing of all about urban growth containment is that the inflation of land prices means that the planners intentions CANNOT POSSIBLY WORK. The only way to get a plan for increased density to work along with an arbitrary growth boundary, is to compulsorily acquire the land targeted for development – if the land is at the fringe, then its value as farmland is the fair price. This is actually how it works in genuine free markets like Texas – developers pay farmland prices for fringe land. Some inflated value as the result of a growth boundary or “plan” is a “regulatory giving” and there is nothing immoral about eliminating this. In fact a massively immoral situation fraught with moral hazard, is part of the creation of the “regulatory giving” in the first place.

      If the fringe prices are fair, then the prices of brownfield land, and the land prices included in property targeted for redevelopment at higher densities, will also be uninflated and hence able to be sold at a price that far MORE buyers can afford.

      • Yes, government has powers of compulsory acquisition of land for development but it is a lengthy process. Government can also impose the first right of acquisition on land, meaning it will get preference when that land is first being sold. I have to admit I would not know how prices are decided in those situations.

        What strikes me about Oz’ approach is that there is that planning and urban border (which I agree with) but that government has not provided decent alternatives by pinpointing new land for development (satellite cities), providing real incentives for living away from the 5 main cities and providing the infrastructure needed for leap-frog design.

        As Leith has pointed out previously, the Dutch haven’t been fantastic in their housing regulations either with a number of schemes distorting the market mechanism such as subsidized rentals, cheap rentals via non-profit housing trusts and to top it all mortgage interest tax deduction to stimulate house ownership needed to pull people away from those cheap rentals. On top of that planning schemes are longwinded although I have to admit I do not see a better way of doing it in such a small country as every square meter is already being used and of interest to someone. Recent attempts to do with less planning have lead to an increasingly cluttered landscape.

        That said, all attempts have always been aimed at providing affordable housing, of which I see none here. Also, government plays a huge role in allocating large chunks of land for the development of 1000’s of homes, even going so far as to reclaim land from the sea (in the 80’s at least). Currently there is a hot debate going on about getting rid of the tax-deductions and re-instating decent credit criteria as cheap and easy credit combined with tax-deductions have driven prices (and debt) up. A big difference I guess is that at least the banks put a hard 4.5x gross income cap on mortgages (although, other side of the coin, one could borrow up to 125% value).

        I would say that at least the Dutch are always striving to do things better, even if the solutions are sometimes ill-conceived on not entirely successful.

      • Of course the whole of the NL is not a lot bigger than greater Sydney……

        Don’t underestimate the effect of the power of compulsory acquisition. Alan W Evans in his books, says it damps land owner expectations even if the power is infrequently exercised.

        I admire the Dutch for being so practical in the circumstances they face. (i.e. genuine shortage of land).

  6. The Sacked Wiggle

    I’m puzzled by the Gold Coast number given that I keep hearing about prices being down 40% from their peak. That kind of suggests that this stuff about a collapse of property prices on the gold coast is rubbish doesn’t it?

    • Sacked wiggle – the Gold Coast has seen some serious price falls especially in the luxury end and holiday let segment of the market. The rest of the market is tough to say the least.

      I have some doubts about these figures, but lets assume that they are correct. The area gross median incomes are I believe the ones being used, and not the national or state incomes, and that becomes a more difficult calculation. Given the very high number of itinerant and unemployed people at the lower end, and the high liklihood of unreported income at the higher end, sometimes the data does get a little vague.

      Perhaps UE has an explanation.

      • EDIT – the Gold Coast also has a high proportion of “retired” residents with modest incomes, even though they may be quite wealthy, which again tends to muddy the income figures somewhat.

      • The Sacked Wiggle

        Peter I don’t imagine that gold coast demographics have changed much in recent years. I am curious why gold coast ratios are so high if the property market has tanked there.

      • Wiggle – As I said earlier I have some doubts about the data and the analysis. As said below by hpreston79 Geelong is not less affordable than London, and neither is the Gold Coast. For that matter New York is less affordable, and they have co-op housing – I guess company title here is similar but it isn’t the same and we have comparatively little of that.

        It’s hard to make direct comparisons of different cities with different tax regimes, income and populations spreads – but you should make up your own mind on that. Just drill down and you will see anomalies.

      • I don’t imagine that gold coast demographics have changed much in recent years.
        .
        Except, maybe the overseas Japanese investor mugs have been replaced with Chinese

      • MAV – perhaps the Chinese are buying on the Gold Coast – if so at least they are buying at the bottom of the cycle, unlike the Japanese investors who almost all lost money in Australian Real estate.

  7. The Sacked Wiggle

    Regarding the chart of real house prices and real construction costs. What are real construction costs actually measuring? For example the cost in real dollars of getting a brick laid may not have changed much but what if local regulation required you to lay 2 bricks whereas previously you laid one (as a contrived example of regulation adding to actual construction costs).

    A friend on mind has just been ordered to knock down an existing fence and put up a new one for a cost of $15K. In real terms it probably costs much the same to do this 20 years ago but back then you never would have had to. Plus add in additional engineering and surveying costs that would not have been incurred before. I really doubt that the chart is comparing like to like in terms of total construction costs.

    I remember a time when we used to laugh at stories of bureaucracy and red tape gone mad in Italy, Greece and other countries. This is what we have now become.

    • In Italy, people just thumb their noses at bureaucracy and just build stuff (or buy off the local bureaucracy). This actually keeps their housing values surprisingly low – it is kind of like Texas’ “freedom to build” effect operating a different way.

  8. Want to understand the housing situation in Australia? Then read Demographia + Unconventional Economist.

  9. This won’t end well. Lots of pain ahead for Australia. What goes up, must come down. It will be great fun watching Australia’s massive housing bubble pop.

  10. SabreOfParadise

    Even if the supply restrictions were loosened, would there really be a rush to build tomorrow’s ghettos in the hinterlands of Australia’s big cities? Even with restrictive zoning infrastructure has lagged severely.

    • Here is the stupid thing about the “we can’t afford any more infrastructure” argument.
      The extra money paid by home buyers for inflated-price houses, is literally dozens of times as much as what extra infrastructure would have cost. And this extra debt hasn’t bought anybody ANYTHING. It’s merely bought them “shelter” at an inflated price over what they SHOULD have paid in a FAIR market structure.
      The price of homes at the fringe, affects the price of ALL property. So it doesn’t matter WHERE first home buyers have bought, they have paid FAR MORE than the cost of new infrastructure that has been avoided.
      “Preserving land” is a nonsense argument. The fringe of a city is so long, that it takes literally decades for the whole thing to move “OUT” a kilometer. In fact, “carpet” development usually does not happen if there is no regulatory boundary, “splatter” development occurs in more desirable locations. But the distance required to take “infrastructure” is not long.
      Besides, infrastructure is NEVER “monocentric” – the fringe may well be CLOSER to the source of the city’s water, or to its waste disposal site, for example.

      • Rusty PennyMEMBER

        I itertated this point in another thread.

        The aggregate price of our housing stock has increased from 180% to 400% of GDP in the last quarter century or so.

        If this stayed constant (which in a capitalist economy with eternally increased productivity it should actually reduce) in today’s terms, that is over $2 trillion of increased allocation to housing… much of which was spent on already existing housing stock.

        $2 trillion buys a hell of a lot of infrastructure which we are told is otherwise unaffordable.

  11. DOS does that include “flats” – something that we don’t have a direct equivalent of.

  12. London median of 290,000 probably includes leasehold as well as freehold purchases? We don’t have the concept of a leasehold sale in Oz, so doesn’t that mean the data is not comparable? The idea that London is more affordable than Geelong is complete rubbish in my opinion. I think Demographia is a good ‘quick and dirty’ comparison but isn’t bang on accurate in some of its conclusions.

    I would also say that the quality of suburban housing in London is better than in Melbourne, not to mention that the infrastructure and transport in the outer suburbs is infinetly better!

    Would everyone agree that price/rent ratios are a better measure than price/income – after all, it is not the income of those that live in the city that matters, it is the income of those that own the houses in the city (i.e. add in rich foreign investors incomes)??

    • Having lived in Europe and Australia all I can say is that these survey results make sense to me. Australia really is THAT expensive.

      It may be crude but this style of measurement paints an accurate enough image to go by.

      I think price/rent would paint an even worse image. I do not know any other country where renting is cheaper than buying.

    • Rusty PennyMEMBER

      The idea that London is more affordable than Geelong is complete rubbish in my opinion

      I thinking you’re conflating comparitive nominal price with affordability.

      London prices may be nominally higher, but I would gather wages are too.

      So while a London resident may pay more, they are able to do so with greater ease from their wages.

      Not may high wages in Geelong.

      An locality with zero income would have a ratio of infinity, even if a house cost $1.

    • Agree that price/rent ratios are a better measure (though I still fine the price to income ratios interesting) – an asset’s value should actually reflect its earning potential.

      • Only problem with price-rent is rents can be too high as well, which can make things look better than they really are. It’s probably a better measure for investors.

    • “I think Demographia is a good ‘quick and dirty’ comparison but isn’t bang on accurate in some of its conclusions.” That’s about right. AHURI had the same conclusion when doing their Residual Income analysis on affordability (final report No.176). That’s not to take anything away from Demographia as it certainly brings housing affordability into the public arena in a media-friendly way (i.e. quick numbers that are headline friendly- “Geelong more expensive than London”)

      • Geelong’s median multiple is higher than London’s, right now. London’s has come down and Geelong’s has gone up. It is quite possible that when a high one is coming down and a low one is coming up, they will cross over at some stage. I can quite believe the Demographia conclusions.
        Australia’s median multiples SHOULD do what Ireland’s have – revert to about 3.0. Ireland’s were heady sixes and sevens only a couple of years ago. If Australia can manage this without a total wipeout like Ireland, good for Australia.

      • I object strongly to “residual income” and other measures of “mortgage affordability” that include temporarily low interest rates. This is a disgraceful trap for young first home buyers, set and baited for them by the elder generation who should know better than to set their children up for this lifetime of fiscal abuse. The total repayment over a lifetime of a mortgage, is very much higher in the case of a high house price with a low interest rate, than with a low house price and a high interest rate. Given that when land supply constraint is the underlying problem, reduced interest rates and easier credit merely feed into higher house prices, which benefits everyone except the as-yet-to-be first home buyer.

        This is quite apart from the equally significant consideration that the buyer in times past of a low price house at high interest rates, quite reasonably expected inflation (as the underlying reason for the high interest rates) to erode both the principal and the repayment in real terms, i.e. relative to their inflation-affected rising income.

        And it gets better and better for the earlier generation that bought low priced homes at high interest rates: during the typical very long term of a mortgage loan, interest rates can be expected to fluctuate. Over the term of such a mortgage loan (low house price, high interest rate), the likely trend is, and has been, reductions in interest rates. Therefore, previous generations of home buyers under these conditions, have very much come down on their feet, but the current generation cannot expect such good fortune. When interest rates are low in historical terms, cannot one expect them to rise at some stage in the next 20 or 30 years before the mortgage loan is paid off? We can expect a ever-present risk of increased financial distress for literally a decade or two hence, to affect the generation of first home buyers subsequent to about 2002.

  13. Negative gearing /buying properties so that capital growth outweighs the losses on rent and interest, was always going to create this pyramid scheme result of over inflated, asset market being artificially propt up. Now that the capital growth isnt there, its only a matter of time before the market brings this asset class back to equilibrium. Some goverment intervention may slow this process down but ultimately, market forces will make it happen. On this basis, definately the best measure of affordability is rental return/price. Undersupply, Land Shortages, Migration bla bla bla are all an excuse of those with vested interests running inefficient business’s looking for another government handout.

    • I wonder why Houston speculators did not create a pyramid scheme that relied on capital growth outweighing other losses?
      Oh that’s right. There was adequate supply of extra housing to keep the price down thereby ensuring that capital growth was unlikely and would always be unlikely.

      • Houston runs a “cookie-cutter” land development system. The big misnomer is that they have “liberal” planning rules. The fact is, their rules are strict and make it too hard to do anything other than steadfastly comply with their planning Articles. To better explain: developers get a guaranteed approval within 30 days (from memory – it may have changed) IF they EXACTLY comply with the City’s prescribed development Articles. If you don’t comply, then you either don’t get an approval, or you take a long long long time. So that means developers are incentivised (by virtue of the 30 day guarantee) to make their development exactly the same as the last one which is exactly the same as their competitors, because they all comply with the City’s planning Articles.
        Some may argue that’s a good thing (for supply reasons) others may argue differently. I see advantages in a hybrid approach.

      • I haven’t been to that particular project, but take a look at the image at http://www.thewoodlands.com/eastshore/ Looks cookie-cutter to me.

        Having said that, my term “cookie-cutter” refers to the fact that housing setbacks, lot dimensions, ground levels, street widths, paving treatments, intersection designs, and the like are all prescribed by the same planing and engineering Articles. Therefore if you want to do something different, too bad.

      • Rusty PennyMEMBER

        😀

        This East Shore project, the one you descrobe as cookie cuuter… well it looks awfully like the Centro Subaico.. award winning redvelopment of the railway station precinct.

        Houston cookie cutter = the best Australia can offer.

      • So NOT having a range of conditions under which development permission will be speedily granted, and having affordable housing; is UNDESIRABLE; and guaranteed delays and land banking REGARDLESS of what you do, and a house price bubble, is PREFERABLE?

        The simple answer in Houston, is, if you are convinced that you can create amenity that people will pay for, by varying from the “quick permission” conditions, then you go through the regulatory processes and bring your ideas to market in due time. This is vastly superior to having to go through regulatory processes that inflate the prices of EVERYTHING.

      • That’s still sounds better than Australia, where even following rules to the letter still seems to take forever.

        Ps, most of our new developments look cookie cutter as well.

      • I never said cookie-cutter produced an inferior result…I said it produces the same result. I was illustrating the misnomer sprouted about Houston that they have no or “liberal” planning laws. They are “liberal” if you follow their prescriptive development Articles. However, with all credit to Houston, if you DO follow their Articles, you get a guaranteed approval. Most planning approvals in AU are the opposite – even if you DO follow the myriad planning codes, there’s still no guarantee that you’ll get a timely approval. There are many good and many bad development projects EVERYWHERE. Cherry picking a good one and using it as “proof” that Houston is a better planning environment is disingenuous. Houston has it’s share of affordability problems and regulatory barriers to affordability, particularly for lower socio-economic groups.

      • “Houston has it’s share of affordability problems and regulatory barriers to affordability, particularly for lower socio-economic groups.”

        Yet Americans (and foreigners) have flocked to Texas in droves in part due to its affordability advantage. And many have migrated from expensive “smart growth” states like California where, even after a 40% fall in prices, homes remain two to three times as expensive as Texas.

      • “…..Houston has it’s share of affordability problems and regulatory barriers to affordability, particularly for lower socio-economic groups…..”

        Oh, come ON. Compared to WHAT? Detroit?

        Median multiples of 3.0, simply mean that there are old “fixer upper” “trickle down” houses in the market for 2.0 and 1.0 times median income. Median multiples of 7.0 mean that even disgusting old fixer upper houses are unaffordable. Check out the delightful web site “Crack Shack or Mansion” to see what I mean. You pay more for a disgusting old shack in Vancouver (and probably Sydney as well) than you do for a veritable mansion in any affordable market, including Houston.

      • “Yet Americans (and foreigners) have flocked to Texas in droves in part due to its affordability advantage”

        Many people have flocked to Australia over the past three years, from countries with more affordable housing. There are undoubtedly many other factors at play in migration decisions, and I think it would be difficult to argue that an affordability advantage is a key driver of the migration trend.

      • I think the fact that so many Americans are moving from pleasant coastal climates, like California, to less-desirable climates, like Texas, speaks volumes for its affordability advantage.

        Obviously, Australia will always be perceived as a desirable place to live internationally, irrespective of house prices.

      • To Phil and UC – As at 2009, Houston had 22% of its working households with a “severe housing cost burden”. The combined costs for home ownership and transportation in Houston were 56% of the household income (compared to LA at 59%, Atlanta at 61%, and 56% average for the 50 largest US metropoli). So basically Houston isn’t much different to most of the big cities of the US.

      • Yes, but Houston has attracted a large amount of lower income households from the expensive states (e.g. California). So of course their housing costs are going to appear high (even in cheap markets like Houston). Not all cities can be elites. The working class have to go somewhere, and they are chosing the south due to its affordability advantages and higher disposable incomes on offer (after all costs, including housing).

      • To UC – not sure what you mean there. The figures show that Houston-ites spend about 56% of their income on housing and transport (the two biggest cost items) compared to the 50 largest cities average of 56%… How have you arrived at the conclusion that Houston-ites have more disposable income? (genuine question, not being sarcastic/argumentative).

  14. Fantastic informative paper UE.

    Main price driver is restrictive land releases. Well the planners are in control and want more inner city development and are stopping developments on the city fringes. Its less costly for local and state governments to allow in-fill developments than spend money on new infrastructure on the fringes. Also a large section of the population supports this policy as its considered a ‘greener’ option. So should we stop critizing governments for this aspect of restrictive policy if thats what the community wants?

    Interesting to see in Fig 3, ‘Housing affordabilty’ graph how the affordabilty in Perth has improved since 2006. Understandable in view of the price drops seen in the market from 2009, 2010 and 2011.
    Also interesting that its still one of the cheapest housing markets (more affordable than many other capital cities) in Australia despite the oil/gas and mining boom and the influx of people from overseas and interstate.

    • Problem with infill development is local planning rules are severely restricting that as well. There might be state level rhetoric supporting it, but the reality due to vigorous local level opposition doesn’t quite match up.

      • The following is apropos here:

        A firm of consultants has generated graphic images of what certain Auckland suburbs will look like by 2030 if the new Spatial Plan “works”:

        http://www.nzherald.co.nz/anne-gibson/news/article.cfm?a_id=39&objectid=10779349

        “……The Birkenhead/Northcote area was one of 14 studied and one image showed blocks lining the picturesque historic waterfront, an image which left Nick Kearney, deputy chairman of the Kaipatiki Local Board which represents the Birkenhead area, seeing both sides of the debate:

        “In one sense, it’s predictable because if we’re going to have this compact city and one million more people to house, then really what alternative do they have? That’s what you’re going to have to expect. On the other hand, being a locally elected representative it will go down like a bucket of cold sick in my area…….””

        How’s that for anti-urban-intensification quote of the year?

  15. I’m interested in page 12 of the report that says:

    “Each of Australia’s major markets, with the exception of Sydney had housing affordability within the 3.0 Median Multiple norm during the 1980s.”

    Presumably Demographa have tracked the real income increases over time since 1980 and 6.7 multiple in 2012 is comparable to a 3.0 multiple in 1980.

    This contradicts the housing industry boosters’stories about higher prices justified by higher incomes.

  16. I don’t think one single person disagrees with the premise, despite calculations used. Yet every day, people keep on jumping in over their heads, propping that bubble up.
    Phil Best puts it brilliantly with his theory of wealth transfer!
    We are considering leaving Australia if this doesn’t resolve. There is no quality of life here, and nothing to justify these prices.

    • Same here Aquarian. Contrary to what people have said here ‘the affordable home’ was one of the reasons to move here and is part of the overall image Europeans have of Australia. Bit too much romanticizing on our part probably.

      We’ll give it a couple more years but if it stays like this we’ll probably move back to Europe.

      • It is absolutely extraordinary that cities like Munich, Zurich, and Vienna, are not as expensive as Australian cities. I personally know several people who have moved to Germany, something that once would have been considered an almost impossibly utopian dream. Now, you end up with cash in your pocket. And the German economy’s fundamentals (exports, net external credit, etc) are second to none. Presumably there are disadvantages, such as having to learn German, but being allowed to drive at 250 kmh is worth a lot……

      • The way I see it, Australia wins out on things which can’t be organised: friendliness, space & nature, weather.

        Europe (well, the Northern bit anyway) wins out on things which can be organised: education, infrastructure, pension schemes, housing, economy.

        It’s great to be able to join the first now we’re in the prime of our lives but I do feel that the second bit will start to become more important as we get older…

        And yes, driving close to 250 km/h is awesome. Getting overtaken easily at that speed is just hilarious (happens when you go on the autobahn).

  17. But what, exactly, are these “planning restrictions” you speak of, and what is the argument to change them other than housing boom/bust?

    The only restrictions I am familiar with are environmental (because that is my line of work) but I can’t say I’d be in favour of loosening those, even speaking as an aspiring FHB.

    The problem I have with your argument is that it assumes house prices are the most important thing. From an environmental and social viewpoint I generally think that controlling urban sprawl is a good thing, and that development for the sake of development is not (even if it would mean cheaper housing for me).

    • Agree Rowena, there have been furious debates on that one over here. I think it shouldn’t be about one extreme vs the other, rather doing things smarter…

      I feel prices can come down without removing the urban boundaries and planning regimes by focusing growth in other parts of the States, away from the Capital cities.

      Plus obviously improving planning procedures and bring them down to a decent timeframe.

    • If you want to control urban sprawl then:
      Step 1) stop immigration
      Step 2) don’t have a housing market. Govt decides who lives where. Oldsters forced into highrise and gardens only for families with children.

      Are you man enough to support that Rowena?

      • The challenge I always make to people like Rowena, is that the policies they advocate as a “solution”, actually do little to improve environmental outcomes or alleged objectives like more intense population around rail routes, precisely because of the way that real estate markets work. But the quite DEFINITE outcome that DOES happen, is that capital gains accrue to property owners, especially in the urban centre. It does not surprise me at all that filthy rich property investors like the Rockefeller family and George Soros have been funding “smart growth” activism for 30 years or more.

        So my challenge to the smart growth advocates is this. If your objectives are so important, and they are currently being stymied by real estate markets and private property rights, then get out there and sell the public “the need for nationalisation and compulsory acquisition and the suspension of property rights”. Currently, the only thing perpetuating this racket, is the broad constituency it has created for greed for capital gains. It certainly is doing no scientifically identifiable good for the environment or other alleged objectives.
        It is the Bootleggers pushing this, even if the “Baptists” Greenies are the useful idiots providing the quasi-moral justifications.

    • The problem with the urban consolidation policies that you support is that they tend to lead to both higher house prices AND greater urban sprawl. See here for why. Your consolidation = good; sprawl = bad way of thinking is way too simplistic.

      • Well it depends on priorities. I support greater ease of obtaining approvals, but not at any cost.

        Will latter generations criticise the development of poor quality suburbs and loss of our enviroment as a cheap grab for low cost housing.

        When I drive through some of the newer suburbs with very small lot sizes and narrow roads, sure it all looks nice whilst it is new, but I do wonder whether the future will be kind to these areas with no backyard, buildings that are almost adjoining, no street parking, excessive traffic calming (a prediction perhaps) and a feeling of crowding that isn’t there in older more spacious suburbs. Perhaps we should be looking at mixed developments where small lot sizes are mixed with larger ones to create additional space.

      • I’m cerainly not advocating tighter planning, just a balance.

        I’m all for faster approvals and lower contributions. Land buyers in Australia pay an extraordinary amount in “taxes” and that pushes all land values higher.

        EG – holding costs of greenfield developments as a result of delays and endless studies required to gain approvals? All of that has to be passed on in a successful development.

        So let’s make it faster, easier, and cheaper, but some essentials in planning must remain to ensure quality suburbs that we won’t be scared to drive through in 20 years time.

      • People have to live somewhere. Very low density actually has very little “impact on the environment”, it is high density and relentless carpet development that is awful – and this is the result of regulation.
        The environmentalist grounds for urban containment are utterly post-rational and just as contrary to scientific method as the CAGW fraud, which is a close relation of the smart growth fraud.
        The fraud involved in “smart growth”, is that “environmentally friendly” LOW density urban development is a better bet anyway. ANL Prof Patrick Troy wrote a book back in the 1990’s on this. People like him get ignored because there is a kind of bureaucratic iron triangle at work on smart growth as well as CAGW.

      • Low quality and high price is a symptom of a monopoly market. The high quality low price suburbs of yesteryear were produced under relaxed zoning.

      • EXACTLY. Note that the unaffordability symptom spotted by “Demographia” is NEVER caused by LARGE SECTIONS. Urban growth constraint ALWAYS results in one-tenth-of-an-acre sections being MORE EXPENSIVE than ONE ACRE ones would be without the regulations. (And this is simple observable fact when one compares the affordable markets in the USA, with the unaffordable markets anywhere).

      • I’m thinking back to front (as usual) I think housing follows employment opportunities, and that when our economy begins the process of rebalancing an opportunity to distribute industry and housing will present itself.

      • OK, I read that article. It seems like when you’re talking about “regulation” you’re mostly referring to the “urban boundary” concept. My interpretation of your article is that the mechanism chosen to reduce urban sprawl isn’t achieving its aim and is causing other problems, rather than that the idea of reducing urban sprawl as a principle is a bad one.

        If that’s true, then obviously looking at alternatives would be a good idea, and you’ve proposed Germany et. al. as a possible solution.

        So that basically answered my question, thanks.

        FYI – I’m just wary of this concept of planning regulations in general being “bad”. I see that as a simplistic view (in a similar way to how you see my argument, I suspect) because I am aware through my work of many, many specific situations of when they are a very good idea! And that is a point that I did not see being made here, so I thought that I would make it.

        Basically, if you are saying that we should just have a developer free-for-all, well I would not agree with that. But if you are thinking of specific policies, and it seems that you are, then I am obviously interested to read about them.

        And with that I am done!

  18. I just really want to buy a house. Very strong life-stage urge to settle down with family (in Melbourne) and have my own nest. I need to keep reading these blogs to stop myself taking the plunge. At least put off the decision until the middle of the year and hope there will be more of a trend indication, either crash or slow melt.

    • Understood truthseeker but do a stress test on your circumstances with mortgage interest at a possible 13%.

      Regards

      • Thanks for the advice tonydd and PhilBest. As I actually hadn’t been thinking about interest rates rising in this environment or in the future. I have generally been more concerned about the value of my property sliding down. I thought, albeit very simplistically, if property values are on the way down, that interest rates are also likely to remain down? In what circumstances do you forsee 13%?

  19. Can somebody explain this to me:
    Using income as an indication of house affordability is only relevant to people who have just that: their income. Many others use income+assets to buy a house. Eg sell an inflated house to buy an inflated house, or use your deposits, or sell your shares. Isnt it relevant to see how is Australia ranking against these countries in term of median assets per person?

    Also, construction costs are stable, land per house is probably getting smaller, but actual houses are getting bigger. In fact, ginormous by global standards. Isn’t than an increase in real value? I know that in my mind I’d pay more for a house that has 2 extra rooms instead of a hills hoist.

    • Yes, but the land/structure value ratios are still being distorted further and further in the direction of “land”. See what I say above about the prices of sections in affordable versus unaffordable markets, and their sizes.

      When the section is costing $200,000 too much, chucking in another 2 rooms on the structure at $10,000 each is almost neither here nor there.

      • I dont think it’s $10k per room but regardless, I’m not talking about cost to the builder but real value to the consumer. I’m talking about the fact that when comparing the median house in Oz with the median house in HK we’re comparing apples with oranges. Or rather, a massive apple with a tiny apple. In fact we are comparing the biggest median house in the world with a tiny appartment.

        Personally I dont see why that is not mentioned. It means that the average australian has the option of downsizing and still be well above global living standards, where the average HK person really doesnt.

      • Rusty PennyMEMBER

        The issue is not size, they are virtually immaterial.

        The reason why income to housing prices ratio are the most applicable is it is a long term expression of what is costs to provide for a basic necessity… shelter.

        If a real land constraint exists, such as hong kong, then a scarcity premium will be built into the land and/or the utility of the land has to be subdivided into greater proportions amongst those who need it.

        This will manifest itself into greater population density. This is land.

        After that, the building on top of it, is essentially non-tradable manufacturing (for the time being).

        This manufacturing process will adjust according to the process constraints put on it, and in a country with as much land as Australia, this should be zero.

        The size of the dwelling really is a type of hedonic measure, not a ‘real’ cost.

        How this hedonic measure extrapolates itself is ‘I want to move to Australia for a better quality of life, as I can afford a big home for cheap prices’.

        This should be our lot in life right now.

        We should be the lucky OECD country with low unemployment and low housing, drawing millions of the best and brightest young minds in the developed world willing to exploit the boon of our natural resources and proxmity to much of Asia industrialising.

        Instead, we’ve pissed it up the wall so baby boomers can enjoy trips to europe every 2 years in retirement.

        This should be our Gilded age

      • I think it’s not as bad as these stats make it look but I’m not going to argue my point because at the end of the day I agree with your conclusion. It should be better.

  20. This quote from the report (bottom of pg 6) is GOLD and sums up the situation in Australia nicely:

    “As housing affordability has deteriorated, there has been a tendency on behalf of the housing industry and financial market analysts to ‘cheer on’ abnormally high house prices as if housing were a commodity market, like gold. Housing is much different. It is a basic necessity and adequate comfortable housing is necessary for a decent standard of living. The performance of the housing market is thus not genuinely measured on price increases relative to other investments. The genuine measure of a housing market’s performance is the extent to which it remains affordable in a well functioning metropolitan economy.”

  21. Having had time to look more closely at the Demographia report I make the following conclusions.

    Page 31 at http://www.demographia.com/dhi.pdf

    Demographia – Sydney Median house value $637,600
    Median income Sydney $69,400
    Multiple 9.2

    Rismark/RPData Median home value index $495,000
    Median income Sydney $1435 pw or $74620 as at Sept 2010 – assume an increase of 3% so using $76,858 pa
    Correct Multiple 6.44

    ref – http://www.ausstats.abs.gov.au/Ausstats/subscriber.nsf/0/B6AA26488413138CCA2577C00013A8BD/$File/13381do007_201009.xls

    If I used the Capital cities broad house value index median value of $605,319 then I would get a multiple of 7.88

    ref – http://blog.rpdata.com/wp-content/uploads/2011/12/Number-of-cap-city-subs-across-broad-house-value-brackets.jpg

    Both of those results are well below the results that demographia released.

    My conclusion is that Demographia set out to achieve a pre-ordained result, rather than a simple mathematical calculation. Perhaps some information on their income and medians used would assist clarify that.

    I have one other question – I constantly hear the quote that “my dad bought his first house at 2.5 times income – however a family buying their first home is not buying a median priced dwelling, and nor do they have a median income, so it logically does not follow that FTB’s are paying 9.2 times household income – that frankly is not the case.

    What is the multiple for a young newly formed family buying their first home in a typical first home buyers suburb – that is the key question. Depending on which capital city you choose, I expect that the calculation would be closer to the 3 to 5 range. Perhaps still too high, but in an enviroment of low interest rates not as outrageous as Demographia would have us believe.

    • Rusty PennyMEMBER

      You appear to be running a fool’s errand.

      The $1,435 figure you bandy about is not median income, it is median household income, so the median figure for all members of a household participating.

      The 2.5 figure ‘for dad’ was based on one income. The ratio has always been based on median wage, not median household income.

      Secondly, if it’s good enough for you to use the ABS figure for sep 10 for household income, it’s also good enough to use ABS (6416.0) stats for Sydney house prices.

      That comes to $595,000.

      That extra $100k sort of stuffs your ratio, only a mere 7.97 of HOUSEHOLD income.

      But of course, you have history. You charge demographia with confirmation bias, when their message is simple.

      To add to your lack of understanding of a REAL social problem, you iterate that low interest rates are a major factor for the current environment.

      Interest rates are near meaningless in terms of housing affordability, they count for the affordability of debt.

      In the absence of needing debt, such as a large windfall, tell me, what is more affordable,?

      An environment where the median house is 4 times the median wage; or

      An environment where the median house is 8 times the median wage.

      “Yeah mate, I won lotto, but I want to pay twice as much because interest rates are lower”

      Quite simply, you’re in the business of selling debt. Cognitively it serves you better not to understand that we, as a people, and especially the young and poor, are suffering a tremendous decline in the quality of life.

      • But dads income was the household income at that time. Second incomes have become the norm over an extended period of time. Since around 1970 I would think.

        I take your point about the social implications, but increased buying power usually means increased buying, it rarely has meant increased savings on a proportional scale. I’m happy to rethink that if you have an example.

        Are you expecting a double income family to limit spending to exactly the same level as a single income family. They tend to have two cars, and better homes, a choice that they have exercised.

        I think that you are not being honest with yourself. people with two incomes have higher expectations than those with just one commensurate income.

        I think that whether we like it or not the changing multiples reflect a change in society as much as they reflect a change in economic circumstances.

      • Rusty Penny – quote

        “Secondly, if it’s good enough for you to use the ABS figure for sep 10 for household income, it’s also good enough to use ABS (6416.0) stats for Sydney house prices.
        That comes to $595,000.
        That extra $100k sort of stuffs your ratio, only a mere 7.97 of HOUSEHOLD income”

        Had you read my post you would have noted that I also used the figure of $605,319 to arrive at a multiple of of 7.88

        I could have also gone on to say that using the figures for detached dwellings only, and then comparing them to multiples overseas that include smaller dwellings that have a completely different tenure such as leasehold flats in the UK and co-op housing in the USA creates an inbuilt distorion, we are simply not comparing like with like.

        RP if you would prefer NOT to understand the true comparison and create a “head in the sand” knowledge barrier, that of course is your perogative, but let go of the emotional ad hominems please, they just serve to misinform others who may be guided to some extent by your emotional perspective.

        I’m not sure what you have against accuracy, I would have thought that it should be the target that we all should aim for.

        Cheers…

    • Peter, of course Demographia has their agenda, and for me, their single rule of thumb statistic is next to useless because –

      1. Price does not equal cost. Land tax, council rates, interest rates and therefore mortgage costs, insurances, stamp duties, maintenance costs, capital gains tax, negative gearing etc vary substantially between areas, be they cities, states or countries.

      2. Gross incomes are not always representative of net incomes for cross country comparisons. Here is Treasury’s analysis showing Australia being quite low on the personal income tax ranking.

      3. Given these consideration, the conclusion that a regulatory housing simply impediment is the primary cause of the cross-country price variation cannot be drawn on any theoretical ground. The only basis for a suggestion for supply side constraints causing price impacts would be a spike in the ratio of rents to incomes (since rental prices represent the market price of the annual housing services provided by the housing stock). Further, incomes are the primary determinant of rents paid.

      • “The only basis for a suggestion for supply side constraints causing price impacts would be a spike in the ratio of rents to incomes”
        We have that spike in Sydney. Over the last few decades the cost to rent an ordinary house spiked from 1/3 an ordinary wage to 1/2 an ordinary wage. That is a 50% increase in real terms.

      • Cameron – I agree that it “should” be regarded as next to useless, but unfortunately you can see from the criticism above that it is given “unquestioning sacred cow status” in many quarters.

        Your points:-

        1. Yes I agree with all of that.

        2. Income comparisons between countries are very tricky. EG. – every state and city in the US has different levels of sales tax, so net tax calculations and comparisons would be a nightmare. Agree with your point that net income after tax should be used, but that would have to include fixed costs such as basic health insurance and any upfront and ongoing tax collected via housing.

        3. Yes rents would be a better indicator of the supply, but i wasn’t entering into the debate on supply, even though it does affect prices.

        I think that we have to consider the changes in our society before we make comparisons to days gone past. You make a good point that tax rates have changed – they have reduced a lot, GST has been introduced, sales taxes have been generally abolished, tariffs reduced, death duties abolished,franking credits on share dividends, negative gearing, and reliance on stamp duty incomes at state level has increased to the point of addiction.

        A family unit in 1962 circa consisted of mum, dad, and 2.4 kids. Women earned far less, only a fraction of what males earned, so the possibility of a single female forming their own single family unit and purchasing their own home simply didn’t exist in 1962 – she would have to live at home until she was “chosen” to be married – a far cry from todays world.

        Now family units can be a single male, a single female, couples with two full incomes, same sex and non same sex, and retirees both couples and singles. each of those units have their own particular economic “fingerprint” with different incomes and asset ownership aspirations. That contrasts with a less diverese family units in 1962, and in particular the difference in female incomes has created opportunities for women that didn’t exist before. In 1962 there was NO opportunity for a single woman to buy their own home – thankfully today they have similar opportunities that men have, and they do buy their own homes and townhouses, units etc.

        I don’t necessarily agree that the comparisons are worthless, but they are arriving at incorrect conclusions based on the data (which I can’t find any sources for) and overall it is a bit amateurish at best, with some obvious errors.

        The report does seem to play to the gallery, but is that the object of the report, or should it strive for an acceptable level of accuracy without bending to their own agenda. Some disclosure of data sources and use of more accurate and data pertinent to current demographics would lift the credibility of the index.

      • So what rule of thumb statistic IS of some use to determine whether housing affordability needs attention? All the other factors you list are politically induced – if they are contributing to a housing affordability problem, the politicians need to address them. Tackling the single worst feature first is only logical, and that obviously happens to be land supply restraints.

        “…..the conclusion that a regulatory housing simply impediment is the primary cause of the cross-country price variation cannot be drawn on any theoretical ground…..”

        Too much environmentalist religion is very clearly bad for the brain. We can’t admit any evidence based conclusions that Gaia wouldn’t approve of. You Greenies are worse than the medieval papal hierarchy, refusing to accept the truth from Galileo.

        “…..The only basis for a suggestion for supply side constraints causing price impacts would be a spike in the ratio of rents to incomes…..”

        You are WAY out on a limb here if you refuse to accept that prices rising faster than rents is EVIDENCE OF A PRICE BUBBLE. But under land supply constraint regimes, rents WILL rise more than incomes, LATER ON following prices. Britain is the historical proof for this. Price volatility is induced, along with a rising long term trend in rents relative to incomes. This has numerous economic and socio-economic effects that leftwingers CLAIM to care about.

        I partly agree that “….incomes are the primary determinant of rents paid…..” but this dates back to Marx and other theorists who were dealing with a pre-mobility era where an oligopolist “land owner” class captured all urban development. Under these conditions, and indeed under any conditions where urban land supply is fixed (eg on a fully urbanised island) it would be true that rising incomes merely drive up the cost of “housing” per se. The same applies when the supply of any necessity is “cornered” – the price becomes “what people can bear to pay”, and this rises as incomes rise.

        But the happy evolution of the modern urban economy, involves a near infinite supply of land at agricultural rents at and beyond the urban fringe, provided an oligopoly condition of development is not restored by regulators. AGRICULTURAL land rents have steadily DROPPED RELATIVE TO URBAN INCOMES. This is what you need to grasp.

        This supply, all of it accessible by automobile, (in contrast to predictable rail based development which has always been “cornered” by the well-connected) is IMPOSSIBLE TO “CORNER”. There is simply SO MUCH OF it relative to even the most RAPID possible urban growth rate. (One problem I think you have, in common with most environmentalists, is an appalling misapprehension of the true scale of “human development” versus “the planet”).

        It is THIS phenomenon that enabled massive democratisation of land ownership, and created “property owning democracies”. Without it, Marx would have been right. We would never have had quarter acre sections or median multiples of 3.0.

        Reducing amounts of space per person, at rising costs relative to incomes (at least at the bottom of the income spectrum) would have been the historical norm. As it is, Britain since their benighted 1947 Planing Act, has been pretty close to this phenomenon. Increased rationing and effective quota-ing of land supply for urban development will have this effect. Meanwhile, the dozens of cities in the USA that have not fallen for this pernicious racket, will “own” the future of western civilisation – the effects are that dramatic, especially when “compounded” over decades. Britain is illustrative. Productivity is reduced and social exclusion heightened, among numerous other effects.

  22. That’s using table 2 in the ABS stats – line 8 household gross income – median income Sydney.

  23. Another interesting discussion. I’ve just finished reading Troy’s “The Perils of Urban Consolidation” mentioned above. A real eye opener. Troy demolishes many of the assumptions and claims underpinning the urban consolidation policies. He fleshes out the history and context of a highly complex situation in a clear, properly sourced, and readable manner – I recommend the book to all those interested. He exposes the hopelessly inadequate state of the public information base available for decision making and policy development. There are so many fundamental and crucial facts — e.g. what ARE the real capital and running costs of infrastructure provision in various locations? — that we just don’t know, or are kept secret, or are incomplete or unusable due to false/unstated assumptions and differing modes of calculation (if there is any calculating at all!). It’s pitiful, truly. Australia sorely needs ongoing serious investment in high quality national comparative and longitudinal public research in urban/housing issues to generate some AGREED and SOUND evidence, with assumptions and distinctions made explicit.

    • I am hugely encouraged that others are picking up on this book. Troy’s book needs to be promoted and read, and Troy needs to get to see his wisdom bearing fruit in his own lifetime.

      It must be incredibly disheartening for people like Troy, and Alan Evans, and Peter Hall, and Alain Bertaud and others, to have been so clear about these issues so long since, and yet stupid ideologues become celebrities, get to run policy, and bring cities and nations to ruin.

      When I library interloaned Troy’s book, I note that it had needed to be unearthed from “the stack” at the Uni it came from, and it looked as if it had only been issued about half a dozen times ever. Meanwhile, “sustainababble” by Newman and Kenworthy and Litman and Banister is getting lapped up by students, who are unlikely to ever learn anything of any validity from the texts on offer in the courses they are taking.

  24. I wish Macrobusiness could do a special posting summarising Troy’s book and perhaps giving him a “guest” role? Where is Troy these days?

    • Regards a summary of the book, here is a link to Troy’s own 2005 very short essay which rehearses much of the book’s core arguments:

      http://griffithreview.com/edition-2-dreams-of-land/saving-our-cities-with-suburbs/all-pages

      Enjoy.

      This very short essay of course lacks a huge amount of detail, the nuances and depth of his arguments, his detailed demolitions of the consolidationists, all the supporting data/references and omits his detailed suggestions for future policy. If the book is not available in your local library (ask for it to be procured!) or if you want your own copy, I bought it from Amazon.

      Ta for the Troy/Newman debate transcript link, good stuff.

      • Thanks heaps to you too for that link. I’m glad I checked this thread again. I never knew about that essay. There is some original stuff in there from Troy.