The Business (ABC TV) tackles housing supply

By Leith van Onselen

For those who are interested, I last night appeared on The Business (ABC TV) to discuss the role played by planning constraints in driving-up house prices and making housing markets more susceptible to price volatility (boom/bust price cycles).

The video segment is shown above. Note that in the interview, which went for around five minutes, I also discussed replacing transaction taxes on property with a broad-based land values tax as another way of funding housing-related infrastructure (as governments could capture some of the land value uplift caused by the installation of new infrastructure), however, it did not make the final cut.

The transcript of the segment is provided below and the full HD version of the segment can be viewed here.

TICKY FULLERTON, PRESENTER: New figures show that Australia’s housing market is continuing its fragile recovery with building approvals rising 3 per cent in February.

However, there’s mounting evidence that planning restrictions across Australia are artificially inflating house prices and may be setting the scene for a painful correction.

While NSW and Victoria are looking to amend their planning rules, there appears little appetite for serious reform in any of the major cities.

Neal Woolrich reports.

NEAL WOOLRICH, REPORTER: For decades politicians have been trying to limit urban sprawl in Australia, but some argue those policies are inflating prices and potentially setting the scene for a bigger crash.

LEITH VAN ONSELEN, CHIEF ECONOMIST, MACROBUSINESS.COM.AU: The places where we see easy credit and restricted supply tend to have a lot more volatility and a lot more expensive housing than places that have fairly easy credit and responsive supply.

NEAL WOOLRICH: Every major city in Australia has a mix of housing restrictions, including growth boundaries and zoning regulations and local council permit requirements. London was the first city to introduce such policies soon after World War II and has had four boom and bust cycles since the 1970s. And data from the US shows those cities with housing restrictions suffered a bigger bust after the global financial crisis than those with a more responsive housing supply.

LEITH VAN ONSELEN: Texas has probably some of the most liberal land supply in the world. It didn’t experience a housing bubble. Its house prices, even during the height of the US bubble, were about three times incomes, which is extremely cheap and it hasn’t really fallen away very much since.

NEAL WOOLRICH: Here in Australia, the price of vacant land on the fringes of most capitals has doubled over the past decade and in Perth’s case nearly trebled. While Sydney has had a more modest increase since 2002, it already had a headstart on the others.

KRISTIN BROOKFIELD, SENIOR EXEC. DIR., HOUSING INDUSTRY ASSN: When we said several years ago that Sydney was full, we saw an automatic doubling almost of the price of land – that raw land it was. And that created real problems for the market.

NEAL WOOLRICH: Last week the Federal MP Bob Katter argued that freeing up land supply in mining towns could reduce the cost of new blocks from $160,000 to $25,000. But so far, he’s a lone voice for reform.

Leith van Onselen says part of the problem is that governments are reluctant to spend on infrastructure.

LEITH VAN ONSELEN: One way to do it is to go back to the old-fashioned way that we used to do which is actually raise money through bond financing and recoup it from ratepayers over a period of 30 years. Instead we’re not doing that anymore and we’re frontloading the cost of infrastructure and other taxes onto the sticker price of new homes.

KRISTIN BROOKFIELD: It shouldn’t be that the one home buyer has to bear the cost of up to $120,000, $140,000 of taxes and charges on that single block of land to pay for infrastructure which serves the whole community.

NEAL WOOLRICH: Kristin Brookfield says government’s need to find new ways to bring land to market and also speed up the approvals process.

KRISTIN BROOKFIELD: Right now you can’t always build one house on one residential block of land with one approval. You’re going to need two approvals, you’re going to need 12 months and it’s going to take you a lot of time.

NEAL WOOLRICH: While the Victorian Government has recently announced reform to planning zones and NSW is working on a planning white paper, few in the industry expect those will deliver big bang reform. Perhaps it may take the pain of another property bust to spark a serious push for change.

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Comments

  1. Stormy WatersMEMBER

    Well played. Very nice to see the chart of supply-constrained vs non-supply-constrained US house prices on the MSM.

    If I could be so bold as to offer some small, superficial advice – next time wear a suit, at the very least do not let them get a wide shot of you if you are wearing jeans. Also, wear make up to avoid the shiny skin problem. These things should make no difference except that they do…which is why people who appear on business TV regularly always suit up and wear makeup.

    The arguments you were making are critical to get across, someone watching with me last night remarked “he looks like a Uni student.” That’s going to make it more difficult than it should be for you to find an audience via The Business and other similar channels.

    • And you think ‘they’ hadn’t allowed the appearance thing up on purpose?!
      But, well done, Leith. It’s disconcerting when that little red light goes on.

    • Fair enough. But I wore what I was told to wear. I don’t own any make-up and wouldn’t know how to put it on. I was also surprised that they used a wide shot showing my jeans as I thought it would be upper body only. Live & learn… WIll definitely wear a suit next time.

      • You’re not the first one to experience that problem, nor the last, I think it’s safe to say…

      • I did a hair transplant in Thailand from 1 of the 2 top doctors in the world recommended by 1000’s of people on many online forums. It cost only 3000 US, was a super clean new clinic, was very easy and the results were fantastic. I am going back for my second run in a month or so as the scalp can’t handle to much at one time. Hair dressers back here can’t notice that it was a transplant and have told me the 20K jobs done in Australia are very noticeable and not that great. If you want to fix your hair 🙂

      • General Disarray

        I didn’t even notice what you were wearing, or that you were shiny.

        The thing that annoyed me was the black and white printouts you were looking at… Come on man, can’t MB spring for a colour printer 🙂

    • Stormy WatersMEMBER

      They told you to wear an open shirt and jeans? Wow. You would probably be the only person I’ve seen on The Business out of a suit this year. I was thinking Janet was a bit paranoid but I stand corrected.

      Sounds like a journo/producer has rolled you a bit. I would advise to next time wear a suit and tie regardless of what they say, if only to represent Macrobusiness as a professional outfit. Get some basic, matt foundation and get a girlfriend/sister to show you how to use it.

      It’s a visual medium so you need to tweak the visuals. Similar to how your MB charts look sharp as opposed to excel defaults.

      Apologies if any of this sounds harsh, it is intended only as the unsolicited advice that it is. I have great respect for your arguments and a huge interest in providing any assistance possible to further the message/debate.

      • Congratulations on your TV appearance!

        A couple of suggestions if I may.

        Careful of patterned shirts and ties as well.

        My suggestion is wear what Tony Abbott wears now. Or at least craft your appearance to reflect your message and to create favourable/strong impact with your anticipated audience.

        I would also suggest some media training, even just a couple of 1 hour sessions followed by some practice with friends each session and before each appearance.

        Their questions are not what you answer. Their questions are an opportunity for you to give soundbites that make your position in a powerful, succinct and memorable way.

        And craft your soundbites so they can be picked up by other media reporting the debate.

      • Thanks. I will admit that I am a complete rookie in this area. Never had any media training and simply answer what is asked. I also only own a couple of shirts (all patterned), which I use for weddings, etc. I could definitely use a queer eye for the straight guy type makeover.

  2. LVO,
    I do agree with Stormy Waters comments but more importantly than that – Thank you so much for the hard work you do to push sanity into this debate. The clear and cleverly compiled data you present graphically, helps the facts rise above the various opinions (vested interests) that abound in this space. You are a lone voice in the wilderness at this stage and I often see the vitriol that is directed at you in the comments of the MSM stories but ‘from little things big things grow’

    Cheers

    Derek

      • If you’re looking to connect with the wider public it helps if you don’t look or dress the same as the tossers who are giving us dry bum sex!

        Stay as you are, if you’re clean smart and tidy it will do for me.

        What’s a posh suit do anyway? Does it in some magical way add validity to what you’re saying.

        If you’re comfortable you relax, relaxed and confident as a man with courage in his convictions trumps a jittery, stuttering tool in a suit as far as getting your message across.

        Don’t buy (a suit) Now! lol

      • Yeah I’m with you Muzzer018 re all the comments on wardrobe advice for Leith… Nice to see all the warm well intended advice for “our boy”.
        I watch The Business show most nights Nd I think this was Leith’s third appearance (?)
        Cheers LVO.

      • My congratulations and encouragement too, Leith.

        I don’t stop reading MSM comments threads, if only so I can try and anticipate arguments and expose the motivations of those making them. But the MSM are unlikely as yet to give “one of us” sufficient forum space and time to make a case.

        But note that Hugh Pavletich says that he is finding some people in the MSM quite receptive, because they themselves are suffering from the unaffordability of housing. The MSM does tend to have been staffed by old ’60’s lefties who are the absolute worst of all worlds when it comes to housing and planning and so on. But some of the younger ones are starting to find their elders fundamentalism tiresome. The real iconoclasts these days are the James Delingpole types. The old anti-establishment people are “the establishment” now and they are pretty easy targets.

    • reusachtigeMEMBER

      +1 – Indeed, so please keep at it! Like I’ve said elsewhere though, it’s not just greenfields restrictions, it’s also extremely restrictive in-fill policies too that need to be tackled.

    • It will continue to rise in importance in the MSM when it becomes a political issue relevant to the growing numbers of disenfranchised younger generations of voters.

    • Absolutely. On the outskirts of Melbourne I understand that we have serious landbanking occurring. I’m in the environmental management field, and I know for a fact some of these guys are overseas investors. They and the locally owned landbanks let the places go to the dogs, with weeds etc. I guess from a purely selfish point of view I have a problem with overseas investment in land because I feel that it drives up prices significantly and makes it very hard for locals to reenter farming. Would be interested if there are previous posts on the cost/benefits of overseas investment in rural land purchasing.

      I understand and appreciate LVO’s mission to free up planning, its just that I believe we need to keep improving the management of these developments to ensure that the waterways etc are not completely stuffed in the process.

    • Landbanking, and competing in bidding wars for land, is something that developers are forced to do to stay in business, when there is growth containment urban planning. Far less land banking happens in the non-growth-constrained cities in the USA.

      When there is a growth containment boundary (or a de facto one) it is possible for a few big players to corner the entire supply. When there is not, there is so much land accessible by car that no-one can corner it all.

      The “Municipal Utility District” (MUD) system in the USA literally allows a developer to build a new city just about anywhere.

  3. TheRedEconomistMEMBER

    Good to see the Business broadcasting what vested interests do not want Joe public to hear.

    Leith…Channel 9 probably would have wanted a fee for you appearance on there shows.

    Speaking of 9… did anyone see A Current Affair last night.

    They had a segment on the fall from grace of the young girl from 70’s show The Sullivans. Apparenty she’d be treating her harbourside mansion in Manly as a line of credit.

    In the end the Sherriff was called and the bank took the keys.

    They then interviewed apparent property experts about price of the property and previous experience with old owner. Then Tracy Grimshaw mentioned that they will keep the viewers in the loop about the upcomimg Auction. Nice spruik

    Surprise Surprise… we might see it on Hot Property soon.

  4. Congats Leith. It was fine. Keep up the good work!
    My only advice is slow down your speech a little as you are talking to the average Aussie afterall…

  5. London’s booms and busts have never been terribly significant have they? Maybe 20% down at the “worst”.

    It’s great stuff to advocate these policies but they’ll never happen under the major parties. Certainly not when they’re needed, ie, now. Maybe it will happen when we’re all crusty, but then a lot of us might want lavish retirements too at the expense of the youngens.

      • London does tend to rise more and fall less, trending relentlessly to worse and worse unaffordability.

        This is because of London’s “Global City” status. London even has a noticeable proportion of homes now that are not even lived in half the time, because the owners are wealthy cosmopolitans. Meanwhile local ordinary families can barely afford a hole in the wall.

        London is not at all a valid “example” for anyone to argue much on anything. The most egregious use of London as an example, is the advocates of urban growth containment using London as an example of a growth-contained city with a thriving economy. Problem with that is, the UK has several dozen cities with the same urban growth containment policies, that are NOT thriving. London does not thrive “because of” urban planning’ it thrives “in spite of”.

      • Alex Heyworth

        “London even has a noticeable proportion of homes now that are not even lived in half the time, because the owners are wealthy cosmopolitans.”

        Not just London, either. Every town and village on the south coast has a high proportion of homes that are empty most of the time, while locals can no longer afford to buy local property because they have been priced out of the market by the rich holiday home buyers.

  6. In the name of all future First Home Buyers who hope to buy at some point for a bit, just a bit more affordable levels, Thank you very much for getting the message out there. Hope you do get many more air time and interviews soon. Cheers,

  7. A stable population would resolve housing affordability because it’s primarily not a supply issue – and even if it were a supply issue, a stable population would still allow a much quicker path to resolving this.

    This would also free up government funds that are increasingly falling behind on infrastructure. These funds could then be redirected to helping overpopulated countries move towards more favourable population-to-resource ratios.

    As it stands, we simply have no chance of providing affordable housing, nor do we have a chance of clawing back from our 770 billion dollar infrastructure deficit if we are growing the infrastructure deficit to the tune of anywhere between 75 and 150 billion a year to accommodate our population growth rate.

  8. There is no shortage of houses. Lots of houses for sale (and many sitting unsold after several months). The problem has been too many property investors/speculators driving prices higher. We have no shortage of overpriced houses for sale.

    • We are now facing a shortage of first home buyers willing or able to buy overpriced houses.

      • Exactly; there are tens of millions of empty apartments in China, and hundreds of millions of people who cannot afford them. The disconnect is mostly in the capital gains that well placed CCP officials have already “banked”, incorporated in the apartments asking prices.

        Australia has the same mechanism at work, just less obvious.

    • There is no shortage of houses. Lots of houses for sale

      The are far too many houses here in Sydney. Just in my street 5 houses sold in the last year. I can count 20 empty carports every day, and some nights there are bedrooms with no lights shining.

      I am sick of funding extensive upgrades to the railway system when nobody wants to use it. Even our electricity is oversupplied. I’m now getting 250volts whereas 238volts used to be common.

      I think we need a campaign of vandalism to destroy many surplus houses. This will scare speculators out of the market and drive down rents – which are historically low anyway (much cheaper than buying).

  9. Leith

    While your end state (reduced housing cost) is attractive, the transition is ugly and inequitable and I don’t know how you solve it fairly.

    Specifically … as you note people 50yrs ago bought unimproved land and government added in infrastructure, financed by tax and increased bills (eg sewerage / town water provision instead of tanks) over time.

    As we shifted to a “user pays” front loading of infrastructure costs into the land price, people on existing blocks enjoyed a boost to their land valuation as the value of the infrastructure serving their existing blocks was monetized into the price.

    If you try to go back to the old way, then people who bought blocks with the front loaded cost built in are being asked to pay twice, as they will also be paying for new infrastructure on new land through their taxes via government balance sheet. And the amounts involved are large.

    Effectively you will have completed a very large wealth transfer from Gen X to baby boomers … and they get enough already, not that they’d tell you about it.

    Additionally a housing valuation drop across the board due to increased land supply would be a self-inflicted uppercut on household balance sheets; the rational response in the short term would be the increased savings, weak growth and 0% interest rates that you saw in the US for the last 4 years.

    So the end state in 10 years may well be attractive especially for the Gen Z types looking to start a household by then, but at massive cost to the 30/40-somethings trying to pay mortgage and school fees now.

    Current state is horrendous … but your proposal simply redistributes pain (and focuses it on people like me) as opposed to producing a net improvement for most people. Pareto optimal it ain’t.

    • Fair why fair?

      If someone bought into the spin that a fibro shack in the arsehole of nowhere was worth half a million, tuff smeg!

      Freedom to be stupid. That’s the whole point, you choose to buy, I choose to wait. Would you spit any CG from your IP with me? Then why should I take a share of your losses!

      Let it burn, I say

    • Curious

      It is a connundrum! It has been schemed up by both sides of the shit sandwich. So why can’t they scheme it down a bit?? Remember speculators are making ‘paper’ money off the backs of others sweat (& greater fools), not their own. They didn’t even have to think about it, just believe in the inculcated meme of ‘safe as houses’. Why should speculators be protected & thinking that it’s only ever a one way bet in housing? It’s not like that in any other arena that I’m aware of. & anytime that a government changes a policy there are always winners & losers – & they ‘try’ to soften it out – Derryn Hinch would say ‘thats life’!

      Just what is fair & equitable about what has been going on now & for so many years already?

      A net improvement for even more people (& the economy) would have been if a basic of life, like shelter, hadn’t been allowed to be bid up to the stratosphere & all that money had been encouraged into more entrepreneurial & diversified ventures. Then we might have more going for us other than ponzi houses & finite holes.

      Now, nobody wants to take any hard decisions – never could. There are a growing number of disgruntled people already in pain. They are starting to see it for what it is, & when that awarenes grows large enough, fickle pollies who are hell bent on constantly stoking the fire will have to take notice, & either (reluctantly) start tweaking & managing it down If they can, or it all eventually falls over, ala every other developed (debt engorged) economy. Can it become more moribund? How many more years are we expected to put our life on hold while we’re priced out? What are we meant to do, politely wait 20+ years for all the specuboomers to go? Can we wait for action? Or get proactive?

      Enough is enough already! I would note that MB has some astute ideas that could be investigated if the status quo were open to anything other than their own greed!

  10. Whilst I agree that restrictive planning practices undoubtably drive up the price – to enter bubble territory wouldn’t there need to be an acceleration in supply in response to the rising prices – leading to an oversupply which then causes the bust?

    I wonder whether supply restrictions while increasing prices actually prevent a bubble forming ?

    Looking at Sydney vs Melbourne over the last few years for example, melb had a much faster pace of building in the run up and then a much sharper decline in prices subsequently, relative to syd .

    • Supply restrictions don’t just entail stopping land supply altogether (as in Sydney, Coastal California, or the UK), but also in making supply slow to respond to changes in demand (as in Ireland, Spain, Arizona, Nevada, and more recently Melbourne). The former can certainly keep the bubble going for longer, but both approaches are bad from an affordability and volatility pespective when compared against markets with more open land supply.

      • I guess my concern re sydney is that without an oversupply the bubble don’t ever pop… And if that’s the case was it ever technically a bubble – as opposed to just expensive.

        Sydney certainly has affordability issues but I can’t see much volatility? Maybe it is coming but I’m starting to wonder if it ever will.

        Don’t get me wrong I’d much prefer the more open land supply situation but I’m just starting to doubt the current situation will lead to a significant drop in prices .

        It’s also worth mentioning specific to Sydney the geographic factors that prevent spreading in certain directions and also the appallingly slow intercity trains that prevent cities like Wollongong or Newcastle becoming commenter cities.

    • Black8; here are 3 options.

      1) Unconstrained-growth market: a few too many houses getting built, at affordable prices, and all houses in the market remaining affordable. Median multiples cycling within a narrow range at around three. Decline in prices post-crash are slight and recovery is rapid with a bit of in-migration and household formation. There are plenty of examples in the USA.

      2) Completely growth-constrained market: relentless shortage of houses, relentless unaffordability, boom-bust cycles playing out in price levels fluctuating from “peak” median multiples of 7-10 to “bust” levels of 4-6.

      3) “Quota’d” land supply market with participants including government, chasing “planning gains”, capital gains, and bubble revenue. Price levels inflating to median multiples of 6-8, AND oversupply of houses, and prices in the “bust” falling to below median multiples of three.

      Obviously 3) is the worst, 2) is still very bad, and 1) is the least harmful by a wide margin. In both 2) and 3), the debt accumulated in the bubble phase is high, but the equity destroyed in the bust is less in 2). 1) has the advantage that the existing stock of houses does not inflate in price, whereas in 2) and 3), every single housing market transaction during the bubble phase, even in older houses, involves substantial price inflation and excessive debt for first home buyers or those trading up. “Equity withdrawal” bubble spending is also minimal in 1).

      2) has the long term disadvantage that productivity is reduced, economic competitiveness is reduced, business startups are reduced, social mobility is reduced, inequality is increased, the public cost of “social housing” for the poor is unsustainable, and many other effects. The UK is the classic example.

      Spain and Ireland are examples of 3)

      It has been pointed out by Leith Van Onselen in a very good analysis recently, that the famous examples of Phoenix and Las Vegas actually did not involve “overbuilding” at all relative to the in-migration that was occurring.

      The high-elasticity-supply cities of the USA with easy conversion of rural land to urban, are the examples of 1). This is one of the reasons that the USA has an “economic growth corridor” right now.

      http://online.wsj.com/article/SB10001424127887323549204578315714070017932.html

      • I think one if the problems with citing these American cities is that they are much more set up for car based commenting than British and Australian cities . Therefore you can spread outwards more easily without major infrastructure spending On trains etc. ( It also comes with certain downsides though)

      • Correct. But the downsides are far less than the downside of unaffordable housing and bubble price volatility. The latter downsides are highly tangible while the “downsides” of automobility are highly subjective. There is far less of a gap between the resource-and-emissions efficiency of automobiles and public transport than people realise. And this is “averages”: cars with engines smaller than about 1800cc are already more efficient than public transport even if they only have the driver on board.