Bob Beaumont, managing director of Beaumont Tiles, an Adelaide-based family-owned company, has today written an excellent article in The Australian arguing how exorbitant land prices are killing the dream of home ownership and ruining the house construction industry:
WITH the resources boom a fast-fading memory, the Reserve Bank is resting its hopes on the building sector to kick-start the Australian economy. If we’re serious, we need to zero in on housing affordability.
For six decades, the average Australian family was able to buy its first home on one wage. Back in the 1950s, median house prices were three times the median income.
Australian house prices have increased 150 per cent in a decade, while incomes have grown by just under 60 per cent. In 2013 in Adelaide, the median house price is now more than six times the median income.
Since its inception in 1973, the South Australian Land Commission has watched land prices rise from $15,000 per block (in current dollars) to $160,000 per block. By comparison, the cost of building a 135sq m house increased from $97,000 in current dollars to just $102,000 over the same period.
Builders aren’t to blame…
Our urban planners and policymakers have drawn an arbitrary red line around the edges of our cities and decided all building development will be contained within these boundaries…
These shallow-thinking twits didn’t think that by restricting supply they have pushed the price of land up tremendously, condemning our kids to a lifetime of renting with no hope of owning their own homes…
The great lie these ideologues are peddling is that infrastructure for a new suburb is too expensive, when in fact upgrading services in an existing city to cope with a doubling of the population is far more costly.
What right do governments have to dictate to voters they are better off living in cramped conditions in apartments and units than in the suburbs with a backyard and room to move?
Bravo. Couldn’t have said it better myself. For those readers disagreeing with Beaumont’s testimony, consider the following facts.
First, vacant land prices across Australia have skyrocketted such that land has become the major cost of any new house and land package. Lot sizes have also shrunk (see below charts):
Due to the escalating land costs, in addition to tighter planning (urban consolidation policies), and lack of infrastructure funding and provision, detached house construction has fallen considerably since the mid-1990s relative to population (see below charts).
And no wonder materials providers, like Beaumont Tiles, are angry. Due to the fall in house construction, materials volumes have tanked (see next chart).
As I have noted repeatedly, the RBA’s plans for housing to fill the void left as the mining boom unwinds will be forlorn as long as Australia’s state and territory governments persist with urban consolidation policies and land prices remain exorbitant. Remove the supply-side barriers and everything else will take care of itself.
