Why Australia is floored by expensive housing

ScreenHunter_2902 Jun. 13 07.26

By Leith van Onselen

Business Spectator’s Callam Pickering has posted a cracking article today lamenting Australia’s sky high house prices, which have been caused by and large by an epic failure of policy on both the demand and supply sides:

The current predicament — high prices and elevated indebtedness — is completely intentional. The fault lies with our major banks, the RBA and government policies…

…banks in Australia routinely lend two or three times as much to couples who need support from their parents simply to make the deposit.

Banks have gone all in on mortgages and face massive losses in the case of a prolonged housing slump.

…the government weighs in with a variety of policies that promote speculation at the expense of home ownership. Negative gearing and capital gains concessions make housing an increasingly attractive investment. While the first home buyer grant creates the illusion of affordability for young Australians when in reality it simply redistributes funds towards the wealthy.

State governments help to keep prices high by limiting the land released for development. High house prices lead to more stamp duty and that is a major source of state revenue…

The RBA’s main fault is one of inactivity… The RBA has a range of tools available to slow the housing market and encourage banks to redirect their credit towards the business sector but have instead decided to do nothing…

The only thing ‘different’ about Australian housing is the loose lending standards and poor policy that underwrite it.

I couldn’t have said it better myself. In just a few hundred words, Callam has summarised everything that is wrong with Australia’s housing system.

What makes the situation worse is that the two major political parties remain cheerleaders for the status quo, supporting policies that push housing costs higher, to the detriment of younger and future Australians.

For example, Prime Minister Abbott last year explicitly endorsed higher house prices and the “wealth effect” it bestows on home owners:

“Don’t forget … if housing prices go up, sure that makes it harder to get into the market, but it also means that everyone who is in the market has a more valuable asset”.

And who can forget Treasurer Hockey’s interview on CNBC late last year when he abandoned the notion of free markets and instead supported a housing quango of pumping demand and choking supply.

It is for these reasons that despite all the talk of ‘ending the age of entitlement’ and a ‘Budget emergency’, the Government has failed to put reform of negative gearing on the table, despite overwhelming evidence that it is harmful. It also helps to explain why the federal government continues to run a high immigration policy while letting state governments continue to strangle supply in order to support house prices; or using Hockey’s own words: “to manage the market”.

Unfortunately, there is little likelihood of genuine housing reform, especially while baby boomers are effectively in charge of the political process. There is no way that they will endorse policies that place at risk their unearned housing wealth, even if it would be in the best interests of their children, grandchildren, and the longer-term health of the productive economy.

On this point, it is well worth reading the below diatribe from the Bank of New Zealand’s chief economist, Tony Alexander, explaining why baby boomers will not let fundamental reform of New Zealand’s housing market happen. While it is obviously written for a New Zealand audience, it could equally be extended to Australia’s housing market, which shares many similarities and effectively has the same banking system. Warning: if you are a young person, it is certain to make your blood boil.

There is talk that the Reserve Bank could consider putting extra credit controls in place in order to try and stem inflation sourced from the housing market. The new restrictions could take the form of limiting how much someone could borrow to a multiple of their household income. In this way people would not be able to borrow as much as they can now therefore upward pressure on prices would be less than would otherwise be the case. If the restrictions were harsh enough house prices could even be pushed lower, though that is not highly likely given that the overwhelming impact of credit restrictions will be felt by the group of people who have already been shut out of the market to a big degree by the maximum loan to value rules – young first home buyers.

Is this something about which we in the lower, middle, and upper middle classes, and those silly enough to self-identify in New Zealand as in the upper classes, will feel greatly worried about? Heck no. We have already bought lots of investment properties over the past few years and keep hearing stories about how rents are lower than they should be. We are wary of raising our rents because to do so to a large degree would make us look like pricks – be “up ourselves” in the Kiwi vernacular – and that is something one has to assiduously avoid in this country.

But if it becomes even harder for young people to buy a house then they will have to rent for longer, so it will start to become more socially acceptable to raise rents. So we will, and while we will tut tut about how difficult it is for a young person to buy a property these days our incomes will rise and we will, yet again, feel happy that we ignored the many doomsters and kept buying properties the past two decades.

And just in case you are starting to feel insulted by these comments, it gets worse. You see the bulk of us with money and owning houses probably live in a reasonable one already. The last thing we want is more houses and noisy people living closer to us. After all, if we are here in New Zealand by choice we are here for lifestyle rather than income, and a key part of that lifestyle is not living cheek by jowl with other folk if at all possible.

So again, we will tut tut about how hard it is for young people to buy a house and how difficult it is to get a resource consent, a building consent, find a builder, get council inspectors out, manage contractors and so on. But we will not as a rule strongly support measures which either increase the pace at which houses can be built, decrease the cost of doing so, or allow more houses to be squeezed into any given area. Unless maybe that area is a CBD in which we think the developers can go for it because after all, while the CBDs have more restaurants than years ago, they do look less and less like the New Zealand ethnicity mix we remember from our early days, so who cares what number and size of apartments get crammed in there.

In New Zealand it is politically correct to express concern about the high level of house prices. But the next time you have a discussion with someone on the subject, dig, dig, and dig and the chances are you will both end up admitting that you have done well out of property and question why would you want extra supply putting your rental income and accrued capital gains at risk.

Sorry young folk, but much as you may feel the future belongs to you and your smartphone tapping ways, for now the wealth and the power belongs to us – the Baby Boomers. And you my dears form part of our retirement packages. So don’t expect any of the radical suggestions which I have thrown into this section of the Weekly Overview every now and then for solving the housing affordability crisis to actually gain traction.

I wrote this article on Friday then on Sunday saw this headline in the Sunday Star Times “Rich People Blocking Housing Growth”. Labour, the Maori and United Parties prevented a government bill passing recently which would have reformed parts of the Resource Management Act and made it easier for new houses to be built.

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Comments

  1. bskerr2MEMBER

    I have long said that the older generation are our enemy and that we should boycott rent, not help them, or should I say help them as fast as us younger people can to an early grave.

    Old people have sold us out, sold off so many national assets, put us in poverty, sold us out to immigrants, set us up for a life time of debt so they can live the life style.

    I would suggest that young people leave the country, never believe in the flag and create their own social existence by not paying tax and working together to fight the true enemy. The baby boomers.

    • Golly, bskerr2. Lucky you weren’t young when Australian Baby Bloomers were young. They…got to be sent off by the generation before them, to fight unknown people in an unknown land.” What’s new about that ?!” you may ask. Well, the difference is, they didn’t have a choice. Their birth dates were out into a barrel ( the boys, admittedly!) and if their Lucky lotto number came up, they were of the fight; kill or be killed in the name of Australia! Ask Normie Rowe how being a Baby Boomer advanced his career and future life…..

      • At least when he came back he got a house for about $100k in today’s money.

        The problem is there isn’t that many fantastic places to go in the world. I’ve noticed a few of my peers have moved to non capitals in Canada because they like skiiing and outdoorsy stuff and all that sort of thing.

        For the most part people are staying put and just putting up with it, either spurning adulthood or somehow just doing it.

        Oh well, we’ve got debt up the wazoo and little to no room for change and the boomers love it. So much for respecting your elders.

    • Nice thought but I see that more like holding your breath in order to get your way. There is no opt-out which is why housing was selected in the first place.

      • i can see violence or mass desertion happening, todays teenagers are toast, no generation has been set up to fail more, and i thought gen x had it tough

    • SweeperMEMBER

      A rent strike would be very powerful, it would definitely bring the whole thing crashing down.

      Likewise, capping rents would also fix the problem. But politicians would never do this because it would be a “distortion”. And you can’t have that in such an un-distorted market.

  2. “The current predicament — high prices and elevated indebtedness — is completely intentional. The fault lies with our major banks, the RBA and government policies…”

    In sum then, merely by scratching below the surface, we can easily see that the fault for this “completely intentional” “predicament” lies with the internationalist Usurer class.

    They … effectively … “own” our major banks —

    http://blog.creditcardcompare.com.au/big-four-ownership.php

    …the RBA —

    http://www.bis.org/about/functions.htm

    …and, our political parties (hence, government policies) —

    “To understand the pivotal role of Australian banks in the funding of political parties requires a deep knowledge of how the system works.

    For the most part, in the vicinity of three quarters of a major party’s funding in most elections comes from the public purse. The ‘public purse’ amounts are allocated to parties after the election in accordance with the proportion of the votes that are achieved.

    But there is no forward allocation of money. The distribution of ‘public purse’ money is strictly governed by the proportion of the votes actually achieved.

    ALP organisers are not looking forward to meeting with their bankers as the election nears. They are deeply apprehensive that as a result of current opinion polls, their bankers will slash the amount of election funding available to the ALP and lock it into a low vote.

    Conversely, Liberal and National Party organisers believe that as a result of their opinion polling they will receive a huge increase in support from their bankers to fund unprecedented amounts of advertising and promotion.”

    http://www.businessspectator.com.au/bs.nsf/Article/Liberal-Labor-polls-banks-funding-unions-election–pd20110721-JXTSN?OpenDocument&emcontent_Gottliebsen

    Know Thy Real Enemy.

    Else you’ll continue punching at shadows.

    • notsofastMEMBER

      Hooray for Australia’s Big Foreign Controlled Australian Taxpayer Guaranteed Banks.

      What would we do without them?

  3. The Patrician

    Like us NZ may be butchering housing supply but at least they have recognised that it is dangerous to exacerbate the problem by fuelling speculative demand with extreme financial repression.

    • The RBNZ might just have recognised how precarious the NZ national economy is. I believe “our” banks are capitalised to the extent of about $30 billion – read that as, their Aussie parents have that much tied up in their subsidiaries. But if the property market returns to fair value on just one of many metrics, then upwards of 10 times that investment amount could be written off property values. If 30% of property has a mortgage attached, then roughly $100 billion might need to be used to capitalise our banks. Now as Aussie parents I’d ask “Should we walk away from $30 bn of balance sheet impairments, or top them up with another $70 bn?”. The answer to that question might be dawning on the RBNZ…..

      • bskerr2MEMBER

        I think it’s high risk to leave money in a Australian bank or one of their subs in New Zealand. Maybe co-op bank in NZ would be better, as it has a much higher reserve, I think 16.7 or something, anyhow just seems safer than any Australian bank such as BNZ, NAB etc…

        I have asked before and would like to find a bank/credit union in NZ that is not over exposed to property.

        As far as I know the government won’t cover peoples savings if the banks go bust in NZ.

      • @Janet

        And that is why anyone and everyone in politics/power want to keep housing going. The big four have said, if housing goes, we go and everyone else will swiftly follow.

        This is why it will end badly; because no one will do the hard yards to soften the blow.

      • notsofastMEMBER

        ” I believe “our” banks are capitalised to the extent of about $30 billion – read that as, their Aussie parents”

        This needs to be clarified. The Banks are only Australian in the sense that they are guaranteed by the Australian Taxpayer. They are essentially owned and controlled by the international usury class and international banking cartel.

      • Janet,

        I wonder to what extent the banks are really exposed given the profile of mortgage / investment property debt to property values.

        It would be interesting to understand the profile of debt / property value / equity to determine the extent losses would materialise.

        The first fall guy will be the property owner who will see his equity reduced, then the banks equity, then taxpayers / deposits.

        I presume the answer to this is in APRAs and the Bank’s stress testing models.

        Thoughts?

  4. notsofastMEMBER

    “Banks have gone all in on mortgages and face massive losses in the case of a prolonged housing slump.”

    Correction:

    Banks have gone all in on mortgages and the TAXPAYERS face massive losses in the case of a prolonged housing slump.

    Everybody knows the big banks are too important to fail but unfortunately they are also too powerful to regulate.

    • Would an astute government not cultivate more banking competition? I know the European banks are still doing it tough. They might like a piece of the pie. Bankruptcy of the big 4 will not be that disastrous, international banks are well capitalized again aren’t they?

    • “Banks have gone all in on mortgages and the TAXPAYERS face massive losses…”

      Correction: BANK DEPOSIT-HOLDERS face massive losses.

      (Then taxpayers, when the deposits prove woefully insufficient.)

      Haven’t you heard?

      The Goldman/FSB-directed “resolution” regime is all about “resolution of Global Systemically-Important Banks (G-SIB)” “without exposing taxpayers to risk of loss”. That italicized bit is THE catchcry. The headline. The press release slogan of choice, ever since the international usurer class first got this ball rolling in late 2008/early 2009 (‘coz you should never let a good crisis go to waste, or to quote Christopher Joye’s quoting of our local Member for Goldman, M.Turnbull “You capitalise on chaos”).

      http://www.macrobusiness.com.au/2014/06/links-12-june-2014/#comment-373514

      Because savers are not taxpayers, you see.

      No, really. They’re not.

  5. One can understand pollies not wanting to dampen the house ‘wealth effect’ as they’d get beaten up in an election. Cowardice and self-interest rules.

    However, it is an entirely different story for the RBA board. They have effectively been criminally negligent.

    The two biggest questions younger, skilled, educated, productive people have to ask are a) when to leave, and b) where to go. No point being sacrificed on the alter of boomer gluttony.

      • I’ll put my hand up and confess to being an annual Green Card lottery entrant.

        For exactly the reasons this article covers, plus the fact that I know that low urban land rent is a massive advantage both economically and socio-economically. Certain parts of the USA have this, along with minimal restrictions on natural resource extraction, low local taxes, and business-friendly regulations. They will own the future of western civilisation. That’s where I want to be as western civ falls everywhere else.

      • The90kwbeastMEMBER

        Texas on the face of it seems to be one of the few refuges in the first world that hasn’t completely stuffed it with macro policy! I should clarify I am yet to apply for my EB-3 Visa but it’s on my to do list in the next fortnight..

  6. If policies change and we get a supply response – where will these house be? Tha’s right, on the outer perimeter of most of the capital cities. For Sydney specifically, probably out past Penrith somewhere.

    Apart from those outer perimeter regions, I doubt this will change the affordability pendulem much anyway. After all, very few people have an interest in living so far away from the CBD which is the source of most jobs.

    The only way to fix the housing problem (to lower prices) is to build infrastructure so the outer suburbs of each capital city get mobalised.

    • “If policies change and we get a supply response – where will these house be? Tha’s right, on the outer perimeter of most of the capital cities. For Sydney specifically, probably out past Penrith somewhere.”

      Um no. They would be all over. Improving supply is not just about freeing up the fringe – although it is a key ‘inflation vent’ for the market as a whole – but about bringing down system-wide land prices and planning bottlenecks, so that more housing of all types can be built everywhere.

      Remember, only a small proportion of people actually work in the CBD. Hence, the CBD-centric housing policies that Australia runs are both illogical and counter-productive.

      • “Um no. They would be all over”

        Um you’re obviously referring to apartments. If you care to look, most metro regions a full to the brim so the only way is up.

        “Improving supply is not just about freeing up the fringe”

        Incorrect. Where else will these detached homes be built? And you forget that most Australian snub their nose to apartment living. Remember the great Australian dream with a double garage and backyeat??

        “Improving supply is not just about freeing up the fringe – although it is a key ‘inflation vent’ for the market as a whole – but about bringing down system-wide land prices and planning bottlenecks, so that more housing of all types can be built everywhere ”

        I disagree. It’s about supply of homes on the fringe and giving them the same access to schools, healthcare and other amenities (beaches; parks etc) as those in the metro regions.

        “Remember, only a small proportion of people actually work in the CBD”

        I believethe number is bigger than you think. But it’s not just about “direct” employment. It’s about “indirect” employment and the need to access the specialist services in the CBD or metro areas (i.e health specialists, lawyers, ets).

      • And you forget that most Australian snub their nose to apartment living. Remember the great Australian dream with a double garage and backyeat??

        Very quick to generalise aren’t we. My partner and I live in a townhouse because we like a slightly bigger space. I would happily live in an apartment if they were not built as dogboxes.

        I don’t need or want a backyard, even with kids because I am without walking distance to two parks.

        Moreover the value proportion for apartments is very poor in my opinion. 600K for a dogbox ?

        Australia has the same issue with housing as we have with wages, a very high floor!

      • @flyingfox

        LOL

        Ok, so you think apartments are dogboex and you like slightly bigger spaces, but no backyard.

        You also like being close to parks and presumably other amenities.

        I think my generalisation is pretty spot on.

    • Or move employment out of the CBDs, why should we be held hostage to a few sq kms of land when we’re surrounded by some of the least densely populated land on the planet?

      Luckily this is already happening, and over time flexible working practices will extend the possibilities.

      This itself will depress the property holdings of the existing owners because there will be far less utility in owning property with proximity to the CBD.

      • notsofastMEMBER

        I suspect this is a big part of the reason why the Victorian Liberals killed of the Melbourne Metro Rail Tunnel. A rail tunnel which brings trains from the outer suburbs and nearby regional areas quickly into the city centre and key inner city areas then moves the trains quickly out again would do serious and irreparable damage to inner city real estate prices. And just to make sure this Melbourne Metro Rail Tunnel will not be built in the next 40 years they have proposed a $10 Billion alternatively rail tunnel from nowhere, to nowhere running by nowhere to bury the Rail Network in so much debt that another project of this size would be unaffordable for another couple of generations.

        An important part of the housing Ponzi scheme is extreme inner city housing prices and those in power are not going to do things to damage their investments in inner city real estate.

      • You’re right I think, I see the same hidden agendas in lots of areas of policy and business. A couple years ago there was a move to try to stunt the growth of telecommuting via liability scaremongering. Luckily it didnt make it and this trend is now strengthening.

        Infra is a trickier issue but I think that ultimately the tide can’t be pushed back forever and people will find ways to free themselves from the yoke of the land cartel. Businesses themselves will be a big part of this as they realise the lost producivity and motivation.

      • “I suspect this is a big part of the reason why the Victorian Liberals killed of the Melbourne Metro Rail Tunnel.”

        The main reason why they killed it off is due to their Big Retail backers who didn’t/don’t want Swanston Street dug up. Remember Napthine’s “worse than the Berlin Wall” comment?

      • Fringe growth containment results in:

        1) inflated costs of fringe housing
        2) inflated land rents in the entire urban area
        3) site owners behaving like speculators in bullion, in contrast to economists assumptions that the land market allocates land to its best use.

        If you look at RE sites, you will see that Houston has magnificent tall buildings of excellent quality apartments right in their CBD that also contains more Fortune 500 Head Offices than any other city in the world. The price of those apartments is absolutely drop-dead value for money.

        Cheap fringe McMansions = cost-effective higher density living anywhere you want it. It is all about something called “option values”. Also near Houston CBD, are townhouses and older depreciated family houses that would be over $1 million in a major Aussie city; and they are $100,000 and even less.

        It is actually a massive advantage to a city to have the land market truly allocating land to its best use by rational and functional criteria without bubble capital gains and extractive economic rent coming into it.

        As a general rule, it needs to be stated that in cities with a UGB, building “up” or denser, increases site rents. It does not decrease floor rents. Floor rents only decrease under intensification when the fringe is not constrained. This is a simple observation of real life examples; prove something different if you can.

      • The decentralisation of employment is not something you have to promote, it happens anyway.

        While many people are assuming that “sprawl” means more and more people driving further and further to CBD jobs, the reality is that 80% plus of jobs are outside CBD’s in most cities these days, and Aussie is no exception.

        The “longer and longer commutes” argument is utter B.S.

        The UK has the most compact cities in the OECD, and the LONGEST average commute times. Hayek would be hooting with laughter about this classic illustration of “unintended consequences” of the “fatal conceits” of planners.

        http://news.bbc.co.uk/2/hi/uk_news/3085647.stm

        “British commuters have the longest journeys to work in Europe with the average trip taking 45 minutes, according to a study. That is almost twice as long as the commute faced by Italians and seven minutes more than the European Union average…..”

        The US average is 26 minutes……

        http://economix.blogs.nytimes.com/2011/10/14/world-of-commuters/

        The UK has the highest urban density, with Europe next and the USA well below that.

    • If policies change and we get a supply response – where will these house be? Tha’s right, on the outer perimeter of most of the capital cities.

      You are entitled to guess where extra dwellings might appear. My guess is that your guess would be wrong.

      The beauty of a market-based solution is that the preferences of all people are brought into the mix (rather than planning deadheads)

      • Have you cared to look where all the houses are being built – if you did, you wouldn’t be saying that.

      • Have you looked at where the new commercial premises where the jobs are, are also being built?

        News flash: economies generally can’t exist on office jobs in CBD’s. Such jobs are wealth-consuming and economic-rent-based. There has to be a “real economy” that actually creates stuff of value that earns the economy its primary income to pay for the other niceties.

        An excellent educational short work that all politicians, council planners and urban-policy activists should read: William Fruth: “The Flow of Money and Its Impact on Local Economies”

        http://www.policom.com/PDFs/FLOW%20OF%20MONEY%202014.pdf

      • There are also numerous academic papers on the subject of (and many of which include in their title) “decentralisation and the stability of travel times”.

      • The real issue is that attaching a (compounding) usury obligation to a loan principal demands ever-increasing growth in “credit” (debt) issuance, in order to repay the “money”-lenders their “interest” owed while simultaneously keeping the economy ticking over.

        Ban Usury, Problem Solved.

      • ozziecoin.com

        @Opinion8red You’re right about usury. Unfortunately, the banks will argue free markets etc… And they will always charge interest on loans. So, let’s just get rid of credit-money and use positive sound money. If that is bitcoin, then so be it.

      • choose your vocabulary carefully gentlemen:

        nothing wrong with credit based money – its DEBT-based money that you should be using in the pejorative case

      • ozziecoin.com

        @ Chris Becker. Please enlighten us as to the differences between debt based money and credit based money. Thanks.

      • theres basically 3 types of money
        1. demand based
        2. debt based
        3. credit based

        The first can be commodity backed or fiat backed – i.e its limited by the stock of commodity (usually gold) or tokens (government fiat) available/created.

        Debt based is created when an interest bearing loan is made – a deposit is created and a liability is created simultaneously. To service the interest on that loan, more deposits, in aggregate (unless additional commodity or fiat money is added to the total system) needs to be created. Usually, more loans, hence increasing debt.

        Credit based “money” is self liquidating and has no interest attached – it is similar to debt but it can be created by anyone (i.e not the single purview of a bank or government). Bills of exchange, tabs, barter, partnerships, profit sharing, promissory notes, etc

      • ozziecoin.com

        @ Chris Becker. Respectfully, I cannot agree.

        Credit = money because the Gov’t backs bank deposits and have removed credit risk.

        Credit money is now for all intents and purposes fiat money. There is no limit to how much credit money can be created.

        There is no difference between debt money and credit money, whether interest is attached to it or not. The key difference is credit risk.

        See this clip: http://www.youtube.com/watch?v=yswqoQ-6MQY&feature=share&list=PLyl80QTKi0gPBcb32paMvXxcq7UUeJskV&index=5

      • “let’s just … use positive sound money. If that is bitcoin, then so be it.”

        IMO, bitcoin is not sound “money”. Why? Because it is (deliberately, by design, popularly perceived to be) limited in total supply. This artificial-shortage/limit perception therefore engenders a propensity to speculative demand for it … which is not a “sound” basis for a currency system. A medium of exchange (ie, “currency”) should be designed so as to naturally encourage circulation, not hoarding. (cf. negative interest, stamp scrip).

        I consider “currency” and “money” to be different terms, which should (must) be strictly confined to different functions, and not conflated, or used interchangeably, as they most commonly are. Much confusion arises from this misuse of labels.

      • ozziecoin.com

        @ Opinion8red. Yes you are right concerning labels. However, I suspect that assets can also make good money 😉

    • @Contango

      Apart from those outer perimeter regions, I doubt this will change the affordability pendulem much anyway.

      You must be joking! To call these outer regions affordable at the moment is an embarrassment.

      Fix housing:

      1) Remove NG
      2) Replace SD etc with Land tax
      3) Lending caps at 70% LVR.
      4) Initiate Supply change.
      6) Build infrastructure funded by bonds and land tax.
      6) Remove as many incentives as possible for housing speculation.

      When you get 20K plot in Penrith, then we have affordable housing, everywhere!

    • Currently large houses are being built on tiny blocks 50kms from the Sydney CBD. This is the only place that government (in its entirety) allows them to be built.

      Of course it makes little sense to drive development in this fashion. But that is the failure of central planning. By contrast, even a 1/2 decent market would bring dwellings and workplaces much closer together.

      • Exactly. This is one of the main points made in Alain Bertaud’s most important research.

        Urban planners need to be made to write out 100 times: the only 3 things that matter for commuting efficiency:
        1) the co-location of jobs and housing
        2) the systemic affordability of housing, which allows the maximum choice of household location near to whatever job(s) the main earner(s) may take
        3) the intensity of the road network where the travel is taking place.

        Urban density is almost irrelevant and tends to correlate with LONGER commute times and definitely with worse traffic congestion

        Public transport is almost irrelevant and there is also a correlation between the PT/roads spending split and congestion, in the direction of lower road spend = higher congestion.

        Centralisation of employment also correlates with worse congestion and longer commute times, even if this centralisation results in higher than usual PT mode shares.

        Wellington, NZ would be the classic case – 33% of employment centralised (most cities are below 20%), amazing 20%+ of commuting mode share for PT (for a city of only half a million), starved of road space; and TomTom congestion delay per 1 hour of driving of 40 minutes – easily the worst by a wide margin for any city in the world of less than 1 million population.

        US cities with 1/2 the density and 3 times as much highway and arterial lane miles per capita, may well have 6% or less PT commuting mode share, but their congestion delay per 1 hour of driving tends to be between 10 and 16 minutes.

        There is absolutely NO WAY that this kind of daily efficiency disparity can be “made up” in a higher PT mode share, especially considering that PT in all cities as small as Wellington costs at least as much per person km of travel as private cars + roads, and that the average PT commute trip time is always longer than the average car commute trip time.

  7. Well done Tony Alexander you make Captain Glen sound like he has 4 brain cells instead of the 6 i originally though he had.

    • +1 Alby. Imagine Luci Ellis or Ric Ballentino speaking as Tony Alexander has. It would end their career at a stroke – despite being the honest truth.

      • I actually credit Tony Alexander with being genuinely cynical and parodying the worst of the boomer sentiment there. Trouble is this is so far beyond parody now that it is possible to still sound “genuine” even when you didn’t mean it.

        I have never been able to work out whether Sting’s “Fill Her Up” is a parody of Southern US Country Music, or a sincere very well-done effort as a homage to the genre.

    • But I bet Tony Alexander cannot exceed our own Luci at the following skills :

      1. Draw nice stick figures of feuding regulators.

      2. Plagiarize and worse still.. pervert Nassim Taleb’s “Black Swan” analogy with her own regulatory ar$e covering “spot the platypus” analogy.

  8. Consumer confidence in the doldrums against rising house prices has killed the ‘wealth effect’ notion.

    • +1

      Falling proportion of working age people owning their own home probably helped too.

    • Yup, as the “wealth effect” becomes more concentrated in the hands of fewer people, naturally consumer confidence will receive less and less of a boost from it.

      • Experience in the UK shows that you can carry on cycle after cycle getting a “wealth effect”, but nowhere near as big as the initial one when your urban land markets went seriously inelastic in their supply for the first time.

        Part of the boost to existing properties is due to land rent rising due to intensification – not only are young people priced out of the market, the bottom rung of the housing ladder gets smaller and smaller. Of course when the “least unaffordable” “house” is now 40 square metres, someone who got the 80 square metre “least unaffordable” one a generation ago will still have gained even if median multiples have remained about the same.

        The breaking point has to come when a majority are captive renters. Guess why the powers that be continue to promote “home ownership” via shrinking “home” sixes and crazier and crazier lending practices? They want the majority to remain hostages to the racket.

        Ironically, I think one of the reasons that Germany has a social consensus on housing affordability, is that the very significant proportion of people who are renters exert an influence in the direction of keeping it that way. Maybe Germany’s rentier class blew it decades ago and ended up with the renting population outvoting the “home owner” population……? Or maybe policies that make renting a more attractive option in the first place have this beneficial side-effect?

      • Paper on development of German Housing policy since 1945

        https://www.academia.edu/2963591/Housing_Policy_in_Germany_1945-2010-_Continuity_and_Change

        Their tenancy laws, which I take to include the ability to sign much longer term contracts, essentially date from WWI apparently.

        Elsewhere int the paper is this amusing quote:

        “The tax deduction model was introduced immediately after World War IIand lasted until 1995. As a general rule, private expenditure on the creation or purchasing of housing units was deductible from income tax, where the deductible amount was evenly stretched over seven years of taxes. The instrument worked in favour of people on high in-comes and high tax liabilities who could reduce their tax burden significantly by building or buying expensive housing ” (my bold)

        Guess what – when this tax deduction ceased the stock of rental housing did not decrease!

        Another interesting quote:

        ‘The core instrument of German housing policy in terms of the number of housing units wast he social housing law ( sozialer Wohnungsbau). The first social housing law of 1950 declared that social housing was the task of all tiers of government – namely the federal government,the governments of the German states (Länder) and the municipalities (Georgakis 2004c: 61)– and that the aim was ‘to eliminate the housing shortage’. ‘

        That is, all layers of government worked together to ensure housing supply as a top priority – although in the historical context, there was a genuine shortage of housing owing to war damage, rather than a putative shortage obscured by poor distribution of housing, or speculators witholding housing from potential residents.

        EDIT: The overall impression from this policy history is that ease,lack of stigma of renting and overall high frequency of renting came first, especially as immediately after the war a sizeable chunk of the community lived in housing at least partly owned/ built by the government. Hence, the idea of ‘property ownership is mandatory for wealth and community membership’ never emerged.

      • Germany is an interesting case, a number of factors combine to make it rather unique.

        It did have a long slow run-up to severe housing unaffordability in the late 1970’s and early 1980’s, but this then peaked and unwound slowly ever since. This is a total contrast to the national markets in most other countries with short and volatile cycles.

        The absorption of East Germany may have “helped”, as may the Germans demographic collapse (something like 1.3 kids per woman).

        But I have no doubt that the culture and the regulations surrounding housing have helped too. The interesting question is how come regulations are so favourable to renters, yet this does not result in an undersupply of rental accommodation as it famously does in New York? I think the answer is to be found in policies that are also favourable to landlords. Negative gearing, for example, is an excellent policy to encourage investment in rental housing, that is only toxic when combined with inelastic housing supply.

      • Phil,

        Germany scrapped negative gearing in 1995, so it is not currently encouraging investment in housing.

        wrt supply, the government was the biggest builder of housing units into the 70s before tapering off. This may have eased the undersupply somewhat.

        Hard to see how re-unification can be deemed to have helped housing supply – many people moved from East to West, putting pressure on the housing in the West, while housing in the East deemed substandard was demolished, putting pressure on the eastern side.

  9. One reason for Germany’s low housing prices is that their transport system enables workers in a supply constrained location to easily commute from where housing is more affordable. A simple google search of “youtube autobahn veyron” will demonstrate the mechanism in an easily understandable fashion.

    • Well yeah, and the public transport makes the PT available in Australian cities like, well, the joke it is, also.

      • Yes, but it is always the roads that make the difference. PT is a sideshow. Every regional economy with efficient “travel” has good roads. They might also have good PT – but there is no city anywhere with good PT and bad roads, where the overall result is better.

      • Dunno.

        Warsaw (and other large cities in Poland, such as Krakow) has way better than Australian PT, but shocking roads.

  10. MB’s Pursuit of this issue is fantastic. If this blog serves no other purpose it is pointing out the outrages generational apartheid that exists in Australia. And for Baby Boomers to have the audacity to say our generations does not work hard enough. They grew up with free everything plus most western countries where creditor nations.
    They will leave us with higher taxes, pay as you go everything, little infrastructure, inflated asset prices and massive debts. They have failed on the very ideals this generation held back in the 60’s

    • Actually the ideals that the boomers enjoyed were the ideals of “the greatest generation”. The boomers aren’t the WW2 veterans, they are the children OF the WW2 veterans.

      The WW2 veterans deserved the affordable housing that the government dedicated itself to providing them. Opportunity of marriage and family was an ideal avenue up and out of the horrors of war.

      The greatest generation then proceeded to absolutely do the best for their own children, including a dedication to continued supply of decent family housing and maximum opportunity.

      The boomers are the generation who DIDN’T experience any horror that made them deserving of their fortune, and they are also “spoiled” by the experience. They will hold forth at length about how tough they had it, including as part of telling generation X to stop whinging; which shows them up not only as arrogant and uncaring, but incapable of doing basic arithmetic to see who really does have it tough. Only a generation far too pampered could afford to have gone through life this unconcerned about remaining this ignorant.