Falinski’s housing inquiry report will be rife with lobbyist phrases…

Like the dozens of previous housing inquiries before it, Falinski’s inquiry into housing supply will find that giving valuable rezoning development rights to well-connected property owners and developers is the housing policy we need.

The puzzling part is that the housing developers interviewed under oath during the inquiry said that they wouldn’t flood the market to decrease prices even if they could.

Falinksi: Is it not your view that, if we increase the amount of supply, prices will go down?

Mr Helmers: I don’t think that’s the case…

Mr Long: My view is consistent with Richard’s: rezonings won’t necessarily lead to lower housing prices…

Falinksi: …[d]o you think if state local governments rezoned more land to allow greater supply, that you could see dwelling prices drop by 20 per cent?

Mr Warner: No. Straight out, I concur with some of the comments before. It’s not going to create that much of a difference.

For perspective, Australian capital city housing prices increased 21.7% in the year to September 2021. No housing developer thought it plausible that mass upzoning could get close to reversing one year’s price growth.

Instead, they all latched on to the phrase that mass rezoning will “will moderate price growth”. I have no idea what this means. If price growth is zero in the counterfactual, will it mean prices start falling? If it moderates price growth, why can’t rezoning moderate price growth down to a negative?

Because of this ambiguity, I expect “moderate” to be a popular word in the final inquiry report.

There were also no examples put forward where mass upzoning had a substantial price effect. The RBA’s Luci Ellis noted this fact.

Ellis: As we said in our 2015 submission, there are no examples internationally of large falls in nominal housing prices that have occurred other than through a significant reduction in capacity to pay, such as a recession and high unemployment.

The best chance to find evidence in favour of mass upzoning was the world’s biggest up-zoning experiment that played out in Auckland in 2016. Prices there have risen 53% since, more than any major Australian city, suggesting that the developers were very much right that prices wouldn’t fall. It’s not clear if price growth was “moderated” up or down!

We also have seen over the past two years that regional towns, previously held up as unconstrained locations that ensure prices don’t rise too much, have boomed.

These are the important facts in the housing supply debate. I expect them to be mostly ignored.

To be honest, I’m getting a bit tired of the whole charade.

I made a submissionappeared at the inquiry, and sent follow up evidence with further examples of how property owners aren’t foolish enough to minimise the value of their assets by flooding the market with new homes.

Journalists, please do not report the inquiry “findings” uncritically. Call me first. Let’s end the charade.

Dr Cameron Murray is co-author of the Book Game of Mates. His written work can be found at Fresheconomicthinking.substack.com.

Comments

  1. Should be use it or lose it time limits on re zoned land. State government should tender rezoning and publish results.

  2. The optimal outcome would be for Council to present 3 locations for rezoning in their suburbs.

    At election time based on voting 1 area is picked. This stops front running from land speculators.

    Once selected the Council compulsory acquires a portion of the rezoned land in stages. The land owners are compensated with property value + 20% + stamp duty/relocation costs. Staged purchases stops a flood of buyers entering the market and pushing prices up in surrounding suburbs.

    Council sells rights to developments and gets the majority of the uplift in land value.

    Rezoning and development is not a patchwork from many different developers and they can master plan roads and infrastructure because there is one controlling entity that can change the subdivision layout.

    • My optimal outcome would be that the RBA finds the “Non-accelerating inflation rate of unprofitably” (NAIRU) and pumps the banks with the opportunity to create new money until this point is reached for property developers. Stoping there keeps new competition from entering their market (the Australian way) and in exchange they agree to release a tad more supply. They call the shots, stop kidding ourselves that any kind of reform is possible. Better to negotiate a more pleasant new deal with them as you would a lion with your head in its mouth. Far more effective.

  3. I think Falinski, and a whole bunch of them are no more than cheap employees of the banks.

  4. I think any meaningful regression analysis, of house prices, will find that of the y variables, interest rates have the highest coefficient by far.

    I’d suggest that 70% plus of house price changes, are explained by interest rates….

    More supply is just fiddling around the edges.