Do we need more or less housing?
In the heavy weight title fight for “housing needs” we have in the red corner “Affordable Housing” wanting cheaper housing (and more of it to bring prices down)… and in the blue corner is “Too Many Apartments” championing the case for less apartment developments expertly coached by Tabloid Media. And for this heavy weight title clash please welcome the referee… the Premier, Mr Daniel Andrews.
The judges for this tussle are APRA, Ministry of Planning, Federal Government, SRO and ATO.
The crowd favourite “Affordable Housing” gets a big roar on introduction as everyone agrees the cost of housing should be within reach of a large percentage of the population. The trick of course is how to make that happen.
The supporters of “Too Many Apartments” remind me of the Health Inspector reviewing the Bart Cummings stables. After a long examination he turned to Bart and said, “You have too many flies”. Bart replied “That’s no good. How many are we allowed to have?”. Like the Health Inspector, no one can answer the question of “how many apartments do we need?” as the demand side of investing and living in apartments is moving and difficult to quantify. Ding, ding, ding… “too many apartments” loses round 1.
Like all markets the price is driven by supply and demand. Most people think of supply as actual volume of the product. eg. more housing. That is part of it, but the other part is the amount of that product for sale. Imagine if 50% of all people that own BHP shares decided to sell their shares. The price would fall but no more shares have been issued. Therefore if more existing houses are for sale then they become more affordable. Great – so how do we make more people sell their homes. Well for a start you remove the costs and friction of selling the home.
Suddenly the fight stops, and the crowd stares at the referee Daniel Andrews. Everyone has just realised that he is actually fighting against “affordable housing” because every time a property sells (except to a first home buyer and for under $750,000) he pockets about 5% (stamp duty) of the value. The judges also look closely at SRO who is in love with stamp duty. Stamp duty is a direct deterrent to people buying (and therefore selling if they already own a house) which reduces availability of homes to buy and helps keep housing prices high.
“Housing affordability” loses round 2 but the crowd is not happy about the decision. The referee is checking for safe exit and the security sense trouble.
There is a tsunami of new regulations to limit new apartments mainly in the form of planning, taxation and tighter financial controls. These include
- New apartment design guidelines.
- More restrictive planning controls (Melb City Council)
- Increase surcharges for foreign buyers of “off the plan” apartments
- Increased stamp duty for “off the plan” purchases by domestic and foreign purchasers
- Reduction in tax deductable concessions on new property.
- A raft of controls by APRA on bank lending which has tightened funding to investors and by association developers.
All these controls have significantly slowed apartment development new starts. The current cycle of apartment development will complete by late 2019 and after that new apartment completions will slow dramatically. This will be a knockout blow to “affordable housing”.
The bookmaker watching on carefully looks at his book and realises he is carrying far too much on the crowd favourite “Affordable Housing” who is starting to look groggy. With the crowd on its feet and screaming, referee Daniel Andrews tries vainly to prop up “affordable housing” but the weight or politically palatable but ineffective policy is too much.
“Too Many Apartments” wonders back to his corner, picks up his towel and goes to the showers with a hollow victory aided and abetted by the Judges regulations and taxation.
The soft and easy political decisions that have been made (like taxing foreigners) have had very little impact on affordable housing and in fact could amplify the problem over the next 4-5 years. It is becoming increasingly clear that the population growth and continued demand for housing in Melbourne means we don’t have too many apartments and in fact we are in great danger of having not enough apartments very soon.
If the government is serious about affordable housing it should abolish stamp duty (like every expert and tax review tells them to do) and replace it with a fairer broad-based tax. This will enable people to invest in a small property and trade up every year if they like, empty nesters to down size, and every other demographic right size to move geographically to follow employment or economically affordable housing.
There are other politically unpopular measures that would help affordable housing like encouraging development along transport corridors and activity centres in middle suburbs.
Finally, Daniel Andrews looks down to Malcom Turnbull and says “Alright, alright… I’ll get rid of stamp duty and amend planning if you increase GST”. The Prime Minister stands up, buttons his jacket and smiles wryly, before making a quick exit. He has enough on his plate.
So what do you think??? Contribute here… Do we need more or less housing or something different?