Housing affordability: NZ and UK Labour show the ALP the way

Hugh Pavletich

Prime Minister John Howard, Treasurer Peter Costello and Reserve Bank Governor Ian Macfarlane have, by clearly identifying strangled urban land supply as the core housing affordability problem, lured the Australian Labor Party at both the state and national levels into a trap.

Furthermore, by refusing to acknowledge this simple fact, the ALP is in danger not just of losing touch with the electorate – both buyers and renters – but of falling behind their political counterparts in both New Zealand and the UK.

There are two major reasons why the focus is now on land supply. First, reputable global research from across the political spectrum sheets the blame for the artificial inflation in urban land and property prices squarely on inadequate land supply. The movements in both housing construction and land costs over the past 20 years could not provide clearer evidence. Second, the Labour governments of both Britain and New Zealand recognise this and, most importantly, have embarked on more research and processes to deal with this huge problem.

What the Labour governments of these two countries understand, and the ALP apparently does not, is that when urban property prices inflate at a greater rate than incomes, it is their own core constituencies that suffer the most. They understand too that Labour will pay the price at the polls if the problem is not dealt with.

The 30-page annual Demographia International Housing Affordability Survey (www.demographia.com), co-authored by the writer and Wendell Cox, frames the issue in a way that can be easily understood by the public. It compares the median house price in each of the 100 markets surveyed with the median household income in that market, and shows how many years’ income it takes to purchase a house in each of 100 major markets in the United Kingdom, Ireland, Canada, the United States, Australia and New Zealand. The 2006 Survey shows Australia as having on average the least affordable housing of all these countries.

There have already been 150,000 downloads since this year’s Demographia survey was released on 23 January, a figure that seven months later is still increasing at the rate of 4000 a week.

An affordable housing market is one where the median house price does not exceed three times median income. This year’s Demographia survey identified just 24 of the 100 urban markets surveyed as being affordable – all in North America. Some 20 years ago, most markets were affordable or near affordable, including those of Australia and New Zealand.

Strangling land supply has inflicted massive inflationary damage on too many of our urban markets. It is now time to unwind the inflationary mess of the past and, over a reasonable time, bring our urban markets back to affordability – to allow purchasers to obtain decent housing that costs them no more than three times their annual household income.

How is it that young couples in Atlanta, Houston, Dallas and the other affordable North American urban markets are able to buy new starter homes with a plot of land for just $US70,000 for a 100 square metre house and $US140,000 for a 200 square metre house?

Why doesn’t the Labor Party in Australia work to ensure that young Australians have the same housing opportunities as earlier ‘Lucky Country’ generations or today’s young people in the affordable North American urban markets?

The Australian Institute of Public Affairs’ recent report, The Tragedy of Planning – Losing the Great Australian Dream, is highly regarded by urban researchers around the world. This exhaustive 100-page research work concludes that lot prices for new homes on the outskirts of Melbourne should cost about $60,000. If so, then what should building lots cost on the outskirts of the other urban areas of Australia? And why isn’t the Labor Party at state and national levels asking the same question?

Even urban planners in both Australia and New Zealand are waking up to the reality that ‘smart growth’ urban strangulation policies are a disaster, in social, environmental and economic terms: on the social front because they wipe out housing opportunities for the most vulnerable in society; on the environmental front because it is near impossible to ‘green’ a concrete jungle; and from an economic perspective because artificial rises in property prices decoupled from incomes and fuelled by excessive household debt is not wealth creation and growth, but simply the economic cancer of inflation.

Only 0.3 per cent of Australia is urbanised. Australia is less densely populated than nearly every other country on the planet.

If the Labor Party in Australia doesn’t wake up soon, it will be increasingly seen as the party committed to social justice for property speculators, oil companies and banks – the only real winners from forced urban consolidation. Is this destined to become Labor’s new constituency?

Hugh Pavletich is a Christchurch (New Zealand)-based commercial property developer, former president of the South Island division of the Property Council, Fellow of the Urban Development Institute of Australia, and co-author with Wendell Cox of the Annual Demographia International Housing Affordability Survey. He is a strong advocate of open markets, who believes that business and their representative organisations must always act in the consumer’s best interests.

 TNC  4 September 2006                  Like to comment?                       Top/Home