There is much hype on the housing boom led by speculative frenzy bingeing on historically low cash rates, but the truth lies on the other side of the coin. Ultimately, there is no housing boom; the name of the game is housing obstruction.
Economics tells us market prices go up whenever there is a positive gap between demand and supply forces. The problem with the housing debate in Australia is the skewed focus on the demand side, often neglecting the vested interests constraining supply.
The 265-hectare area in inner Sydney that will be quarantined from apartment construction is a sad example of the many hurdles—if not hindrances—housing supply needs to overcome. According to new planning controls, the precinct near Sydney Park will be mainly constrained to commercial enterprises. Supporting the decision, the City of Sydney office states that “permitting residential uses would likely result in the majority of employment generating uses being displaced. Restricting residential development is essential to ensuring employment uses can continue to locate in the area long term.”
A better outcome would be to allow high-rise buildings with appropriate public infrastructure to accommodate both apartments and businesses. Restricting land to less productive use, and therefore acting against market competition, is not an acceptable solution.
The recent Competition Policy Review (CPR), currently under consultation by the Treasury, alerts to the perils of vested interests governing our planning and zoning restrictions. In its Recommendation 9, the CPR calls for state and territory governments to subject restrictions on competition in planning and zoning rules to the public interest test, which includes “avoid creating incentives for gaming appeals.”
Similar rationales against these anti-competitive supply constraints have already been pervasively voiced elsewhere. The Productivity Commission in a related research report appeals against the high-level prescriptiveness of zoning regulations. The Australian Competition & Consumer Commission also condemns the use of planning and zoning laws that act as a competition barrier in the retail market. The Centre for Independent Studies contributed to the debate raising awareness of housing affordability myths that fail to detect the regulatory and cost barriers to housing supply.
Notwithstanding all the naming and shaming, why is urban land still so unproductively used in Australia?
The reality is that too many powerful lobbies profit with rent-seeking activities on the urban consolidation mantra — which claims that urban sprawl will kill Australia’s way of life — while enjoying windfalls of revenue from self-imposed land constrictions.
In a submission to the Senate Inquiry into Affordable Housing, Senator Bob Day labelled the cosy relationship between some vested interests and governments as a modern version of the ‘Baptists and the Bootleggers’ phenomenon. In Prohibition times, businesses manufacturing alcohol (bootleggers) profited from its constrained supply, making them happy to in return donate generously to politicians who publicly defended the ban on moral (Baptist) grounds. The same logic applies to the restriction on land use and the ‘bootlegging’ development industry, pushing property prices up.
Yet it turns out that the most powerful lobby comes from the least expected quarter. In fact, it is likely to be your neighbour – or even you – as two-thirds of Australians are current home owners.
The logic is simple. Artificial, regulatory supply constraints push up house prices, benefiting home owners and increasing the global ‘Nimbyism’ movement. Not surprisingly, the greatest constraints to housing developments rest at local council level, curbing any move that might scratch a neighbourhood’s ‘character’ (aka not-in-my-backyard policy).
The problem is not new nor exclusive to Australia. According to The Economist magazine, barriers to urban growth are a recurrent global phenomenon, with disastrous consequences to the economy. One major adverse effect of Nimbyism is the loss of productivity that only well-connected cities can generate by allowing greater interaction between people and ideas. Despite all the technological advancements, there is a level of physical interaction and economies of scale that only big cities can offer.
Another unwanted effect regards growing levels of inequality. A strong case has been put forward that the root of contemporary unequal society might lie with housing ownership, with the share of this type capital shooting in the last 70 years in detriment to labour income. In this sense, nimbyism only exacerbates the gap between the houses and house-nots.
If we are serious about housing affordability, a productivity-enhancing, inequality-decreasing solution would be to reduce unnecessary urban-growth barriers coupled with viable infrastructure investment plans addressing valid concerns over public goods congestion.
Conversely, in case we are politically unable to do something about housing supply constraints, don’t wait for the next RBA cash rate cut. The only course left is to resort to Mark Twain’s advice: Buy land, they’re not making it any more.
Dr Patrick Carvalho is a Research Fellow at the Centre for Independent Studies.
Home > Commentary > Opinion > Housing boom? Think again.
Housing boom? Think again.
Economics tells us market prices go up whenever there is a positive gap between demand and supply forces. The problem with the housing debate in Australia is the skewed focus on the demand side, often neglecting the vested interests constraining supply.
The 265-hectare area in inner Sydney that will be quarantined from apartment construction is a sad example of the many hurdles—if not hindrances—housing supply needs to overcome. According to new planning controls, the precinct near Sydney Park will be mainly constrained to commercial enterprises. Supporting the decision, the City of Sydney office states that “permitting residential uses would likely result in the majority of employment generating uses being displaced. Restricting residential development is essential to ensuring employment uses can continue to locate in the area long term.”
A better outcome would be to allow high-rise buildings with appropriate public infrastructure to accommodate both apartments and businesses. Restricting land to less productive use, and therefore acting against market competition, is not an acceptable solution.
The recent Competition Policy Review (CPR), currently under consultation by the Treasury, alerts to the perils of vested interests governing our planning and zoning restrictions. In its Recommendation 9, the CPR calls for state and territory governments to subject restrictions on competition in planning and zoning rules to the public interest test, which includes “avoid creating incentives for gaming appeals.”
Similar rationales against these anti-competitive supply constraints have already been pervasively voiced elsewhere. The Productivity Commission in a related research report appeals against the high-level prescriptiveness of zoning regulations. The Australian Competition & Consumer Commission also condemns the use of planning and zoning laws that act as a competition barrier in the retail market. The Centre for Independent Studies contributed to the debate raising awareness of housing affordability myths that fail to detect the regulatory and cost barriers to housing supply.
Notwithstanding all the naming and shaming, why is urban land still so unproductively used in Australia?
The reality is that too many powerful lobbies profit with rent-seeking activities on the urban consolidation mantra — which claims that urban sprawl will kill Australia’s way of life — while enjoying windfalls of revenue from self-imposed land constrictions.
In a submission to the Senate Inquiry into Affordable Housing, Senator Bob Day labelled the cosy relationship between some vested interests and governments as a modern version of the ‘Baptists and the Bootleggers’ phenomenon. In Prohibition times, businesses manufacturing alcohol (bootleggers) profited from its constrained supply, making them happy to in return donate generously to politicians who publicly defended the ban on moral (Baptist) grounds. The same logic applies to the restriction on land use and the ‘bootlegging’ development industry, pushing property prices up.
Yet it turns out that the most powerful lobby comes from the least expected quarter. In fact, it is likely to be your neighbour – or even you – as two-thirds of Australians are current home owners.
The logic is simple. Artificial, regulatory supply constraints push up house prices, benefiting home owners and increasing the global ‘Nimbyism’ movement. Not surprisingly, the greatest constraints to housing developments rest at local council level, curbing any move that might scratch a neighbourhood’s ‘character’ (aka not-in-my-backyard policy).
The problem is not new nor exclusive to Australia. According to The Economist magazine, barriers to urban growth are a recurrent global phenomenon, with disastrous consequences to the economy. One major adverse effect of Nimbyism is the loss of productivity that only well-connected cities can generate by allowing greater interaction between people and ideas. Despite all the technological advancements, there is a level of physical interaction and economies of scale that only big cities can offer.
Another unwanted effect regards growing levels of inequality. A strong case has been put forward that the root of contemporary unequal society might lie with housing ownership, with the share of this type capital shooting in the last 70 years in detriment to labour income. In this sense, nimbyism only exacerbates the gap between the houses and house-nots.
If we are serious about housing affordability, a productivity-enhancing, inequality-decreasing solution would be to reduce unnecessary urban-growth barriers coupled with viable infrastructure investment plans addressing valid concerns over public goods congestion.
Conversely, in case we are politically unable to do something about housing supply constraints, don’t wait for the next RBA cash rate cut. The only course left is to resort to Mark Twain’s advice: Buy land, they’re not making it any more.
Dr Patrick Carvalho is a Research Fellow at the Centre for Independent Studies.
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