A rant: housing, the market, and sustainability
It is generally well known that although the Liberal Party extolls the virtues of free markets whenever they can, they only really believe in them when it won’t hurt at the ballot box.
For proof, consider the current reactions by our State opposition to Perth’s housing market, interest rates, stamp duty, and land availability. Much like petrol prices at the Federal level, there’s all sorts of talk about how government should Do Something ™ because, oh dear, the poor defenceless first homebuyers can’t afford the McMansions that have become so popular as of late. Never mind this one example of the free market moving in a good direction for the environment; our opposition friends have remembered the need to appease the election-deciding mortgage-belt folks.
So they want to interfere in the housing market … to “improve affordability”.
Thing is, the “great Aussie dream” of a huge quarter-acre block with a four bedroom house (or, lately, a six bedroom, home theatre with added games room and alfresco area, open-plan house) is ridiculously unsustainable. You cannot build an entire city out of houses like that — and economic forces are (slowly) starting to reflect this.
If people are priced out of buying massive homes that were probably beyond their means anyway, then that’s a good thing. If attitudes shift so that Australians no longer expect to always live in a huge house, that’s even better.
I don’t mean to go completely laissez-faire — there are plenty of cases of market failure, and government should intervene in those cases. But this, IMHO, is not one of them.
Though I agree with your sentiments in general in this post, I think the issue of housing affordability is much wider than the “McMansion” market.
Like you, I don’t care if John and Jane Aspirational are unable to afford a McMansion–that’s not a “housing affordability” problem as far as I’m concerned: it’s a “personal financial priorities” problem. But I do think there’s a genuine problem when there is a dearth of affordable alternatives in the housing market. And for those non-aspirationals on low incomes who are finding it difficult even to find affordable rental accommodation, intervention of some kind–be it government intervention or some other kind–is a social justice imperative.
I’ve got to concur with AV. In some cases, it is not just peoples expectations being out of whack. (Those people will complain no matter what).
I couldn’t buy my house now, just 12 months later. I would have had to shell out another $100k for my house. And I borrowed up to the limit that the bank would let me. And for that matter, I couldn’t buy ANY house in this area now. The cheapest house in this area is $50k more than what I spent on this house. The cheapest house in Perth is $25k more than I spent on this house!
But I plan to keep this house for a while. It’s not massive, but it is just what I need (and I realise this). And, I can sustain around a 2% further increase in interest rates before it begins to hurt me.
For people just starting out, it’s not that simple. The solution? I have no idea. But there are probably a lot of overvalued houses at the moment. It might stop increasing at some point, but I doubt that the prices will go back down again – at all. Good for me, as I’ve got a house. But not so good for those wanting a house.
You guys make fair points. And AV, sure, maybe there’s a case for ramped-up Homeswest provision (they do have a huge waiting list, after all). But I suspect the problem of wanting too much goes beyond the stereotype of John & Jane Aspirational.
For example, in your case Daniel, you’re right, in the current market you just wouldn’t buy a house. This doesn’t mean you’d be homeless; buying a house isn’t the only way to have somewhere to live! So you’d share rental with a friend, or buy a small flat, or delay buying until you had some savings and maybe a higher income. Someone ‘just starting out’ will (usually) still be able to get somewhere to stay, in the same way as people looking to move out for the first time in Sydney, Vancouver, or Manchester.
So the point I’m trying to make is that housing in Perth isn’t unaffordable per se, just that the kinds of living arrangements we’ve become culturally accustomed to are becoming too expensive for most people. That’s entirely different from there being a mass crisis shortage of any affordable accommodation.
Perhaps I’m being callous, but I just have a sense that this is not actually as world-ending a crisis as it’s being made out to be.
So the point I’m trying to make is that housing in Perth isn’t unaffordable per se, just that the kinds of living arrangements we’ve become culturally accustomed to are becoming too expensive for most people. That’s entirely different from there being a mass crisis shortage of any affordable accommodation.
Perhaps I’m being callous, but I just have a sense that this is not actually as world-ending a crisis as it’s being made out to be.
Well: nobody’s suggesting that it’s a world-ending crisis. Obviously we’re all still far better off than the average citizen of Lagos, but then we’re not comparing ourselves with the citizens of Lagos. Having said that, even if the rising cost of housing does not result in homelessness for you or me, it will result in homelessness for someone. And that is a problem.
Aside from the social justice question: rising housing costs, along with increasing interest rates on mortgages and increasing rental prices, are bound to have economic flow-on effects. More money being outlaid in these areas is less money being injected into other parts of the economy.
But I suspect the problem of wanting too much goes beyond the stereotype of John & Jane Aspirational.
I suspect you’re right. But then the question is: what is too much? I think the plasma TV is too much. I think the expensive coffee machine is too much. I think the monthly Foxtel subscription is too much. I think the three cars in the driveway/carport (including the obligatory “SUV”) are too much. But is access to health and educational services too much? Is access to public transport too much?
I don’t have the solutions either. But I suspect it lies partly in a combination of decentralisation via the development of regional centres (since part of the problem lies in the fact that land available for development as housing is highly regulated–hence the phenomenon of the rate of increase of land values far outstripping the rate of increase of house prices that is the primary cause of the housing affordability crisis), and reigning in urban sprawl.
Are you sure about that? I’d have guessed that high house prices primarily affect those who intend to buy a house, and most of those people aren’t broke. As I said before, not being able to buy a house does not imply homelessness. Yes, there’s not enough being done for Perth’s homeless people, but it’s not like that’s a new problem.
(To wit: not being able to rent anything might be a better predictor of homelessness, but there’s nowhere near as much debate about rental prices among the political elites I was originally criticising.)
Also, the economic flow-on effects you describe are a normal consequence of price changes in basic things like accommodation. Part of the reason house prices have gone up is that the economy has been stoked by a mining boom, so some slowdown in the consumer market might be beneficial — e.g. by giving people more realistic ideas about what they can afford (my grasp of economics isn’t strong enough for me to know the right terms here). In other words, it seems best to let the market balance itself out.
I do agree with your potential solutions, though. In fact, I fear our positions are slowly converging. So much for my hopes of a flamewar
This has nothing whatsoever to do with what you’ve said, but I wanted to tell you it’s my birthday on wednesday.
As a side note, any one in this conversation ever lived in London? Is fairly standard there (among people Ive spoken to anyway) to be sharing a small place quite a way out of town with up to 7 other people. Here in Copenhagen for the sum of about 600 dollars a month you can get somewhere close in (but then there are apartments here) with a living space of 3 small rooms.
Just an interesting thought in comparison to our very open and large spaced Australian homes
Yay for overseas opinions! To be fair, that’s somewhat of an apples-and-oranges comparison, but I think you’ve nicely illustrated my point about how buying a house isn’t the only way to have somewhere to live.
Ok Hourann, I’ll give you the point of it’s not like there is nowhere to live. I looked at the problem from a different way (although I’m not clear why).
I suppose I’m already stuck on the must-buy-a-house point of view, mostly given to me by my parents. I believe that buying a house was a good move for me – it secures more of a financial future for me, as well as being an excellent place to live (priorities split about 60/40 between those for me). Your point was that if you are just looking for another place to live, renting or sharing could work really well – and I agree. (Yeah, I know, killing your flame war).
Everyone has different priorities and ideas of other peoples priorities.
Perth is over rated anyway.
It’s a superficial, culturally dead mining town.
Fine, crazy troll, I’ll bite.
Is Perth overrated? Maybe, but it is also the second-fastest-growing city in the country, which suggests at least some people think it’s not too bad.
Superficial? I have no idea where you pulled that from, but I know plenty of earnest and fair people in this town. Foreigners frequently comment on how friendly people are here.
Culturally dead? Hardly. Of course Perth isn’t New York or London, but we’re a fraction of the size of those cities. For a medium-sized Western-world city, we have plenty of culture — including a thriving local rock music scene, a relatively strong local film industry, a renowned performing arts school, and several famous authors. There are cities twice our size in the US and Asia that can’t match that.
And mining town? Well duh. Since when is that a bad thing? San Francisco and Melbourne are both awesome cities because they were able to build on mining wealth from the 1800s.
(Strangely enough, your IP reveals that you’re a Westnet customer somewhere in WA. Maybe you just need to get out more?)
[...] There’s been some buzz, for some time, about property prices in Perth and their perceived effects on people who can’t afford a house (naturally, the loudest claims are coming from these guys, and they’re still beating their “taxes must be cut!” drum). Although I wonder about the limited evidence that this is an actual, real, screwing-with-social-welfare problem, it’s definitely an issue with votes in it. So yesterday Mr. Carpenter announced that he’d pitch in up to 40% of the cost of a house less than $365k, for families earning less than $60k per annum. [...]