Pulling the Housing Plug

The so-called Housing ’Crisis’. It’s a terrific word, isn’t it? "Crisis" Invokes all manner of dread and despair. But is it a crisis in reality?

A summit was held in the Old Parliament House, Canberra, a year ago this month, to address the issue of a supposed serious shortfall in available rental housing and a lack of affordability of available housing on the real estate market nationwide for purchase by intending first home buyers. A similar meeting of concerned industry and related bodies was held two years prior to address the same concerns. At that time, those concerns revolved around:

• The cost of average cost of buying a home in relation to available income had doubled;
• The proportion of first home buyers had fallen by 30%;
• Average monthly payments on new home loans had risen by 50%;
• The proportion of low-rent homes had fallen by 15%;
• Public rental housing opportunities had fallen by 20%; and
• More than 1.5 million lower-income Australians, especially renters and recent purchasers, were incurring housing costs above 30% of their income.

A pretty damning state of affairs, to be sure. Especially for a society which supposedly prides itself on egalitarianism. The most recent summit – 2006 – identified the following as being important impacts over the preceding decade:

• Average house prices relative to income have doubled;
• Proportion of first home buyers has fallen by 20%;
• Average monthly home loan payments risen by 50%;
• Proportion of low-rent homes fallen by 15%; and
• Public rental housing opportunities fallen by 30%

Effectively no improvements over 2004, and this has been going on for over a decade. There are some swings-and-roundabouts in the stats, but overall, no change for the better. Makes me wonder why so-called concerned bodies have these gab-fests if nothing ever changes.

Perusal of the guest list for the 2006 summit reveals that not one of Australia’s major financial institutions, finance industry regulatory bodies, or finance industry representative bodies attended. The list of attendants in 2004 isn’t available, but I’ll warrant that none of the aforementioned made appearances then either. Bendigo Bank was there, but one would expect them to be, as a small time player in retail banking and essentially coming from community banking roots. Developers were there. Lend Lease, Combined Development. Real Estate Industry bodies, Building Industry bodies, State government semi-government authorities, they were all there, but nary a major level or even second tier funder to be seen.

Ask yourself this, dear reader. Where do the developers get their money from to open up new estates? Not from Bendigo Bank, that much is certain. Where do the Real Estate agents send their clients for finance to buy homes? Who do Building Industry bodies liaise closely with when establishing lending standards in conjunction with construction contract regulations, and vice-versa? The answer is a simple one. The banks. The banks, building societies, mortgage managers, wholesale housing funders, private trust funds, superannuation funds and so on. Primarily, the banks, and mainly the Big Four. None of them were there. Why not, I find myself asking? At the end of the day, if a home owner with a savagely large mortgage falls over, it’s the mortgagee in the front line, and trust me, dear reader, the instances of home owners flat on their fiscal faces is increasing almost daily.

I’m afraid I don’t agree with Professor Troy’s accusation that the federal government is to blame for borrowers of investment properties heavily leveraging themselves for taxation advantage. Borrowers do so of their own volition. No one forces them to do so. Not banks, not financial advisers, not accountants not solicitors. A borrower signing on the bottom line does so without coersion. I do agree, however, with the claim that government – ALL governments at all levels – is to blame for failing to address this housing affordability issue. The federal government in particular has made an art form of duck-shoving fault for practically everything and anything within it’s purview onto the states purely for political gain. The states do likewise in return. Tit-for-tat political sniping doesn’t address the issue. Going further into the minutiae of government, it’s the local government levels which most likely bear the brunt for creating the cost of new land releases. I recall some twenty years ago, development of a ten to fifteen hectare allotment in North Queensland cost the developer $30,000 in upfront council charges, plus park land reservation. Today, council development charges in the Redland Shire relating to a ten hectare development, less parkland reserves and road allocations, would result in approximately ten allotments. That development costs the developer upwards of $6,000 per lot, plus a transport infrastructure charge of $11,300 per equivalent allotment. That’s $173,000 for a small 10 lot development. That’s before finance costs, electricity bonds, and Lords only know how many other ancillary on-costs, all of which need to be added into the end cost of the block to the purchaser. Note this excerpt from a Courier Mail article which appears on the Institute of Public Affairs site.

Taxation and government charges are partly to blame for this cost inflation, but the real culprit is planning restraints on land availability.

A block of land fully serviced for housing on the fringe of all Australian cities should be no more than $50,000. This includes the costs of the raw land itself which should be only a few thousand dollars.

At Redlands, planning restraints have created a scarcity which boosts the cost of a block of raw land for housing to $80,000. Land preparation costs increase this by a further $30,000.

That’s $110,000 for a block of dirt BEFORE the developers margin and BEFORE a home is constructed on it. It’s no wonder the average house price around my neck of the woods ranks around the $360,000 mark, and that’s just your average three bedroom brick & tile. In some cases, make that hardiplank & colourbond. Nothing flash here, but I can’t see too many twenty-somethings being in a position to raise the minimum 5% deposit plus legals and mortgage insurance necessary to get into their first home. As a guide, my own home would meet the meet the average price. Nine years ago, we bought it for $125,000. Nice capital gain, but try buying it today at today’s prices with today’s incomes. Incomes haven’t changed, at least not sufficiently to compensate for the doubling, and then some, of available housing.

Do the banks and financiers have any part in this exercise? Not directly, as I see it, although they are responsible for aiding and abetting the escalation in council development charges through the funding of same to developers. Still, if land is to be opened up, these charges need to be paid. QED. Or do they?

Do state and federal governments need to take a greater hand in land release for housing? I’d suggest yes. In fact, if we head in that direction, the perennial question of levels of government comes to the fore. If local government is the plug in the housing pipeline, if local government is responsible for, even to the point of restraining the release of new land for housing, should not those restraints be removed?

Between Nambour and Bli Bli on the Sunshine Coast lie hectare after hectare of former cane land now given over to rampant grass growth and nothing else since the closure of the local sugar mill. The Maroochy Shire Council won’t sanction release of that land for development for fear of flooding the real estate market and dragging down prices. Heaven forbid that speculators should face additional risk. It’s also interesting to note just how many of those speculators, developers, architects and planners are actually on local councils. It happens. All too often.

So, is there a housing crisis? From my perspective, no. But I dare say if you ask anyone who doesn’t own a home, or even rent one from the Bank, as most of us do, they’d disagree with me. Vehemently.