How to plan for a fiasco
For more than 50 years the average Australian was able to buy their first home on the average wage. Traditionally, the median house price was about three times the median household income. Today, in Adelaide, Melbourne and Brisbane, the median house price is more than six times the median income; in Sydney and Perth, it is more than eight times.
In 2006 former Reserve Bank of Australia governor Ian Macfarlane asked: ``Why has the price of an entry-level new home gone up as much as it has? Why is it not like it was in 1951 when my parents moved to East Bentleigh, which was the fringe of Melbourne at that stage, and were able to buy a block of land very cheaply and put a house on it very cheaply? I think it is pretty apparent now that reluctance to release new land, plus the new approach whereby the purchaser has to pay for all the services up-front -- the sewerage, the roads, the footpaths and all that sort of stuff -- has enormously increased the price of the new, entry-level home.''
Until the 1970s, land was abundant and affordable, and the development of new suburbs was largely left to the private sector. Our pre-'70s leafy suburbs of large allotments and wide streets are an enduring testimony to the private sector approach.
Enter state and territory government land management agencies which, since their inception, have been responsible for astronomical rises in land prices, leading to astronomical mortgage costs. This escalation in land prices, in turn, has pushed up the cost of rental accommodation, road widening and key infrastructure projects, establishing schools, community centres and health services, and so on.
State and territory governments were spurred on by an urban planning cheer squad obsessed with curbing the size of our cities and pushing a policy of urban consolidation. The case for urban consolidation was that it was good for the environment, stemmed the loss of agricultural land, encouraged people on to public transport, saved water, led to a reduction in car use and saved on infrastructure costs for government.
None of this is true. By promoting urban consolidation while demonising growth, planners have inflicted enormous damage on the economy and society, and politicians and public servants should stop listening to them.
The economic consequences have been as profound as they have been damaging. The capital structure of our economy has been distorted to the tune of many hundreds of billions of dollars and getting it back into alignment will take time.
California, birthplace of the sub-prime mortgage industry, is paying the highest price of any US state as the housing meltdown there persists. By the end of the year, property values in that state alone will have fallen by $US600 billion. California also has one of the strictest urban planning regimes in the world. It and Florida, another highly regulated urban planning regime, account for about 70 per cent to 80 per cent of all sub-prime losses in the US. Foreclosure losses, however, are significantly lower in low urban planning states such as Texas and Georgia. Like most epidemics, the US sub-prime mortgage housing crisis can be traced back to this one source: urban planning laws. The credit crisis is the direct result of unprecedented house price inflation caused by urban planning policies.
In Australia, the housing affordability problem, mortgage stress and the rental crisis are all caused by the same thing.