The huge surge in demand in 2000/01 created the conditions for a huge price run-up in residential realestate. If appropriate policy were in place to meet this surge in demand, prices would not have increased to the extent that they did, and we would not have the crisis that we have today.
Note carefully that I do not call it a housing boom. I am following the lead of an excellent report by Steve Keen, Deeper in Debt. It is an accepted fact that there is a huge undersupply of housing in Australia. And, in his report, Steve Keen shows that Australia has undergone a �credit boom� - you cannot call it a housing boom if few houses were built - which has resulted in a housing �Ponzi scheme� because investors are paying more and more for the same existing houses.
So contrary to protestations from the realestate industry, the incentives to investors do not increase the amount of housing available to renters. It does, however, shift the balance significantly in favour of investors so as to price owner-occupiers out of the market, especially would-be first home buyers who do not benefit in any way from house price increases, thereby increasing the proportion of the existing stock of housing owned by investors.
Unfortunately, it does not increase the supply of rental housing because there is no incentive to purchase a newly constructed house over an existing house. And, in an �irrationally exuberant� housing market, where speculators are looking to �flip� houses for a quick profit, nobody wants to wait several months for a house to be constructed.
On the supply side, we have not only been failed by inaction from the previous Federal Government, but also by State and Local Governments.
State Governments have become reluctant providers of public housing. They have reduced their building of public housing, apparently relying on investors to take up the slack (which, of course, has not happened).
I won�t get into the debate about how much State and Local Governments' costs are adding to the price of land � the industry reports in the Links will shed plenty of light on that. It is sufficient to say that industry groups are frequently complaining about land rationing by State and Local Governments, and suggesting that this may be due to their increasing reliance on revenues from taxes on the higher land values.
Moreover, limited supplies of land for development, and additional costs for infrastructure development, are placing further upward pressure on the price of land in established areas.
Consequently, land values have increased very significantly since 2000/01. |
