New Geography

Tag: housing policy

  • The ABC of Making Housing Unaffordable

    On 12 December, ABC Radio National’s Breakfast Program aired another group discussion on “Australia’s housing market”. Presenter Hamish Macdonald was joined by an “expert panel” made up of Ken Morrison, CEO of the Property Council, John Daley, CEO of progressive think tank the Grattan Institute, and Tom Whitty, managing editor of The Project, a television show pitched to the youth demographic. The conversation ran along predictable lines.

    All three panelists agreed that housing affordability was a real problem, especially in Sydney. But they took up positions on various sides of the issue. Generally speaking, Morrison argued for a supply-solution and dismissed demand-management or tax reform. Daley supported a supply-solution, but insisted that some demand-management and tax reform was essential. Whitty rejected a supply-solution altogether, and thought it was all about demand-management in the form of abolishing the tax concessions for negative gearing and capital gains. “We’re manipuating demand”, he said.

    Neither Morrison nor Daley acknowledged that greenfield development offered any advantages relative to inner-ring infill. Daley repeated his blinkered point that jobs growth is all in the centre. There was no mention of the land value impacts of limiting peripheral supply, a near universal policy across the country. Daley seemed to think all new housing should be concentrated within a few kilometres of the CBD. Bizarrely, he held up Vancouver and Portland (Oregon) as cities that got their housing location right, failing to mention that they are amongst the least affordable places on earth. Morrison made no objection to any of this.

    In terms of the system of interests set out in our last article, “Sydney lurches to housing affordability disaster”, Morrison expressed the position commonly held by the Big Projects coalition, while Daley and Whitty repeated views popular with the knowledge-welfare elite. Typically for the ABC, nobody argued for suburbanisation and greenfield expansion, policies of particular benefit to the worker-trader class of industrial and routine service workers and small traders.

    A striking feature of the discussion was how the demand-management crowd are utterly impervious to evidence. Morrison cited estimates by Grattan and the McKell Institute that abolishing the tax concessions would lower prices a puny 0.49 or 2 percent. Despite failing to offer any counter-evidence, Daley and Whitty were unmoved. Daley shifted onto the different point of whether the cost to the federal budget is equitable, and then started talking about the rental market. Whitty just fell back on anecdotes about the type of bidders succeeding at auction sales. Macdonald’s sympathies were clear all along, at one point becoming testy with Morrison for refusing to concede that the concessions are central.

    This feeds into the false narrative being built up by the ABC and other media outlets, particularly catering to a younger audience. It’s all the fault of greedy oldies or wealthy investors with their snouts in the trough. The impulse is to slap taxes on the scapegoats. In the meantime, the real causes go undiscussed and the problem keeps getting worse.

    This piece originally appeared at The New City Journal.

  • Center for Opportunity Urbanism: America’s Housing Crisis

    This video from Center for Opportunity Urbanism (COU) explores America’s housing crisis — focusing on the new generation. COU is a non-profit dedicated to preserving the American dream and promoting upward mobility for all Americans. Check out the video and let us know what you think.

  • LSE/Netherlands Research Documents Price Effects of Tight Housing Regulation

    New research by London school of economics Professor Christian Hilber and Wouter Vermeulen of the Netherlands Bureau for Economic Policy Analysis provides strength and evidence of the connection between high housing prices and strong regulatory constraints. The paper advances the science by estimating the share of house price increases attributable to regulatory constraints. Hilbur and Vermeulen show that supply constraints are considerably more important in driving up house prices than the physical constraints (such as lack of land or topography) and lending conditions or interest rates:

    "In a nutshell, in our paper we use this unique data to test our prediction that house prices respond more strongly to changes in local demand in places with tight supply constraints. In doing so, we carefully disentangle the causal effect of regulatory constraints from the effects of physical constraints (degree of development and topography) on local house prices, holding other local factors constant and accounting for macroeconomic fluctuations induced, for example, by changing lending conditions or interest rates."

    Their conclusions are based on analysis of housing markets in the United Kingdom since 1979. Unlike the United States, Canada, Australia or New Zealand, the United Kingdom was fully engulfed by urban containment regulatory policy by that time.

    Perhaps the most important advance of the research was the author’s quantification of developable land. This is a relatively new direction in research, with perhaps the most important early contribution from Alberto Saiz of Harvard University, whose estimates relied on the assumption of a 50 mile radius of land from the cores of US metropolitan areas. My response  doubted the usefulness of measuring housing markets with a fixed radius, not least because since some metropolitan areas (and even built-up urban areas) extend beyond that distance. Hilbur and Vermuelen avoid this problem by estimating developed land by local authority area, which allows for analysis at the housing market level (which is usually larger than the local authority area).

    The authors also note recent research on the consequences of land use regulation to economic growth and stability. These include Hseih and Moretti, who found that without tight housing regulation, the gross product in the median city might be nearly 10 percent higher, and Glaeser et al research showing the greater volatility of prices in a tightly regulated environment.

    The authors summarize the problem:

    "Absent regulation, house prices would be lower by over a third and considerably less volatile. Young households are the obvious losers, yet macroeconomic stability is also impaired and productivity may suffer from constrained labour supply to the thriving cities where demand is highest."

    This is important research in a world struggling to restart healthy economic growth and reverse the decline of the middle-income standard of living.

  • Australian Treasurer Given Primer on Housing Economics

    Wodonga (Victoria) mother of two Mel Wilson has made headlines across Australia with an open letter to Federal Treasurer Joe Hockey on housing affordability. In commenting on Australia’s housing affordability crisis, the Treasurer has told a press conference "The starting point for a first home buyer is to get a good job that pays good money."

    Australia has a severe housing affordability problem. As the Demographia International Housing Affordability Survey showed in January, Sydney median house prices had reached 9.8 times median household incomes of by the third quarter of 2014. In the intervening months house prices have escalated so much that some say the median price will soon pass $1 million.

    It was not that long ago that house prices were far more reasonable in Australia. Nationally, in the early 1990s, house prices averaged around three times incomes. Since that time, house prices have more than doubled relative to incomes. This is placed a considerable burden on purchasing households, especially first home buyers.

    Ms. Wilson incredulously took Treasurer Hockey through the economics of buying a first house in Sydney. She reminded him that it would take all of the average wage earner’s take home pay for four years to save the down-payment on the median house, now priced at A$915,000 (approximately US$700,000.  The entire letter is published below.

    In a later statement, the Treasurer, to his credit, indicated the need for strong lobbying of the states to make more land available to increase supply. The problem in Sydney and Australia is not unique. Similar house cost crises have developed from London to Toronto and San Francisco, where governments have severely limited the land that can be used for new residences, with the wholly predictable result that prices escalate out of control.

    Ms. Wilson, and other concerned (or baffled, as Ms. Wilson puts it) Australians should hope that Treasurer Hockey’s "strong lobbying" is successful. The economic reality is that until there is liberalization of the land use restrictions responsible for much of the housing cost escalation, there will be no relief, other things being equal. Indeed, house prices are likely to just keep going skyward. This requires a mid-course correction toward policies that place improving the standards of living and reducing poverty at a higher priority than urban design.

    —

    Letter from Ms. Mel Wilson to Treasurer Joe Hockey:

    Dear Joe,

    I just wanted to touch base with you regarding your comment that young people are able to enter the property market if they just “get a good job that pays good money.”

    I just wanted to ask you how one might go about this?

    Are you going to be reviewing all the current Awards that are in place to ensure that most jobs pay “good money”?

    Are you going to be creating hundreds of thousands of new jobs that, under your Awards, pay over $100,000 per year?

    Apologies if I have missed this fantastic news, but as someone working in 2 senior HR roles, I believe I would have known about this so that I could pass the message on to some very tired, over qualified employees who currently fall under various Federal and State awards and are being paid between $18 to $25 per hour.

    Are you aware of what the average Australian wage is?

    Are you aware of what the average Australian mortgage in Sydney is?

    Are you aware of the first-home buying process?

    Just in case these facts and figures aren’t available to you, I thought you might be interested.
    The average weekly wage according to the Australian Bureau of Statistics on 1st January 2015 was $1,128.70, or $58,692.40 before tax. This means a take home amount of about $904.00 per week.
    The median house price in Sydney, according to the Domain Group Housing Price Report, as of March 2015, was $914,056.

    Not sure if you know how first home buying works at the moment, but you normally need a deposit of about 20%. This is to pay for the Stamp Duty (which is a State Tax you must pay every time you buy a property), and also to assist in the approval process so that you don’t need to pay Lenders Mortgage Insurance.

    So in this instance, the first home buyer would need about $182,811.00 saved to purchase a house that is the average price in Sydney.

    So to go out and get one of these “good jobs that pay good money” I assume these young people you speak of would need to go to university first.

    On average, it takes about 3 -4 years to get a degree, so if a young person goes to University straight out of school, they can expect to finish their course and be ready for the workforce at about 21, with a HECS-HELP debt of over $20,000. To make this a bit easier for you to understand, let’s say there is a young person named Joe Junior who has done just this.

    If Joe Junior is extremely lucky, and is up there with the best of the graduates from that course and that year, he will get a job straight out of University paying usually under the average wage.
    However, lets just be extremely generous here and say that Joe Junior got a job and was on the national weekly take home wage of $904 per week.

    Joe Junior needs to only save every single dollar worked for about 4 years to save his $182,811 deposit for their first home. Thank you, Mr Hockey, for throwing in that $7,000 first home owner grant too – that meant Joe Junior could get into his first home 8 weeks earlier!

    Just a quick side note, this example does not take into consideration the rising house prices, or Joe Junior’s HECS-HELP debt that he obtained from getting his degree to get one of your so-called “good jobs”.

    Joe Junior is now 25 (not so junior anymore), has been living at home with his parents this entire time and has not been able to spend a single dollar on any bills, board or holidays or public transportation. He also can’t afford a car or petrol for a car but then again “poor people don’t drive cars”. Oh wait, Joe Junior isn’t a poor person – he has a “good job that pays good money.”

    Luckily Joe Junior’s parents have been happy to drive their little Joe Junior to and from work every day and provide free housing, clothing, medical expenses and also provide the food for his breakfast, lunch and dinner each day.

    So finally Joe Junior has saved his $182,811 deposit (of which only about half will go towards his mortgage due to the stamp duty cost), and can now purchase his first home, with a mortgage of about $822,650.00.

    According to the Commonwealth Bank’s online mortgage estimator, the repayments for a mortgage of this amount are $1,073.00 per week over 30 years.

    So hopefully Joe Junior’s average weekly wage of $904.00 has gone up enough to cover the cost of the mortgage.

    Joe Junior has been applying for these “good jobs hat pay good money" that you speak of (I assume by "good money" you mean more than the average wage as you have just seen it is not even enough to cover the cost of the average house prices’ mortgage in Sydney), but hasn’t had any luck as yet. He needed to stay in the same job post university to demonstrate to the bank job stability so that he could purchase his first home. So he only has a degree, and experience in the one job, one industry, and there are just not that many jobs out there paying “good money.”

    Joe Junior now also can’t wash his clothes, eat food, or get to and from work as he no longer lives with his parents, so getting one of these “good jobs” is even more difficult.

    So Joe Senior, are you really aware of all the facts and figures when you says things like buying your first home is “readily affordable” to young people?

    Just slightly confused as to what you were thinking when you said these words at the media conference in Sydney.

    Looking forward to another one of your politically correct, direct and well thought out responses.

    Regards,
    Another baffled Australian

  • IMF’s Lagarde: Build on Greenfield Land

    Christine Lagarde, the Managing Director of the International Monetary Fund cited the need for housing market reform at the conclusion of discussions with the government of the United Kingdom on Friday, June 6.

    The housing market in the United Kingdom has experienced a long and continuing escalation in prices relative to incomes, largely due to the nation’s strict urban containment policies that date from the 1947 Town and Country Planning Act, and significant further restrictions put in place during the Blair government.

    According to Ms. Lagarde:

    "But rising house prices fundamentally reflect demand that greatly exceeds supply. Addressing imbalances in the housing market by alleviating supply-side constraints will require further measures to increase the availability of land for development and to remove unnecessary constraints on land use."

    The Daily Mail further reported that Ms. Lagarde "called for ‘unnecessary’ restrictions on building on greenfield sites to be lifted, so the supply of houses can be increased. This, she said, would help stabilise prices.

    The United Kingdom’s restrictive land use regulations have been a model for restrictive land use regimes from Sydney to Vancouver, Auckland, Portland and California. They have been responsible for driving up house prices relative to incomes, which reduces household discretionary incomes. The result is lower standards of living and higher rates of poverty. London School of Economics professor Paul Cheshire has concluded that urban containment policy is irreconcilable with housing affordability.

  • Sydney to Abandon Radical Urban Containment Policy

    The New South Wales government has proposed a new Metropolitan Strategy for the Sydney area which would significantly weaken the urban containment policy (also called urban consolidation, smart growth, livability, growth management, densification, etc.) that has driven if house prices to among the highest in the affluent New World (Australia, Canada, New Zealand and the United States) relative to household incomes.

    According to the Australian Financial Review, the state’s Liberal-National government plans to allow the building of more than 170,000 new homes, with the vast majority being on greenfield sites, largely beyond the current urban footprint. Premier Barry O’Farrell and his party had promised in their electoral campaign in 2011 to liberalize land-use regulation and to moderate the previous Labor government’s quota that required 70% of new houses to be built within the current urban footprint and 30% on greenfield sites. In fact, however, under the Labor government’s administration, new house building had been produced at a well below demand level.

    Among the major New World metropolitan areas rated in annual Demographia International Housing Affordability Surveys, Sydney has been the most unaffordable, along with Vancouver, in recent years. Sydney and Vancouver have had among the most stringent urban containment policies in the New World, and the resulting unaffordable house prices under such circumstances are consistent with economic principle.

    Premier O’Farrell told the Sydney Morning Herald that the government wanted to "make home ownership a reality again." He continued, "The more blocks of land (lots) we can release, the greater downward pressure we can put on housing because it’s been so high for so long." In a press release issued by his office, the Premier recalled that “Before the election, I said I wanted to ensure owning a home wasn’t a fading dream for young families" and noted that the massive housing package "will go a long way to delivering on that commitment."

    In the longer run (by 2031), the government intends to provide for a total of 545,000 new homes, while abandoning the practice of allocating locations based upon planning theory. Planning and Infrastructure Minister Bradley Hazzard told the Sydney Morning Herald that the government intended to “look further afield” than the presently planned greenfield suburban growth centers. He continued: "We’re trying to [be] less constrictive and restrictive and what we’re saying is the marketplace should have far more of a say in what the mix of housing is and where it should be,” adding that ”it doesn’t matter” what percentage was delivered in greenfield and established suburbs. He concluded: ”No one should be preoccupied by particular prescriptive formulas.”

    The government also indicated its intention to encourage one half of employment growth over the next 20 years to be in Western Sydney. Western Sydney is virtually across the urban area from the central business district. This dispersion of employment, along with roadway improvements in the area, is likely to improve the metropolitan balance between jobs and housing.

    The plan for greater job dispersion would, if successful, bring Sydney more into line with urban best practices, which are exhibited by the location of most new jobs in edge cities, as well as throughout the entire urban area. Sydney has among the longest work trip travel times in the New World. The one-way work trip travel time is newly reported in the Metropolitan Strategy to have reached 35 minutes. Work trip travel times are worse only in Melbourne, at 36 minutes. By comparison, Dallas-Fort Worth, with a larger population, a much lower urban area density and a mere fraction of the Melbourne or Sydney transit work trip market share has a far shorter one-way work trip travel time (26 minutes).

    The Sydney developments are the latest in a trend toward liberalizing urban land use in four nations.

    In October, the New Zealand government announced plans to liberalize land-use amid growing concern about the extent to which that nation’s urban containment policies have destroyed housing affordability. In the introduction to the 9th Annual Demographia International Housing Affordability Survey, Deputy Premier Bill English said:

    Land has been made artificially scarce by regulation that locks up land for development. This regulation has made land supply unresponsive to demand. When demand shocks occur, as they did in the mid-2000s in New Zealand and around the world, much of that shock translates to higher prices rather than more houses.

    Recent polling has shown support, by an almost 2 to 1 margin for government action to improve housing affordability, with even higher stronger support in the 18 to 34 age group, where the margin was more than 3 to 1.

    The United Kingdom Cameron government is also embarked on a program to liberalize that nation’s restrictive land use policies, which former Bank of England Monetary Policy Committee member Kate Barker found to be the cause of severe housing unaffordability in a report commissioned by the Blair Labour government. Planning Minister Nick Boles has characterized the unaffordability of housing as "the biggest social justice problem we have."

    In 2011, Florida repealed its statewide smart growth mandate and closed the administrative bureaucracy that had overseen the program. Before that, the government of the Australian state of Victoria substantially expanded the urban growth boundary of the Melbourne urban area.

  • Home Ownership and the American Dream

    What defines the American Dream? A new poll by Big Builder reveals that one answer to this enduring question may be home ownership. A major portion of the American population (59%) believes that they are living the American Dream. Respondents distinguished owning a home as the second most important factor of the American Dream, just behind raising a family.

    Another statistic in this poll seem to suggest that this trend may be more stifled as the younger generation of Americans (18-29 year olds) come to the crucial decision of buying a home. Still, 49% see home ownership as a “sound investment,” while 49% of this age group call it “too risky.” Perhaps the effect of the weak economy has been especially evident in this age group.

    Some interesting contradictions also arise in these statistics. For instance, 58% of those who believe the housing crisis is a chronic problem also recommend buying a home. Furthermore, 75% of respondents claim to not have benefited from any federal program to assist in ownership (such as mortgage interest deduction), yet 71% confessed to taking the deduction. The pollsters have considered that perhaps the government’s assistance in home ownership may be unclear for many Americans.

    A final statistic worth mentioning is that 58% of Americans believe that fulfilling the American Dream is influenced mostly by their own skills and hard work than by the current state of the economy. The ubiquitous American Dream still runs on hard work and the pressing notion of owning a home, it would seem.

  • Strategic Diminshment at the Heart of New Housing Policy

    Robert Samuelson in the Washington Post takes on the role of homeownership in our society. I’m generally a fan of Samuelson’s writing, a normally sober, cold-eyed analysis of issues without favor to one ideology over another, so imagine my disappointment when reading him say, “The relentless promotion of homeownership as the embodiment of the American dream has outlived its usefulness.”

    Of course, there’s more to his column. He goes on to say:

    Unfortunately, we let a sensible goal become a foolish fetish. Not everyone can become a homeowner. Some are too young and footloose; some are too old and dependent; some are too poor or irresponsible. Some don’t want a home.

    This is different that saying homeownership is not a worthy goal for our nation and is quite distinct from the ideas of Richard Florida, who has previously written that homeownership is overrated and who’s recent “Roadmap” to recovery focuses on de-emphasizing homeownership. Where Florida is right is in acknowledging that this would “blow up” the fundamentals of our economy.

    He’s also engaging in what I call strategic diminishment – that is, consciously pursuing a future that is less than our current state. Many elite progressives think we have it too good and that our lifestyle choices are harmful to ourselves and our planet. It’s not enough that they want to be scolds; they want to use the power of government to change America into a place where our quality of life is diminished.

    And progressives also glorify this reduction with a “less is more” attitude. The Washington Post recently presented the case against air conditioning, and USA Today reported on the banning of drive-throughs in the city that pioneered them sixty years ago. I’ve addressed strategic diminishment as it relates to the mobility and the Obama administration’s “Livable Communities Act,” but this is also true for homeowners and covers not just the percentage of homeowners but even the size of homes. Ron Utt of the Heritage Foundation warns how even the President has adopted a worrisome narrative on homeownership.

    Before we go off the deep end, let’s clear up two points. First, the crisis we’ve gotten ourselves into is not because people own homes. It’s because of the flawed policies promoting homeownership. We know about the role of the Community Reinvestment Act and Fannie Mae and Freddie Mac, but also contributing were various land-use planning schemes collectively known as Smart Growth.

    Second, homeownership has many benefits. Homeownership is more than a lifestyle choice; it’s a source of wealth and stability. And when homeowners take out a second mortgage on their homes, it’s often as a source for financing their own small businesses – another ideal we associate with the American Dream.

    There are countries with equal or greater rates of homeownership that do not have government intervention policies that skew the market. But as we consider housing policy at the local, state, and federal levels, what should be the principles on which it is based?

    • Owning a home is a laudable goal held by millions of Americans.
    • Homeownership is positive good that should never be discouraged by government policy.
    • Everyone should have the right to pursue homeownership, but not everyone is ready to be a homeowner.
    • Government’s role is not to determine who should be a homeowner or when and where they should buy a home.
    • Markets are better than mandates at creating the environment in which people pursue renting or owning homes according to their ability.

    Before we adopt A Nation of Renters as our new creed, let’s fix the broken policies that got us here.

    Ed Braddy is executive director of the American Dream Coalition, a non-profit grassroots and public policy organization that promotes freedom, mobility, and affordable homeownership. The ADC’s annual conference takes place September 23-25 in Orlando, Florida. For more information, visit americandreamcoalition.org or email Ed at ed@americandreamcoalition.org.