In Australia, every Federal election, the major political parties promise housing and jobs, without fail. With the exception of the globally-weird post-pandemic situation of low unemployment, these are perpetual promises that go nowhere.
Housing affordability – the ratio of income needed for rent or a mortgage – has never been worse, in Australia and many other wealthy countries. This is a natural result of inequality and stored wealth not being taxed sufficiently. The rich are wisely putting their money into income-generating assets and we know that housing is safe “investment”.
The problem can be fixed by the government, by building houses (or rezoning land) to meet demand, and possibly reducing immigration, because an extra 500,000 people in one year can only make things worse.
Possibly, the government(s) fear oversupply, just how their magic unemployment number is 5% because, heaven-forbid, we don’t want employers to be unable to find workers. Not one, not ever, because business is more important than people.
The Brookings Institution makes some valid points about supply, some of which do not apply to Australia – we do not have a Detroit where every second house is vacant…
- Housing is long-term. Unwanted houses don’t simply go away, they last for many, many decades
- Housing is highly localised. People like to live near work, so job opportunities, or the lack of, are a big factor. Once a factory shuts down, there is a flow-on effect for local business.
- Governments are in control, of permits and zoning and taxes and incentives. So pure capitalism is not able to fix it, or make it worse.
Measuring actual demand is hard. There are people who want to live somewhere better (like grown kids moving out of home, or ending homelessness), but many of them cannot afford to. The only real way to know when there is too much housing is when affordability comes down to where it was in days of less economic inequality, and there are too many vacant properties.
By the time we notice oversupply, several years worth of extra new housing builds are probably still to arrive. You cannot get your money back on a half-finished building…
One Australian expert describes the type of economic doom that the rich and conservative politicians will cite as reasons for never having too much supply:
While under supply puts upwards pressure on prices, oversupply, although rarer is disastrous. The capital losses can be huge, firms bankrupt, jobs are lost, careers disrupted, tax receipts plummet, the general economy falters.
I would suggest that none of those will occur when the oversupply is moderate. What he is talking about is that oversupply will mean property prices drop, and those who made massive gains in the property market will need to cope with lower returns. Those who stupidly became over-leveraged will learn a lesson.
None of the experts I found online factored in the following that will arise from more affordable housing coming from increased supply:
- Young people will leave home earlier, because they can afford to sooner
- People in shared housing, the majority who would rather have their own place, will be able to
- Any public or private initiatives to end homelessness will be able to help more people
- Tree-changing or sea-changing will become more affordable, helping increase availability in cities, and reinvigorating the countryside
- A flat market will entice more elderly people to downsize instead of clinging onto their mansions to get capital-gains-tax free profits
- We will see an end to cheaply-made, miniature apartments in CBD skyscrapers, that councils are happy to have because of increased rates and population.
Hopefully some of the very rich people who have used extremely generous tax breaks for homes to get richer, will now consider actual investments instead.