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Are we really serious about tackling housing affordability?

Let me ask you a question. Would you like housing in Sydney to be more affordable? As this is like being against motherhood and apple pie I suggest you all correctly answered “yes”.

Let me ask another. Would you be willing for the price of your home to go down the 30 per cent required to make it more affordable for fellow citizens on average salaries? And will you crucify the politician who dared to take away the Sydney home-owner’s divine right to double digit house-price inflation?

Therein lies the policy and political problem of housing affordability – and not just in Australia.

As house-price inflation is a policy problem for most successful economies, so too is it a political problem well beyond our shores. However, the difference may be that – to their credit – Australian politicians of all colours are at least calling this out as the key problem faced by our communities. The question is this: will they really get to grips with the real sources of house price inflation? And more important still, will we let them?

I ask all this in a slightly world-weary manner as I’ve been here before. Not here exactly, but the UK between 2005 and 2010 where I advised five consecutive housing ministers on the economics and politics of housing.

You may recall that period is known in Australia as the Global Financial Crisis – though Australia didn’t really experience it – and “the crash” in countries which did. In the UK housing delivery halved. However, interestingly, house prices also went down in real terms by over 15 per cent. To repeat, housing supply went down and prices went down. In Sydney, after a bumpy period, annual housing delivery doubled since 2011 but the price has gone up 40 per cent.

These facts are part of why I am sceptical of the link between increased supply and increased affordability. Housing prices have actually increased with supply partly because what has also increased is access to cheap cash in a low interest rate economy, particularly by those who already own a home.

So multiple home ownership is growing while first time buyers cannot enter the market, even though we are building many more homes. Guess how many homes Australia built in 2016? Over 140,000. And the UK? 150,000. Yes, that’s right, we built just about 2.5 times as many homes per head of population than the UK – and prices here accelerated faster than there. How many more homes do we need to build before the price drops? And by how much? And do we even want it to drop?

When you ask these questions you realise that the housing affordability debate is not being properly framed in terms of the objectives of public policy. That is because it is being wrongly understood as only a supply problem.

It is better understood as a problem of asset price inflation due to excess liquidity and leverage flushing around the globe. In Australia, this is combined with an overemphasis in public policy on protecting the capital gains of existing home-owners on their journey to becoming rentier landlords. We are indeed becoming a nation of unproductive rentiers – or rather 65 per cent of us are. The rest are just renters. This is now a zero-sum game.

From this perspective, building 35 per cent more units a year in Sydney than at present by 2026 – an emerging government target – may be socially necessary. I support it. But it will have little impact on affordability. I’d be interested to see the government modelling that proves otherwise. But then this returns us to what exactly is or should be the objective of public policy?

I suggest the best framing of the policy objective, in the public interest, and to enable first time buyers to come back from the edge of extinction, is this: It currently takes 10-12 times average salary to afford a home on Sydney. It was 3-5 times in the ‘80s. What interventions or policies by government would over time get us back to the levels of previous eras?

Similarly, the long-term average annual price rise for homes in Australia before the explosion of the last 20 -25 years was 3-4 per cent. It is now rising 13-15 per cent a year in Sydney. What would take us back to the boring but socially beneficial growth rate of the pre-bubble period?

Finally, in Sydney today, first time-buyers are below 10 per cent of the market with investors cornering far more homes. Until the ’90s they made up well over 20 per cent of buyers. What would enable us to rebalance the market to what it was? If we are not asking these questions we have to ask, are we serious as a society about answering the affordability challenge?

Further, and even more fundamentally, what if the genie of un-affordability cannot be put back in the bottle and fewer and fewer rentier landlords result in more and more renters?

Home ownership is in dramatic decline already and that seems likely to continue. Not only could that mean politicians waking up to the fact that renters may have increasing clout and need looking after – greater consumer protection around leases and landlord obligations, for example.

It could also remind us that in most societies on the planet renting is the norm and locking so much capital in bricks and mortar is viewed as restrictive on the movement of labour and unproductive economically in comparison with other uses for investment. From that perspective, reducing the national and divisive obsession with property is about raising capital and investment for jobs in the new economic future of Australia.

Tim Williams is chief executive of the Committee for Sydney.

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