The housing market is not effectively closed to most young women and men by accident. House prices keep growing not so much by excess demand but because of the rewards we give investor buyers, the advantages in place for those already in the market and the tax and other advantages of owning a house, whether for one's own family or as an investment. First home buyers will always be at the back of the queue while others have such advantages and they don't.
Sooner or later, everyone seems to agree, there must be some reckoning between the steadily increasing price of land, which is making older people richer, and the ever-increasing gap between what young men and women, and young families, can afford to pay to get into the housing market. The doomsayers expect that if, or when, the "tipping point" is reached or "the crunch" comes, the result will be very unpleasant for many Australians, and perhaps for the commodity by which they have most estimated their wealth.
If it was as inevitable an outcome as conventional wisdom has suggested, it is surprising that the apocalypse has not yet occurred. The disparity between land and housing costs began to rise steadily four decades ago, after about four decades of land prices only a fraction of what they are, in real terms, today. Economists and social scientists began pointing to the problems being created, particularly by the rationing of land: families were finding it more and more difficult even to raise a deposit, let alone to persuade a lending institution that they could comfortably service a mortgage. The cost of getting into the housing market relative to average wages and salaries has more than doubled in real terms, even as job security has declined, as wages and salaries have flatlined, and the available land and housing is ever further and further from central business districts, easy commutes, and jobs.
Older people are parents and grandparents too and worry about how the next generations are ever going to get into the housing market. The inexorable increases in housing prices, well beyond inflation rates, are not necessarily their fault, and many people in older generations have been transferring some of their additional wealth to their descendants to help with deposits or the appearance of built-up savings. But it is hardly any surprise that higher house prices are very popular with those who find their equity increased, and that there is very little in the way of a political dividend for politicians, planners or bureaucrats who combine either to hold down house and land prices, or even to encourage significant falls in land prices. Even those desperate to get into the market may quail at some interventions, given that it would suggest that their new investment is somehow less secure than it was.
It has long been conventional middle-class wisdom in Australia that land is a very secure investment, one in which prices will rarely, if ever fall. That is, of course, not so, and sooner or later those who speculate too much on this account are doomed for big losses, particularly if they do not progressively increase their equity. Yet in Australia, far more than in most other nations, there is an element of a social contract about holding up most housing prices, particularly at the middle and bottom, much as there are de jure or de facto bank deposit guarantees for the middle class. Government is committed to maintaining the "value" of city and suburban land for the benefit of the middle class. It pulls the levers to keep prices high, and to encourage demand if there is ever any risk of its declining. Those levers involve tax breaks for owning a house, for investing in more houses (through reverse gearing and such other schemes), and supposed subsidies for new house buyers (which inevitably drive up prices, mostly to the disadvantage of new home buyers themselves).
But the chief means by which government is propping up the housing market is by restricting the amount of land that is put on the market. When, as usual, government owns the land, and is at least a co-developer of it, it has a real conflict of interest in pretending that it is trying to help young Australians get into the housing market. It wants to maximise its take, and its profits, the more so when land, or house and land sales, go on to the bottom line of annual revenue. Restricting the amount of land available - and in many cases restricting the types of land that is available - drives up prices and profits. Flooding the market with serviced land raises the risk of actual falls in the price of land. More measured releases, based on reasonable calculations of likely demand, will tend to keep prices down.
It is not only government that is benefiting, whether in Canberra or elsewhere around the nation, from artificial restrictions on the volume of land releases. Increasingly, government is co-developing with private sector partners, and often using statutory agencies to play both sides of the market at once. Whenever this happens, as integrity bodies around the nation have been noticing, one continually sees the same players in the market - at the one moment acting as agents of government land agencies, next as consultants about value and demand for the private sector, then next as developers in their own right, while putting on fresh hats as the occasion suggests. Some claim "success fees" from each other - invariably passed on to taxpayers; others are treated as having legitimate insider rights because they have proposed some obvious appropriation of public use to private wealth. In the very best jurisdictions, the whole merry-go-round is supervised by "independent" boards of land developers.
Quite apart from the price premium caused by artificial restrictions on demand, the deformed development and marketing arrangements are transferring some of the increased land value to private developers - at a cost to new house and land buyers. It was once pretended - certainly in jurisdictions such as the ACT - that the housing development market was not about profiting from the sale of land, but from the sales of buildings on the land. This is no longer true, and no one pretends that it is. Indeed the ACT government fails to carry out its duties of preventing land-banking and property speculation by major developers - a process directly adding to costs.
Old Canberra a model of cheap land and government housing
Canberra was once in a position to show Australians how ordinary working people could get into the housing market at a fair price. That fair price, in today's terms, was about a third of current prices. The National Capital Development Commission - the trustee of the land of the ACT - developed planned land. It serviced blocks, streets and whole suburbs and released it to government at its rough assessment of demand over the year ahead. Another agency was involved in organising the sale of these blocks, whether over-the-counter at the list price, or at auction. People buying for the first time bid in a special market, but not so in a way as to greatly distort land values, because of the range and types of blocks available. In any new suburb - and there were times in the early 1970s where a suburb a month, generally then in Belconnen or Tuggeranong, was being released - there were attractive blocks, views and sizes fetching higher prices. An estimate of a price was made, those who secured a block (at least until the Gorton government ruined the scheme in 1970) had to pay down only 5 per cent of the list price, plus any premium set at the auction.
Canberra was growing fast, and the public activity in the land market was not only a result of conscious decisions at federation, but of involuntary transfers of young public servants to the national capital from across the nation. These people required accommodation, if they had families, or after they paired off and began families, they wanted houses but needed help in getting into the market. Cheap land was buttressed by housing schemes resembling the ones by which a generation of Australians and British had first acquired secured accommodation - via a public housing list. For many, the first movement into housing was into public housing - a "guvvy" of two, three or four bedrooms, according to the size of the family. These were rented at proportions of salary, but in such a way that the overall scheme was commercial; in due course tenants would be able to buy the houses if they wanted. A special housing loan scheme - with some means testing - provided first mortgages. There were permanent building societies and credit unions, as well as the banks, topping up first mortgages.
Every day The Canberra Times would announce that three-bedroom guvvies were being allocated today to people who went on the list on a particular date (say two years ago). Two-bedroom houses were going to those who enrolled on another date. Within that scheme government was also allocating priority housing to some classes of public servant, or to welfare cases. The average guvvy was about 115 square metres - about half the size of a modern separate dwelling. But the guvvy was designed to be extendable, particularly on then generous blocks. Nowadays, a more average 200 square metre dwelling looks ridiculous on blocks half the size, unable to provide either recreational space or environmental amenity. The over-building contrasts with ever declining family sizes, and with reduced numbers of people in households.
During the slow-down of Canberra growth ordered by Malcom Fraser in 1976, the allocation of government housing was sharply wound back, until it was largely confined to housing for people in need of welfare assistance, including single mothers, victims of sexual violence, and people with drug and mental health problems. At first these were scattered throughout the community - in the plush suburbs as much as in the poor ones. Increasingly, however, policy was to concentrate such folk (inevitably much magnifying the social problems involved). In more modern times, policy, particularly from the Labor Party, has focused on selling off public housing in older, wealthier suburbs, and sending public tenants to the edge of the city - often tens of kilometres from familiar services and friends. This is justified with the pretence that inner-city land is more valuable, and that, thus, the sale of such land allows more social housing to be constructed elsewhere. This is largely a furphy, one which, however, permits the now vacant land to be sold at premiums to yuppies - most of whom are not first-home buyers.
Those who won't inherit and can never open the door on housing are trapped in poverty. Addressing this with housing help is cheaper than leaving them houseless; and even then they will not be getting the public subsidies housed Australians are getting.
Over time, a substantial proportion of those frozen, when young, out of the market will inherit houses from their parents - if generally at a time when they hardly need the financial help. The typical age of inheriting a house is now over 60. The better off will have already paid off their own home, and soon have another fully-paid-for. But a significant proportion will not inherit, because the generation above, and above that, were frozen out of the market. These are the people, mostly identifiable now, trapped in long-term generational poverty. Dealing with the problems this causes is cheaper than leaving them houseless; and even then they will not be getting the public subsidies housed Australians are getting.
It is now commonplace to observe that the biggest single thing government can do to lift a family out of poverty is to help people into secure housing. The front-on cost may be high; the down cost of having people ever out of the market is many times greater. But it is clear that older Australians - those comfortable and secure in their own homes - are not willing to sacrifice, through taxation, any of their advantages, including steadily increasing real land prices. The wealthier may subsidise their own children, thus compounding the inequities. Subsidy and grants schemes drive up prices but do not help any more than "encouraging" banks to lend against small deposits, poor credit records or insecure income. Solutions cannot start or end in this quarter.
What can be done? Talk of plans to increase the amount of "social housing" built is welcome, and at the base of reducing systemic inequality. But it must be a continuous investment, not one seeded with an initial grant and an expectation of internal funding. Voters also have cause to doubt the bona fides of Labor governments, given the role of state and territory Labor administrations in diminishing and running down social housing supplies, as well as manipulating the land market.
I do not think that politicians will dare change the tax-free status of the family home, or set out to dent the modern expectation that houses will be passed, tax-free, to the next generation. The best that we could hope for is modest land taxes (at levels incorporating rates and municipal payments but at, say twice present levels). In progressive territories, such as the ACT, the take from such taxes is already hypothecated to pay for lower stamp duties and the abolition of payroll taxes. But it would be good to imagine that such sums, along with the "profits" of government land speculation, could be used to reform the land market for modern and future families.
I do not think that we can re-invent or go back to the past. Even less can we expect to drive down the price of land in any significant way. Yet there are possibilities, with echoes of the past, allowing a focus on need, and dignity and choice. It involves making the community - probably government itself - a substantial partner with families in building new houses, even in refurbishing old ones. The co-investment could operate somewhat like a rent-purchase scheme, with repayments being ploughed back into the system. Indeed it could borrow from some modern-day Australian economic concepts such as HECS-style schemes. Even if it worked on a budget far greater than current social housing, first-home grants or subsidies, there is scope for private sector participation in funding through housing bonds.
- Jack Waterford is a former editor of The Canberra Times and a regular columnist. email@example.com