Housing Affordability Extract
Author's note: I wrote this in 2003, to the Tasmanian Minister for Housing. It fell on deaf ears. It was correct then, but has become even more pressing in the years since; the mountain of debt attached to the property market led directly to the Global Financial Crisis. Australia has not seen the full effect of that crisis yet. We are doomed to repeat our failures unless the underlying problem of land price is recognised, and the remedies are well understood. There is no sign of that yet. Leo Foley
The problem outlined
Why, in this modern age, is a simple human need such as housing so terribly difficult to meet?
Affordability is at record lows, while the proportion of lower income earners who can afford a home is falling. Not only are first home owners being pushed out of the market, but many others, who may have chosen to temporarily vacate the market for lifestyle reasons, or been forced to sell due to family difficulties or divorce, cannot re-enter the housing market, and are forced to live the remainder of their lives at the margin.
After expending billions of our tax dollars on an unending variety of programs, we still have the problem that there is not enough "affordable housing". Yet another inquiry is under way.
Even the so-called home owner is in trouble. Equity, the portion of the home's value that belongs to the owner, is falling. We don’t have homeowners any more -- we have people with debts!
Home sweet debt!!
The result of low affordability, low equity, and high debt, is a social disaster in the making, with increased bankruptcies, divorces, and ruined lives. Tasmania is now a microcosm of the world. . Policymakers must address this growing social problem.
The critical omission
There is a serious omission in the debate on housing affordability. Perhaps it is because it is a 4-letter word, but it needs to be spoken out loud. The omission is the price of land! We talk of property prices, or the price of houses, but it is not the price of the house that has escalated in recent years, but the land that it stands on.
The ABC News reported, 4 August 2003, that the Federal and State governments each blamed the other's tax regimes for the high price of housing. Stamp duties versus GST. But the ABC gave an example of a $507,000 "house and land" package, showing that total taxes on the package were $109,000, including stamp duties of $18,000, and GST of $34,000. The cost of the house was approximately $150,000. That leaves $248,000 for the price of the land.
While the debate raged over the impact of stamp duty and the GST, the cost of land was totally ignored. Land is nearly half of the total cost!! The problem is obvious, yet we dare not speak its name.
Read the full report here.