Another senate enquiry into housing affordability – but what’s happened since the last?

Another senate enquiry into housing affordability – but what’s happened since the last?

In the final hours of Federal Parliament for 2013, Labor Senator Jan McLucas succeeded in establishing an enquiry by the Economics References Committee, in addressing Australia’s growing housing affordability crisis, stating;

“…pressures on affordability of housing in Australia have continued to intensify, especially in capital cities and mining communities..”

This appears to be ‘good news’ and something a growing ground swell of homebuyers and renters, limited by budget and feasible supply have been hoping for.

The inquiry is set to investigate the role of all levels of government in facilitating affordable home-ownership and affordable private rental, social, and public accommodation.

Importantly, it will, also look into policies designed to increase the supply of housing – perhaps the most critical and well proven factor in the potential long-term effectiveness of any sustainable solution.

However, as welcome as any enquiry into housing affordability is, I question why we are using taxpayer dollars to produce a repeat version of the investigation undertaken under the Rudd administration, in June 2008?

The 2008 report entitled “A good house is hard to find: Housing affordability in Australia” was detailed in its content, drawing on evidence from organisations such as the Housing section in the Department of Families, the Master Builders’ Association, the Planning Institute, the Urban Development Institute, the Housing Industry Association, NATSEM, and the Treasury.

It addressed Australia’s tax policies, such as capital gains tax and negative gearing, which under the current structure, are widely recognised as having a negative impact on affordability and market activity – and an assessment of the construction industry’s, future skilled labour workforce – a job to be undertaken by the National Housing Supply Council, which has subsequently been abolished by the Abbot government, thus giving a very clear indication where their priorities lie (not with housing.)  It also covered rental accommodation, and social housing policy.

The report correctly stated “the need for greater responsiveness of land release and housing supply to market demand.” Stressing, “efforts to this end should occur in a variety of contexts.”

Some of the highlights included;

  • Recognition that state and local governments’ planning processes are too complex and often involve long delays and high costs.
  • Housing supply not adequately facilitated with community infrastructure.
  • Developer infrastructure charges being too excessive and further restricting supply and inflating purchasing costs.
  • The negative impacts of the ‘urban growth boundaries’ implemented by the Victorian and South Australian governments, resulting in land banking and increased prices.
  • The type and quality of housing being constructed – i.e. not appealing to elderly downsizers or single parent buyers.
  • And notably – a critical assessment of New South Wales, with the suggestion it had ‘probably’ done more than any other state in Australia to restrict the opportunities for urban growth on fringe land.

The 238 page document contains many submissions, including this one, by the New South Wales Division of UDIA (Urban Development Institute of Australia)

in which Mr Blancato recommends the Commonwealth government expedite the release, rezoning and servicing of Commonwealth land with critical lead infrastructure to support the supply of new dwellings to the market;

“We are proposing that there should be an amount of land—a forward train

of land of maybe 20 years—that is released and serviced.

The word ‘released’ is something that is very difficult to get a handle on. You will

have successive governments release the same patch of land five times but

not a dollar will be spent on infrastructure. ..

The government used to invest in it—20 years ago you would go out to a release like Blacktown and the main sewer carriers were in and the sewage treatment plant was built. You would go out there and you could develop this five-acre parcel or that five-acre parcel. You might do a little bit of a lead-in, connecting infrastructure, but it was affordable.”

Whilst I wouldn’t advocate all the recommendations concluded in the paper, it’s five years later and we seem to be no further forward.

Prices continue to rise from a bull run on established property in our most populated states – and first homebuyers are barely treading water against a speculative investment sector.

Urban boundaries and a propensity towards land banking, hefty tax overlays and poor infrastructure development, ensure land on the outskirts, continues to be priced at a level that doesn’t incentivise buyers to correctly evaluate the trade-off between price and time, and therefore demand remains marginal, with a downward slide in the number of new dwellings completed per annum.

There is no forward thinking on infrastructure financing, or a full understanding that people don’t purchase houses as much as they buy into communities.

Additionally, there is little diversity on the type of housing built in greenfield developments to enable newly created suburbs to market to a broad socioeconomic mix of residents, who do not just want McMansions built to the edges of a 400-500sqm blocks of land.

Rents continue to rise, with vacancy rates in areas such as Sydney, close to 1%.

Crowded houses – with three or more families sharing accommodation, has increased nationally by 64% to 48,499 (ABS.)

The ACT is abolishing stamp duty over a slow transitional 20 year period and reverting to a land tax system, and some states have reduced stamp duty payments for first home buyers, however there has been no action federally on recommendations in the Henry Tax review on negative gearing, capital gains tax, or the rapid rise of residential investment and gearing in SMSFs.

So what happened?

In one respect it’s the deluded thinking perpetuated by policy makers, who theorise urban sprawl to be essentially bad, imagining it’s possible to develop affordable housing on expensive land in inner urban localities, whilst painting a picture of a bright ‘future’ where residents live a handbreadth apart, compacted in small apartments around existing infrastructure hubs within computable distance to the CBD, as if nothing exists outside of our capital city gates – questioning ‘isn’t this where everybody wants to be anyway?’

As if to prove their point – when fringe land is released, and an additional abundance of ‘roof space’ is built, it fails to lure a diverse range of homebuyers because – as the 2008 report correctly highlighted – the housing lacks diversity, the cost of raw land remains too high, and the developments are burdened with hefty taxes transferred onto the buyer.

More importantly, the surrounds are not adequately facilitated with infrastructure such as schools, transport, medical and recreational facilities, to cater for an individual and family’s personal needs.

Therefore, our outer suburbs tend to be black listed as low socio economic hubs, populated by those who are deemed to sit at the ‘bottom’ of the housing ladder.

I listened to an auctioneer’s pre-amble a few days ago, which summed it up perfectly.  After he elucidated the various attributes of the modest 2 bedroom home, he threw his hand’s up and with a flourish, exclaimed, “and let me tell you what you get for free!” – and proceeded to point out the local school, shopping strip, and park.

Accordingly, if a buyer is able to travel to work, the supermarket, and any other amenity on the priority list within a 30-40 minute period, the distance from the CBD is not an imposing factor – the decider is in the time it takes to drop the kids off to school in one direction, and travel to work in the other.

Furthermore, an acknowledgement that the value of land, and the capital gains achieved by its owner lays in the facilitated connections around it, forms the argument for broad based land value tax, as I explained here.

The Annual Demographia International Housing Affordability Survey has aptly demonstrated, in cities where supply is not artificially constrained by poor policy and planning, which fails to cater for community needs, house prices remain affordable and relatively stable.

Realistically, a well developed city, which has policies flexible enough to meet the demands of its home buying demographic, should see price rises track only the rate of inflation, with growth in household incomes somewhat influential in those areas in which there is greater demand.

Not the well spruiked figures of 7 per cent + median growth per annum we experienced in some suburbs prior to the GFC, – or figures outpacing both wage growth and inflation

Across Australia, every state faces its own intrinsic economic and geographical challenges, for which housing policies need to be flexible enough to adhere, local resident voices need to be heard, and councils need to have the freedom to respond.

However, if the only options we offer first home buyers are candy style incentives in a low interest rate environment, which must stay at rock bottom levels in order to support the inflated levels of debt it encourages – then over the longer term our real estate obsession from which so many feed, will become a noose around the neck, provoking broader concerns.

It’s very important we correctly understand where our policy makers have let us down in the delivery of affordable housing stock, because a worrying trend is starting to emerge which was highlighted in a recent news report, showing footage of Julia Gillard’s Altona house auction.

In the post auction interview, the sales agent said that the Chinese purchaser wanted her to express to everyone that ‘she is an Australian citizen…

The comment speaks volumes – emphasising how important it is to stop blaming current high prices solely on ‘foreign buyers’ whilst at the same time, singling out a unique demographic – a large proportion of which are Australian citizens, work and pay their taxes, and have a right to purchase residential real estate.

One of the most powerful tools for the regulation of any market is transparency. Without it, speculation ensues and leads to undesirable assumptions – such as the belief that every Asian face seen at an auction is ‘foreign’ – and clearly this Chinese lady has noted the negativity.

The reason real estate prices are high in Australia, is due to years of poor government policy and planning – and this is where the blame should be placed and this is where the pressure should be directed.

Catherine Cashmore

 

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Housing – apparently the only item than can be both affordable and unaffordable at the same time….

Housing – apparently the only item than can be both affordable and unaffordable at the same time….

The latest affordability index by the Adelaide Bank and Real Estate Institute of Australia has once again flooded the real estate headlines with the jolly news that housing is growing ever more affordable.

This pre Christmas gift of optimism from the newly updated ‘affordability’ studies commissioned by the financial and real estate sectors, comes with a host of commentary – usually from those with a vested interest – who happily advise aspiring homeowners that ‘they’ve never had it so good’ – in other words, to paraphrase Terry Ryder’s thoughts, first home buyers should ‘put up, or shut up.’

Of course, it wouldn’t be half as palatable if it didn’t come accompanied with the seeming contradiction that not only is it more affordable than it’s been in the last decade (according to the HIA-Commonwealth Bank affordability index,) it’s also substantially more expensive than its ever been – yes, housing is only item than can be both affordable and unaffordable at the same time.  Work that one out Einstein.

In fact, according to Residex, median prices in both Sydney and Melbourne have already exceeded their historical highs, ‘nudging’ $750,000 in Sydney and $600,000 in Melbourne – additionally, Perth has also reached its previous peak of 2008, with a median price of $521,000.

RPData’s dwelling price index shows a year to date increase of 14.3% in Sydney, 6.4% in Melbourne and 9.7% in Perth.  For homebuyers, the benefit derived from lower lending rates has been all but offset by the inflationary pressure placed on prices.

Rarely is it mentioned that housing affordability and the cost of servicing a mortgage are two separate entities.

Mortgage rates are set up with different structures dependant on circumstance, and subject to interest rate changes influenced by the macro environment.

To take out a 25 year mortgage requires the expectation of secure employment in a terrain where frequent job changes or part time work are becoming a norm.

They may influence house prices through a cycle, but they do not take away the fact that home prices now – even with lower lending rates – require longer terms to pay down, with the interest over the duration of that period adding considerably to the capital cost.

In fact I couldn’t put it any better than current governor of the Bank of England – Mark Carney, when he warns;

“Think about the mortgage you are taking on, the debts you are taking on…You are taking at least a 25-year mortgage, maybe a 30-year mortgage.  Are you going to be able to service that mortgage five years from now, 10 years from now, if interest rates are higher? Or are you counting, even subconsciously, on the price of your house keeping going up and if something happens an ability to sell it quickly and not facing the consequences of not being able to pay?”

Carney’s cautionary words pre-empt the Bank of England’s decision to scale back its inflationary ‘Funding for Lending’ scheme amidst fears of a rapid escalation of house prices in the south-eastern regions of the country.

From next year Funding for Lending will only be available for business loans -not mortgages – and if the banking sector’s concerned about signs of frothiness in an industry in which it’s heavily invested, so should we also be.

The BoE governor is not alone. Central banks in Sweden, Hong Kong, Norway, New Zealand, Canada and Switzerland (to name but a few) have all adopted macro prudential measures to buffer against the associated risks of a boom/bust investor lead recovery in a post GFC environment – highlighting the importance of keeping lending standards robust – all, that is,  except Australia.

Having weathered the impact of the GFC a little more effectively than others – the RBA seem to think we live in some ‘magic faraway tree,’ effectively doing little more than wagging a cautionary finger to a sector which, for the duration of the year, have outstripped owner-occupier lending with well over a third of all new loans on ‘interest only’ terms and roughly the same proportion with LVRs of over 80 per cent.

In other words, there are still over a third of all loans in which the principal is not being reduced – with 37.3% lent on these terms for the September quarter alone.

In NSW, investment lending is at record highs, making up over 50% of the market, and although many use the well worn argument that the unwanted boom is predominant ‘only in Sydney’ – let’s not forget, Sydney is not some nether land off the coast of Tasmania, what happens in our biggest capital with the largest and most diverse economy in Australia, inevitably impacts us all.

Historically, this sector is more sensitive to interest rate changes with a tendency to wax and wain pro cyclically with market movements, exaggerating both gains and falls.  A housing recovery built on the back of small mum and dad investors pouring their money predominantly into negatively geared established dwellings – especially considering our current levels of private debt to income ratios – is not ideal for the long term stability of our housing market, or house prices.

The common Aussie term ‘spruiking’ – which APRA warns against in the self managed super sector, is not only a contributing aspect of what inspires our culture to see property as the undiversified road map for building wealth for retirement – it is also part and parcel of what has kept our property prices high by both local, and international standards.  Yet the risks associated with spruiking in SMSFs is simply the tip of a much larger iceberg.

Having worked in many aspects of the housing industry, I have seen first hand the type of material that’s presented at seminars not just from those who receive under the table commissions from developers, but also from advocates working as independent advisors for either the seller or buyer.

It really isn’t unusual to see slides presented at seminars with straight lines charting the difference between investing in properties that supposedly “grow” at steady 5% per annum, compared to those that grow at 10%, using historical median data as ‘evidence’ that future returns can replicate those achieved in the past, without any distinction of how such data is correlated or the difference between individual “house prices” and “median values.”

This information borders on financial advice and comes with no mention of risk or the type of rigorous analysis, which you would reasonably expect when choosing to invest in a single asset.

Another widely used industry favourite is the statement;

“FACT: fewer than 5% of properties are investment grade”

A myth if ever there was one.  Perhaps the well-known companies that use this as an advertising tool, would like to point to the person who researched every property in Australia to correlate such a statistic? Maybe we could also ask for a comprehensive definition of what ‘investment grade’ really is – because I guarantee there would be no shortage of differing opinions from industry ‘experts.’

This endless promotion of residential property, with rows of investment magazines lining newsagency shelves, promoting subjective ‘hotspots,’ or as I pointed out a few weeks ago, agencies cold calling households, and sending ‘advisors’ round to ‘educate’ and encourage inexperienced investors to negatively gear against their principal place of residence, is toxic.

Meanwhile, the RBA continue to sit on their hands, not wanting to pull a regulatory lever, instead warning investors to employ caution, hoping they will fall into line like a bunch of good school kids. However, whilst macro prudential tools may assist in ensuring banking lending standards remain robust – can they have any long-term sustainable or lasting impact on property prices?

In a recent research paper by BIS (Bank for International Settlements) entitled “can non-interest rate policies stabilise housing markets?” – evidence was gathered from 57 countries spanning more than three decades, investigating the effectiveness of nine non-interest rate policy and macro prudential tools on restraining credit growth and house prices.

The analysis used a new dataset going as far back as 1980, making it the most comprehensive study to date in terms of both scope and time span.

The paper concluded that whilst reductions in the maximum LTV (loan to value) ratio can restrain demand, its effects can be partially or wholly offset by a rising market enabling the investor to borrow more, therefore, changes in the maximum DSTI (debt service to income) ratio were assessed to be more substantial.

But importantly;

Only tax changes affecting the cost of buying a house, which bear directly on the user cost, have any measurable effect on prices” and,

None of the policies designed to affect either the supply of or the demand for credit has a discernible impact on house prices.”

The study puts this down to the ‘can buys’ still outnumbering the growing pool of credit constrained ‘can’t buys’ – stressing that the importance of housing supply was not explicitly considered. Therefore if we want to lower house prices or put in place policies to aid affordability, we need to look outside the limited powers of the RBA alone

As has been proven time and time again, intermittently stoking at the bottom end of the market with FHB grants and incentives does little more than provide a short term ‘happy pill’ for vendors, as the price multiplier effect ripples across the rest of the housing terrain, stimulating both an inflationary and volatile environment

Instead, we need to focus on the real problem in Australia – and it’s not property prices, it’s land prices – as economist Leith Van Onselen effectively points out when he analyses the difference between commercial and rural land compared to residential land values, and building costs.

“Whilst commercial and rural prices have remained relatively stable over the last 24 years relative to GDP, residential prices have skyrocketed…”

In other words, the cost of residential fringe land, which without constraint, should be close to its ‘raw’ value, is not cheap at all – and it’s all down to ineffective urban planning policy.

As I (and others) have pointed out previously, even within a wide expansive boundary as mooted in Melbourne’s new urban growth strategy, the government limits land use until they have gone through a lengthy process of mapping out areas for infrastructure known as a ‘Precinct Structure Plan’ – it is a slow laborious process and as soon as you restrict the supply of anything, scarcity inevitably inflates values.

Larger developers are not slow to purchase swathes of acreage prior to rezoning, and then once ‘Psp’s’ have been finalised, drip feed it onto the market. Not only do Government bodies have little understanding of how released plots respond to consumer demand, they have no policy in place to deter the practice. It’s therefore a failure.

Furthermore, facilitation of infrastructure is currently financed via hefty development overlays, which are passed onto the buyer rather than initiatives such as bond financing, where residents pay back proportionally over a lengthy period of time, as was the case historically.

We must remove these barriers with effective policy and let land prices revert back to normal levels to reflect a ‘real price’ closer to commercial values.

Without doing so, we can’t gain a true indicator of the trade-off buyers are prepared to make between price and distance. Currently, the average price of a newly built house and land package is around $400,000, this is not serviceable on the single median wage, and therefore can hardly be deemed affordable.

Get the land supply – price – and infrastructure equation right, and I suspect there would be no lack of demand from genuine aspiring homebuyers.  Only when this is done, can we have a truly transparent debate on first homebuyers wiliness to ‘spread over the land.’

Catherine Cashmore

Empty words as FHBs sold out on housing policy…

Since I started writing about housing policy and citing the growing concerns many are having with the rising price of accommodation, it’s been somewhat heartening to see a greater array of individuals acknowledge an undeniable widening gap between existing owners, and a growing pool of ‘wannabe” renters.

Most recently, ALP member for McMahon in New South Wales, Chris Bowen, was reported saying “”I can see the difficulties for young and first home buyers of getting into the market,” citing an ‘affordability crisis’ to be a“serious national issue”.

Whilst many parents would recognise the struggle first homebuyers face and wish for an easier path to enable their children, to gain a foothold into what’s too commonly termed the ‘property ladder’ – as if it’s something to be conquered – emphatic remarks such as those offered above are easy to make when decision-making is out of party hands.

Yet, it was only a few months ago, when challenged over affordability on Q&A, and lacking any real policy initiative going into the federal election, that Chris Bowen remarked:

“There (are) two big things that we can do to help with housing affordability. That’s keep unemployment as low as possible. Because you have got a job, that’s the best thing you can do to get into the housing market. And also to keep interest rates low and interest rates are as low as they’ve ever been in Australia”

No one would doubt keeping unemployment numbers low is an important component to a steady housing terrain – however, as for low interest rates, they have done little more than inflate established property prices and speculation on financial markets, which is scant benefit to those facing rising yields, or paying an inflated cost to secure a property at the offset.

On the same program, Joe Hockey’s comments took a similar stance – except he did touch on the issue of supply:

“..the fact is you’ve got to increase the supply. I mean it’s a market. There is plenty of demand and increasing demand but what are we going to do for supply? I have some plans on that which we’ll be talking about before the end of the election.”

When making these comments, it’s unclear whether Joe Hockey had prior awareness of the Coalition’s plan to abolish the National Housing Supply Council, which was established specifically to identify gaps between housing supply and demand.

Apparently, the council’s activities are ‘no longer needed’ and will be ‘absorbed’ into other departments which aren’t entirely transparent, as Scott Ludlum found when questioning as such. Whatever the reason, it’s clear the current government does not hold supply policy high on the priority list.

As it is, saving hard on an average wage is no longer a guaranteed ticket into the breastfed dream of home ownership – especially if you live anywhere close to Sydney.

Martin North Principal of Digital Finance Analytics demonstrated this on a recent blog entitled “The Truth about House Price and Income Growth” charting house prices compared to average disposable income across the NSW market back to 2002.

ScreenHunter_509 Dec. 03 07.20

Whilst the higher quartile’s income has kept pace with house price inflation, the other quartiles have only seen their wage grow marginally, his study clearly demonstrates that prices are now outpacing earnings for the larger proportion of residents and therefore effective solutions need to be found.

Of course, each state faces its own challenges, and some are fairing better than others. But presently first homebuyers are clashing budgets with an equal to larger proportion of investors and downsizers and therefore targeting similar stock against those who have an existing equity stream to tap into.

Unfortunately, aside from some tinkering around the edges of housing policy with schemes such as the NRAS, which quickly became over subscribed and jumped upon by SMSF spruikers, it remains a reality that neither political party has yet seen past burdening new buyers with cheap credit by way of grants, low interest rates and incentives, in a vain effort to mask the rising cost of accommodation under the false premise that they’re doing ‘something.’

And Australia faces challenges ahead – with a falling participation rate due to an aging population, fewer full-time positions coupled with a rise in part-time work inflating the ‘underemployment’ figures – job creation is not keeping pace with increases in our working age population.

This was outlined in the freshly released Productivity Commission paper entitled “An Ageing Australia: Preparing for the Future” which projected:

“Australia would have four million more people aged 75 years or older by 2060, with 25 centenarians for every 100 newborns, compared with one centenarian for every newborn in 2012.”

Not only will aging Australian’s have to work to the age of 70, to bridge a shortfall in savings, but the report suggested retirement should be funded in part through a house value ‘equity release scheme,’ claiming:

“House prices have risen over time in real terms, a trend that is likely to continue. Against this backdrop, even under conservative assumption allowing households aged over 65 years to easily access their home equity to help fund health and aged care costs could have a significant impact on reducing fiscal gaps”.

However, under such schemes, not only do Governments have a vested interest in keeping house prices high and rising, they are pinned to the necessity of such to fund future budgets.

Balancing an economy for an aging demographic is not unique to Australia. However, if house prices weren’t as burdensome, requiring an increasing proportion of savings just to enter ownership, not to mention the longer mortgage terms needed to pay down the loan, it would be possible to invest a greater proportion of the household budget into areas of productivity and small business development, as well as channeling savings elsewhere for retirement without the need to use the principle place of residence as a sole equity fund.

In this respect, Australia differs little from its closest Neighbour, New Zealand, where the costs of rising accommodation also bites a good way into a household’s budget for new buyers.

In an article in the New Zealand Herald concentrating on an increasing difficulty accessing ownership following a sensible requirement on lenders by the RBNZ to maintain an 80% loan to value ratio, a young couple were highlighted as a somewhat typical case study.

Putting aside the additional ‘useful’ tips for saving the $90,000 deposit needed for their $450,000 purchase, such as ‘take a packed lunch to work’, it seems the only way this couple were able to purchase adequate accommodation in the Auckland locality was to tap into the ‘bank’ of their respective parents, who borrowed against the accumulated equity in their own home to shore up their children’s deposit.

The couple’s take home pay is $6000 per month, therefore a weighty 50% will go toward mortgage repayments – yet the price of their accommodation is not out of step with what we expect our own duel income first timers to pay for a modest sized home which will provide adequate facility for more than 2 or 3 years.

New Zealand resident and Co-author of the Annual Demographia International Housing Affordability Survey –Hugh Pavletich – makes some sensible comments in relation to this:

“Within normal housing markets with properly functioning Local Governments that have not lost control of their costs, young Jamie Clark and Jenna Close on their household income of $70,000, should be able to buy a new home for about $210,000 with a sensible mortgage load of $175,000 requiring a deposit of about just $35,000.”

Pavletich’s comments are endorsed by Australian Senator – elect Bob Day who in reply to the comment above stated:

“For more than 100 years the average New Zealand family was able to buy its first home on one wage. As you have frequently reported, the median house price was around three times the median income allowing young homebuyers easy entry into the housing market.

As discussed in your report, the median house price is now, in real terms i.e. relative to income, up to nine times what it was between 1900 and 2000…a family will fork out approximately $500,000 more on mortgage payments than they would have had house prices remained at three times the median income.”

The demographica survey rates 337 different housing markets using a “Median Multiple” (the median house price divided by gross annual median household income) to assess affordability. The methodology is a measure recommended by the United Nations and World Bank Urban Indicators Programs and employed by Harvard University’s Joint Centre for Housing – to name but a few.

An affordable market is therefore deemed to be one with a median multiple of 3.0 or less, and whilst it’s never easy to draw an exact correlation between the complexities of international policies compared to our own, the report does provide a basis for research into precisely how other markets with rising populations and relatively healthy economies, manage to maintain their affordable nature.

Supply

The reports primary focus is on supply – removing barriers such as urban boundaries and tax overlays, and portrays the model employed in Texas, where aside from environmental compliance there are no zoning restrictions outside the city outskirts, and planners see themselves as regulators rather than interested parties in town design.

Texas is also a market, which has successfully financed infrastructure by electing local residents onto boards and providing them with access to tax free bonds, which are subsequently allocated for the provision of essential amenities.

Property rights in Texas are clearly strong in nature with limited regulation, covering little more than the land itself – therefore, housing affordability isn’t a burning concern for Texans, and judging by the number ofAmerican’s moving there, the market is an attractive one.

Tax

Secondly, as I highlighted last week, markets such as Pittsburgh in the USA, which has a median multiple below 3.0, is an example where land value tax has been successfully employed.

When land value tax is implemented – with the burden taken of buildings and their improvements ensuring good quality assessments and sensible zoning laws – it not only assists affordability keeping land values stable, but also benefits local business through infrastructure funding, discourages urban sprawl, incites smart effective development of sites, reduces land banking, and as examples in the USA have demonstrated – assists in weathering the unwanted impacts of real estate booms and busts.

Speculation and strong tenancy laws

Another commonality shared amongst ‘affordable’ markets is the lack of speculation that inspires the ‘get in quick’ feeling for aspiring owners. Germany is one such example where until fairly recent times; real house prices had remained stable since at least the 1970s.

Home ownership in Germany is not embedded in their culture. And as I pointed out a few weeks ago, strong tenancy laws along with liberal supply policies ensures when time does come to purchase, there is plentiful option to do so without breaking the budget.

Australia?

Whether we will ever achieve the significant reform needed to turn Australia’s housing market into an affordable one is debatable. However, with the rise of the internet and the ability of those searching for answers to delve a little deeper than they perhaps would have done before the world became a mirror of reflections, as every action and movement is recorded, posted and photographed in real time, and offered up for an immediate judgement on social media – it can only be hoped, that a majority, not minority, are taking opportunity to look past the frivolity of what I think most would agree, (whether by design or purpose) have to date been fairly meaningless and unsatisfactory open government debates on housing policy.

In the end, it will be up to the growing generation of struggling first timers and priced-out renters to vote for the brave advocates who enter politics with what are currently deemed unpalatable plans for true and meaningful reform.