Wednesday, December 31, 2008

Policy suggestions for more affordable housing

My policy suggestions designed to make housing more affordable in Australia and limit the effects of a rapacious, destructive boom include (and are by no means limited to):


  • requirement of at least 33% of new development to be 'affordable' properties, rather than the current paltry 3% set by state governments — these higher rates are the norm in the UK and France
  • PPP developments and partnerships sponsored by government on state, Crown and ex-Defence land – and involving more partnerships with SME construction firms than with big players, thus cutting out fat developer profits, and land speculation profiteering
  • release of Defence, State and Crown lands for responsible, affordable, environmentally sustainable development, e.g. disused hospital sites, ADF bases, RTA land, empty land and so on, with price covenants on developments
  • control and lowering of land costs where owned by the state or Federal governments, which have an arbitrary value anyhow, rather than selling off land willy-nilly to the highest bidder to plump up state and Federal coffers
  • setting long-term price covenants on developed affordable properties under the above regimes, indexed only to CPI or median wage increases, and an at-cost-only allowance for any further renovation value added by owner-occupiers (as assessed by a valuer)
  • boosting and improving the stock of both 'public' housing and 'social housing', i.e. cost-controlled housing as described above. Labor Ministers such as Mark Latham and Cherie Burton benefited from this sort of housing growing up, but it has been abandoned more recently due to eco-rat market principles infecting government.
  • creation of leasehold titles to be held in perpetuity by government, with the intention of controlling the selling prices of properties developed on them, and to ensure responsible control is retained over the land — this may be an inferior approach to the above approaches
  • bypassing/removal of real estate agents and associated advertising charges and hefty commissions in selling these properties, given that they will shift without the need for an agent, and that agents' fees contribute to the 'ratchet effect' in housing
  • stamp duty and other transaction cost waivers on these properties, similar to NSW 'HomePlus' scheme for first home buyers
  • levy a land tax on unused property in urban areas – this tax could be allocated at local government level, to be returned to cash-strapped Councils. The tax would serve as an inducement to sell up rather than hoard disused land and property, both on small and large scales — see the oligopoly of developers and use of land banking to control supply as yet another factor. Gough Whitlam showed courage and broke up this cartel in the 70s, today's Labor are too compromised to address the issue.
  • streamlining approval processes with local Councils for new construction (this is one of the more minimal suggestions currently put forward by state and Federal governments, so that they can blame someone else for the problem)
  • lobby Federal Government to stop negative gearing breaks and capital gains tax concessions for investors and implement workable incentives towards home ownership which do not go on to further inflate housing prices; or else the implementation of policy and legislation to offset existing destructive arrangements by the Federal Government. For instance, negative gearing breaks could be quarantined to apply only to rental incomes, not total personal income, as in the UK and the US.
  • resumption of land if necessary, e.g. to unite two blocks with a small title between them, or to reclaim an unused or underused site from an unwilling vendor in the public interest. The non-negotiable offer of discounted prices to large vendors such as at the CUB brewery site at Ultimo, Sydney. They have profited enough from the drinking habits of the working class over nearly two centuries – it's time to put something back. It's interesting that the land at Kurnell was going to be 'resumed if necessary' for the now shelved desalination plant – very tough-talking stuff when it comes to projects like that, but nothing in housing? The RTA is always resuming land to put through new freeways, using its extensive powers.
  • the passing of legislation and creation of taxes to control land prices and prevent capitalist boom/bust waves and discourage speculative activity in property, to 'nationalise' the sale and pricing of property to some extent, to curb and keep real estate agents in check in any number of ways with stiff penalties (including making inflationary and misrepresentative claims of unlimited capital growth to gullible purchasers, encouraging the creation of endless 'investment properties', REI media announcements to this effect) and banning unethical practices to allow for decent affordable owner-occupied housing. Allowing the sale of rental properties only for the use of itinerant workers, visitors, and overseas students, etc. (More decent and affordable accommodation needs to be created for overseas and local students also to reduce current apartment overcrowding problems – currently there are 2 and 3 bedroom apartments all over the city containing up to 10 overseas students.) Better inclusionary zoning and affordability measures around the capital cities to allow ordinary workers to live in the vicinity of their work, thus solving some of the transportation problems of the city and improving social capital.
  • stop bun-fighting and buck-passing across the tiers of government, and take ownership of the problem at all levels. It's ludicrous to expect individual councils to manage housing affordability individually with limited powers and resources and with no holistic plan across the city and state, to say nothing of the pecuniary conflicts of interest which appear with monotonous regularity.
Note that I do not include suggestions such as: shared equity arrangements, developer levies, inappropriate grants to buyers which only serve to further inflate prices in an uncapped and uncontrolled market, 40/50 year mortgages, low or no docs mortgages, or other such free market attempts to maintain inflated prices for the main benefit of banks and real estate agents.

A price correction is needed, and governments must provide affordable places whether or not real estate prices in the open market crash in the next few months and coming years or not.

It appals me that governments instead are willing to attempt to profiteer from these inflated prices by selling prime land and taking excessive stamp duties at the top of an unsustainable capitalist price wave. And, as we know, the whole house of cards is now tumbling down starting with the collapse of mortgage derivatives in the US that fed credit into the rest of the OECD, with a credit freeze and the disappearance of billions in non-existent 'value' off assets and derivatives.

7 comments:

Dara Dhillon said...

Why would you like to make housing affordable? Isn't it a task of free economy to adjust these kind of things?

Dara Dhillon said...

Why do you think housing need to be more affordable? Why not food or education? Wouldn't you be better off leaving it to the free economy to do it for us or you think government planning committees can do the job better?

Sean Reynolds said...

I think housing needs to be more affordable because there is no need for it to be so expensive and cause so much stress to so many.

I don't trust free markets to 'do the right thing' at all, they need constant monitoring and regulation, otherwise it's just 'winner take all'.

Food and education are still affordable. In Australia, I oppose even the HECS charge, especially given the $110 bn government surplus.

It's a reality that the 'conventional housing market' is riven with examples of failure and inequity, the present housing boom being just another one.

You could of course write whole books on failures of the market, the discourse or ideology of the 'free market' etc. Analysts of course know there is generally no such thing as an unregulated ' free' market or economy, it's just a convenient discourse for neo-classical economists. (For instance, try building a factory on your suburban quarter acre block, making significant changes to your property, or making building changes without complying with a host of building codes. All these things are regulated by 'govt planning committees' also but no-one is complaining much, as they provide protections.)

miner said...

Sean,

I think THE reason we have an issue with housing is because of the government involvment and meddling. We have the worst of both worlds with heavy govt involvement, and people rationally responding to it as in a free market.

The zoning restrictions, interference through taxation laws are all part of a massive market fiddle, and presto, we have a "crisis" which we should fix with more regulation????

We do not have a free market in housing.

Create one by removing taxation concessions associated with housing, by letting people build (I have a friend who has just spent three years trying to get a development through a local council by building 5 townhouses on 2000m^2 land in northern Sydney, only to have the council prevaricate and delay the whole process, then to finally approving the project (unchanged from the previous applications). He shows such restraint after this belligerence) subject to meeting building codes and I am pretty confident the problem will resolve itself and housing will become affordable.

Steve said...

What makes you think that we will not have a property price crash like in the USA and Europe? That ought to fix the affordability problem.

Sean Reynolds said...

Yes, it's quite possible there will be a house price crash that will bring prices back to the long term mean, and in line with CPI/inflation.

However, the boom/bust cycle did a lot of damage on the way up, and it will do a lot of damage on the way down.

Politicians have done almost nothing to shield the populace from the rollercoaster ride of free market capitalism and lending.

Even if prices correct, the conventional housing market excludes a lot of people from the social security of affordable ownership. I think politicians should still be constructing much more 'social housing' rather than begrudging 'residualised' public housing. If more people had a chance to get on to the property ladder, you might see more participation in the active economy rather than languishing on benefits in low cost public housing, where they don't want to earn so much they get moved on. Governments are letting everyone down in the housing arena these days, having thrown all notions of assisting people into housing to the winds of the free market years ago.

fairness in housing said...

Good work Sean

I like your recommendations. The recent (June 2008) Senate report Housing Affordability had a similar listing, very comprehensive and fair.

http://www.aph.gov.au/Senate/committee/hsaf_ctte/report/b02.htm

The govt has to get over itself and stop being the Nanny State for investors. I have written an open letter you can include as a link if you like or take on board the argument in the letter.

Basically:
Investors can claim a tax deduction on Loan Interest generated by property debt.
FHO / HO cannot claim Loan Interest deduction on residential property.
Investors have tax advantage in common market of residential property purchase.
Until this anti-competitive tax ruling is addressed unfair advantage will continue.
Responsibility rests with Treasury to correct the situation.
Allowing investors, but not FHO or Home Owners, to claim Loan Interest deduction is
INDIRECT DISCRIMINATION against FHO and Home Owners.

Link to letter is:
http://firsthomeowner2008.googlepages.com/openlettertreasury2008

thanks