Land glut won't solve affordability issue

Posted on 13/04/2013  

It’s surprising how many think increasing land supply will solve the alleged affordability crisis.

Some politicians see it as a magic pill to cure first-home buyer indigestion. Flood the market with new land and, hey presto, house prices will suddenly be palatable to the young and the assetless.

They would have more credibility and greater support if they could produce some precedents to demonstrate that their theory works. They don’t because there aren’t any.

Another reason politicians who champion this idea tend to get that lonely feeling is that most Australians don’t want prices to be pushed down. And sensible politicians know it.

Most households are owners and the last thing they want is a policy fart that devalues their major assets - which form the basis of their retirement plans.

That’s assuming the scheme would work. It wouldn’t.

Bill Marmion used to be the Environment Minister in Western Australia. Now he’s been named Mines and Petroleum Minister, which shows how well he did protecting the environment. In his spare time he’s also the Housing Minister.

As Housing Minister, Bill knows how to fix things for people struggling to buy a home: flood the market with land. Here’s what he told the West Australian this week: "Opposition Leader Mark McGowan laughed at me in Parliament (in 2010) when I said you have got to try and flood the market with more land to drop the cost. But that is the only solution - to have land ready to go."

He’s wrong on two counts: it won’t make new homes cheaper and it’s not “the only solution”.

But there’s an even nuttier politician than Bill. There’s Bob Katter, the Queensland pollie who wears his white akubra everywhere, including to bed, apparently. Katter, who formed Katter’s Australian Party to embrace everyone who wasn’t smart enough for One Nation, is the sort of bloke you’d rather have as an opponent than a supporter.

The Mad Hatter says he can reduce the cost of house blocks in mining towns to just $25,000!

How will we do it? “We open up the land,” he says. “The price of land has got nothing to do with anything else except the restrictions placed upon land subdivisions by government. Remove those restrictions and I can give you housing prices that you can only dream of.”

The average residential home site costs around $170,000 in Emerald, which sits between two major coal-mining provinces in Queensland. The median house price in coal town Moranbah is $750,000 while in Western Australia you pay $1.2 million for the typical house on land in Port Hedland, the iron ore hub.

The mind boggles to think how much land Katter plans to release to cut the price of a home site to $25,000 in such places.

There are already precedents of Australian property markets with significant over-supplies of residential land. The south-west of Melbourne is one of them.

Developers in new suburbs around Werribee and Wyndham Vale have built far too much new housing. At various times in the past 2-3 years, residential vacancies have been as high as 9-10%.

Faced with too much stock, lots of competition and not many buyers, did developers cut their prices to make sales? No, they did not.

Developers will do anything to make a sale – other than cut the price. In the case of Melbourne’s south-west, they offered incentives and freebies and rebates, they sent marketing teams up to China and they engaged spruikers to flog them at inflated prices to interstate investors.

The median prices for houses in Werribee, Wyndham Vale, Tarneit and Point Cook are still considerably higher than they were three years ago. A significant over-supply has not decimated prices.

Developers are not renowned for their benevolence. Give them cheap land and they’ll seize the chance to make a bigger profit. They won’t be selling at bargain prices.

The problem with affordability is not land supply. Most of our major cities have plenty of residential land. Much of it is in the hands of big developers, who land-bank and drip-feed supply to the market to suit their own ends.

The real solution to the cost of new housing will come only when politicians admit that the greatest cost component comes from the taxes, charges and delays they heap upon the development process.


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