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We hear lots about the housing crisis in Australia. And the UK. And the US. We hear lots about what – apparently – each needs to do. That usually boils down to “liberalise the planning system even more” and “let the private sector build more homes”.

What is missed is that, given the differences in systems and governance between all these countries, a) why are they all experiencing a “housing crisis” at the same time and b) why is it the same crisis of affordability everywhere, taking the forms of declining access to home-ownership and of stagnant or declining supplies of public housing? 

As to a) and b), these can be quickly dealt with. House prices internationally have been determined over the last 30 years more by residential financialization and the glut of cheap mortgage money – reinforced since the 2008 crash by Quantitative Easing – than by mere population growth.

That is as true for Sydney as it is for London and most global cities. No amount of “planning reform” will lead private sector developers to raise their productivity levels beyond what their business model and the banks dictate and certainly, even if they could produce enough homes to bring prices down to “affordable” levels, governments would step in and stop the crash in the wealth effect for existing homeowners. 

In Australia we over-incentivize residential development through cheap money and tax benefits for investors, meaning we deliberately encourage people to become second and third home owners, meaning those on low incomes cannot get into homeownership.

Private developers are in the business of making money

There is no uniform planning problem inhibiting supply in all these countries so much that if their quite different planning systems were all abolished tomorrow – that’s liberalization for you! – that the private developers would start increasing supply beyond what the market in a specific area would support.

Their business is to make money in a market, not to increase the proportion of homeownership. When prices go up developers tend to release more homes onto the market. When prices go down they tend to release less and sometimes they just stop, and wait, until a downturn in demand ends. 

Look: the proof of the real drivers of home prices in all these countries’ markets has just been revealed by Covid. Example, Sydney: price inflation subsided between 2017 and 2019 because the government regulators decided to tighten up on lax mortgage lending which had helped ramp up house prices. So housing delivery also dropped. Population however kept on rising 1.4 per cent per annum.

In 2020, in Sydney population growth stalled; but the Reserve Bank relaxed mortgage lending and the national government threw money at us to sustain demand so and in a world crisis with no population increase, the number of homes delivered in Sydney increased by 30 per cent over the previous pre-pandemic year and house prices since mid 2020 to now have gone up at least 15 per cent. 

By the way, Sydney with a population of 5 million compared with London’s almost 9 million, had been delivering between 30,000 and 40,000 new homes since 2015 which means we deliver about twice as many homes per head of population here as in London – and our price rises have been greater.

A nation of renters

Go figure: the answer is in Australia we over-incentivize residential development through cheap money and tax benefits for investors, meaning we deliberately encourage people to become second and third home owners, meaning those on low incomes cannot get into homeownership. That is to say, we are creating a nation of rentiers and also of renters, who are kept out of home ownership because the former is using its tax benefits, assets and cheap money to outbid them.

Housing affordability, meaning returning to an environment in which, as was the case in the 1960s that young people could buy a home in Australia and in the UK for only 3-4 times salary (it’s now 9 in London and 13 in Sydney), can never be achieved in the current conditions in these countries: whatever the planning system does.

This is a financially caused crisis of inequity way beyond the capacity of private sector developers and a “liberalised” planning system to fix. The answer is probably around diverting tax incentives away from housing towards more productive, economically innovative activity and incentivizing housing deliverers with different business models to once again deliver homes, to rent, to buy, to share-equity, to rent to buy. 

This definitely means a shedload of new public housing is required – and not just for the poor but to add to housing options across the economic spectrum but also as in Singapore to enable lower income people to get into ownership via public sector subsidy: Singapore’s unique rent to buy model which gives shelter and ownership to all, looks very good to me at the moment.

Location matters

Another point about housing markets is often forgotten. While international financial dynamics have had a growing impact on domestic home process since the 90s, their impact has been particularly felt in capital cities and especially those considered “global” ones.

Sydney and London have definitely come into that category, with QE cooked up in Washington working its way back into residential investment in such cities, across the globe.

However such asset price inflation has been suppressed in regions outside such cities suffering from a pre existing lack of demand, usually due to local economic depression and a stalling or decline of population growth in those regions. So we have seen for example house prices crash in Gladstone in Queensland as resources jobs went away.

The same happened in South Wales where I am from and over a sustained period meaning not only that homes remain dirt cheap – a 3 bedroomed house in a former mining village can still be bought for A$140,000 but that in comparison with areas in more demand, their comparative value has declined. So whereas a 3 bedroom home in Chelsea in the 1960s might have been worth 10 homes in the Valleys, as of today you could buy 25 homes there for the price of one in Chelsea. 

The Valleys of Wales basically stalled in the last forty years after massive growth during industrialization and exodus during the Depression. What they need is new jobs, the very thing which attracted people to these quite difficult environments in the first place.

On the other hand, the Southeast has seen acute production of economic growth but probably not enough homes. In each region the specific balance between homes and jobs is different and the crisis in one may indeed be a housing one, but in the other it’s not: it’s an economic one.

If you like, there are areas of insufficient economic demand and others of insufficient housing supply: some areas have too many homes and not enough jobs, and others too many jobs and not enough homes. Effective and appropriate government policy requires a clear understanding of this and relevant strategies to deal with the differences. 

Can government fix it?

Before Covid hit, it wasn’t clear to me that governments in the UK or Australia really understood these issues let alone have policies to deal with them.

I’d expected Covid to focus their minds but it’s been Groundhog Day on the housing front: incentivizing private housing output that makes property millionaires in our capital cities, keeps homeownership unachievable despite the blather to all those who cannot access the bank of mum and dad, and does nothing for regional economic growth.

If this didn’t change, and indeed intensified, during a global crisis when population growth stalled but housing delivery increased along with process, then why on earth politicians think that the same model can deliver affordable housing and increased home ownership here or in the UK, defeats me.

Question: do they really know their policies cannot work but cannot think of anything else given the politics of house price inflation and their own ideological opposition to doing the only two things that matter: incentivizing private asset investment in productive activities apart from residential properties and enabling the public sector to use its land, money and powers to dramatically increase the number of public homes and diversity who they are for?  

Dr Tim Williams has advised governments in Australia and the UK on housing and economic strategies and is currently international Cities Lead for Grimshaw Architects.

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  1. I agree your conclusions about the ‘financialisation’ of housing, capital gains tax exemptions and discounting, negative gearing, company trust arrangements etc have a lot to answer for. Covid provided this point to me. No immigration, declining rents and booming housing prices. The only thing growing was the money supply.
    But last federal election was partly on this issue and no one wants to give up on their housing concessions.
    The supply and restrictive planning control issue isn’t just about price. It’s also about access to opportunity in cities, efficiency and sustainability.
    Established Sydney, in particular the Mosmans and Woollahras, need more density not because that new housing will be more affordable but because it provides access to work and social opportunities, and also provides diversity and services to these areas. The financial argument cuts both ways, if low income households get access to a better life/space, housing affordability is less of an issue.
    Also why build out west in a pollution and heat sink, when there is under used R2 land locked up near the coast, transport and opportunity.
    The financialisation argument has a lot of flare but also takes the pressure off lazy local and state government regulators that just want to leave archaic zonings and planning controls in place because they don’t want to confront the self interest behind them.

  2. The other key factor is that since the GFC there has zero wage inflation, and in real terms negative wage growth as a result of the suppression of interest rates (and therefore) inflation due to the trillions of dollars of quantitative easy across the globe, meaning super low interest rates which ties into your argument about cheap debt. The other main factor (certainly in Australia) is the ever increasing regulatory costs to develop land. Local, State and Federal taxes and duties, development contributions, affordable housing obligations and planning controls that continue to be tightened all point to lower development margins and higher risks for developers meaning they will ultimately develop less housing. Alternative housing models such as rent-to-buy, and share ownership/equity should definitely be part of the mix to address housing affordability, but in Australia at least fundamental reforms to the taxes imposed on property needs to be addressed.

  3. A recent media article pointed out that Singapore had overtaken China for investment in Australian property with $20b purchase in in just 2 years. If purchase of property was restricted to residents and disincentives used to limit multiple home ownership we might get back to a situation where my grand kids could buy their own home.

  4. As habitats for other species get wiped out for human habitation – the survival of the Natural World on which we depend is never a part of the consideration, in any “housing crisis” or solution discussed. All housing opinion pieces come with an assumption of an open slather on the Natural World – no discussion of protected areas (PAs) for future survival. It should be a mandatory part of any such discussion – since developers, financiers and private builders won’t think of such matters. The Environment is a “resource” and has always been one of those externalities that don’t matter upfront. Which has led to the Age of Environmental Breakdown.

  5. Bitcoin is my house now. They left me no choice. Even after having enough to buy a house, I still choose Bitcoin. Out of spite. This wealth is mine and it’s compounding faster than theirs. They can’t have it. Fuck their houses.