The NSW Planning Minister Rob Stokes is right in his analysis of housing affordability – profoundly so. Despite claims to the contrary, we will not reduce house prices in Australia just by building more homes. We have tested that proposition both here and internationally.
Here are the facts. Annual housing supply in Sydney has more than doubled since 2011 and house prices have gone up over 40 per cent. Australia already produces more homes overall than the UK, when we have a population of 24 million and theirs is over 60 million. Sydney is producing more homes than London with just over half the population.
However, house prices continue to rise far quicker in Sydney than London, and Australian than the UK.
To the idea that more supply along with solve housing affordability, I wonder: How many more do we need to produce to see prices fall? Politically, who wants them to fall?
And even if much larger supply numbers were theoretically possible, who would fund, build and sell them? There is a market for housing after all.
Developers are in business to make a legitimate return. They don’t and can’t just supply homes regardless of the return. They build the number they assess the market can absorb and which the banks will fund. You cannot expect them to do otherwise
There is no moral judgement in this: this is just a market reality and they deliver well within that framework.
So unless there is some subsidy from government or some incentive that changes the market fundamentals, the private sector cannot raise its delivery radically beyond what it is achieving at the moment – let alone a number that has any serious downward impact on prices.
I have watched these markets internationally for a decade now, advised governments on them in the UK and here, and researched the Sydney housing market in some depth. I cannot see the answer coming from supply.
Demand is a problem. On two levels. One is that cheap money has flooded the world since the 90s, and Australia since the crash. With historically low interest rates this has inevitably meant asset prices have risen. There is a wall of cash out there, both domestically and internationally, which will not be reduced until interest rates rise. This in itself is leading to the crowding out of first time buyers from the housing market. In Sydney now they are only 6 per cent of the market, almost half what they would have been in the 90s.
However, the second level of this problem is not just increased liquidity overall but also about who is accessing this liquidity. The minister is right in identifying that it is existing home-owners seeking investment opportunities, who are beneficiaries of generous tax exemptions and the life-time gains from compulsory superannuation.
They are able to leverage the cheap international finance to further crowd out young bidders, while also being able to pay that regressive tax, stamp duty. Multiple home ownership has increased as first time buyers have declined.
In Rob Stokes, we now have an Australian politician calling this out and naming the problem for what it is. He is authoritative on this subject, as the best informed planning minister in Australia and one who has overseen a radical increase in housing supply.
He has learnt that something other than increasing supply has to be done if we are to restore housing affordability to first time buyers. As someone I know to be a highly ethical politician, he is clearly concerned post-Trump and Brexit that economic growth whose benefits are accruing only to some is resulting in a city that is not what he himself describes as a “just city”.
Although he will be attacked for what I think is a moral stand actually based on the facts, I believe most people will be with him in spirit. Australians are fair people and our system of incentives around housing is resulting in too many losers.
Tim Williams is chief executive officer, Committee for Sydney