One of the most popular weasel words in the housing debate is “affordable” as it allows the weasel word user to duck the issue of whether housing / land is expensive.
A new Ferrari is affordable if you are wealthy so why not call a Ferrari an “affordable” car? It makes sense but it would not make sense to call a Ferrari a low cost or inexpensive car.
Joe Hockey’s statements to the effect that housing in Sydney is affordable because people are still buying fits this type of thinking.
With the housing debate steaming along on a diet of Hockey gaffs and snafus, the usual suspects in the usual advertorial media outlets have been singing the housing is still ‘affordable’ chorus like a gum tree full of cicadas on a hot summer’s day. Generally, accompanied by a gaggle of greying butcher birds clacking on about how when they bought their first home they lived on gruel and built it with a combination of sweat and indignation.
Both the ‘housing is still affordable’ chorus and the greying butcher birds ignore the simple fact that land prices in Australia have risen dramatically over the last 20 years and that rise has been the result of long standing policy failure on both sides of politics.
The housing is still ‘affordable’ chorus has two key elements:
A dodgy “household income” measure.
The “affordability” chorus loves talking about household income because over the last 30 years almost all households have gradually became double income households and thus using household income as the measure means that the “income” used in calculations of affordability has been steadily rising.
It is a bit like telling someone that the cost of bread as a proportion of their income has not risen if you include their neighbour’s income in the calculation as well.
A much fairer comparison or measure of “affordability”, if that remains your preference, would be to use the average income of a single person. Using the average income of a single person as the measure still allows the rise in house prices to be explained by the rise in double income households but it avoids the implication (that the “affordability” crowd like making) that the price of housing has not really changed since the butcher birds were entering the housing market 40-50 years ago.
The low mortgage repayments (shhhh don’t talk about the debt) technique
The “affordability” chorus also loves talking about the amount of mortgage repayments rather than the level of debt or the actual price of housing. The assumption is that no one really cares, and it does not really matter, if they owe the bank $1,000,000 provided the monthly repayments don’t send them broke.
Needless to say the “affordability” chorus never talks about the risk that interest rates might rise (beyond some butt covering small print) and what happens to “affordability” when that happens or what happens to the value of assets like housing if interest rates rise because potential new buyers will suddenly find that only much smaller mortgages are “affordable”.
Nor do they ever speak about the massive amount of foreign debt that has been used by our big 4 Australian banks to deliver the low mortgage interest rates that their ‘measure’ of affordability depends on, nor the taxpayer guarantees that have been given to the Australian banks to allow them to secure that foreign debt.
Its a bit awkward for the crowd claiming “housing is still affordable because interest rates are at record lows” to explain that this has resulted in sending Australia’s privately owed Foreign Debt to the moon and that like all debts, eventually (some day soon) the lenders will ask for more interest regardless of how many guarantees the taxpayer hands over to our banking system. By the way you do realise that you (Mr Taxpayer) are on the line for those guarantees given on your behalf to the banks so they can continue to earn fat bonuses on massive mortgages that are used to drive up house prices.
By making the criterion of affordability “household income” rather than a single person’s income the “affordability” chorus are able to conceal the fact that household income is now two people working instead of one.
By talking about mortgage “repayments” and ignoring the significance of the outstanding debt they are able to conceal the risks associated with the level of debt taken on by household and the nation as a whole. Rather than the policies of the RBA in driving interest rates towards zero being seen as a sign of desperation and a sign of increasing national economic vulnerability they are seen as a ‘good thing’ by the housing “affordability” chorus.
What is affordable housing?
Affordable housing is nothing more than low cost housing. Improving the supply of affordable housing means nothing more than ensuring that new housing supply is delivered to the market at the lowest possible cost.
The most accurate measure of whether we are getting better at supplying the market with low cost housing is to compare the price of low cost land / housing with the average single person’s income as that will tell us whether the cost of housing for the average single person has increased or has fallen.
When you undertake this exercise you quickly see that housing has become increasingly and dramatically unaffordable in Australia over the last 20 years and no amount of preening and clacking by old butcher birds will change that.
Of course if some people choose to expand their purchasing power by banding together in multiple income households (polygamy has its advantages) that is a matter for them but it should not distort the important question of whether housing has truly become more or less affordable.
Oh and yes – if you choose to spend your life sipping latte’s, acquiring ipads and dreaming of competing with the polygamous multi-generational family units for land in quaint inner urban ‘villages’ you will need a good income but not necessarily a “good” job as the best incomes generally come from jobs that are dubious in their goodness quotient.
What this debate is about is not whether people should be allowed to buy a Ferrari at a Corolla price but whether they should be denied the ability to buy a Corolla at a Corolla price.