Perth shows the way to “affordable housing”

Perth’s vacancy rate of 4.1% and Darwin’s vacancy rate of 3.6% – with both cities experiencing falling rents for houses and apartments – demonstrate just how important a healthy vacancy rate is to ensure a competitive housing market where tenants have some real options.   If the current trends continue Perth and Darwin may find themselves becoming the most “affordable” places in Australia to live.160419 - Rents Index

While many are looking for complicated solutions to solving the problem of speculators and foreign buyers leaving stock off the market (and thus not included in the vacancy rate data) – for example  checking water meters, broad based land taxes and imposing “Vacant house taxes” – there is a much easier solution that can be sold politically.

Leaving a housing asset empty and off the market is a typical feature of a speculative market driven by ponzi finance, ponzi population policies and insufficient supply.   Some speculators believe the capital gains will be so large they are simply not interested in the hassle of renting the property and collecting rent. While increasing the holding costs of the ‘speculator class’ sounds good in theory in practice the politics are ‘challenging’ and political courage in Australia is as rare as a Tasmanian Tiger.

If we want to solve the empty houses phenomenon and also produce a plentiful supply of affordable housing the solution is clear – cure the speculative market in the most politically palatable and fastest way possible.

Ignoring the politics of the housing market is for dreamers.

There are no prizes for having a ‘theoretically’ perfect plan that not even the most slippery politician can sell.

A 3 point plan to affordable housing fast.

  •  1.   A buffer stock – A housing buffer stock must be a policy objective.  Make sure there is a decent oversupply of housing for a given population. Let the speculators gag on their empty houses.  The price of a healthy and competitive housing market is having a few empty houses at all times,  4-5% should be about right. Well done Perth you are hitting the KPI already!  This means don’t make it harder and more expensive to build new housing just for the sake of it.   Get the cranes working. Reduce the upfront costs of bringing new land and housing to market with MUDS etc. A buffer stock of empty housing will help avoid future bubbles and keep rents competitive just as Perth and Darwin vacancy rates are now driving down rents.
  • 2.   Slow population growth – this will make it easier to produce a buffer stock of housing. This is probably the hardest part politically as the LNP and ALP right wing faction are neoliberal “growth at any cost” Big Australia pumpers and sadly the well meaning lefties don’t understand that we can boost the humanitarian refugee intake while reducing the overall intake.  Because it is difficult politically (anyone who suggests a slower rate of population growth is immediately called a xenophobe or a racist) it may not be possible to reduce the rate of population growth. This is not a deal breaker it just means a faster rate of construction will be required to achieve a healthy buffer stock of available housing.
  • 3.  Housing credit creation – Have APRA direct the banks to limit bank lending on existing housing. Rather than try to work out what is an ‘investor’ and what is an ‘investor’ loan just limit how much can be borrowed when the security for a loan is an existing house.  A lower LVR for loans on existing housing will do the trick and it doesn’t need to be much lower – say 75-80% – which means a 20%-25% deposit will be required.   However  lending for new housing will be allowed a LVR of 85-90% – which means only a 10%-15% deposit is required.   The percentages can be tweaked as required.  Building new housing is productive because a new house adds to the productive capacity of the economy – bidding up the price of an old one does not. Restricting the supply of credit (new Bank created money) to existing housing relative to new housing and achieving a decent buffer stock of vacant housing will be easy and does not involve anything more complicated than setting a LVR maximum and identifying whether the security for the loan is existing or new housing.

Sure for a period there is likely to be a larger than required buffer stock as the current army of “house hoarders” realise that the government is committed to ensuring a housing market that has a decent buffer stock of housing, begin to lose interest in an asset market that no longer produces abnormal capital gains and start to sell their stashes.

But that is not a major problem as in time any excess buffer stock will be absorbed by population growth including moderate rates of migration.

Three easy steps that are politically possible and that will

  1. reduce the problem of speculative housing finance driven bubbles
  2. ensure that there is a decent buffer stock of available housing across Australia
  3. give more Australians real and affordable housing choices

As an added bonus there will be no need to change the rules regarding negative gearing or even the capital gains discount.  Mr Bowen and the Greens can hardly oppose a policy that is designed to do the very thing they reckon their policies will do – encourage investment in new housing rather than speculation on existing housing.

Come on Scotty and Mal – just a bit of reform – wafer thin – is not going to kill you.

Doing nothing at all is likely to make the forthcoming election a major embarrassment and we wouldn’t want that would we.

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