Build to Let: The latest non-solution to a problem that should not exist.

The Australian Financial Review has been providing a lot of ‘supportive’ coverage for the promoters of the new  “Build to Let” housing model.

Now that it appears that Mr Scott Morrison is not keen on the ideal of handing out tax breaks to make “Build to Let” viable there have been howls of outrage from the hopeful rent seekers as their dreams turn to ashes.

To some extent the howls are understandable as Mr Morrison is usually very keen to promote asset price speculation with tax incentives like capital gains tax discounts for those mythical average “mum and dads” just trying to “get ahead”.

Build to Let” is nothing more than large corporations (profit or non-profit) owning large amounts of housing that they then rent out.    Historically this model has not existed in Australia because most Australians aspire to own their own home and there are plenty of tax incentives not available to “corporate landlords” to make it attract to do so.  And if they do rent, they rent from the army of “mum and dad” investors in investment properties who are chasing attractive tax incentives.

Apart from public housing departments there are few “corporate” suppliers of housing in Australia.

So why are people talking about a model that has not existed before in Australia?

The only reason “Build to Let” is being discussed at all is that, as a consequence of failed household debt driving policies of the RBA, APRA and successive governments, we have now reached a point where housing asset prices in Australia are massively bloated and out of reach for a rapidly growing number of Australian households.

Having created a debt and increasingly out of control immigration driven bubble in house prices some believe a “solution” lies in having hundreds of thousands of Australians become tenants for life with no hope of ever owning their own home.

That creating this “solution” would require giving massive tax breaks to the new “Build to Let” property class to make it ‘worthwhile’ demonstrates what a demented solution it is.

So what is the best housing policy if “Build to Let” is a solution to a problem that has been manufactured by idiotic and highly ideological economic policy by the RBA, APRA and successive governments?

The best housing policy is one that supports owner occupied housing

The best policy is one that allows most people to own their own dwellings without turning them into debt serfs.

It is simply bull-poop of the highest order that in a country as rich and as large as Australia that there is any reason for anyone, including those on very modest incomes, who wants to own their own home, not to be able to do so.    Post World War 2 Australia was full of young people buying new and existing homes and raising a family …. mostly on a single income.   Sure the homes were modest but at least they could afford them without spending 30 years desperately trying to maintain two sources of income.

The so called “housing affordability” crisis is a completely manufactured state of affairs.

We could be churning out very low cost new housing at a rate of knots but our bone headed policy makers prefer our current radical and extremist economic, banking and monetary model that is built around inflating the price of existing residential housing assets with scads of debt.

Low cost new housing supply would simply destroy their model of driving demand for debt with asset price inflation, so they block it or ensure, by imposing heavy upfront levies and taxes, that new housing present little price competition for existing housing that has been driven up in price by tax effective highly leveraged speculation.

We proved 70 years ago that we could build lots of housing very quickly and at low cost provided we make that explicitly an objective of public policy.

It certainly does not help that a bunch of useful idiots in the ‘progressive’ middle classes generate lots of policies that do little but drive up the cost of developing new housing where people want to live.   Up front user pays for servicing costs and gold plated servicing standards that are designed to relieve other rate payers from contributing to the cost of services they themselves received the benefit of in decades past.

Policies that generally don’t affect the high minded members of the middle classes as they commandeer worker’s housing built in the 19th and early 20th centuries with publicly supplied infrastructure and swan around sipping kale latte’s congratulating themselves at how THEIR assets just keep going up and up and up.

The traditional solution to delivering lots of low cost housing to the market was for the government to buy up large tracts of farm land and service it and then sell it off at next to cost to young home buyers who wanted to raise a family.  The young home buyers would then contract for a builder to build them a house they could afford to live in with only a single household income to pay the mortgage.

The government should do so again – right up and down the east coast.  Rezone large amounts of land and deliver serviced blocks to home buyers at prices that reflect that only a percentage of the servicing costs will be recovered and over 30 years from rates.

Building transport corridors out from regional towns is a lot less expensive than spending billions digging subterranean roadways across Sydney.

At the same it can relax building restrictions for 2 km around every railway station so that all those folk who hate mowing lawns and letting the kids run around can enjoy their walk up latte lifestyles as nature intended.  Even better – start building new rail-lines out to these new developments before you need to spend a fortune building them underground.

Credit Creation Regulation is required

To reinforce the beneficial effects of building more low cost housing supply it is necessary that credit creation be regulated so that bank credit creation is directed to the construction of new housing rather than speculation on existing house prices.

That means that lending restrictions must be imposed when the security for the loan is an existing house.  Asset prices inflation in the existing housing stock will be stopped dead in its tracks without a torrent of cheap credit from the taxpayer guaranteed banks.

Meanwhile lending for the construction of new housing should be encouraged.

A solution to a problem that should not exist.

Build to Let” is nothing more than a solution to a problem that should not exist.

And if some people don’t like the spread of suburban housing up and down the coast their options for action are clear.

  1. Slow rapid population growth – especially when driven by the very high rates of Australian immigration currently being pursued by a coalition of big business and rootless “open border” cosmopolitans.
  2. Move out of their own detached or semi-detached housing immediately and move to a sky-box wrapped in napalm-cladding as quickly as possible so that they are ‘walking their high rise talk”.  If living in a skybox is such a great lifestyle option let them the lead the way.    Too often the biggest spruikers of the hi-density lifestyle don’t actually live it themselves.

Categories: Macrobusiness

1 reply »

  1. Hi The Glass Pyramid!

    Thanks for an interesting blog post – you have truly provided some valuable insights of the “Build to Let” framework. We found it particularly interesting how debt has caused the rise of this idea – incorporating “Build to Let” may solve the issue of housing in the short term, but it still does not provide Australians with the dream of buying their own home.

    Todays governmental structures, as you you mention, benefits certain groups in Australia, such as the middle class. In that sense, a greater divisions is made among societal groups, which is not to strive for in a functioned social system.

    Great point in encouraging the government to provide more affordable houses for sale to young Australians – they are the ones who need cheaper homes. Suggesting that housing should be provided in more regional areas: do you think it would be an issue to persuade people to move out of the city?

    Insightful thought on regional/suburban trains to transport people into the cities, do you think these connections have to built before making housing available? We think that idea could be important to have in mind.

    Buying an affordable house in Australia could still be very expensive for the younger residents and especially to save while renting. In preparation for the first home purchase, we provide housing ideas of how to overcome rising rents through innovative ideas. Housing Innovations Hub is a multi-platform campaign that discusses affordable living solutions for the current rental generation. Check out our platforms:

    We look forward to further engage with your blog!

    Liked by 1 person

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