On Monday, Labor leader Kevin Rudd released the document New Directions for Affordable Housing. This rejects the best solutions for an affordable housing future and takes the party back to the economic irrationalist days of Gough Whitlam.
The document shows how houses have risen in price but denies the main factor causing this -- regulatory restraints on the use of land for housing. There is abundant land around Australia's cities that as farmland is worth $5000 a hectare. This translates into $500 a housing block.
Miraculously, the value of the farmland as a basic housing block becomes worth more than $ 150,000 to $300,000 once it is permitted to be used for housing. On top of this are the costs -- $50,000 to $70,000 -- of servicing a block of land with sewerage, roads, telecom lines etc.
It is regulation, not land scarcity, that is creating the present excessive housing land prices. Only 0.3 per cent of Australia is urbanised. Abundant land is available for development on the edge of all our cities. This is true even in Sydney, which is constrained by national parks and the Blue Mountains. Perth, which has had raw land prices treble over the past dozen years, has oceans of low-quality grazing land on its doorstep.
The price increase caused by state government regulatory "planning" restraints is incorporated into the ultimate price of a home. That cost is amplified by excessive levels of taxation and spurious state and local development charges, to which the ALP policy document rightly draws attention.
It is also aggravated by regulatory measures requiring new homes to have expensive energy-saving features, matters about which Rudd's document is silent.
Land costs are the main cause of rising housing prices but the ALP document argues that land supply is unimportant. It cites several people with links to major developers in support of this view.
But, to use the Mandy Rice-Davies aphorism, "They would say that wouldn't they?" Asking permit holders whether additional permits should be created is like asking publicans whether they support the licensing of another pub near by.
Labor is constrained in its immediate policy options by having wall-to-wall ALP state governments holding the land availability levers.
Other considerations in its policy thinking are the pressures of the anti-growth greens, and Labor's housing spokeswoman. Tanya Plibersek, is personally vulnerable to these threats in her own inner Sydney electorate.
In addition, the policy offers the ALP Left an opportunity to engage in a piece of nanny-state business bashing: it proposes cracking down on unscrupulous lenders who are said to be encouraging people to borrow more than they can repay. Such statements reek of ignorance about the business world, which has strong incentives to avoid the costs of foreclosing on delinquent borrowers.
Shadow treasurer Wayne Swan has previously argued against increasing housing land supply, saying this would reduce the price of established houses. That may well be the case, but is then the solution continued restraint and an inevitable ratcheting up of prices, denying young Australians the dream of home ownership?
Hence, Rudd is left with interest rates with which to blame the coalition government for house prices. Yet interest rates have been rising globally, with a negligible house price effect in most areas of the US and Canada, where restrictive land supply policies are not in place.
The ALP housing policy has clearly been prepared within a maelstrom of general strategic considerations: the need to attack the Howard government on interest rates, the only area where it is remotely vulnerable; constraints on addressing the main cause, the policies of its brother state governments; reducing the target sitting members present to inner-city greens; avoiding alarming existing home owners with possible house price reductions; and a flailing at phantom rapacious lenders.
All that considered, the policy needs to be assessed within the context of its analytical framework. In this respect, it fails largely because it demonstrates gullibility about the relationships between supply, demand and price in housing.
This raises broader issues about the party's economic credibility because the same paradigm could be used to argue that money supply does not matter for inflation.
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