House prices are constantly in the news. Melbourne housing remains unaffordable to a great many who don't own their own home.
A rule of thumb is that when average house prices are over three times average incomes too many people are priced out of the market.
Melbourne's average house prices are over six times average incomes.
There are many reasons given for our high prices.
One senior Victorian official has even suggested that water shortages cause Melbourne's high prices! Heaven knows what he would advise high growth cities like Las Vegas or Phoenix.
It is sometimes argued that high house prices are caused by upsurges in demand. This was disproved by the Demographia study of 100 cities around the world. Demographia found the three fastest growing cities -- Dallas, Houston and Atlanta -- all had average house prices less than three times average income levels.
If Melbourne had those cities' planning and regulatory arrangements, a typical new house would cost $160,000 instead of $367,000.
In research for the Property Council, urbisJHD analysed the component costs of new housing.
They estimate that one quarter of new housing developments' costs in outer Melbourne comprise government taxes and regulatory requirements.
These estimates may be overstated because they include company tax and GST. However, they exclude some taxes, for instance the stamp duty on conveyancing from which the government collects nearly $2 billion. They also leave out the recently introduced $5000 per block development charge.
Most importantly, they exclude the escalating prices caused by the regulatory squeeze on land availability.
Land on Melbourne's outskirts in its alternative agricultural use may be worth $3000 per hectare or a few hundred dollars per block. The Government planning system creates shortages of land by strictly controlling if and when landowners are permitted to offer their property for housing development.
As a result, prices are inflated pushing up the value of a block of raw land to over $50,000.
On top of this is the development to make the land suitable for housing. These costs should never amount to more than $25,000 per block but regulations double this.
The house structure itself also has regulatory imposts. Without these and stamp duties building costs would be under $130,000 for an average home.
The upshot is that a house and land package which should cost $160,000 is more than doubled in price. Regulations create a land shortage that inflates the price of developable land.
Regulations also require costs that the purchaser might prefer to avoid on infrastructure and on the house's structure.
Compounding these is a series of state taxes -- stamp duty on land, on the finished house, on conveyancing and on mortgages.
The Property Council work illustrates how government itself has a vested interest in boosting the cost of housing.
High house prices result from government land rationing.
These high prices, in turn, increase the government's tax return and leave it with a real quandary. Should it maintain the land scarcity to protect its own revenues or should it reduce price-boosting regulatory measures to benefit the new home owner?
Governments have seldom proved responsible enough to pursue the second course.
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