Federal Treasurer Peter Costello recently drew attention to high house prices preventing young people getting a foot on the home ownership ladder. He suggested this might have adverse effects on family formation. Although there was some initial reaction to the suggestion that land prices were being pushed up by government rationing its availability, other material has been since issued by the Urban Development Institute that corroborates the facts.
Bricks and mortar elements of house prices have barely moved in real terms over a 33-year period. By contrast, prices of the land component have increased by between a factor of two (Melbourne) to eight in Sydney and as much as 10 in Adelaide. A block of land on the periphery of Sydney sells for $460,000 with Melbourne being the cheapest of the major capitals at $112,000. Such price levels are only possible because government regulates land availability by preventing land owners from building houses on their land or selling to others to undertake the building.
This throttling of the availability of land for housing has grown at an accelerating rate over a 50-year period. It owes nothing to the availability of land -- in Australia urban areas account for only 0.3 per cent of the area. Nor is it anything to do with infrastructure costs. The excessive costs are purely due to government rationing of land. Australian state governments have been progressively increasing the up-front development charges imposed on new housing developments. HIA put this at over $60,000 for Sydney and the UDIA, using a different accounting methodology put it at twice this level. The upshot is that government regulations and taxes are forcing up the cost of new houses which are now, in real terms more than twice what they were 30 years ago.
In doing so, the prices of existing houses are boosted making those of us who already own our homes richer compared to those not yet on the ladder: many of whom, unless policy is changed, will never get a toehold into property ownership. Present policy is highly discriminatory, and exploitative, towards younger people, few of whom own houses.
The policy changes required include a considerable increase in the land cleared for housing development. Longer term, all planning restraints, except those preventing land owners from being adversely affected by developments on adjacent properties, should be removed. In the interests of smaller government, restoring landowner property rights and restoring affordability for those without their own homes governments must accelerate land releases and must cease the discriminatory taxation of new homes.
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