At the end of last year, the average Australian house sold for $471,000, according to the Real Estate Institute -- a 12% increase on the year before. Melbourne shared in the increase and the average price for a Melbourne apartment was higher than anywhere else in the country.
Premier John Brumby's decision to unlock land within the urban growth boundary is therefore welcome news to aspiring home buyers. Announced on March 4, the plan can be a terrific antidote to the latest interest rate rise announced by the Reserve Bank on the same day. And as a policy response, it is far more helpful to those looking to build a home or buy an existing one than the panoply of subsidies offered by the Commonwealth Government.
It is also encouraging to see the Liberals joining in the call for greater land releases. Spokesman Mathew Guy said the reform was too long in coming and did not go far enough. Opposition Leader Ted Baillieu worried about whether there was adequate infrastructure.
In fact, there is no shortage of infrastructure. Putting in the roads and arranging for water, sewerage, telephone connections and other utilities is what the developer does. The developer turns a piece of farmland worth $1000 into a housing block worth $60,000. With the house and taxes, we should see the price of the average new house in the suburbs at $280,000 and freestanding "starter" homes at less than $200,000.
By restricting the availability of land, the Government pushes up the price of the block. This adds about $50,000 to the cost of a new house and there are knock-on cost increases to existing houses.
The planning restraints that have brought this about have been accumulating for years. Melbourne 2030 is only the latest incarnation.
Restraints on house building began with planners making alarmist statements that "urban sprawl" was taking over the countryside -- an especially ludicrous claim for Victoria, where urban development takes up less than half a per cent of the state. Others wanted to create more compact cities to foster a cafe society. Still others wanted to get denser housing to promote less car use and more public transport.
They even argued that the new home buyer did not want to live in the outer suburbs, but for good measure denied them a choice by restraining the amount of available land.
Unravelling poor policy on development that has evolved over 20 years is never easy. Brumby has embarked on dismantling a heritage of excessive prices caused by government.
As with any poor decisions of government, shifting direction creates complications. Extricating an important part of the economy such as housing from the vice of restrained land availability has to be handled carefully. A sudden abandonment of the policy can lead to price collapses and financial distress to the industry and recent home buyers.
The plan announced by Brumby will release a further 90,000 housing blocks, about three years' supply.
This should reduce prices at a time when interest rate increases are reducing affordability. And if handled well, it will push prices down without bringing about a price collapse.
But announcing a decision gives no guarantees that it will be followed through. Brumby has to enforce it with state and local government bureaucracies. Failure to do so will reduce the decision to being an empty gesture and demonstrate government impotence.
Victoria's decision on housing also puts pressure on other states, providing it can be achieved. All Australian jurisdictions have been inflicted with the "planning plague". As a result of restraint on land availability, would-be home buyers in other states have been even less well-served than Victorians. The outcome has meant the real price of houses across Australia has doubled over the past 20 years.
This has nothing to do with building and land development costs. These industries are efficient and low cost.
It is purely the result of government-induced land shortages and excessive government taxes and charges in some states. In Australia, house prices compared with household income levels are on average among the highest in the world.
In seeking to restore house prices to the levels that would be set in a less-regulated environment, Victoria's policy will be a magnet for those priced out of home ownership in other states. Hopefully, for the sake of new home buyers and the industry alike, governments in the rest of Australia will be forced to follow suit.
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