Wednesday, September 19, 2007

Housing affordability: Gittins, good government and greed

Sydney Morning Herald economics editor Ross Gittins has yet another stimulating article in today's SMH on the hot topic of housing affordability. He argues that none of the 'solutions' currently being kicked around by the MPs will improve the situation. Increasing the first-home owners' grant, cutting stamp duty, a subsidised saving scheme or anything else that gives buyers more power will only make things worse, pushing prices up:

That is because genuine solutions to affordability are counter-intuitive - contrary to common sense - and pollies often settle for "solutions" that don't work but sound like they should. Because the fundamental cause of hard-to-afford prices is demand exceeding supply, the only genuine solutions involve either increasing supply or reducing demand.
Instead of giving more buying power to all buyers (thus raising prices), Gittins argues, we can cut demand by removing the tax-breaks associated with property ownership. I'll let you read the details of his proposed alternative (and why he says it will never be implemented), but I found the article interesting for three reasons.

First, this piece once again highlights the way that the media often shortcircuits effective government. The very media scrutiny required to keep governments honest also encourages short term, populist solutions, those that are easily packaged and 'sold' to the electorate. Partially this is due to our own lack of patience. We want to see results now, and we threaten political failure to those who don't deliver on time. But I think it is also due to a common misconception of the nature of representative democracy. It is a widespread assumption that MPs are there to reflect our preferences and opinions, that they ought to be swayed by public opinion. But do we want those who govern us to be held ransom to our collective prejudices? No, they ought to lead, to be swayed only by persuasive arguments, not a daily media-driven popularity contest. We elect representatives to make decisions for us, on our behalf. We give them the time, resources and authority to make and implement judgements on our behalf and for the common good. They are not simply agents to enforce the will of the majority.*

Second, I really hope that this issue (housing affordability) doesn't come to dominate the upcoming election campaign. Not only are there more pressing and more important issues that may get marginalised by it, but collectively focusing on this issue encourages us in our self-obsession. I don't need more help in thinking about myself.

And third, there is a better solution, both simpler and far more difficult than the one Gittins suggests: "Watch out! Be on your guard against all kinds of greed; life does not consist in an abundance of possessions." (Luke 12.15)
*Of course, there is more to be said on this topic. Andrew Errington has started a series on Jesus and government, in which he will (of course) be drawing heavily on the work of O'Donovan.
Fifteen points for guessing the English town in the picture.

28 comments:

andrewE said...

Of course... alas, originality continues to allude me. I will stick to slightly more accessible re-packagings.

byron smith said...

Of course! Who better to draw heavily from? When you're onto a good thing...

byron smith said...

And he needs some re-packaging! You are performing an important service. I meant no disrespect to your series, quite the opposite in fact.

Bruce Yabsley said...

I seem to recall a statement from JFK (as a senator) along the lines that he was not there to do what his constituents wanted, but what he thought he should ... and that they could then vote him in or out in their turn. As neat a description of representative (as opposed to direct) democracy as you can get.

As to whether housing affordability comes to dominate the campaign: this really is a big issue, especially in Sydney ... would it be such a bad thing if it did dominate? I can afford housing, but many people cannot, or not without costs that the culture otherwise ill-prepares them to handle (and often does not help them to bear). If our leaders were to get serious on this issue --- say, by making a generational commitment to infrastructure in regional cities, to their own benefit as well as reducing the strain on the metropoleis --- wouldn't this be a good thing?

Part of the problem here is the degeneracy of political journalism in this country; Gittins is an honourable exception.

byron smith said...

Bruce - you're right. Housing affordability does affect people and that's why it is an issue. Nonetheless, if it is to be an issue, I'd love for journalists and politicians to be highlighting the ways in which it affects communities, not just individuals, and the ways it affects relationships, not just bank accounts. Gittins is indeed an honourable exception on many counts. If he ever ran for office, I'd vote for him.

Also, I would still be sad for this issue to dominate when there are larger (though perhaps less immediately pressing) issues on the table: climate change; environmental degradation; the kind of civil society we ought to be in the face of international terrorism; international relations with (esp) China and the US; federal tertiary education funding (did you see the latest report that puts us near the bottom of the OECD on this?); and so on. Housing is one issue amongst many, and in my eyes, not among the larger ones. Again, I'd love our politicians to lead us in thinking beyond tomorrow, and beyond ourselves.

I love the sentiment from JFK.

David Castor said...

I haven't read the article and I'm not an economist, but wouldn't removing tax breaks have the effect of increasing the overall price of owning a house, thus impacting upon housing affordability?

byron smith said...

David - yes, Gittins admits that his idea is counter-intuitive. He argues that removing the tax breaks that arise from owning a house decrease the attractiveness of propety as a form of investment and so shift investors elsewhere (stocks, etc). The article isn't very long - have a read.

cyberpastor said...

I'm inclined to agree with you that housing affordability ought not to be a central theme of the election. However, if I can come close to Yabbers here, I can't help but feel that what is really at stake is the community responsibility to provide "homes" for as many as possible. A home is more than a house which seems to translate into a status symbol or indicator of personal advancement. OF course you can't really have a home without a house but there are plenty of people who have houses who still don't have homes.

byron smith said...

what is really at stake is the community responsibility to provide "homes" for as many as possible.
Yes. And that is an issue worth discussing.

Bruce Yabsley said...

The home/house distinction is a good one, and it's part of what I intended with the suggestion about infrastructure in regional centres. (It's not my idea, but I still think it's a good one!)

With these important-to-the-life-of-the-society questions, I think as soon as you think seriously about any of them, you find that they are strongly linked to the others, and so are forced to take a broad view: you're looking at the whole society from a particular aspect, rather than treating a particular (separable) thing. So I think that many of these issues should not be thought of as truly being in competition. (Of course this does not apply if in trying to "deal with housing affordability" one is merely trying to score points.)

I admit that there are some issues that are more-or-less decoupled. e.g. Whether we treat refugees with generosity or contempt is not too closely related to the other questions, but is still important.

Looney said...

Please forgive me for offering a solution which is totally nutso: Someone could build some more houses! Preferably in nice, enviro friendly high-rises near places with jobs!

Christopher said...

To my mind this is just another symptom of overpopulation.

Population growth is not always a good thing. But due to our Christian/Capitalist/Tribal mindset we still believe that if we don't have a large population we will perish.

Reduce/maintain a population level so that supply can meet demand.

If you build 100,000 houses in three years, but 150,000 move to Sydney/Australia then we are in the same situation.

simone said...

byron - thanks so much for the reminder that there are more pressing and important issues than house prices. Could you work it into a post everyweek? I need to keep on hearing it!

Bruce Yabsley said...

These replies are going to sound snarky. Let the reader decide if they are, and if so, whether that's justified.

looney: The problem is more about prices than houses (hence housing affordability). Building more houses or units that are going to be expensive does not help. Building more houses or units that are inexpensive, but bring with them burdens of isolation or disavantage, does not really help either. Read the Gittins article for starters if you have not already done so: the problem is nontrivial, and that's one reason why it's still a problem.

christopher: Give me a break. "Just" another symptom: didn't we banish this kind of use of the word "just" a long time ago?

Supposing I cleanse myself from the Christian/Capitalist/Tribal mindset, whatever that is --- perhaps by performing a ritual where I call it names --- and I embrace the cause of population growth mitigation, and yet I find myself in political power or concerned with social issues ... if I am concerned with Sydney, I will still have a housing affordability problem to consider. So give it a rest.

The 100000 houses / 150000 people argument applies also to road-building, a much less fraught and problematic matter than population, so let's take that for perspective. Yes, it is an argument against just-building-lots-more-roads. For some particular roads it is decisive. But in most cases, there are also other arguments in play. For example, I live on a good bus route (for which I pay a rental premium, BTW), whereas many people do not. In this connection it's worth contemplating how much we owe to things like the invention of the bus-only lane: cases of being more effective rather than just having "more" or "less" of something ...

Looney said...

Bruce, what I think I heard you say is that there was no point in building 100,000 houses because people might occupy them. Sorry, maybe I should change my name from Looney to Snarkey!

Christopher said...

These replies are going to sound snarky. You are right on that front.

Give me a break. "Just" another symptom: didn't we banish this kind of use of the word "just" a long time ago?

"We" may have banished "just" from the conversation a long time ago, however I don't remember being invited to that conversation. If you prefer I will rephrase:

Increased housing afforability is another symptom of overpopulation. Any solution to housing affordability needs to take into account sustained population growth.

Supposing I cleanse myself from the Christian/Capitalist/Tribal mindset...and I embrace the cause of population growth mitigation, and yet I find myself in political power or concerned with social issues I will still have a housing affordability problem to consider. So give it a rest.

The "cleansing process" isn't the solution but involves looking at the problem differently.

And the cause of population growth mitigation isn't in opposition to concern about social issues, I am not really sure where you heading with that.

Donna said...

To my mind, this isn't simply a problem of overpopulation, it is caused by an increasing population combined with greed and individualism.

Greed on the part of investors who own (sometimes lots of) houses purely for the sake of making money - thereby making buying a house more expensive for everybody, especially those who can only afford to rent. (This reminds me of your "red and green" post from April.)

Individualism, because in our society there will often be only two people living in a large three or more bedroom house. If we lived with our extended families (a little more than we do) the need for new houses would be reduced).

Thanks Byron for a(nother) great post.

Bruce Yabsley said...

My apologies for the delay in reply: I have been travelling.

looney: The 100,000 houses argument was due to christopher and I thought he stated it clearly. I shifted to cars-on-roads because this is the context in which this kind of argument is normally made: supposing there is an insatiable demand for car journeys (not so far from the truth) then simply building more roads will not reduce traffic congestion, as car journeys will increase, soaking up the extra capacity. In this case one has helped a bunch of individuals make additional car journeys, but not helped the society as a whole with its congested-roads problem. One should instead do something like shifting those people from cars to buses or trains ...

My point was that even in this case the argument is not always decisive , and it may still be necessary to build some new roads (e.g. trains will not be in the Hills District for a decade, if that; buses support some kinds of journeys better than others, and work best with bus-only lanes at least some of the day, restricting carrying capacity for cars). But this is relevant to the discussion with christopher (as I say) and goes beyond your (either looney or snarky) question.

christopher: If you want to say that population growth is contibuting to the problem with housing prices and that "any solution to housing affordability needs to take into account sustained population growth", then I think that's right.

(I stand by my general complaint against the use of the word "just".)

Mitigating population growth is certainly related to concern for pressing social issues, I have no argument with that. (It's an easier point to make globally than w.r.to Australia it seems to me, since so much of our population growth is due to immigration, making us a complicated case; but I think the general point is clear: 6 billion people is bad enough, and surely 12 billion will be a nightmare.)

My point was that supposing that one was doing all that one could do (in the present) on population, then Sydney would likely still have silly housing prices, and it would still be a social problem. Contributing factors like the sheer desirability of anything near the water and the scarcity of decent public transport will still be there if the population stress is lower ...

If my reply took a tone with both of you gentlemen it was because your (initial) posts tended to suggest simple overlooked "solutions" to this problem, which seems on the contrary to be nothing if not complicated. I thought Gittins' article brought this out well, as discussed.

Looney said...

Bruce, we already know it is complicated and there are impacts across a society from decisions and tradeoffs.

Here in the US, the "it is complicated" argument is generally used to shut up any reason (it is too complicated for you, but not for me) and point people to the most populist and short sighted solution available. We must also note that homeowners vote at a much higher rate than non-homeowners. Thus, urban planning is never done with the neutral sensibility of SimCity.

JoBloggs said...

I agree that the housing issue needs to be tackled from the perspective of those at the bottom of the economic heap rather than the top (or even in the middle). Housing affordability impacts the poor far more than it impacts the wealthy: those who can never dream of owning a house are still terribly disadvantaged by the price of houses going up. Anyone who lives on a pension will know how terrifying this issue is... pensions aren't going up at the same rate that rents are going up. While homelessness is not just about housing availability (as someone has already suggested), the increase in homelessness is certainly connected to rental prices.

Christopher said...

Hi Bruce,

Mitigating population growth is certainly related to concern for pressing social issues, I have no argument with that. (It's an easier point to make globally than w.r.to Australia it seems to me

I disagree I think once you focus on the global situation you lose people in a fog of meaningless statistics. It might be simpler but it does nothing to help solve the problem. And it makes people in Australia think the problem of overpopulation is only located in Calcutta or Cairo or Beijing. It is a problem in Australia, in Sydney, in Perth, and will/may effect regional cities too.

My point was that supposing that one was doing all that one could do (in the present) on population, then Sydney would likely still have silly housing prices, and it would still be a social problem.

I agree, but the reverse is equally valid, which was my point. If one does all they can in regard to tax cuts, or increasing tax, or grants, or building more houses, but doesn't take into account population growth then you are still just treading water.

As I said the Christian/Capitalist/Tribal mindset in regard to population is very strong in Australia. It can be seen in the language in this article from the Herald, or here

I think that this view needs to be curbed, but due to many factors (as mentioned by others above) this will not happen in this country. In Australia a bigger population is better, and the biggest the best.

Bruce Yabsley said...

Here in the US, the "it is complicated" argument is generally used to shut up any reason (it is too complicated for you, but not for me) and point people to the most populist and short sighted solution available.

looney I take the view that this is a problem with debate in the US, and indeed a lot of political debate (we have this phenomenon in Australia too). I just don't see the relevance Byron's post, or the Gittins article. That article was precisely not pointing to populist and short-sighted solutions, but rather explaining how these can make things worse.

christopher: I am happy to agree that reflex "growth is good" views should be challenged. As to global vs Australia-bound versions of the point on population, I think we are talking at cross-purposes. I am not an activist in this matter, and so while it may well be true that "once you focus on the global situation you lose people in a fog of meaningless statistics", I am trying to understand the issue in discussion, not motivate an audience to some conclusion I believe to have already been settled.

Sydney definitely has a housing affordability problem. The world definitely has an overpopulation problem. Population growth is one of the factors contributing to the housing affordability problem (although it doesn't seem to be dominant at the moment). There is unhelful ideology related to population growth in thw world generally, and in Australia in particular. I think all of these points are clear.

But are there too many people in Australia? If the situation in other countries were out of the equation, I would say yes based on environmental considerations. But once everyone else is taken into account? A lot of that growth is due to immigration, and to children of first-generation immigrants, and this introduces other criteria into the decision. I suspect a sustainable position would run something like, We should as a matter of equity and consistency take more immigrants than we would otherwise choose, but this then makes much more urgent the project of reducing or mitigating the environmental footprint per person in this country. Another big and vexed issue, of course.

That position is both tentative and debatable and I have no problem with anyone taking a strong opposing view. But even if it is true that there are too many people in Australia (even once all things are considered), I still claim it's less clear that it's true than it is re the world at large.

michael jensen said...

Oxford

byron smith said...

Sorry, not Oxford.

Moffitt the Prophet said...

York?

byron smith said...

York indeed. Fifteen points.

Jonathan said...

York is supposedly almost as expensive as London. Quite appropriate.

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