Imagine that there’s one source of carbohydrates – potatoes – and that everyone needs to eat carbs at least once a day. In this hypothetical scenario, there are three types of potato: kipfler, desiree, and regular. Kipflers are expensive and not that common, whereas regular potatoes are cheap and plentiful. Desirees are somewhere in the middle.
What we’d find is that high-income earners, and/or people who really value quality potatoes, would buy up all the kipflers. Low income earners would be left to the regular potatoes.
What would happen if some kind of bug struck the supply of kipflers, halving it overnight? Well, I’d guess, there would be fewer kipflers for sale, and the price of the remaining kipflers would rise. Some of the high income and/or potato-loving people who would’ve bought the lost kipflers would instead turn to desirees. This increase in demand for desirees would drive up their price; some middle income earners who would’ve bought desirees would instead settle for regular potatoes, which in turn would make them more expensive. Some low income earners would be squeezed out by the process, unable to afford potatoes at the new, higher price. Even though nothing has happened to the supply of cheap or mid-priced potatoes, a reduction in the supply of expensive potatoes has cascaded its way down and harmed the poor.
Now imagine that we reversed the scenario. Through some stroke of agricultural luck, there’s a glut of desirable kipflers on the market. The price of kipflers falls. All of a sudden, desiree-eating middle-income earners who had looked on enviously as the well-to-do devoured kipflers are able to get in on the action. A number of them make the switch from desirees to kipflers, which causes the price of desirees to fall as well. A few low-income earners now find desirees within their reach, and they upgrade from regular potatoes. Even though the supply of desirees and regular potatoes hasn’t changed, they’re suddenly more affordable for everyone.
This all seems pretty straightforward. Why, then, is this logic so hard to comprehend when the good in question is not potatoes, but housing? We all need to live somewhere. If the supply of fancy, expensive apartments is restricted, the people who would’ve lived there don’t just disappear. Some of them instead settle for something a little bit less fancy and expensive. In doing so, they push up the price of these slightly-less-fancy dwellings, and take up spots that slightly-lower income households otherwise would’ve taken. This cascades its way down, so that a reduction in supply at the top end ends up meaning that prices are higher for all sorts of housing, just as with potatoes.
I had a lengthy back-and-forth on Twitter with Catherine Cashmore on this topic. She didn’t seem to accept my argument, instead suggesting that increasing supply at the top-end does nothing to make affordable housing available. I think it’s a fallacy to imagine that the housing market is parcelled off into discrete segments that have nothing to do with one another. It’s all connected, as David Simon would say.
I’ve made this point before, when I was enraged by an Adam Bandt pamphlet that seemed to promise greater restrictions on the construction of new dwellings, while also promising more affordable housing. As I said then, I don’t see how you can reconcile a desire to have:
- consistent population growth;
- affordable housing;
- an urban growth boundary that restricts sprawl; and
- strict restrictions on new development in existing areas.
If you want to say no to developments in your backyard, restricting a rise in density in established areas, then you need to compromise on one of the other points. If you want to have consistent population growth, restrictions on sprawl, and a tight lid on density, then you have to accept that your preferences will result in less affordable housing. If you want to have the NIMBYist restrictions, but keep housing affordable, then you’ll need to either reduce population growth or permit endless sprawl. Pick three of the four dot points above; you can’t have them all.
This is the simple equation that politicians are simply incapable of making clear to the public. They insist on asserting that we can have it all. Then we chuck tanties when the reality bites. But we also chuck tanties when we’re told the truth. Thus why I’d never be a politician.
Restricting land supply pushes up housing costs, full stop, The lefts density model now prescribed in major capitals does not deliver choice to those who want a backyard, it only delivers unionised labor a monopoly. The percentage of politicians living in these units would not total 1% of their ilk. Their public service planners and its industry do not live in their own density models, but expect the plebs too. Most business takes place outside the CBD’s and stand alone housing is the largest economic driver in the economy now slowing as a result of governments lust for power and higher rates, taxes and charges based on these inflated housing values, thereby cutting what extra cash may be available out of the market. Choking and squeezing the economy is a public sector creation of their lazy political masters who have lost all light on any hill. The public service should wake up and stop feeding their political masters developer donations while playing these double standards,and just leave and find some where else to haunt as your cost to the community far outweighs your usefulness..
Hi,
That’s quite a rant you have there. Needless to say, I disagree with it.
This seems like a good opportunity to remind readers that the comments on this blog do not necessarily reflect my own views – the one above certainly does not.
What part of supply constraints is a rant, Matt Cowgirl.
Wow, I see what you did there with my last name! Very witty. Original.
@Dallas Beaufort
Honestly this rant is so bad I don’t know if the assumptions are worse or the conclusions. The easiest point is that housing is not a real driver of the economy. We all need houses, sure. Producing poorly built McMansions looks great on economic paper and does nothing for long standing infrastructure.
You can see how Liberalism and the idea of Self choice leads to the strange conclusions above. I want to choose to have a back yard, even if I don’t use it most of the time, and it’s at the cost of someone else having room to live…. Naturally “shared backyards” don’t get thought of, Nor how much physical space available for housing (ie can’t cheaply “choose” a backyard in Newtown).
It’s kind of like “I choose to play loud music till 3am every night” Why should I care what my neighbours think!
And what experience in planning matters do you profess, Tim elliot?
Ad hominem attacks are never a good way to win an argument…
I think he says it’s a major driver in the economy “…and stand alone housing is the largest economic driver in the economy now slowing as a result of governments lust for power and higher rates, taxes and charges based on these inflated housing values…”. They might be your craply built McMansions or whatever, but there’s a whole supply chain of fat margins from raw materials to finished product. If you got to see the books of a volume builder you’d be amazed and wonder how inept they have to be to go out of business. Plus, it’s the craply built McMansions which cost the most to run and need the most maintenance, so there’s even more economic activity coming out of them!
Your comment about wanting/needing/using a backyard is, to me, a bit off-beam. I want a backyard but hey, I’m not going to be in it all the time – I can’t be in it all the time. I “pay” for that backyard in money and time. You want to snatch that from me? People have spare bedrooms for one reason or another – in some way it ends up costing someone somewhere to live. How did we descend into the world where people are fighting about who has a backyard or not? Do people find people who have backyards as offensive as those who play loud music to 3am? Do we instead have a greater issue to resolve around centralisation/decentralisation and understanding how that changes the demand for residential land/dwellings?
But about the backyard and the wanting to have the choice to have one or not, it’s the mark of a progressive society that one does have the choice. There are pros and cons for each, and in turn people can be manipulated to a degree on their preference and this in turn completes the loop into and out of policy. But it seems that’s all a bit too hard and besides, it’s more stimulating to simply beat others into submission.
Good piece, Matt.
I think the difficulty that Catherine Cashmore was hinting at is the problem of housing stock that for a specific reason doesn’t really have the effect of adding to supply. In the case of very high rises, they’re housing units which are suitable really only to a very specific subset of the population: very high income earners without dependents. Poorer people can’t afford them, people with dependents and bigger families can’t live in them.
Now I agree with you that if we don’t build housing suitable for this cohort they’ll just outbid people in lower income cohorts, pushing the problem down, but there’s also a risk that overcatering means that private capital for development, and the tolerance of LGAs, is being tied up in a class of housing for which there aren’t really enough (rich enough, or independent enough) takers. The worst outcome is a housing development within a shortage environment that still has a high vacancy!
And when the rich DINKs decide to have children, or for whatever reason want a larger/lower density style of housing, they’re still going to go further into the suburbs, bidding in the same low-vacancy market everybody concedes is a problem. We need more housing, yes, but we need more housing, in all locations, of all sizes.
Hi Liam,
You make a good point.
Still, isn’t this problem basically self-correcting, at least over the course of a few years?
If there’s a glut of expensive flats in the inner city, with a high vacancy rate, then won’t this just reduce/remove the incentive for further development until the glut is cleared?
I completely agree with your final point (we need more housing of all types).
>> Still, isn’t this problem basically self-correcting, at least over the course of a few years?
From what I can see…. NO
People do not want to lose rental income. So landlords/investment property blocks will leave apartments empty too keep rents high.
I know it sounds bizarre, But I know of many apartment blocks in the city that are largely empty. I think it is due to superfunds wanting to protect the value of their initial assets and people preferring to let 8/12 apartments then let the full capacity on a cheaper rental income.
Best we target the creation of decent housing in the suburbs. How many 2/3 bedroom apartments are being built now? Why should a family of 6 people be forced into a 2/3 bedroom apartment!
The operative word in “glut of expensive flats” being “expensive”. If they weren’t expensive the glut would soon disappear. The RE industry love to segment the market and present them as completely separate from each other as how much money one spends on things is a measure of status. But there’s a lot of real estate “markets” in there which are not based on price. There’s type of property (house, unit etc), number of bedrooms and so on. If the supply of four bedroom houses in the most expensive areas suddenly dropped for some reason, it’d affect the market for four bedroom houses in less expensive areas. It’d also tempt those people from the three bedroom or five bedroom market, and people from the apartment market.
So if those expensive flats weren’t so expensive they’d become an alternative to those who can be tempted into that market through some reason (which is price). Developers can afford to hang onto stock for a long time for whatever reason (big margins already covered those costs…) which is why the price doesn’t drop. They do sometimes stimulate sales through the “add value” route giving the buyer some whitegoods or a cheap car. Which is hardly the fire sale type of stuff like what was seen in the USA or even Noosa in recent years.
The underlying thing is that there’s too much money/credit around. The developers have the time/money to wait for the customer to yield to temptation. You do have to admire someone who has paid half a million dollars for a bedsit in the CBD – they must be loaded to afford that yeah?!?!
Hi Matt, long time listener, first time caller. What you say is undoubtedly true. To make housing more affordable, more development is required. But where? Do it on the fringe and new residents suffer from poor infrastructure and awful traffic as governments and developers are unwilling/unable to provide necessary services in a timely manner (e.g Point Cook in south western Melbourne suburbs). Do infill and nimbyism explodes.
Although nimbyism is a perjorative term, there is some reasonable aspect to it. You’ve paid for an asset with its attendant qualities – nice street, consistent architecture, little trafiic, great view, natural light, Then someone threatens to take that away by building a 100-apartment block beside you without compensating you for it. You’ve suddenly turned my kipfler into a desiree and horror, possibly a ‘regular.’ (I’m starting to think The Castle and it’s the constitution…but that may be going a step too far).
I wonder if a strategy of increasing the supply of currently expensive and mid-range properties (kipflers and desirees) is a cost-effective and timely way to go. Wouldn’t it be better to make more ‘regulars’ available?
One of the problems we have at the moment is the supply of alot of ‘regulars’ masquerading as desirees or even kiplers; shoddy built McMansions and high rises that look sparkling, gleaming and sexy when new but are actually rubbish. The unwitting buyer is over paying for their spuds.
Anyway, some thought; overall, agree with your analysis…and I kind of think Catherine (who I don’t know) was kind of on the same page as you…a sort of furious agreement/cross purposes.
Shorter Liam: the reply to your correct statement ‘We all need to live somewhere’ is ‘but not all of us can live just anywhere’.
I didn’t say that…perhaps you were paraphrasing me; not sure correctly
(I replied to the wrong comment, I meant to be adding to mine. Sorry).
Cool potatoes
Hi,
You raised an interesting point that I’ve actually been pondering a fair bit since reading The Gated City by Ryan Avent and The Rent is Too Damn High by Matt Yglesias. The question is this: what do you buy when you buy a house?
eg. Do you buy the right to veto your neighbour painting his front door? What about the right to veto your neighbour building a pergola? What about adding a storey? Do you buy the right to stop your neighbour from demolishing his own house and building an apartment block in its place?
It’s a really interesting question, and a lot of the ‘NIMBY’ist stuff really amounts to a clash between people with different answers to the question.
There are lots of potential negative externalities of development. Do we apply a development tax/charge akin to a carbon tax that internalises those negative externalities? Where do we find the balance between the extreme nimbys and the thinking of free-for-all types like Demographia. It’s also not just about protecting the current owners. It’s arguable we are all worse off if a beautiful streetscape is blighted by over development. Would we want to tear down all today’s Victorian cottages and terraces and replace with high rise? (that sounds a bit reductio ad absurdum, forgive me)
Hi,
I’m not really sure which externalities you have in mind.
I’m worried that that sort of thinking just becomes a way for those who already own property in attractive areas to lock out those of us unfortunate enough to be born after 1980 or whenever.
I’m not in favour of a ‘free-for-all’, but there is a lot of middle ground, as you say. I think current policy seems to favour the NIMBYist status quo. I’m in favour of nudging that a little, but not all the way to the other extreme.
Hi Matt – great post!
I currently live in a city of 5 million that is about the size of the Melbourne inner-city (710 km² v 8,806 km²) and almost everyone here lives in an apartment. There are some issues, but no greater than those that come with urban sprawl.
I think we can acknowledge there are some real costs to some kinds of development. Not just high rise, but even low-rise renovations. Noise is the most obvious example, and light restrictions. I don’t think it is disingenuous nimby-ism to identify that, as I have seen recently, having pool equipment installed outside your bedroom might have a detrimental effect on your quality of life. (Ironically, though covered in policy, there is no enforcement mechanism when it comes to sound.)
I think, if we genuinely want to increase population in the inner city – and I do – it needs to be in a compassionate way for both parties. It is not reasonable for residents to insist everything remains indefinitely the same – but identifying and enforcing core standards around safety, privacy, light, noise and access is a reasonable expectation.
My post looks stupidly long. Apologies – I think it is a bit worse because it is so narrow :)
Demographia do not promote a free-for-all. They support “Liberal Land Use Policy” above “Urban Containment” and give their reasons in their yearly report. At the bottom of this post I will copy the section from the Demographia report that explains these terms.
It might help if you think about the way that government in Australia currently regulates private car use. If your car has passed inspection and you have passed your driving test then you may drive on any road at any time provided you obey the road rules. This is liberal road use policy. Government gives you approval in advance, and when the time comes, you decide where you drive your car subject to reasonable traffic regulations. Of course gridlock would occur if everyone tried to drive at once on the same road. It would be legal but it doesn’t happen. People are generally sensible and drive at sensible times for sensible reasons.
Contrast this with a police state where drivers must first ask permission and obtain travel permits before undertaking each journey and show papers at checkpoints. Perhaps you have seen this on some movies. This is restrictive road use. The driving is rigidly controlled by government. There is no advance approval. Specific permission is required before any driving can occur.
From 9th Annual Demographia International Housing Affordability Survey Table 1
Urban containment (More Restrictive Land Use Regulation) relies on intrusive land use regulation, and includes markets
where residential development (new construction) is strongly controlled by comprehensive plans or development limits.
Generally, it is an urban planning objective to make urban containment the only legal regulatory structure. There is a strong
campaign to make the principal alternative, liberal regulation, illegal.
Urban containment may also be characterized by terms such as “densification policy,” “compact development”, “urban
consolidation”, “growth management” “and ” smart growth.” Generally, urban containment regulation is “plan-driven,” as planning
departments and governments determine where new housing is allowed to be built. There is a “negative presumption,” with new
development generally prohibited, except in limited areas where it is permitted by government plans.
By severely limiting or even prohibiting development on the urban fringe, urban containment eliminates the “supply vent” of urban
fringe development, by not allowing the supply of housing to keep up with demand, except at prices elevated well above histor ic
norms. In addition to higher costly housing costs relative to incomes, the higher densities in urban containment markets are
associated with greater traffic congestion and longer average work trip journey times.
Urban containment policies are normally accompanied by costly development impact fee regimes that disproportionately charge
the cost of the necessary infrastructure for growth on new house buyers. There is particular concern about the cost increasing
impacts of these fees, especially in Australia, Canada, New Zealand and California.
Liberal Land Use Policy (Less Restrictive Markets) applies in markets not classified as “urban containment.” In these
markets, residential development is allowed to occur based upon consumer preferences, subject to reasonable environmental
regulation. Generally, liberal land use regulation is “demand-driven” There is a presumption allowing land to be developed,
except in limited areas, such as parks and environmentally sensitive areas. By allowing development on the urban fringe, liberal
land use regulation allows the “supply vent” to operate, which keeps house prices affordable. Less restrictive regulation can also
be called traditional or liberal regulation. In addition to lower costly housing costs relative to incomes, lower population densities
in liberal markets are associated with less intense traffic congestion and shorter average work trip journey times.
While I agree with elements of your points, I think that the reality is that continued urban spread generates a disproportionate congestion impact, which artificially escalates the value (increases the scarcity) of convenient housing, which subsequently drives up prices. Many people talk about the huge economic cost of traffic congestion, one of the ways this is witnessed is through an additional premium in house pricing.
The key to infill is getting the density right, so that the value proposition to the user and the community is acceptable. This means using better quantifiable assessment tools that factor in social and community values.
I am drafting a blog post about this and the modelling we have been doing to illustrate it at the moment.
Hi,I don’t think I understand your point.
The point is that housing stock, type and location is only part of the issue. Properly addressing affordability is intrinsically linked to fixing congestion. While you still have congestion, people will pay a premium for a house that is less impacted by congestion.
Bit more detail here – http://www.redhotinnovation.com.au/finding-an-affordable-aussie-dream/
Gerald,
Demographia makes the case that allowing urban spread actually results in lower congestion and less travel cost. They argue that urban containment actually raises congestion and results in longer travel times.
The result is counter-intuitive I admit. The key is that urban spread results in almost all of the housing being affordable. Therefore people can buy in any location near their work/play/etc. No one has to drive all the way across town to work.
It makes logical sense, but when you get ot the end you must realise that the four above goals are not in everyone’s interest. Your model doesn’t quite work because people aren’t buying “potatoes” every day, and there’s a lot less elasticity given the cost of changing potatoes. And to be brutally honest, as an incumbent property holder in Sydney’s inner-west I don’t really want item two or four, at least not anywhere near me. They’ll damage my property’s value. I’m happy for one to occur, and as for point three it was madness of Carr to declare Sydney full.
Agree that you can’t have all the four points you list but I wonder why everyone takes the first point, ‘consistent population growth’ as a given. The economic benefits of immigration and population growth are not unchallengeable and certainly not when you include the costs to the environment and quality of life.
And restricting population growth to Sydney need not restrict population growth of Australia as a whole. In your analogy, those who cannot afford regular potatoes (Sydney accommodation) when the price rises could switch to cheaper cauliflower (regional NSW).
Well there should certainly be more regional growth — agreed. But I think in general pro-immigration societies are more dynamic and also avoid demographic problems (look at Japan, which by nature of its character cannot refresh itself with immigration). But that said, immigration policy can’t just be willy-nilly either.
Hi Matt,
I’m curious,
Do you think
- Ending favoured tax treatment of Negative Gearing
- Ending First Home Owner’s Grant
- Stronger land tax
- More stringent lending practices
would improve housing affordability?
Surely these would, reduce speculative demand for property/land, and reduce the amount of leverage in the market, and hence reduce the relative price of property vis a vis other costs of living.
Population growth and red tape surrounding development is an easy scapegoat. It does not explain the explosion in house prices last decade.
Hi,
In short, yes.
Something I find frustrating about the housing policy debate is that people are, for reasons I can’t discern, polarised into ‘supply’ and ‘demand’ camps. One side says that the increase in house prices relative to income has come about due to demand, driven in part by the factors you list; the other side blames supply restrictions of the sort I discussed in my post. There’s no reason why both explanations can’t have a bit of truth to them, and I think they do.
The data suggests that supply side cannot explain why house prices started rising in 1996 and skyrocketed in 2001 according to Phillip Soos – which is why i choose to place emphasis on demand side explanation. 2007 is the first time since 1950 where population increased faster than the number of dwellings. That’s enough to suggest supply constraints is NOT why house prices are where they are. (This analysis has also been done by Steve Keen)
Think about it like this:
In any case of excess demand for an asset class like houses, limits on lending keeps a ceiling on the asset price to income ratio. i.e. regardless of the amount of demand for housing, prices cannot rise beyond a certain price to income ratio UNLESS you have increasing leverage (through gradually relaxing lending standards).
House prices can only rise vis a vis income if you have increasing leverage. It follows that you don’t even need supply constraints to have increasing leverage feed into house prices
I cannot see relaxing restrictions on new developments, and expanding the urban growth boundary having any downward effect on house prices. In fact on the outskirts of Sydney, builders are already offerring huge cash/gift incentives for people to build new homes. There’s no demand for it at current prices, but the industry would rather offer incentives than reduce house prices since the latter may cause a spiral.
Real estate market does not operate like the market for potatoes because it’s an asset market.
Supply restrictions cause a shortage of houses and drive up price. This hurts both those who miss-out on housing and those who pay-up to get it.
The shortage determines how many families miss-out. Once there is a shortage THEN factors such as a credit bubble determine at what price the families miss-out.
Many shortage-deniers obsess over price, and because they notice that price is correlated to say credit growth or interest rates over some period they declare that there can be NO SHORTAGE. This is a very silly way of looking at the problem.
Hi The Claw,
Have a read of the below articles. Both include data from abs/census and refute any notion of a housing shortage.
http://theconversation.edu.au/debunking-the-myths-peddled-by-australias-property-bubble-deniers-4488
http://theconversation.edu.au/beware-the-rent-seeking-organisation-dont-be-dudded-by-housing-data-8112
Also have a read of this
http://www.debtdeflation.com/blogs/2011/02/10/a-motley-crew-interview-on-australian-house-prices/
Which shows while, as you say, there’s a correlation between credit growth and house prices, there is actually NO correlation between house prices and population growth – in fact the only years where population increased faster than the number of dwellings there was a NEGATIVE correlation between house prices and population growth. The corollary -> population growth cannot explain house prices.
Also according to the 2006 census there were 122,000 unoccupied dwellings in Sydney alone. (remember this is during the period of huge annual price rises pre-GFC) I haven’t been able to find the figures from the 2011 census, but they would be interesting to see too. This shortage story just has too many holes in it.
Hi @EB (above),
Yes, I agree. I’m not in favour of a completely laissez-faire approach. I just think that at the moment there seems to be a presumption against development, rather than in favour of it. I would prefer that the entitlements of existing residents were more explicitly codified, as you suggest. This would also include identifying the limits to residents’ entitlements. For example, it might well be reasonable for you to object to pool equipment being installed right next to your bedroom window. Is it reasonable, though, for you to be able to block a bar from opening two blocks away, or an apartment block on land half a suburb away?
Thanks for the explanation Matt. It’s illuminating for a property / economic novice like me.
Great post – I’m enjoying the ‘you can’t have it all’ series.
I generally agree with the points made but I’m not quite sure whether the idea of overall supply responses trickling down quite works in practice.
To go back to potatoes – what happens when there’s enough kipflers and desirees for those who want them, but there’s a shortage of regular potatoes and the price increases higher than people on low incomes can afford? I know that’s meant to stimulate supply or reduce demand, but how do you reduce demand below one potato?
Particularly if there’s not enough money to be made in growing regular potatos…(as there’s not in building and renting low cost housing). The lowest income households end up with the mouldy regular potatoes.
To me it’s an argument for goverment subsidy to prevent people from having to eat mouldy potatoes, but I’m more interested in if there’s a market answer.
It’s sort of analogous to supplying fresh water in developing countries – there’s a demonstrated need but not a capacity to pay. Is there an answer?
Sarah,
You are asking how to provide housing for families where there’s a demonstrated need but not a capacity to pay.
Demographia explains how liberal land use can result in houses available for 3 times an ordinary income. Most working folk can manage this. For those people who are truly unfortunate and cannot afford this, public housing should be built. Getting normal housing back down to 3 times normal income will make the need for public housing much smaller.
I think Demographia’s prescritions are a little simplistic – but as Matt’s post demonstrates – supply is imporant. And I agree with your point about public housing.
My question was really more theoretical – is there an economics/market based solution where there is a need but not a capacity to pay?
Well done Matt! One of the neatest and most cogent explanations of a section of the laws of supply and demand that I’ve seen! Now, if we can just convince some of our bone-headed politicians that “government assistance” to the housing sector in the form of subsidies and “first homeowners’ grants”, and also negative gearing to “investors”, actually prices lower-income people OUT or the housing market!!
Good point about the contradiction in restricting supply but wanting affordable housing.
What I’d ask though Matt is how does your analogy stand up when the Kipfler eaters are able to borrow money and buy all the Sebagos, forcing the former regular potato eaters to subsist on lentils or grass clippings?
It seems to me the analogy then moves from being about potatoes to 15th Century Dutch tulips.
Just to reiterate an earlier commenters’ point, there’s an awful lot of 99c a kilo regular potatoes out in the Aussie property market pretending to be organic Kipflers.
Sorry, 17th Century Dutch tulips. Fat finger syndrome strikes.
Laugh- ins fickle finger of fate knows folly too.
Land use planning’s institutional corruption takes the cake here in Australia, while those who want a home and backyard are forced to live a slaves life to a landlord class who have not yet come to grips with their political masters or their policy strokes..
Adit,
I have read your above comments and I can see that you are a classic shortage-denier. You fall for several traps that have already been thoroughly debunked.
You say “according to the 2006 census there were 122,000 unoccupied dwellings in Sydney”
What made you think to go reading the 2006 census? Why didn’t you check the price to rent or buy a place in Sydney? Surely the high price indicates shortage. What is your angle? Are you a NIMBY?
Hi Claw.
I chose 2006 because this during the pre gfc explosion in house prices – please read my comment properly. Also have not been able to find the 2011 census.
Please show me or direct me to where these have been debunked. I would greatly appreciate it.
Again read my previous comments carefully to answer to your other questions ‘re my angle and why high prices aren’t explained by shortages.
Adit,
Your post contains so many errors
“The data suggests that supply side cannot explain why house prices started rising in 1996 and skyrocketed in 2001 according to Phillip Soos”
To understand price you need to understand BOTH supply and demand.
There is no single number for house prices. You will find that urban fringe land throughout Australia rose at different times – usually shortly after supply restrictions caused shortage. Soos likes to aggregate data and make the mistakes that go with that.
“which is why i choose to place emphasis on demand side explanation”
Do you try to eat noodles with just one chopstick? Then don’t try placing emphasis on demand side. Try to understand supply as well.
“2007 is the first time since 1950 where population increased faster than the number of dwellings. That’s enough to suggest supply constraints is NOT why house prices are where they are.”
Complete nonsense. The extra dwellings are NOT allocated exclusively to the extra people. The existing people build extra dwellings for themselves. Smaller families require more dwellings for a given number of people. Rich old people buy holiday homes. Also high prices due to shortage will discourage couples from having children. Try to understand feedback.
“prices cannot rise beyond a certain price to income ratio UNLESS you have increasing leverage”
Nonsense. Another blog poster PhilBest explains that supply restrictions have caused shortages and high prices in South Korea even though dwellings are bought in cash. Of course Australia’s large price rises were caused by credit and the shortage acting together.
“It follows that you don’t even need supply constraints to have increasing leverage feed into house prices”
Nonsense. Harvey Norman has brought easy credit to TVs and DVD players. Yet their prices have fallen. The difference? Supply is not restricted.
“I cannot see relaxing restrictions on new developments, and expanding the urban growth boundary having any downward effect on house prices.”
I’m not surprised. Shortage-deniers like to delude themselves they can choke-off extra houses, invite in many immigrants, build no infrastructure, and yet not be to blame for high house prices and rents.
The census unoccupied issue is mentioned here:
http://www.macrobusiness.com.au/2012/06/defending-the-housing-shortage/
Here is your raw data from many Censuses/Censi
Year,Occupied,Empty,% empty,total
1911,923459,33473,3.5%,956932
1921,1153285,51163,4.2%,1204448
1933,1547376,68772,4.3%,1616148
1947,1907895,47041,2.4%,1954936
1954,2380353,112594,4.5%,2492947
1961,2817270,194114,6.4%,3011384
1966,3185656,263873,7.6%,3449529
1971,3694559,339057,8.4%,4033616
1976,4162064,431200,9.4%,4593264
1981,4691425,469742,9.1%,5161167
1986,5285571,543539,9.3%,5829110
1991,5765021,597582,9.4%,6362603
1996,6496072,679165,9.5%,7175237
2001,7072202,717877,9.2%,7790079
2006,7596183,830376,9.9%,8426559
2011,7760322,934471,10.7%,8694793
[...] accommodation. The reason I do so today, is in response to a debate I had with the ACTU’s Matt Cowgill who took up the challenge to express the broadly shared logic that increasing supply ‘per-se’ [...]
[...] accommodation. The reason I do so today, is in response to a debate I had with the ACTU’s Matt Cowgill who took up the challenge to express the broadly shared logic that increasing supply ‘per-se’ [...]
To complicate the image, potatoes are often grown on the same land, so planting more kipflers can mean less regular potatoes get planted.
[...] Matt Cowgill: Housing policy – it’s all connected [...]
Thanks a lot from Ballycastle ;)
[...] gets built will not usually be affordable by new entrants into the housing market. However in a very interesting post, Matt Cowgill makes the point that you can’t have population growth, restriction of sprawl, tightly restricted [...]