Friday, January 25, 2013

The Aussie dream one of the most expensive

The ninth annual Demographia survey of house prices across the world was published this week.

It again shows Australian house prices, adjusted for income levels, are well above those in the UK, US, Canada, and Ireland.

Out of the 81 large cities in the survey, Melbourne's prices were the fifth highest.

The typical Melbourne house costs 7 1/2 years' average household income, more than twice the household income required in Chicago, Houston, Ottawa and Atlanta.

If you have owned your home in Melbourne for the past 10 years ask yourself, ''Could I afford to buy it today?''

In spite of low interest rates, chances are you couldn't.

That's because over the 10 years the average house price increased by 92 per cent while average earnings increased only 68 per cent.

The reduced affordability is due to skyrocketing land prices-prices for the ''bricks and mortar'' component increased by only 28 per cent.

New Zealand also has high house prices.  Commenting on the survey, New Zealand's Deputy Prime Minister Bill English placed the blame on ''regulation that locks up land for development'' making it artificially scarce.

He said the NZ Government was addressing misguided environmentalism, which he blamed for the cumbersome and restrictive planning controls that cause the excessive prices.

Victorian Planning Minister Matthew Guy has tried to increase building land availability.

But so far he has had little success.  Prices have remained high and new starts have remained depressed.

Politicians favouring deregulatory measures that allow land development are thwarted by several factors.

Among these ate concerns by existing homeowners that increased land supply may dampen property values.

Recent home buyers in the outer suburbs may be especially fearful of seeing negative equity in their home values.

Adding to such fears are noisy environmental lobby groups seeking to prevent ''urban sprawl''.

Even though only 0.5 per cent of Victoria's land area is urbanised, these slogans are attractive to many in the media and to politicians, who oppose development.

In addition, the accumulated regulatory barriers are formidable.  Thus, in Victoria, even proposals inside the Urban Growth Boundary face an array of further regulatory hurdles to clearing land and building houses.

Plans need to be prepared and approved by multiple government agencies.  Surveys must ensure there are no rare species or ''threatened ecological communities'' on the land and woe betide a prospect should there be any ''remnant native vegetation'' or traces of aboriginal settlement present.

According to the Victorian Government's Growth Areas Authority, 540 different regulatory ticks are required between an area being designated as open to urban development and the completion of a house on it.  This means years of uncertainty and costly too-ing and fro-ing, all adding to the cost.

Regulation once in place attracts vested interests making it difficult to remove, even though it imposes colossal costs to consumers and businesses.

In Victoria, the Government has recently established a Red Tape Commissioner to tackle over-regulation generally.

Planning regulations are only one target area, but for people being denied housing by regulatory inflated land prices relief cannot come too soon.

No comments: