The need for a holistic discussion of housing in Australia

To be clear, population growth does provide significant benefits to Australia. But the impacts of immigration and higher birth rates on our house prices do need to be considered.

The supply side is also frequently missing from the debate. Higher demand for houses for whatever reason can be accommodated if housing supply increases. It is only because supply is constrained that prices have gone up. We could get more supply either by land release on the outskirts of cities (as long as there is good transport), or by increased densities closer in. But State and local governments are only responding reluctantly to relax planning laws.

This is a classic case of NIMBY-ism. Everyone wants more houses or apartments being built, they just don’t want them being built next door. I know myself about the opposition to proposals for increased density on Sydney’s North Shore. And in Melbourne, there has been opposition to conversion of ‘green belts’ to residential development.

It is sometimes argued that increased demand for houses will encourage an increase in supply. While this is true to some extent, it would never be the case that more buyers (eg foreign investors) will lead to an even larger increase in supply, making prices lower than before. It would be a particularly odd housing market where more buyers lead to lower prices. How many sellers say “Oh people want more of what I'm selling, I should put my prices down”? The standard arguments for a larger market leading to lower prices are economies of scale and innovation, and they don’t apply because no one is producing more land.

The other way that housing could be made more affordable is through reductions in taxes and charges such as stamp duties. But State Governments aren’t rushing to do cut stamp duties (with the exception of the ACT), despite the clear evidence of the benefits of doing this.

Housing policy is caught in a bind. State and local governments are reluctant to increase supply or cut taxes; while the federal government is reluctant to limit demand.

As a result, prices go up.

And the reason for this might be because of another bind: if policies did cause house prices to flatline or fall, this would hurt existing homeowners. I don’t expect to see too many homeowners voting for any such policies. This all seems pretty good for homeowners, particularly in Sydney and Melbourne, but pity those locked out of the market as a consequence.