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Busting the boomers

By Damian Jeffree - posted Monday, 27 November 2006


Increases could also be made to tenants’ rights in limiting landlord rights to increase rents and to evict only to re-let at higher rates. Such changes helped move England a hundred years ago to a nation of home owners by making renting out properties less appealing as an investment.

The supply demand equation could also be turned towards excess supply for a time until prices abated by ensuring that supply of land releases and rezoning to higher densities exceed the expected population growth and any backlog of demand.

An immediate kick to this could be achieved by temporarily cutting back the immigration intake while increasing land releases through fast tracking planned releases and additional aggressive rezoning. Once a moderate pricing multiple was achieved, future co-ordination of the immigration intake with housing and land supply could help make housing price growth match wages growth ensuring affordability levels remained constant.

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Alan Moran of the IPA is very optimistic about the impact that land release could have on house prices in Australia. On Lateline he suggested that house prices in outer Sydney could fall by up to half on land release and planning changes alone in the long term.

Even if this estimate is optimistic in Sydney, in cities such as Darwin it would seem conservative. Darwin has seen price rises of 34 per cent in the past year, yet less than 10km from the centre of the city is unending desert. If development was unhindered in Darwin it would be a long time before housing became a scarce resource deserving such increases.

Taxes and charges levied on new housing developments by state government of $33,000 per lot in New South Wales and local government charges such as section 94 contributions of up to $55,000 in Sydney (these are on top of stamp duty and GST on construction costs) should also be abolished. This would immediately reduce the cost of a new house by around $89,000.

There would be a flow on effect to the affordability of existing housing which would have to fall as well to compete. Reducing approval times and removing red tape would also contribute to significant reductions in holding costs.

If we were to achieve a price correction then housing could return to be the unexciting low return way for another generation to build their net worth and own their own home. Of course to do this some of the boomers may have to give up some ill-gotten gains.

If we do not correct housing prices then we will head further back down the path to be a country of landlords and tenants. In Australia today about 26 per cent of people rent. This is up from 23 per cent a decade ago and young people are increasingly disproportionately represented. It is unlikely we will ever reach the low levels of ownership seen in Britain before World War I where about 90 per cent of people rented their homes, but for a more equitable future we should aim once again to be a nation of home owners and not renters.

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As in England back then the only way for this to happen is for a large number of landlords to be effectively forced to sell and for those who are currently tenants to be given every opportunity to buy at prices they can afford. It may bust some of the boomers, but it would only be fair.

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About the Author

Damian Jeffree is an equities trader for an investment bank.

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