12 July 2009

New Directions for Affordable Housing

I've been reading an ALP document called New Directions for Affordable Housing. The paper addresses the issue of housing affordability in Australia. One of the points made in the paper is that house prices are not going to come down if the government simply increases the supply of land.
There simply is no getting around the fact that the bulk of the increase in housing demand came from existing homeowners seeking "upgrades" to better houses at better addresses in well located suburbs, not for new homes in new suburbs further from town. So even if State and local governments had released new housing land much more aggressively on the periphery – and "fixed the fringes" - increased demand for well-located homes still would have been unsatisfied at the old home-price level, and most of Australia's housing-affordability problem still would be staring us in the face.
In other words, houses out in the fringes are quite cheap. The problem is that nobody wants them. The housing unaffordability problem in Australia is the result of citizens wanting the government to help them buy in premium inner-city suburbs.

Some will argue that buying land in the fringes of town is inappropriate because those who lives in these houses will need to travel a long way to get to the city. Even if houses are cheap in the outer suburbs, traveling back and forth to the city all the time to get to work will waste a lot of time and petrol. The solution to this problem is simple. When government releases land in the fringes of town, don't just zone them residential but also zone them commercial or industrial. This will allow businesses to build offices in the outer suburbs, providing jobs to nearby citizens.

I think that the housing affordability problem in Australia can be fixed by doing the following:

- get rid of urban growth boundaries to allow the supply of land to keep up with demand;
- get rid of building height restrictions to allow the supply of accommodation to quickly adjust in high-demand suburbs;
- spread out commercial and industrial zones all over the city or, alternatively, get rid of zoning rules completely; and
- get rid of transaction taxes like stamp duty to allow people to move around to locations that suit them.