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Solutions to the Housing Crisis VI

The enigma of house price and supply.

Steve Keen’s excellent Debtwatch has an important post today -- Lies, Damned Lies, and Housing Statistics -- which discusses the historical trend in home affordability and supply.

While it is clear that house prices have risen sharply since 1997 (at least). Keen explores the prospect that there is an over supply of houses in Australia. This is indeed argued by Hometrack Australia who point out
Our analysis indicates Australia may already have an excess of housing. We estimate there are at least 10 million dwellings in Australia compared with ABS data showing occupied dwellings of 8.3 million. The extra one to two million dwellings consists of a mixture of housing awaiting sale or development, vacant dwellings, second homes, and abandoned homes
Keen goes on to comment:
Whoops. Over the period 1985-2009, an average of 1 residential dwelling was built per 1.75 new Australians, and only in the last 3 months has the rate of new building fallen behind population growth. This build rate is well in excess of the current ABS ratio of 2.55 persons per occupied dwelling. Only if 30% of new dwellings involved the demolition of existing properties–an improbably high number–would the rate of supply of new dwellings be running behind the rate of growth of population.

Far from having an undersupply of housing, Australia may well have a substantial oversupply. It’s just that no-one is living in many of them.
Keen explores the topic of price and supply in some detail so you'll need to read his post. But the salient factor is this: (He writes)
A very likely cause of this large stock of unoccupied homes is Australia’s system of negative gearing. Most “investors” build houses not for the rental income, but for capital gains, and rental returns in Australia are now so low that for many investors, the drawbacks of renting–damage to property, having to manage tenants, etc.–are not worth the rental income. Better to keep the property off the rental market, and claim the loss against tax. The under-supply of housing to the rental market, and the alleged shortage of properties for sale, could be a perverse result of Australia’s peculiar property development laws.
If this analysis is correct and the actual situation is as Keen's argument suggests then the "housing crisis' in Australia is not just a complication of the market that is so brutal to those without the where withall to pay, but that the whole industry is set up to subsidise capital investment and guarantee a return regardless of whether the houses are occupied or not.



The story so far:

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