George and Georgism

This article by Stillwell is to do with man by the name of Henry George. George’s theories gained widespread currency in economic debate in the late nineteenth century, his thoughts layered with notion of taking care of the land and ensuring its future. George also delivered lectures in Sydney in the late 1980’s.

This particular article covers six main themes which categorised the way in which George develops his theory. These themes are; the moral issue, wealth inequality, housing affordability, environmental concerns, urban developments and economic cycles.

The Moral Issue

The moral issue according to Georgism theory is that ‘land is a gift from nature’.
George believes that by ‘returning a proportion of the land value to the community in the form of taxation revenue’ (Stillwell et al, 2004). This is a great way in which to give back what we take from the land and the environment George believed. Wealth inequality played a massive part in the rich getting richer and the poor getting poorer.

Wealth Inequality

With significant numbers increasing in the property market from 1993 to 2003, the amount of revenue received from government does not equate to the amount earned by private land owners.

It is also a question of, if the government did get their hands on extra revenue from the property market where would it go? If there was a guarantee that a large proportion of it would go directly back into community services and helping those who are suffering from economic hardship, then maybe so. However it would nearly impossible to ensure that this occurred. Which is similar to the effort put in by government to ensure affordable housing.

Housing Affordability

With a dwindling supply of public housing and the market sky rocketing, there must be policies implemented by government to combat this. George saw this as a prime point in his theory and sought to close to gap between the rich and poor. Statistics also show that public housing ‘is now less then 5% of the total housing stock and falling (National Housing Alliance, 2004: 5 cited Stillwell et al, 2004), which is a far cry of what is should be

Environmental Concerns

Environmentally there is much to lose and lot to be done. Land tax should be seen as a way of making people personally responsible for their land, while not allowing them to purchase more land then they need. This in turn does not allow others to own land. The environmental slant on Georgism and land taxes also includes ‘scarce environmental assets, including mineral, forestry and fishing stocks, and also bandwidth for radio and telecommunications, for example’ (Stillwell, 2002: 316-317, cited Stillwell et al, 2004). More importantly these taxes could be used as a way to discourage damage to the environment, which may come in the shape of resource rental taxes, carbon taxes and fuel excises (Stillwell et al, 2004). However when it comes down to the crunch there is no guarantee that land taxes will protect our environmental assets from exploitation. What may be needed, as with the protection of national parks as Stillwell et al illustrate, is a collaborative effort from land tax and regulation to ensure our future environmental assets.

Urban Development

Land tax can work both ways when it comes to urban development. On one hand it can discourage people from purchasing excessive land and leaving it idle. On the other it may produce the need to overdevelop land to produce the necessary income to deal with the higher rate of tax. Stillwell writes how ‘land use controls a necessary adjunct to land tax – in setting minimal requirements for green space...’ (Stillwell et al, 2004). Land tax as Henry George defines and applies it is a smart, well thought, socially and economically viable outcome.

However, as George’s theories still remains a prominent ideology in modern markets we must be wary of how much emphasis we give it. To perceive that it alone can solve our social, environmental and urban development problems is extremely problematic. As Stillwell illustrates we must put our faith in a number of policy instruments, including regulations, zoning and the provision and encouragement of public infrastructure.

Economic Cycle

Kavanagh (2001 cited Stillwell et al, 2004) illustrates how his research points out the similarities in property market prices and national economic performances, however as Stilwell swiftly corrects ‘Periodic economic recessions cannot be solely attributed to speculation in land’ (Stillwell et al, 2004). Put simply, a capitalist economy has many factors aside from property affecting its performance.

Conclusion

Henry George’s ideas towards land tax will be a key theme in future economic, environmental and social issues. Stillwell believes that the idea of land tax needs to take on a more broader definition and address such things as ‘public housing, urban and regional policies, environmental taxes and regulations, ‘floors and ceilings’ to limit income inequalities and macroeconomic stabilisation’ (2001 cited Stillwell et al, 2004). To think that land tax will stabilise this, and create ceiling income limits is a fantasy, as the only thing a capitalist economy and all it subcategories know how to do is make more and more money.

Three questions that you believe could be discussed?

• How is the idea of ‘land’ dealt with in a capitalist economy and society today?
• Considering the time in which Henry George developed his theories, would it be harsh to conclude that his theories are redundant in a modern capitalist economy?
• If the modern housing market in Australia was more stable, would it equate to an overall national economic performance stabilisation?

Reference

Stillwell, F., Jordan, K. 2004, “The Political Economy of Land: Putting Henry George in his Place”, Journal of Australian Political Economy, v.54, p.119 (16p)

8. Affordability 28th April, 2008 17:14:22   [#] [0 comments] 

Glaeser Gyourko Saks (2004) tell us that since 1950 housing prises have risen regularly. From 1950 to 1970 the cost of a house closely represented the cost it took to construct it. Since the 1970’s the cost of a house has (in some geographical areas of the US) vastly outweighed the price of construction. The basis of this research article is to prove that the reason housing prices have gone up is because regulatory approval is harder to get. The authors suggest that approval is harder to get due to a number of influencing factors these include.

• Changing judicial tastes
• Increased ability of homeowners to organise and influence local decisions.
• Decreased ability to bribe regulators
• Homeowners rising income and greater taste for amenity
• Changes in the housing market

Glaeser et al (2004) have tracked construction and prices of houses in 102 Municipal areas over the last 3 decades. From 2000 onwards they discuss 27 municipalities (of the 102) where housing structure accounts for no more that 60% of the house price. The areas where this is the main focus is in L.A, San Francisco, San Diego, NY Seattle and some of the other larger metropolises it should be noted that the data set is looking primarily in the higher end of the market but does note that this phenomenon has expanded to most other urban areas.

Changing judicial tastes

The Authors note that this phenomenon is weak and has no empirical evidence to support it but they state, “If changes in the tastes of judges and policy makers reflect societal trends… then these changes should be viewed as an improved effectiveness of certain groups in shaping policy”. Basically, if there is a social trend towards back lashing development in certain areas then your ‘judicial representatives’ will most likely be part of this trend.

Increased ability of homeowners to organise and influence local decisions.

It is suggested that since the 1960’s social movement groups are better able to organise and place political pressure on developments that they see as inappropriate. These days the homeowner is more media and politically savvy than 30 years ago, which can have a negative PR effect on the proposed development. Also the ‘neighbourhood lobby’ group places pressure on the regulators because collectively they have more time, whereas the developer will try to throw money at the regulator to get the development through.

Decreased ability to bribe regulators

Glaeser et al (2004) allude to Molotch (1976) and his article about the urban growth machine as representing a ‘full picture’ of how the development arena used to be. The only thing close to eevidence used to suggest that bribes to regulators had decreased was to study the amount of corruption related articles in the newspaper for a particular time. Glaeser et al (2004) describes that these days it is increasingly difficult for developers to transfer cash to politicians. But the authors themselves state that the previous existence of bribery is a mere hypothesis, albeit one that is deeply ingrained.

Homeowners rising income and greater taste for amenity

With homeowners earning more, there is a decided trend to live in areas that are lower in density and where owners have a willingness to pay for high amenity neighbourhoods. The authors suggest, may be an explanation for the rise in restrictions on new construction.

Changes in the housing market

From the 1950’s the authors suggest that there was little opposition to construction as there hadn’t been that much before it (read WWII). And that incomes and housing costs were lower and as such buyers were not worried about things like as amenity. Currently however, owners in today’s market believe that “new construction will significantly reduce housing prices”

Housing prices are said to have gone up due to the difficulty of attaining regulatory approval. Glaeser et al (2004) discuss various hypotheses as to why this is the case but in each instance there is very little solid, even anecdotal evidence to give their argument weight. The authors themselves note “As in the case of the previous theories, we have little evidence on the relevance …and we look to further research to examine this hypothesis more thoroughly”

Questions

• The Authors refer to judicial representatives and policy makers, as playing a part in the phenomenon of more expensive housing. Can you think of any instances in an Australian setting where planners and policy makers may contribute to ‘expensive housing’?
• What would you say are the 4 main reasons that housing prices have increased over the last 10 years?

Reference:

Glaeser, E., Gyourko, J., Saks, R. 2004, Why Have Housing Prices Gone Up?, Harvard Institute of Economic Research,

8. Affordability 27th April, 2008 23:50:58   [#] [5 comments] 

Scott Baum and Maryann Wulff are research fellows with the Australian Housing and Urban Research Institute (AHURI), an independent research organisation that aims to provide sound advice for policy makers, industry and others. AHURI focuses heavily on researching trends, implications and causes to housing issues in Australia, ‘Housing aspirations of Australian households’ is a positioning paper authored by Baum and Wulff is a literature review which sets the context for what is to come in understanding the influences on home ownership and if and why housing aspirations of Australians is indeed changing. A methodology is provided to explain how the study will be conducted and lastly the purpose for the study is established, being a policy framework.

The body of the positioning paper is devoted to the literature review, which is split into three sections: housing aspirations, owning versus renting; housing aspirations and the links with housing careers to life course; and are housing aspirations changing. The following major points are to be drawn from this literature review:

Housing aspirations: owning versus renting

• The majority of research historically in Australia has focussed on the preference of home ownership over other tenures (namely private or public renting).
• Post World War times have seen the rate of home ownership rise from around 50% to 70% in the mid 1960’s where has since stabilised til the end of the 20th century.
• Social conditions (high birth rates, immigration, high numbers of marriages), economic growth (low unemployment, bigger labour force including women, low inflation) and government policy are all considered to be influential in the massive change in home ownership rates.
• The clear favourite type of dwelling structure in 1999 was by far the detached dwelling with 91.6% of people purchasing homes choosing this form.
• Housing tenure choice was reflective of the benefits enjoyed in terms of use value (a place to call your own and use as like), exchange value (the economic value for investment) and symbolic value (pride in owning your own home).
• Home ownership is important to governments as it ‘reinforces the virtues of thrift, industriousness, stability and good citizenship’ (Megbolugbe and Linneman, 1993) p12.
• The benefits of home ownership far outweigh the costs according to home owners, however this is not the dominant perception of private renters about renting.

Housing aspirations: housing careers and life course

• Housing careers are generally viewed in terms of the pathway from leaving your parents home to eventual outright home ownership. The family life cycle (independent young adult, marriage, children and so on) has historically been closely linked to the changes in housing tenure (housing career) by some authors, but generally tenure is accepted to be linked with age more so.
• Historically private rental has been considered a transitional phase – a stepping stone to the first home purchase.

Are housing aspirations changing?

• Changes in household form and the apparent delay in household formation/dissolution are impacting on traditional housing careers (except for those on high incomes).
• Home ownership is no longer strongly linked in relation to the course of events to marriage and child birth as it was in the past.
• Private rental have become increasingly important options for housing tenure and the time spent in private rental is becoming much longer than in the past.
• The Australian tenure system is becoming increasingly polarised.
• Authors who argue that home ownership aspirations are changing state the following causal factors:
  
  • Household compositional change – changes in “gender roles and shifting attitudes towards contemporary relationships” p 25 and the decreasing numbers of persons per household – ie less children per family and separated families.
  • Wider social changes – labour market (casualisation), education life span, HECS, superannuation, women choosing career over motherhood (delaying it) and affordability in general.
  • Changes in affordability – state of the economy, interest rates, inflation, house prices and incomes.
  • Alternative source of investment – apparently there were some people who felt that investing in your own home was not as economical beneficial as other forms of investment – the stock market. As Eccelston 1998 (p 28) states ‘people are now putting their capital into wealth-creating assets as opposed to bricks and mortar’ – I wonder if this was the underlying reason for the Howard Government to slash the capital gains tax by 50% in 1999 in order to attract people investing in property – it certainly worked!

The above points are the main triggers for this study in housing aspirations. Baum and Wulff then move onto the outline of the methodology to be undertaken. The scope of the investigation is limited due to the fact that the study will be based on ‘second hand’ research with the most recent date being 4 years old (and that being only one paper from seven). A more comprehensive investigation into changes in peoples housing aspirations would have been possible with ‘first hand’ research being conducted at the time to capture what was emerging from the beginning of what has now been over a decade of housing boom and a subsequent housing affordability crisis.
The paper finishes off with a framework for policy implications and differing scenarios on how policy will have a role to play in resolving any issues that may surface from the research paper.

Questions for discussion

• Do you think renting is ‘dead money’ or a way of achieving the lifestyle you most desire?
• Do you think there is any place in society where housing careers and life course are similarly linked still?
• This positioning paper was conducted in 2001 and was based on statistics and previous research from the 1990s and earlier. Massive changes have occurred since this time, if such a study was being conducted today, what do you think the outcomes would be in relation to housing aspirations and attitudes towards tenure choices.
• Some examples of how government policy have assisted lower income groups enter into housing ownership in the past are provided on page 31 – do you think that some or any of these previous strategies could work in helping with the affordability issues of today?

Reference

Bawn, S and Wulff, M 2001, “Housing aspirations and preferences of Australian households – Positioning paper”, Australian Housing and Urban Research Institute, Queensland and Swinburne-Monash Research Centres.

8. Affordability 27th April, 2008 17:21:25   [#] [2 comments] 

This report concerns the issue of housing affordability for first home owners within Australia. It has been undertaken by the Federal government and looks at all three levels of government.

The report looks to answer three main questions;

• What has happened to housing affordability for first home owners in recent years?
• What are the major factors causing change in housing affordability?
• Are government actions justified for attempting to address housing affordability?

The Federal government is aware that Australia has one of the highest rates of home ownership in the world. It is put down to that fact that Australians believe that it is very important to own your own home. With the current views on home ownership, the Federal government is responding to public pressure to answer the above questions. and clarifying their findings into categories. The have provided answers and divided these into categories. These are supply and demand factors that have changed housing affordability and structural and cyclical influences that impact housing affordability for first home owners.

The situation that existed for this inquiry to occur were that since 1996 the average house price has more than doubled making putting home ownership out of reach for many.

The report states that one of the main factors that has caused this rise was that during the 1990’s Australia was recovering from economic downturn. The economic conditions that existed were in place to increase economic activity which forced interest rates – the cost of borrowing to be considerably low. With this occurring people began to borrow large amounts and invest in homes. With this occurring there was an increase in the demand of housing however, supply of housing – the builders, were not able to match it and as a result prices began to rise. Notwithstanding this, measured affordability was not adversely affected because interest rates remained low for such a long period of time. Housing affordability only decreased recently with the increase in interest rates.

The report suggests that the main factors that have caused house prices to rise is the fact that money became so easy to borrow which increased demand for housing. The inability of the housing market to increase the supply of houses. Cyclical conditions and the market experiencing a peak in house prices are also suggested to have decreased housing affordability for first home owners.

The report then looks deeper into these determinants and raises some interesting facts. One was that there have been an increased purchases and developments of smaller households and apartments. Enforcing the fact that people are working more and less people are having larger families or later in their careers. Relating this to housing affordability. The report also suggests that recent increased economic activity resulting in increased employment, income and consumer spending, as well as the introduction of the First Home Owner Schemes has pushed demand for housing.

The report then moves onto address the situation of why supply couldn’t keep up and basically states that there is no way supply can keep up with demand and does not go into any detail.

Interestingly the report believes there is nothing that the government can do about increasing housing affordability. The report concludes by saying that governments should not attempt to lower house prices.

The report also makes several recommendations on what governments can do to address the situation. Firstly the recommendations are surrounding taxes and how they influence house prices. It is stated that the most effective tax cut would be on Stamp Duty.

The recommendations then move onto increasing supply of houses. Firstly they suggest that developments in greenfields could occur and that planning processes should be reviewed and some removed to speed up developments because delays result in increased house prices.

Finally the recommendations move onto addressing the costs of infrastructure and how the government or consumer should pay for new infrastructure costs .

The report is an attempt by the government to provide an understanding of why we are currently experiencing decreased housing affordability especially for first home owners. The report also would have also been produced to alleviate some of the pressure that the Federal government is under in relation to housing affordability. It is successful at providing an understanding into the current conditions and what can or can not be done.

Questions:

• Would development in greenfields create more problems than it would solve?
• If planning processes were sped up, would it really make an impact on housing affordability for first home buyers?
• Can the different levels of government explore ways to increase supply of housing or is there really nothing they can do?

Reference:

Productivity Commission 2004, "Overview", First Home Ownership, Report no. 28, The Productivity Commission, Melbourne, p.xiii-xxxiii, Online

8. Affordability 26th April, 2008 19:38:30   [#] [5 comments] 

Burke introduces the ideology of the Australian Housing System being built around home ownership and the great Australian dream. He states that in early years, migrants were able to purchase houses, which was a symbol of "escape" from their home country where they bound to rent (particularly in Brittain).

He goes onto discuss the housing structure in the 19th century with the working class typically owning single or two-storey terrace houses while the middle class and more affluent people were able to purchase or build single detached houses. (p.1)

From the feudal system, tenancy traditionally is the right to hold and use land, especially for agricultural land rather than for housing. Burke discusses the benefits for ownership in private rental and the concept of negative gearing - the ability to claim nominal interest on borrowings against taxable income. (p.5) There has been pressure by groups not to change the structure of these taxes by property groups. Further, he discusses the Goods and Services Tax and the effect it was likely to have on the market. While it will raise the cost of landlordism, whether it will be passed onto the tenants will depend on the rate of vacancy. GST will result in tax benefits through negative gearing being reduced. (p.6) There was very little rental control during the two world wars which allowed the middle to high class people to hold property for tenure. Private tenure has halved from 42% in 1911 with a steady decline to 21.7% in 1996 (p.2).

"Supplementary Assistance" was introduced in 1958 and was really only made available to widows and aged single pensioners at the discretion of the Commonwealth Department of Social Services (p.4). It stayed in place for 25 years but now rental assistance has effectively been replaced with public housing as the low income housing assistance in Australia.

Residential Planning controls restricted the development of multi-unit accommodation, typical of the rental market, as it was seen as not what Australians valued in housing. The legislation wouldn't allow more than two storeys in middle-ring suburbs. (p.7) Rental legislation has changed from the 1970s where only one individual or company could hold the title to a multi-unit rental property. Now this is possible through Strata Titling. (p.8)

Leases are rarely longer than a year and more often six months with the notice to quit ranging from 2 weeks to 3 months. These can be terminated for any reason as long as the minimum notice is given. (p.7)

Typical tenements are made up of young, non-nuclear family such as people sharing, singles and childless couples who rent for short periods of time. The private rental sector is the largest sector for sole parents and singles aged 25-54. (p.9)

Renting is seen as the better housing choice for the young as it provides a more flexible arrangement before the possibility of home ownership. It also provides more flexibility for professionals moving between cities and countries. There is diversity within the sector as greater choice is provided for the more affluent and is a bit more constrictive for the poor. (p11)

Unlike other countries, Australian rental properties generally aren't originally built for the purpose of tenement. It is more likely that investors acquire already built dwellings. (p.12)
Landlords are predominantly made up of individuals with 78% of landlords owning only one rental property, another 12.8% with two and less than 10% with three or more. (p.12)
79% of rental properties are detached dwellings with 13% made up by flats and apartments. (p.16)

The Henderson Enquiry in the 1970s revealed the high incidence of poverty within the private rental sector. There was previously little policy concern for this area and since lead to the implementation of new policies to improve the residential tenancy law but did little to address poverty. (p.11)

He claims that the recent trend toward private rental is similar to the 19th century "oppression" that there seems to be "a fundamental shift from housing for the people to housing for the interests of the property and economic elites". (p.17)

Discussion questions:

• Do you think that there is a need to protect home buyers from investors seeking to purchase properties for private rental? Will this have an affect on housing affordability?
• With home ownership being forced further out of grasp for many young Australians, is investment in dwellings for private tenure such a bad thing?
• Do you think there is a need for more private rental legislation to protect renters?
• Is there a State need to improve conditions for public housing?

Reference:

Burke, T. 1999, Private Rental in Australia, Swinburne Institute of Social Research, http://www.sisr.net/publications/99burke.pdf (20p)

8. Affordability 26th April, 2008 17:14:07   [#] [4 comments] 

Badcock presents a discussion of the history of home ownership in Australia. Given that this paper forms part of a text investigating ‘European Housing’ in the Australian context, the primary focus is upon the post-war periods of European settlement. Initially, Badcock discusses the high level of home ownership experienced within Australia from the 1950’s through to the 1970’s; identifying that Australian people at this time generally regarded their society as ‘a fair one’ (2000, p. 254). Badcock suggests this increase in home ownership has been linked to the critical housing shortage following the return of soldiers post WW2, full employment and government incentives to assist home buyers, as well as the serious shortage and neglect of rental properties which occurred during this period (2000, p.25). Badcock identifies that many of these ‘postwar generations’ experienced financial benefits from capital gains in their properties (2000, p. 255); suggesting that this ‘reaffirmed the belief that the Australian housing system works well and is equitable’ (2000, p. 255).

Badcock goes on to critically analyze the reality of the Australian housing market as a fair and equitable one. He investigates how ‘housing shares’ are dependant upon ‘class, gender, age and ethnic background’. This brings forth the question of ‘who misses out on home ownership’ in Australia (2000, p. 255), and how this disadvantages these groups. Specifically, he identifies singles and single parent households as significantly underrepresented in terms of home ownership (2000, p. 261). He argues that there are significant differences between one and two income households which affects what sort of housing these groups can afford to buy and where they can afford to live (2000, p. 261). Furthermore Badcock identifies that a persons ability to own a home has a significant affect on their financial stability for the rest of their life (2000, p.262), the current tax system benefiting home owners.

Finally, Badcock compares the Australian housing system with that of Western European countries where there are higher levels of social housing (2000, p. 255). It has been a commonly held belief that Australia’s high level of home ownership is a key component of an egalitarian society. However, Badcock suggests this is only possible due to ‘social bargaining’, in which government incentives provide assistance towards obtaining home ownership, at the cost of limited social security assistance which may be required later in life ie. during retirement.

Badcock concludes that while a significant number of Australians, particularly from early post-war generations, have had significant financial benefits from home ownership, the gap between higher and lower income earners is growing, and home ownership rates for the lowest income earning groups has declined. Factors such as job security, university debts, competition from other investment opportunities and superannuation commitments, have diminished the importance and opportunity for home ownership, the ‘Great Australian Dream’, within Australian society.

This paper questions the reality of the perceived fair and equitable nature of the Australian housing market, and the wider implications this has upon society. It provides a historical context to the housing affordability issues currently affecting many Australians.

Questions:

• Is home ownership obtainable for all groups within Australian society?
• Should the Australian Government be providing greater social security assistance rather than grants directed towards home ownership?
• How can we make housing more affordable across Melbourne particularly for singles and single parent families?

Reference:

Badcock, B. 2000, “Home Ownership and the Illusion of Egalitarianism”, A History of European Housing in Australia, ed. Troy, P., Cambridge University Press, Cambridge, ch. 15 (15p)

8. Affordability 26th April, 2008 10:39:31   [#] [5 comments] 

Barry and Dalton’s article ‘Housing Prices and Policy Dilemmas: A peculiarly Australian Problem?’ concerns the current housing boom in Australia and government policies seeking to encourage demand and sustain the boom.

This reading sits within a political context in that it is driving a political point: how can government policies influence housing markets to ensure that they do not become ‘overheated’, do not crash and destroy economic growth, but still allow for entry from all socio-economic groups. In light of the recent housing boom, this article attempts to identify the demand and supply side factors which politicians need to consider when devising policies to address issues such as housing affordability and the speculative ‘housing bubble’.

The article also sits within an historical context. Housing booms and busts have been always been prevalent in, but not exclusive to, Australia and the authors emphasise the differences in housing bubbles and their subsequent ‘burst’, particularly since the 1970s. They distinguish the current housing boom from past booms due to the fact that this boom is largely fuelled by debt, inflation has remained low and global circumstances are historically different.

Berry and Dalton seek to answer whether Australia is currently experiencing a speculative housing bubble and, if it will burst. Their main argument is that if a speculative housing bubble bursts, the economy can be destroyed flowing through to cripple social aspects of society. Both argue that house price inflation is driven by government policies and financial innovation. As well as this, they contend that this ‘bubble’ is different to the past because it has been fuelled by debt and an increase in investors in the market.

They argue that government policies are to blame for this boom, which is one of the longest in Australia’s history. Governments have increased assistance for first home buyers and allowed tax incentives to entice investors; the policies include the ‘First Homebuyers Grant’ and ‘negative gearing’.

They also contend that policies of financial institutions’ have attributed to inflation by allowing individuals to borrow a higher percentage of their income and borrow against existing dwellings.

The authors state that both demand and supply side factors have influenced house price inflation and that short term/cyclical, institutional and long term/structural factors affect demand and supply for housing and consequently, inflation.

They then go on to argue that house price inflation is evident across Australia but the bubble may not burst as it has in the past because a slowdown could see groups such as first home buyers, enter the market, taking advantage of lower house prices and consequently, driving inflation up again. They therefore conclude that these factors may stabilise the market in the long term and prevent the ‘bubble from bursting’. However, they also argue that the overheated market could crash as a result of high debt levels and the relationship with high and increasing interest rates.

Berry and Dalton also argue that despite the affects housing inflation will have if the bubble bursts, in the midst of a boom, it can have a damaging affect on housing affordability and rental costs which leaves less disposable income for many and consequently slows economic activity.

Berry and Dalton conclude that that house price inflation is not exclusive to Australia, but is evident in many OECD countries. However, they argue that home ownership in Australia is peculiarly high, which may drive booms. They argue that the dilemmas of housing policies attempting to stabilise and maintain housing prices need to respond to structural and institutional factors. In concluding, they also assert that interest rates are a blunt tool which could have a contradictory affect on housing prices and the economy. This, they argue, is part of the policy dilemma.

We have wanted to talk about housing affordability for so long! In class, we have identified that housing affordability has pushed lower socio-economic groups and first homebuyers out to the fringe where few services are provided. Also, as seen in the Social Atlas (ABS, 2007) it is these areas that are labelled the ‘mortgage belt’. We have also identified the need for both supply and demand side factors to be addressed through policy in the form of increasing densities, requiring a component of large developments to be affordable and to change tax regimes to discourage speculative investment.

However, balancing policies to protect the economy and current housing trends, while increasing affordability and preventing a ‘bubble burst’ is difficult.

Questions:

• Do you believe that Australia is currently experiencing a housing ‘bubble’ or is the housing market inflating at a reasonable rate given demand factors including immigration, household decline and migration to capital cities?
• How can governments and other associated bodies work together to develop policies which will adequately address house price inflation while not dampening the economy but allowing all groups to enter the ‘home ownership’ market?
• Do you think town planners can play a larger role in the housing market to ensure that housing prices are stable (as is the economy) but new supply occurs in appropriate areas and locations?

References:

Berry, M. Dalton, T. (2004) ‘Housing Prices and Policy Dilemmas: A peculiarly Australian Problem?’, Urban Policy and Research, Volume 22, No. 1 pp 69-91, March 2004

8. Affordability 26th April, 2008 01:49:25   [#] [2 comments] 

Alan Evans in his article “No Room! No Room! The costs of the British Town and Country Planning System” gives us a fundamental outline of the origins of British Planning and ultimately tries to demonstrate how the economic market, through the forces of Supply and Demand, plays an enormous role in not only the Town Planning system, but the future direction of cities.

Evans begins by explaining the origins of British Planning, which he claims came about after World War 2 with the intent to guide development throughout the cities, however what becomes evident is that although the intention on planning the future growth of cities was there, the “planners” wrongly predicted the growth in demand for land and as such found themselves in a desperate situation. Not only was there estimation wrong, but the fact that the population was growing, people were starting to get paid more and accessibility throughout the cities was dramatically improved, meant that people were now looking for larger lots to place larger houses on as they had higher incomes further and further away from the city. One can’t help but draw incredible similarities between Britain and current day Melbourne.

Evans explains that although it is understandable that planners may have under estimated what the demand for land would be like, it is hard to believe that there reluctance to allocate land for development has meant that demand has increasingly outweighed supply and as such the market responded in a way that is only to familiar for economists, that being the price of land has risen in order to curb the demand and attempt to bring the market back to equilibrium where the quantity of land demanded equals the quantity of supply.

Evans goes on to argue that the belief that planning controls can have no effect on he supply of land as this is determined by the price of housing, to be false. He logically argues that if the supply of housing land is restricted, so is the supply of housing; house prices are therefore higher than they otherwise would be, i.e. an increase in the supply of housing land leads to an increase in the supply of housing, which in turn will reduce the price of housing and hence the price of housing land. He then goes onto cite Louis A. Rose who found that restrictions placed on the available supply of land, i.e. zoning requirements or things such as watercourses actually significantly raised land prices. Rose undertook his study for land that could be used for residential development in 26 of the largest urban areas in the United States and is an interesting point to think about.

Evans wraps things up by explaining the physical and financial consequences of the planning system in Britain; however it is his theoretical arguments about how the economic market can influence the planning process which is most intriguing. By explaining the forces of supply demand in simple, logical language, he gives planners a different way to look into the field they are working in.

Questions:

• Why do you think that restrictions placed on the available supply of land, i.e. zoning requirements or things such as watercourses actually significantly raise land price’s which Rose argues in the text? Do you agree with this theory?
• Bringing it back to Melbourne, are we currently in a situation where the demand for land is grossly outweighing the supply of land? Why or why not?
• Are higher densities the answer to all of our supply demand land issues?

Reference:

Evans, A., 1988, No Room! No Room! The costs of the British Town and Country Planning system, pg 13-28, London: Institute of Economic Affairs.

8. Affordability 25th April, 2008 15:47:21   [#] [2 comments] 

Home ownership among young people is becoming a significant, contemporary planning issue in today’s society as housing affordability troubles arise due to increasing land values .The basis to Baxter and McDonald's article is aimed at figuring out if there has been ‘a fall in rates of home ownership among young Australians aged less than 35 years?’( 2004, pg471). Through a comparison of variables and statistics nine figures made of graphs, tables or charts are represented in the piece that endeavor to decipher whether home ownership among young Australians has decreased and what the reasons for this are. The main debate in this article is whether a decline in home ownership is due to affordability or to delays in family formation among young people. Throughout the piece a number of approaches and surveys are compared such as the : Comparative Statistics Approach, the Australian Housing Survey and the Negotiating Life Course Survey.

Baxter and McDonald for the duration of their piece emphasize the problems associated with census data, and how tribulations arise when using this method to measure home ownership rates among young people. They proclaim that the new Australian census used from 1996-2001 was too vague and not specific enough allowing for lots of ambiguity in the findings. They discover that ‘ through an analysis of rates of home ownership among young people in Australia, from the perspective of affordability requires information that relates to all individuals, not just those designated as household reference persons’ which is often the case with census data (Baxter& McDonald, 2004, pg275). Baxter and McDonald advocate for a life course approach to analysis, thus advocating for a Negotiating Life Course Survey over a Comparative Statistics Approach to home ownership.

Baxter and McDonald dislike the method of a CSA stating that it ‘does not allow us to examine how home purchase relates to other important life cycle events’ such as employment, marriage and child bearing (2004, pg476). The CSA and NLC approaches are compared and contrasted with the use of graphs and charts and nine figures represent results found from contrasting a number of variables. Variables such as time effects and birth cohorts are included in the study to eliminate discrepancies and allow for reliable quantifiable results. The results from the figures reveal a number of similarities for both sexes in regards to home ownership compared against a number of different variables.

The results from the findings reveal a number of key ideas. The most outstanding figure reveals that married couples are five times more likely to purchase their first home compared to individuals that are single or are still living at home with their parents, and that married couples are buying houses at all ages. Another number of key variables impacted on the findings and they were: the number of children an individual has, whether you were Australian born, whether you had a full time job and what sort of education you had acquired throughout your years. Explained by Baxter and McDonald is the fact that all dependent variables had a major impact on the individual and their capability of finding and buying their first home.

Baxter and McDonald conclude their research by stating that overall ‘the most significant determinant of first home ownership is marriage’ and that this applied across the full time period of the study. They also remark that ‘ when viewed from the perspective of age at first entry to home ownership of individual Australians, there has been remarkably little change across time’( Baxter & McDonald, 2004, pg482) . They conclude by stating that there has been a fall off in home ownership levels at young ages in the past decade but this is simply due to a delay in home ownership and that their is no crises among young people and home ownership (2004, pg482).

Baxter and McDonald notion that there is no crises in regards to young people and home ownership in Australia. My view is similar to ideas and themes covered in other courses in the planning degree: that there is indeed a crises when it comes to buying your first home, but similar to Baxter and McDonald I think the first home buyer crises is present for all Australians not just the young.

Questions raised by the reading:

• Do you think the first home ownership applies to only young Australians?
• Do you think marriage is the most significant determinant when it comes to buying your first home?
• Do you believe the CSA survey works better than the NLC survey in regards to home ownership?

Reference

Baxter, J., McDonald, P. 2004, “Home ownership among young people in Australia: in decline or just delayed?”, Australian Journal of Social Issues, v.40, i.4, p.471

8. Affordability 25th April, 2008 14:14:47   [#] [3 comments] 

The reading for this week is of a textual context. It is the fifth chapter in a report prepared in 2000 commissioned by the Bracks Government. The report was to inform the planning and policy considerations that at the time were indicated by “a commitment to housing policy and planning reform through the Better Housing Program, its preparation of a new planning code… [and]… its planning policy review consultations around a new metropolitan strategy.”

The purpose of the report was to recognise and highlight Melbourne’s housing market trends and their wider economic and social context. Its’ legitimacy to planning reform was derived from the prosperous economic growth over the decade previous to the report, but more importantly the Government’s recognition of relatively inequitable distribution of income and wealth during this time along with the lack of well being and consumer confidence that was a result of similar booms previously experienced in post-war Melbourne.

This chapter of the report focuses on the building and land development industries and their impact on housing choice and affordability. The authors Burke and Hayward discuss the differences in the market-place between land developers and building companies; highlighting that land developers, one of which was the Government run Urban Land Corporation (re-badged the Urban and Regional Land Corporation, and more recently VicUrban) are made up of “three or four large developers…. [and]… house building, on the other hand… [being]… solely a private industry”. The competition in the building industry is far more competitive with over 8000 builders. The smaller companies had a tendency to build one storey homes specific to each site, while the larger firms focused their attention to building “project homes” on large sites on the urban fringe.

Towards the end of the 1980’s, the Government (through the ULC) with backing form developers, pushed for a reduction of residential block sizes within green field areas to reduce infrastructure costs. As a result, builders found an opportunity to build second storeys for these smaller sites to attract potential home owners in buying an ‘attractive large modern home’ – giving them value for money. This shift in housing style presented problems; challenging the regulations of overshadowing and overlooking set out by the Good Design Guide (now ResCode). It is this ‘double edged sword’ that has proven to be a sore point for planners. On one side the Government makes positive moves to cut infrastructure costs by making green field residential blocks smaller, increasing density in establish areas but on the other hand, does not intervene as convincingly to manage building form/height. It relies on the subjective regulatory controls maintained by ResCode, spending an enormous amount of time and money trying to contest an entire market whose sole intention is to maximise its profit per square meter.

The other major point highlighted by this report was the new breed of medium to high-density builder-developers and the influence and power on housing choice and affordability. The majority of larger companies were extensions of commercial construction firms like Becton who at the time were experiencing a downturn in commercial high-rise buildings. Their experience and ability to erect buildings in a timely manner and within budget opened up new avenues for them in a market with proven growing demand for residential dwellings. Because of their marketing prowess and market forces at the time, they were able to price and build on a speculative basis. They were able to sell their dwellings off the plan, primarily to create a solid financial foundation for which to commence construction on.

This ‘speculative’ basis for housing price meant that value was placed on something that was not yet tangible, allowing them to dictate prices on their own terms, with the only advantage to the customer being if they bought off the plan and didn’t have to pay stamp duty.

The overall effect of these privately owned companies dominating the land development and housing construction market has been more and more prominent as time has passed. Housing affordability is soon to be out of reach for the typical Australian home owner. Government regulation has been loosely applied to control development and with little success in terms of providing an opportunity for the average Australian a secure future.

Questions

• Realistically, is it too late for the Government to act on housing choice affordability?
• If not, suggest a way in which their intervention could provide relief for home owners while keeping the interest of developers through policy.
• As a soon-to-be home owner, what are your expectations of the housing market in the years to come?

Reference

Burke, T. Hayward, D. 2000, “Housing Production: The Building and Land Development Industries”, Housing Past, Housing Futures, Swinburne Institute of Social Research, ch. 5

7. Housing Market 21st April, 2008 00:22:30   [#] [1 comment] 

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