Super Saturday: Lived up to its name. Photo: Frances Mocnik
Super Saturday in Sydney lived up to its name with boom-like auction clearance rates and, incidentally, made a mockery of promises of lower home prices.
''We want to make home ownership, particularly the ownership of a backyard, a reality again,'' Premier Barry O'Farrell said last week. Opposition Leader John Robertson made the same pledge in February.
Barring some unimaginable economic catastrophe, though, neither party can reduce Sydney home prices from the present median of $646,400. Doing so would wreak havoc.
Housing costs have risen exponentially since World War II. In March 1953, you could buy a two-storey brick house with a slate roof in Balmain for £4000. If prices had only risen with inflation that would be a steal today at $124,000 - about one-tenth of the actual price.
The most thorough history of Sydney housing prices, by University of NSW economist Nigel Stapledon, concluded that prices have risen an average of 3 per cent a year since the 1970s, and in the past 20 years they went up even faster.
Many factors have kept prices spiralling upwards. The metropolitan population has increased by 1 million since 1991. Households are smaller than they were in the 1980s. More people living alone increases the number of buyers.
Two-income families can pay more and they are happy to pay extra to be near the beach or private schools. Negative gearing has become such a popular tax write-off that no government can wind it back even though it encourages too much investment in rental property. That money inflates real estate even more.
Prices may stumble for a quarter or two if interest rates or unemployment spike but the trend is inexorably upward.
When politicians promise ''affordable housing'' they are using hollow words they think we want to hear or they are clueless about what they are promising.
New subdivisions are likely to be built in recently won Liberal electorates like Smithfield, Campbelltown and Penrith. The government cannot be serious in saying it wants to drag down the value of these voters' homes. It would lose all credibility.
Despite Robertson's words, Labor's hands are also tied. As Mark Latham pointed out recently, the voters the party must win over no longer live in fibro cottages. They live in ''McMansions'' with large entertainment areas and stainless steel appliances. And they do not want to see home prices drop.
Landcom was launched in 1975 to create cheap blocks of land. It was only one of several government initiatives that barely affected prices. Land zoned for housing instantly becomes more valuable. Farmers near Sydney sell at the best price they can get and no government can repeal that law of economics.
Land for medium- and high-density projects in older suburbs commands an even greater premium. In 2010, for example, Mirvac paid $150 million for 10.6 hectares at Harold Park. Three-bedroom terraces in the billion-dollar project sold for $1.8 million - well above the price of existing terraces in Glebe. These infill projects create new houses but do nothing to reduce prices. In fact, developers add luxuries like polished granite and marble to increase prices.
It is tempting to think that less regulation would produce more houses. Removing planning restrictions now and putting big projects on the fast track to approval is a developer's dream. Labor tried that with its ''Part 3A'' approvals. Planning and Infrastructure Minister Brad Hazzard has other plans to stop councils blocking higher density projects, but councils are not the problem.
Back in 1945, the state took over land planning to control new suburban growth. The government had to manage the demand for infrastructure and new housing was rarely built until the state could afford the roads and sewers.
The affordability of infrastructure is still a major obstacle. Any development requires new infrastructure that has to be built into the price of the house or funded with tax revenue. The O'Farrell government is using a combination of the two, with fees capped at $30,000 a house and a special $50 million fund for infrastructure.
Development fees increase the price of a new house but the state budget would be destroyed if the Treasury underwrote any infrastructure developers wanted.
Politicians could never raise enough revenue to affect the Sydney real estate market that can sell $1 billion or more in a week. If they did reduce prices, home owners would be rioting.
Sydney house hunters soon grasp these realities and wisely ignore wishful talking about affordable housing.
Ian Mylchreest is an Australian journalist living in Las Vegas, where home prices have fallen by more than half since 2006.
No comments:
Post a Comment