The affordability debate got hijacked, but back on track this week.
There's been an interesting shift in the debate about affordable housing in recent years. It came with the idea that more supply didn't help bring prices down.
This was one of those funny things. It is counter-intuitive. We know from first-year economics that when the supply of something rises, the price falls.
And we're seeing it right now in the high-rise apartment sector. There's a large amount of supply coming online, and resale values of apartments seem to be falling.
So it makes logical sense. There seems to be evidence for it right under our noses. And yet we were asked to believe that through particular quirks in the property market, more supply wouldn't help bring prices down and make housing more affordable.
I suspect that it was the case that as counter-intuitive as it was, it was just to good to refuse. That it served particular interests to believe that it was actually true.
So why do they reckon more supply doesn't reduce prices?
The idea seems to be that new housing supply comes in at around the median price or above. New housing, therefore, tends to be expensive. If it's expensive, then it's not affordable. Therefore it's not creating affordable housing.
Unless we're creating housing to explicitly house low-income earners, more supply just simply doesn't help.
And yeah, it's about as sophisticated as that.
I mean, I could point out that new-housing always attracts a premium relative to second hand housing. That's the nature of the beast. Second-hand things are always worth less than newer things. The only exception is when something becomes so old that it becomes rare and worth more, but I don't hear anyone talking about a ‘vintage' housing market.
I could also point out that the housing market is pretty much a singular market. There are segments, and geography can define markets, but within that, housing that enters the market at any level, increases the supply of the over-all market.
And when you're talking about prices or rents, it's over-all supply that matters.
I mean, even if you thought in segmented terms, it still plays out that way. Say you added 5 new homes that rented for $750/wk. That extra capacity might see rents for that level of housing drop to $700.
Now there's more supply at the $700 level, so maybe the poorer quality options at that price have to drop to $650. That means that there's more supply at the $650 level… and so on until the entire market has adjusted.
You either get more for the same amount, or the same quality for less.
I'm hearing myself explaining this and I'm sounding like an idiot.
This isn't rocket science right? It's pretty easy to get a handle on.
But for whatever reason, people got the other end of the stick and ran with it.
And that stick-running reached a crescendo last year when researchers at the Australian Housing and Urban Research Institute (AHURI) found that most supply was actually coming on-line in more expensive markets.
“Most of the growth in housing supply has been taking place in mid-to-high price segments, rather than low price segments. There seems to be structural impediments to the trickle-down of new housing supply.”
Again, I might have thought that adding supply to more expensive markets was actually exactly what you wanted … to make them less expensive.
But no, it was taken as evidence that the housing system was busted, and that you couldn't' rely on more supply to help with our affordability crisis.
But now Grattan researchers have blown this all out of the water. Apparently, the AHURI researchers didn't weight their LGAs by population.
And so when they said the most expensive LGAs were building the most, what they were actually saying was that the most populous LGAs were building the most… which is a pretty unsurprising result.
So… like… why are we even having this conversation?
Personally, I think it's the NIMBY's. They don't want to give up their leafy terraces and don't want the character of their cushy suburbs to change.
Therefore, they just don't want to face the reality that to fix affordability, you've got to build more houses.
But they don't want more supply. They want targeted social housing… somewhere far, far away thanks.
All this contorted logic was giving them the excuse they were looking for – a reason to oppose new development.
Such a waste of energy.
Maybe now we can move on?