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Comment: 4 October
2009
Toward the Great Australian Nightmare: a quarter floor in a high-rise block? By Wendell Cox A report by BankWest shows that housing affordability for the nation’s “key workers” has become worse than desperate. Key workers are nurses, teachers, police officers, fire fighters and ambulance operators. The Key Worker Housing Affordability Report compares 2007 median house prices in the 8 capital cities to average annual earnings. BankWest considers housing to be affordable where prices are 5 times or less the average (mean) annual earnings for each of the key worker classifications. Rampant unaffordability: In seven of the eight capital cities, the median house price was unaffordable for all of the five key worker classifications. The situation was only marginally better in the remaining capital city, Adelaide, where housing was deemed to be affordable for police officers. But even that sliver of light may have been extinguished, since Adelaide house prices have risen so much since 2007. Pervasive unaffordability: The overwhelming majority of local government authority (LGA) areas were unaffordable to key workers in the capital cities (Figures 1-5).
Deteriorating affordability: It was not always this way. BankWest reports that since 2002, median house prices have increased at double the rate of key worker average earnings. Housing affordability has deteriorated markedly since 2002, according to BankWest (Figure 6).
Planning induced house escalation: These house price increases are the direct result of urban planning schemes that constrain the supply of land for housing and thus raise its price. These trends have been documented in our Demographia International Housing Affordability Survey, now in its fifth year of publication. The problem, which has been increasingly acknowledged by economists in Australia and abroad is the stingy land use policies that have driven residential land prices through the roof in virtually all of the capital cities. Often going under the name of “urban consolidation”, the intention of these policies is to stop expansion further into the plentiful land of the nation and force people to live closer to the urban cores --- this in a nation with less than 0.3 percent of its land area under urban development. At least one government understands. In its welcome relaxation of these destructive regulations, the Victorian government cites housing affordability as a principal justification. All workers are key workers: The problem goes well beyond the key workers covered in the BankWest report. While the nation needs key workers living close by to provide quality service to life, limb and mind, their salaries depend on the taxes and fees paid by other workers, many of whom have even lower earnings. Thus, as devastating as the affordability problem is to key workers, the crisis goes much deeper. An Australian household purchasing a house will pay, on average 70 percent more today relative to income than in the early 1990s. Things could get much worse, with predictions of yet another period of rising house prices relative to incomes. Virtually all of the difference can be attributed to regulations that seek to remake cities to match a radical vision that is already well on its way to the Hong Kongization of some Sydney neighborhoods. Giving up on the Great Australian Dream? The BankWest report notes that key worker housing affordability is somewhat less dire with respect to units. Police officers cannot afford units in 41% of capital city LGAs, while other key workers cannot afford units in from 59% to 78% of LGAs. Moreover, BankWest shows unit affordability, like house affordability, deteriorating rapidly. The Great Australian Dream: Much of the comfortable lifestyle of the nation is the result of the “Great Australian Dream” of a house on a quarter acre block. Government planning policy has largely made that choice illegal, or at least unaffordable in recent years. Despite considerable evidence that most people would prefer to live in their own houses (not units), counter-productive planning strategies are attempting to diminish the Great Australian Dream from a house on a quarter acre block to a quarter floor in a high-rise block. Figure 1
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Figure 6
Wendell Cox is a principal of the consultancy Demographia, Visiting Professor at the Conservatoire National des Arts et Metiers in Paris and author of War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.
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