I was on Radio National tonight talking about housing (click here for a podcast). My main point concerned the politics of all this. Basically, there are haves and have nots. The have nots do not own their own homes and so suffer when house price rises. The opposite is the case for the haves. Do something to help the have nots that involves lower house prices and the haves will be upset? What is more is that the haves will be the ones most passionate about not losing asset value and so will be responsible for voting in the rules and regulations that keep house prices high. (Click here for an interesting paper by Francois Ortalo-Magne and Andrea Prat on this topic).
The political key will be to find policies that assist the have nots while not harming the haves. That suggests, sadly for the have nots, something that will have a slow impact on housing supply. But it also suggests, which is good for the have nots, that some targeted interventions will be warranted.
According to Ortalo-Magne and Prat, this means providing a way for households to insure against rental price shocks so that they don’t feel they have to own a home for that reason. One possibility in this regard is a housing lifeline as proposed by myself and Stephen King. But my point is that we are going to have to be both careful and very innovative if we want to do something about this issue. The approach of the last decade or more of governments — at all levels — ignoring the growing issue and resting on the laurels of high economic growth needs to come to a quick end.
These sit on the fence type solutions that try to satisfy the ‘haves’ and the ‘have nots’ are ridiculous. I’ll cut and paste a section from a letter I recently sent to a bunch of politicians on the issue which explains my point of view on the issue:
“The solutions that are put forward tend to straddle the very difficult position of trying to maintain current house values while also improving affordability for first home buyers. Ideas such as tax concessions on savings for a house deposit is one example. Others ideas put forward are dipping into superannuation savings, shared equity loan schemes, and increasing the first home buyers grant. All of these ideas are short term fixes at best and cruel tricks at worst. If the size of the deposit is so large that it can’t be achieved without assistance then actually paying off the loan will also be unachievable. With these ideas the government can ‘help’ somebody into 30 years of financial misery paying off a loan they cannot afford (or bankruptcy). The idea that once you are ‘on the property ladder’ everything will be fine because property just keeps increasing in value is economic nonsense. Property will only increase in value if the next buyer can afford to pay more than the first buyer did. If this is the case I wonder what the government will give the next buyer to assist them onto the so called ‘ladder’?”