Having and eating the housing cake

There’s a crisis of housing affordability, we’re told, but the figures tell us another story. Despite escalating house prices, around two-thirds of Australian households — comparable figures to previous decades — still own their homes or hold a mortgage.

 

Yet an alarmist current is driving politicians to deliver populist and counter-empirical measures. In their panicked attempts to slow down the property market for a minority of buyers, politicians are throwing around policy measures that interfere with the very corrective market forces that would serve the interests of all home-buyers.

 

In previous weeks we discussed the federal government’s regulation-by-stealth that — through APRA — discourages banks from lending to property investors. In other words, our politicians are effectively treating the banks as if they were an instrument of the State, rather than independent free-market operators. This bizarre approach became even more explicit when ministers called for a consumer boycott of Westpac after the bank announced it wouldn’t fund new thermal coal projects.

 

Yet these politicians want it both ways. While they promote heavy-handed market intervention to suit a political agenda, they are meanwhile attempting to capitalise on the very free-market devices they seek to restrict. For example, the government’s Defence Housing Australia campaign spruiks favourable conditions for prospective mum-and-dad investors, who are encouraged to buy army-personnel housing. These projects shift the capital outlay away from the State and on to the individual investor, paying little regard to these properties’ infrastructural context and long-term capital growth prospects. Once defence projects have moved on, these houses are destined to be the worthless ghost-town relics we’ve seen in abandoned mining communities.

 

The political and market consequences of recent policy deceptions are currently beyond reckoning, but future generations will not thank this government for underhand and incoherent policies that conflate government responsibilities with market conditions. These policies make lending and other processes far too rigid and clumsy and they in turn slow down the ability of the market to be able to readily adapt in the event of a market shock or correction. This will apply to those already in the market and those looking to enter.