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State and federal governments disagree over the high cost of housing; Housing Industry Association says land shortage is a serious problem.

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Monday 21 August 2006

State and federal governments disagree over the high cost of housing; Housing Industry Association says land shortage is a serious problem


MARK COLVIN: The federal and state governments are at loggerheads over the high cost of housing. But what are the real economic causes of the problem? 


The Prime Minister blamed the states today for a shortage of affordable housing. 


He said they hadn't released enough land to keep pace with demand. 


But some economists say housing affordability is much more complex than that. 


They believe it's got more to do with the growing economy, the ready availability of finance and cuts to the capital gains tax, than a lack of available land. 


Lynn Bell reports. 


LYNN BELL: The Prime Minister, John Howard, says for many young people, the great Australian dream of home ownership is diminishing. 


JOHN HOWARD: There is a real problem in Australia about the affordability of the first home and it's quite clear that the main cause of the high cost of housing in this country is the lack of supply of land. 


LYNN BELL: He says a recent survey shows the price of land in Sydney has risen by 700 per cent in the 30 years between 1973 and 2003. And Mr Howard says the states must act to improve housing affordability. 


JOHN HOWARD: I hope that all State Governments take this to heart. They have got to stop using the development process as a means of raising revenue. They've got to release more land. It's a question of supply and demand - the supply is too little for the demand.  


And until more land is released we are going to condemn young people to not being able to afford or only afford with a lot of parental help. 


LYNN BELL: He says between the year 2000 and 2003, investors more than tripled the amount of money they were willing to pour into housing assets to chase the capital gains. And that led to strong growth in house prices. 


Economists also say the strength of the economy has also played a part in pushing house prices up. Low unemployment and greater stability, means people feel more comfortable to take on more debt, and are willing to pay more for a home. 


The Premier of New South Wales, Morris Iemma, says the Prime Minister is simply blame shifting. 


He says almost 6,000 new lots are ready for release in New South Wales, but the developers don't want to part with them because of rising interest rates. 


MORRIS IEMMA: The reality is we are releasing more land. It's just that the owners of that land, because the market is soft, interest rate rises, and the fear of further ones, is seeing the land not come onto the market.  


It's John Howard's interest rate policy that's affecting housing affordability. 


LYNN BELL: Labor's treasury spokesman, Wayne Swan, says the national economy doesn't stop at state borders. 


WAYNE SWAN: John Howard can't blame the states for the three interest rate increases since the election - the election where he promised to keep interest rates at record lows.  


What Australian homeowners want is some constructive solutions from John Howard to put downward pressure on inflation and downward pressure on interest rates. They don't want this continual blame shifting. 


LYNN BELL: But the Housing Industry Association's Simon Tennent says land shortage is a serious problem. 


SIMON TENNENT: We do agree with the Prime Minister's comments, we've been watching over the last couple of decades how the availability of greenfield and developed land has shrunk at a time when we've had an increase in Australia's overseas migration rate, we've had an increase in household formation rates,  


And unfortunately the demand for housing is just not being met by supply and it's not being met by supply out on the fringes where there is even today quite a considerable land shortage. 


LYNN BELL: Chris Caton, from BT Financial Group, agrees the release of more greenfield sites may help. But he's not convinced that releasing large tracts of new land will be the answer to reducing the price of a home in a major city. 


CHRIS CATON: There's no question that it won't hurt. But I think it won't help very much at the margin. I mean the thing about the greenfields areas that they're a long long way from the centre of the city. And people would rather live closer. And there's nothing the states can do essentially apart from, you know, converting from single family dwelling to multi-family dwelling. There's nothing the states can do to significantly increase the price of available, desirable land close to the CBDs.  


MARK COLVIN: Chris Caton, Chief Economist at BT Financial Group ending that report by Lynn Bell.