Tuesday, September 7, 2021

Housing supply… another inquiry

Dwelling assets are being repriced globally, as expected by central banks who have sought to achieve this with their interest rate policies.

Part of political theatre that comes with rising dwelling asset prices is to fake concern for the non-homeowners. In the past two decades, this has taken the form of blaming supply and town planning for the fact that investors arbitrage returns and leverage into housing when interest rates fall.

It is nonsense from top to bottom.

We know this because the most recent of many UK reviews into housing supply concluded that it was not desirable to implement any new incentives for housing developers to build faster if that meant they had to accept lower prices.

We know this because a 2004 Australian review concluded that the stock of housing changes by such a small amount each year that even very large changes to the rate of new supply will have small price effects.

We know that it suits vested interests in the property market to focus the debate on non-solutions that provide them windfall gains in the form of rezoning.

Housing markets are quite easy to understand. The difficult part is first unlearning all the nonsense that fills the newscasts and journals.

Australia’s latest inquiry into housing supply has begun. I took the chance to make a submission outlining my views on the housing market and writing a document that I hope provides some lessons about how to understand housing.

Please enjoy it here.

The following summarises
  • There are more, bigger, better, dwellings per capita in Australia in 2021 compared to any point in history.
  • Multiple government inquiries at all levels over the past two decades have ostensibly sought to find the cause of house prices hidden in the pages of local zoning laws.
  • Dwellings are assets and are priced based on financial market conditions.
  • Density (dwellings per unit of land) and the rate of supply (new dwellings per period of time) are conceptually different but often confused in housing supply discussions.
  • This submission argues that market housing supply has exceeded household demand. State planning systems have flexibly accommodated new supply while regulating the location of different types of dwellings.
  • Compared to household incomes and rents, the cost of buying a home (measured by mortgage payments) in 2021 is historically cheap. This is due to lower interest rates and is why intercensal homeownership is expected to rise in 2021. However, asset price adjustments will mean that this situation will not persist.
  • Taxes on property are efficient and fair and do not add to housing costs but rather subtract from property values.
  • Affordable housing is cheap housing. Cheaper housing means lower rents and prices. Any “affordability” policy that reduces market prices will remove billions in landlord revenues each year, transferring that value to tenants, and trillions in housing asset values, with that value transferred to future buyers. 
  • Fostering parallel non-market housing systems, just as public healthcare provides a non-market medical system, can be an effective way to improve housing affordability. 
  • There are no local, international, or historical examples of planning reforms leading to cheaper housing. Indeed, a Productivity Commission review concluded “given the small size of net additions to housing in any year relative to the size of the stock, improvements to land release or planning approval procedures, while desirable, could not have greatly alleviated the price pressures of the past few years.” (p154)


  1. How many times do you have to prove your case before it is generally accepted politically?

    1. Amen. Keep up the great work Dr Murray.

  2. Inquiry chair Falinski has already said the problems are on the supply side, making the inquiry a useless bit of political theatre. He doesn't support states transitioning from stamp duty to land tax and is contemptuous of social housing. I expect his report to arrive soon after Xmas, before a March election, and used to bash the ALPs social housing policy as an attack on household wealth. A morally bankrupt but politically powerful approach.

  3. The there is the "political channel" and the following quote is all that one really needs to know about the housing market, the rest is technicalities for nerds, from the NSW housing minister:


    «Once you are in the Sydney housing market you are pretty well set then for the rest of your life," said Mr Roberts. ... "What I want to do is to get people into the market place and then they can be beneficiaries of the increase in the value of their property."»

    More generally in the 1970s there was an all-important study by one of the tory think-tanks in England that showed that *regardless of incomes/class*, voters who owned property, had their own cars, had a share based individual pension, voted for the right more than those wo rented, used public transport, had defined benefit pensions.

    Therefore across the anglo-american countries many politicians set to incentivize home ownership, cut down public transport, undermine define benefit pensions. We have had therefore 40 years of thatcherism/reaganism.

  4. I was participating in a discussion on a thread on Interest.Co.nz and someone referred me to a very interesting paper you co-authored. You proved that in Brisbane, upzoning causes inflation in the price of land and hence "house prices" - because houses, or rather the land they are sitting on, are also "sites with development potential".

    I have been arguing for years from the real life evidence, that this is what is going on, but no-one seems to be working on quantifying the effects. So congratulations on doing this for the Brisbane housing market. It has been proven for Auckland by Chris Parker and colleagues, without the work being published as yet.

    However, you seem to have missed that these upzoning / economic-rent inflation effects are consequent on constraints on the historically normal ability of conversion of low-cost rural land to urban use - house price median multiples of around 3 were a historical norm for decades and the inflation / bubble / unaffordability problems always commence with novel constraints on the conversion of cheap rural land to housing use. The obvious proof of this, is the several dozen US urban areas that have never introduced these constraints, and that retain affordable median multiples, and retain a spread of housing prices and types that enable good matching of housing with income levels. The match of housing with income levels is strongly assisted by the reality that in these markets, there is no extractive economic rent to capitalize automatically into upzoned land, so that intensification actually does increase affordable housing choice.

    It does not require much research time with the Demographia Reports and Real Estate sites, to reveal that in the median multiple 3 urban areas, high density housing is even cheaper relative to high median-multiple urban areas than large McMansions are. An ironic unintended consequence of this is that the median-multiple-3 urban areas do successfully "price in" more potential agglomeration workforce participants of all income levels including lower ones, when they allow intensification, than the urban areas where the market is distorted by regulatory chokes on "sprawl".

    I won't copy and paste my long comments here; you could look at this thread and search for my name in the comments:


    By the way, I am impressed when I look through your recent blogging, by your courage and insight in your commentary on the Covid pandemic and responses.