What would a 162 year old man make of today's housing debate?

Looking at a century old debate being rehashed today

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Who will dispute that the rents are too high? Certainly not those who pay them.

The above quote comes from the Bundaberg Mail on the 3rd of September 1913.

The 1910s, even before the war, were a period of rapid economic change and a cost-of-living crisis.

When you look up from the rapid daily news cycle to the longer arc of historical economic and social trends, you observe that there is not much new under the sun.

We rehash and then replay social and economic debates with surprising regularity.

The 1910s cost-of-living crisis led to Australia’s first rent controls. The 1911 New South Wales Inquiry into Rising Rents and other investigations during that period led to the Fair Rents Act NSW 1915. This new law limited rents to a fair return on the capital costs of owners (Section 9, 2).

Source: https://trove.nla.gov.au/newspaper/article/263633873?browse=ndp%3Abrowse%2Ftitle%2FA%2Ftitle%2F52%2F1918%2F11%2F27%2Fpage%2F29483724%2Farticle%2F263633873

Even after the war, the political sensitivity to the economic plight of returned soldiers led to a commission of inquiry into wages and living conditions.

By the end of 1919, the war to end all wars had ended and the workers were battling out the peace on the streets of Europe’s cities, and Australian men – working men as well as the tragically incapacitated – were returning home. A price Billy Hughes had paid in that year’s federal election was the promise of another royal commission to inquire into the cost of living and to devise a mechanism to adjust automatically the basic wage.

Albert Bathurst Piddington, born in 1862 and a former Justice of the High Court and member of the New South Wales parliament, was called upon to lead that inquiry.

If Piddington were alive today, I wonder what he would make of the housing and cost-of-living debates we are now having.

I ask this because much of the economic content of his report matches, nearly to the letter, the economic content of today’s cost-of-living and housing policy debates.

Albert Piddington and his inquiry report on housing rents

For example, Piddington notes that the Fair Rents Act 1915 had

…increased the disinclination to invest, particularly on the part of the “speculative builder,” who before the war provided a large proportion of the new dwelling houses at rentals within the reach of the industrial classes.

But, then goes on to compare New South Wales to other states and notices that

The same disinclination has, however, been manifested in Brisbane and in Melbourne, where there are no Fair Rents Acts. The effect of the new law cannot, therefore, be regarded us more than supplementary to the general causes tending to check building for investment.

This is a rehash of today’s rent control debates.

In terms of the rate of housing construction, again it contains the same arguments we hear today. When talking about the shortage of housing in Melbourne, Piddington writes:

Agents representing a large proprtion of the metropolitan agency business were examined, and they unanimously declared there is present a serious scarcity of dwellings of six rooms and under. The chief reason assigned for the scarcity is the practical cessation of building of this class of house investment. It was said that until about 1915 a normal amount of building for investment had proceeded, but since that date there had been a rapid decline, almost to vanishing point.

The reasons for this includes the availability of finance for buyers. Piddington notes that in Queensland, housing problems at the time were not as severe because of government-subsidised homebuying.

The position in Brisbane has been affected by the operation of the Queensland Workers Dwellings Act, passed some years before the war. The Act is not limited to Brisbane, and its main principle is that the Government Bank advances money to enable persons of small means to buy houses where it suits them.

Today we actively use monetary policy to make borrowing expensive to reduce the number of homes built—a fact often forgotten in modern housing debates. But in Piddington’s time, this active financial control was not used.

He explains that for whatever reason, interest rates were too high to make homebuying an option for many renters.

The evidence shows that a large number of persons desirous of providing homes for themselves find a difficulty in doing so while the margin in cash which they are called upon to provide is so great. The Bank lends at 6 per cent, but where borrowers need to arrange elsewhere for a second mortgage, supplementing the first, the rate is said to be 8 per cent, and that rate is generally charged by building societies for the whole of the advance to member-borrowers.

Looking back now, these interest rates don’t seem so excessive. But it was obvious even then that if the interest rate were lower, regardless of how that was achieved, it would bring off the sidelines a wave of new buyers that would stimulate homebuilding.

The issue of vacant land ready to be built came up then too, and there were questions about whether taxes on land inhibit new supply. The conclusion was that taxes on land value should incentivise its use, but it remained a puzzle as to why so many blocks remained vacant.

At present there are 46,000 vacant blocks of land fronting the water mains of the Board or within 200 yards of the end of the mains.
…
It would appear from the figures as to the vacant blocks of land that the method of rating by the Water Board may have some effect on keeping land out of occupation, but it must be remembered that the municipal rating, which, outside the city proper, is on the unimproved value and which in theory should have the effect of forcing land into occupation is heavier than that of the Water and Sewerage Board, and yet the large total of allotments mentioned above remains unused.

Finally, on whether public intervention in housing can improve conditions, the new ability of the federal government to acquire and build homes for returned soldiers was discussed.

An important statute, called the War Service Homes Act 1918, was passed at the close of that year. The chief object of the Act is to assist Australian soldiers and their female dependants to acquire homes upon the rent-purchase system.

Piddington was concerned that because of rising construction costs, the budget for construction after the war might exceed many soldiers’ ability to pay.

He seems not to acknowledge that subsidised housing is possible and assumes that the rental price for newly built soldier housing must cover the accounting cost of its inputs. And because of this, it would then affect the rest of the rental market.

If, however, in any national housing scheme no sufficient allowance is provided to meet present and possibly continuing abnormal prices, it is inevitable that the rentals or equivalent of rentals which must be charged will afford encouragement for a general increase in the rents of all similar existing dwellings, towards the rental level of the new scheme.

I think the economic logic here is wrong. But I suspect the same logic is common today in our housing debates. Just because the costs of construction rises, it doesn’t mean the rental price must rise.

There are spatial responses such as building cheaper types of homes at any location that will happen in this situation.¹

In sum, if we have a cost-of-living crisis today, as many claim, then a century ago the same economics and politics were at play in our great grandparent’s cost-of-living crisis.

1. To be clear, if construction costs rise to make some locations unfeasible, other locations will be taken up instead. If some dwelling types, like high-rise, become unfeasible, then lower-density dwellings will be built instead at those locations when rents and/or prices are lower.