Housing hype

Did you know housing is more affordable in New York than in Sydney and more affordable in Miami than Melbourne? Would it concern you to know that it would take twice as many years salary in Sydney to buy a house as it would in Chicago?

Crikey logged a reference to the Demographia International Housing Affordability Ratings & Rankings which is an American group's comparison of average wages and average house prices in major cities in the US, Canada, New Zealand and Australia. It ranks cities by computing the "house price multiple" which is the average house price divided by a years average salary. That number for Sydney is 8.8, meaning if the average salary is $50,000, then the average house price is about $440,000.

Of course, not all or even necessarily most of your salary goes into paying for your house, so it's not as if it takes the average Sydney-sider 8.8 years to buy a house, indeed likely 3 or 4 times that, if they can afford one at all. And the number who can is apparently slipping, as the so-called Australian dream is made less affordable by Liberal economic policies.

The government's grant scheme[1], the tax system with negative gearing and other policies encouraging property investement and a general lack of concern with now ubiquitous 'greedy developers' has seen our housing prices blow out so that our two biggest cities are in the top ten most 'severly unaffordable markets' and 7 Australian cities are in the top 25.

You'll notice, too, if you look at those glossy half-tree booklets your super fund manager spends all your fees on, that property is where the money is at right now. Crikey has repeatedly called real estate Sydney's local hobby. Usually the property super funds are consistently doing better than domestic or international shares and that's been a pattern for a while now. That's because with shares there's an element of risk, some companies may do well others may fail, nothing guarantees that any given company won't fail.

Not so with property. Why? Because everybody wants land (and not just that but land already connected to utilities and in the vicinity of employment etc) and the planet's population has been consistently growing for a century or so now, meaning there is less to go round. When there is no restraint on development or investment (such as a tax that negates potential earnings) the market does its work and property goes to the highest bidder which more and more is those who already have somewhere to live and plan to use the property to make more money and buy more land and so the cycle goes. Land, like shares, are a way of earning money without doing any work and such ways and means are absolutely necessary for the creation and maintenance of excess wealth. The way the government manages these ways and means shows how it balances or sides in the trade-off between encouraging enterprise and restraining oppression. The Liberal government has sided entirely with enterprise which has shown great figures for economic growth but leaves many out in the cold, like those on less than average wages who would like to buy a home.

Remember that it was through this system of concentration of land that feudalism worked. The rich own a lot of land, they employ the poorest to work it and through various means entrap those who still own their own land until everyone is an employee of the lord and all the land is his. As his tenants they are then completely at his mercy. How did such a system end? Partly because it had been built up around agriculture and with the industrial revolution everyone moved to the cities and needed relatively small amounts of land, but also because of long and bitter struggles to convince employers and governments to value the mass of people above the dollar. These struggles have largely withered in recent years and without any committed attempt to stop them the wealthy are slowly rolling back the changes.

One example of this is that in the name of encouraging national savings the Liberal government encourages property investment in ways it does not encourage home ownership, with tax breaks and careful management of a reliable housing boom, and by turning a blind eye to the flagrant corruption that ensures that councils back developers over residents in almost all cases.

[1] While the grant scheme is apparently designed to see that more Australians can buy their own home the economics of it are not that simple. Th impact of a large number of people jumping into buying a house in a short window of opportunity is that demand increases and as any good neo-liberal economist can tell you, when demand increases suppliers (developers and investors) raise their prices. So some of the money the government is splashing about might help some people pay for their house but a good deal will just cover price hikes and go straight into the hands of developers and investors at the rich end of town, also known as John Howard's base. If the Australian Dream was all that inmportant to Howard he would restrain property investment and development to allow first home buyers to get in first, and perhaps even encourage home buying by allowing negative gearing of at least part of the mortgage payments on the family home.

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