For once, Joe Hockey absolutely nailed it. Commenting on yet another claim about a housing bubble in Australia this morning, the Treasurer said:
“Australia fundamentally doesn’t produce enough houses to meet demand. It is just an infinite mantra for international commentators, for analysts based overseas to say ‘well, you know, there’s a bit of a housing bubble emerging in Australia’. That is rather a lazy analysis, because fundamentally we don’t have enough supply to meet demand.”
He’s exactly right. Desk jockeys in London and New York and commentators in publication like The Economist love to insist that Australia is in the grip of a housing bubble that will eventually collapse like in the United States and smaller countries like Ireland and Spain.
The problem is, as Hockey says, housing price growth in Australia is driven not by inappropriately lax monetary policy or inappropriately lax lending standards or poor regulation, but by our failure to build enough houses to keep up with population growth.
Once upon a time, housing supply was an item on the COAG reform agenda, but it slipped off around 2010 and has never reappeared. Hockey was one of the few politicians who mentioned it after that. Many of the problems lie with state governments — and to their credit, both the NSW and Queensland governments in the last two years have removed first-home buyer incentives for buying existing houses and expanded incentives to build new housing. But the serious problems lie with land release, property development rules and the cost of providing basic infrastructure.
Moreover, there’s one problem that lies with the Commonwealth: tax policies that encourage investment in existing housing stock rather than building new stock. If Hockey were able to achieve even a moderate change to those policies in the wake of the forthcoming tax review, he would be making a solid contribution to fixing the problem he so succinctly identified today.