44: 537 New Villains To Blame For Unaffordable Housing In 146 Seconds
House prices are a function of the law of supply & demand. Why did the RBA create the demand for which it is named the villain? But that's only half the supply & demand equation. Who takes the responsibility for house supply? A 146 second cheat sheet that will make you sound the economic expert on Australia's housing affordability.
537 Villains To Blame For Unaffordable Housing In 146 Seconds
Making the Reserve Bank, the villain, for housing affordability, isn’t that simple.
From 2010, the RBA was worried Australia’s economy would go into recession. They wanted to avoid the previous recessions 11% unemployment rate.
The RBA took radical action. Interest rates were slashed from 4.75% to 0.1% and $281 billion of new currency was pumped into the economy.
The RBA prevented a recession and unemployment. But the record low interest rates meant many, who previously couldn’t afford a mortgage, now qualified to buy a home. Nobody complained about housing affordability.
In economics, the law of supply and demand tells us, if the supply of new homes doesn’t keep up with the increased demand for homes, then home prices will rise.
And that’s exactly what they did, to a record value of, $10 trillion.
So, who is charge of the supply of houses in Australia?
537 municipal councils have a monopoly on issuing construction permits for every house and unit built.
But council planning departments, didn’t proportionately increase construction approvals, to keep up with increased housing demand. If they had, house prices wouldn’t have skyrocketed.
So, why didn’t they?
When researching the productivity of local council planning departments for this podcast, a frustrated local government senior manager, sent me an email saying, quote, “Ross, people need to stop blaming the planning system. It’s not the planning system, it’s the egos and self-absorbed individuals in the planning departments who have no consideration for the future needs or costs of housing applications.” Quote ends.
537 council planning departments have monopolies on Australian housing construction. They haven't responded to the law of supply & demand, and so caused house prices to skyrocket.
In the private sector, if your organisation don’t respond to the law of supply & demand it will go broke or if it disadvantages the consumer, by monopolistic behaviour, it will be be prosecuted by the Australian Competition and Consumer Commission.
Maybe the list of villains causing unaffordable housing just got longer.
Please join me on the previous Burgernomics podcast, Affordable Housing, Designing Solutions with Grand Designs host Peter Maddison who takes a completely different view of Australia’s housing affordability situation.
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