Talkin’ About My Generation (Part 1)

In his excellent Liberty Itch post Golden Years last week, Max Payne writes, “By the time today’s young people are finally ready (or allowed) to retire, they may find they face a double challenge. First, their superannuation funds might have been ransacked by previous generations; second, the availability of quality care may be limited due to the challenge of delivering high-standard care without a large tax-base – especially in times of slowing productivity.”

In their hit song My Generation, English rock band The Who – Pete Townshend on guitar, Roger Daltrey on vocals, John Entwistle on bass, and Keith Moon on drugs – err, I mean drums – sang, “…things they do look awful cold …. hope I die before I get old.”

It is reported that German economists are baffled by reports from Australia that rising house prices are deemed to be ‘good news’. In Germany, inflation in house prices – like inflation in energy prices or food prices – is considered to be just the opposite.

“How can it be good news?”, they ask, “when it takes two incomes to support a mortgage when previously young couples could buy a home and raise a family on one income? Or that homebuyers will pay many hundreds of thousands of dollars more in mortgage payments and government taxes and charges than would otherwise be the case?”

Why has housing become so expensive in Australia? Motor vehicles, whitegoods, kitchen appliances, widescreen TV sets, personal computers and mobile phones are consumed in abundance around the world, yet prices remain low. Why is a house, which like other manufactured goods is made from readily accessible components, so much more expensive than other consumer products?

No doubt demand stimulators like high immigration, low interest rates, capital gains concessions, negative gearing and first home buyer grants have increased demand for housing. However, increases in demand do not, of themselves, cause prices to rise. The exponential increases in demand for mobile phones, laptops and digital TVs did not lead to increases in their prices. In fact, the opposite occurred – prices fell – in some cases by more than half, due to increases in supply. The 1950s and ‘60s population explosion – the ‘baby boomer’ generation – likewise saw massive increases in demand for housing, yet house prices remained stable during that time because supply was able to keep up with demand.

So, what has gone wrong in recent years?

As most people know, over the past 20 years or so the actual cost of building a new house in Australia has roughly kept pace with inflation. Land prices, on the other hand, have skyrocketed.

By restricting the amount of land available on the urban fringe, state governments have sent the price of entry-level housing through the roof.

Land is the problem.

On the fringes of our cities there is more than an adequate supply of cheap, unzoned land.

Cheap land attracts not only home buyers but commercial interests as well, leading to more employment opportunities.

So why are houses and commercial developments not being built on this cheap land?

In short, manipulation of zoning laws.

(For Part 2, click https://libertyitch.com/2023/08/22/talkin-about-my-generation-part-2/)

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