SMART GROWTH AGENDA: LESS HOME OWNERSHIP? VIEW FROM AUSTRALIA
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http://www.fromtheheartland.org/blog/2006/12/smart_growth_agenda_seeking_le.php#more
SMART GROWTH AGENDA: LESS HOME OWNERSHIP? VIEW FROM AUSTRALIA
Elizabeth Farrelly of the <I>Sydney Morning Herald</I> may have
revealed the ultimate urban consolidation (smart growth or
anti-suburban) agenda in a December 13 column entitled <a href=
http://www.smh.com.au/news/opinion/end-of-aussie-dream-cant-come-soon-enough/2006/12/12/1165685677783.html>The
End of the Great Australian Dream Cannot Come Soon Enough</a>. The
Great Australian Dream is the "down under" equivalent of the
American Dream of home ownership. Farrelly is clearly outside the
mainstream of Australian thought on the issue of home ownership, though
may well be expressing the views of many in the urban planning
community.
<b>Home Ownership and the Democratization of Prosperity</B>
In Australia, as in the United States, Western Europe, Canada, New
Zealand and Japan, the suburbanization for which Ms. Farrelly and those
of her ilk have such contempt has been associated with the greatest
expansion of broadly distributed wealth in the history of the world. In
short, for the first time, prosperity has been democratized.
Before World War II, most people in these countries lived in conditions
that would qualify as poverty by today's standards. The less
expensive houses built on suburban land made it possible for millions
of households in Australia (and elsewhere in the high income world) to
enter the mainstream of economic life. Instead of paying rent to
landlords, they paid down their mortgages and accumulated equity. Their
cars gave them access to employment virtually everywhere in the urban
area, instead of to the few locations where there were decent mass
transit connections. Australia would be a poorer nation today if its
home ownership rate were at the 40 percent pre-war level instead of the
current 70 percent.
<b>Australia: Broad Consensus in Favor of Home Ownership </b>
Home ownership has strong support throughout Australia. Through the
years, the federal and state governments have enacted a number of plans
to make it easier for people to buy their own homes.
<b>Wealth Destroying Urban Consolidation (Smart Growth) Policies</b>
However, problems have developed, as urban planning interests sharing
Farrelly's views have taken control of land use policy in the states.
The culprit is urban consolidation policies (called smart growth in the
United States) and related urban planning policies. These have created
severe land shortages in all Australia's state capitals, as state
governments have banned development in large areas or allowed
development only at rates that are much less than the demand. Of
course, this rationing has led to much higher prices for housing, as
land prices have skyrocketed. Before urban consolidation, land in
Sydney accounted for one-third of the cost of a new house. Today land
accounts for more than three-quarters of the cost. In contrast, the
cost of constructing a house has barely changed over the same time
(inflation adjusted).
The irony is that this government stinginess in land is in a country
with less than 0.25 percent of its land in urban development. It is
laughable that there should be a shortage of land in Australia. The
land shortage exists only because of government contrivance, which has
occurred because there is a shortage of economic understanding among
planners and politicians.
The price of the median house in Sydney and Perth has risen to
approximately three times the those of many US and Canadian urban
areas, including fast growing as Atlanta, Dallas-Fort Worth and
Houston. A typical Sydney or Perth household can expect to pay 10 years
more of their earnings to buy a house than a household in Atlanta,
Dallas-Fort Worth or Houston (including additional mortgage interest
charges). The cost inflation has been experienced throughout the
nation. Median house prices in Melbourne, Brisbane, and Adelaide are
more than double the prices relative to incomes in Atlanta, Dallas-Fort
Worth and Houston.
In short, state government urban consolidation (smart growth) and urban
planning policies have destroyed housing affordability throughout
Australia. The same situation has occurred in some Canadian and US
markets, such as Vancouver, San Diego, San Francisco-San Jose and
Portland. However, many markets in both countries continue to have
housing affordability ratios consistent with historic norms, with a
median multiple of 3.0 or less (median house price divided by median
household income). All of this seems likely to place a drag on the
Australian economy in the longer run.
<b>"End of the Australian Dream: Bring it On?</b>
In a rant bubbling over with elitism, Ms Farrelly dismisses Sydney's
suburban houses as chook (chicken) shacks. She concludes with "End of
the Australian Dream? Bring it on." Ms. Farrelly may have emerged as
the "Marie Antoinette" of urban consolidation or smart growth.
"Let them eat cake" is her message and it appears to be the message
(wittingly or unwittingly) of those who favor urban consolidation
(smart growth).
Farrelly's prescriptions will mean fewer homeowners in the future,
less household equity (wealth) and more money paid to landlords. Even
those households lucky enough to purchase their own homes will find
their lifetime purchasing power eroded by hundreds of thousands of
dollars just to pay the artificially inflated housing prices that are
the result of urban consolidation and smart growth. This will mean
that, for the first time in decades, middle and lower income households
are likely to live at a lower standard of living than before.
<b>The Issue: Home Ownership, Not Urban Form</b>
However, there may be a silver lining. Ms. Farrelly provides a welcome
call to changing the terms of debate. The issue is home ownership, not
urban planning.
Until recent years, the principal issues surrounding urban
consolidation and smart growth were about cities, their shape and form.
More recently, especially in Australia, the issue has become housing
affordability, with the then Reserve Bank Governor, Prime Minister,
Treasurer and other public officials pointing to land supply
restrictions as the culprit. Now, Ms. Farrelly puts the issue squarely
where it belongs --- home ownership.
Farrelly's opposition to home ownership message may be shared with
some urban planners and some residents of eastern Sydney's luxury
high-rise condominiums. However, few in politics and few in the real
world share this elitist view. As a result, opposition to home
ownership is electoral suicide in most constituencies.
Now comes Elizabeth Farrelly, saying that less home ownership would be
better. That is exactly the issue that should be the focus of public
discourse.
<ul>
Notes:
These issues are discussed in greater detail in my new book <a
href=http://www.demographia.com/wod1.pdf><I>War on the Dream: How
Anti-Sprawl Policy Threatens the Quality of Life</I></a>
International housing affordability data for 100 urban areas is
provided by the <a href= http://www.demographia.com/dhi-ix2005q3.pdf
><I>Second Annual Demographia International Housing Affordability Survey</I></a>.