The Future of Housing - Part 2
Let’s look at the Environmental, Financial and Health impacts of the 3 current strategies being employed to fight the housing affordability fight
1. Open up more land for development and increase supply
2. Reduce Government Fees & Charges
3. Create Smaller Products
Firstly let’s focus on Topic 1 - opening up more land to increase supply.
Opening up more land for development is meant to increase supply and competition, which under normal capitalism rules, will decrease demand and hence cost. There are several problems with this approach in reality –
· It doesn’t always increase competition
What happens in practice, and mostly due to the high capital costs of entry to the development market, partly caused by high government (red tape) costs as well as tightening equity markets, the number of major players in the land subdivision market are limited. As such what happens in reality is that large tracks of land become controlled by a small group of developers, and that allows those developers to artificially control supply by holding back development.
· Environmental Impacts
Australia has plenty of land area BUT a surprisingly small area of it is of agricultural value. Of course where our original settlements started are often around good water supplies and good soil types. As we expand our residential subdivisions outward from our major metropolitan and regional centres, we continually chew into that high grade agricultural land. Of course we have millions of hectares of fertile black soil plains through the middle of QLD and NSW but the problem is we are the driest continent on earth, and we have no dams or infrastructure that can get water to these areas to open them up…and then comes the old problem that building dams is a nation building decision that has little benefit to a 3 year term government…and the cycle continues.
· Long term cost impact on ever expanding infrastructure
By continually expanding out, we need to continually expand infrastructure such as roads, power, sewer, water and drainage. Costs of development of this infrastructure obviously gets added to the cost of the land and the lower density the subdivision then the more cost per lot that is, thus defeating the affordability target.
This also creates long term increases in residents rates because all this infrastructure needs to be maintained over the long term and upgraded as populations increase.
Next week…Reducing Government Fees & Charges (Red Tape)
John Rosel