KEY POINTS:
Given a choice between removing a market's distortion or creating another, the Government seems to prefer the latter. How else to explain the legislation it has introduced to Parliament that will allow local authorities to force housing developers to provide some houses at below market prices?
The serious gap that has developed in recent years between average house prices and wages is open to a number of explanations. One, strongly advanced by the Property Council, is that local body restrictions on urban sprawl have severely limited the supply of land for new housing and driven up the price. It is certainly land values rather than building costs that have caused the greater part of recent property inflation.
Another common explanation for the affordability gap is the tax treatment of property. With losses on rent able to be written off against other income, and no effective taxation of capital gains on sale, housing investments are more attractive than any other in this country.
Yet another explanation, offered by local bodies, is that sufficient land has been made available for new housing but owners are keeping it undeveloped to speculate on rising prices.
Those by no means exhaust the distortions but rather than tackle any of them the Housing Minister, Maryan Street, has produced a bill that could make the market worse. Under the Affordable Housing: Enabling Territorial Local Authorities Bill (the title is as elegant as its machinery) councils will be able to insist that a certain number of houses in a new development can be sold only to people below a certain income at a stipulated price. The council would first have to prove a need for cheaper housing in its area and produce an "affordable housing plan" after consulting local interests. The plan would require developers to either include some cheaper houses in their developments, make payments towards the cost of providing such housing or provide land for its construction.
One consequence of this requirement, as the Property Council points out, will be to raise the price of all other houses in the development when developers cover their losses. The bill attempts to avoid this by allowing local bodies to compensate developers with lower reserve contributions or by permitting more dense housing, either of which would detract from the amenities or the character of the neighbourhood.
But the most conspicuous consequence of the policy could be in the resale market. Some houses will carry a tag indicating they are artificially cheap and available only to people below a certain income. The bill gives councils the difficult task of deciding in negotiation with developers how the low-cost houses might be administered. It offers the options of council ownership, vesting them in a housing trust, shared-equity arrangements with first-home owners, or sales on the open market with deed restrictions.
The bill also bans the use of any sort of title covenant that has the principal purpose of excluding "social or affordable housing, including supported accommodation" from a residential development. "The use of these covenants is growing, and they unfairly affect some of the most vulnerable people in our community," says Ms Street. "Ours is an egalitarian culture and we want to avoid segregation in communities."
But that is precisely what the bill is likely to do. It will put most houses further out of the reach of many first-home seekers for the sake of a conspicuous few whose accommodation is rent- or price-controlled. The best way to house an egalitarian society is to let the supply match demand. Let cities grow.
