Land the issue, not prices
By Jacob Saulwick
March 28, 2008 — 11.00am
THE average first-home buyer can afford only one in four Sydney properties, with the Reserve Bank shunting the blame on to governments that have given money to homebuyers while retarding the supply of land.
A senior official said yesterday that high property prices did not benefit most of the population, and particularly harmed the young and the poor.
"One can make the case that the population in aggregate does not benefit from increases in housing prices," the head of the Reserve's economic analysis department, Tony Richards, said.
First-home buyers - defined as households of 25- to 39-year-olds on average incomes - could afford only one in three houses or apartments nationally, the Reserve's analysis showed.
The lack of affordability is more marked in Sydney, where only 25 per cent of properties are accessible to the average first-time buyer - but the situation has improved since the peak of the housing bubble five years ago.
In Perth, flooded with cash from the mining boom, the average first-home buyer can afford to buy only one in 10 properties.
Dr Richards noted that many other countries have experienced housing booms similar to Australia's, but said government policies had contributed to rising house prices. "It is now widely accepted that policies that simply give people more money to spend on housing are likely to be capitalised into higher house prices," he told the Melbourne Institute's economic and social outlook conference.
"On the supply side, efforts to improve housing affordability should be focused on policies regarding land use and on improving the efficiency in the supply of land and housing."
The Rudd Government, which made housing affordability a central plank of its election platform, is considering submissions on a plan to set up savings accounts for first-home buyers.
The previous government's scheme - which provided $7000 to first-home buyers, without a means test - has been criticised for merely contributing to property values because it did not add to the supply of housing.
One difference with Labor's plan is that the savings accounts contributed to by the government cannot be accessed for at least four years.
But in an article published last week in the Australian Review of Public Affairs, Macquarie University researchers said the proposed accounts mimicked the structure of the earlier scheme by increasing the ability of purchasers to pay - even if they also tried to stimulate a "savings culture".
Discussing the "mixed blessing" of rising property prices, Dr Richards said that they contributed to overall wealth and encouraged consumer spending, but also harmed renters and younger people who had not yet been able to buy into the market.
He said the biggest difference caused by high property prices could be between young people who benefited from property passed to them by older relatives, and those who did not.
The Macquarie researchers, Ben Spies Butcher and Adam Stebbing, also argued that the co-contribution under Labor's scheme was highly inequitable because people who earned less received a smaller payment than those on higher incomes.