@Quatrefoil: The various Howard-era pre-election bribes home-buyers grants were always certain to deliver increased housing prices. After all, in a given market, if the buyers have more money to spend then of course prices rise.

@Joypog: You’re right re the supply-side problems being the drivers here — and having scanned the first 1000 words of so of Possum’s analysis he agrees.

Sydney is a lot like SF and LA in this regard: coastline to the east, mountains to the west, national parks with rugged terrain north and south all constraining outward growth… neglected public transport making the more distant new suburbs unattractive… the marketed “desirable Sydney lifestyle” requiring a view of Sydney Harbour or the Pacific Ocean… local councils controlling zoning and wanting to keep existing residents happy… state-level politicians with questionable links to developers…

The “desirable Sydney lifestyle” is now being marketed more as an apartment with a harbour view and nice stainless steel appliances rather than the traditional house on a quarter-acre block. (And, incidentally, the apartment is always shown furnished in a sparse modernist style — presumably because there’s no money left for personal items once the real estate and the designer furniture are paid for.) But much of the love people have for Sydney is the sense of open space and trees and clear skies — all of which tend to disappear in landscapes dominated more by apartments than free-standing houses.

More on all this in a fresh post once I’ve read Possum’s second piece.

I’m generally an American “liberal” but having lived in the suburban free for all of Houston for the past four years, I must say that there are distinct benefits to living in a city which has no zoning and essentially no planning (like many moderately hypocritical people, I tend to believe that regulation in MY industry is bad). The benefits are several: 1. Things actually get done, its amazing how little paperwork effort it takes to get projects approved in Houston as opposed to in California. 2. Your neighbors can’t stop your higher density project as easily; there are ways, but without a formal process for bitching about what the guy next door is doing, there is much less fighting. 3. Which means things get done more quickly, and so you can be more responsive to market a critical variable for speculative building projects since their lead times are pretty long as it is. 4. You can change your land usages much more fluidly.

Of course, without planning you get a city like Houston, but trust me, this city would be pretty ugly if you tried planning it also (see Dallas). What’s interesting is that in spite of much stronger zoning in California, the Los Angeles “urbanized area” (census term) is now the densest in America. While Manhattan is by far the most dense place in America, the rest of the LA suburbia is that much denser than the NY suburbia. I think the LA region has pushed the capability of little single-family box on a plot of land to its limits. The area needs to build UP and allow more units per acre of land, but unfortunately everybody (understandably) wants to protect their suburb and the high prices they paid for their house from the assumed negatives of higher density developments nearby.*

All that to say the market (I’m wildly guessing similar dynamics are happening out in your side of the world) is most likely working its damndest to alleviate the situation, but there may be land-use restrictions that are really screwing up the ability of corrective market forces to actually correct.

I really need to add that I am not against land-use restrictions, but California is in a situation where geography has constrains growth and regulation restricts growth upwards. I personally believe that we should absolutely cap sprawl (outward geographic growth), but let the market decide how dense and how high. It is wise to judiciously regulate how a city grows, but I would argue that it is inhumane to constrain building growth in all three X Y AND Z directions.

*extra snarky note: Unfortunately, the current Mayor of the City of Los Angeles throwing sweet land deals for his cronies in Downtown LA isn’t going to really help alleviate the situation either. Doesn’t necessarily hurt, but those mega-projects do little to alleviate the problem while sucking up all the attention and spare cash from City Hall.

This is the first analysis I’ve seen of the disastrous effects of the first home owners grant on housing affordability. I don’t believe it’s coincidental that the sharp rise in real house prices starts in 2000 when the FHOG was introduced. I was considering buying a house with a friend just before that, and overnight house prices in Canberra went up, not by $7,000 but by $70,000 or $140,000, based on the fact that the additional deposit available meant that deregulated mortgage lenders would count it as part of 10% or 5% deposit and increase the amount that they were willing to lend proportionally. This effectively put a house in Canberra or Sydney out of my reach, where it has remained ever since.

The Rudd government savings scheme is likely to be similarly disastrous. This plans to reward savings with a guaranteed high interest rate and allows them to save $50,000 over a four year period. The catch is that you can’t take advantage of this scheme for anything less than the four year period, with the result that four years from now there will be a lot of people attempting to enter the housing market with a $50,000 deposit. Unless there has been strong re-regulation of mortgage lenders by that time, I’d argue that we can expect housing prices to skyrocket as a result.