There is an interesting upcoming online debate on measures designed to improve housing affordability among young economists on Thursday 16 September 2021, to be hosted by the Young Economists Network of the Economic Society of Australia (ESA). Here’s the blurb:
‘Given the better than expected economic recovery within the Australia housing sector in recent months, should the Federal Government look to implement measures (including those of a policy, regulatory, etc. nature) to lower the volume of new investment housing loans/credit to help improve housing affordability and assist in the achievement of more equitable housing and overall economic outcomes?’
This is an important topic given the strong growth in house prices we’ve seen since the end of 2020, and which have defied early predictions of a big pandemic-related crash in property prices (see chart below prepared by Adept Economics Research Officer Ben Scott). This growth is occurring in both capital cities and regional areas, which are attracting new residents seeking a “sea change” or “tree change” or realising they can now work remotely and buy cheaper properties than in capital cities.
Figure 1. Median property prices in Australian capital cities and regions, January 2020 – August 2021, CoreLogic estimates
The blurb for the event suggests the focus of debate will be on so-called macro-prudential measures to limit the growth of credit, particularly to property investors. Tim Lawless at CoreLogic has a recent post on the potential impact of such measures:
The impact of macro-prudential policies on the housing market
That we’d need to consider such an interventionist approach is a consequence of the RBA continuing to ignore the inflation of asset prices in its monetary policy decision making and its continuation of Quantitative Easing (QE) by which the RBA creates new money to buy bonds. There is a risk the RBA’s current monetary policy experiment ends badly eventually, in a repeat of the high inflation of the seventies and eighties, although the current downturn will probably prevent that happening anytime soon. The RBA seems unwilling to consider asset prices, including property prices, in its monetary policy decision making, and hence macro-prudential measures are once again under consideration.
Finally, I should also note that any discussion of housing affordability should consider various restrictions on housing supply (e.g. heritage and zoning rules) that increase the cost of housing. In his CIS Policy Paper, Planning restrictions harm housing affordability, CIS Chief Economist Peter Tulip observes:
Planning restrictions are estimated to raise house prices 73 per cent above these costs in Sydney, 69 per cent in Melbourne, 42 per cent in Brisbane and 54 per cent in Perth.
Of course, as with many economic policy issues, there is extensive debate about the influence of planning restrictions (e.g. see Cameron Murray’s article Land Banking: red tape and a dearth of housing supply are a myth). Peter Tulip acknowledges this in his CIS paper, noting that relaxing planning restrictions wouldn’t have much of an impact in the short-run, although it would have a substantial impact in the long-run. Peter observes that:
A shortage that was created by decades of under-building will take decades to unwind.
If these issues interest you, then I expect the ESA young economists debate will be worthwhile to watch.
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