Page 891 - Week 03 - Wednesday, 2 April 2008
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I know that the Liberal Party thinks that this is an issue that is going to appeal to the electorate. However, if—as I suspect he will—the Liberal leader chooses to build his campaign on this issue, he is going to have to do more than simply wring his hands and bemoan the fact that housing prices have increased and that people are finding it harder to enter the property market.
There is no question that it is difficult to enter the housing market. Prices for both renting and purchasing properties have increased, and this is presenting a significant barrier for many people who are trying to purchase properties. However, expressing angst and concern and trying to whip up public fury does absolutely nothing to help these people. There is a need for some specifics.
If they want to address this problem, I want Mr Seselja and the opposition to answer a couple of basic questions for the people of Canberra. I am happy to talk about—as this MPI says—“the continuing decline in housing affordability in the ACT”. But at some stage we have to ask: what specifically is the Liberal Party solution? If it is to release more land, how much more land do they propose should be released? And, to continue that train of thought, how much are existing properties to be devalued? If we are going to release land in order to drive down the cost of houses, what is our target? What level of affordability is about right? In other words, what are the criteria by which we decide how much land to release? I have not heard any answers to these questions.
The idea that houses are too expensive is a rather intuitive notion that is built on the large increases in price that we have seen in this decade. These are above historical trends which have persisted since around the 1970s. If we are going to talk seriously about this issue, we need to have some idea of what we think is too expensive. The scarcity of resources, land availability and the labour required to build housing means that houses will be a rather large investment. The family home remains most people’s greatest asset, and I believe that this will probably always be the case. Again, we need greater specificity on what our goal is and how much land we need to release to do this.
This is especially important given that a great many people rely on the existing equity in their homes as a means of securing debt either for the home loan used to purchase the property in the first place or as a means to invest in other assets for their future security and prosperity. Those familiar with the home loan market know that home buyers who hold less than 20 per cent of the equity in their home are generally required by their loan contract to purchase mortgage insurance, which can be a substantial additional cost on top of mortgage payments.
If the government were to flood the market with land in an effort to combat problems with housing affordability, there could, indeed, be a drastic reduction in the cost of housing. In such a case, many people who purchased property before the drop in prices could find themselves with significant equity problems. This is what we have seen in the United States. Many will face additional costs for mortgage insurance. Certainly their lenders will be eager to take whatever steps they can to ensure that they have adequate security, and this could impose further costs. It is already happening in the commercial sector in Queensland, where banks are expecting clients
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