The future challenges to ACT Prosperity

Francois Dillinger said :

Reality does (and will) kick in at some point. People cannot pay 15 or 20 times more than their annual income for a property. There are other forces at play. Those who think house prices will continue to grow at 10, 15 or 20% pa in perpetuity are terribly misguided.

People aren’t paying 15 or 20 times income, and aren’t likely to be in the near future. It’s worth remembering that individual properties follow the local market, but do not rise or fall by the same proportion as the overall market. Well located property will generally outperform the overall property market. This is why investments can still work.

Of course, the market is toppy right now. But we are far more likely to have corrrection through stagnation than a crash.

EvanJames – dont be silly mate.
The ACT is suffering from a chronic land shortage that has nothing to do with the local govt.
We’re not like Hong Kong or the low areas of Holland where there is heaps of space. You couldnt swing a cat between Belco and the city, the city and Woden, Woden and Tuggeranong…

In truth the issue goes much further than the local government. As much as I love the old cheap point scored against this mob, in fairness they’re only perpetuating mismanagement that has gone on for as long as anyone cares to remember. The sad thing is that there is no way to correct it through the government. The shock will have to come from the market itself. The reason is as follows.

At Federation, the revenue raising powers (of the states/territories) were far greater under the Constitution. Over 100 years, the powers to raise funds has significantly diminished as power has centralised to the Fed government. By reading the powers down, the High Court has continually diminished the sources of income state/territory govts can legitimately draw upon. Although it is fair to say that the Cth govt provides more funding than ever for areas traditionally managed by state/territory govts, these govts still require some level of internally raised revenue. More and more this revenue is through taxes associated with properties.

By artificially constricting the supply of land (by intentionally not realising it when it should have), the government has caused Unimproved Value of land to rise. The UV figure determines the taxes. As a result, we have an artificial boom in Canberra. Any gov’t that comes to power could prick the bubble by releasing more land. However, therein lies the rub. For each disenchanted rioter complaining here about housing affordability, there are two or three who either own properties (or multiples thereof) and/or have their future inextricably linked to house values (via a mortgage that a bank would foreclose on if UV values collapsed).

As a result, the electorate would never support a gov’t in releasing more land (that is to say, releasing at an increased rate). In fairness, it is technically incorrect to refer to the Canberra situation as a ‘housing market’. Housing ‘junta’ or ‘clique’ would be more apt.

Reality does (and will) kick in at some point. People cannot pay 15 or 20 times more than their annual income for a property. There are other forces at play. Those who think house prices will continue to grow at 10, 15 or 20% pa in perpetuity are terribly misguided. The market will crash, and only once a lot of people have unecessarily suffered will we re-assess our approach. Allow another 40 years and…lather rinse repeat.

Zeitgeist is a wonderful thing, while it lasts.

It’s quite remarkable how the government has thrown its hands up and given up on housing. They sell paddocks to developers, who expect to make as much money as possible on every square inch of the paddock. I do not understand how younger people (both couples AND singles) can afford the houses they build and place on the market. Who has half a million dollars?

The situation seems to be driven by high population growth and low availability of housing. Someone is getting rich out of it but in the end, we’re all poorer from the knock on effects.