‘Supply, supply, supply’: you’re hearing it more and more

Housing supply and economic illiteracy are solvable problems

‘Supply, supply, supply’ was how RBA Governor Philip Lowe accurately characterised the issue of housing affordability in an appearance before Senate Estimates this week. National dwelling prices rose another 0.3% in May and are 31.4% higher than they were at the onset of the pandemic in March 2020:

The AFR got aboard the YIMBY train this week, with an excellent feature article by former RBA economist Tony Richards, How to solve Australia’s housing crisis. This follows hot on the heels of Shane Wright’s series on housing affordability in a related masthead. The AFR also featured Auckland’s experience with supply-side liberalisation, which has otherwise received very little attention from local media. Australia’s housing affordability debate has always suffered from a heavy amount of parochialism. Sadly, these New Zealand reforms are now at risk of being reversed by the National Party and ACT, so the supply-side liberation struggle remains ongoing in that jurisdiction.

There is a discernible shift in elite opinion in Australia in favour of recognising the role of supply-side restrictions in driving higher housing costs. I can recall a major feature story on housing affordability by a prominent journalist a decade ago that did not mention the word ‘supply’ once. The shift in sentiment partly reflects overwhelming empirical evidence and an academic consensus on the issue that is slowly cutting through.

The NSW Productivity Commission had a good report out this week highlighting the massive new dwelling construction task ahead of us. The median dwelling price in Sydney, where I live, is now just above $1 million (that includes units). Chronic shortages are characteristic pathologies of central planning and the long queues at open for inspections for rental properties across Australia are perfectly analogous to the bread lines in the former Soviet Union. This is a massive failure of public policy and an economic and social disaster that dwarfs most other problems.

Yet supply-side denialism is a hardy weed that remains well entrenched in some quarters, especially among those reluctant to acknowledge the role of government failure. The simple reality is that the supply of new residential land and dwellings in Australia is completely determined by regulation.

Supply-side denialism is largely built around the whataboutism of various demand-side scapegoats for government failure. In no particular order, these are: negative gearing; capital gains tax concessions; domestic investors; foreigners (who accounted for 0.75% of residential property sales in 2021-22); financialisation; and migrants. Note the parochialism that assumes that country-specific tax provisions explain a phenomenon seen across the Anglo-American world.