January 15, 2017

Horse 2211 - What Housing Affordability Crisis?

Apparently we have a housing affordability crisis in Sydney.  Ha ha ha ha, hee hee hee hee, hoo hoo hoo hoo, ha!
Oh, tell me when it's all over. That's so funny that my sides have split and I'm going to need surgery to stitch it all back together. Housing affordability crisis in Sydney. Yeah right.

Time for a basic economics lesson.

You can survey everyone in a market and work out how much of a particular good or service that they are willing to buy at a particular price. I probably am willing to buy a Mars Bar for $1, I might even buy two if they were 75 cents a piece; I'm almost certain not to buy one at all for $2 and although you'd think I might buy three if they were only 50 cents each, I can't eat three Mars Bars at once. If you were to take a million people who are sort of like me but with slightly different preferences on quantity of price and number demanded, then you can graph all of everyone's preferences and you'll get a curve that slopes downwards from left to right.
Likewise, if you take all of the various businesses who sell similar or identical products or services, in this case Mars, Titan, Moro, Milky Way from the USA etc. then you can also graph the preferences on quantity and price supplied and that curve slopes upwards from left to right.
The intersection of where the two curves meet is where the price and quantity demanded and supplied are in agreement and when you have somewhere where a buyer and seller agree with each other, a deal is done. We call this an equilibrium point because economists like to sound more impressive than they really are and numbers makes it sound more scientific even though deals between people are often irrational and nonsensical.

It would make sense therefore if you want to radically alter the price price of a good or a service, then either you need to do something which is radically going to push either the supply or demand curves around. The demand curve for ice cream is markedly different from winter to summer as just about everyone wants ice cream at the same time in summer but nobody really does in winter. You can radically alter the supply curve for something by inventing some new technological process to make it, like automating your production line or finding a workforce who will work for a fraction of what you pay your current workers (hence the reason why cars will no longer be built in Australia beyond October) or you can radically change the kinds of suppliers to the marketplace (think Über and its entry into the taxi industry by flaunting regulations and abrogating responsibility to their workers).

So it goes with housing affordability and rental costs. The rental market is very much linked to the cost of housing and what we've seen, especially in the last few years is what I think is a deliberate shift away from the provision of public housing, specifically so that rental yields will rise and landlords will make more money.

Just like any market for goods and services, if you want to radically alter the price price of a good or a service, then either you need to do something which is radically going to push either the supply or demand curves around and in this case, the NSW State Government is intent on vastly cutting the supply with it currently brings to the market.

If we compare the figures from 2013 to 2016, then something stark is revealed:
http://www.smh.com.au/nsw/waiting-list-for-social-housing-to-blow-out-by-2016-20130731-2qy9t.html
About 214,000 people are currently living in public housing in NSW, with a further 120,000 people – or 55,000 households or applicants – on the waiting list.
- Sydney Morning Herald, 31st Jul 2013.

http://www.smh.com.au/nsw/shakeup-looms-for-lowincome-housing-rents-20161126-gsydmz.html
The majority of the 140,000 NSW residents who live in social housing – either managed by the government or by community providers – pay 25 per cent of their income in rent.
- Sydney Morning Herald, 28th Nov 2016.

The number of people living in public housing fell from 214,000 to 140,000; which is roughly a 34% decrease. In any other market, a 34% decrease in the supply of that good would be cause for serious concern and in some sensitive markets, might even result in government intervention. Public housing though appears to be different.

Where did those public housing tenants go? Well, if you are the NSW State Government, who cares? Please go away; preferably die so that we don't have to house you any more.

http://www.smh.com.au/business/the-economy/the-government-says-it-has-a-plan-to-fix-the-housing-affordability-crisis-this-chart-suggests-it-doesnt-20160902-gr7sbz.html
"The most effective way we can tackle housing affordability is to increase supply," NSW Treasurer Gladys Berejiklian has said on numerous occasions, including in a statement to Fairfax Media this week.
- Sydney Morning Herald, 5th Sep 2016.

I would agree with that statement by NSW Treasurer Gladys Berejiklian. It's just a pity that the government that she is part of, has made a concerted effort to do precisely the opposite.

http://www.smh.com.au/nsw/demand-for-public-housing-grows-as-government-sells-homes-20141115-11nc5z.html
The NSW government has demolished or sold about 6000 properties in the past four years, as its bill for repairs rises towards half a billion dollars.
In the same period, the number of new homes the government builds each year has more than halved,  to 440 in the past financial year.
- Sydney Morning Herald, 15th Nov 2014.

How pray tell do you increase the supply of public housing by demolishing or selling public housing? At the same time, the plan is to effectively privatise public housing in the same way that the NSW State Government seems bent of privatising everything else in this ungrateful state.

http://www.smh.com.au/comment/the-great-public-housing-fire-sale-continues-despite-worsening-affordability-crisis-20160422-god8ih.html
The government would fund a boost in social housing by selling estate land to private developers, who would turn sites into mixed communities with a 70:30 ratio of private residents to social housing tenants.
- Sydney Morning Herald, 5th Sep 2016.

I also ask you, how does selling estate land to private developers guarantee any increase in the supply of affordable housing? Forgive me if I'm being terribly naive here but aren't private developers mainly concerned with turning a profit? Isn't the whole point of providing public housing to give people somewhere to live because the rents are too high and at the same time, undercut the market rate of housing so that the entire market is pulled down in an effort to compete? When governments intervene in the housing market by providing housing at cheaper rates, landlords in an effort to complete will charge lower rents but if the government steps out of that market, which it appears to be doing, then the incentive for private developers and landlords to provide cheaper housing disappears.

The Premier, Mike Baird, is the Member for Manly. The Treasurer, Gladys Berejiklian, is the Member for Willoughby. The Minister for Social Housing, Brad Hazzard, is the Member for Wakehurst. To be honest, I seriously doubt if any of these people has even met anyone who lives in public housing. These people live in electorates where the average house price is all over $1.5 million and the average income is over $150,000. Their electorates do not, can not and refuse to sympathise or empathise with the housing affordability problem and that very much explains why the NSW State Government doesn't either. Why should it? The issue won't get the re-elected.

There's a housing affordability crisis? What housing affordability crisis? Housing is not the problem, it's all those stinking poor people that need to be housed that are the problem.

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