Friday, December 15, 2006

More on "End of Australian Dream: Bring it on?


by Wendell Cox

Elizabeth Farrelly of the Sydney Morning Herald may have revealed the ultimate urban consolidation (smart growth or anti-suburban) agenda in a December 13 column entitled The End of the Great Australian Dream Cannot Come Soon Enough. The Great Australian Dream is the "down under" equivalent of the American Dream of home ownership. Farrelly is clearly outside the mainstream of Australian thought on the issue of home ownership, though may well be expressing the views of many in the urban planning community.

Home Ownership and the Democratization of Prosperity

In Australia, as in the United States, Western Europe, Canada, New Zealand and Japan, the suburbanization for which Ms. Farrelly and those of her ilk have such contempt has been associated with the greatest expansion of broadly distributed wealth in the history of the world. In short, for the first time, prosperity has been democratized.

Before World War II, most people in these countries lived in conditions that would qualify as poverty by today's standards. The less expensive houses built on suburban land made it possible for millions of households in Australia (and elsewhere in the high income world) to enter the mainstream of economic life. Instead of paying rent to landlords, they paid down their mortgages and accumulated equity. Their cars gave them access to employment virtually everywhere in the urban area, instead of to the few locations where there were decent mass transit connections. Australia would be a poorer nation today if its home ownership rate were at the 40 percent pre-war level instead of the current 70 percent.

Australia: Broad Consensus in Favor of Home Ownership

Home ownership has strong support throughout Australia. Through the years, the federal and state governments have enacted a number of plans to make it easier for people to buy their own homes.

Wealth Destroying Urban Consolidation (Smart Growth)

PoliciesHowever, problems have developed, as urban planning interests sharing Farrelly's views have taken control of land use policy in the states. The culprit is urban consolidation policies (called smart growth in the United States) and related urban planning policies. These have created severe land shortages in all Australia's state capitals, as state governments have banned development in large areas or allowed development only at rates that are much less than the demand. Of course, this rationing has led to much higher prices for housing, as land prices have skyrocketed. Before urban consolidation, land in Sydney accounted for one-third of the cost of a new house. Today land accounts for more than three-quarters of the cost. In contrast, the cost of constructing a house has barely changed over the same time (inflation adjusted).

The irony is that this government stinginess in land is in a country with less than 0.25 percent of its land in urban development. It is laughable that there should be a shortage of land in Australia. The land shortage exists only because of government contrivance, which has occurred because there is a shortage of economic understanding among planners and politicians.

The price of the median house in Sydney and Perth has risen to approximately three times the those of many US and Canadian urban areas, including fast growing as Atlanta, Dallas-Fort Worth and Houston. A typical Sydney or Perth household can expect to pay 10 years more of their earnings to buy a house than a household in Atlanta, Dallas-Fort Worth or Houston (including additional mortgage interest charges). The cost inflation has been experienced throughout the nation. Median house prices in Melbourne, Brisbane, and Adelaide are more than double the prices relative to incomes in Atlanta, Dallas-Fort Worth and Houston.

In short, state government urban consolidation (smart growth) and urban planning policies have destroyed housing affordability throughout Australia. The same situation has occurred in some Canadian and US markets, such as Vancouver, San Diego, San Francisco-San Jose and Portland. However, many markets in both countries continue to have housing affordability ratios consistent with historic norms, with a median multiple of 3.0 or less (median house price divided by median household income). All of this seems likely to place a drag on the Australian economy in the longer run.

"End of the Australian Dream: Bring it On?"

In a rant bubbling over with elitism, Ms Farrelly dismisses Sydney's suburban houses as chook (chicken) shacks. She concludes with "End of the Australian Dream? Bring it on." Ms. Farrelly may have emerged as the "Marie Antoinette" of urban consolidation or smart growth. "Let them eat cake" is her message and it appears to be the message (wittingly or unwittingly) of those who favor urban consolidation (smart growth).

Farrelly's prescriptions will mean fewer homeowners in the future, less household equity (wealth) and more money paid to landlords. Even those households lucky enough to purchase their own homes will find their lifetime purchasing power eroded by hundreds of thousands of dollars just to pay the artificially inflated housing prices that are the result of urban consolidation and smart growth. This will mean that, for the first time in decades, middle and lower income households are likely to live at a lower standard of living than before.

The Issue: Home Ownership, Not Urban Form

However, there may be a silver lining. Ms. Farrelly provides a welcome call to changing the terms of debate. The issue is home ownership, not urban planning.

Until recent years, the principal issues surrounding urban consolidation and smart growth were about cities, their shape and form. More recently, especially in Australia, the issue has become housing affordability, with the then Reserve Bank Governor, Prime Minister, Treasurer and other public officials pointing to land supply restrictions as the culprit. Now, Ms. Farrelly puts the issue squarely where it belongs --- home ownership.

Farrelly's opposition to home ownership message may be shared with some urban planners and some residents of eastern Sydney's luxury high-rise condominiums. However, few in politics and few in the real world share this elitist view. As a result, opposition to home ownership is electoral suicide in most constituencies.

Now comes Elizabeth Farrelly, saying that less home ownership would be better. That is exactly the issue that should be the focus of public discourse.

These issues are discussed in greater detail in my new book War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life
International housing affordability data for 100 urban areas is provided by the Second Annual Demographia International Housing Affordability Survey . -- Wendell CoxDemographia Wendell Cox Consultancy - St. Louis Missouri-Illinois metropolitan regionVisiting Professor, Conservatoire National des Arts et Metiers, Paris +1.618.632.8507 +

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