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Quarterly Essay #92
The Great Divide: Australia's Housing Mess and How to Fix It
What caused Australia's housing crisis -- and how we might fix it
One of the great mysteries of Australian life is that a land of sweeping plains, with one of the lowest population densities on the planet, has a shortage of land for houses. As a result, Sydney is the second most expensive place to buy a house on Earth, after Hong Kong.
The escalation in house prices is a pain that has altered Australian society; it has increased inequality and profoundly changed the relationship between generations -- between those who have a house and those who don't. It has caused a rental crisis, a dearth of public housing and a mortgage crunch.
Things went seriously wrong at the start of the twenty-first century, when there was a huge and permanent rise in the price of housing. In this crisp, clarifying and forward-looking essay, Alan Kohler tells the story of how we got into this mess -- and how we might get out of it.
"The growth in the value of Australian land has fundamentally changed society, in two ways. First, generations of young Australians are being held back financially by the cost of shelter, especially if they live somewhere near a CBD and especially in Sydney or Melbourne; and second, the way wealth is generated has changed. Education and hard work are no longer the main determinants of how wealthy you are; now it comes down to where you live and what sort of house you inherit from your parents. It means Australia is less of an egalitarian meritocracy." Alan Kohler, The Great Divide
One of the great mysteries of Australian life is that a land of sweeping plains, with one of the lowest population densities on the planet, has a shortage of land for houses. As a result, Sydney is the second most expensive place to buy a house on Earth, after Hong Kong.
The escalation in house prices is a pain that has altered Australian society; it has increased inequality and profoundly changed the relationship between generations -- between those who have a house and those who don't. It has caused a rental crisis, a dearth of public housing and a mortgage crunch.
Things went seriously wrong at the start of the twenty-first century, when there was a huge and permanent rise in the price of housing. In this crisp, clarifying and forward-looking essay, Alan Kohler tells the story of how we got into this mess -- and how we might get out of it.
"The growth in the value of Australian land has fundamentally changed society, in two ways. First, generations of young Australians are being held back financially by the cost of shelter, especially if they live somewhere near a CBD and especially in Sydney or Melbourne; and second, the way wealth is generated has changed. Education and hard work are no longer the main determinants of how wealthy you are; now it comes down to where you live and what sort of house you inherit from your parents. It means Australia is less of an egalitarian meritocracy." Alan Kohler, The Great Divide
161 pages, Kindle Edition
Published November 27, 2023
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273 people want to read
About the author
Alan Kohler
13 books4 followersAlan Kohler is finance presenter on ABC News and a columnist for The New Daily. A former editor of The Age and The Australian Financial Review, he founded the Eureka Report and has written for The Australian, AFR, The Age and The Sydney Morning Herald. His books include It's Your Money.
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Displaying 1 - 30 of 113 reviews
November 28, 2023
We are so fucked.
December 3, 2023
Alan Kohler’s lucid, clear-eyed exposition of Australia’s “housing mess” and how it came to be reads easily and, with assurance and clarity, leads the reader through complex matters. “Housing is not welfare”, he instructs us with confidence, “it’s an economic right.”
With this aspect of Kohler’s essay I have no argument, and although I have an admonition with the “how to fix it” that follows, I believe the essay as a whole deserves top points.
My caveat concerns the matter of urban infill. As Mr Kohler admits (p. 83) “[T]he effort to squeeze more housing into a 50-kilometre radius from the CBD is really just an effort to avoid the cost of infrastructure. ... It will never actually happen. What’s needed is transport infrastructure.” He’s right ... fast trains will go a long way. Nevertheless, he allows that urban infill may, in some degree, be part of the solution.
I don’t think so.
My wife and I live in Perth’s northern suburbs, and the area around us has been re-zoned. We are in our seventies and not in good health. Our situation is now so unpleasant ― traumatic! ― we are seriously considering selling and moving.
The suburban houses around us ― Howard Arkley classics ― are being demolished (their mature shade trees removed) and replaced by two or three dwellings that fill the smaller blocks. A lot of us grew up in homes (bungalows, mostly) like those being trashed and now they are going, going, almost gone. In my suburb, in less than fifty years!
It is my contention that, apart from the immediate botheration, such sub-urban infill creates a bigger problem than it purports to solve, and that ― listen now, this is the nitty-gritty ― urban sprawl can and should be addressed in a different, more effective way.
People rarely understand any situation, even a dreadful one, without the retrospect of history. By the time it’s clear what’s going on, it is usually too late. Is it really necessary that valuable, essential things can be understood only in failure?
It amazes me that people who ought to know better are touting this Infill Development (sic) as environmentally responsible. How can they, by any standard of intellectual honesty, twist language and logic so utterly? Have they all plunged head-first into the pockets of property developers?
Or is it us, the complacent bystanders, who are the real boofheads?
There can be no future ‘I didn’t know’ excuses for any of us. Pay attention: the science on this is in.
It is worth noting, in passing, that Perth was founded by the symbolic act of cutting down a tree. With a real axe on a real tree.
It is not only Perth’s leafy-green, garden suburbs that are up to 6C degrees cooler than those of fence-to-fence roof and paving. Perth’s tree cover may be the worst for a state capital, but similar figures have been recorded elsewhere in Australia, in North America and Europe. This is the well-documented urban heat island effect. Scientific fact: concrete, tarmac and a lack of shade greenery raise temperatures, imposing financial costs and heat-related deaths. What a surprise!
This situation creates a cascade of deterioration. In Perth, and increasingly elsewhere, large houses (with low ceilings) on small lots are uninhabitable without air-conditioners, which require the generation of more electricity and pump even more hot air over all of us. This is just pouring gasoline on the fire.
Even before urban infill, Perth was getting seriously warmer and seriously drier. Over the last fifty or so years the region’s rainfall has declined by twenty per cent. As well as expensively desalinated seawater, we are drinking the ground water and the snakes come out earlier and livelier every year.
I see someone in Sydney, acknowledging the heat island effect, suggested combating it by building more fountains and urban water features. This may be useful while we have ‘flooding rains’, but Dorothea Mackellar also mentioned droughts.
Remember when we grew fruit and vegetables, and ran chooks, in our backyards? The negligible backyards appearing in my suburb are so close there will be passive smoking issues between neighbors. I kid thee not.
Where do all those demolished houses go? Is the rubble ― the infill ― dumped in a ‘useless’ swamp to become the ground for a new suburb? Apparently so.
At least the Royal Institute of British Architects recognize a scientific brick when it hits them between the eyes. They say we should refurbish old buildings rather than scrap them, because of the pollution involved in constructing a replacement building, otherwise known as embodied carbon.
I mention the British Architects to remind you that what I am saying about my backyard applies elsewhere. This means you, pretty well wherever you are in whoop-whoop land.
It is said that inner city and suburban infill are intended to shape what is happening at a city’s outskirts, to take pressure off urban expansion into adjoining farm, grass and bush lands. Even so, some new outskirts suburbs are still required. What I find crazy is that these new suburbs are built in the same manner ― crowded, fence-to-fence houses ― as now blights my neighborhood. They are urban heat islands being built from scratch.
This is where we can and need to do things differently.
Suppose we are presently building about 30 houses per hectare. Suppose we put 36 apartments (single through to three-bedroom) in a six or seven-storey high-rise block. Suppose, with generous parking and service space, that building occupies about half a hectare.
Just suppose ....
Twenty per cent more people on half the land they presently occupy. We’ll get to that spare half hectare shortly.
Whereas tower blocks are more or less accepted for inner city or even suburban re-development (where they probably do more harm than good), in this country they are rarely considered for the new suburbs on the urban fringe.
We could rehearse the reasons high-rise accommodation is regarded as inferior in Australia, but let us cut to the chase by acknowledging the plain fact that for most of the world it does the job. Properly built, maintained and managed, tower blocks do the job. Plain fact; no argument.
We have, let’s face it, a lot to learn here. Properly built apartment blocks ... in Australia! Pass the salt.
In recent years, mostly overseas, we have seen tower blocks considerably enhanced by basic innovations. We don’t need to go as far as rebuilding Milan’s Bosco Verticale to have a garden tower with vegetated balconies. And we can turn our towers into very efficient (perhaps even autonomous) solar & wind power units.
Tower blocks could also, in some cases, be a place of relative safety for those residents caught on recently activated flood plains. As with the classic Queenslander, you raise the whole structure on stumps, keeping the ground level clear to allow water to pass beneath the inhabited floors. Better yet, put the whole thing on a raised pad.
And that spare half hectare of vacant ground?
It opens out by connecting with the adjoining blocks’ like-sized parcels of undeveloped land.
Although we have put more people on half the land they would have otherwise occupied, it is most important that the ‘empty’ acreage not be cribbed ― sports and recreational reserves are designated a part of the urban area.
Rather than encroaching on the countryside, we are bringing the countryside into town. Taking care not to create too great a fire hazard, we should leave it as grass, trees and scrubby shrubs. The birds will have places to nest, while the lizards and, yep, the snakes will get a wriggle on and thrive.
As they should.
With this aspect of Kohler’s essay I have no argument, and although I have an admonition with the “how to fix it” that follows, I believe the essay as a whole deserves top points.
My caveat concerns the matter of urban infill. As Mr Kohler admits (p. 83) “[T]he effort to squeeze more housing into a 50-kilometre radius from the CBD is really just an effort to avoid the cost of infrastructure. ... It will never actually happen. What’s needed is transport infrastructure.” He’s right ... fast trains will go a long way. Nevertheless, he allows that urban infill may, in some degree, be part of the solution.
I don’t think so.
My wife and I live in Perth’s northern suburbs, and the area around us has been re-zoned. We are in our seventies and not in good health. Our situation is now so unpleasant ― traumatic! ― we are seriously considering selling and moving.
The suburban houses around us ― Howard Arkley classics ― are being demolished (their mature shade trees removed) and replaced by two or three dwellings that fill the smaller blocks. A lot of us grew up in homes (bungalows, mostly) like those being trashed and now they are going, going, almost gone. In my suburb, in less than fifty years!
It is my contention that, apart from the immediate botheration, such sub-urban infill creates a bigger problem than it purports to solve, and that ― listen now, this is the nitty-gritty ― urban sprawl can and should be addressed in a different, more effective way.
People rarely understand any situation, even a dreadful one, without the retrospect of history. By the time it’s clear what’s going on, it is usually too late. Is it really necessary that valuable, essential things can be understood only in failure?
It amazes me that people who ought to know better are touting this Infill Development (sic) as environmentally responsible. How can they, by any standard of intellectual honesty, twist language and logic so utterly? Have they all plunged head-first into the pockets of property developers?
Or is it us, the complacent bystanders, who are the real boofheads?
There can be no future ‘I didn’t know’ excuses for any of us. Pay attention: the science on this is in.
It is worth noting, in passing, that Perth was founded by the symbolic act of cutting down a tree. With a real axe on a real tree.
It is not only Perth’s leafy-green, garden suburbs that are up to 6C degrees cooler than those of fence-to-fence roof and paving. Perth’s tree cover may be the worst for a state capital, but similar figures have been recorded elsewhere in Australia, in North America and Europe. This is the well-documented urban heat island effect. Scientific fact: concrete, tarmac and a lack of shade greenery raise temperatures, imposing financial costs and heat-related deaths. What a surprise!
This situation creates a cascade of deterioration. In Perth, and increasingly elsewhere, large houses (with low ceilings) on small lots are uninhabitable without air-conditioners, which require the generation of more electricity and pump even more hot air over all of us. This is just pouring gasoline on the fire.
Even before urban infill, Perth was getting seriously warmer and seriously drier. Over the last fifty or so years the region’s rainfall has declined by twenty per cent. As well as expensively desalinated seawater, we are drinking the ground water and the snakes come out earlier and livelier every year.
I see someone in Sydney, acknowledging the heat island effect, suggested combating it by building more fountains and urban water features. This may be useful while we have ‘flooding rains’, but Dorothea Mackellar also mentioned droughts.
Remember when we grew fruit and vegetables, and ran chooks, in our backyards? The negligible backyards appearing in my suburb are so close there will be passive smoking issues between neighbors. I kid thee not.
Where do all those demolished houses go? Is the rubble ― the infill ― dumped in a ‘useless’ swamp to become the ground for a new suburb? Apparently so.
At least the Royal Institute of British Architects recognize a scientific brick when it hits them between the eyes. They say we should refurbish old buildings rather than scrap them, because of the pollution involved in constructing a replacement building, otherwise known as embodied carbon.
I mention the British Architects to remind you that what I am saying about my backyard applies elsewhere. This means you, pretty well wherever you are in whoop-whoop land.
It is said that inner city and suburban infill are intended to shape what is happening at a city’s outskirts, to take pressure off urban expansion into adjoining farm, grass and bush lands. Even so, some new outskirts suburbs are still required. What I find crazy is that these new suburbs are built in the same manner ― crowded, fence-to-fence houses ― as now blights my neighborhood. They are urban heat islands being built from scratch.
This is where we can and need to do things differently.
Suppose we are presently building about 30 houses per hectare. Suppose we put 36 apartments (single through to three-bedroom) in a six or seven-storey high-rise block. Suppose, with generous parking and service space, that building occupies about half a hectare.
Just suppose ....
Twenty per cent more people on half the land they presently occupy. We’ll get to that spare half hectare shortly.
Whereas tower blocks are more or less accepted for inner city or even suburban re-development (where they probably do more harm than good), in this country they are rarely considered for the new suburbs on the urban fringe.
We could rehearse the reasons high-rise accommodation is regarded as inferior in Australia, but let us cut to the chase by acknowledging the plain fact that for most of the world it does the job. Properly built, maintained and managed, tower blocks do the job. Plain fact; no argument.
We have, let’s face it, a lot to learn here. Properly built apartment blocks ... in Australia! Pass the salt.
In recent years, mostly overseas, we have seen tower blocks considerably enhanced by basic innovations. We don’t need to go as far as rebuilding Milan’s Bosco Verticale to have a garden tower with vegetated balconies. And we can turn our towers into very efficient (perhaps even autonomous) solar & wind power units.
Tower blocks could also, in some cases, be a place of relative safety for those residents caught on recently activated flood plains. As with the classic Queenslander, you raise the whole structure on stumps, keeping the ground level clear to allow water to pass beneath the inhabited floors. Better yet, put the whole thing on a raised pad.
And that spare half hectare of vacant ground?
It opens out by connecting with the adjoining blocks’ like-sized parcels of undeveloped land.
Although we have put more people on half the land they would have otherwise occupied, it is most important that the ‘empty’ acreage not be cribbed ― sports and recreational reserves are designated a part of the urban area.
Rather than encroaching on the countryside, we are bringing the countryside into town. Taking care not to create too great a fire hazard, we should leave it as grass, trees and scrubby shrubs. The birds will have places to nest, while the lizards and, yep, the snakes will get a wriggle on and thrive.
As they should.
December 8, 2023
Anyone who has lived in Australia for a significant time will tell you that real estate prices are one of the favourite talking points at middle class dinner parties. We sit around and marvel about what the next door neighbour’s house just sold for and feel quietly smug about our escalating wealth (on paper).
Now, veteran journalist Alan Kohler has cooly and painstakingly sought in an extended essay to explain why Australians became so obsessed with housing and how real estate values here have become so far out of whack with those in most other developed economies.
As Kohler explains, servicing an average home loan for most of the country’s history accounted for three to four times average earnings. But since the turn of the century, that has blown out to seven to eight times. For anyone born after the mid-1980s, housing is now completely out of reach.
Younger people can bridge the gap only by tapping into the ‘Bank of Mum and Dad’, the boomers and older Gen-X couples who have ridden the ladder upwards to the point that they are multi-millionaires on paper.
What changed around the year 2000 is what Kohler seeks to explain in this essay. Much of it came down to the Howard-Costello government, who applied a 50% discount on capital gains tax for individuals and liberalised immigration under pressure from business lobbies. But it was also due to overly restrictive zoning laws that made medium-density developments virtually impossible. Attempts to help first home buyers into the market with government grants only inflated prices further.
The result is that an entire generation is priced out of not only owner-occupied housing but rental property as well. With about 65% of Australians owning their own homes - and unwilling to see prices fall - politicians of both sides are loathe to do anything to address the problem. It’s simple electoral arithmetic.
Except many of us with children priced out of the market are seeing the long-term consequences of exorbitant prices in the form of growing inequality, social division and the rise of populist, racist politics.
Kohler recognises the political difficulty of effective change, but says some measures are doable - such as sensibly reducing immigration, investing in infrastructure (to make commuting from satellite towns easier), and cutting first homebuyer subsidies. But the big one - restricting negative gearing to new housing and reducing the capital gains tax discount - would undoubtedly lead to a fear campaign by the conservative side of politics.
Anyone perplexed about Australia’s insane housing market needs to read this essay.
Now, veteran journalist Alan Kohler has cooly and painstakingly sought in an extended essay to explain why Australians became so obsessed with housing and how real estate values here have become so far out of whack with those in most other developed economies.
As Kohler explains, servicing an average home loan for most of the country’s history accounted for three to four times average earnings. But since the turn of the century, that has blown out to seven to eight times. For anyone born after the mid-1980s, housing is now completely out of reach.
Younger people can bridge the gap only by tapping into the ‘Bank of Mum and Dad’, the boomers and older Gen-X couples who have ridden the ladder upwards to the point that they are multi-millionaires on paper.
What changed around the year 2000 is what Kohler seeks to explain in this essay. Much of it came down to the Howard-Costello government, who applied a 50% discount on capital gains tax for individuals and liberalised immigration under pressure from business lobbies. But it was also due to overly restrictive zoning laws that made medium-density developments virtually impossible. Attempts to help first home buyers into the market with government grants only inflated prices further.
The result is that an entire generation is priced out of not only owner-occupied housing but rental property as well. With about 65% of Australians owning their own homes - and unwilling to see prices fall - politicians of both sides are loathe to do anything to address the problem. It’s simple electoral arithmetic.
Except many of us with children priced out of the market are seeing the long-term consequences of exorbitant prices in the form of growing inequality, social division and the rise of populist, racist politics.
Kohler recognises the political difficulty of effective change, but says some measures are doable - such as sensibly reducing immigration, investing in infrastructure (to make commuting from satellite towns easier), and cutting first homebuyer subsidies. But the big one - restricting negative gearing to new housing and reducing the capital gains tax discount - would undoubtedly lead to a fear campaign by the conservative side of politics.
Anyone perplexed about Australia’s insane housing market needs to read this essay.
December 17, 2024
A concise overview of Australia's housing crisis that touches on the history of housing, demand and supply side issues, and then concludes with some solutions. The conversational tone of the essay kept it very engaging throughout, and definitely provides much food for thought!
I thought that the paradox of how Australians view land as both abundant and scarce enough for speculation was quite interesting, and found the discussions on the lack of Fannie Mae/ Freddie Mac/ Ginnie Mae equivalents particularly insightful. Without a federally assured guarantee (and provision of liquidity) to banks for offering 30 year fixed rate mortgages, we are left with a severe mortgage-cliff phenomenon that cripples repayments.
Public housing shortages, Australia's crowded sprawl that lacks medium-density housing, and state and local government influence were explored as supply problems, while capital gains tax and negative gearing, first home buyer grants, and low interest rates and the sharemarket bust as demand boosters.
The solutions were underpinned by a need to return the housing affordability ratio back to 3 or 4x average weekly earnings, with the more realistic argument of ensuring house prices stay constant while income is allowed to catch up over an 18 year period. Some proposed methods of achieving this include limiting negative gearing, increasing capital gains tax, linking immigration to 2 to 2.5x the capacity of the construction industry, mandating a local government quote of medium-density housing approvals, and increasing the cost of holding land, but Kohler's preferred strategy is to invest in "fast, efficient commuting trains that allow dormitory suburbs to be developed further from the CBD".
How we go about disentangling the idea of housing as the main form of wealth creation from the national psyche will be an interesting one to observe over the coming years. Till then, we are left with this calamitous paradox of Australia being one of the three least populated countries in the world, but simultaneously containing the world's second most expensive housing.
I thought that the paradox of how Australians view land as both abundant and scarce enough for speculation was quite interesting, and found the discussions on the lack of Fannie Mae/ Freddie Mac/ Ginnie Mae equivalents particularly insightful. Without a federally assured guarantee (and provision of liquidity) to banks for offering 30 year fixed rate mortgages, we are left with a severe mortgage-cliff phenomenon that cripples repayments.
Public housing shortages, Australia's crowded sprawl that lacks medium-density housing, and state and local government influence were explored as supply problems, while capital gains tax and negative gearing, first home buyer grants, and low interest rates and the sharemarket bust as demand boosters.
The solutions were underpinned by a need to return the housing affordability ratio back to 3 or 4x average weekly earnings, with the more realistic argument of ensuring house prices stay constant while income is allowed to catch up over an 18 year period. Some proposed methods of achieving this include limiting negative gearing, increasing capital gains tax, linking immigration to 2 to 2.5x the capacity of the construction industry, mandating a local government quote of medium-density housing approvals, and increasing the cost of holding land, but Kohler's preferred strategy is to invest in "fast, efficient commuting trains that allow dormitory suburbs to be developed further from the CBD".
How we go about disentangling the idea of housing as the main form of wealth creation from the national psyche will be an interesting one to observe over the coming years. Till then, we are left with this calamitous paradox of Australia being one of the three least populated countries in the world, but simultaneously containing the world's second most expensive housing.
October 18, 2024
This book left me undeniably angry with how Australia has dealt with housing in the past 25 years, more specifically now how it's treated as a welfare issue rather than an economic one. And you know it's a book that fucks me over when I take this long to power through instead of smashing it out in a day. I will add notes later on once I regain the energy to revisit this topic after being absolutely destroyed by our government or lack thereof.
Notes (added 3 months later because housing is cooked and I didn't want to stress about it more)
- young Australians are being held back financially by the cost of shelter (esp near a cbd, syd, melb)
- education and hard work are no longer important, its about where you live and if you inherit a house
- greed resulted in increased house prices in the last 25 years, housing now dominates the national consciousness
- au is divided by who owns houses and who doesnt, and who has houses to pass on, and who doesnt
- in the grips of a bankocracy, depend on the value of assets growing (housing) fed encourages housing states restrict through zoning
- borrowers bear the entire burden of economic adjustment, the ones already living on the edge
- 3 main things pushed housing demand up in 2000s, immigration, capital gains and negative gearing 96bil subsidy per year, federal first home buyer grants 1.5 billion each year to house prices
- mortgage stress should only be when housing costs takes more than 30% of after tax income (but if you have 50k with 580s a wish after tax to care for a family, then that stress domintates your life)
- boomer houses wont get passed on until they're too late to be useful (also consider inheritance tax too)
- not everyone has access to the bank of mum and dad
- housing is too expensive for society to work normally
- the price of a house has gone from 3-4 times an income to 7-8 times an income in the course of a generation
- the rental housing crisis is in part because of housing affordability (which negative gearing was meant to help)
- pet ownership declines with the decline of home ownership (why au ppl prefer to own because rentals often dont allow pets) only 36% of pet owners are renters
- ppl are forced to live far away from the city = lower productivity
- 15% households will be in negative cash flow by 2023
- people are turning to debt/credit cards to get through the cost of the living crisis (31% increase in new cards opened this year)
- gold rush 1850s, land boom 1880s, (land is both abundant and scare enough)
- chifley fucked up housing - spectacular failure
- 1938 housing commision (public housing was then derailed by the war)
- housing in aus was seen as a moral imperative, pillars of the community, renters were reckless with no desire to be engaged
- menzies ugh 17 years of power and seeds of decline, home ownership fell, now at 66.3% (53rd on the global home ownership lead table) (he and spooner forced everyone to sell public housing to capitalists who would vote liberal)
- there are 9 countries above 90% (we're average no big deal)
- after chifley the housing went to minister of social services (doesnt belong there, thanks menzies for fucking that up, housing is an econmic right not welfare)
- 26% lived in syd, now au population is 6.9mil, now 67% live in a capital city and 40% are in melbourne and sydney (yikes)
- more than the proportion that lived in all au capital cities previous
- less than a 10th live in the bush (about 5th in the world for crowding intercitys)
- trend in the world is also greater urbanisation (most ppl want to live in the city and regional transport sucks and the closest people get to rural/regional is gold coast or camping and snowing tirps)
- one cbd per state (ew) and au cities are releventaly new and were not fully develeped before cars arrived
- berlins population is basically in melbourne
- our transport time here would be belgium to netherlands another country overseas
- state gov delegate most work to local gov; to abolsve themselves of responsibility, to save money, but also councils are more likely to be corrupt
- afforable houses are eroded cause councils dont promote it, but also zoning wise is market rate competiting with developers
- nz doesnt do tax deductions, where as we do it and it mostly makes the rich richer cause they get out of paying taxes because of negative gearing
- rba didnt expect rates to go up till 2024 and was meant to be a promise but we fucked that up
- the outcome of the choices we made as a society, how we design cities, transport, tax land, investment, and zoning, politicians have made decisions that lead to high urban living costs
- tba new fed national plan for housing and homelessness since 1940s (potentially groundbreaking)
- banks and developers contribute to the problem, everyone wants them to rise, renters dont stand a chance
- fundamental bridge - is the big rise in prices good or bad? (wealth affect has increased 5 fold in 30 years) economy is stronger, ppl are happier, investment is better until it gets out of control, super is up 9% per annum (larger than wage growth)
-banks are happy to lend much more for housing than shares (to ensure housing $$ keeps rising)
- everyone regards houses as an appreciating asset
- we all say its a crisis, but majority of homeowners are happy to keep growing their wealth
- basis of the essay - yes its a problem - housing is undermining social cohesion and fucntioning of the economy and the nation
- something needs to be done even though most people wont hate it
- to achieve a genuine effort - return ratio to 3-4 times the income as it was 25 years ago
- houses would need to half in cost. that wont happen.
- or we allow incomes to catch up to the cost of housing we'd need ppl to make 200k plus and we'd need 18 years for that to happen and housing not to change and keep going up
- capital gains could be returned to what it was before 2000
- link immigation to the supply of the labour industry (max 2 times housing approvals forever)
- pressure on councils - new areas are fine if theres jobs, but we need more development closer to the city but ppl are all like not in my backyard
- commuter trains need to travel 150km or 200km per hour to get speed rail inland to coast, and to bathurst etc (currently a 4 hour train journey needs to be 1 hour)
- we need a big investment in trains to double the commutabal distance near cbds (fed to pay for state gov and issue debt to do it) but every other option probably wont happen
- 2nd most global exp housing is a failture of policy and gov and lip service - a national calamity
Notes (added 3 months later because housing is cooked and I didn't want to stress about it more)
- young Australians are being held back financially by the cost of shelter (esp near a cbd, syd, melb)
- education and hard work are no longer important, its about where you live and if you inherit a house
- greed resulted in increased house prices in the last 25 years, housing now dominates the national consciousness
- au is divided by who owns houses and who doesnt, and who has houses to pass on, and who doesnt
- in the grips of a bankocracy, depend on the value of assets growing (housing) fed encourages housing states restrict through zoning
- borrowers bear the entire burden of economic adjustment, the ones already living on the edge
- 3 main things pushed housing demand up in 2000s, immigration, capital gains and negative gearing 96bil subsidy per year, federal first home buyer grants 1.5 billion each year to house prices
- mortgage stress should only be when housing costs takes more than 30% of after tax income (but if you have 50k with 580s a wish after tax to care for a family, then that stress domintates your life)
- boomer houses wont get passed on until they're too late to be useful (also consider inheritance tax too)
- not everyone has access to the bank of mum and dad
- housing is too expensive for society to work normally
- the price of a house has gone from 3-4 times an income to 7-8 times an income in the course of a generation
- the rental housing crisis is in part because of housing affordability (which negative gearing was meant to help)
- pet ownership declines with the decline of home ownership (why au ppl prefer to own because rentals often dont allow pets) only 36% of pet owners are renters
- ppl are forced to live far away from the city = lower productivity
- 15% households will be in negative cash flow by 2023
- people are turning to debt/credit cards to get through the cost of the living crisis (31% increase in new cards opened this year)
- gold rush 1850s, land boom 1880s, (land is both abundant and scare enough)
- chifley fucked up housing - spectacular failure
- 1938 housing commision (public housing was then derailed by the war)
- housing in aus was seen as a moral imperative, pillars of the community, renters were reckless with no desire to be engaged
- menzies ugh 17 years of power and seeds of decline, home ownership fell, now at 66.3% (53rd on the global home ownership lead table) (he and spooner forced everyone to sell public housing to capitalists who would vote liberal)
- there are 9 countries above 90% (we're average no big deal)
- after chifley the housing went to minister of social services (doesnt belong there, thanks menzies for fucking that up, housing is an econmic right not welfare)
- 26% lived in syd, now au population is 6.9mil, now 67% live in a capital city and 40% are in melbourne and sydney (yikes)
- more than the proportion that lived in all au capital cities previous
- less than a 10th live in the bush (about 5th in the world for crowding intercitys)
- trend in the world is also greater urbanisation (most ppl want to live in the city and regional transport sucks and the closest people get to rural/regional is gold coast or camping and snowing tirps)
- one cbd per state (ew) and au cities are releventaly new and were not fully develeped before cars arrived
- berlins population is basically in melbourne
- our transport time here would be belgium to netherlands another country overseas
- state gov delegate most work to local gov; to abolsve themselves of responsibility, to save money, but also councils are more likely to be corrupt
- afforable houses are eroded cause councils dont promote it, but also zoning wise is market rate competiting with developers
- nz doesnt do tax deductions, where as we do it and it mostly makes the rich richer cause they get out of paying taxes because of negative gearing
- rba didnt expect rates to go up till 2024 and was meant to be a promise but we fucked that up
- the outcome of the choices we made as a society, how we design cities, transport, tax land, investment, and zoning, politicians have made decisions that lead to high urban living costs
- tba new fed national plan for housing and homelessness since 1940s (potentially groundbreaking)
- banks and developers contribute to the problem, everyone wants them to rise, renters dont stand a chance
- fundamental bridge - is the big rise in prices good or bad? (wealth affect has increased 5 fold in 30 years) economy is stronger, ppl are happier, investment is better until it gets out of control, super is up 9% per annum (larger than wage growth)
-banks are happy to lend much more for housing than shares (to ensure housing $$ keeps rising)
- everyone regards houses as an appreciating asset
- we all say its a crisis, but majority of homeowners are happy to keep growing their wealth
- basis of the essay - yes its a problem - housing is undermining social cohesion and fucntioning of the economy and the nation
- something needs to be done even though most people wont hate it
- to achieve a genuine effort - return ratio to 3-4 times the income as it was 25 years ago
- houses would need to half in cost. that wont happen.
- or we allow incomes to catch up to the cost of housing we'd need ppl to make 200k plus and we'd need 18 years for that to happen and housing not to change and keep going up
- capital gains could be returned to what it was before 2000
- link immigation to the supply of the labour industry (max 2 times housing approvals forever)
- pressure on councils - new areas are fine if theres jobs, but we need more development closer to the city but ppl are all like not in my backyard
- commuter trains need to travel 150km or 200km per hour to get speed rail inland to coast, and to bathurst etc (currently a 4 hour train journey needs to be 1 hour)
- we need a big investment in trains to double the commutabal distance near cbds (fed to pay for state gov and issue debt to do it) but every other option probably wont happen
- 2nd most global exp housing is a failture of policy and gov and lip service - a national calamity
December 6, 2023
I learnt that John Howard and Peter Costello absolutely fucked us. Also that I’ll never own a house thanks to tax law.
December 7, 2023
I am a subscriber and an avid reader of the Quarterly Essay and this one by Alan Kohler is a standout.
I am a fan/admirer of Alan Kohler especially his financial news report on ABC TV News. His use of graphs, his dismissive digs at the rich and powerful and his quirky comments amuse and please me. His integrity is in the stratosphere among Australian journalists.
This essay deals with one of the great dilemmas facing the Australian population. The ever-increasing value of the Australian home and the consequences for those who are not part of this group.
He opens his essay by describing his and his parents purchase of their first homes and the relationship between income and house price. His account is a mirror of my own story.
Kohler then gives a brief synopsis of the story of land acquisition and the role and policies of governments during the twentieth century. Importantly, he travels back to the early days of the colony and reflects on the first land “purchase’ by white settlers from the indigenous people.
Unsurprisingly Kohler has an abundance of graphs to illustrate his account of housing over the last century and then some. Kohler is a master communicator, and it is enjoyable just reading his prose. He does not litter his essay with economic nomenclature designed to baffle the reader. Kohler brings his healthy cynicism to this essay.
“Costello quietly announced a review of business taxation to be chaired by John Ralph, a former CEO of Rio Tinto who was then president of the Business Council of Australia and also chairman of Foster’ and Pacific Dunlop, as well as a director of the Commonwealth Bank, Telstra and BHP (phew)”
“…. Two business leaders urged the prime minister to cut company tax, as you do if you’re a leading company director…. While saying it’s in the national interest, of course.”
“Latham was wrong about one thing (he’s been wrong about a few things since then).”
After reading this essay I am reminded of the meaning behind Donald Horne’s “The Lucky Country” - 'Australia is a lucky country, run by second-rate people who share its luck.' I don’t just blame politicians and bureaucrats. The Australian electorate has encouraged policies that give them personal gain but add little to the welfare and growth of the country. Too often policies in relation to housing have been made with political gain rather than economic and fairness reasons.
The ALP went to the 2016 and 2019 elections with policies to dampen the financial incentives of secondary house purchases and to break the capital gain from owning property.
Population growth, tax breaks, interest rate cuts and first home buyer grants produce some winners, but more losers and the losers lose big writes Kohler.
I was always suspicious of those calling for a cut in immigration. Too often it was done on racist or anti-immigrant grounds. Kohler explains that during the Howard years the link between high immigration numbers and the crushing of unions and suppression of wage growth. All while having the side show of cracking down on refugees.
Kohler raises an issue dear to my heart. I lived in Newcastle and had to often travel to Sydney for work and pleasure. On weekends car travel was the preferred option but this mode was out of question during the week. The three-hour train trip was torture. I read that the Newcastle Express and in April 1937 completed the journey in a time of 2 hours 20 minutes. Kohler writes about the role that fast trains could play in moving people from outside the metropolis to the CBD in time less than an hour.
Kohler concludes that there are two tribes in this debate. Tribe one sees the problem is tax breaks that boost demand too much while tribe 2 believe it’s zoning and planning.
Sadly, I don’t see an easy or ready solution. Capitalism is supreme at creating wealth but somewhat inferior at distributing this wealth fairly.
I am pessimistic, as I believe Kohler is, that there is not much that governments can, or will do for those younger Australians locked out of the homeowner class.
I am a fan/admirer of Alan Kohler especially his financial news report on ABC TV News. His use of graphs, his dismissive digs at the rich and powerful and his quirky comments amuse and please me. His integrity is in the stratosphere among Australian journalists.
This essay deals with one of the great dilemmas facing the Australian population. The ever-increasing value of the Australian home and the consequences for those who are not part of this group.
He opens his essay by describing his and his parents purchase of their first homes and the relationship between income and house price. His account is a mirror of my own story.
Kohler then gives a brief synopsis of the story of land acquisition and the role and policies of governments during the twentieth century. Importantly, he travels back to the early days of the colony and reflects on the first land “purchase’ by white settlers from the indigenous people.
Unsurprisingly Kohler has an abundance of graphs to illustrate his account of housing over the last century and then some. Kohler is a master communicator, and it is enjoyable just reading his prose. He does not litter his essay with economic nomenclature designed to baffle the reader. Kohler brings his healthy cynicism to this essay.
“Costello quietly announced a review of business taxation to be chaired by John Ralph, a former CEO of Rio Tinto who was then president of the Business Council of Australia and also chairman of Foster’ and Pacific Dunlop, as well as a director of the Commonwealth Bank, Telstra and BHP (phew)”
“…. Two business leaders urged the prime minister to cut company tax, as you do if you’re a leading company director…. While saying it’s in the national interest, of course.”
“Latham was wrong about one thing (he’s been wrong about a few things since then).”
After reading this essay I am reminded of the meaning behind Donald Horne’s “The Lucky Country” - 'Australia is a lucky country, run by second-rate people who share its luck.' I don’t just blame politicians and bureaucrats. The Australian electorate has encouraged policies that give them personal gain but add little to the welfare and growth of the country. Too often policies in relation to housing have been made with political gain rather than economic and fairness reasons.
The ALP went to the 2016 and 2019 elections with policies to dampen the financial incentives of secondary house purchases and to break the capital gain from owning property.
Population growth, tax breaks, interest rate cuts and first home buyer grants produce some winners, but more losers and the losers lose big writes Kohler.
I was always suspicious of those calling for a cut in immigration. Too often it was done on racist or anti-immigrant grounds. Kohler explains that during the Howard years the link between high immigration numbers and the crushing of unions and suppression of wage growth. All while having the side show of cracking down on refugees.
Kohler raises an issue dear to my heart. I lived in Newcastle and had to often travel to Sydney for work and pleasure. On weekends car travel was the preferred option but this mode was out of question during the week. The three-hour train trip was torture. I read that the Newcastle Express and in April 1937 completed the journey in a time of 2 hours 20 minutes. Kohler writes about the role that fast trains could play in moving people from outside the metropolis to the CBD in time less than an hour.
Kohler concludes that there are two tribes in this debate. Tribe one sees the problem is tax breaks that boost demand too much while tribe 2 believe it’s zoning and planning.
Sadly, I don’t see an easy or ready solution. Capitalism is supreme at creating wealth but somewhat inferior at distributing this wealth fairly.
I am pessimistic, as I believe Kohler is, that there is not much that governments can, or will do for those younger Australians locked out of the homeowner class.
December 29, 2023
I read this QE expecting to disagree with lots of it. Overall, however, I'd say it's one of the clearest and best articulations of Australia's terrible housing system, with only one main flaw.
Kohler's general thesis is that Australia's problem began around the turn of the millenium, when a range of measures that pushed up demand for housing (tax subsidies, first home buyer grants, immigration, low interest rates). These demand-side measures interacted with a system that was already supply constrained, because of historic planning restrictions and the fact that available land close to cities was, by this point, basically exhausted.
This is a good take. I don't think it makes sense to ignore demand - you need a way to make sense of the huge growth post 2000 - but also you need a way to explain why supply was inelastic. Kohler's story accounts for all these elements.
Kohler is weaker on solutions. He mentions numerous sensible things - tax reform, planning reform - but then dismisses them as unrealistic. I guess the man is primarily a journalist about economics, not a political economist! Instead he fixates upon trains. Look, I love trains, but I think perhaps the zoning reforms he writes-off are actually more realistic than he expects - indeed, many of them are coming into effect in NSW! It seems strange to talk about this huge social and political problem and then not be open to the possibility that the political economy of the issue may change. Kohler doesn't seem to register that there is a growing constituency that is ready to reward action on housing issues!
And this relates to the main flaw: Kohler accepts the idea that existing owners benefit from and want rising house prices. This is false. Existing owners who will make purchases in the future are hedged against increases, but it is basically zero sum. As my sister told me when she recently upsized: yes we sold our old place for much more than we paid for it, but you wouldn't believe how much we paid for our new place. In addition, many more boomers - even those who may not upsize - are seeing the challenges of their own children, and the financial pressures this puts upon themselves. As such, the potential constituency for reform is not only renters, but also mid-life owner-occupiers, and even later-life owner-occupiers with renting children. This is perhaps quite a big idea to explore, and Kohler only had so many pages to use, but it would have been a more novel and refreshing take, rather than just synthesizing lots of existing ideas (admittedly, a great synthesis!).
Overall a quite efficiently written overview of the problems and potential solutions.
Kohler's general thesis is that Australia's problem began around the turn of the millenium, when a range of measures that pushed up demand for housing (tax subsidies, first home buyer grants, immigration, low interest rates). These demand-side measures interacted with a system that was already supply constrained, because of historic planning restrictions and the fact that available land close to cities was, by this point, basically exhausted.
This is a good take. I don't think it makes sense to ignore demand - you need a way to make sense of the huge growth post 2000 - but also you need a way to explain why supply was inelastic. Kohler's story accounts for all these elements.
Kohler is weaker on solutions. He mentions numerous sensible things - tax reform, planning reform - but then dismisses them as unrealistic. I guess the man is primarily a journalist about economics, not a political economist! Instead he fixates upon trains. Look, I love trains, but I think perhaps the zoning reforms he writes-off are actually more realistic than he expects - indeed, many of them are coming into effect in NSW! It seems strange to talk about this huge social and political problem and then not be open to the possibility that the political economy of the issue may change. Kohler doesn't seem to register that there is a growing constituency that is ready to reward action on housing issues!
And this relates to the main flaw: Kohler accepts the idea that existing owners benefit from and want rising house prices. This is false. Existing owners who will make purchases in the future are hedged against increases, but it is basically zero sum. As my sister told me when she recently upsized: yes we sold our old place for much more than we paid for it, but you wouldn't believe how much we paid for our new place. In addition, many more boomers - even those who may not upsize - are seeing the challenges of their own children, and the financial pressures this puts upon themselves. As such, the potential constituency for reform is not only renters, but also mid-life owner-occupiers, and even later-life owner-occupiers with renting children. This is perhaps quite a big idea to explore, and Kohler only had so many pages to use, but it would have been a more novel and refreshing take, rather than just synthesizing lots of existing ideas (admittedly, a great synthesis!).
Overall a quite efficiently written overview of the problems and potential solutions.
January 6, 2024
Very broad but thorough overview of how Australia got to where we are, and how intentional and continual the decisions, policies and urban planning is for housing to stay where it is. Written in an interesting and engaging way - highly recommend to anyone who will inhabit a house at any point in time Australia.
December 17, 2023
Should be required reading. Didn’t talk about with working remotely or housing quality.
January 11, 2024
i am upset because all i want is fast trains and shelter.
December 15, 2023
Wow that was intriguing, scary, and shame inducing. Everything was explained clearly and succinctly. Somehow Kohler made me believe trains are going to fix the housing crisis and growing wealth inequality.
January 19, 2024
Brilliant essay. Full of data, proper analysis, and solutions.
Importantly, it identifies the need for some national consensus on housing - what do we actually want as a nation? Ever risng prices that expense of our kids? I hope not.
Also, lets build some high-speed rail!
Importantly, it identifies the need for some national consensus on housing - what do we actually want as a nation? Ever risng prices that expense of our kids? I hope not.
Also, lets build some high-speed rail!
September 17, 2024
Housing affordability is probably the single most important political topic in contemporary Oz. As proof, this book was the most in-demand book I've ever borrowed from a public library: I was 12th in line for this one, and instead of waiting a few days or weeks for it to arrive, I had to wait months. Clearly, the problem of housing affordability is on a lot of people's minds. Another reason for the high demand for this book must be the prestige of the author and therefore the assumption that the quality of this book would be high. In my opinion, that assumption proved correct. This essay is excellent, and I would recommend it to everyone who wants to better understand the problem of housing affordability in Australia: how we got here, what its causes are, and what we can do about it.
So, what exactly is the housing affordability crisis?
It's this: that the house price to income ratio is two or three times larger than its historical average. Once upon a time, houses cost 2 or 3 times a person's annual salary. Nowadays, it's 7 or 8 times that number. The first and most obvious consequence of this is that it's now really hard to buy a house. The flow-on effects of houses being hard to buy are many, and Kohler thinks that taken together they constitute our nation's single most serious and pressing problem. It means that, to buy houses, people take on more debt; that, because their debts are larger, their mortgage repayments are bigger, which means that they have less income to spend on other things, which means that our economy as a whole isa lot less vibrant, dynamic, and productive; it means that people stay home longer, which likely delays the age at which people get married and have kids, which worsens the fertility crisis; it means that more people than ever draw on the bank of Mum and Dad, diminishing their parents' quality of life; it means that fewer people have pets, which science has very definitively proven make human lives better by making us happier, less lonely, and more active; it means that our entire economy is beholden to the interest rate cycle, because of how enormously interest rate changes affect monthly mortgage repayments; it makes our society as a whole much less equal, because people who own property are far, far more wealthy than those without; and so on. In short, houses being expensive make us less secure, less dynamic, less equal, less fecund (i.e., there are fewer kids); it transfers power to the people who are old, wealthy, conservative, and risk averse. It's just a plain disaster.
Kohler does a great job of spelling out exactly why it's so damaging. He then goes on the explain in just as convincing a manner the historical currents that led us to this point. I found this fascinating, although a little weak. I would've enjoyed more detail, but I'm sure I'll find that elsewhere. Very interesting to me was the fact that Prime Minister Menzies sold off virtually all of our public housing stock because he thought homeowners would see themselves as "little capitalists", and that little capitalists would vote Liberal. He was right about that fact. The nadir of public housing in Australia was after the Second World War, where lots of it was built in a build-to-rent manner for people on low incomes. Menzies and his Deputy thought this was mean to the middle class. The rest is history. The lack of cheap public housing drives up demand for, and thus the price of, the regular stuff. Kohler writes evocatively that public housing was no longer a way to ensure the economic right that everyone had to have a home and property; instead, it became a form of welfare.
Another reason for high property prices is the paradox that Australia ranks 5th in the world for the percentage of its population that lives in cities (not just capital cities), even though we’re the 5th most sparsely populated country on earth (comparing land size to population size). This means that we simultaneously believe that there's enough land for everyone and that the only serious place to live is in our cities, where land is scarce, where demand's high, where costs are higher. Kohler says that this is made worse by there being only one CBD in each city: attempts to create other, alternative CBDs have all failed. Kohler says the only solution to this problem is to build fast, reliable train networks between capital cities and large cities on their fringe, so that residents can travel between the 2 places for work in less than 1 hour. I would love nothing more than to be able to commute daily between Newcastle and Sydney for work (no, seriously, I would). But unfortunately, this too appears to be a pipedream. Claims about fast trains connecting capital cities and regional centres have been bandied about for so long they became a running gag in the great Aussie political satire series Utopia.
Another fascinating reason why our cities suck, why there's so much sprawl and so little densification, is because our cities were still very young when the first cars came along. Unlike European cities, which were designed to be walkable because almost everyone walked then, our towns and cities were built to accommodate the car. That's why we have to drive everywhere, and that's why services, such as schools, hospitals, transport hubs, etc., are so sparse and so spread out: because our city planners designed them to be that way! Put simply, our cities aren't fit for the modern world's purpose, and it's going to be hard, very hard, to redesign them.
Housing is also unaffordable because of 3 specific tax policies, 2 of which most Aussie's are likely sick of hearing about: inheritance taxes, negative gearing, and capital gains taxes. Taken together, they create the incentives that make property speculation extremely lucrative; it's because of these that getting on the housing ladder is the surest path to wealth in Australia; it's because of these that people become professional landlords instead of finding other ways to make money, such as investing in Australian shares.
To start: Kohler says there are no inheritance taxes on property in Australia. So, if someone wants to leave an inheritance, the best way to do it is to leave their wealth in property. Second, negative gearing means that if you lose money on an investment property, you can offset this by reducing your taxable income, which means you pay less income tax. Immediately after negative gearing was reintroduced by John Howard, rental losses surged to historic highs, an indicator that investors were purchasing properties, not homeowners, and that they were doing so for the explicit purpose of reducing their income taxes and as long-term non-residential investments. Third, John Howard halved the amount of capital gains tax people pay on the gains they make from property. So, property investors can reduce their taxable income, pay less tax than on other types of capital, and upon their death they can transfer it to their children completely intact. These 3 policies taken together mean that property investors are taxed very, very little on their investments, which incentivises investment in residential property above virtually all other assets. The obvious outcome of this is that rich investors outcompete poorer would-be homeowners for residential housing stock, and the housing affordability and rental crises reach a fever pitch. It means that institutional investors, large corporations such as superannuation providers, don't think it's worthwhile to fund the construction of large residential complexes, which reduces supply. It means that "whereas in the rest of the world investing in real estate is all about getting rental income from tenants, in Australia it's about getting an income tax deduction and then a capital gain".
Near the book's end, Kohler sums up the states of things by saying that 'the fact that one of the 3 least populated countries on Earth contains the world's second-most expensive housing is a national calamity, and a stunning failure of public policy'. But the problem is complex and politically fraught. Bill Shorten lost his election campaign because he tried to reform too much, too quickly. Nonetheless, says Kohler, that's exactly what needs to happen. The situation is dire and the only way it'll be fixed is through an act (or acts) of enormous political will. This is because making housing affordable again would 'contradict the interests both of the majority of citizens [because they're homeowners] and those with the most power [politicians who benefit politically as well as financially from high house prices]". As remedies, he suggests:
Increasing capital gains tax on properties to its pre-Howard levels. This'll make residential property a less enticing investment. It's been tried many times and has always failed or been quickly reversed.
Restricting negative gearing to new houses only. This'll remove negative gearing from a whole bunch of properties, making them less likely to be bought as investments, while also incentivising the construction of new developments. This, too, has been tried many times, and this, too, has always failed or been reversed.
Having State and Federal governments invest massively in trains. Connecting capital cities and regional centres such as Newcastle via a fast train network would make it possible for dwellings and services to expand beyond our very few, very densely populated, and extremely expensive capital city CBDs.
Linking immigration to housing approvals. He says that for every 2.5 new immigrants, the government ought to build one new dwelling. This will prevent immigration from putting unsustainable upwards pressure on housing prices. This is the first time I've encountered that idea, and I have no idea how politically viable it is. I will note, however, that many people who normally consider talk of restricting immigration to be racist, are fine with the idea so long as it's raised in the context of the housing affordability crisis. The crisis is so bad that it's killed the racist slur.
Use taxes to increase the cost of holding land (land banking). Lots of property developers restrict their release of land to ensure that it remains in demand enough to keep land prices high. Land banking should not be outlawed, but it should be taxed, and heavily, to incentivise developers to release more land to the public.
State and Local governments should reform their zoning laws to make it easier, simpler, quicker, and less expensive to build. One main aim of these reforms should be the rezoning of lots of land as medium-density residential. Australian houses are enormous, and they typically sit on lots of unused land, land that could be used to build secondary dwellings that are already located near essential services and infrastructure.
He also suggests abolishing First Home Owner grants, because he says, actually, that they help usher very few first home buyers into the market but drive up prices for everyone else. I get that it drives up demand but still thought that in its own way this policy was good. This is one I'll research further.
All in all, it's a great and informative read, but a dispiriting one. It's a massive problem, and there are no easy fixes. I guess all we the people can do for the time being is advocate, advocate, advocate, and put pressure on our elected representatives to show some of that much needed "political will" to enact much needed change.
So, what exactly is the housing affordability crisis?
It's this: that the house price to income ratio is two or three times larger than its historical average. Once upon a time, houses cost 2 or 3 times a person's annual salary. Nowadays, it's 7 or 8 times that number. The first and most obvious consequence of this is that it's now really hard to buy a house. The flow-on effects of houses being hard to buy are many, and Kohler thinks that taken together they constitute our nation's single most serious and pressing problem. It means that, to buy houses, people take on more debt; that, because their debts are larger, their mortgage repayments are bigger, which means that they have less income to spend on other things, which means that our economy as a whole isa lot less vibrant, dynamic, and productive; it means that people stay home longer, which likely delays the age at which people get married and have kids, which worsens the fertility crisis; it means that more people than ever draw on the bank of Mum and Dad, diminishing their parents' quality of life; it means that fewer people have pets, which science has very definitively proven make human lives better by making us happier, less lonely, and more active; it means that our entire economy is beholden to the interest rate cycle, because of how enormously interest rate changes affect monthly mortgage repayments; it makes our society as a whole much less equal, because people who own property are far, far more wealthy than those without; and so on. In short, houses being expensive make us less secure, less dynamic, less equal, less fecund (i.e., there are fewer kids); it transfers power to the people who are old, wealthy, conservative, and risk averse. It's just a plain disaster.
Kohler does a great job of spelling out exactly why it's so damaging. He then goes on the explain in just as convincing a manner the historical currents that led us to this point. I found this fascinating, although a little weak. I would've enjoyed more detail, but I'm sure I'll find that elsewhere. Very interesting to me was the fact that Prime Minister Menzies sold off virtually all of our public housing stock because he thought homeowners would see themselves as "little capitalists", and that little capitalists would vote Liberal. He was right about that fact. The nadir of public housing in Australia was after the Second World War, where lots of it was built in a build-to-rent manner for people on low incomes. Menzies and his Deputy thought this was mean to the middle class. The rest is history. The lack of cheap public housing drives up demand for, and thus the price of, the regular stuff. Kohler writes evocatively that public housing was no longer a way to ensure the economic right that everyone had to have a home and property; instead, it became a form of welfare.
Another reason for high property prices is the paradox that Australia ranks 5th in the world for the percentage of its population that lives in cities (not just capital cities), even though we’re the 5th most sparsely populated country on earth (comparing land size to population size). This means that we simultaneously believe that there's enough land for everyone and that the only serious place to live is in our cities, where land is scarce, where demand's high, where costs are higher. Kohler says that this is made worse by there being only one CBD in each city: attempts to create other, alternative CBDs have all failed. Kohler says the only solution to this problem is to build fast, reliable train networks between capital cities and large cities on their fringe, so that residents can travel between the 2 places for work in less than 1 hour. I would love nothing more than to be able to commute daily between Newcastle and Sydney for work (no, seriously, I would). But unfortunately, this too appears to be a pipedream. Claims about fast trains connecting capital cities and regional centres have been bandied about for so long they became a running gag in the great Aussie political satire series Utopia.
Another fascinating reason why our cities suck, why there's so much sprawl and so little densification, is because our cities were still very young when the first cars came along. Unlike European cities, which were designed to be walkable because almost everyone walked then, our towns and cities were built to accommodate the car. That's why we have to drive everywhere, and that's why services, such as schools, hospitals, transport hubs, etc., are so sparse and so spread out: because our city planners designed them to be that way! Put simply, our cities aren't fit for the modern world's purpose, and it's going to be hard, very hard, to redesign them.
Housing is also unaffordable because of 3 specific tax policies, 2 of which most Aussie's are likely sick of hearing about: inheritance taxes, negative gearing, and capital gains taxes. Taken together, they create the incentives that make property speculation extremely lucrative; it's because of these that getting on the housing ladder is the surest path to wealth in Australia; it's because of these that people become professional landlords instead of finding other ways to make money, such as investing in Australian shares.
To start: Kohler says there are no inheritance taxes on property in Australia. So, if someone wants to leave an inheritance, the best way to do it is to leave their wealth in property. Second, negative gearing means that if you lose money on an investment property, you can offset this by reducing your taxable income, which means you pay less income tax. Immediately after negative gearing was reintroduced by John Howard, rental losses surged to historic highs, an indicator that investors were purchasing properties, not homeowners, and that they were doing so for the explicit purpose of reducing their income taxes and as long-term non-residential investments. Third, John Howard halved the amount of capital gains tax people pay on the gains they make from property. So, property investors can reduce their taxable income, pay less tax than on other types of capital, and upon their death they can transfer it to their children completely intact. These 3 policies taken together mean that property investors are taxed very, very little on their investments, which incentivises investment in residential property above virtually all other assets. The obvious outcome of this is that rich investors outcompete poorer would-be homeowners for residential housing stock, and the housing affordability and rental crises reach a fever pitch. It means that institutional investors, large corporations such as superannuation providers, don't think it's worthwhile to fund the construction of large residential complexes, which reduces supply. It means that "whereas in the rest of the world investing in real estate is all about getting rental income from tenants, in Australia it's about getting an income tax deduction and then a capital gain".
Near the book's end, Kohler sums up the states of things by saying that 'the fact that one of the 3 least populated countries on Earth contains the world's second-most expensive housing is a national calamity, and a stunning failure of public policy'. But the problem is complex and politically fraught. Bill Shorten lost his election campaign because he tried to reform too much, too quickly. Nonetheless, says Kohler, that's exactly what needs to happen. The situation is dire and the only way it'll be fixed is through an act (or acts) of enormous political will. This is because making housing affordable again would 'contradict the interests both of the majority of citizens [because they're homeowners] and those with the most power [politicians who benefit politically as well as financially from high house prices]". As remedies, he suggests:
Increasing capital gains tax on properties to its pre-Howard levels. This'll make residential property a less enticing investment. It's been tried many times and has always failed or been quickly reversed.
Restricting negative gearing to new houses only. This'll remove negative gearing from a whole bunch of properties, making them less likely to be bought as investments, while also incentivising the construction of new developments. This, too, has been tried many times, and this, too, has always failed or been reversed.
Having State and Federal governments invest massively in trains. Connecting capital cities and regional centres such as Newcastle via a fast train network would make it possible for dwellings and services to expand beyond our very few, very densely populated, and extremely expensive capital city CBDs.
Linking immigration to housing approvals. He says that for every 2.5 new immigrants, the government ought to build one new dwelling. This will prevent immigration from putting unsustainable upwards pressure on housing prices. This is the first time I've encountered that idea, and I have no idea how politically viable it is. I will note, however, that many people who normally consider talk of restricting immigration to be racist, are fine with the idea so long as it's raised in the context of the housing affordability crisis. The crisis is so bad that it's killed the racist slur.
Use taxes to increase the cost of holding land (land banking). Lots of property developers restrict their release of land to ensure that it remains in demand enough to keep land prices high. Land banking should not be outlawed, but it should be taxed, and heavily, to incentivise developers to release more land to the public.
State and Local governments should reform their zoning laws to make it easier, simpler, quicker, and less expensive to build. One main aim of these reforms should be the rezoning of lots of land as medium-density residential. Australian houses are enormous, and they typically sit on lots of unused land, land that could be used to build secondary dwellings that are already located near essential services and infrastructure.
He also suggests abolishing First Home Owner grants, because he says, actually, that they help usher very few first home buyers into the market but drive up prices for everyone else. I get that it drives up demand but still thought that in its own way this policy was good. This is one I'll research further.
All in all, it's a great and informative read, but a dispiriting one. It's a massive problem, and there are no easy fixes. I guess all we the people can do for the time being is advocate, advocate, advocate, and put pressure on our elected representatives to show some of that much needed "political will" to enact much needed change.
December 3, 2023
A great overview of how and why Australia is in the position it is today, and some practical solutions to begin to fix housing. Highly recommend
April 19, 2024
I learned a lot. The middle part dragged a bit, and I didn't follow all the calculations about taxes, but good to get a better understanding of the problem and how we got here, as well as ideas about what changes could help. I wished I felt more hopeful at the end of it, though.
December 9, 2023
What Kohler says about the housing problem is basically this:
The essay has a sprinkling of graphs, and reader-friendly explanations of how this has happened, but the really awful problem revealed by this essay is that it's basically impossible now for an average millenial family, earning the national average wage, with one adult working full time and the other working three days a week, to buy a home for the national median price. And this in turn has put enormous pressure on the rental market.
Over the course of my lifetime, Australia has morphed from a country where education and hard work made us an egalitarian meritocracy into a society of haves-and-have-nots. Now it comes down to where you live and what sort of house you inherit from your parents. That's destructive.
Unless you've had your head under a rock, you know all this. But what you might not know is the complexity of the problem and the length of time it could take to fix it, even if we started now, and there's no sign that anybody really wants to do it.
The essay ranges from historical reasons for the problem to more recent factors, but concludes that the basic problem is that about two-thirds of people own their homes and they are quietly happy about the rising value of their property. No government, federal, state or local government is going to interfere with that. So there's a lot of talk, and aspirational targets, but nothing will really change.
You can read an edited extract of this essay at The Guardian.
The houses we live in, the places we call home and bring up our families in, have been turned into speculative investment assets by the fifty years of government policy failure, financialisation and greed that resulted in twenty-five years of exploding house prices. The doubling of prices as a proportion of both average incomes and GDP per capita has turned a house from somewhere to live while you get on with the rest of your life into the main thing, and for many people a terrible burden.
The problem of housing affordability now dominates the national consciousness and has affected the lives of everyone, dividing Australia into those who own a house and those who don't; those whose families have housing wealth to pass on and those who don't. (p.5)
The essay has a sprinkling of graphs, and reader-friendly explanations of how this has happened, but the really awful problem revealed by this essay is that it's basically impossible now for an average millenial family, earning the national average wage, with one adult working full time and the other working three days a week, to buy a home for the national median price. And this in turn has put enormous pressure on the rental market.
Over the course of my lifetime, Australia has morphed from a country where education and hard work made us an egalitarian meritocracy into a society of haves-and-have-nots. Now it comes down to where you live and what sort of house you inherit from your parents. That's destructive.
Unless you've had your head under a rock, you know all this. But what you might not know is the complexity of the problem and the length of time it could take to fix it, even if we started now, and there's no sign that anybody really wants to do it.
The essay ranges from historical reasons for the problem to more recent factors, but concludes that the basic problem is that about two-thirds of people own their homes and they are quietly happy about the rising value of their property. No government, federal, state or local government is going to interfere with that. So there's a lot of talk, and aspirational targets, but nothing will really change.
You can read an edited extract of this essay at The Guardian.
December 16, 2023
“Economic history as a fundamentally political story” - John Keynes.
My job is mortgage-related, and I picked up this one as I’d like to know more about the housing market in Australia. Not familiar with Australian politics and economic policy history, and I reckon the book does a fantastic job of providing an overview of how government policies in the past century led to where the housing market is today (by August 2023, the median Australian house price was 7.4 times annualized average weekly earnings), in about 100 pages. 👍
The writer talks about the main historical changes in interest rates and the reasons behind such moves. And probes what has been pushing up house prices from both the supply and demand sides. The author covers more, but below are the main takeaways for me:
Supply side:
1. Zoning and planning at the state government and local council level.
2. Failure of the public housing plan made by the federal government.
3. Lack of transport infrastructure: trains that are fast enough to connect CBDs and suburbs within one hour.
Demand side:
1. The public psyche that housing is a main way to create wealth.
2. Capital gain tax and negative gearing that make property investment a method for income tax avoidance. But, meanwhile, it’s difficult for institutions to build and rent to the public as the tax benefit only favors individual buyers.
3. Immigration (but without infrastructure development to accommodate the new population).
I also like the idea proposed by the writer to tackle the housing affordability issue: to build trains that travel fast but not necessarily the high-speed trains common in Japan or China. But tbh I don’t think it will ever happen in Australia 😂, probably not within my lifetime.
The only thing I picked up with the essay (since I don’t know much about the topic or data) is where the writer seemingly suggests that a 30-year fixed-rate mortgage in the U.S is better than what we have here, usually fixed at 5 years maximum. But I happened to read an article criticizing this kind of mortgage on NY Times not long ago: (1) the mortgage type contributes to inequality and worsens the gap between haves and have-nots; (2) and lowers the supply of housing as house owners are reluctant to either downsize or upgrade; (3) if the Fed raises interest rates, the pressure falls on new house buyers.
An interesting read, and I’ll start paying attention to Quarterly Essay. 👀
My job is mortgage-related, and I picked up this one as I’d like to know more about the housing market in Australia. Not familiar with Australian politics and economic policy history, and I reckon the book does a fantastic job of providing an overview of how government policies in the past century led to where the housing market is today (by August 2023, the median Australian house price was 7.4 times annualized average weekly earnings), in about 100 pages. 👍
The writer talks about the main historical changes in interest rates and the reasons behind such moves. And probes what has been pushing up house prices from both the supply and demand sides. The author covers more, but below are the main takeaways for me:
Supply side:
1. Zoning and planning at the state government and local council level.
2. Failure of the public housing plan made by the federal government.
3. Lack of transport infrastructure: trains that are fast enough to connect CBDs and suburbs within one hour.
Demand side:
1. The public psyche that housing is a main way to create wealth.
2. Capital gain tax and negative gearing that make property investment a method for income tax avoidance. But, meanwhile, it’s difficult for institutions to build and rent to the public as the tax benefit only favors individual buyers.
3. Immigration (but without infrastructure development to accommodate the new population).
I also like the idea proposed by the writer to tackle the housing affordability issue: to build trains that travel fast but not necessarily the high-speed trains common in Japan or China. But tbh I don’t think it will ever happen in Australia 😂, probably not within my lifetime.
The only thing I picked up with the essay (since I don’t know much about the topic or data) is where the writer seemingly suggests that a 30-year fixed-rate mortgage in the U.S is better than what we have here, usually fixed at 5 years maximum. But I happened to read an article criticizing this kind of mortgage on NY Times not long ago: (1) the mortgage type contributes to inequality and worsens the gap between haves and have-nots; (2) and lowers the supply of housing as house owners are reluctant to either downsize or upgrade; (3) if the Fed raises interest rates, the pressure falls on new house buyers.
An interesting read, and I’ll start paying attention to Quarterly Essay. 👀
January 20, 2024
Alan Kohler's Quarterly Essay, "The Great Divide – Australia’s Housing Mess and How to Fix It," is a compelling exploration of Australia's housing crisis. Kohler argues that housing has become a centre of wealth creation for many Australians, but this has led to a significant societal divide.
The essay highlights how the housing market has been transformed into a commodity for speculation rather than a means for people to live. This has resulted in a situation where housing is unaffordable for many, leading to social issues such as homelessness and families going without food.
Kohler also points out that the focus on housing as a wealth creation tool has diverted investment away from other potentially beneficial areas such as innovative Australian companies, patents, and other economic activities.
This has resulted in mediocrity at the centre of the Australian economy, as the focus on housing stifles potential innovation and growth. The essay calls for severe government intervention to address the issue, arguing that the current situation is unsustainable and detrimental to the overall health of Australian society and its economy.
In conclusion, "The Great Divide" is a thought-provoking critique of Australia's housing crisis, highlighting the need for a shift in focus from housing as a wealth creation tool to a basic human right.
The essay highlights how the housing market has been transformed into a commodity for speculation rather than a means for people to live. This has resulted in a situation where housing is unaffordable for many, leading to social issues such as homelessness and families going without food.
Kohler also points out that the focus on housing as a wealth creation tool has diverted investment away from other potentially beneficial areas such as innovative Australian companies, patents, and other economic activities.
This has resulted in mediocrity at the centre of the Australian economy, as the focus on housing stifles potential innovation and growth. The essay calls for severe government intervention to address the issue, arguing that the current situation is unsustainable and detrimental to the overall health of Australian society and its economy.
In conclusion, "The Great Divide" is a thought-provoking critique of Australia's housing crisis, highlighting the need for a shift in focus from housing as a wealth creation tool to a basic human right.
November 29, 2025
First time having seriously read any written piece by Kohler and I’m very impressed by how concisely he articulated the long-gestating policy failure and the focus on demand as opposed to supply that have created our current housing crisis.
His proposed solution being an investment from the federal government in state-led train infrastructure aimed at extending beyond the 50km radius of the CBD is compelling and well thought-out. He proposes this while acknowledging that other policies aimed at helping remedy the issue are ultimately against the interests of a majority of Australians who are home-owners, as well as its leading institutions such as its banks, housing developers, local and state governments.
You can feel Kohler’s wearied pessimism as he breaks down each possible solution to the many leading causes of this issue as being unattainable and unlikely to actually happen. Thus, his strategy of “fast-commuting trains that extend beyond our capital cities” as a means of increasing supply feels like a last-ditch effort to enact actionable change within the near-future.
His proposed solution being an investment from the federal government in state-led train infrastructure aimed at extending beyond the 50km radius of the CBD is compelling and well thought-out. He proposes this while acknowledging that other policies aimed at helping remedy the issue are ultimately against the interests of a majority of Australians who are home-owners, as well as its leading institutions such as its banks, housing developers, local and state governments.
You can feel Kohler’s wearied pessimism as he breaks down each possible solution to the many leading causes of this issue as being unattainable and unlikely to actually happen. Thus, his strategy of “fast-commuting trains that extend beyond our capital cities” as a means of increasing supply feels like a last-ditch effort to enact actionable change within the near-future.
February 3, 2024
“The number one blockage to dealing with housing affordability is that there is no census that there is a problem, let alone how to fix it. Academics, economists and journalists all say it’s a crisis and renters complain bitterly that they cannot buy a house but majority of home owning Australians are happy to shut up and keep growing their wealth; and banks, developers and governments are happy to make sure it happens”
Extremely interesting read for any Australian both renter and homeowner.
Kohler has written this in an engaging and informative way that feels accessible regardless of what pre-existing knowledge you have.
As a young person he said some variation of “virtually impossible” a few too many times for comfort but overall was a very interesting and well written way to have reiterated how truely screwed young and/or low income Australians are.
Extremely interesting read for any Australian both renter and homeowner.
Kohler has written this in an engaging and informative way that feels accessible regardless of what pre-existing knowledge you have.
As a young person he said some variation of “virtually impossible” a few too many times for comfort but overall was a very interesting and well written way to have reiterated how truely screwed young and/or low income Australians are.
October 22, 2024
The last Australian book I read was on the housing crisis. Australia has a similar crisis to Canada: rapidly increasing house prices and rents, growing homelessness, sprawl. This book - or rather essay - is heavy on detail - speeches and policies quoted verbatim. It is light on solutions, especially since Kohler contends that reducing house prices or even keeping them stable while incomes rise is politically unfeasible, while rapid upzoning or even tax changes won’t work politically either. The emphasis is on home ownership, not nonmarket housing or renter rights. It feels rapidly written and a bit undercooked.
February 2, 2024
Alan is able to capture the heart and the details of the current housing affordability crises, as well as presenting a non-partisan recap of our domestic political history which leads us to where we are. As a young renter, this essay is as interesting and well written as it is sad. I appreciate Alan's ability to distill complex economic and political ideas into simple sentences. This essay is a great water cooler conversation prompter, and one that I'll recommend that more people read.
December 14, 2023
Great summation of what is a very complex and depressing situation, with lots of key information about what has been done to solve the situation, and the steps necessary to ensure equitable housing for future generations like myself.
December 26, 2023
Alan is a national treasure but I can’t help but feel we are all just royally fucked because I can’t imagine any government actually ever doing any of this to fix the terrible problem. Not while everyone is quietly hoping their own house price goes up. We are definitely fucked.
December 27, 2023
Alan Kohler, as always is brilliant. The correspondence on Micheline Lee's QE is patronising and self-serving.
Stop at the end of Alan Kohler's essay and be satisfied.
Stop at the end of Alan Kohler's essay and be satisfied.
May 26, 2024
Should be mandatory reading.
August 22, 2025
Depressing af
December 19, 2024
A great summary. I especially enjoyed the suggested solutions involving fast commuter trains. The current trend toward ‘urban infill’ seems to be very short sighted in comparison to creating new, liveable areas which are easily commutable to/from Australian cities.
May 14, 2024
This was an excellent holistic take on how home ownership in Australia went from fundamentally being about accessing a place to live, to now primarily being an investment tool for people with wealth to preserve it. The paper distills the problems that have led to the current housing crisis and a clear, pragmatic approach to how to rectify it - which is all well and good until Kohler reminds you there is virtually 0 political will to fix it. An important (albeit slightly depressing) read.
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