July 29, 2009 | Graham

More pressure in the housing bubble

RBA Governor Glen Stevens was widely quoted as warning of a housing “bubble” if we didn’t use the current period of low interest rates to increase housing supply. The word “bubble” appears to be a journalistic embellishment. What he said was:

“Given the circumstances – the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs – this ought to be the time when we can add to the dwelling stock without a major run‑up in prices. If we fail to do that – if all we end up with is higher prices and not many more dwellings – then it will be very disappointing, indeed quite disturbing. Not only would it confirm that there are serious supply-side impediments to producing one of the things that previous generations of Australians have taken for granted, namely affordable shelter, it would also pose elevated risks of problems of over‑leverage and asset price deflation down the track.”

The most amazing thing about this statement is that he doesn’t identify the current situation as it is now as being a “bubble”.
He might also have been more definite with his comment that there are serious “supply-side impediments”. Coincidentally with his speech the Queensland government was releasing its SEQ 2009-2031 Regional Plan. The plan sees the need for another 754,000 dwellings in the next 22 years, with half of these to be in-fill or redevelopment.
As anyone who has been in the urban consolidation development market knows, there just aren’t that many sites at an affordable price in existing areas. And there won’t be, because apart from the increasingly rare one-into-two propositions, the cost of buying just an average block of land with a house on it in an appropriately zoned area only to move or demolish the house is prohibitive.
So, while the RBA Governor wasvigorously hand-waving, at least one state government was taking no notice and doing its best to increase the cost and limit the supply of dwellings to help create what any journalist would call a “bubble”.

Posted by Graham at 1:01 pm | Comments (4) |
Filed under: Economics


  1. Hey everyone. I’m hoping to meet new friends here so drop me a note when you
    get a chance.
    I hope to make some quality posts soon but first I have to look around the forum and
    familiarize myself with everyone and the forum.
    Bye for now. lol
    Biggest Loser of All Time

    Comment by Shenelle — July 30, 2009 @ 2:35 am

  2. 20 years ago the Goss government undertook wide ranging Public Service reform. One result was the adoption of changes to the Local Government Planning Act abandoning the system of zoning for development(i.e. actually zoning areas identified as suited to development) to a system of zoning to existing use, with areas identified for development identified on ‘Strategic Plans’. The perceived benefit was to allow ‘better’ control of development.
    The result has been, however, that any and every development requires an application for a ‘Material Change of Use’ resulting in a longer and more expensive process requiring extensive consultants reports, greatly slowing the development process and significantly increasing costs and risk.
    A typical example would be that under the ‘old’ system, a developer would purchase a site zoned for ‘multi-unit’ development, remove the old improvements, build (with a building permit) and sell. A small unit development might take a year to 18 months. Under the new system, even land identified as suited, will require a process consuming a minimum of a year before the application for a permit to build, can even begin, and a minimum total time double that previously required.
    Is it any wonder that there is a ‘supply side’ shortage of housing and an affordability issue?

    Comment by Greg Clacher — July 30, 2009 @ 11:31 am

  3. Impact assessable development applications and performance based assessment, which was a product of the fitzgerald reforms has been sidelined by vested interests at affordable housings expense.

    Comment by Dallas Beaufort — July 30, 2009 @ 11:54 am

  4. In NSW 37% of a house /land package is made up of Govt taxes and charges.It does not pay anyone let alone a developer to build houses unless they are in up market areas in the $ million plus range.
    State Govts now use land as a source of revenue thus making housing unaffordable.So by limiting the growth of their economies they are reducing their own incomes.So we all spiral downwards,with over inflated housing assets,reduced employment and comatose state Govts trying to find new taxes,charges and fines.

    Comment by Arjay — July 30, 2009 @ 3:47 pm

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