Home Erectus

Andrew Pegler – 09 April 2010

What’s the best way to deal with the current house price surge? Frankly I dunno but here are some cave drawings I prepared earlier.

When homo erectus moved out of Africa during the Early Pleistocene, he probably never imagined having to fork out $1mill for a three-bedroom unit in inner western Sydney or $1.3mil for a wrecking ball candidate in inner Melbourne. After all caves were cheap and the only problem was evicting sabre tooth tigers with contrary ideas.

We all know this housing boom is basically nuts (and berries) and that, despite last week’s rate rise, it won’t be coming off the boil any time soon. So short of taking a Cro-Magnon club to the whole problem I’ve scribbled up a few primitive drawings for your grunting pleasure. So drape yourself in Mammoth pelt, invent the wheel and roll over here as I attempt to illuminate our shared problem with this new thing I call fire.

Increase supply?

Is the problem a simple matter of supply and demand? Should we increase supply and thereby slow the price rise? Well derrr. Yes we should and must. The National Housing Council last year estimated Australia was 85,000 houses short of what we needed. The Council is about to release its second report and according to rumours I heard on a recent Mammoth hunt with economist Saul Eastlake this year’s figure will top 100,000. But while opening up the urban fringe is great on paper the problem is a serious lack of suitable land.

Remove subsidies

The government continues to pump up demand with subsidies like first home buyers and negative gearing. Rather than put more cash into the hands of first home buyers, most of which goes to the sellers’ pockets, a lot of people reckon we should cut the first home buyers grant altogether. However, this is another “fine on paper” idea and doesn’t account for the swathes of young folk counting on that leg-up. Then there’s negative gearing i.e. borrowing money to invest in property and claiming a tax deduction on the difference between the rent you get and the interest you pay. Removing this is very hot politically but as pressure develops the government may grow the kahunas to take this Triceratops by the horns.

Cut immigration?

Does the answer lie in curbing population growth and cutting back on immigration? Unfortunately it’s not that simple. With a resources boom in full swing we need all the people we can get. If we don’t get them, the resulting labour scarcity will drive up wages, inflation and interest rates. A disastrous troika indeed!

Until next week, home sapiens, keep bidding and remember location, location, location.