Australian Cities Severely Unaffordable


The latest annual Demographia International Housing Affordability Survey ranks all Australian capitals as Severely Unaffordable. They’re right and the statistics back them.

Housing has two elements, the building and the land.  What fluctuates is the land price; structures are worth only what they cost to build.  High land prices mean current buyers are committing many work-years to win title to that dirt or space.

Demographia sees restrictive planning controls as the key determinant of high land prices.  They compare cities with light regulation to heavy and can show high levels of correlation, confirming their opinion.

Their argument has much merit – but it isn’t the whole story.

Compare Demographia’s opinion to Prof. Steve Keen’s.  He says the willingness of banks to over-lend and speculators to over-borrow is the root cause of the land bubble.  Big mortgages condemn people to a lifetime of debt-slavery.  If too many can’t repay, banks go bust. So, Keen is right too.

We only need peel one more layer off this onion to arrive at the centre.

Our use of land creates economic rent, as David Ricardo made clear in 1809.  These economic rents are what banks lend against, and what you deliver up to any mortgage holder.  Planning restrictions limit supply and boost the economic rent of advantaged land.

In both these world-views, we see existing landowners and banks capturing or capitalizing economic rents and free riding on everyone else’s hard work.

We cannot stop the creation of economic rent, it is like spring water bubbling out of the ground.  But we can exploit it for the common good. If government takes its revenues here, rather than by taxing work and business, no harm is done.  Labor keeps all it earns.  Enterprise has a bigger market and better profits.

Taxing land and minerals, not people, removes barriers to success.

Demographia’s statistics have been criticised by the usual suspects employed by the politico-housing complex.  Demographia compares median house prices as a multiple of median incomes.  It is statistical robust and allows genuine comparison between cities and countries. This may not be how the spruikers see the world, but is proves Australian land is seriously more expensive, relative to income, that our international peers.  This needs correction, which the market will provide.

Don’t Buy Now!





  1. hidflect23-01-2013

    I returned to Perth from Tokyo in June 2012 intending to buy a small place and work. Despite the big projects, work is actually scarce due to the mass influx and maturity of the projects. Add onto that a one-of-four dogbox unit goes for $600,000. Insanity. An English guy told me for that money I could buy 3 houses in England (not London) and retire on the rental income. This bubble here in WA will probably last another 2-3 years and then… Kerrashh.

    FIFO influx, negative gearing and hot investment money from overseas has pushed this to Mt. Everest heights. The result will be decades of misery. If you have property in WA then sell in the next 12-18 months.

  2. Investar09-03-2013


    I love your professional prediction of when the housing market will crash firstly.

    I am also wondering why you are even bothering commenting on this forum, unless you are bored on that tropical island you live on. Because if your mate knows where to buy cash flow positive properties in England that you can retire on for only $600k you should be living on that island, I know I would be.
    By the way it would be greatly appreciated if you could let me know where these are located.

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