Last night, the Reserve Bank of Australia Governor Glenn Stevens acknowledged Australia may have given away a key natural advantage: inexpensive land. As far as I am aware, this is the first time the Governor has used this language.
Hectares of softwood and gazillions of bytes are consumed interpreting the words of government economic decision-makers. Their public comments are deeply considered and new themes are rare. These remarks are a watershed.
“…I very much agree with your points about the supply side, I mean I think that’s a huge issue in housing and in a sense if we’re too rigid on the supply side then fundamentally housing prices have to be higher. That’s not a bubble, that’s fundamental, that’s not good though. Because really in a country this size and the land we have, I can’t see how we shouldn’t be able to have fairly inexpensive shelter really and I wonder whether we’ve unnecessarily given away a natural advantage we have. But anyhow, that’s really beyond my area of expertise.”
Well, he meanders a little around house prices, shelter (structures) and land, but we all know the price of land is what fluctuates. Structure costs are overwhelmingly sunk labour and tied strictly to wages.
I have been talking for years about how important inexpensive land is to national prosperity. Low land prices would have a profound impact on every facet of economic activity, from decent housing for low income earners to profitable farming to industrial development and the delivery of services.
If the RBA and our economic mandarins observe a national strategic advantage they have an obligation to foster it and deploy it to the advantage of all. One of ours is space. We have chosen to welcome migration, dig up minerals, grow crops and animals – but also to strictly ration by price the access to land for young adults. They are presented with two repugnant options: buy at current stratospheric prices and become debt-slaves, or rent and enrich a rentier.
Glenn Stevens cannot acknowledge we are in a land bubble for fear of bursting it. But it is one thing to deny a bubble and quite another to stand mute as strategic national assets are squandered.
What are you going to do about it, Governor Stevens?