20 Jun 2017

The Supreme Law

Dr Shane Geha

Dr Shane Geha

20 Jun 2017

positioner

In my view, the answer to Sydney’s housing affordability problem is a complex one. It is not just one thing that will eventually give rise to a solution, if it were so simple it would have been done already. 

This is not solving two equations in two unknowns with a quick pop-out answer. It is a little more like a Sudoku where all the numbers impact on each other and there are so many combinations that can be used, most of which lead to wrong answers.

We are still very lucky by world standards. We have a highly-productive city (and nation) with lots of room to grow, supporting a highly-prosperous middle class, perched atop a huge pile of mineral-filled dirt, that supports enough crops and livestock to feed Asia for decades to come. All this whilst we enjoy some of the planet’s nicest sandy shores and eucalypt bushland.

But housing affordability is a serious issue that we all need to tackle together.

Taking Sydney as an example, the fact is that there are now some 26 suburbs, where houses have an average price of $2 million and the median house price is sitting on just over $1.2 million, completely out of reach for the average person.

The reality is, we are not trying hard enough to make “a real go” at solving this issue. We call it window dressing but the French have a far more elegant idiom: “L’habite ne fait pas le moine” or “the habit does not make the monk”. Robing the problem in a semblance of respectability does not give substance to a credible solution.

But I like to think of things in a simple way: what composes the market price of a home? There are three broad categories: construction; land; and fees and charges. Profit goes on top – you know that thing that you need in a capitalist system to make any idea a reality.

So I would say that construction costs are the least flexible, as they are composed of materials, which are harder to obtain with each year that passes and labour which is capped at a minimum rate and generally costs somewhere between $3,000 to $4,000 a square metre of gross floor area.

Next we have the land costs, which sit somewhere around 30 per cent of the total price for the average home. Land price should be the most elastic part of this equation, yet in Sydney it is not for two reasons; Sydney has a very slow and old approval process, often taking three to five years to gain permission to subdivide land or build and deliver an apartment building. Even after your land is zoned for a house, you still require a costly development consent that often takes years and tens of thousands of dollars to achieve. Secondly, land is a limited commodity confined within a geographical basin, bound by National Parks, The Blue Mountains and the vastness of the Pacific Ocean.

That leaves only fees and charges: the GST; Stamp Duty; Land Tax; Contributions to Council and many others, which now add up to about 30 per cent of the price of a residential dwelling. This means that for a medium sized project of 50 units, you would need to write a cheque in excess of 1 million dollars to the council.

So, if the government was serious about an affordable housing solution, if the three tiers of government could live without all or some of their taxes, we could deliver an $800,000 apartment to the public for a mere $560,000. That sounds better already doesn’t it?

Going further, if the Crown which owns most of the land in Australia could put the land up for free, we could deliver apartments to the public for $320,000.  Now that’s starting to sound a lot more affordable, isn’t it? And the government can put as many conditions on that as it might like; reserved for young people and key workers or perhaps no resale for twenty years.

Nothing is unfixable, particularly because the main fault here lies in the rules and we make the rules. So, let’s make new rules and better rules to best guide our ever-changing societal needs forward. And if we ever forget which is the most important rule to use, I offer the sagacious words of US Supreme Court Chief Justice Sutherland, who said: “Salus Populi Suprema Lex Est”…” the Welfare of the People is the Supreme Law”. 

Let us solve our problems using our own rules. Let us not think that we have created a monk simply through brown-textured corded cloth. Let us ask governments on all levels to offer valuable and well-located land and remove taxes, in the interest of the very tax payer these assets and revenues are intended to support.

It’s not simple but it is possible with some thoughtful manipulation of the basic rules of governance and we should not forget the tenets of the supreme law: “the welfare of the people”.