Strong housing prices are the result of strong fundamentals and government policies that have boosted demand without addressing supply barriers, and do not imply a bubble, according to a new Centre for Independent Studies report.
The report, Eight Housing Affordability Myths, pointed to a “critical lack” of new housing, as well as strong incomes and population growth and lower mortgages, as the causes of long-term price increases.
It found new land supply declined by an average 21 per cent across Australia’s five largest capital cities in the past decade, pushing prices up by an average 148 per cent to $504 per square metre.
Meanwhile, house prices have increased by an annual 3 per cent after inflation since 1970, while home ownership has slipped from 71 per cent of households in 1995 to 67 per cent in 2012, the report said.
“'Foreign investors and domestic investors have been made scapegoats when it comes to housing affordability, but they are no more to blame for rising house prices than first-home buyers,” report author Stephen Kirchner said.
“Land supply and the intensity of land use need to be freed-up to accommodate rising demand.”
The report called for a sweeping overhaul of zoning, planning and building approval processes to reduce direct and indirect costs of new dwelling construction, increase land use intensity, and accelerate new land release.
Tax reform should also be a part of any government efforts to improve affordability, the CIS report advised.