Our politics is stuck in a rut when it comes to Australia's housing crisis.
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The Labor Party can't talk about problems on the demand-side. It went to the 2019 election promising to abolish negative gearing and the capital gains tax discount, and lost.
Now Labor only wants to talk about the supply-side - building more homes - when it comes to housing affordability.
The Greens have the opposite problem. The Greens can't talk about the supply-side because the party is full of people who oppose building more homes on environmental grounds.
To keep their constituents happy, the Greens can only talk-up the role of demand-side problems in worsening housing affordability.
The Coalition is even more complicated.
The Nationals want more people to move to the regions, and probably see rising house prices in the cities as a good thing for making that happen.
And for the Liberal Party, there is a strong correlation between home ownership, having an investment property and voting Liberal which complicates their policy position.
As the old saying goes, people get the leaders they deserve. The reason Australia's politicians can't agree on housing is because Australia's population can't agree on housing either.
Incentives are not aligned. Two-thirds of all Australian households own their own homes and don't want to see the price of their biggest asset fall in value.
The other third is renting and have seen their home owning peers, parents and grandparents accumulate tons of wealth thanks to their housing status.
Nothing will change if incentives don't change. NIMBYs (not in my backyard) are happy with their plot and don't want to share it with more people.
YIMBYs (yes in my backyard) want the NIMBYs to be overruled and want more medium- and high-density housing in our cities.
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The status quo will prevail until renters out-number property owners. But even if that happens, we get the same bad outcome that we have today: one group being overruled in favour of another.
Luckily, economics has a better way. In 1960, Nobel prize winning economist Ronald Coase proved mathematically that, when it comes to property rights, we will arrive at an optimal and efficient outcome if we allow individuals to bargain with each other.
A key reason Australia has a housing crisis is because "Coase Theorem" hasn't been allowed to operate and Israel, particularly Tel Aviv, shows us how this can work in practice.
Israel's housing policies give owners the right to vote to redevelop their existing homes into taller, denser developments with more units.
In buildings built before 1980, home owners can vote on proposals from property developers to knock-down their older, crumbling buildings and replace them with new ones.
Everybody wins. Homeowners get newer, nicer homes and get further cash incentives if they need them. The public get more homes available for purchase.
The outcome has been nothing short of amazing. Home owners are now often the biggest supporters of building new homes.
In some instances, the unimaginable happens: home owners actually complain that there aren't enough development proposals going through, and that the existing proposals don't upzone their buildings enough.
In 2010, these policies accounted for 2 per cent of all new homes built.
By 2023, they accounted for more than a third - 37 per cent - of all new homebuilding.
In Tel Aviv, they account for more than half of all new homes. Israel has achieved the unthinkable: they have turned NIMBY home owners into the country's biggest YIMBYs.
The logic is straightforward. It all comes down to basic incentives. If a developer wants to knock down existing houses in Australia and build medium-density apartments, their chances aren't good. Existing home owners will almost certainly oppose it (why wouldn't they?) and, even if they don't, the arduous process of getting planning approvals would take years.
In Israel, no planning approval is required. Approval is automatic if the existing home owners and their neighbours support the proposal. And how does a property developer get community support? Exactly how Coase Theorem would predict: they buy it.
The problem with the current system in Australia is it relies upon NIMBYs to become YIMBYs out of the goodness of their hearts, while property developers get rich. In Israel, the proceeds are shared and we get more properties developed as a result.
Israel is not alone. Many countries are doing better than Australia on housing policy.
New Zealand's new, bipartisan policy allows up to three houses, three storeys tall, to be built on most sites without requiring resource consent in the country's major cities.
New York City's system of "air rights" means that a property owner who builds shorter or narrower than allowed under the planning rules can use or onsell the extra height above them. If neighbours want to maintain their harbourside views, they can buy the air rights.
Britain is looking at devolving planning and zoning decisions to street level, similar to Israel, allowing developers to negotiate and compensate those directly affected in order to win the necessary support of 60 per cent of the street's residents.
Australia's strategy, on the other hand, is to pretend that incentives don't matter and to simply hope things work out.
Well, the jury is in, and it hasn't worked. Perhaps it's time we learn from the rest of the world and try something new.
- Adam Triggs is a partner at the economics advisory firm, Mandala, a visiting fellow at the ANU Crawford School and a non-resident fellow at the Brookings Institution
Adam Triggs
Adam Triggs is a partner at the economics advisory firm, Mandala, a visiting fellow at the ANU Crawford School and a non-resident fellow at the Brookings Institution.
Adam Triggs is a partner at the economics advisory firm, Mandala, a visiting fellow at the ANU Crawford School and a non-resident fellow at the Brookings Institution.
