Australia Central Banker: Higher House Prices a "Social Problem"

Glenn Stevens, the Governor of the Reserve Bank of Australia expressed concern about the growing gap in housing affordability in the nation to a parliamentary committee on Friday. Stevens raised questions about the cost and supply of housing, asking:

"How is it that we can't add to the dwelling stock for the marginal new entrant more cheaply than we seem to be able to do," he asked.

According to an article in the Perth Western Australian ("High price of homes 'stealing future'") Stevens went on to say that key State and local government issues around supply, zoning, transportation and infrastructure seemed to be making a simple block of land more expensive than was necessary.

Virtually all of Australia large urban areas have implemented urban containment policies (called "urban consolidation" in Australia and "smart growth" in the United States). The result has been to increase house prices from 2 to 3 times the historic norm relative to incomes. These price increases are consistent with the overwhelming economic evidence of a strong association between urban containment policies, especially those that ration land for development through devices such as urban growth boundaries.

The Chairman of the Reserve Bank of New Zealand has identified a 10-times "across the urban growth boundary value" difference per acre in Auckland, which is similar to findings in Portland, Oregon.

Stevens concluded his housing comments noting that: "There's a very big inequality between generations building up and I think that's a social problem as much as any economic point."