No room for NIMBY syndrome

MELBOURNE abounds in affordable housing. The Valuer-General reports that in the September quarter last year, there were 116 suburbs in which the median house price was less than $400,000. For the city as a whole, the median unit price was $385,000.

But there was a catch. Of those 116 suburbs, 86 were 20, 30, 40 or more kilometres out of town. Another 20 were 15 to 20 kilometres from town, all in northern and western suburbs. The suburbs with affordable housing closer in were all in the north and west, mostly around Sunshine. It was the same story with units and apartments: expensive close in, cheaper the further out you go. And on the fringe, the median block of land cost just $165,000 - even less in the suburbs where most blocks were sold: Tarneit, Craigieburn, Pakenham and Doreen.

The moral is clear. The housing that has become unaffordable for aspiring home buyers is mostly housing in the inner and middle suburbs: areas within easy reach of the city centre, serviced by trains or trams, the sort of housing most of us grew up in.

In recent days, The Age has explored how Melbourne might develop to house the 7 million inhabitants now forecast for 2050. This debate has a long way to run, but our Project Melbourne series has shed light on the issues the Brumby government must now confront if it wants to lead, rather than drifting with the tide.

But it has also shown that the causes are largely beyond the state government's responsibility. Housing prices have soared because of an imbalance between supply and demand. More people want to buy houses than there are houses to buy. And the comparison of prices shows that imbalance is not so much on the perimeter, but in the inner and middle suburbs.

Interest groups keep telling us the solution is to zone more fringe land for housing. But we already have zoned urban land in spades, owned by developers who are holding on to it so they don't flood the market. Releasing more land will solve nothing.

We have an imbalance because demand for houses has been swollen by three policy changes made by federal governments, while the supply of housing in inner and middle suburbs has barely grown. So we now have shortages of the houses people want - and so prices have risen.

The interest groups know that, but want to shield their interests from change. If that's our attitude, we'll solve nothing. If we try to shift the blame or tinker at the edges rather than fix the problem, house prices will keep rising. Australia will keep changing from a nation of home owners to one of landlords and tenants.

The first policy change was the Hawke government's restoration of negative gearing in the 1987 budget as an approved tax break. Since then, the number of rental investors has more than trebled, from 511,000 to 1.7 million. They now own at least 2.4 million homes and their share of bank finance to buy established homes has soared from 8 per cent to 40 per cent.

The huge growth of rental investment has pushed up prices, and pushed out more than a million aspiring home buyers, who have been forced to remain renters (keeping the rental market tight). Census figures show that just in the decade from 1996 to 2006, the proportion of middle-income Melburnians aged 25 to 44 who owned their own home shrank from 68 per cent to 57 per cent. If the tax break stays, many of them will never own a home.

The second policy change was the Howard government's huge increase in net immigration: nationally, from 79,000 a year in the '90s to roughly 300,000 now - and in Victoria, from 20,000 a year to more than 80,000. This required far more housing and better infrastructure in the cities that housed them. But that didn't come in the time and scale required. If you push more people into the same housing stock, prices rise.

Now it appears that Melbourne prices are being lifted by a third policy change: the Rudd government's decision in December 2008 to stop requiring temporary residents to get approval from the Foreign Investment Review Board to buy a home. At the time, Labor wanted to prop up housing prices against the risk of a US-style collapse. But now, Melbourne prices are being pushed higher still by money from outside.

In Victoria, in the four months to January, bank lending to people buying existing homes was just 1.6 per cent higher than two years ago, and heading down. Yet Melbourne housing prices were 16 per cent higher, and heading up. Assistant Treasurer Nick Sherry was faking it last week when he told us the government was monitoring purchases by temporary residents - it no longer collects any data on them.

The federal government's tax breaks increase demand for housing, not its supply. To lower house prices relative to income, we will need to sharply increase supply. Redirecting those tax breaks to lift supply instead of demand could be a big help. But two other changes are needed.

First, the Rudd government's valuable social housing initiative - building 19,400 more homes for public, co-operative or defence housing - should not be a one-off, but the start of a renewed government role as a provider of affordable rental housing. Housing Minister Tanya Plibersek notes that if public housing's role had simply been maintained at 1996 levels, today there would be 90,000 more units, and less pressure on low-income renters.

But the other change must come from us. We need to kill off the NIMBY syndrome. If we want more affordable housing in our suburbs, we have to make room for it. We need to give up knee-jerk reactions against new housing in our street, and become more proactive, looking at where those new homes can go. We can either build out, or we build up. It makes sense to build up around the main suburban centres, around train stations and on tram lines. I once lived in a city like that, and it works.