House Purchase Affordability: Where I Stand

Earlier this week, the Productivity Commission released its interim report on housing supply regulation. There is much to like here, and I find myself in broad agreement with much that is written.

For some time I have been thinking about how I view the house purchase market in Australia and how my views align with or disagree with some of the louder voices I encounter on twitter.

This note sets out how I think the market works, what would actually improve affordability, and where my view aligns with and departs from the main twitter commentators. Throughout, this is about the owner-occupier purchase price. While the rental/investor market is related, it is out of scope for this piece.

Weekly Energy Prices Update

With the war in Iran re-intensifying, I have returned to preparing a weekly energy update.

Crude

Brent is heading back towards $100 USD per barrel in the front month futures market.

Why Demand Rules the Housing Market

One boundary first. This is about the owner-occupier market, the price of buying a home to live in. Rents run on a different mechanism, the balance between demand for housing services and the dwellings available, and are a separate story. And, while both markets operate over the same total housing stock, what follows is about the price of buying.

Most goods compete for a share of your budget, and when they get expensive, someone makes more of them and the price eases. Housing competes far less than most, and in the places people most want to live it does closer to the opposite. It climbs toward whatever buyers can pay, because the supply that would hold the price down cannot easily be added there. In every market both sides - supply and demand - set the price. This essay is about why, in housing, the demand side rules, and why the supply side is so unusually unable to answer it. Take them in turn.