Housing market compared to toilet paper

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Controversial economist Leigh van Onselen has published an opinion piece comparing Australian property to the reported toilet paper shortage in Venezuela.

Quoting an article by The Telegraph detailing the Venezuelan government’s rationing policies and how they have caused shortages in household items – including toilet paper – van Onselen said that parallels could be drawn with Australian housing.

The Telegraph article reported that Economists believe the South American country’s shortages have stemmed from price controls meant to make basic goods available to the poorest parts of society.

Van Onselen said that this highlights one of the ‘most basic’ tenets of economics.

“When a government implements policies that impede the market’s ability to supply goods, such as price controls or quotas on the quantity of goods supplied, it inevitably leads to a combination of:

  • Shortages (or perceived shortages) in the number of goods produced
  • Rises in prices either directly, or via black market activity
  • Wasted economic activity, such as excessive search times or activities aimed at side-stepping the regulations
  • Speculative activities or hoarding

He said shortages in toilet paper brought about by price controls is causing a lot of ‘wasted’ economic activity, with the country’s citizens spending excessive amounts of time searching for the product.

As an example, one Venezuelan has been reported to have developed a smartphone app enabling users to let each other know which supermarkets still have stocks of toilet paper.

The shortages are also leading to speculative activity and hoarding. Buyers are either stockpiling the paper to avoid running out or selling it on the black market to make a hefty profit.

While van Onselen admitted the mechanisms are different, he said similar factors are in play when it comes to Australia’s supply of urban land. He referred specifically to housing in markets where urban consolidation (‘smart growth’) policies are in effect.

“Examples of such policies include restrictive zoning, urban growth boundaries, or cumbersome planning approval processes (e.g. precinct structure plans) that place an effective quota on the quantity of land that can be used for housing. When combined with the lack of infrastructure funding and provision, such policies usually result in:

  • Inflated land costs and unaffordable housing
  • Smaller land plots than would otherwise be provided in the absence of such regulations
  • ‘Panic buying’ from home buyers afraid of ‘missing out’
  • Land banking and other speculative activities from land holders ‘cornering the market’
  • Inefficient ‘leapfrog development’ (aka planner sprawl) as buyers look further afield for more affordable housing options.”

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