Latest / Uncomfortable Conversations with Josh Szeps / PREMIUM: "Has Home Ownership Become Hereditary?" with Peter Tulip

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PREMIUM: "Has Home Ownership Become Hereditary?" with Peter Tulip · Uncomfortable Conversations with Josh Szeps

• 0:00
  Good day, humans. Welcome to the safe space for dangerous ideas. And the dangerous idea
• 0:07
  today, the uncomfortable conversation we'll be having is the idea that the reason why
• 0:13
  houses are so bloody expensive, why the ability to get into the property market is now beyond
• 0:20
  the reach of average people in countries like Australia, is actually because we want
• 0:26
  it that way. Not that we know we want it that way, but that a majority of people who
• 0:31
  benefit from the status quo do not want to see the kinds of changes that would be required
• 0:37
  in order to keep property prices stable or even have them declined. There are a lot
• 0:41
  of factors going on here. The blame can go around between tax policy and development policy,
• 0:47
  the abundance agenda, and whether or not the left should be proud of itself for preventing
• 0:53
  high rises and preventing the desecration of charming communities or should be ashamed
• 0:58
  of allowing developments that could otherwise bring down the price of property and make
• 1:03
  it more affordable for regular folks. Today's guest, Peter Chewlep, has been at the highest
• 1:09
  levels of American and Australian policymaking. He was at the US Federal Reserve. He was hired
• 1:15
  by Alan Greenspan. He was there throughout 9-11 and the global financial crisis and came
• 1:22
  back to Australia where he was at Australia's equivalent of the US Fed, the RBA, the Reserve
• 1:27
  Bank of Australia during the pandemic, and has some real insights into what gave rise
• 1:32
  to the property boom that we've seen in recent decades. He's now the chief economist
• 1:37
  at the Centre for Independent Studies, and he worries that the widening gap between
• 1:43
  the haves and the have-nots, the emergence of a class of property owners who are able
• 1:48
  to bequeath their property to their children while other people are locked out of the property
• 1:53
  market in perpetuity, is causing impossible strains on liberal democracy, and is morally
• 2:00
  inexcusable in a fair-minded country. To figure out what to do about it, I wanted to sit
• 2:04
  down with Peter, who was kind enough to come by the studios, please enjoy as much as I
• 2:08
  did, the one the only Peter Chewlep.
• 2:10
  Correct me if I'm wrong. I mean, property in the capital cities of Australia has basically
• 2:20
  been doubling every 10 years since the Second World War, or certainly since the 70s.
• 2:27
  Yep, right? Yep. So for longer than I've been alive, there's just been this cash generating,
• 2:35
  machine, and it's hard to know whether or not that can continue, or whether that's
• 2:41
  some kind of half-century-long bubble that cannot, like, how can the 2.4 turn into, how can
• 2:48
  that triple in another 20 years? It's going to be a $10 million. So a big chunk of that
• 2:52
  disinflation, just all the prices have been going up a bit. When you were just for inflating,
• 2:56
  not a very big chunk, I mean, not inflation hasn't tripled in the past 28, tripled prices in
• 3:01
  the past 20 years. But a better number, more, a more representative number would be that
• 3:06
  house prices in Australia have risen about 2.5% faster than inflation over a very long time
• 3:13
  period. Back since the early 1950s is a good starting point because there were price controls
• 3:21
  during the war. Sure, and a half percent to an economist is meaningful. To a layperson,
• 3:27
  it sounds like a small number, but when you compare it to a half percent per annum over the
• 3:33
  course of almost a century, or 80 years or 70 years or whatever, it is vastly faster than inflation.
• 3:39
  You should. You ask, can it keep going? Yes, it can. I mean, go to Manhattan, or London,
• 3:46
  or San Francisco, and there are, I mean, it's surprising to Sydney's scientists, but there are
• 3:53
  places on the globe that are actually worse. We're housing is even more expensive.
• 3:58
  To clarify, are they, they're worse in raw numbers, but how am I read that like Sydney has the
• 4:03
  most expensive property in comparison to the average salary? Yeah, so there are different ways
• 4:09
  which you can do the numbers. And those numbers tend to be very sensitive to
• 4:13
  how narrowly you define the city. Yeah, so I see. Yeah, I mean,
• 4:19
  Manhattan is incredibly expensive. Yeah, and that's an issue with all metropolitan areas.
• 4:29
  And doing those measures consistently is very difficult. Right, because different cities
• 4:34
  are organized in terms of the municipalities. And so for things, I mean, I just rely on anecdotal
• 4:40
  reports. I mean, you have friends who spend a bit of time in Manhattan, or London, and
• 4:45
  yeah, they will say it's even worse. Although a friend of mine just sold his place in Los
• 4:49
  Angeles in a nice part of L.A. in Santa Monica, and he paid 800 and something grand for it 20 years
• 4:57
  ago, and he sold it for 800 and something. So the, you know, so he kind of would move to Sydney.
• 5:05
  He's not coming to Sydney for 800 grand, but that shocked me because I don't think there's a single
• 5:09
  property that you could find in Sydney or Melbourne that hasn't gone up in the past 20 years.
• 5:13
  You know, like this was, I mean, of course, you could find some derelict place that we
• 5:17
  know, but there's gone backwards. But, you know, there are places, I mean, so one interesting area
• 5:23
  is Docklands in Melbourne, where not coincidentally, they've built lots of very tall apartment buildings,
• 5:32
  and the prices of those units have actually declined over the past decade or so.
• 5:36
  Is that right? And are they mostly investments? Or are people living in them?
• 5:42
  I think a lot of them are rentals. Yeah, you'd be kicking yourself when you bought it off the
• 5:49
  plan thinking it was guaranteed to go up. Let's assume that you write about the fact that,
• 5:54
  you know, the main problem is that we're not building enough, and then suppose you remove all
• 5:58
  the height restrictions, and everyone can build as high as they want to. How much does that affect
• 6:04
  the 300 to 700 to 2.4 million phenomenon over the past 30 years? Like does that bring it down?
• 6:12
  Like does that eradicate the problem? Or does it just shave 5% off? If 10% off?
• 6:19
  If you were to build a lot of very tall buildings, yes, that will have a substantial effect on
• 6:24
  affordability. It's a question of what scale you do it at. We have been building some tall
• 6:31
  buildings, and it's nowhere near enough to put a dent in prices. If we were to do more so,
• 6:37
  then you'd have a much bigger effect. It's supply and demand have very clear, very strong effects
• 6:45
  on the cost of housing, and you see that we see that very clearly. When the gap between supply
• 6:53
  and demand increases, so when demand outships supply, prices rise, when supply catches up,
• 7:01
  the prices fall. The demand is coming from not just people having babies, but you mentioned wealth
• 7:11
  and immigration. There's also domestic movements of people between different cities.
• 7:17
  That varies very much for different countries and different time periods and so on. Over
• 7:26
  a long period of time in Australia, almost all the growth in demand is because of higher
• 7:31
  population in turn due to higher immigration. But in other countries that don't have our
• 7:39
  immigration program, it's rising incomes. You mentioned California, for example.
• 7:48
  That tends to be a long-run gradual effect. In the short run, you see huge peaks and troughs
• 7:57
  in house prices. A lot of that is driven by interest rates. When interest rates rise quickly,
• 8:06
  as they have in Australia over the past year or two, prices tend to moderate. When prices go down,
• 8:16
  the prices accelerate again. Just to clarify for our American listeners,
• 8:21
  one of the weird quirks in Australia is that in America, you lock in your interest rate for
• 8:27
  the duration of the loan normally. It's backed by the government in the form of Fannie Mae and Freddie
• 8:33
  Mac elsewhere, especially in Australia, you just pay your mortgage repayments fluctuate over
• 8:39
  the course of the 25 or 30 years and so you're much more sensitive to interest rates. Although
• 8:45
  they probably have less of an impact on the housing market, I would imagine. If you could lock
• 8:50
  in a low interest rate for 30 years, then you would definitely be more likely to buy.
• 8:53
  People expect to own a home for 10 years or so is typical. People have a sense of where interest rates
• 9:04
  are going to be over the course of their tenure. It's expected interest rates over a substantial
• 9:12
  period of time that have the most effect. I see. A very short-run change in interest rates
• 9:18
  doesn't have a dramatic effect on house prices. When you talk about income going up,
• 9:26
  there's also a question of who's getting the income. You look at a sea like San Francisco,
• 9:31
  which you mentioned. There you've got a small proportion of the population earning extraordinarily
• 9:36
  high incomes in the tech sector. The rest of the population hasn't had their incomes change
• 9:41
  and is feeling the burden of the fact that property prices have kept up with that 20% of the
• 9:47
  population at whatever it is that is very well compensated. In fact, it being priced out
• 9:51
  of San Francisco. It is a very big problem in the expensive cities. We also see this in Sydney and
• 10:00
  London and New York that people on low incomes are leaving the expensive cities. These cities
• 10:09
  are increasingly the reserve of wealthy professionals. One of the things that you can do in the
• 10:15
  United States, which you can't do so much in the UK and Australia, is just go to a different
• 10:19
  city that's not so expensive, but it's still fairly vibrant. If you want to leave San Francisco,
• 10:23
  there are 300 cities of a couple of hundred thousand people that you can go to around America.
• 10:28
  Australia is basically two big cities with a handful of million population cities and then
• 10:35
  2,000 miles of desert. It's much more difficult to escape in a similar phenomenon in the UK.
• 10:40
  What are you going to do, Manchester? You can, but it's not like going from San Francisco to
• 10:46
  Portland. That's an issue for us researchers. It's difficult to translate some American research
• 10:53
  into Australian terms for reasons like that. Why is there still high property prices in places
• 11:00
  that don't have very strict regulations on building, like I'm thinking of Austin in Texas and so on,
• 11:06
  like, wouldn't your thesis say that there shouldn't be a rise in property prices if you can build
• 11:11
  easily? My understanding is that prices and rents in Austin have fallen fairly substantially
• 11:17
  over the past year or two. I mean, I'm talking about the 20-year trend.
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  So it's all even in good functioning housing markets, it takes time to supply to adjust.
• 11:32
  And so if you do get a big burst in demand in particular, the Texas economy has been growing
• 11:39
  relatively quickly, especially in Austin, yes, it takes time for construction to catch up.
• 11:45
  Bird, my understanding is that it has been catching up and so prices and rents in Austin have been
• 11:51
  declining. And the restrictions that we see in big cities over not just height, but also heritage
• 11:59
  and what you can do to places like one of the reasons why I'm currently dealing with the property
• 12:06
  market is because my the first and only home that I ever bought is almost impossible to do anything
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  with because it's on a pretty treeline street opposite a park and it was built in the 1860s.
• 12:16
  And so I don't have any way of expanding its size or adding on the room to the front of
• 12:23
  it because that would make the street look unpretty according to the local council.
• 12:27
  So as a result, there's inefficiencies in my having to sell Latin by something else and pay
• 12:32
  stamp duty, which is a tax that you have to pay every time you buy a sell property in Australia.
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  What would you do about heritage listings and council restrictions and things?
• 12:43
  Should I just be able to put up a six story building if I wanted to in a pretty treeline street?
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  Like what does that do to the character of the place and what rights do my neighbors have to object?
• 12:52
  So it depends on if it's an unusually old or unusually attractive building, then yes,
• 12:59
  it should be preserved. I mean, I think there are strong arguments for that.
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  The problem that we have in Australia is that we have a heritage system that goes far beyond
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  protecting unusually worthy buildings to huge swathes of Sydney real estate.
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  A locked in amber by the heritage system.
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  And these are pretty ordinary suburban buildings.
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  How dare you say that about my house.
• 13:31
  But you're right. You said your place was built in 1860.
• 13:35
  Yeah.
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  But that's normal for that.
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  That's not that unusual for the neighborhood, for the other west.
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  You think about Palma and Rosal.
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  Well, my Sydney standards in 1860 building, that's what 160 years.
• 13:48
  That's much older than most.
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  Okay.
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  But we have heritage locking in place building.
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  A lot of buildings built in the 60s and 70s.
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  Yeah, right.
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  Yeah.
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  And, okay, tastes for brutalism.
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  Large numbers of people consider these buildings to be an ISO.
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  Right.
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  And yes, so you've got concrete car parks being preserved.
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  Car ports.
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  Yeah, a lot of many very ugly buildings heritage listed.
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  And I think that is a problem.
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  But I mean, that's because it does enormous damage that a lot of these
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  heritage protections are in the most sought after,
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  most overpriced areas of our cities.
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  In particular, they tend to be in the inner suburbs.
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  And where the demand for housing is greatest.
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  But the heritage system we have
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  doesn't do a comparison of costs versus benefits.
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  So the while preserving an old farmhouse is fine.
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  If it's out on a farm.
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  If it's next to a train station,
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  then you're bearing an enormous cost
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  for preserving that building.
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  And so you want a higher threshold for preservation.
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  Which our system does not have.
• 15:16
  Right. But I mean, I think a, you know, a naysayer would say,
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  look, you could assure.
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  You could get rid of all of the heritage protections
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  on brutalist car parks and firehouses.
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  And you still wouldn't make a dent in the
• 15:26
  stratospheric increase of property prices.
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  You would need a radical overhaul of the way
• 15:31
  that we think about protecting the character of our suburbs.
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  Right.
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  You would need to ditch the idea that the house that I bought,
• 15:38
  that the, you know, the price that I paid in 2021 for my first house,
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  that part of what I was buying was the character of that street.
• 15:47
  You would have to say, I can, you can put up a skyscraper next.
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  So there are two issues here.
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  I mean, so heritage protection is important in the inner suburbs
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  of Sydney and Melbourne, which tend to be the older areas.
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  But, you know, that's half a dozen local council areas in each city.
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  Yeah, a city which will have a metropolitan area,
• 16:10
  which will have 30 or 40 local government areas.
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  So for the large majority of these cities,
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  heritage protection is not a factor.
• 16:21
  Let's go back to what you talked about the point being
• 16:25
  beautification of the streets.
• 16:29
  If we did care about attractive streetscapes,
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  we know one thing is really important for that,
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  which is tall trees.
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  Much more important than the age or
• 16:47
  physical characteristics of the buildings.
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  And you just show any random person some street shots
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  with almost identical buildings.
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  The streets that have trees, everyone says, hey, that's nice.
• 17:02
  This is why property developers always have those illustrations
• 17:04
  of tree-lined streets in their brochures.
• 17:08
  Yeah, well, they need to get the picture before the overhead wire is going.
• 17:13
  Because that's the real enemy of trees,
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  and hence the enemy of attractive streetscapes is overhead wires.
• 17:21
  So if you did, if the planning system did care
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  about attractive streetscapes and hence, which is the big effect on neighborhood amenity,
• 17:32
  you would do something about overhead wires and plant some trees.
• 17:35
  But instead, there's this fixation on preserving old buildings,
• 17:40
  which have very little effect on neighborhood amenity,
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  or what it's like to live in a suburb.
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  In fact, it's driven by
• 17:53
  the heritage system is controlled by a small group of architectural obsessives.
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  And for them, what really matters is architectural distinctiveness.
• 18:02
  So the fact that some building is designed by some architect that know
• 18:09
  and in the general public has heard of still merits of heritage protection.
• 18:15
  Right. Whereas what the public cares about is,
• 18:19
  is this an unusually old building or is this an unusually attractive building?
• 18:24
  Well, they care partly about that.
• 18:27
  Let me pause on that for a second.
• 18:29
  How would you do heritage listing if you're not going to put it in the hands of architects?
• 18:32
  Would you have a, like, who would be deciding this instead?
• 18:35
  No, so buildings that are unusually old or unusually attractive.
• 18:38
  Right, but who would make that call other than architectural elitists?
• 18:42
  That is right. So that's a difficult question.
• 18:47
  A committee of government bureaucrats, I think most people,
• 18:52
  regard as an unreliable process for deciding issues of beauty and aesthetics.
• 18:59
  You want community input.
• 19:04
  I mean, what you're asking is a very difficult question,
• 19:06
  to which I don't have a good answer.
• 19:08
  But presumably, you'd have a panel of people,
• 19:09
  one of whom was pro-growth, another of whom was pro-
• 19:14
  Well, these decisions are currently being made,
• 19:17
  and in a way that ignores the value of alternative uses,
• 19:25
  and which prioritizes architectural distinctiveness over issues of neighborhood amenity
• 19:32
  and attractiveness.
• 19:33
  Right.
• 19:35
  So just start by changing the criteria for the decisions,
• 19:40
  and you'd get better decisions.
• 19:43
  It's partly the look of the street that one cares about,
• 19:46
  but it's also the feel of the neighborhood as to whether it's medium density,
• 19:51
  high density, or low density, right?
• 19:53
  Like, a lot of these neighborhoods that we're talking about,
• 19:56
  if for people who don't know what the inner west of Sydney means,
• 19:59
  if you think about Williamsburg and New York,
• 20:03
  you think about places that are townhouses mostly, or terraces,
• 20:07
  so they're not standalone homes mostly.
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  They're two stories, three at the very most,
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  and they're more than 60 or 70 years old, almost all of them.
• 20:21
  And they're in disperse between parkland and public transportation.
• 20:25
  I think a, I think an international audience will,
• 20:28
  a lot of them will be familiar with London terraces.
• 20:30
  Right.
• 20:31
  Yes, and that's sort of what like the inner west of Sydney.
• 20:33
  That's right.
• 20:34
  So did my purchase of my place entail a purchase of that characteristic of that neighborhood?
• 20:44
  You may have hoped it did, but you got bad news for me, sunshine.
• 20:49
  Yeah, I mean, you don't, you don't have, you don't have, you know,
• 20:54
  I don't buy in a place that was all new, shiny, you know,
• 20:59
  sure, but you don't have a right to lock in your neighbor's style of accommodation
• 21:08
  that you may hope it looks the same way.
• 21:13
  Yeah, but I don't, but does my, does the whole street,
• 21:16
  by a majority vote through a via our council?
• 21:21
  That's the way they're acting.
• 21:23
  And they think they have that right.
• 21:25
  And that's partly a moral question.
• 21:28
  I mean, do they, you know, is it, do you think finders keepers is a fair way
• 21:34
  of allocating housing and neighborhoods?
• 21:37
  Just the fact that some groups of residents come first,
• 21:41
  do they then have the right to pull up the ladder behind them?
• 21:45
  And so they get very attractive neighborhood.
• 21:51
  And then they tell all the newcomers, screw you, you can go and live in Bathurst.
• 21:59
  Sorry for the international.
• 22:02
  Well, sorry to the people who live in Bathurst, I think, is the Mayor's College,
• 22:04
  but that's a regional 100 kilometers or so.
• 22:08
  Regional town.
• 22:09
  Regional town.
• 22:10
  Right.
• 22:11
  I mean, they would say they're not pulling up the drawbridge
• 22:13
  that they're just requiring their new people to live in the same accommodations
• 22:17
  that they live in, but at four times the price or 10 times the price.
• 22:21
  Yes.
• 22:22
  So, yeah, they're free to live in the same accommodation.
• 22:26
  They're an unaffordable at a price that they just don't have.
• 22:29
  That is just unaffordable.
• 22:31
  And so they're keeping prices unattainable
• 22:36
  to, in fact, to their children and their grandchildren.
• 22:42
  Well, they're going to leave it to their children and grandchildren, aren't they?
• 22:46
  They get a problem when they get, when they turn 50.
• 22:49
  I mean, when the children are 50 or 60, yeah, when the parents die, yeah, that's right.
• 22:53
  It's, well, no, no, no, sorry, I'm exaggerating that.
• 22:57
  I mean, it is a huge problem with Australian society
• 23:02
  that home ownership is becoming hereditary.
• 23:09
  We have a privileged elite based on hereditary land.
• 23:14
  We're back in a Jane Austen world.
• 23:17
  And that is an unattract, increasingly unattractive feature of Australian cities.
• 23:28
  And our society is just splitting into between the housing hubs and the housing have nots.
• 23:36
  And there is a group that keeps, that inherits their parents' real estate, that is
• 23:44
  incredibly privileged and comfortable.
• 23:46
  And then there's a very large group of society that is really struggling and is being
• 23:53
  locked out of the opportunities that previous generations had.
• 23:59
  And from a simple fairness point of view, I think that's very unattractive.
• 24:04
  Yeah. I mean, it's appalling, isn't it? It's really the, it's the biggest policy failure,
• 24:11
  not just in Australia, but probably across the Anglosphere, the fact that we haven't found a way
• 24:18
  to make the dream of home ownership, anything but the dream at the moment.
• 24:22
  I mean, if you're not already on the ladder, then how on earth do you, do you save up 20%
• 24:29
  of a million and a half dollars? Yeah. That's just not feasible.
• 24:33
  Um, home ownership is a really important aspiration in our culture and those dreams are being crushed.
• 24:42
  And, and, and, and reflecting that, young people are increasingly bitter and angry
• 24:50
  about being denied the opportunities previous generations had.
• 24:54
  Hmm. I'm increasingly bitter and angry, honestly, at the boomers for failing to address this
• 25:03
  and being so sanguine about the way that they bought. I mean, I used to host a radio show on
• 25:09
  the ABC, the public broadcaster every time I used to listen. Thank you. Every time we touched
• 25:13
  this subject, the board would light up with calls from people, from boomers saying,
• 25:19
  it's always been hard to buy a house. We had to scrounge, sprint and save, like, you know,
• 25:25
  young people these days expect that they can have their avocado on toast and their, you know,
• 25:28
  their international trips at the same time as they're saving up to buy a house. You've got to,
• 25:33
  you know, knuckle down and you got to make sure that you, and it would make my blood boil.
• 25:39
  Because a house used to cost, well, you tell me, three to five times an annual salary.
• 25:45
  Yep. And now it's 15 times an annual salary. So how many years is it going to take you to save up
• 25:53
  10 or 20% of, you know, three X versus 15 X? That being said, suppose we had a policy that could
• 26:02
  bring down that gap, like I think, yes, I think there would be a real, I've got one of them.
• 26:08
  Yes. And well, let's talk, let's talk about it. So, and you could bring down someone
• 26:13
  bought a house in 1982 for $30,000. It's now worth $2 million. I think everyone would agree,
• 26:20
  except for maybe the person who owns it, but maybe even them that bringing that house price down
• 26:24
  from $2,800,000 would be a fair thing to do since they paid to 30,000. All the boomers that
• 26:31
  called into your ABC program object to that. Yes. Now I'll out myself as being a bit of a hypocrite.
• 26:38
  What happens to the people like me who don't have rich parents, mum and dad were able to help out
• 26:47
  with the deposit, but I'm not going to be inheriting any property worth a fortune when they die.
• 26:55
  So super, super grateful that they were able to assist my brother and me in chipping into
• 27:00
  the deposit. That being said, I bought three or four years ago. And if you bring that boomer's
• 27:11
  $2 million property down to a million, everyone in my generation, like the old millennials
• 27:19
  who managed to get into the property market, is going to be fucked. We should be so lucky.
• 27:24
  In fact, even a very aggressive program of building more houses is unlikely to reduce prices
• 27:39
  by much in nominal terms. So if we... I said before that prices have been rising faster than
• 27:51
  the inflation rate by about two and a half percent. To reduce the annual rate of price growth by
• 28:00
  five percent, we'll keep prices flat in money terms. So as incomes keep growing and it
• 28:10
  as prices going, has become relatively more affordable. To achieve that is actually very ambitious.
• 28:21
  Right. That requires more building than Australia has done for a long, long time.
• 28:30
  So... And do we even have the know-how? I mean, we're already at a loss for trade.
• 28:35
  Yeah, but you talk to construction companies and they say there are not enough trades people to
• 28:39
  even just build what we need right now, let alone building before the cluster of news skyscrapers
• 28:45
  in every capital city. Before the pandemic, we were building about 30 percent more housing than
• 28:50
  we're currently building. So that's what just... What's that seven years ago? All of those carpenters
• 28:58
  and bricklayers haven't disappeared. They all died of COVID. What a small number of them have gone
• 29:04
  away. But the construction industry is very cyclical. It goes up and down a lot with its own
• 29:13
  business cycle. And every time it's going up, it has this problem of finding all the bricklayers
• 29:23
  and carpenters that were around in the previous peak. And it's not easy and it requires adjustments
• 29:31
  in training and in immigration and in wages. But this is not a new problem. I mean, we do make
• 29:40
  those adjustments. Right. We do find the workers or train them up or import them.
• 29:48
  That the construction industry is able to expand very quickly and very substantially
• 29:56
  from the low points it's recently had. When we get up to another peak that resembles previous
• 30:04
  peaks, then we'll have a different set of issues. We'll need to start making adjustments that we
• 30:09
  haven't made in the past. But we should be so lucky to get to that problem. And just on this
• 30:16
  supply and demand thing, before we start talking about the actual solutions to even maintain a
• 30:21
  stable property market rather than an increasing one, your colleague Aidan was saying it was
• 30:27
  disputing the question of whether or not it's even true that there actually is fewer. Are there
• 30:32
  fewer square feet of property space per human being than there was 20 years ago? He was like,
• 30:40
  I don't think that's actually true. There's as much property. Yeah. Well,
• 30:47
  person. So new houses tend to be smaller, largely because more of them are apartments.
• 30:55
  The total supply of square feet, square meters per person goes up and down with the cycle and
• 31:08
  with cycles and immigration and everything. But it's nowhere near what the demand is.
• 31:16
  But wasn't it nowhere near what like I don't know. I think what has a lot of people scratching
• 31:20
  their heads is what was different 30 years ago that it was so much cheaper? Like wasn't there
• 31:24
  always demand? People always wanted to live in cities. Everyone in the world wanted to live in
• 31:28
  Australia and the United States. So a very simple way of describing Australia's
• 31:36
  housing crisis is that the decades and decades generations even the demand for housing has been
• 31:44
  growing at about 3% a year and the supply has been growing at about 2% a year. And so you've had
• 31:51
  that 1% excess demand is boosting prices. And so you've got this steady upward trend in the cost
• 32:03
  of housing relative to all other prices and community. And about this ever rising trend,
• 32:11
  you get fluctuations with interest rates and the business cycle and pandemics and things.
• 32:17
  And is there not that kind of delta in a place like Paris? I mean, I don't know what the
• 32:22
  market's like in Paris, but I'm assuming that it hasn't quadrupled in 20 years. And yet they
• 32:28
  don't have high rise. Paris has many times the density of
• 32:38
  Australian or even American cities with the maybe with the
• 32:43
  right. But it always has. Yeah. And it's not like they've suddenly unleashed
• 32:49
  capacity to to take in the demand. Yeah, no, there's a lot of demand on it. Like
• 32:55
  people move from the regions and move to. Yeah. And so the extra housing in Paris is being built
• 33:00
  in the value. I mean, the suburbs in the outer suburbs. Right. Well, and then they have a few
• 33:08
  ugly higher rises that let a form. Yeah, but those have been around for decades. I just don't
• 33:13
  understand why there are a lot more of them. I mean, so I mean, there is a substantial amount
• 33:20
  of building in France. I mean, they build, I think, twice the rate of Britain over the channel,
• 33:26
  for example, really. Right. Oh, I think it's it's some dramatic difference. I don't
• 33:34
  because I mean, I'm not sure on the exact number. No, but in my mind, this debate comes down to
• 33:40
  basically, and this is a caricature, do you want
• 33:45
  to start? Sterile IKEA looking cities that feel like here, you know, in a big in Walmart
• 33:55
  that have lots of shiny skyscrapers, but have no character. And they're affordable.
• 34:00
  Audio and live in Paris, where you can't build anything or knock down anything or renovate
• 34:04
  anything. And the whole place looks like a museum and it's fucking gorgeous. What's wrong with that
• 34:10
  binary? Um, if Australian architects and planners knew how to put up housemen or past
• 34:24
  apartments, that would be great. New how to put up what apartments? House, house, the
• 34:29
  Paris, standard party. Yes, I see. It's called a house. Yeah. That would be great.
• 34:36
  Unfortunately, when they try doing it, they build a block of flats that looks like it belongs in
• 34:40
  London. We don't know how to compel beauty and architectural style and design.
• 34:54
  We can try to do it. And some people have ideas. It's my sense is it's a big unresolved problem.
• 35:04
  Um, but that's not really the housing issue in most cities that this is not a question of pulling
• 35:17
  down large numbers of very attractive buildings that belong in a postcard. It's a matter of replacing
• 35:25
  ordinary suburban houses, California bungalows, with six-story blocks of flats, blocks of flats.
• 35:37
  And I'm sure there are differences of opinion between some people will find the block of flats,
• 35:44
  more attractive others will prefer the old 1970s bungalow. But those differences strike me
• 35:55
  as very small and unimportant relative to the effect on affordability. Right. That whatever
• 36:04
  preference you may have for detached single family bungalows, I think my personal view and
• 36:15
  I recognize as a value judgment that that preference is relatively unimportant relative to the
• 36:24
  crisis of affordability that we're facing at the moment. Yeah. And if you want the blocks of
• 36:30
  apartments to look prettier, then address that by making them prettier or by requiring them to
• 36:35
  look pretty when you're commissioning them or permitting them. I have no objection to beautiful
• 36:40
  houses. So the other thing that comes up here during these conversations and I've heard the former
• 36:46
  premier Bob Carr of New South Wales talk about this is like there's just no way that if you're
• 36:50
  importing a half a million people a year as we sometimes do in this country in terms of migration,
• 36:55
  massive massive massive migration levels per capita that you're going to maintain the
• 37:02
  infrastructure that you need if you're going to put them into high density. Right. So hospitals,
• 37:08
  schools, parks, you know, we saw this in the Brexit debate in the UK, the NHS waiting lists and
• 37:14
  things like that being blamed on immigration. And so I mean, I've often felt that I would cop
• 37:21
  much higher density living in my city if the state government and the local councils were
• 37:28
  obliged by some law for that every new person who comes into a place has to have an additional
• 37:35
  capacity in local schools, hospitals, parks, sporting clubs, whatever. You can't just keep
• 37:41
  dumping people in and expecting the locals to be cool with the fact that you know,
• 37:45
  there are now twice as many people for the same hospital, the same school. How do you address
• 37:50
  that quickly in us? So immigration raises a whole lot of big complicated questions.
• 37:56
  So let's take some of them. The first thing I want to say is there are a lot of difficult
• 38:07
  trade-offs when it comes to immigration. It has a big effect on the kind of country we're living in
• 38:15
  and that and and different people have very different values. And I want to discover I'm not
• 38:22
  being anti-immigration. I'm actually pro-immigration. I'm just saying that when you put all of the
• 38:27
  migrants into a brand new suburb, it's more obvious that they need a hospital in a school when
• 38:31
  you put them into a heart. Yeah, yeah, yeah. It arises in a place where there's already a hospital
• 38:34
  in the school, there's less obvious that you need to expand the capacity. Yeah, my sense is that
• 38:37
  that's a less important problem with immigration than many people are actually worried about. The
• 38:45
  people that oppose extra immigration do so for other reasons. And I want to agree with that.
• 38:52
  Anyway, but we have a democratic system for trying to reconcile all of these different values.
• 39:00
  And the result of that is we come up with an immigration number and my view is that
• 39:08
  whatever that immigration number is, we should build the houses to accommodate those extra people
• 39:15
  that they're separate questions and decide your immigration based on your values and a whole
• 39:24
  lot of questions like that and then giving you demand for housing. But it would be nice if the
• 39:31
  immigration minister was connected to the housing minister of each state, such that the immigration
• 39:37
  minister for every individual lay laid in had to be coordinated in some way so that a
• 39:42
  so let's go back to it. Yeah, so your previous question about infrastructure.
• 39:47
  In fact, in Sydney and in fact in other Australian cities where there is most infrastructure,
• 39:58
  whether it is most easy to accommodate an increased population is in our old established suburbs
• 40:08
  where a lot of our transport and hospitals and schools actually have excess capacity.
• 40:17
  But that's where you get the strongest objections to new housing. And instead we're putting
• 40:24
  the housing out on the outskirts of our cities with zero infrastructure. So they need roads and
• 40:31
  hospitals and everything and what a recent estimate by the New South Wales government is that
• 40:38
  it requires about $70,000 extra infrastructure to put it houses in the out of suburbs
• 40:49
  than it does in a step with $75,000 per watt. I think per house. Oh wow. Per dwelling.
• 40:55
  And roads being a large share of that but schools and hospitals and water and sewerage is actually
• 41:03
  one of the biggest issues in Australia at the moment. But in my brain, sorry,
• 41:10
  my instinct which may be wrong is you can't put all those like there is not an infinitely
• 41:16
  expandable capacity of Royal Prince Alfredo Hospital which is the main hospital in the
• 41:21
  United West of Sydney. I mean, you could turn that into a skyscraper and like double or triple
• 41:27
  its capacity. But where do all the nurses and doctors live? Like and is the sewage system
• 41:33
  you mentioned sewage and water? Can you just double or triple the capacity of those pipes?
• 41:38
  Like those pipes are going under houses that are 150 years old and stuff. Like is that actually
• 41:43
  more practical than just building a new suburb? It's actually less expensive on average to put more
• 41:52
  housing in our old established suburbs than it is on the suburban outskirts. And it's scalable.
• 41:58
  Like what happens to my kid's school where there's a little chicken coop? Like if you double
• 42:02
  it in size, there's nowhere for it to go. So it has to. Right, right, right, yes. So
• 42:08
  these effects are not linear and they've ended varies a lot. And when you hit a capacity
• 42:15
  constraint then you've got a huge increase in your infrastructure costs. But going back to what you
• 42:20
  said about immigration. Immigrants contribute more in taxes than they take from our government.
• 42:32
  The funding challenge of infrastructure is actually easier with high immigration because typically
• 42:42
  they're a net benefit. There are substantial net fiscal benefit to Australia. And I recognize
• 42:50
  that that's a relatively minor issue in the level of immigration. But it is very relevant to
• 42:58
  the question of infrastructure. And with extra economic growth, you fund extra infrastructure.
• 43:07
  But you don't. I mean, I'm a big fan of immigration. And I want as much immigration as I can get
• 43:14
  without triggering a Trumpese xenophobic backlash, right? But that Trumpese xenophobic
• 43:20
  backlash is likely if state governments are more incompetent about using those that increase
• 43:27
  fiscal revenue from migration to actually fund infrastructure. The worry is there's never
• 43:34
  going to be up to the pay. Then there'll be going to be up to the task. So big dense cities.
• 43:42
  I mean, there are pluses and minuses of living in a big dense city. And it suits some people.
• 43:51
  It doesn't suit other people. But on balance, there tends to be much more excess demand to live in
• 43:59
  big dense cities, despite the crowding of the infrastructure and the congestion and the other
• 44:05
  problems. And there's much more demand for that than there is to live out in the burn docks.
• 44:13
  And partly, yeah, and one very large reason for that is that big dense cities
• 44:22
  are job-creating machines. That's where economic growth comes from. That's where our ideas are
• 44:29
  generated. That's where new technology and new firms are produced. You get a more thriving
• 44:35
  economy with big dense cities than you do with a sparsely populated population. And it's that
• 44:43
  economic growth that funds your infrastructure. And so even though your public transport and schools
• 44:52
  may be crowded, people still prefer on balance to live in those cities. And you have to
• 45:03
  recognize, when we're talking about these things, that there are enormous cultural amenities
• 45:10
  from big dense cities, that yes, the train is more crowded, but you've got an art museum,
• 45:17
  you've got an extra art museum, and you've got an extra opera house, and you've got live theatre,
• 45:23
  and all of it. And so there are a whole lot of pluses. I don't know. I don't think anyone
• 45:32
  minds a crowded train. Singapore does it well, Tokyo does it well. New York probably in the
• 45:38
  2000s was doing it well. The fear is that the train is getting more crowded than the capacity
• 45:43
  is being injected, and the trains are starting to break down, and it's starting to get late,
• 45:47
  and the waiting times in hospital emergency rooms are too long. And so you need to put more
• 45:52
  train lines in as Sydney is doing. Yeah. So Sydney just has several new train lines of just
• 46:00
  risk in the being installed, and they're great. Yeah. Why are we good at infrastructure? We are
• 46:04
  good at infrastructure. I mean, I had some visitors from overseas, and I was driving through the
• 46:09
  new network of tunnels for non-Sydney Siders. Sydney has now overtaken Norway as the number one
• 46:16
  longest tunnel in the world. And we've basically in the past 20 years have dug
• 46:22
  scores of kilometers of tunnels, and so we don't have to bulldoze through houses to build
• 46:27
  freeways. And we've got an entire Los Angeles style freeway network underneath the city.
• 46:32
  New tunnels under the harbour. We've got a new metro line, new trains and everything,
• 46:37
  and it doesn't actually cost us anything, because the government enters into what many people
• 46:41
  regard as being misguided, but functional relationships with private consortiums that build it,
• 46:46
  they build all this stuff, and then charge the users a fortune through tolls, and you can either
• 46:50
  use it, or you don't have to, but it just gets done. And there aren't a lot of other
• 46:55
  cities that I see with that aggressive approach. No, so it's relative, and this is interesting
• 47:01
  because some of your listeners may have heard of this book Abundance. Yeah, I was replying to his
• 47:07
  Gerrit Thompson. Yeah. And my personal take on the book is that just explain its thesis to
• 47:17
  we can't build anything. We can't get anything done. In particular, they're writing for a left
• 47:24
  of center audience, what Americans call liberals, that has progressive ideals, which are being
• 47:35
  frustrated by a thicket of regulations imposed by progressives themselves. And I suppose
• 47:41
  it's a wake-up call isn't it to the left to say we have to stop being self-structuralists.
• 47:45
  Yes. And we've sort of been discussing these themes in our discussion on housing.
• 47:53
  Yeah. And Klein and Thompson say, in fact, it's not just a problem with housing, it's also a problem
• 47:59
  with infrastructure and energy and many other features of American society. And I just
• 48:07
  want to say that it relates to your comment about infrastructure in Australia. We do not have
• 48:16
  the problems that Klein and Thompson talk about. In fact, Sydney has just built a whole lot of
• 48:23
  new train lines, a whole lot of expressways. They're great. Lots of people like them.
• 48:29
  Whereas the Americans are wondering why can't we get anything done. Sydney Siders are just saying
• 48:35
  isn't it great that we're doing all of this. And part of Klein and Thompson's argument is that
• 48:41
  there are that the left in America has intentionally installed a number of choke points so that
• 48:47
  community feedback and community opposition and lawsuits and so on have stymied your ability
• 48:53
  to get everything done. Presumably, if you tried to do the Rosalind to change tunnel in American
• 49:00
  city, all of the people who live above it whose houses were rumbling for about three or four
• 49:04
  years while they were bulldozers going underneath, you know, a hundred meters underneath them
• 49:08
  would have been able to put a halt to it. Yeah. Through court cases. Yeah. The point I wanted to make
• 49:14
  is that abundance, the examples of the book, I think, translate to Australia and other countries
• 49:24
  very well for housing. In other areas, we don't have those problems. And you asked
• 49:34
  why is that? And that's a very good difficult question. We America has the system of checks
• 49:43
  and balances where they see almost government dysfunction as a virtue. It's designed to make
• 49:51
  it difficult to do things. We thought we fortunately do not have that problem. Well, other than
• 49:58
  in housing, where we do have you heard Al Franken's line about the republicans? He says that
• 50:03
  republicans get elected on a platform that government doesn't work. And then they prove it.
• 50:08
  Like this is fundamental to their identity. Yes. The government doesn't function.
• 50:12
  But in your it's relevant. I mean, so I think Australia does infrastructure. And in fact,
• 50:18
  many aspects of state capacity much, much better than the Americans. But in a lot of ways,
• 50:24
  I think the Europeans are better than us. I mean, so that in Madrid or Paris,
• 50:32
  the public transport is so much better than it is in Australian cities. But not just the public
• 50:40
  transport. I mean, in many aspects of the education and just the public parks.
• 50:46
  Well, yeah. I mean, if you're a social democracy where the highest marginal tax rate is 65
• 50:50
  or 70%, then you end up getting public goods that we don't have. I don't want to talk up Australia
• 50:56
  too much on this question, though, because there are big national projects like high-speed rail
• 51:00
  between Sydney and Newcastle or Sydney and Wollongong or Sydney and Canberra, which have been on
• 51:05
  the drawing board for decades and have never come to pass. Which is where they belong.
• 51:13
  Okay. That's an argument for another day. There are certain things that a lot of people have
• 51:19
  wanted to get done that haven't gotten done is my point. For good reasons.
• 51:23
  Well, you say for good reasons, but isn't the phenomenon the same? I mean, the person who opposes
• 51:28
  high-density housing in an American city would also say that there are good reasons. The point
• 51:33
  is that there are roadblocks and impediments and choke points that are in place that prevent
• 51:38
  people from doing big projects. I'm interested in your time in the United States, specifically,
• 51:45
  and the time that you spent in the Federal Reserve. Can you just give us a sense of how you ended
• 51:50
  up in the States and what you were doing there? Right. So, get a humans. Well, if you've listened to
• 51:55
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