As in other democracies, Australian politics is realigning.
It used to be rich vs poor. No longer.
Now it is cities vs country.
The Coalition has won 5 out of the top 50 highest-income electorates and 8 out of 88 metropolitan electorates.
But they remain strong elsewhere. 1/4
This same city vs rural realignment has been dramatic in the US.
Cities have trended Democratic. Rural areas have trended Republican.
2/4 stanfordmag.org/contents/the-u…

As @ChrisMinnsMP says, there is overwhelming evidence that the gap between supply and demand drives housing costs.
This thread provides some support. 1/8

https://twitter.com/CISOZ/status/1767756371653787791

The vacancy rate, a measure of the gap between supply and demand, drives rents.
The reason that rents are soaring now is that the housing market is very tight. 2/8

My new paper restates and brings together some key points in the Australian housing debate. 1/7
cis.org.au/publication/ho… As has been said before, a ton of economic research finds that planning restrictions make housing expensive. 2/7

Tim Helm of @Prosper_Aust finds that the pandemic created an excess supply of housing of about 6%. This lowered rent by about 12%.
That makes sense. It's within the range of other estimates.
prosper.org.au/wp-content/upl… 1/5 But then Helm argues that the subsequent rebound in rents shows that increased market supply would not improve affordability.
???????
That just does not follow. 2/5

Elizabeth Farrelly illustrates how not understanding basic economics leads to bad housing policy. 1/6
thesaturdaypaper.com.au/life/cities/20… Farrelly says allowing more housing won’t make housing affordable because “the demand is limitless”.
In economic terms, she means that demand is highly price-elastic – the demand curve is flat. 2/6

Last week’s FOI release illustrates many of the problems highlighted by the RBA Review.
rba.gov.au/information/fo… 1/4 The staff estimate (pages 68-69) that large increases in the cash rate would bring unemployment and inflation closer to their targets.
This is the most informative and persuasive news I have seen on monetary policy in months. 2/4

High immigration creates excess demand for infrastructure, which Canberra expects other governments to provide.
They can’t or won’t, which is a major obstacle to housing supply.
Canberra needs to increase transfers to State and Local governments that build more housing. 1/4 One approach would be to tie infrastructure contributions to new housing. This would also improve the viability of the infrastructure.
Another approach would be for the Grants Commission to treat housing as a disability, as is currently done for transport. 2/4

I have a new paper on housing targets for local councils, using Sydney as a case study.
Here are the key points. 1/10
cis.org.au/publication/wh… Targets address two problems.
First, we have not been building enough housing and, as a result, housing is far too expensive.
As a ton of research shows, this reflects planning restrictions. 2/10

cis.org.au/publication/pl…

Official reports keep arguing that the way to improve housing affordability is to relax planning restrictions.
But instead, the Federal Govt is building social housing.
That policy is based on a mistaken view that new market-rate housing won't help those on lower incomes.
1/6 That view has been rebutted many times.
As the new Productivity Commission housing report (section 12.5) documented, a large body of evidence shows that “more supply — in any segment of the market — can improve affordability for low-income households”. 2/6
pc.gov.au/inquiries/comp…

Some people think the research showing planning restrictions have a large effect on housing prices is controversial.
Among urban economists, it is not.
Objections on twitter reflect simple misunderstandings that are not taken seriously in the research literature.
A thread: 1/6 Here are links to six overviews of the research on zoning, reflecting the consensus:

“The available research suggests [the zoning] tax is quite large for many markets.”
Joseph Gyourko and Raven Molloy, Handbook of Regional and Urban Economics p1296
faculty.wharton.upenn.edu/wp-content/upl… 2/6

Today’s headlines of a 15% change in house prices in response to a 2% change in the cash rate come from my model with Trent Saunders. A thread answering some questions. 1/5
smh.com.au/politics/feder… This result is clear (t-stat = 7) and robust. John Williams, (my former neighbour at the Fed) surveys many international estimates. Our multiplier lies in the middle of his range. See sections 4.5 and 5.2 of this
rba.gov.au/publications/r… 2/5

Supporters of public housing don’t seem to realise how irrelevant it is to the issue of housing affordability. A thread. (1/6) The ALP calls for 30,000 extra dwellings (if the stockmarket continues to boom). That would increase the national housing stock by 0.3%, lowering average housing prices by <1%. (2/6)
alp.org.au/policies/safer…

The Greens' proposal to build a million homes is a great idea.
Except, the taxpayer doesn't need to pay $23b for it.
Just get planners out of the way and the market will build, at no cost to the taxpayer.
Extra supply will lower housing costs for everyone.
smh.com.au/politics/feder… If the objective is only to help low-income renters then -- according to Henry review, McClure Review and Productivity Commission -- Commonwealth Rent Assistance is more efficient and equitable than public housing. 2/4

"The Board places a high priority on a return to full employment."
The next step will be to include this in the agreement with the Treasurer, preferably with a numerical estimate.
Unemployment should have equal status with inflation.
rba.gov.au/media-releases… 1/3 Being explicit about the dual mandate is clear and honest.
It would bring the agreement with the Treasurer into line with the Act.
It is state-of-the-art central banking. 2/3