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Vague words are often used to conceal harsh truths, and there are no vaguer words in Australian political debate than "housing affordability". When it comes to petrol, food and electricity we talk about their price. We don't talk about petrol affordability or petrol-wage ratios. When prices rise faster than our wages we complain loudly. It's not hard. Politicians usually like to talk about housing affordability because it's allows them to avoid answering a simple question, namely, "do you think house prices should be higher or lower?" In recent weeks the Liberals have broken with that convention and, understandably, all hell has broken loose. Tony (I hate windmills) Abbott is hardly afraid of courting controversy, so perhaps we shouldn't be surprised that he is willing to simply declare that he likes the fact that house prices are rising. Of course honesty has its limits. He prefaced his bold statement with the weasel words that he also wanted houses to be "affordable". Enter Joe Hockey. In a valiant attempt to take the heat off his boss, the Treasurer decided to give the little people some advice about how to get ahead. "The starting point for a first home buyer is to get a good job that pays good money," said the parliamentarian representing one of the wealthiest electorates in the country. Hockey's advice is not just insensitive, it is fundamentally flawed. Like so much of the "common sense" that dominates the debate about the Australian housing market, the Treasurer's advice about how to get ahead in the housing market is based on a complete misunderstanding of simple economics. First-year economics students are taught about "the fallacy of composition" which states that what is true for the individual might not hold true for the group. Politicians with a predilection for home-spun analogies are particularly susceptible to the fallacy of composition, and Hockey has fallen for it hook, line and sinker. Consider the following. Most people have a secret parking spot that they head for at busy times. Knowing about such spots gives you an advantage over other shoppers at Christmas time. But telling everybody where your secret parking spot is doesn't solve the shortage of parking in Canberra. What works for the individual doesn't hold true when the whole group pursues the same strategy (or parking spot). There is no doubt that having a well-paid job, or a generous parent, gives you an advantage at an auction. Having a bigger deposit, or the ability to make bigger mortgage repayments than rival bidders provides an obvious advantage. But if other bidders get a pay rise your advantage vanishes. Having "good jobs" only gives Mr Hockey and his wife an advantage at auctions if other suckers are willing to take "bad jobs" in childcare, nursing and the defence forces. Mr Hockey has demonstrated his insensitivety to the "leaners" who dedicate their lives to the service of others on multiple occasions, but his comments about housing also demonstrates a fundamental lack of comprehension about simple economics. It is mathematically impossible for all Australians to have an above average income. And the idea that a treasurer would advocate rapid wage growth as a solution to a house price bubble is truly bizarre. Of course, the Treasurer is not the only one talking nonsense about the Australian housing market. Property developers, real estate agents and the finance sector fill the airwaves with self-serving rubbish. And if you listen carefully, much of it is completely contradictory. Take the supply shortage for example. Everyone "knows" that high house prices are caused by governments and planning bureaucrats who refuse to release enough new land to keep pace with demand. But hang on. How can that be a problem when those same politicians are now admitting that they want house prices to rise? Wouldn't it be a bigger problem if they released so much land that house prices fell? Again, the weasel word of "affordability" makes it impossible to have an honest conversation about what the problem we are trying to solve actually is. While it is common sense to blame (credit) rising house prices on a shortage of supply, first year economics tells us that it's not so simple. When petrol prices rise ahead of a long weekend is that caused by a shortage of petrol stations? When airfares rise at the beginning of school holidays is that caused by a shortage of planes? Or when prawn prices rise at Christmas is that caused by a shortage of prawns? Introductory economics tells us that prices are set by the interaction of supply and demand. But while everyone talks about the shortage of housing it seems no one wants to talk about the surge in demand that inevitably accompanies some of the fastest population growth in the world. Each year, Australia's population grows by about 400,000 people. That means each year we need to build the equivalent of the entire Canberra housing stock to keep up. Any honest analysis of our housing market would highlight the role that rapid population growth plays in pushing up house prices, but no one is interested in having one of those. The political debate about housing is, like most political debates, dominated by the numbers. About two thirds of Australians either own or are paying off a home and about one third are renting one. The two thirds like to see the price of their houses growing. The one third would like to see them falling. No one really cares about the one third, which is why Hockey felt it was OK to tell them to get a better job. Not surprisingly the tax system is designed with the interests of the majority in mind. Negative gearing, the 50 per cent discount on income from capital gain on investment properties and the complete exemption from capital gains tax on the family home deliver a collective $50 billion-plus a year to the two thirds who own a house and not a cent to those who don't. But fear not, even many of those who usually lampoon trickle-down economics will tell you that the tax treatment of housing encourages investment in housing and, in turn, ultimately helps the renters. Yeah, that's so the plan. The problem with housing policy is that there is no consensus about what the problem with housing policy is. This month Tony Abbott and Joe Hockey let the cat out of the bag. They like rising house prices and blame those who can't afford a house for making bad career choices. But while many have criticised the insensitivity of saying that the poor will remain priced out of the housing market, many more are happy to see the situation continue. Richard Denniss is an economist and executive director of The Australia Institute. @RDNS_TAI

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