By Alan Kohler

I disagree profoundly with Alan on restricting immigration, and the idea that we should encourage the involvement of superannuation funds in community housing (i.e. let's cure financialisation with more financialisation!), but the point that housing has to become a bad financial asset — and therefore good value as housing — is absolutely key.

Richard Yetsenga points out that there are 11 million dwellings in Australia, for 26.6 million people, which is theoretically enough. That suggests, he says, that the problem is misallocation rather than a genuine shortage.

Yes, but is the government going to force people to sell their holiday homes? And in any case, they are nowhere near employment or public transport so only useful as holiday homes.

The other problem with achieving more supply is capital.

The current plan is that it must be private capital because governments haven't got the money, because priorities have changed since the days of plentiful public housing.

But if affordability is to be improved, housing can't be a good investment.

To keep the current level of (un)affordability — that is, with house prices at nine to 10 times incomes, residential real estate has to be a poor investment, providing a return of no more than 3-4 per cent per annum, including rent, so incomes can keep pace.

To return to the affordability of 25 years ago — a house price to income ratio of four times, it would have to be an absolutely rubbish investment for 20 years with zero return.

That means private capital can't do it — only the government can.

High-priced houses do not create wealth; they redistribute it. And it’s meaningless because we can’t use the wealth to buy anything else – a yacht or a fast car. We can only buy other expensive houses: sell your house and you have to buy another one, cheaper if you’re downsizing, more expensive if you’re still growing a family. At the end of your life, your children get to use your housing wealth for their own housing, except that we’re all living so much longer these days it’s usually too late to be useful. And much of this housing wealth is concentrated in Sydney, where the median house value is $1.1m, double that of Perth and regional Australia.

It’s destructive because of the inequality that results: with so much wealth concentrated in the home, it stays with those who already own a house and within their families. For someone with little or no family housing equity behind them, it’s virtually impossible to break out of the cycle and build new wealth.

It will be impossible to return the price of housing to something less destructive – preferably to what it was when my parents and I bought our first houses – without purging the idea that housing is a means to create wealth as opposed to simply a place to live.

Australia is in the grip of a “bankocracy”, in which four banks control our access to money. Their profits, and therefore the salaries of their executives, depend on both the volume and the value of their assets growing.

The volume of their assets (that is, the number of loans) increases because Australians believe the only way to increase their wealth is to borrow 80 per cent to 100 per cent of the value of one or more houses. And the value grows because the banks’ customers compete with each other to buy the houses and push up their prices and therefore the size of their loans.

The more house prices rise, the greater the banks’ profits. As US investment guru Charlie Munger says: “Show me the incentive and I’ll show you the outcome.”

The way real estate works in Australia is that the federal government and banks encourage demand for it while state and local governments restrict the supply of it.

It’s not just that renters are in the minority – some minorities have real power – but the nation’s attitude to housing is deeply ambivalent and well hidden. There has been, and still is, a public dialogue about the problem of housing affordability and plenty of sympathy expressed for the disenfranchised, but the majority who own a house are quietly happy with their high prices, and economists and businesspeople approve of the economic “wealth effect”. Also, the minority who don’t own a house talk about the property ladder and the need to get on it. The idea of housing as the main, if not the only, form of real wealth creation for ordinary people is deeply embedded in the national psyche. Superannuation is starting to rival it but is still a long way behind.

That means doing something about it requires true political leadership – that is, doing something right that’s unpopular. Study after study on the subject has concluded that the high price of housing is leading to dangerous inequality and distorting the economy and society, yet political leaders have never tackled it effectively, for obvious reasons.

The fact that one of the three least-populated countries on earth contains the world’s second-most expensive housing is a national calamity and a stunning failure of public policy. For decades, political leaders have paid lip service to housing affordability, while doing nothing that would bring prices down. In fact, most of the big political decisions have done the opposite.