High prices, sacred cows

There are two things that the Australian media generally recognise as too expensive:

  • energy prices;
  • housing prices (particularly Sydney and Melbourne).

An international comparison provides a reasonable basis for this opinion.

Two things that aren’t discussed:

  1. high energy prices should be one of the tools for lowering energy consumption, thereby reducing emissions;
  2. one key route for making housing more affordable is through mechanisms that reduce the value of land (and therefore housing).

With respect to energy, government statistics indicate that consumption is not reducing despite apparently high prices (though perhaps slightly declining on a per capita basis, given the growing population), and that’s off a base where we’re already among the highest per-capita energy consumers in the world. High prices don’t seem to be driving significant demand reduction. That would seem to suggest bad news for emissions reductions (you would really need to crank up prices). Of course, we’re all hoping that renewables will allow us to maintain consumption without the guilt. I stumbled across David MacKay’s Sustainable Energy Without the Hot Air, which made for an interesting read (or see the TED talk). It’s from 2005 and the context is the UK, but the main message is pretty clear: to fuel current consumption with renewables, the infrastructure required is enormous. In the case of the UK (which has much lower per capita energy consumption than Australia) you would need to dedicate a substantial fraction of the entire country to renewable energy infrastructure. Australia should have it much easier – a massively lower population density and lots of sunlight, but you’re still looking at infrastructure on a massive scale. We can’t even get relatively small-scale on-shore wind without a NIMBY backlash (certainly not in Jonestown). I think demand reduction (energy conservation) is a big part of the overall puzzle and a key action we need to collectively take, but the current response to energy prices doesn’t augur well (we’d rather demand action from others to lower them than to take action ourselves). As MacKay often points out, “lifestyle changes” have become an untenable option; social change is hard. On the whole, Australians appear to be too wealthy for a moderate pricing signal to have much of an impact, so the options left would appear to be: the Maxwell Smart option (ignore it, and hope that it goes away), increase the strength of the pricing signal (already politically untenable, even more so if explicitly pitched as a Carbon tax, and a bit of a blunt axe for differentiation high and low carbon sources), or to tackle the social norms (Life. Be in it. Carbon. Be out of it.). We’ve taken some steps in this direction: energy efficieny ratings on appliances and relative-use indicators on power bills, but it can’t exactly be described as a comprehensive campaign. Perhaps it’s the age-old problem that there’s less money in prevention than cure.

On the subject of housing, there’s a small bit of linguistic ju jitsu that is always deployed. We don’t describe housing as being “too expensive”, rather it’s “unaffordable”. Unaffordability is a mismatch between buyers’ ability to pay and the price, and couching the argument in these terms leaves open the option that we can solve the affordability problem by finding new ways for people to find money. Of course, this strategy generally fares poorly. As seen with the First Home Owners’ grant scheme, this kind of intervention just adds fuel to the fire (a great outcome for anyone already heavily invested). The politically untenable description for solving the “affordability” problem is to make people’s houses worth less. Sydney has seen a 7.5% decline over the past 12 months through what looks like a combination of increased supply and demand reduction (tighter lending standards, foreign ownership restrictions, looming tax changes under Labor). Though the Sydney and Melbourne markets remain overvalued (probably), these measures seem to be working. Now watch no-one stand up and claim the success of lowering prices!

 

Change my mind.

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