How Housing Bubbles are Triggered
The problem comes about when Local Governments in particular lose control of their costs. It plays out in three steps
The commercial / industrial sector is the first to be “hit”, as it is more politically feasible for Local Authorities to overcharge this sector. It is not uncommon now for around a quarter of Local Authorities actual costs being attributable to the commercial / industrial sector, but the rates take can be as much as half of the total, so in effect the residential sector is subsidized for the excessively costly services it receives. This is why, as the above article illustrates, there has not been the inflation in commercial / industrial land – as there has been in residential. Simply because Local Authorities view the former as a “cash cow”.
As the Local Authority costs keep escalating year after year, the pressures build to strangle fringe residential land supply, in an endeavour to lessen the infrastructure spend, so as to feed the insatiable financing requirements of the growing bureaucracy. As Local Government costs get increasingly out of control, a “tipping point” is reached, where residential development is no longer seen as a benefit, but a cost instead. This is “dressed up” with the spin, that we all need to use resources more wisely (other than Local Government of course!).