Labor responds with housing demand and supply discussion

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By Leith van Onselen

Labor’s Finance Spokesman, Tony Burke, appeared on ABC Radio a short time ago to discuss Treasurer Joe Hockey’s comments on housing affordability and outline Labor’s policy:

“We’ve simply said we need to have a discussion on the issue of housing affordability… We have a discussion paper that submissions have closed on that is going to be released in an orderly way… and before the election we will announce our policies on it…

We’ve got the Treasurer of Australia on these crazy rants day after day, without any factual basis behind it…

What we need to make sure of is that we start by identifying the problems and working through what are the different policy leavers… No one is asking for prices to fall, no one is putting that forward. The only person that is talking about that is Joe Hockey [and] Tony Abbott…

What the Treasurer just said is that price is determined only by supply. Now everybody knows that’s wrong. Issues of price are determined by both supply and demand. And at the state and federal levels there are policies that impact on both. And we will have a look at all of them…

We are the first opposition in decades that says that we are willing to include it [negative gearing] in the conversation… and work our way through it. What we have ruled out is anything that would be retrospective and anything that would have an impact on the provision of new housing supply…

At the state and federal level there are impacts on both supply and demand. The supply issues that Joe Hockey refers to are principally at the state. But there are demand issues that are relevant here as well.

Taxes on stamp duty, negative gearing, capital gains tax concessions – all of these play into a mix which means when somebody is going to buy a property, they’re not simply competing with other home owners, they are competing with a disproportionately high number of investors…

The number of investors in both the data that’s coming out and in the anecdotal information that we are getting about auction clearances is getting higher and higher. That’s gotta result in an adult conversation, not the sort of hysteria that Joe Hockey goes on with”.

While there are some weasel words there, the key takeaways are:

  • Investor participation in the housing market is far too high, and is pricing-out first home buyers.
  • Labor is developing a housing policy that will take into account both demand-side factors (e.g. tax policies like stamp duty, negative gearing and CGT concessions) and supply-side factors.
  • Any change to negative gearing would not be retrospective, and would not adversely impact new housing supply. This reads to me like Labor is examining grandfathering current arrangements for existing negatively geared investors and allowing negative gearing on new builds only.
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Certainly a big improvement on the gruel coming out of Abbott’s and Hockey’s mouth’s. Let’s hope Labor follows through.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.