Why builders should dump the HIA

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By Leith van Onselen

The Housing Industry Association (HIA) is a curious industry lobby group. It is supposed to represent the Australian home building industry, namely “residential builders, trade contractors, developers, design professionals, kitchen and bathroom specialists, manufacturers and suppliers”.

And yet, over the past several years, the HIA has run a furious campaign against reforms to property tax concessions (e.g. see here, here, here, here, here, here, here and here), despite the well known fact that these policies – negative gearing and the 50% CGT discount – have done absolutely nothing to boost actual housing supply and therefore home building.

One only needs to view the below charts to see evidence of the epic failure of these policies.

While investment in existing dwellings has literally exploded since negative gearing was reinstated in 1987, followed by the halving of CGT in 1999, investment in new dwelling construction – which adds to housing supply – has been poor (see next chart).

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ScreenHunter_11443 Feb. 10 07.20

In fact, investment in new construction has been so poor that it has actually grown at a slower rate than owner-occupied construction lending since negative gearing was reinstated in 1987 (see next chart).

ScreenHunter_11444 Feb. 10 07.22
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So, every other form of finance has grown stronger since negative gearing was reinstated in 1987. Accordingly, negative gearing has not worked to boost housing supply (possibly the opposite), and instead has merely substituted homes for sale into homes for let. In turn, negative gearing has not improved rental availability or affordability, and has merely boosted demand and put upward pressure on existing home prices.

Given that the HIA is supposed to represent the building industry, one would have thought that it would wholeheartedly support the ALP’s policy to restrict negative gearing to newly constructed dwellings, since such a policy would directly encourage more housing construction and more work for its members.

Instead, we got this drivel yesterday from the HIA via media release:

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“Improving housing affordability and home ownership rates needs to be a focus of all parties in the upcoming federal election,” says HIA Chief Executive Industry Policy and Media, Graham Wolfe.

“Yesterday’s announcement by the Opposition that it intends to halve the capital gains discount on investment properties will, in our view, not achieve these objectives”.

“… restricting access to negative gearing for residential property would reduce investment in housing, erode housing affordability and put upward pressure on rents”…

“Now is a pivotal time for investment in new housing, which has implications for affordability and the broader economy, with starts expected to decline over the year ahead. Any changes to taxation with respect to housing must be aimed at boosting housing supply, and reducing the overall tax burden on the sector.”

Seriously, you cannot make this stuff up. Here we have the ALP proposing a policy that would directly encourage “investment in new housing, which has implications for affordability and the broader economy” and is directly “aimed at boosting housing supply”, and yet the HIA remains opposed.

I can only speculate that the HIA cares more about protecting the value of its developer member land banks, rather than actually boosting dwelling construction.

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All of which begs the question of whether those HIA members whose core business is the actual supply of housing – builders, contractors, designers, kitchen and bathroom makers, and suppliers of materials and components – should split from the HIA. What exactly are they getting for their HIA membership and wouldn’t they would be better off breaking away?

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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.