Australia’s real estate Treasurer, Scott Morrison, tied himself in knots yesterday trying to argue that housing unaffordable, but that this is not due to a speculative drive-up in asset prices, and that the solution rests with improving supply. From The Guardian:
The Treasurer, Scott Morrison, has said Australia is experiencing a housing affordability problem, but not because house prices are rising unsustainably.
He said supply was the main problem in many pockets across the country, but abolishing negative gearing would not help…
“Where I am particularly concerned is for those trying to get into the market. Those trying to get into the market in Sydney for example, and New South Wales, it is taking two extra years now on the estimates from the research that has been done, than it was five years ago. I suspect in many cases a lot longer than that.
“The difficulty is for people to be able to get into that market. Now the way you address that principally is in the area of supply,” he said…
“We do have high levels of household debt, and that is principally around housing itself. But the values, although they are in many cases widely unaffordable and are high, they are also real values, and those asset prices actually underpin things like our banking system where 60% of the loan book of the banks are those housing assets.
“I make that point not to say housing is affordable, I think we have a housing affordability problem, but it would be wrong to say that is because of speculative drives in asset prices which are unsustainable, and which will fall off a cliff and undermine our economy.”
Blind Freddy can see that there are two broad approaches at Morrison’s disposal to make homes more affordable for younger Australians:
- Remove artificial (speculative) demand from the market; and/or
- Introduce measures that improve the supply of affordable land/housing.
Unfortunately on the demand side, Mr Morrison has categorically ruled-out making changes to taxation settings (e.g. negative gearing and the capital gains tax discount), which leaves only supply-side reforms.
To date, the Turnbull Government has shown little interest in this area. In the lead-up to this year’s Australian federal election, the issue of housing affordability received zero attention from the Coalition. Moreover, while the newly Government introduced the biggest ministry since the Fraser Government – with 23 Cabinet positions and another seven outer ministries – it amazingly did not include a minister for housing.
So, it is a fair assessment to conclude that the Turnbull Government has been MIA on housing: the number one social, economic and inter-generational challenge in the country has nobody looking after it.
With the Australian housing market at its most expensive level ever relative to incomes and rents, household debt at its highest ever level, and first home buyers largely missing in action, Australia desperately needs coordinated policy action and leadership at the federal level.
The key driver for the rapid appreciation of Australian home values is the hyper-inflation of land costs:
The Coalition has shifted the blame for this land cost escalation on the states for the lack of land supply and infrastructure, dysfunctional planning systems, and excessive tax burdens. This is a cop out.
It is the federal government that has chosen to open the immigration spigots, leading to strong inflows of new residents into Australia’s cities (especially Sydney and Melbourne). And given the massive vertical fiscal imbalances present in the federal system, it is no surprise that the states have attempted to prevent growth of the urban footprint in a bid to save on infrastructure costs. They simply cannot afford to fund this growth without federal help.
This is where the federal government should be playing a leading role in housing policy to assist in boosting affordable supply for the expanding population, rather than passing the buck.
As I have argued repeatedly, the federal government should offer incentive payments to the states to free-up land supply, relax planning, and build housing-related infrastructure. The federal government could also pay the servicing and development costs of bringing the land to market and then recover part or all of the cost from rates or taxes on the land over the next 20-30 years (explained here and here).
Alternatively, if the federal government remains reluctant to fund such vital infrastructure, it could instead set up a Municipal Utility bond model (explained here and here), like the one operating in Houston Texas, and then let the growing self-managed superannuation fund sector do the funding.
These are just a few potential policy options out of many. The important thing is that the federal government stops blaming the states and takes a genuine leadership role, as well as providing the states with funding and resources to cope with the growing population.
Thankfully, we might finally see some action from the Turnbull Government on housing supply. As reported in The Guardian:
Morrison will deliver a speech next week outlining the Turnbull government’s analysis of the problem, and what the policy challenges are.
He will point to the Harper Review of Australia’s competition laws, released in March last year, which recommended state and territory governments include competition principles in their objectives for planning and zoning rules.
The Turnbull government has previously said it is willing to consider incentive payments to states and territories to reform their residential planning systems. Morrison is also interested in the potential for urban in-fill to boost housing supply.
The time for talk is over. We need genuine federal government action on the housing racket that is pricing young Australians out of a decent future.
