The Real Estate Institute of Australia (REIA) hosted a housing affordability roundtable yesterday, which included a number of speakers from industry and the government, including:
- Kevin Andrews MP, Minister for Social Services;
- Peter Bushby, President, REIA;
- Brent Davis, Industry Policy, Master Builders Australia;
- Hannah Gissane, Project Co-ordinator, Equal Rights Alliance;
- Adrian Beresford- Wylie, Chief Executive Officer, Australian Local Government Association;
- Graham Wolfe, Chief Executive, Housing Industry Association;
- Alex Boorman, Research Director Australia / NZ, RFI Intelligence;
- Phil Naylor, Chief Executive Officer, Mortgage and Finance Association; and
- Damian Percy, General Manager Third Party Lending, Adelaide Bank.
The group issued a communique, which contained a few good suggestions on the supply-side, but also a fair bit of dross. Let’s take a look.
Access to affordable housing is a goal that is shared by the Government and all sectors of the community. A lack of affordable housing impacts on the functioning of the economy as well as the wellbeing of individuals and the cohesiveness of communities and society.
With first home buyers finding it increasingly difficult to enter the housing market, home ownership in Australia is declining after four decades of stable levels. In November 2013 the proportion of first home buyers in the total number of owner-occupied housing finance commitments dropped to its historically lowest point. First home buyers currently face significant challenges accessing affordable housing. This suggests a need for policy makers to address the issue.
The Minister for Social Services confirmed the Coalition’s 2013 election policy – acknowledging the importance of addressing housing affordability – and indicated his willingness to work closely with States and Territories and stakeholders in seeking a solution to the challenges facing would-be home buyers.
It is curious that Mr Andrews confirmed the Coalition’s 2013 election policy, which supposedly acknowledged the importance of addressing housing affordability. Because a quick look at their 48 policies and discussion papers from the 2013 election platform shows no housing policy at all. That’s right, apparently things like “creating a green army” and providing “fair indexation of military service pensions” are more important than the single biggest purchase anyone will make and by far the biggest asset class in Australia.
Let’s also not forget that the Coalition is yet to appoint a Minister for Housing. Meanwhile, all we have heard so far from Treasurer Joe Hockey and Prime Minister Abbott are ringing endorsements of Australia’s housing quango, which pumps demand and chokes supply.
Back to the communique:
As industry leaders, we acknowledge affordable housing is a complex issue, with a number of economic, social and infrastructure factors influencing the issue. These include: the deposit gap for prospective first home buyers; demographic change; the effect of stamp duties and taxes; insufficient supply of dwellings for both purchase and rental; land release and planning processes, and, importantly; a lack of urban infrastructure.
One of the factors highlighted at the roundtable as a major driver of increasing house prices and declining affordability is the undersupply of housing. This was identified as a priority policy issue. Supply has been unable to keep pace with demand due to a number of reasons: land availability; zoning policies, length of planning processes and environmental regulations. Furthermore, unless supply is addressed the gap between supply and demand would significantly widen by 2015.
Taxes at local, state and the Commonwealth level were also identified as one of the important factors determining housing supply and influencing housing affordability.
Fair enough. So everyone agrees that the supply-side is constipated due to a variety of reasons, such as lack of land release, cumbersome and restrictive planning processes, high taxes and charges on development, and poor infrastructure provision. But it’s not like these issues have not been known for some time. Instead of talking, what are we going to do about it?
Back to the communique:
Negative gearing in its current form plays an important role in addressing the supply of rental accommodation.
Really? Because any objective examination of the facts shows that it is an expensive waste that does nothing to boost housing supply or rental availability or affordability.
For example, Reserve Bank of Australia (RBA) data clearly shows that the overwhelming majority of investors – around 95% – buy pre-existing dwellings, not new dwellings, and that the proportion of investors buying new dwellings has fallen spectacularly since negative gearing was re-introduced in September 1987 (see next chart).
Moreover, the amount of investor funds going into new housing has barely shifted in 25 years:
Because investors primarily purchase pre-existing dwellings, negative gearing in its current form simply substitutes homes for sale into homes for let. As such, negative gearing has done little to boost the overall supply of housing or improve rental supply or rental affordability, yet places upward pressure on prices.
Back to the communique:
State based stamp duties discourage turnover of housing. This not only inhibits labour mobility but also distorts choices between renting and buying. Stamp duties act as a disincentive for the ageing population to downsize. These distortions lead to sub-optimal outcomes and reduced investment in the property market.
Sure, stamp duties are highly inefficient and inequitable and should be axed. But there is no point making such statements without recommending an alternative revenue source for the states. The logical choice is shifting state tax bases towards broad-based land value taxes, yet the communique is strangely silent on this matter.
Back to the communique:
It was suggested that greater consumer awareness and government support of lenders’ mortgage insurance and enhanced competition amongst lenders would drive product innovation, especially focused on prospective first home buyers, and would be facilitated through a strong securitisation market. Additionally, options to unlock the potential of shared equity as an alternative form of housing finance should be considered.
And herein lies the nub of the communique. Instead of concentrating on addressing the structural causes of Australia’s unaffordable housing, the members want to “improve affordability” by pumping more credit into the system.
Yet, if Saul Eslake’s 50 Years of Housing Policy Failure presentation showed us one thing, it was that demand-side measures aimed at promoting “housing affordability” and home ownership do not work. Despite the massive decline in interest rates and the myriad of subsidies to first home buyers (FHBs), the home ownership rate has decreased over the past 50 years (see next chart).
Without fundamental reform to the supply-side, any further easing of credit would be self-defeating as the extra capacity to borrow would soon be capitalised into higher home prices. At the same time, the Government could find itself at greater risk in the event that it provides support to lenders mortgage insurers.
Back to the communique:
As industry leaders we believe what is now needed is meaningful action. We welcome dialogue with the Minister, the Hon Kevin Andrews, and the Federal Government’s commitment to take a leadership role in developing a coordinated and strategic approach with all levels of government to the provision of housing.
We are committed to working with the Government to achieve these goals and to ensure that complementary policies, covering amongst other things first home buyers, taxation and supply, are in place to achieve this.
Given the communique’s shameless defence of negative gearing, along with its self-defeating suggestion to pump more credit into the system, forgive me if I remain skeptical of the group’s motives.
