The Housing Industry Association (HIA) yesterday issued a media release calling on our federal politicians to develop a national plan to address housing affordability:
The Housing Industry Association (HIA) has urged the Federal Government and Opposition to commit to actions targeting housing supply constraints in their election platforms.
“Providing affordable homes to house our growing, ageing and increasingly diverse population requires more than one line references about increasing supply,” said HIA Chief Executive Industry Policy and Media, Graham Wolfe.
“Providing affordable homes that cater for families large and small, in capital cities and regional centres, in city centres and their suburbs requires vision and planning,” added Mr Wolfe.
“We don’t have a national housing plan,” stressed Mr Wolfe. “Successive Federal Governments have failed to coalesce the roles, responsibilities and endeavours of state, territory and local governments. Governments at all levels, and their well-intentioned agencies, work outside of a national housing strategy. They don’t act in unison, towards a national goal.”
“It’s like attempting to piece together a jigsaw puzzle without knowing the image or landscape.”
“With an ageing workforce and mounting pressure on publicly funded services, the Federal Government cannot simply dismiss housing affordability as a supply problem for the states to solve.”
“An incoming Federal Government must do better. It needs to provide national leadership and vision, and the resources to support better targeted initiatives to increase the supply of both private and public housing.”
Committing to a dedicated Federal Minister for Housing, within Cabinet, and establishing a national land planning council to provide national monitoring and reporting of land supply across each stage of the supply pipeline are high on the HIA’s list of imperatives.
Instigating a holistic inquiry into the added cost of housing caused by taxes, excessive regulations and delays in planning assessments is also a priority for the housing industry.
For once I am in 100% agreement with the HIA.
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.
Of course, underpinning the appreciation of Australian home values is the hyper-inflation of Australian land costs:
While it is easier for the federal government to blame the states for the lack of land supply and infrastructure, dysfunctional planning systems, and excessive tax burdens, it is also 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 (Sydney and Melbourne, in particular). 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 supply for the expanding population, rather than ignoring the issue altogether.
For example, the federal government could offer incentive payments to the states to free-up land supply, relax planning, and build housing-related infrastructure. Again, it is the federal government that has decided to run a high immigration program, so the least it should do is provide the states – the ones primarily responsible for service delivery and infrastructure – with the means to cope with this growth.
Ultimately, the best way to overcome the states’ reluctance to boost supply is to ‘show them the money’ and offer them incentive payments in return for genuine supply-side reforms.
Most importantly, the “First-User-Pays-All Model” used to fund housing-related infrastructure must go. As explained by regular MB reader, Pfh007, the First-User-Pays-All Model works as follows:
- Developers are forced to provide the long lasting housing infrastructure that largely benefits the entire community;
- Developers then dump almost the entire cost on the first user of the land (usually a first home buyer), who then tries to pay for it with a jumbo-sized mortgage, much of which our banks borrow offshore;
- Local and state councils are then motivated to try to load as much expense on the home buyer as possible, and often also whack on a nice assortment of fat levies and contributions as well;
- The end result is a system that encourages gold plating and over charging when bringing land to market and forces the most vulnerable and less financially secure people pay the cost with hundreds of billions of foreign debt that requires a taxpayer guarantee.
The First-User-Pays-All Model is a key reason why fringe lot values have experienced hyper-inflation over the past 15 years. It is also why first home buyers are being gouged circa $600,000 to live in a basic 3 bedroom house on a tiny lot 50 kms from Sydney and why there is almost no-demand for expensive new housing like this unless interest rates stay close to zero.
One option for overcoming the First User Pays All model for financing development costs is for the federal government to 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).
The commonwealth could fund it directly via a Commonwealth Land Tax (which existed between 1910 until 1953) or have the state government collect it as rates and remit the required amount back to the federal government (or bond holder).
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 (SMSF) sector do the funding. The returns will be secure if the rates/taxes are a first charge on the property, and the SMSF industry is begging for simple secure long term investments that generate a steady return. In any event, the model certainly beats the current one whereby SMSFs are having a punt with retirement savings on the housing bubble through bank stocks and the like.
These are just two possible solutions out of many. The important thing is that the federal government stops ignoring the whole supply-side issue and takes a genuine leadership role, as well as providing the states with funding for growth.
New Zealand is currently showing us how it can be done, with broad political agreement now reached on freeing-up Auckland land supply (see here and here). The RBNZ deserves some credit, too, since it has placed intense pressure on policy makers to get their acts together on supply, shaming them into action and providing them with political cover. This is in stark contrast to the limp-wristed RBA, which chooses not to issue direct statements on housing affordability, thus giving our politicians a free pass.
In short, Australia desperately needs genuine leadership from the federal government to drive supply-side reform and improve housing affordability for the growing population. Not lazy lip service blaming the states.
