Property Coalition blows more smoke on housing affordability

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By Leith van Onselen

Lateline conducted an extended interview with Angus Taylor, Assistant Minister for Cities, last night talking housing affordability.

In the interview, Taylor pinned the blame for Australia’s poor housing affordability solely on supply and basically rejected any notion that demand-side factors – such as warped tax settings, foreign buyers, or excessive immigration – have played any role.

Below are the money quotes. Enjoy as Emma Alberici wipes the floor with him on negative gearing.

Angus Taylor: “We know that if we’ve got responsive supply, then demand can do what it likes. We can make housing affordable, accessible, and we can make sure that housing occurs in the right places with the right sort of houses. That supply response is absolutely essential, it hasn’t been there, and we need to fix that”…

“We are adding about 300,000 a year to our population. We’ve started from a significant shortfall in housing, which every young Australian trying to get into the housing market is well aware of. That means that regardless of the increases [in supply], which have been good, we are going to need a lot more”…

“Investors will typically rent out their house… so it’s not as though they are creating the problem. The ultimate issue is… we’ve had a mis-match [in supply], and it’s not just in the last couple of years… it’s been building for a long time. And it’s at its worst closest to where there are good jobs. The real issue is having houses in the right locations, where people are close to public transport, and jobs… Sp we need to see that responsiveness of supply”…

Emma Alberici: “Scott Morrison has said this week that Labor’s policy on negative gearing would remove one-in-three buyers from the housing market. Isn’t that a telling indictment of just how first home buyers have been squeezed-out bu investors?”.

Angus Taylor: “Remember an investor will still typically rent that place out, so the supply is there. And it’s not as though we are seeing an oversupply of rental premises. In fact rent rates suggest to us that, that the demand from the younger generation particularly for rental premises suggests to us that the supply um”…

Emma Alberici: “If the young people cannot get into the housing market, then it makes sense doesn’t it? They are putting demand on the rental market. And if you are wanting to address the balance there so that there are more young people can own properties, My proposition to you isn’t part of the reason that they can’t get into the market because there are so many investors in there?”.

Angus Taylor: “No I don’t think that’s right. The issue here is about the aggregate market. Not the owner-occupier versus renter… We’ve just got an overall shortage of houses… I just don’t think tampering with negative gearing is the solution to the problem we’ve got…. There has been shortages”

Emma Alberici: “That’s versus demand. And I am suggesting to you that demand is as high as it is because we’ve got so many investors in the market. You just have to look at housing finance figures from 1992 that around 17% of all loans went to [FHB] owner-occupiers, whereas roughly the same went to investors. Fast forward to 2015-16 and less than 10% of loans are going to [FHB] owner-occupiers and 45% are going to investors. Are you telling the audience that has nothing to do with negative gearing?”.

Angus Taylor: “What I am saying here is the aggregate housing market…

Emma Alberici: “You think [negative gearing reform] would have no impact whatsoever?”.

Angus Taylor: “I think the risk is that you destabilise the market frankly. And what we need least is a destabilisation…”

Emma Alberici: “[But] under Labor’s plan it would be grandfathered. People owning existing dwellings would be incentivised to stay in those…”

Angus Taylor: “Except you are making a major change to the market. And major changes can destabilise the market”…

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So there you have it. The Coalition does not genuinely care about fixing housing affordability.

It waffles on about boosting supply and making it more responsive, which is indeed a worthy goal. However, it offers absolutely no solutions on how to do this.

If Australia’s land-use, planning, infrastructure funding, and taxation systems were more liberal towards development, and land supply was responsive, then increases in demand from rising incomes, population growth, and investors (both domestic and foreign) would lead to the building of additional low priced housing (either on the fringe or in-fill), helping to keep home prices in check.

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In turn, speculators would be less likely to pile into the market, since there would be less prospect of achieving strong capital gains. Instead, investing would be more about yield, and the market would be building for home owners, rather than speculators.

But where is the federal government’s plan? What is it offering other than blaming the states?

It is the federal government that has chosen to run an excessive immigration program, 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.

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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).

If the federal government truly wanted to boost supply, it would put its money where its mouth is, rather than making broad motherhood statements.

Taylor’s comments on negative gearing are also quite frankly laughable and Emma Alberici did a fantastic job tearing him apart. Given that the federal government controls taxation policy, it has the power to immediately reform negative gearing and the capital gains tax discount, thereby alleviating affordability pressures immediately as it works with the states to free-up supply/planning over the longer-term.

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The same goes for the immigration intake, which is under the federal government’s control and should be wound-back significantly.

Overall, this is another poor effort by the Coalition, which continues to completely ignore the demand-side of the housing market, while conveniently pinning the blame for supply-side failures on the states rather than taking ownership of the issue.

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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.