Treasurer of the Property Council Scott Morrison’s recent housing affordability speech pinned the blame for Australia’s housing affordability woes solely on supply not keeping-up with demand.
Prime Minister Malcolm Turnbull repeated this argument on Tuesday stating that housing affordability was “overwhelmingly a question of supply” and that was the area in which the Commonwealth wanted to work with the states.
However today, Treasurer Scott Morrison appears to have hypocritically ruled-out providing incentive payments to the states to encourage them to reform their land-use and planning systems in order to free-up urban land/housing supply. From The AFR:
Treasurer Scott Morrison says there will be no federal funds to encourage the states to adopt competition reforms until the budget was in better shape…
Upon becoming treasurer, Mr Morrison won a consensus from the states to implement reforms stemming from the review by Professor Ian Harper in return for incentive payments similar to those made under the Hilmer reforms of the 1990s…
Despite the lack of federal funds, Mr Morrison urged the state to adopt the Harper reforms anyway. They focus on opening up to competition the services they deliver…
Housing affordability will also be on the agenda Friday… “We spend almost or around $11 billion a year together with the states to support people in housing. I don’t think it is spent well by the states, it is not well spent by the Commonwealth either.
“That is a lot of money we are putting in every year that we can get a lot more out of than we currently are.”
One of the key areas identified by the Harper Competition review was Australia’s anti-competitive land-use and planning regime, whereby it was identified that “land use restrictions can pose considerable barriers to effective competition by constraining the supply of urban land”. Yet, judging by the above comments from Morrison, there will be no additional funding from the Commonwealth to facilitate reform, just a reshuffling of existing funding that is currently not “spent well by the states”.
This is a cop-out by Morrison. The Turnbull Government has blamed the states for the lack of land/housing supply. Yet, it is the Commonwealth Government that has chosen to open the immigration spigots, leading to strong inflows of new residents into Australia’s cities (especially Sydney and Melbourne), which costs the states dearly in services and infrastructure delivery.
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.
Ultimately, there are a whole bunch of policy measures that the Turnbull Government could implement to make housing more affordable, and these reside on both the demand and supply sides. These include:
- Reducing immigration down to sensible levels;
- Tax reform;
- Tighter rules and enforcement on foreign ownership; and
- Land-use and planning reforms.
Unfortunately, the Turnbull Government has ruled-out any demand-side fixes and has effectively pushed supply-side reform onto the states, without providing the states with funding and resources to cope with the population ponzi that it has created.
If anything, the Turnbull Government has shown a determination to juice demand even further by priming the immigration pump via allowing 6 year-olds and their guardians visa entry into Australia’s primary schools, as well as freeing-up rules to allow migrants to bring into Australia their elderly parents – both of which will further boost housing demand (other things equal).
In short, the Turnbull Government has zero interest in fixing housing affordability. Their sole focus on supply is a red herring so that it can continue to do nothing while blaming the states.
