Independent economist, Saul Eslake, has penned a good treatise on how to make Australian housing affordable, which provides the following concluding recommendations to federal and state governments:
It’s worth emphasising that a strategy which embraces all of these areas requires a sustained commitment from all levels of government – Commonwealth, state and local – working towards the same ultimate objectives, rather than (as so often in recent decades) at cross purposes.
What the Commonwealth Government should do
More specifically, the Commonwealth Government should:
- reduce the competition prospective home-buyers face from domestic investors by modifying the way in which the income tax system treats investors’ borrowing costs and/or the way it treats capital gains;
- reduce the competition prospective home-buyers face from domestic investors by requiring APRA further to lower its ‘ceiling’ on the rate of growth in aggregate lending to residential property investors, and/or further tightening the criteria used by mortgage lenders in making residential property investment lending decisions;
- reduce the competition prospective home-buyers face from foreign investors by further tightening FIRB rules governing the circumstances under which foreign investors are permitted to purchase established dwellings, and/or bringing real estate agents within the purview of anti-money laundering rules and AUSTRAC reporting requirements;
- add to housing supply by including owner-occupied housing in the assets test for the aged pension, while lifting the assets test thresholds to account for the inclusion of the family home, and pressuring State and Territory Governments to exempt pensioners from stamp duty when ‘downsizing’;
- provide grants or low-interest loans to State and Territory Governments for the construction of more new affordable rental dwellings, either by State and Territory housing authorities or community housing organisations (as previous federal governments have done);
provide tax incentives for institutional or individual investment in new affordable rental housing (perhaps funded by reductions in existing tax incentives for speculative investment in established housing);- provide support (in the form of loan guarantees or interest subsidies) for borrowings by community housing organisations and other not-for-profit providers of affordable rental housing; and
- use fiscal policy more actively, when economic conditions require measures aimed at boosting economic activity or employment, so as to reduce the need to rely predominantly on monetary policy (in the form of low interest rates) for that purpose.
What the States and Territories should do
State and Territory Governments can contribute towards enhancing people’s capacity to become home-owners by:
- scaling back cash grants and tax exemptions or concessions for first-time buyers which simply allow buyers to pay more to vendors than they otherwise would;
- replacing stamp duties with a more broadly-based land tax (with no exemptions for owner-occupied land, but with appropriate transitional provisions to avoid ‘double taxation’ of recent purchasers) so as to eliminate the disincentives which stamp duties create for people to ‘move home’ as their needs change, as well as to provide State and Territory Governments with a more predictable and stable source of revenues;
- reducing up-front taxes and charges on land developers and builders for the provision of suburban infrastructure, permits and inspections (or simply revenue-raising) – whilst recouping revenue foregone through increased municipal rates or land tax, and working with the ACCC to ensure that reductions in up-front taxes and charges are passed on to new home buyers;
- reforming planning laws to reduce the scope for frivolous or vexatious objections to redevelopment of existing residential sites at higher densities; and
- increasing investment in urban transport infrastructure to improve access to and from new suburbs to places of employment, entertainment and recreation.
State and Territory Governments could also:
- improve the supply of affordable rental housing by building more of it themselves, or by funding community and not-for-profit housing providers to do so (including by transferring some of their existing housing stock to such organizations, allowing them to leverage it in ways that State and Territory Governments have become unwilling to do);
- make unused or under-utilized state-owned land available for the provision of more affordable rental housing; and
provide support for borrowings by community and not-for-profit affordable housing providers in the same way as suggested for the Commonwealth above.A program of measures along these lines shouldn’t be beyond the range of what is politically possible. Indeed, most of it has been done before, in the 1950s and 60s – and the evidence from that period is that it worked, delivering affordable housing to a rising proportion of a population that was growing more rapidly than it is today. Moreover, the evidence strongly suggests that what governments have been doing (or failing to do) over the last years hasn’t worked – unless you believe that it has been an unspoken, yet bipartisan, objective to transfer wealth to those who already own property from those who don’t.
If governments continue to do what they’ve been doing, or failing to do, in the housing policy space for the last fifty years, then Australia is likely to become a very different, and less comfortable, place than most Australians have wanted it to be.
The only disagreement I have with Saul is the claim that the population was growing more strongly in the 1950s and 1960s than it is today, which suggests that the federal government’s massive increase in immigration is not playing a significant role in making housing unaffordable.
While Eslake is right when population growth is measured in percentage terms, he is wrong when measured in actual numbers:
It is the sheer number of people flooding into our major cities that are causing the chronic problems for housing and infrastructure, especially given these cities are already built-out and experiencing dis-economies of scale.
Put another way, it was far easier to run a high immigration program when Australia’s cities were small and had heaps of readily available greenfield land within a short distance of the CBD than the current situation, whereby our major cities are already sprawled 50-plus kilometres and available land is relatively scarce.
In any event, it makes little sense persisting with mass immigration, and adding to Australia’s housing and infrastructure woes, until the above recommendations by Eslake are implemented. Doing so would guarantee that Australia becomes “a very different, and less comfortable, place than most Australians have wanted it to be”.
