RBA passes housing affordability baton back to government

Twice over the past two days, the Reserve Bank of Australia (RBA) has pointed the finger at the federal government for Australia’s housing affordability problems.

Speaking in an address to the Anika Foundation on Tuesday, governor Phil Lowe pointed to a number of public policy issues, which are the responsibility of the Government, that need to be addressed if we want ‘affordable housing’:

“While monetary policy is contributing to higher housing prices at the moment, the way to address these concerns is through the structural factors that influence the value of the land upon which our dwellings are built”…

“The factors include: the design of our taxation and social security systems; planning and zoning restrictions; the type of dwellings that are built; and the nature of our transportation networks.

“These are all obviously areas outside the domain of monetary policy and the central bank.”

In a similar vein, assistant governor Luci Ellis fronted the latest parliamentary inquiry into housing affordability whereby she blamed successive federal governments for encouraging speculation via tax rules, as well as inflating prices through demand-side subsidies:

“The [Reserve] Bank has always held the view that the combination of negative gearing and concessional capital gains tax – and indeed the way we tax older Australians or don’t tax older Australians – combines to encourage essentially speculative investment in property”…

“We believe the tax system is worthy of review, but not one feature in isolation”…

“You don’t increase affordability by giving people more money to spend on housing”…

Shifting the focus back on the federal government is a good move by the RBA, since it controls most of the policy levers. If it wants to make housing more affordable, the federal government should:

  • Normalise Australia’s immigration program by returning the permanent intake back to the level that existed before John Howard ramped-up it up in the early-2000s – i.e. below 100,000 from an average of 219,000 between 2005 and 2019 [reduces demand];
  • Undertake tax reforms like unwinding negative gearing and the CGT discount [reduces speculative demand];
  • Tighten rules and enforcement on foreign ownership [reduces foreign demand];
  • Extend anti-money laundering rules to real estate gatekeepers [reduces foreign demand];
  • Ban borrowing into property by SMSFs [reduces speculative demand];
  • Boost investment in social housing [increases affordable supply]; and
  • Provide the states with incentive payments to:
    • undertake land-use and planning reforms, as well as provide housing-related infrastructure [boosts supply];
    • swap stamp duties for land taxes [boosts effective supply];
    • reform rental tenancy laws to give greater security of tenure [reduces demand for home ownership and reduces rental turnover]; and
    • force developers to supply housing for lower income earners via inclusionary zoning [boosts supply of affordable rentals].

Australia’s governments have already run numerous housing affordability inquiries over decades and all were ignored.

This latest inquiry is designed purely to give the impression that something is being done. But like the others, nothing will come of it for the simple reason that achieving ‘affordable housing’ means that house prices must fall, which politicians and existing homeowners don’t want.

The whole topic is a charade that has already wasted thousands of work-hours and millions of dollars worth of salaries and consultants’ fees on useless reports. Add this one to the pile.

Unconventional Economist

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