Federal Government policies are primarily responsible for the housing crisis facing Sydney and Melbourne first-home buyers and renters. Yet this Government virtually ignores fist-home buyers. Indeed it pursues policies which drive very many out of the housing market into exorbitant rentals. One policy, annual tax concessions to housing investors, cost $12 billion last year.
Since 1985 median house prices have increased from three times median-income to around 13 times in Sydney and over 11 times in Melbourne. Thus despite large increases in per-capita income, housing has become far less affordable forcing an increasing proportion of families into the escalating rental market. This has greatly reduced living standards and increased inequality since mortgage repayment or rent is far the largest component in most young families’ spending. When interest rates inevitably rise this situation will be exacerbated.
Four government causal policies
Tax concessions on housing investments: “Negative gearing” enables housing investors to deduct from their taxable income both interest on funds borrowed to purchase houses and related costs. The Howard Government later introduced a 50% capital-gains tax-discount on investors’ profit on these housing sales. These concessions mainly accrue to higher income earners at the expense of first-home buyers. By purchasing several houses many investors pay little tax while accumulating substantial capital gain.
The Grattan Institute estimated last year the annual revenue cost of negative gearing was $5 billion and capital -gains tax-discount on these housing sales, $7 billion. This could annually build around 36,000 houses/apartments for low-income earners or house the estimated 100,000 homeless in three years. Despite government claims negative gearing increases housing supply, statistics reveal little such investment in new housing. Labor’s policy restricts negative gearing to new housing.
Record low-interest rates: these have greatly encouraged potential housing investors to take advantage of tax concessions to buy houses for reselling for capital -gain. In 2016 the Reserve Bank’s now- retired Governor Stevens explained record low-interest rates were designed to stimulate the private sector in the face of growing unemployment and under-employment of 1 million. He recommended government economic stimulus through borrowing to spend on needed public infrastructure to discourage the Reserve Bank ’s rate cuts.
The Coalition Government had opposed borrowing for capital spending despite past governments and corporate sector borrowing for most capital spending. Last year’s budget modestly modified this policy.
Substantial housing investment by overseas non-residents: A Credit-Suisse analysis following FOIs to State Governments concerning overseas investors’ housing tax, showed $8 billion spent last year acquiring 25% of new houses sold in NSW and 16% of those sold in Melbourne. Prohibiting such sales, which escalate housing prices, would prioritise the interests of Australia’s first-home buyers and renters above those of foreign investors.
The Government’s support for rapid population increase: Last year’s net migration was 190,000. Additionally, there is substantial temporary migration many of whom become permanent migrants. Together with our natural increase of 160,000 our annual increase approaches Canberra’s population of 380,000. If continued this would equate to a new Canberra EVERY YEAR! This enormous population increase is a major driver of house prices, urban density, the continual spread of population into extending the cities’ urban fringes, and increasing transport and infrastructure problems—particularly since most migrants settle in Sydney and Melbourne.
A National Housing Corporation
As well as dealing with the above policies it’s essential to establish a National Housing Corporation (NHC) to ensure first-home buyers have access to affordable, quality housing in well- planned urban environments. The NHC should have statutory requirements on architecture and urban-planning plus prioritising proximity to employment opportunities and public transport. Redeveloping depressed urban areas with quality, affordable housing should be one objective in cooperation with the respective State Government. Only such an entity would have the objective, means and authority to achieve these ends.
Many private developments have severely impacted on the quality-of-life through over-intensive development, poor architecture, an absence of natural surrounds and failure to consider the above proximities. The NHC could thus save state governments massive spending on public transport and roads and probably on health spending.
As a statutory corporation the NHC would operate independently of the budget at no cost to the budget. It would be a community service rather than a profit-making enterprise.
The NHC could sell and rent housing only to permanent residents. If buyers wished to sell before a specified period the houses would return to the NHC. They would be built by contractors well below current market prices both because the NHC could borrow at lower interest rates than the private sector and because they would be free of developers’ profit both at building and sales levels. A division of the NHC could be established in the budget to further assist low-income earners with housing subsidies.
These reforms could eliminate current housing stress defined as mortgage repayment or rent exceeding 30% of income. Many low-income families currently consume up to 70% of income greatly exacerbating poverty and inequality.
Harold Levien is a freelance writer on political and economic issues who, many years ago, founded and edited the monthly review of current affairs, Voice, The Australian Independent Monthly.
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