CAMERON MURRAY. Affordable housing reform.

While the decline of our economic diversity, has failed the average worker, it has been a boon for the landlord class. Those who already own land and housing benefit at the expense of those who want access to housing for their own household security.  Those who own the banks benefit too. And we have seen the enormous lengths to which government will go to support the way things are. Every “affordable housing” policy, … is designed not to let housing prices fall, and housing become genuinely more affordable. 

I spoke on Sunday at an event in Sydney, hosted by Sustainable Australia, called Housing Affordability: An honest debate. A video should be on the Facebook page and is below, as are the notes for my talk.

Imagine explaining 2017 to someone from 1987
I would like to start today by imagining a conversation. It’s the conversation I would have with my grandfather if I could go back in time 30 years to 1987. It might go a bit like this.

Grandad, how are you? I’m so glad I could come back from the future to tell you all about the amazing progress we have made.

Oh, look at how you’ve grown. What amazing things can you tell me all about it.

Well, remember how you were the first person out of everyone you knew to fly in an aeroplane? Well, in 2017, people fly all around the world all the time. Not only that, you know how you saw a computer once? Now everyone has a computer in their pocket. It’s like every encyclopaedia in the world has been shrunk down. And we can video call anyone, anywhere in the world, anytime. We have clean solar energy now, and China, South Korea, and many countries in Asia have become wealthy and brought their people out of poverty.

That does sound rather fantastical. And how are you?

Well, I’m 34 now. I got a university degree, and a PhD, so I’m the first in the family for that. And I have a loverly wife and two young boys who are 6 and 9.

Oh how lovely. You must have a beautiful house and garden then with all those grand things the future holds.

Well. Actually no Grandad. We live in a house smaller that the one Mum and Dad moved into when they were first married. It’s very similar in fact – I don’t think it has been renovated or improved in 30 years. And our garden? I’ve tried, but I don’t want to put too much money and effort into it. Because I rent Grandad. Although I have a university degree, and so does my wife, we can’t buy a house. They cost $1 million in and around Sydney. Even in Brisbane, homes are around half a million. Less if you go out of town, but it’s hard to find work outside of the city. And we have no chance of saving more than one hundred thousand dollars for a deposit when our rent takes up 40% of our income.

And what’s worse, the price of the average house in Australian capital cities went up 11% last year. In Sydney and Melbourne, the average home went up in price in one year by more than the average wage! So saving up for a deposit is like running up the down escalator. You never make progress!

So we are in a pickle. I can’t have a nice garden, because if we do spend the money and time to spruce it up, the real estate agent will see it and realise that they can rent the house for more, then ask us to pay for it by putting the rent up at the end of our lease. And every year, when the lease is up, we don’t know if we can stay anyway. We’ve moved 4 times in the last 10 years. I don’t really think we will ever have a house and nice garden. Probably not even a nice apartment.

What an absurd situation. You have all this technology – a computer in your pocket, world travel – and you can’t have a place with a nice garden to call your own.

How can we change my story?
Despite being absurd, this conversation contains many truths about modern Australia. And it doesn’t have to be this way. The past 30 years could have taken another path.

By many metrics Australia is one of the wealthiest handful of countries in the world. So why are we having an event today talking about the basic challenge of making housing secure and affordable?

If anyone can do it, we should. Many of our wealthy peer countries have established home ownership is a genuine option, and they’ve made law that make renting a secure alternative.

You see, the heart of this story not about housing, but about economic diversity. When wealthy countries ensure that economic investment is made across many different sectors, they establish demand for skilled workers, demand for cheap housing also comes from the companies who need to attract those workers. Mobility, in terms of households moving cities for work, has declined, mostly because of the challenge of finding affordable accomodation.

We could be in a different place today. We could be talking instead about Australia cementing its place as a global manufacturer of solar and wind energy, one of a our natural advantages. We could be talking about how a world class satellite industry and growing remote sensing industry has revolutionised agriculture, and how we’re exporting this expertise to the world. I could have regaled my grandfather with these wonders instead.

The reality however is that Australia has dropped in the world rankings of economic productivity and diversity. Harvard University researchers called Australia a ‘laggard’ of the Asian region, along with Mongolia and Papua New Guinea. We’ve dropped in their rankings from 32 in 1994 to 54 in 2008, and are still declining. Our exports are now dirt. Mostly coal and iron ore. Canada still beats us, ranked 29, but having declined from being ranked 19 just 20 years ago. Canada too has similar housing affordability problems to us.

As a side note, Canada is second place in the developed world in terms of immigration rates. If Australia just decreased the immigration intake to match the rate of Canada over the past ten years, there would be 1.3 million fewer people. That’s three Canberras!

We can actually see part of the cause of our narrowing of our economic base in the pattern of bank lending. Fundamentally, the pattern of new lending determines the patterns of real investment in the economy. It determines where we invest in new manufacturing and production capabilities, or instead take leveraged gambles by reselling homes to each other. That’s why the fast growing Asian countries use State-owned banks to direct investment towards new production facilities that expand their capabilities.

In the early 1990s, over 50% of Australia new bank lending was for business investment. Only 4% was for investor housing. 25% owner-occupied housing.

Now? It’s down to 30% for business. Investor housing has jumped from 4% to 20% of lending, and owner-occupied lending too has leaped from 25% to nearly 40%.

But it’s worse. 95% if that massively increase investor housing lending is for established homes, up from 50% in the late 1980s. Only 5% is for newly constructed homes, down from 50% a quarter of a century ago. We are directing our powerful monetary system, our bank lending, away from new investment in new housing, towards trading the same homes with each other. Home ownership rates have steadily declined for twenty years.

Why is this?

In many ways it was a conscious political choice. While the decline of our economic diversity, has failed the average worker, it has been a boon for the landlord class. Those who already own land and housing benefit at the expense of those who want access to housing for their own household security.  Those who own the banks benefit too. And we have seen the enormous lengths to which government will go to support the way things are. Every “affordable housing” policy,…  is designed not to let housing prices fall, and housing become genuinely more affordable.

What can work?
While the main challenge here is political, one thing we can do is have a shortlist of effective policies proposed, analysed, and scrutinised, that are ready to be adopted when the political timing is right.

Let’s start by debunking a furphy. Anyone who says that we need less regulation and freer markets to solve housing affordability is a fool. They have not thought this through. They have ignored all the evidence from extensive regulations in wealthy countries that do promote affordable housing.  Australia’s problem come in many way from “market forces”.

I’m an economist, I love markets. But I’m not an idiot.

In terms of the larger economic diversity problems, much of this stems from lobbying pressure to sell the assets of the nation to well-connected interests on the cheap, with these new monopolies doing the rational market thing of constraining output and increases prices. No longer do we have a public sector able to use these institutions to take risks, or invest in new technologies that have obvious public benefits.

Public investment has always laid a platform upon which the private sector has built, innovated, and thrived. We know that the space race of the 1960s had huge economic benefits for the economy broadly. We know the many waves of public investment in our city infrastructure also supported private sector producers in terms of transport, communications, water, energy and health. The same is true today. We actually need to defy market forces if we want to make progress. We need to gamble with public investment for major capital projects – yes, like the NBN – for the future.

For example. it’s not too late to do economic CPR on the manufacturing sector if we want to, and that sector will help us invest in the clean energy and information technology future.

Moving on to banking. We should see new lending and money creation, as a social function. It’s a public good. And we have let this money creation gift that we provide our banks to be used to fund land and housing speculation, rather than new businesses and real investment. This is the natural market outcome in the absence of regulations that direct our monetary system is be used for broad economic goals.

We need to massively tighten lending rules for banks to the housing market, and force them to look elsewhere and take risks on genuine productive investment. We could go beyond LVR rules, to loan-to-income rules, that restrict investor lending based on the rental income of the property. We could completely ban investor housing lending except for newly built homes, which do not expand our productive capacity. While it seems extreme, being a wealthy nation where citizens cant afford housing IS AN EXTREME problem!

We should be taxing unproductive activities, and un-taxing productive ones. That means charging for our land and mineral rights. The ACT is six years into a 20 year transition to land value taxation. Loopholes in the PRRT can be closed, and the system expanded onshore as we once tried with the MRRT. As you might now be realising that one of the problems with getting back our economic diversity is the concentration of political power by a few narrow interests. Many came out against the attempt to retain control of mineral right with the MRRT. Expect nothing less next time effective reforms are proposed.

In terms of housing more generally, we could ban foreign purchases altogether. I see absolutely no reason not to. It is clearly a myth that we need the money – after all our domestic lending for housing investment is off the charts! There was around $120 billion if new lending to investors last year. If this was direct to new housing only, it could have funded over 300,000 new homes, far more than one each for our new population over the period. Removing foreign buyers would take a large chunk of the wealthiest potential buyers out of the price-bidding contest for homes. 11% of home buyers in NSW last year alone.

And on the same note, the 50% CGT discount merely serves to increase the payoff from speculation rather than investment and production. It was a mistake. We can admit it. Let’s move on.

I want renting to be a valid and equal alternative to ownership. To that end my general view is that balance of bargaining power needs to shift towards renters, which would decrease the price-competition that keeps rents high.

There are a number of ways to do this.

Tenancy laws: Remove options for not-fault termination of lease, and limits rental increases.
Vacant homes: Introduce a vacant home tax that would punish owners of multiple dwellings, many of which are held for asset speculation, and kept vacant to time their exit from the market and maximise the sale price by selling it vacant.
Social housing: Broaden the number of state-owned social housing projects, ensuring they are widely integrated into the community. As well as funding them directly, make them part of development conditions for large new subdivisions. This provides an outside option to renters who are no longer being funnelled into the private rental market.

These laws are absolutely standard across the our peers of successful, wealthy, economically diverse countries, like France, Germany, Denmark. If I were in these countries I could have told my grandfather about my beautiful garden, and I could have told him how we have not had to move 4 times.

Before I finish I should comment briefly on supply. Many people see that as the answer, despite the fact that Australia has the most homes per person that any time in history, and has just had the biggest housing construction boom in history. There certainly has been a small effect on rental prices, in the order of a percent or two less growth here or there. But it has done nothing for prices. Sydney prices are up 75% in 5 years.

Nor does rezoning increase supply. It makes no sense to tell a landowner who has for decades decided not to build houses that they can built more densely. It is a pure gift. There are examples of sites rezoned because of the urgency of supply, only for the developer to turn around and tell investors that they want to take 35 years or more to develop. Sure rezone, but if you are doing it for housing supply, make it a condition that homes are built in a short time period. I have seen developers lobby for rezoning and be granted it due to concerns over housing supply, only to then turn around and tell their investors that the housing development will take 35 years and they will sell as slow as necessary to keep prices high.

Additionally, rezoning rights can be sold rather than given away. In the ACT, rezoning rights are taxed at 75% of their market value. In Sau Paulo Brazil, rezoning rights are auctioned months, and they have raised $10 bill USD in 10 years from that.

I will wrap up now.

I would love to have gone back in time and had a different conversation with my grandad from an alternative 2017. One where there was more to life that speculating on housing, and we could laugh at the idea of housing reality television on our screens. We could instead talk about gardening.

But we can learn from these past decades, and if my grandchildren do the same exercise in 30 years, they can tell me about their family, their work and their garden, and their beautiful home.

Dr Cameron Murray is an economist, consultant and blogger, who specialises in property, planning, environment and corruption.  This speech was first published in

See also John Menadue’s post of 21 March 2017, ‘How the gaming of land rezoning by vested interests keeps housing unaffordable‘.


John Laurence Menadue is the publisher of Pearls & Irritations. He has had a distinguished career both in the private sector and in the Public Service.

This entry was posted in Economy, Housing, Politics and tagged , , . Bookmark the permalink.

6 Responses to CAMERON MURRAY. Affordable housing reform.

  1. Mael Colium says:

    Let’s sharpen the dialogue up a bit:
    Grandfather: At the age of 34 years Me, you have had the opportunity to vote in around 4 federal elections.
    Me: Nice job on the maths, but what are you on about?
    Grandfather: These people that you voted in are wholly responsible for the predicament that you find yourself in ………. I’m just sayin’
    Me: I’ve been busy Grandad; you know, I had to buy new iPhones every year and spend time learning how to wedge my friends on facebook and oh, my annual holiday to Bali sucks up time and coin, not to mention the smashed Avo’s – come on be fair.
    Grandad: Sigh, I taught your father values so that he bought a 900 square foot home until he could upgrade and if he had to travel an hour to work each day then tough – suck it up and clearly he hasn’t passed on my gift – what to do?
    Me: You snotty old fart! Things are tougher today Grandad, it’s a different world.
    Grandad: Yeah, so I hear mate. Recessions, not depressions. Regional conflicts, not World Wars …….. you really have it tough.
    Blah, etc

    I’m sorry Cam. Your synopsis of the parlous state of inequality is quite tidy, but to make any comparison between Grandad’s mythical time of milk and honey and the Me generation leaves the article flopping around suffocating under it’s own specious argument. It’s trite to draw these intergenerational long bows so maybe it’s time to stop chinwagging with the Macrobusiness crowd. The fact is that in Grandad’s time inequality was far worse than today. It impacted the lower socio economic groups across the demographic. Today that inequality exists in lower and middle class and is impacting on the 18-35 and some 60 plus demographic. The 10 percenters have garnished the wealth from these groups to the point where they are approaching levels of the 1930’s but are a long way off reaching those crushing numbers. People in Grandad’s time were born, raised and died poor, but gave Me’s father a leg up on the social ladder to middle class post WW2 and Me as a consequence had such a golden upbringing that he doesn’t know how to get rid of the political parasites who are making his life difficult. All the economic negatives can be brought back to the rise of neoliberalism from the 1970’s when Friedman cooked the books and inflicted monetarism on the world using Reagan and Thatcher as crusaders. It’s run out of steam now as it always would and until the mainstream economists stop carrying water for this crowd and start talking some sense then Me and his mates will continue to listen to and believe the drivel he hears about balanced budgets, inflation targeting, free markets and the rest of the nonsense most economists talk about.
    Unfortunately, Me can’t think for himself and votes accordingly so he likes to look back on Grandad’s golden years … cough ……. when “old times was good”. Pfft!

  2. Bruce says:

    For a long time people have had this warped idea that the standard of living we achieved was because of the private sector. It never was. Throughout the world high home ownership rates have always been a result of government intervention: in Australia it was War Service Home Schemes and Housing Commissions that sold their properties to tenants.
    Quality services likewise; electricity supply, railways, hospitals, water and sewerage systems were never efficiently build by private industry but by governments.
    Shareholder capitalism is a good thing, but never expect it to operate in the public good, unless it is the public that is the majority shareholder.
    The biggest elephant in the room on housing affordability is the world wide disappearance of jobs in agriculture: a necessity if the world is to be fed. As Cameron Murray clearly states, supply is not the problem. That is even more so if you take into account the oversupply of housing in rural areas. As employment is agriculture disappears because of technology other well paid jobs in these areas disappear with the population.

  3. Peter Small says:

    Stop writing pages of crap. Collect the economic rent and fix the problem – for ever. But no one wants to do they? Every one wants to be in the game for themselves. Politicians, land developers, land speculators, banks and you and me. WE all love the appreciation in house and land prices, makes us feel rich doesn’t, it even though we have been bummers doing nothing!- To hell with young people, first home buyers, young farmers wanting to farm! This is all about me. Has anyone the guts to address the problem, no! We are all enjoying the ride together and to hell with rational economic discussion and the generation that follows us! Stop writing shit and do something!

  4. peter job says:

    I agree that reduction in immigration will relieve some pressure on accommodation, housing and infrastructure, especially as the majority of migrants go to Sydney and Melbourne. The forecast Net Overseas Migration of 197, 500 is down from the previous 209,000 NOM and a long way below the NOM of 320400 in 2009. But we are living with the impact of those high previous levels. A NOM of 185 would be a mid level between the high of 230,000 and the low of 150,000 NOMs that would keep us above negative labour force growth. 185,000 is certainly more modest than the 246,700 being forecast for 2020 at current trends. Reductions to low level (vocational college) students and skilled migrants would help meet the more balanced NOM levels.

  5. Colin Cook says:

    Great article – many thanks.

    Just a comment on Vacant Homes or rather vacant investor residential property. Could not the ATO simply deem a rental income from them? This would increase ‘supply’ quite quickly as the combined benefits of negative gearing allowances and no tenants were whittled away.

  6. richard le sarcophage says:

    This is simply Free Market, neo-liberal, capitalist parasitism working as intended. Once Gorbachev surrendered the Right were free to re-create the world as they saw fit, and after forty odd years since the process was kicked off in Chile, here we are. Living in a neo-feudal dystopia, marked by insatiable elite greed and social savagery, record, utterly unpayable debt, growing inequality and poverty, relative and absolute and cultural desolation. With an End-Stage ecological Holocaust to boot, but one which our Masters either ferociously deny (the Murdochite approach) or simply ignore or down-play (the Hughie Trumble, PM and Bar approach). Yet even the slightest criticism of the system is utterly verboten EVERYWHERE in the fakestream media, and gibberish like ‘trickle-down economics’ is making a return. At least we’ve solved the Fermi Paradox, I would say.

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