Pearls and Irritations

The Coalition’s track record shows it has no intention of making housing more affordable. It continues to implement policies that inflate the housing market, while offering straw-man solutions.

High housing prices in fact are demonstrably a plank of Coalition economic policy. Rising house prices, it is argued, lead to a feeling of wealth, which in turn, it is hoped, will translate into consumer spending.

Negative gearing

When in 2018 Labor announced its election policy of ending negative gearing, the Coalition claimed it would “smash” housing values with a “sledgehammer”. Former prime minister Malcolm Turnbull called Labor’s plan reckless and that it put “the value of every Australian home at risk”. As treasurer, Scott Morrison had acknowledged the “excesses” of negative gearing but in the lead up to the 2019 election Morrison claimed Labor’s policies would “erode the value of Australians’ homes”.

Treasury criticised the Coalition for exaggerating the impact of Labor’s policy: documents obtained by the ABC under freedom of information laws revealed that Treasury explicitly told the Coalition Government it should not claim that home values “will” fall under the proposal.

SMSF borrowing for property

Another Coalition policy that turbo charged the property market was the decision by John Howard, in the final days of his government, to allow self-managed superannuation funds (SMSFs) to borrow money to invest in property. Independent economist Saul Eslake described it as “the dumbest tax policy of the last two decades”.

The Council of Financial Regulators recommended the federal government ban such property investment after it was found that 18,000 SMSFs had more than 90% of their savings in a single asset class, primarily investment properties. Treasurer Josh Frydenberg ignored the recommendation, though Labor promised that if elected it would ban direct borrowing by SMSFs as part of its plan for housing affordability.

Action on money laundering

Australia’s property market has been labelled “a prime target for money laundering”,  with young Australians forced to pay more for housing as a result.

In 2015, the global regulator of money laundering – the Paris-based Financial Action Taskforce (FATF) – released its mutual evaluation report, which found Australian homes were a haven for laundered funds.

Transparency International ranked Australia as having the weakest anti-money laundering (AML) laws in the Anglosphere, failing in all 10 priority areas.

Nobody really knows just how many billions of dollars in dirty money is pouring into Australia’s housing market.

And as AMP chief economist Shane Oliver noted in 2018, criminals willing to pay extra to wash illegal funds have probably had an impact on the high end of the housing market. Real estate agents say corrupt money can also increase average house prices, because criminals paying more than market value for one house are likely to encourage higher asking prices for similar properties in the same street.

Yet for more than a decade, Australia has refused to complete the second half of its anti-money laundering reform, despite repeated promises from federal government ministers that it was about to do so. The reforms are known as Tranche 2 of the AML/CTF regime — rules that would force lawyers, accountants, real estate agents and other “gatekeepers” to join the global fight against serious and organised financial crime.

As Nathan Lynch, a financial crime intelligence expert at Thomson Reuters, says:

“That Australia has become a sink for the illicit wealth of some of the Pacific region’s worst kleptocrats should horrify all Australians.”

Throwing bones at home buyers

Negative gearing, SMSFs borrowing and failure to act on money laundering are key areas where reform could make housing more affordable. But the Coalition’s policies instead are geared at the opposite.

The Coalition has offered $25,000 HomeBuilder grants for people buying a home or people who want to conduct substantial house renovations – those who are already in the market. As has been noted by experts, home buying grants increase house prices. For example, following the implementation of the First Home Owner Grant of $7,000 in July 2000, “property prices went up quickly – and by much more than the $7,000 value of the grant in many suburbs”.

Again, it gives the impression it is trying to tackle the housing affordability crisis. Yet, as Greg Jericho noted in the Guardian, Coalition policies continue to ensure the housing market goes in the opposite direction to the rest of the economy, especially wages.

Concerns have also been raised that the Coalition’s push to relax responsible lending laws could push up property prices by allowing people to borrow more – particularly given the record-low interest rates.

Meanwhile, the Coalition blames planning restrictions for pushing up house prices. It says cutting red tape is vital.

Yet as comprehensively argued by academic Cameron Murray, property developers maximise profits by limiting supply in a number of ways – from building developments in stages to reduce the number of properties available to letting planning approvals lapse and then reapplying for approval for a higher density. As Murray argues, it is economic incentives, rather than planning regulations, that limit the supply of housing and push up prices.

Public secret

In one survey 93% of respondents cited housing affordability it as a leading issue of concern. Yet large sections of the community keep voting for political parties with policies that keep prices high.

As Iain White, a professor of planning at New Zealand’s University of Waikato, points out, ever rising house prices is considered desirable by many in the community, at least among those already in the housing market.

Professor White calls this a “public secret” – a term coined by anthropologist Michael Taussig that refers to a collective social understanding, a truth generally accepted but not articulated. Public secrets allow the existence of seemingly contradictory positions and help maintain power relations.

While politicians from all parties routinely acknowledge the existence of a housing crisis, part of the public secret involves ensuring that any policies that are put in place to tackle the housing affordability crisis must have a minimal effect.

Former Liberal leader John Hewson described Australia’s housing affordability crisis as intergenerational theft. It is up to the community, all of us, to decide what we want to do about this theft.