Very largely thanks to economic stimulus pumped into the economy to ward off COVID recession, Australia’s housing is now 30% more expensive than in 2019.
Add to that, the recent spike in rent inflation greater than at any time since 2008, and it’s obvious that the pandemic has exacerbated this country’s longstanding housing affordability challenge.
The scene is therefore surely set for housing affordability to feature as a significant flashpoint in the coming federal election – just as in three of the last five national contests.
The electoral saliency of housing
New polling evidence, released this week by the Everybody’s Home Campaign also emphasizes the saliency of housing as an issue that could sway significant numbers of votes in key seats. Focusing on the marginal electorates of Bass (Tas), Flinders (SA), Gilmore (NSW), and Longman (Qld), this showed that, for example, around three quarters of all voters in these seats consider it hard or very hard for low to middle income earners to afford to buy or rent in their area.
More pointedly, 61-72% believe that Federal Government action on housing affordability has been insufficient, while 68-76% think that social housing provision in their locality is inadequate.
Equally notable from this evidence is that concerns on housing affordability and inadequate social housing resonate strongly with the minor party, independent and undecided voters whose preferences may well swing election outcomes in the most contested seats.
All of this suggests that the major parties would be well-advised to give some prominence to housing policy proposals in their election platforms this year and we can assume that, from their own private polling, Coalition and ALP strategists will be already highly attuned to this.
Equally, with federal Labour having retreated from significant (albeit in fact modest) housing tax reforms pledged in 2016 and 2019, the terms of this election’s housing debate will be different from the last two contests.
Even at this late stage in the runup to the coming poll, both parties are still keeping much of their powder dry in this area – as in many others. But, from a very early salvo in the current campaign, we do know that the ALP has pledged a national social housing investment program underpinned by an ‘off balance sheet’ $10 billion future fund, expected to generate some 6,000 social and affordable homes annually for five years.
Since this is 6,000 more than has been nationally funded in any year for a decade, it would come as a welcome development in a country where, pro rata to population, social housing supply has been halved since the 1990s. Equally, though, with more than 160,000 families and single people registered on social housing waiting lists, and with the national deficit of private rental homes affordable to low income tenants up from 187,000 to 212,000 in the most recent five-year period, it is also decidedly modest. A social housing investment ask better aligned with this scale of need has been recently pitched by a broad alliance of construction, welfare services and affordable housing industry peaks.
Alongside the ALP’s social housing future fund, although as yet less prominent in Party messaging, is shadow Housing Minister Jason Clare’s pledge to develop a national housing and homelessness plan in the first term of a Labor government. Quite what this could involve, though, remains to be defined.
Grattan’s housing policy menu
The ALP has indicated plans to unveil further components of its election housing offer over coming weeks and we can assume that the Coalition will be planning likewise. Seeking to influence these agendas, the recently published Grattan Institute Orange Book lays out a wide array of closely argued and well-defined housing proposals intended as appealing to party strategists.
Many of these are familiar Grattan favourites, typically informed by the wholly justified concern that Australia’s housing system is a major driver of mounting inequality, but also by a worldview that abhors tax, social security and regulatory settings considered as distorting consumption and investment choices or otherwise unduly constraining market forces.
Consistent with both of these themes, for example, is backing for a range of property tax and welfare reforms to dampen excessive demand for housing. Among these is Grattan’s previously argued advocacy for the complete removal of negative gearing tax concessions for private landlords, and the straightforward halving of the Capital Gains Tax discount on the sale of rental property. The unqualified terms of this pitch only go to highlight the modesty of the related ALP 2016 and 2019 election proposals that were limited according to whether homes were newly built or purchased.
On the housing supply side, once again warming to a familiar Grattan theme, the Orange Book more controversially argues that Australia experiences a ‘historical shortage of housing’ and that this is ‘largely a failure of housing policy, rather than housing markets’. Arguably, though, we should be focusing on housing distribution as much as (or more than) quantity.
And although many would support the Grattan case for enabling higher density development in favoured urban locations, the report’s implication that feasible land-use planning de-regulation would enable Australia’s private development industry to build the country out of housing unaffordability (even if only very gradually) is, at the very least, contentious.
Echoing the ALP’s existing proposal (see above), a notable new component in Grattan’s broad ranging housing reform agenda is a social housing development program underpinnned by an off-balance sheet $20 billion future fund. Counter-intuitively, despite involving a larger initial stake, the scheme would fund a significantly smaller annual program of new social and affordable housing investment than the ALP model. This reflects the fact that – unlike Labor’s scheme which would effectively exhaust its capacity after five years – the Grattan variant would be set up to provide an income stream to fund an annual flow of capital grant funding ongoing in perpetuity.
Proposed in the highly persuasive and economically justified Grattan style, it might be imagined that this could even appeal to a Coalition Government perhaps sensing the electoral imperative to be seen to act in this space. But, since Housing Minister Sukkar has continued to assert that social housing is purely a state/territory responsibility, and of little concern to the Federal Government, that seems doubtful.
At the same time, stand by for the pre-election Coalition message that by extending the Treasury guarantee underpinning private debt shouldered by community housing organisations, the Federal Government is ‘supporting social housing investment’. Yes, such support is meaningful, but it does not – repeat not – equate to the government subsidy that is essential in enabling social and affordable housing development.
A new Grattan housing proposal perhaps more likely to win favour across the political divide is the Orange Book’s advocacy for a national shared equity scheme to assist aspiring first home buyers. This seeks to emulate similar models operated on a very large scale in some comparator countries (such as the UK’s ‘Help to Buy’ program), and also on a small scale in some Australian states (e.g. the Victorian Government’s recently announced scheme).
The Grattan model here would involve an aspiring homebuyer being assisted to purchase their home on a co-payment basis where government takes an equity stake in the property (proposed as up to 30% of the total value), thereby reducing the required size of buyer downpayment and mortgage. Over the medium to long-term the government stake is repaid along with a pro rata share of any capital gain, with the proceeds being potentially recycled into a new shared equity property acquisition on a revolving fund basis.
Adopting a shared equity scheme for first homebuyers would go with the grain of recent Federal Government housing policy, in complementing the First Home Loan Deposit Guarantee scheme – enabling access to low deposit mortgages – as announced during the 2019 election campaign.
From a socio-economic equity perspective, though, it has to be kept in mind that despite being seen as a meritorious group, an aspiring first home buyer with the potential to support even a 70% mortgage is, by definition, a relatively advantaged household. Arguably therefore it would be hard to justify a national shared equity scheme outlay (e.g. $12 billion over eight years, as proposed by Grattan) unless as part of a package also including significant (and arguably much larger) outlays on social housing (or other similarly targeted initiatives) to benefit low income Australians in genuine need.
A strategic perspective
Recommendable though they may be, specific programs such as expanded social housing output or (especially) shared equity home ownership don’t really go to the heart of the issue. Considering the complexity of our housing system, Australia’s affordability challenge can be fundamentally addressed only through an evidence-based and broadly-scoped national housing strategy with a long-term remit. A hard ask, yes, but the cost of continuing to muddle through will be high – both for many individual housing consumers, and for the economy as a whole.