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News from the front desk No 327 – On the housing affordability crisis and radical solutions

There’s definitely been some strange solutions proposed this week regarding how those locked out of the housing market can get a leg up.

The most farcical has been from federal Liberal MP Michael Sukkar – the man appointed assistant minister to the treas­urer and tasked with developing housing affordability solutions. The first step to owning a house, he said, was to get a highly paid job, mirroring similar “advice” from former treasurer and cigar aficionado Joe Hockey.

If only the government’s call to get better jobs were so simple. Though if it were, we’d all have gone out and got them (would they still be considered highly paid if we all had them?), driving up demand and pushing prices even further through the roof.

Sukkar unfortunately had plenty of competition for the most foolish suggestion. One “creative” Nationals MP, Andrew Broad, said renters with a clean three-year rental history should be able to buy a house without even having to put down a deposit. Banks will love that one.

Questionable Aussie icon Dick Smith put in his two cents, saying it was the fault of all those bloody immigrants.

“The main point that’s driving our unaffordable housing is about 200,000 immigrants coming in a year,” he said.

And yet another Coalition suggestion The Australian says is being seriously considered is allowing young people to draw down their superannuation for a deposit on a house – another idea Mr Hockey had previously put forward, and which also appears on One Nation’s policy page (you’d think they’d be gunning for Dick’s policy).

It was immediately slammed by Industry Super Australia, whose chief economist Dr Stephen Anthony said it was simply “bad policy”.

“This could reduce retirement savings and drive up housing prices while doing nothing to address supply,” he said.

“In the housing affordability debate, the focus should be on land release, regulation and tax subsidies that fuel investment in existing property rather than new buildings.”

So what’s with the rise in farcical housing affordability solutions?

According to University of Sydney urban studies lecturer Dr Dallas Rogers, governments are hamstrung when it comes to acting on affordability.

“They want to be seen as doing something about the housing affordability problem but have few options available,” he told The Fifth Estate.

Why? Because they don’t want to address the heart of the issue, which Rogers says is housing being treated as an investment class rather than as a place for people to live.

As well as a cultural shift in our understanding of housing, at the policy level what’s needed is involved, integrated and complex reform over the long-term – in other words outside the election cycle. So it gets thrown in the too-hard basket.

“This is a problem that’s been a long time in the making, and it’s going to take a long time to unmake,” Rogers says.

So we’re left with half-baked solutions that make it sound like the government is acting.

These solutions, however, can unfortunately “resonate with people in the public”, Rogers says.

“They make sense to people. They’re intuitively sound.”

It’s only when we look more closely that their rationale evaporates.

Though it’s not like we haven’t been provided with solutions to counter some of the subsidies that fuel investment in existing property at the expense of people who actually want to own and live in a home.

Labor has committed to limiting negative gearing to new construction only, and halving the 50 per cent discount on capital gains tax to 25 per cent. Reforming capital gains tax, according to the Australian Financial Review, was also on the table for the Coalition, before an impressively swift backflip.

Many believe the reason for the swiftness of the backflip, and the firm stance against negative gearing reform, is due to the power of property lobby groups in the debate.

Opposition to tax reform “unwinnable”

Former policy manager for the Property Council of Australia and now ACIL Allen consultant Mendo Kundevski told The Fifth Estate opposition to tax reform was an “unwinnable position”.

“Proponents backing the current system cannot win on an issue that puts systemic pressure on younger generations,” he told The Fifth Estate. “They’re backing a loser.”

He says the system as it stands backs older investors over the young.

“Young people are getting locked out of the Australian dream. The system we have in place serves older generations fine, but it doesn’t back younger generations.”

Kundevski says what needs to happen is some “quick adjustments” to help incentivise home ownership for young people while also looking at long-term reform of planning and taxation systems at both a federal and state level – for example, gradually reforming negative gearing plus much higher stamp duty concessions for first home buyers.

“We need to get young people’s feet in the door.”

Over the long-term he says the whole suite of state and federal taxes need to be reformed.

Rogers agrees that the property lobby has a “loud voice”, but says its argument is also representative of the many people who have “a lot of capital tied up in their home” and have a lot to lose should a measured approach not be taken.

“But there is a growing counter voice of millennials that have no chance of getting into the housing market,” he says.

As it stands, “wealth transfer” from parents is one of the only ways younger generations can get into the market.

“The bank of mum and dad is a very inequitable way of securing housing,” Rogers says.

The young are crying out for help and are being provided with nonsense solutions. Our governments would be wise to look to the UK and US to see what happens when people are locked out of economic opportunity.

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Comments

5 Responses to “News from the front desk No 327 – On the housing affordability crisis and radical solutions”

  • Tony Dempsey - Architect says:

    Biggest single problem is the 2 lower tiers of Government:

    A – Council causes massive delays 5 years not uncommon with Planning approvals and locals manipulate the appeal system. Councils then have massive developer contributions.

    B – State Governments love Property Taxes because they have to do nothing to earn it. Stamp Duty and Land Tax are huge earners and employment handbrakes.

    The above could represent up to 30% of new housing cost. And I omitted GST.

    House buyers are not blameless. Need to save more than expect their upfront luxuries. The worst being the bank that offers a free overseas trip with your Home Loan (now is that the dumbest thing you have ever seen?)

  • Kevin Cobley says:

    The only way to reduce prices is for supply of houses to be in balance with demand.
    Measures need to be taken to reduce demand.
    1)Ending investment incentives. Ending of “negative gearing” not grandfathering just plain old simple “ending”. Making investment housing subject to full capital gains tax.
    2)Prohibition of foreign investors in real estate.
    3)Rules limiting the numbers of investment properties owned by individuals to be implemented over time.
    4)Ending of Stamp Duty to enable downsizers to effectively move to smaller properties and apartments, the funding shortfall made up by levies tacked onto council rates.

    Measures to increase the “Supply of Houses/Apartments” and reduce the cost of construction.
    1)Increasing the supply of tradesmen to reduce construction costs. Major cuts to the numbers of University places. Massive expansion of TAFE places and an expanded apprenticeship scheme for concreters, bricklayers, plasterers, carpenters, plumbers and electricians.
    2) In Sydney (for example) building 4 major new rail lines, largely financed by real-estate development of vacant land resumed at undeveloped agricultural prices and sold as high density housing lots where only terrace row housing/apartments allowed. All new development to be “No Car” where vehicle access is only allowed for emergency services, trades and delivery of large goods along access ways. All shopping to be at transport hubs. Neighbourhoods to be totally walkable including school/recreation access. All buildings to be built in masonry, double glazed, insulated, solar hot water and fully roofed with PV panels.
    Using a Public Transit only mode of construction would dramatically cut development costs of land, the ending of “garaging” added to houses would reduce housing costs as would the provision of parking and car related facilities would cut commercial development cost. Massive health benefits for residents as they would do more walking and cycling, and no need to purchase cars saving vast amounts of their incomes. No housing/development to be further than 1.5klm from transport hubs.
    a) From the end of the current metro plan at Bankstown extending it through Liverpool (following Elizabeth drive) and the southwest to Penrith, only the first 15k and last 5k is mostly underground the rest is real cheap above ground construction on level vacant land.
    b) From Cudgegong Rd in the Northwest extended through Schofields, Jordan Springs along vacant land and underground to Penrith. The Northwest Metro would in effect become a giant circle line.
    c) Using the existing airfield at Richmond as the new airport only allowing 737, A320 type jets and turboprops, resuming all properties for 2klm at either end of the runways and rezoning to commercial and industrial.
    d) The existing Richmond line converted to a metro continued underground through Huntingwood and around Prospect Reservoir and following Horsley Rd to Canley Vale, conversion of this line to Metro and extended through Lidcombe to Olympic Park loop and return.
    e) The remainder of the “Bankstown Line” through Birrong and Regents Park converted to Metro and run through the Olympic Park Return loop.
    f) The existing heavy rail at Leppington, continued through in a wide circle through Badgerys creek and Minchinbury and re-joining the western line at Rooty Hill, it’s mostly above ground on level vacant land only the section at Minchinbury to Rooty Hill being underground.
    g) A number of improvements would need to be made on existing track on the East Hills line/Western line to improve capacity.
    Development of any land catering for Cars should be prohibited, it’s unaffordable and unsustainable.

  • Raven James says:

    Adding my two cents worth – being an oldie, divorced female who has rented long term, who has no hope of purchasing a home to eventually retire to – government needs to stop overseas purchases of homes that would on average sell for $500k – $700k on a regular market that blow the market out at $1.4M + at auction making Melbourne the most expensive city to purchase in.

    Secondly, if they are truly wanting to assist those renting long term into home ownership, not just first time buyers either, they need to do a handshake as they did in the 60s-80s with the banks supporting home loans. Other states like SA, WA and NSW do this for their community but not VIC.

    It appears to me that they need the people to be stretched for cash. I can purchase a car worth $50k which is moveable and depreciates but cannot purchase a home which grows in value and makes me more sustainable for retirement.

  • TOmmy says:

    Seems like Mr. Smith is bitter that he didn’t invest in rental property. On the one hand, it’s good for housing to be affordable, but on the other, we want our housing to increase in value. It seems like he’s complaining that everyone who owns property is getting richer, so wants property values to be slashed.

  • Nigel Howard says:

    Don’t we know these answers – yes negative gearing and foreign investment money hiking the market beyond the realisitic salary/mortgage range of first time buyers. Plus the 457 visa rent subsidy that pushes rental returns higher and hence property prices higher. This does benefit older folk who own investment properties and surprise, surprise that includes most of our pollies, so it aint gonna get fixed. But its a trap for oldies too, because their pensions never perform as they were promised, so their property is the only way thay can sustain their lifestyle into retirement and hope to leave anything to give their kids a chance. Like so many things in 2017, there’s no easy answers so solutions can only come from some pretty radical shake-ups.

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