There have been a fair few inquiries into housing over the last two decades. Yet house prices and house availability are still problems that face everyday Australians. When this inquiry was announced there was some concern about rapid escalating prices at record rates, but this concern only grew as the Committee began hearing evidence.
It was discovered that there are two tribes in the Australian housing policy arena. The first tribe consists mainly of planners and academics, who believe that the problem is the tax system which has turned housing into a speculative asset, thereby leading to price increases. Furthermore, this tribe believes that home ownership is an overstated social good and people should instead allocate their financial resources elsewhere and concentrate on secure long-term rentals. ‘Mum and Dad investors are the problem’, ‘we need more institutional capital from Big Super’, and ‘increasing supply raises prices, unless the supply is public housing’ are this tribe’s common epithets.
This tribe has largely run Australian housing policy for the last few decades, presiding over the greatest price rises in recorded history.
The second tribe believes that planning, the administration of the planning system and government intervention have materially damaged home ownership in Australia. This group notes that while the rental property market matters, home ownership has significant positive externalities that provide real social benefits.
Reconciling these two tribes has proven impossible. Though, in truth, it isn’t hard to harmonise them. Tribe one deals with the short term, the immediate, the transient. Tribe two deals with the long term, the structural, the enduring. One of them must be dominant because both cannot be.
There are several questions that this contest of views prompts. The first is how do you appropriately measure affordability and have we been doing this? Secondly, whether Australia should have an affordable housing market or are there features of this continent that simply do not allow it. Finally, is home ownership desirable or are houses utilitarian products that provide shelter and nothing else?
Australia’s founders clearly believed that we should be a property-owning democracy. They did not come to this view because they were real estate agents, or because property developers sponsored their various meetings. They came to this view because they wanted Australia to be better than the United Kingdom, they wanted a society not divided by class. In short, they wanted equality of opportunity for everyone. They knew that the line upon which division was most etched is the ownership of property. Therefore, everyone needed to be given the chance to own the home in which they lived.
This has lived with Australians to this day, including in such classic cultural icons as The Castle, in which the lead character denounces a large corporation for trying to buy his house by reminding the High Court that a home is not just bricks and mortar, but memories of a life built together and a place in which to imagine your future. Since this great Australian addition to the philosophical canon, other benefits of home ownership have been discovered. Widespread ownership reduces wealth inequality, improves mental health and childhood outcomes, reduces extremism, and provides stability for democratic institutions. Access to home ownership is cited as one of the reasons many are delaying starting a family.
Australia’s rate of home ownership has been declining since the baby boom generation bought their homes. At the moment, home ownership rates among Australians under the age of 40 are at levels not seen since 1947. No one believes that when this figure is updated it will not fall further, perhaps to the lowest level on record.
Being able to afford a home is becoming harder and harder for younger Australians. Most people focus on the price of the house, but this is short-sighted. The largest barrier to entry for young Australians is saving for the deposit. On all the various measures, the time it takes a worker on average wages to save for a deposit has increased from a number that could be measured in months to one that can be measured in a decade.
Once this obstacle has been overcome, it then requires a person or family to afford the servicing of the loan. While self-evidently the price of a house has an impact on this measure of affordability, it is only half the story. If the price of a house doubles, but interest rates halve, the affordability of a home has not changed. That is why calls for the Reserve Bank of Australia (RBA) to raise interest rates to lower house prices are probably one of the most absurd ideas in Australian public policy. The fact that the people making this argument are never called to account for what they are really saying is extraordinary. Their argument is effectively, we cannot be bothered building more housing so we should deny other Australians the opportunity to own their own home. Further, so egregious is our laziness that we would prefer the entire economy suffer rather than deal with the underlying issues of the housing market.
This is largely, but not entirely, the path the New Zealand Government has taken.
Perhaps Australia is not able to provide affordable housing stock. Are there physical attributes to our natural environment that preclude us from providing working Australians with affordable and accessible housing. Of course, throughout the course of the inquiry this trope was put to rest again and again. Australia has more useable land than any other continent in the world, outside the penguins of the South Pole. We have one of the least densely populated countries in the world with some of the highest average weekly earnings, and the highest minimum wage in the world. Housing should be easily accessible and affordable. Yet, by some measures our five largest cities are all in the 25 least affordable markets in the world.
There are clearly other forces at play that are diminishing the capacity for Australians to purchase a home. The RBA’s view that people are paying more because they can is at best curious, but more likely a misreading of the situation. People do not pay more for their food at the supermarket just because they can afford to; no, you pay more when you have to.
Builders point to the slow and confusing administration of the planning system, which increases the cost of projects and uncertainty. The National Housing Finance and Investment Corporation (NHFIC) brought forward some disturbing analysis. It showed that in parts of Australia builders have no idea how much they are going to pay in levies prior to a project commencing. Further, most of these levies for infrastructure end up going into operational expenditure and do not add to the liveability or amenity for those living in the new housing.
First Nations groups told us that in the Pilbara they have run out of land to build on because council and state government charges are so high that they would represent more than people are willing to pay for the land even before you start building. The result is overcrowding and homelessness in a part of the world with more land than flies. (To be clear there are a lot of flies in the Pilbara).
The Housing Industry Association of Australia showed that state and council charges and levies now make up a large part of the price of a home and land package, an assessment confirmed in NHFIC’s submission. In short, if you wanted to cut the price of new homes in much of Australia you could do so by simply removing taxes and levies. The Victorian Government’s latest move is only making a bad problem worse.
While it continues to be contested, there is ever increasing evidence that the primary driver of home prices is the lack of market response. That is, price increases are not leading to an expansion in supply, as often builders are prevented from responding.
To those who point to the capital gains tax concessions of 2001 as setting off a wave of investor activity, there is an obvious counter point; if true, which appears to be the case, this should have seen an equal wave in new housing. Instead, we had governments like the Carr Government claiming that Sydney was full and therefore closed. Housing prices soared.
Econometric analysis has shown that in some places in Australia, planning restrictions are responsible for 67 per cent of the cost of housing. Analysis from Finland has shown that increasing housing supply benefits those on low incomes the most. Flexible planning systems like those in Texas are driving economic growth through lower levels of traffic congestion and more efficient allocation of how land is used. This has led to companies such as Tesla, Facebook and Intel leaving California for Texas. Indeed, over the last two years, over a million people have voted with their feet and moved from highly regulated planning systems in New York and California for less regulated ones in Texas and Florida.
The planning reforms in Tokyo saw homelessness reduce by 80 per cent over ten years, while highly regulated planning systems in San Francisco have seen the emergence of tent cities with people who cannot find homes.
Increasing supply is easy to say but appears hard to do, especially for the Federal Government. The reasons for this are not difficult to fathom. Communities across Australia have had higher densities imposed on them with minimal input or consultation. The cost has been borne by the few and the benefits by centralised state and local governments and their planners. The Federal Government needs to incentivise state and local governments to empower communities to make their own choices and trade-offs, while offering real benefits for those who bear the costs. These benefits should include better transport infrastructure, improved local amenities and the assurance of protections and preservation of surrounding areas guaranteed in law, not just spoken of to be broken within a few years.
There is no one answer to make housing more affordable, and there are many kinds of people in the country with different needs, some of which will never have these needs met by market housing. No need is greater than the other and all deserve care and attention, however, for too long the opportunity for your average working Australian to access the Australian Dream has been sacrificed to deal with issues deemed to be of higher priority.
The following report highlights some practical ways that a Federal Government can cut the Gordian Knot of oppressive regulation, muddle-headed central planning, officious big state regulation and the skinning of new home buyers via a myriad of taxes and charges designed to raise funds not living standards.
We sincerely hope, for the sake of all Australians, especially those seeking access to the promise of Australia, that the recommendations contained in this report are taken up by all involved in the political debate.