Greens Senators' Dissenting Report

1.1In its current form, the Help to Buy scheme will see the housing crisis get worse.

1.2The Government will not fix the housing crisis by pushing up house prices, making it harder for 99.8% of renters to buy a home every year.

1.3The Government will not fix the housing crisis by giving a lucky few more cash to bid up the price of housing at auctions.

1.4The Government will not fix the housing crisis without touching negative gearing and the capital gains tax discount, the massive tax handouts for property investors, denying millions of renters the chance to buy a home.

1.5In effect, this Help to Buy scheme will establish a terrible housing lottery, where a maximum of 0.2% of renters will get access to the scheme every year, while the other 99.8% of renters will find it even harder to buy a home.

1.6This is not just a contention of the Greens. As will be detailed below, successive economists and housing experts during the course of this inquiry have made clear Labor’s Help to Buy scheme will push up house prices and will in fact make the housing crisis worse.

1.7Alarmingly, the Federal Treasury acknowledged they hadn’t actually modelled the impact the Help to Buy scheme would have on house prices, while the Help to Buy Bills lack basic detail on eligibility, and other basic key questions on the operation of the scheme.

1.8Instead, we have been required to draw on details from public statements by the Housing Minister and Prime Minister, and policy statements by the Labor Party. As a result the Senate is being asked to consider a set of Bills that allow the government to make fundamental changes to the scheme without ever facing parliamentary scrutiny.

1.9The Help to Buy scheme offers up to 10,000 people the chance to have the government purchase 30% - 40% of a private home. A person will only be eligible if they earn below $120,000 for a couple and $90,000 for an individual, and if the house price is below a certain amount, depending on the city or region. For instance the house price limit for Brisbane is $700,000 - while the median house price for Brisbane is over $800,000. The policy intention is to reduce the amount of money a renter needs to purchase a home and the ongoing cost of a mortgage, by allowing the government to own part of the home. However, as will be detailed below, in effect all this scheme does is increase the purchasing power of a small fraction of renters, at the expense of the 99.8% of renters denied access to the scheme every year.

1.10If, for instance, the Federal Government were to directly build homes and sell and rent them for below market prices, as the Greens have proposed, then this would actually put downward pressure on house prices. However, the crucial difference here is that the Help to Buy scheme is effectively putting money into an already inflated private housing market, further raising prices.

1.11Australia is facing a housing and rental crisis and the Help to Buy Bills are the only piece of legislation Parliament is being asked to consider this year relating to housing. Underpinning this crisis has been a massive increase in house prices, mortgages and rents in relation to incomes.

1.12On the latest Australian Bureau of Statistic data, rents (7.4%)[1] have increased at nearly double the rate of wages (4.2%)[2] over the last year alone, putting millions of renters under significant financial stress and making it impossible for many to ever save enough to buy a home in the first place.

1.13In January 2000, the median house price was $152,950. By January 2024, it had risen to $761,580.[3]This represents an increase of 397.93%. In that same period, wages have increased from an average annual wage of $41,750 to $101,816.[4]This means that house prices have increased at almost triple the rate of wages over the same period.

1.14The introduction of the capital gains tax discount in September 1999 represented a huge shift in the way housing was treated in the tax system. It meant that a property investor could use existing negative gearing arrangements to minimise their taxable income and then use the capital gains tax discount to sell the property and only pay tax on 50% of the profit.

1.15There has also been a reduction in the proportion of public and community housing throughout this period. In the 2001 Census, social housing accounted for 5.1% of all housing stock. In 2021, the proportion of social housing had reduced to 3.8% of all housing stock.[5]

1.16The decline of public housing stock, along with the capital gains tax discount and negative gearing, have favoured wealthy investors for decades, and we are seeing the effects of this in our utterly broken housing system.

1.17Despite increased wealth as a nation in GDP, homeownership rates across Australia are falling. In particular they are falling faster among younger and poorer people. From 2001-2020 the share of 25-34 year-old households in the private rental market increased from 40 percent to 51 percent and the share of those aged 35-44 rose from 23 percent to 37 percent.[6]

1.18The introduction of capital gains tax discount had a significant impact on the price of housing. Across Australia, the median house price is now $716,580 and the average income needed to affordably service a mortgage without experiencing housing stress is $164,000, which is 1.6 times the average income.[7]

1.19Help to Buy is the last piece of housing legislation expected to be introduced by the government in this term of Parliament. A scheme that will push up house prices in the middle of a housing affordability crisis, even if these effects are marginal, is a step in the wrong direction.

Concerns with the Help to Buy Bills

1.20The Greens understand that we are in a terrible housing and rental crisis. This is a crisis of affordability and it is the result of the direct failure of public policy choices made by successive Labor and Liberal governments.

1.21The stakes of the housing crisis could not be higher, with the latest annual Productivity Commission Report on Government Services, showing that there were 57,519 unassisted requests for accommodation from homelessness services last year[8] and there are currently over 170,000 households on the public housing waitlist.[9]

1.22People’s lives are being destroyed because of insecure housing. The government is aware of the effects that experiencing the housing and rental crisis has on every possible measure of an individual’s participation in our community, and yet they have put a scheme before the parliament that equates to no more than tinkering around the edges. A scheme which will also put upward pressure on house prices.

1.23The Greens want to see the government treat the crisis seriously, and that requires large-scale responses. In particular, we wish to see the government use their vast resources and administrative capacity to directly build homes to rent and sell at below market prices. We wish to see the federal government offer the state and territory governments incentives to implement an emergency freeze on rental increases, which could be achieved by using a similar mechanism to that outlined in the Help to Buy Bill which refers power to the Commonwealth. Further, we wish to see the government phase out unfair tax handouts such as negative gearing and the capital gains tax discount, which have significantly inflated the price of housing, denying millions of renters the chance to buy a home.

Adequacy of the scheme and inflationary effects

1.24Help to Buy is characterised as a ‘demand side’ subsidy, this is a form of assistance given to a prospective home-owner to boost their purchasing power in the housing market.[10] Other demand-side interventions include the First Home Buyers Grant.

1.25There is significant evidence that shows demand-side subsidies make housing more expensive. The Productivity Commission has said, “there is a risk that over time, governments may fuel an ‘assistance spiral’ where the assistance makes house prices more expensive by increasing demand, prompting governments to increase assistance, pushing up prices further, and on it goes”.[11]

1.26Demand-side interventions are often a preferred intervention taken by the government because they are nominally cheaper than supply-side interventions, such as building public housing. Further, they allow governments to appear to be responding, while not addressing the structural causes of the crisis.

1.27At the committee hearing, Treasury acknowledged that demand-side interventions do push up house prices. However, they said that because the Help to Buy scheme is so small, these impacts will be minimal. Ms Kerren Crosthwaite from Treasury said, “if we are talking about 10,000 places per year, in the context of a property market where there are around half a million property transactions every year, that is a very low proportion and is likely to not have a significant impact in terms of increasing prices”.[12] Indeed, the Greens agree that the scheme is so insignificant, that it will fail 99.8% of renters.

1.28This view was shared by a number of witnesses in the inquiry hearing.

1.29Dr John Quiggin, Professor of Economics at the University of Queensland, said that ‘we’re looking at a very small-scale scheme.’ Professor Quiggin agreed that ultimately Help to Buy would push up house prices, saying, “these schemes have been around forever, but the money is eventually capitalised into house prices, so the beneficiaries gain at the expense of everyone else”.[13]

1.30Further criticism of Help to Buy came from Chief Economist at the Centre for Independent Studies, Dr Peter Tulip. Dr Tulip said “When you stimulate demand, it puts up prices and makes housing more expensive for everybody else.”... “We have a housing affordability crisis, and this makes that problem worse for the majority of people entering the market”.[14]

1.31UNSW City Futures Research Centre’s submission also stated “like all demand-side assistance measures, there will be some inflationary impact”.[15]

1.32Appearing at the hearing, Mr Matt Grudnoff, Senior Economist at the Australia Institute said:

The Help to Buy scheme, like many previous housing affordability schemes from both major parties, is a policy to boost the financial position of a particular group, usually first home buyers. The problem with these kinds of policies is that they simply increase demand for housing, and this increases the price of housing. The result is that it makes housing less affordable. With regard to the Help to Buy scheme, at 10,000 properties per year this is so small it's unlikely to have a significant impact on overall house prices. It might have some impact on the price of the kind of properties that first home buyers might want to purchase.[16]

1.33The Government has not investigated these serious concerns raised by the Greens and economists. At the hearing, Ms Crosthwaite confirmed that the Treasury department has not done any specific modelling of the inflationary impacts of the scheme. Instead, Treasury said they have made their assessment of the scheme based on the modelling done by other groups, such as the Grattan Institute.[17]As the Bill contains no detail of the scheme, such assessments have had to rely on the details outlined in Labor’s election policy.

1.34During the inquiry process, it was agreed by all witnesses and all political parties that the scheme is very small. However, given the severity of the housing crisis, even a small upward pressure on house prices is unacceptable. Dr Tulip noted:

measures of this kind move us in the wrong direction. Yes, you can defend it by saying it's trivial; I'll agree with that. But let's stop wasting our time on things that we agree are not going to have much effect.[18]

Eligibility to the scheme

1.35Many witnesses who appeared before the inquiry also raised that the scheme is not appropriately targeted towards groups who are the most marginalised in the housing market.Targeting the scheme towards those who experience persistent marginalisation in the housing market would minimise the negative effects of the scheme.[19]These groups could include people with disability, Aboriginal and Torres Strait Islander peoples and older women.[20]In the First Nations Disability Network submission, they outline that the federal government has not consulted with them regarding the Bills or the scheme.[21]

1.36As mentioned, the Bills do not contain any detail of the scheme. The details as to income limits, number of houses and price limits of the homes purchased and target groups would all be included in Ministerial Program Directions, that are not disallowable by the Parliament. These Program Directions have not been made available to the Parliament, and an amendment to make them disallowable moved in the House of Representatives was rejected by the government. Here the government is denying proper scrutiny of the scheme and its parameters.

1.37In responding to why Treasury made an assessment that the Help to Buy scheme would not be inflationary without modelling, Treasury stated that the program was “for low- and middle-income earners to purchase relatively moderately priced homes. There is a relatively targeted sector in terms of the cohort and also the types of properties they would be purchasing, and we believe that that will assist in the program not having a significant impact on house prices.” However, the income thresholds of $90,000 for individuals and $120,000 for couples, means the scheme is available to people who are earning above the median income. The Grattan Institute submission outlines that about 75 percent of working age singles earn less than $90,000 and 39 percent of couples earn less than $120,000.[22]

1.38In their submission as to the inflationary impacts of the scheme the Grattan Institute notes that “the impact is probably a lot less given that at least some of the participants will have purchased regardless.” Therefore, Help to Buy is likely to assist people who could purchase a home otherwise, and as UNSW City Futures Research Centre submission outlined, “calibrated on a per beneficiary basis, the short-to-medium term cost [of Help to Buy] is relatively high”.[23]The scheme established in these Bills is not an effective use of government resources in responding to the housing crisis.

Alternative responses

1.39The solutions to the housing crisis require far more than tinkering around the edges through schemes like Help to Buy. The Greens believe that responding to the housing crisis requires structural change, in particular phasing out the tax handouts to property investors that encourage property speculation and drive up the cost of housing. Throughout the inquiry this view was made clear to the government, along with the need to build far more public housing.

1.40Professor Quiggin explained that Help to Buy allows the government to appear like they are responding to the housing crisis, without spending the money required to do so. In comparing the Help to Buy scheme and the Housing Australia Future Fund, he says:

…there was an attempt to deliver the desired outcome while pretending that there was no impact on the budget. The fact is that housing is a major capital investment. If the government wants to have more housing, ultimately the only way to do that is programs which would involve a substantial amount of public debt and a substantial amount of real investment. So I think what we're seeing is another piece of gesture politics.[24]

1.41When asked what policies the government should pursue to respond to the crisis of housing affordability and to ensure that more renters could afford to purchase a home, Mr Grudnoff said:

…the most effective policy for housing affordability that the Federal Government could pursue is to limit negative gearing and scrap the capital gains tax discount. This would discourage property speculators and reduce the demand for housing. It would mean less housing being sold for renting and more housing being sold for owner occupiers stopping it would increase homeownership rates. This would also raise more than $10 billion per year which could be used to either build more public housing or for other uses.[25]

1.42This call was echoed by Maiy Azize, spokesperson for Everybody’s Home. She said that these reforms are essential to responding to the housing crisis.

Scrapping negative gearing and capital gains tax discounts are not just 'nice to haves' or levers that we could pull, it is absolutely critical if we want to make housing affordable in Australia…[26]

1.43She goes on to explain how both Labor and Liberal federal governments have created the housing crisis. In particular through their decisions to implement, or maintain, negative gearing and the capital gains tax discount, and to underfund public housing. She says:

The two things that the federal government has done in the past couple of decades to create the crisis that we're in is, firstly, to pull back from supplying housing itself, which it used to do at a much greater scale. About one in three renters actually used to have the government as a landlord and about one in four new builds used to be built by the government. That was key to driving affordability, not just for people on low incomes but across the board. In the decades since, what we've seen is that all the policy levers and investment and incentives have been completely directed at the private sector, which has massively financialised and commodified housing and made it really difficult for house prices to ever come down.[27]

1.44The benefits of tax handouts for property investors are going to the wealthiest in our community. In 2023-24 Tax Expenditure and Insights Statement outlined that 82 percent of the benefit of the capital gains tax discount was received by the top income decile.[28]At the hearing, Kristin O’Connell, spokesperson for the Antipoverty Centre said:

It's quite sickening to be a welfare recipient and have the government consistently tell us that they can't afford to give us enough money to live or to invest in public housing and also see hundreds of billions of dollars being handed out to people who are already wealthy.[29]

1.45Ms O’Connell and Emma Greenhalgh, CEO National Shelter also called for stronger protections for renters from unlimited rental increases.[30][31] Stronger protections against rental increases would help all potential first-homebuyers and unlike Help to Buy would not push home-ownership further out of reach for the majority.

Conclusion

1.46Help to Buy, as currently proposed, fails to address the underlying causes of the housing affordability crisis in Australia. It aims to assist a small fraction of potential homeowners, and its limited scope and demand-side approach are likely to exacerbate the housing crisis without offering any of the solutions the government knows would work, as they did in the twentieth century.

1.47This is a deeply unambitious policy, introduced at a critical point, where homelessness, rental and mortgage stress are skyrocketing.The government has the opportunity to work with the Greens and the crossbench right now to start to address these systemic issues that are forcing more people into housing stress and homelessness.

1.48Tinkering around the edges will not help the vast majority of people. The scheme's impact on house prices, although minimal in the broader context of the national housing market, represents a misguided allocation of resources that could otherwise be directed towards more effective solutions to the crisis. If the government chooses to ignore these concerns, it is too great a risk and this bill is not fit for purpose.

1.49That the Bills should not be passed unless the Federal Government makes changes towards phasing out negative gearing and the capital gains tax discount for property investors, coordinates a national freeze and cap on increases, and increases investment in public housing.

1.50In order to assist all potential first-home buyers and renters, the Federal Government should coordinate an emergency national freeze on rental increases for two years, followed by an ongoing cap on rent increases of 2% every 2 years.

1.51Given the current shortfall in public and social housing, the government should directly invest billions of dollars into building public housing, commensurate with the shortfall.

1.52The Federal Government should establish a public developer to directly build 610,00 homes over the next decade and sell and rent them for below market prices.

Senator Mehreen Faruqi

Greens Senator for New South Wales

Footnotes

[1]Australian Bureau of Statistics, ‘Monthly Consumer Price Index Indicator’, 27 March 2024 (accessed 12 April 2024).

[2]Australian Bureau of Statistics, ‘Wage Price Index Australia’, 21 February 2024 (accessed 12 April 2024).

[3]Core Logic Australia, Median Sales Price rolling average (accessed 12 April 2024).

[4]Australian Bureau of Statistics, ‘Average Weekly Earnings’ November 2023 (accessed 12 April 2024).

[5]Australian Bureau of Statistics, Census of Population and Housing, 2001 & 2021.

[6]Grattan Institute, Submission 8, p. 2.

[7]Mr Max Chandler-Mather MP, ‘Data shows Australia has a $164,000 wall in the way of homeownership: say Greens’, 21 March 2024 (accessed 12 April 2024).

[8]Productivity Commission, ‘Report on Government Services 2024: Housing and Homelessness’, 22January 2024.

[9]Australian Institute of Health and Welfare, ‘Housing assistance in Australia’ 14 July 2023 (accessed 12 April 2024).

[10]Australian Housing and Urban Research Institute, ‘Explaining demand side subsidies’ 27November 2019 (accessed 12 April 2024).

[11]Productivity Commission ‘In need of repair: the National Housing and Homelessness Agreement, study report’, August 2022, p. 32.

[12]Ms Kerren Crosswaithe, First Assistant Secretary, Department of the Treasury, Committee Hansard, 5 March 2024, p. 32.

[13]Professor John Quiggin, private capacity, Committee Hansard, 5 March 2024, p. 19.

[14]Dr Peter Tulip, Centre for Independent Studies, Committee Hansard, 5 March 2024, p. 13.

[15]University of New South Wales City Futures Research Centre, Submission 1, p.3.

[16]Mr Matt Grundoff, The Australia Institute, Committee Hansard, 5 March 2024, p. 13.

[17]Ms Kerren Crosswaithe, First Assistant Secretary, Department of the Treasury, Committee Hansard, 5 March 2024, p. 33-34.

[18]Dr Peter Tulip, Centre for Independent Studies, Committee Hansard, 5 March 2024, p. 14.

[19]Productivity Commission, ‘In need of repair: the National Housing and Homelessness Agreement, study report’, August 2022, p. 32.

[20]Community Housing Industry Association and National Shelter, Submission 2, p. 3.

[21]First Peoples Disability Network, Submission 9, p. 2.

[22]Grattan Institute, Submission 8, p. 4.

[23]University of New South Wales City Futures Research Centre, Submission 1, p.3.

[24]Professor John Quiggin, private capacity, Committee Hansard, 5 March 2024, p. 19.

[25]Mr Matt Grundoff, The Australia Institute, Committee Hansard, 5 March 2024, p. 13.

[26]Ms Maiy Azize, National Spokesperson Everybody’s Home, Committee Hansard, 5 March 2024, p.24.

[27]Ms Maiy Azize, Everybody’s Home, Committee Hansard, 5 March 2024, p.24.

[28]Department of the Treasury, 2023-24 Tax Expenditures and Insights Statement, 31 January 2024, p. 16.

[29]Ms Kristin O’Connell, Antipoverty Centre, CommitteeHansard, 5 March 2024, p.28.

[30]Ms Kristin O’Connell, Antipoverty Centre, CommitteeHansard, 5 March 2024, p.28.

[31]Ms Emma Greenhalgh, National Shelter, Committee Hansard, 5 March 2024, p. 24.