Chris Joye from the Financial Review warns on Radio National that imbalances that may be developing in the Australian housing market:
Hat tip to Leith van Onselen at Macrobusiness.com.au who comments:
“My only observation is that governments of all persuasions have for too long abrogated their responsibilities for housing policy to the RBA – allowing affordability concerns to be addressed via continuous lowering of interest rates, rather than addressing the underlying causes of poor affordability through supply-side and taxation reform.”
Yes, my hat tippeth also. Decades of impotent and myopic governments have resulted in whole generations of people who can now only dream of, but never really own a roof over their heads. If modern government is for anything (a debate worth having in itself), it should at the very least be to enable the emerging generations to own a place in which to live. Lack of home seculity must count among the leading causes of anxiety and depression in society. It is the mortgage on our dwellings that should be tax deductable, not on our second, thrid and fourth houses rented to others who can’t afford to buy one in this ever-expanding price-bubble of artificially supressed demand.
Good points Frank. The tax system needs a total overhaul. Will not happen as the elite have too much to lose. We eat our young in Australia.
Frank, Saul Eslake’s presentation to the Annual Henry George Commemorative Dinner entitled “50 Years of Housing Failure” is relevant.
http://www.prosper.org.au/2013/09/03/saul-eslake-50-years-of-housing-failure/
He comments on the effect of mortgage interest payments being deductible:-
“Note that I am not advocating something that is often widely assumed to find favour with economists – namely, the removal of the exemption of owner-occupied housing from capital gains tax. I don’t favour that, because consistency with other parts of the tax system would require that mortgage interest payments be deductible. That would in turn almost certainly encourage people to take on more debt, and would thus inflate the demand for housing, putting further upward pressure on prices. And it could well end up being revenue negative.”
He does a detailed analysis of the two principal government interventions in the housing market – FHOG’s and negative gearing, and concludes
“they have served to inflate the demand for housing – and in particular, the demand for already-existing housing – whilst doing next to nothing to increase the supply of housing.
they have therefore made housing affordability worse, not better.
and to the extent that the ownership of residential real estate is concentrated among higher income groups – 36% of all property owned by individuals, and 47% of all property other than owner-occupied dwellings, is owned by households in the top 20% of the income distribution (ABS 2013c) – they exacerbate inequities in the distribution of income and wealth”
He lists a set of policies that would be a switch from policies that inflate the demand for housing to policies that boost the supply of housing:-
“first, the abolition of all existing policies which serve only to increase the prices of existing dwellings, such as cash grants to and stamp duty exemptions for first time buyers, and ‘negative gearing’ for investors (in all assets, not just property, and if politically necessary, only for assets acquired after the date on which such a policy was announced);
second, the redirection of the funds thereby saved (and/or the additional revenue raised) towards programs that increase the supply of housing – for example, by directly funding the construction of new dwellings (as the Rudd Government did as part of its response to the global financial crisis), or by providing some combination of grants, loans or tax incentives to induce private sector developers to increase the proportion of ‘affordable’ dwellings within their developments, whether for sale or rental;
third, expanding or replicating programs like Western Australia’s ‘Keystart’ scheme which assist eligible people to become home owners on a ‘shared equity’ basis, with eligibility being subject to a means test, and which creates a ‘revolving fund’ as the ‘shared equity’ is returned to the State Government upon sale;
fourth, changes to the way in which State and Territory Governments tax holdings of and transactions in land, with a view to encouraging more efficient use of it. That would include replacing stamp duty on land transfers (which are ‘bad’ taxes on many grounds, including that they discourage people from changing their dwellings as their needs change) with more broadly-based land taxes (ie, no exemptions for owner-occupiers, but with appropriate transitional provisions) and possibly higher rates for undeveloped vacant land in established urban areas;
fifth, taking a more ‘holistic’ view of urban infrastructure investment, by recognizing that it has an important housing dimension – that is, that public (or private) investment in transport infrastructure (both public transport and roads) can make a tangible contribution towards improving housing supply and affordability by making ‘greenfields’ developments more accessible to both buyers and renters – and considering funding such infrastructure by levies on the increments to the value of the land which result from such investments (as for example with the levy that funded the Melbourne Underground Rail Loop Authority in the 1970s and early 1980s);
sixth, revisiting current models for financing the provision of infrastructure and services in ‘greenfields’ housing estates with a view to reducing the extent to which these are funded by ‘upfront’ charges (something which could be assisted by changes to the land tax regime which I mentioned a moment ago); and
seventh, reducing the cost, complexity and regulatory uncertainty associated with ‘brownfields’ and ‘infill’ developments in established areas – which doesn’t have to mean traducing the property rights of other property owners, but which should mean clearer and more uniform planning rules, with fewer opportunities for frivolous or vexatious objections and appeals.
However Eslake notes that
“While political parties and governments profess to care about first home buyers, the reality is that in a typical year fewer than 100,000 people succeed in attaining home ownership for the first time; whereas there are some 5.8 million households (and over 8 million people) who already own at least one property. Hence there are 100,000 votes for policies which might result in lower house prices, and over 8 million votes against policies which might result in lower house prices (or in favour of policies which result in higher house prices). As the Americans say: ‘do the math’. “
I wonder if any political party will have the wisdom or courage to address the issues of housing supply or as the decades go by will an ever increasing proportion of Australians be life long renters?