Home ownership is slipping away from a generation. Building more houses will help, but only cutting the generous benefits offered to investors will keep the dream within reach, writes Jack Shield.
On Monday, global credit rating agency Moody’s released a report warning that skyrocketing housing prices in Sydney and Melbourne presented the most significant risk to Australia’s banking sector. Yet in addition to the threat such a hot market poses to financial stability, it also represents a great moral and intergenerational challenge. We need to face up to the fact that our current policies have engineered the housing market in a way that privileges the interests of (typically older and richer) investors over those of first time home buyers.
Policy makers, who themselves tend to belong to the baby boomer generation, must be held responsible for the burden that they are placing on the ability of future generations to fulfil the most essential element of the ‘Australian Dream’, to own one’s own home.
Investors now make up half the buyers in the national property market. The figure is even higher in NSW at 60 per cent. Looking at the Australian Bureau of Statistic’s 2011 Survey of Income and Housing, it’s clear that this increased investor activity has primarily come at the expense of young prospective homeowners. Rates of home ownership from 1982-2011 slumped amongst every age category except for the post-retirement group. The decline was most marked, however, in the crucial 25-34 category, which registered a precipitous drop of 21.5 per cent.
Upon the release of the overtly partisan 2015 Intergenerational Report, erstwhile Treasurer Hockey and PM Tony Abbott stressed the theme of intergenerational justice. The overindulgence associated with current policies, they warned, was setting us on a trajectory to prevent future generations from attaining the kind of prosperity that those before them had enjoyed.
Many critics pointed out – quite rightly – that this was scandalous hypocrisy coming from a government dedicated to ignoring the risks of inaction on climate change and the burden it would place on future generations tasked with addressing a crisis not of their own making. However, the government’s hypocrisy in this matter is further underscored by the highly inequitable policy landscape in the housing market.
The tone deafness of the previous Abbott government was nowhere more apparent than in their approach to the issue of housing affordability. In June this year, after denying that escalating property prices in Sydney were a problem, Hockey infamously offered the helpful advice of “get a good job that pays good money” to those looking to own their first home. Around the same time Abbott perfectly encapsulated the problematic overlap of the policy-making and propertied class by professing that, as a property owner in Sydney, he rather hoped prices would continue their prodigious climb.
Is there reason to be more optimistic about the Turnbull government’s approach to housing? Perhaps. The PM and Treasurer have signalled a shift in rhetoric on the issue – Scott Morrison has voiced concern that the average family had to pay an alarming 30 per cent of its monthly income to service mortgage payments, and that house prices had outstripped wage growth over the past 25 years by more than twofold.
Yet while the new government has at least indicated a willingness to enter into a dialogue on the issue, there are two reasons for optimism to remain subdued.
Firstly, the government’s discursive shift on this issue represents a broader trend: making all the right, cosmetic changes in language to position itself as consultative and to distance itself from the outlandish, out of touch statements of its predecessor government, while any serious changes in policy direction remain hypothetical.
Secondly, both PM and Treasurer have argued that a primary driver of unaffordability is deficiencies in the supply-side, ruling out any consideration of reforming the many tax incentives for investors to jump into the property market, crowding out owner-occupiers and driving up prices. Focusing on the supply factors allows policy makers to ignore the inequitable distribution of the current housing stock.
As has been documented extensively elsewhere, the policies of negative gearing – a tax scheme allowing losses on investment properties to be deducted from taxable income – and capital gains discount for assets held for over a year, combine to make property investment an attractive option for those with the money to do so.
This not only has the effect of crowding out young first time homebuyers but also deprives the government of revenue, which would surely be invaluable in the current fiscal climate. The Australia Institute claims that between these two policies the government loses $7.7 billion in tax concessions each year – most of which ends up in the pockets of the richest Australians.
Further, as Moody’s highlighted in its report, reining in property investment may be key to ensuring the housing boom doesn’t spiral out of control.
Moody’s lauded moves by the Australian Prudential Regulatory Authority (APRA) to limit risky lending by limiting the growth of investment loans to 10 per cent per annum. Concurringly though, communication between APRA and the Reserve Bank (RBA) unearthed by Freedom of Information requests reveal that the RBA believes a more appropriate rate to be around 6 per cent growth per annum and that many lenders were violating the current limitations regardless. It is clear that tougher penalties and revised targets may be needed to create a more stable, equitable market.
As a nation that prides itself on the idea of a ‘fair go’, the generational crisis of an increasingly unaffordable housing market should concern us all. Policy makers should reconsider the various tax incentives on offer to investors and regulators should take stronger action to curtail risky or excessive investor lending.
While we now appear to have leadership that acknowledges the problem and is prepared to engage with the issue, that is merely the beginning of an effective response.