Mister Speaker
I commend the previous speaker for a wonderful exposition on why this government's economic management is so poor. Firstly, let me say that I am very proud to belong to a federal Labor Party that has one of the best financial teams in federal parliamentary history, led by shadow treasurer Chris Bowen, shadow finance minister Jim Chalmers, Matt Thistlethwaite, Senator Katy Gallagher, shadow minister for housing Senator Doug Cameron, and former Treasurer emeritus Wayne Swan. They have a budget plan that will raise revenue and address one of the most pressing social needs of the last 20 years: that of housing affordability.
This government appears confused, conflicted and unable to formulate policy in any coherent way. Yes, there is a lot of anger and shouting from the other side, but little in the way of meaningful policy. They seem to want to act as reverse Robin Hoods: punishing the poor, but supporting the more advantaged. Everyone I have spoken to understands the increase in inequality, underpinned by the reduced housing affordability that has occurred in the last 20 years. This includes senior bankers, economists, politicians on all sides, business leaders, health experts, senior police, architects, academics, teachers and young people.
There is also a generational aspect to this. Many of my generation, the baby boomers, have done well out of the property market, but this is now at the expense of subsequent generations. We are developing a nation of older landlords, and younger renters who cannot get a toehold in the housing market. Maybe it is my age, but the more time I spend in this chamber the deeper my appreciation is for silent movies. There is something a little reassuring about anything that has stood the test of time, and silent movies have more than a little in common with this government's approach to housing.
For much of the Menzies era and a little after, federal coalition governments more or less got away without having to worry too much about housing. Up to the late 1960s, a policy of benign neglect pretty much worked. It was underpinned by lots of available land, high levels of migration that included significant numbers of skilled tradespeople, and an expanding economy. Federal coalition governments recognised that what they did with macropolicy might affect housing prices, but beyond that they pretty much left it to the states and the market to deal with issues as they arose.
By the late 1960s and early 1970s there was a reawakening of interest in housing policy. At the time, there was no absolute shortage of housing, but the rapid rise from then on of interest rates, in anticipation of higher rates of inflation, soon reduced the proportion of households that could afford to buy a home from the mid-1960s peak of around 75 per cent. At the same time, scholars and writers, such as the 1974 Boyer lecturer, Hugh Stretton, began popularising the idea that access to housing, in particular a house of one's own, was good for individuals and good for society in many ways. I certainly agree with him. Quality housing was a productive asset for the community, not just another consumer good. Good housing meant a better quality of life, better health and an even longer life expectancy. It also meant, for children, a much more stable life and a much more stable schooling environment.
I am by nature an optimist, but I am very bewildered by and more than a little despondent about this government's abject refusal to address the ticking time bomb that is the east coast property market. There are many issues involved in this. As I have already stated, housing is an important social need and a social good. It affects families in very positive ways. There is even evidence that a stable housing environment improves health and improves long-term life expectancy.
Were this government to act—and there are plenty of sensible options open to it—it could simultaneously ease the pressure on the federal budget by many billions of dollars; provide genuine help and hope to many currently shut out of the housing market; allay the fears of those already under mortgage stress and who now see the banks starting to raise home loan rates independently of any Reserve Bank action; and also relieve the mums and dads of the dread that comes from the prospect of their kids not having a stable home, and with that stable housing and stable lives. Many families of course now see their kids staying with them until they—the kids, that is—reach pensionable age.
The government, though, continues to take action at the edges of policy rather than facing up to the challenge of dealing with housing markets now running totally out of control in two of our largest constituencies. That is not my view or the Labor view. You would be hard pressed to find an economic commentator, public official, international agency or financial industry regulator who seriously believes that the housing affordability crisis can be solved with this do-nothing approach. House prices in Sydney and Melbourne continue to rise at double-digit rates, fed by an investor tax subsidy that has the federal budget leaking in the vicinity of $10 billion to $12 billion a year to fuel this ridiculous fire.
The situation is unacceptable and fraught with risk, and everyone, including many on the conservative side in the government, know it. The government's response, or lack thereof, amounts to the most wrongheaded piece of fiscal policy in living memory. And that is not just my view; that is the view of many well-recognised and well-respected financial commentators. You shudder to think what would have happened if this lot had been in charge during the global financial crisis.
Being an economic realist in the Liberal Party these days is akin to being seen as the rotten apple in the barrel. They are not respected, their views are not taken seriously and it leaves the government in a complete mess in terms of housing policy and the budget. Like some of the brave souls opposite, including those who have been fighting this good fight on housing affordability for years, we all know that it is only a matter of time before nervous markets impose the very sort of shock therapy solution on this government that it says it wants to avoid. House prices in Sydney, in particular, cannot continue to defy gravity for ever. As the head of ASIC, Greg Medcraft, noted this week, global house prices generally sit comfortably around a ratio of four to one to annual income. That ratio in Melbourne is now around 9.5 to one and, in Sydney, an astounding 12.2 to one.
Policy, as is generally agreed, left the rails when the Howard government coupled negative gearing to very generous capital gains tax concessions. As I have mentioned, many of the baby boomers, myself included, did very well out of that. In 1988-89, the year that the two were joined, there were 1.3 million taxpaying landlords, making a collective return of $700 million in tax to the government. By 2010-11, there were, all up, 1.8 million landlords, making a combined tax loss of $7.8 billion. That is astounding and is not hard to see how it happened. In the early 1990s, investor demand accounted for about 16 per cent of home loans. After dipping during the GFC, it climbed to a 55 per cent share before APRA controls were tightened in 2015. But now, again, it is over 50 percent. Investor demand for loans now is over one in two of all loans.
Domestically, the RBA, the chair of ASIC and the head of APRA have expressed heightened concerns about high levels of house prices and high levels of housing related personal debt. Back in November 2016 the IMF observed:
A major concern is that external risks with a large impact, including a sharp growth slowdown in China, could interact with or even trigger domestic risks, especially a housing correction.
The IMF issued a similar warning earlier this year. In a consultation paper issued in February, it warned that Australian:
Financial regulatory authorities would need to stand ready to intensify targeted prudential matters, if lending or housing price growth were to reaccelerate.
And it has reaccelerated. In the last few weeks, two new OECD reports have also sounded the alarm bells on the risks for our economy. That is largely because of high levels of personal and housing debt. The Reserve Bank has issued warnings about the possible consequences of personal debt growing faster than incomes and the limitations placed on monetary policy by an overheated east coast housing sector. Household debt in Australia is now indeed at record highs, and housing debt is now the equivalent of 132 per cent of annual household disposable income. That is well above the peak in the global financial crisis. Home owners are very worried. The Melbourne Institute of Applied Economic and Social Research have reported that general public confidence in property as a safe investment has hit 40-year lows. It has now plummeted from 28 per cent confidence levels in September 2015 to 11 per cent recently. It is hardly surprising that the head of ASIC has weighed into this too. The blunt message from everyone is that it is a bubble, with heightened nervousness amongst new home owners and mortgagees, again a symptom of where things may be headed.
Government inaction also places it firmly in the camp of the property investors and speculators. Soaring house prices—for example, 16 to18 per cent in Sydney and 15 per cent in Canberra—are largely being driven by the rapid growth in investor demand. The growth rate in investor borrowing has accelerated from nine per cent growth to now 27 per cent growth. Investors again now account for more than half the money borrowed for housing, and we all know what that means for first home owners. There is no way increased supply of housing can ever hope to keep up with these sorts of numbers. Investor and tax-fuelled demand makes it impossible for first home buyers to get a look-in. To fill the policy vacuum, we are now seeing a fair number of people rushing about desperately in search of alternative ways of giving first home owners an even break. Some of those ideas may be worth exploring, some are disastrous but each comes with its own baggage. And many do not really address either the cost of current policies to the federal budget or the inherent unfairness of subsidising investors at the expense of first home buyers. I would like to repeat that: we are subsidising investors at the expense of first home buyers, mostly young families. The government simply refuses to recognise that housing is simply unaffordable because of the interaction of two policies that only it can reverse or ameliorate.
State government cannot do much. It tries to do some things but it is nibbling at the edges. Where there is plentiful supply of flats and units, for instance, tipping the scales back a bit in the direction of first home owners through stamp duty concessions might work for a time but may just increase prices more.
The key levers for change rest squarely in the hands of the federal government because only it can alter the negative gearing and capital gains tax rules. Labor has a plan for this which we took to the last election. The government still has absolutely nothing. Even if it did not want to follow Labor's approach of limiting future negative gearing and capital gains concessions in housing to new home owners while grandfathering the existing arrangements, there are plenty of options that it could pursue. For instance, it could just limit tax right-offs from negative gearing in any year to a set amount, or limit claims to a maximum of one or two investment properties. It could phase out some of the current concessions. That would help genuine, non-speculative home buyers and it would help the budget bottom line too. Allowing young people to potentially squander what little superannuation savings they have on dodgy home loans in an overheated property market is such bad policy it is almost bordering on the ludicrous. Only a truly desperate or clueless Treasurer would have allowed that one to be floated much less seriously considered.
The problem with this government will be getting it to act. The first step along that path is the government realising that what have lasted of the Labor and 'Menzian' housing policies of the 1940s, 1950s and 1960s are the goals and the aspirations and the outmoded means of achieving them. Yes, it is a difficult and complex area that is not getting easier. But, Treasurer, if you do not like Labor's approach, design a better one; do not just squib it. Do not try to push it all off on the states. The states do not make federal tax laws; we do.
Sydney reportedly already has over 80,000 vacant investor owned properties. If that is not a case of excess demand, I do not know what is. Building more unaffordable housing of the wrong sort or in the wrong spots will just add to underutilised capacity if you do not deal with what is driving investors and speculators to treat housing as a one-way bet.
With their well documented false starts, pratt-falls and back-offs, the Prime Minister and the Treasurer are to housing affordability what Laurel and Hardy were to piano moving—you feared for the piano even when you were distracted by the sideshow. This government has little idea about housing policy, economic policy or any of the other important structural problems that are besetting our economy such as climate change, energy policy and certainty of supply of the things like energy and jobs that our society needs. It is time this government developed some proper policies that would help the young generation, the future of our nation, to get ahead.
