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Five housing initiatives in Australia that won’t raise prices

Five housing initiatives in Australia that won’t raise prices

So housing affordability has taken Centre stage in the campaign. And would you believe it, the policy is designed around pumping up demand rather than addressing supply.

As economist Saul Eslake has noted, pretty much every major housing affordability policy going back to the 1960s has been about pumping up demand. This has especially been the case since 2000 and the John Howard years, when he was infamously quoted in 2003 saying “I don’t get people stopping me in the street and saying, ‘John you’re outrageous, under your government the value of my house has increased’.”

And has pumping up demand worked to improve housing affordability?

Well, no:

If the graph does not display click here

So what can we do that won’t drive up housing prices?

  1. Reduce the skewed tax incentives
    Look, I know this is not going to happen, but that does not mean it should still not be pursued. A major issue with the housing market is that owner-occupiers are at a disadvantage to investors because the taxation system is skewed towards investors through two things – negative gearing and the capital gains 50% discount.


Negative gearing was really just a few embers in the housing market – what caused it to turn into a bonfire was when John Howard poured petrol on it by changing how capital gains were discounted.
The introduction of the 50% discount not only caused a massive surge in the level of capital gains but also the amount of rental income that was now a loss:

Australia
AIHS 2022

If negative gearing is too tough to touch, then the treatment of capital gains needs to be reformed to remove the double incentive of being able to buy a property, claim a loss and then sell it and get a tax benefit from the capital gain.

But OK, we know that won’t happen in this environment, so what about … gee, I don’t know, do something about supply?

  1. Make it easier to build
    The Grattan Institute has been looking at housing for some time and in one of its most recent reports noted that “unlike most developed countries, Australia has had little increase in housing per person in the past two decades”. The obvious solution is to increase supply and one way is through actually making this easier to occur.

Australia’s planning rules are highly restrictive and very much favour “nimbyism” that only serves to protect those who own a house over those who would wish to become owners.

A federal government could also provide incentives to local governments to open up areas for medium density housing – ie increasing the supply.

  1. Replace stamp duty with land taxes
    Stamp duty, in the words of the Governor of the Reserve Bank, Philip Lowe, is “a tax on mobility – on people moving location”. He added that “if we’re looking for an economy that’s dynamic and vibrant, we want to remove taxes on mobility”.

The government’s current plan involves giving tax incentives to those aged over 55 if they sell their home.

But being able to put “$300,000 into superannuation from the sale of their home” only further distorts the already horrendous distortions in the superannuation system which will again favour those who already own houses – and who would now have an advantage over those first-home buyers competing for the same two or three bedroom homes.

It is ineffective as a tax incentive to overcome the tax problem of stamp duty.

So why not remove stamp duty instead of further distorting the superannuation and housing system?

But these are all about the private sector side of things. Let’s be honest, over 40 years of evidence has shown the private sector will not provide a solution. So:

  1. Build more public and social housing
    My colleagues at the Australia Institute’s Nordic Policy Centre have noted that a major issue with Australia housing policy is that it regards housing as an asset rather than a need.

Prof Andrew Scott notes that “from the mid-1980s to the mid-1990s the commonwealth shifted most of its funding to assist payment of rent including for tenants in the private sector – rather than giving more support to the states to supply public housing”.

This meant by the mid-1990s “public housing became seen increasingly as ‘residual welfare’ housing”.

The move away from public and social housing to incentivising private housing is clear when you consider that in the past year around 10% less public housing was built than in 1970, despite our population now being double what it was then:

Prof Scott notes that this is a purposeful state of affairs, not a natural one.

He notes that “in Sweden, public housing is more than triple the proportion it is in Australia”.

One solution he proposes also involves the superannuation sector.

But rather than, in effect, trying to individualise the gains that occur from the community pool of superannuation, he recommends instead “the Australian government should now require some of the collective capital in superannuation funds to be invested in affordable housing to ensure fund members can have an adequate retirement”.

  1. Housing and rental co-operatives
    Another Nordic policy that could be pursued involves co-operatives. As Prof Scott puts it “rental housing co-operatives exist to provide housing, not accrue wealth”. In a co-operative the building or property is owned by a legal entity of which the residents are members and joint owners.

Sweden’s housing co-operatives amount to 22% of the total housing stock, while it is 15% in all of Norway, but 40% in the capital, Oslo.

As his colleague Dr Sidsel Grimstad notes, it is “similar in many ways to strata title in Australia, where a body corporate of the residents manages the shared spaces jointly. But the main difference is that a housing co-operative is ‘user-owned’ while strata title is ‘investor-owned’.”

A key aspect of co-operative housing is that you must live in the dwelling, not use it as an investment.

And for rental co-operatives, tenants do not own their dwelling but instead, as Grimstad notes “rent it affordably from a non-profit housing organisation” and they are “actively involved in decision-making and management of maintenance and outdoor areas”.

Will these be what everyone wants? Obviously not.

But it highlights that there are numerous different paths ahead that don’t involve pumping up demand and pumping up prices.

Source- The Guardian

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