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Why Canberra should be more involved in housing

By Ross Elliott - posted Wednesday, 4 December 2013


There are many good reasons not to want more bureaucracy in Canberra. For starters, we can't afford it. Second, more bureaucracy rarely leads to better public policy outcomes – often it makes things worse. Third, just because there's a Minister and a Department for something, doesn't mean it does anything (witness a Federal Education Department with no schools, or a Federal Health Department with no doctors). But housing, just maybe, is different – and here's why.

The engagement of the Commonwealth Government in housing and housing policy has a sketchy history. Traditionally, if anything, the Commonwealth limits its role to some social housing programs and makes grants to the States under the Commonwealth State Housing Agreement. (Why call it an agreement though, when it mostly seems to involve disagreement?). Labor Governments have been more prone to enter housing and urban policy through initiatives like the 'Better Cities Policy' under the Hawke-Keating era, or NRAS under the Rudd-Gillard-Rudd era. Liberal Governments by contrast have tended to consistently argue that housing policy is mainly a matter for state and local governments (which it is) and that the Commonwealth has a full enough agenda as it is (which it does). For this reason, conservative governments typically withdraw from the policy space after Labor Governments expand into it (witness the new Abbott Government's early decision to scrap the National Housing Supply Council, formed under Labor in 2008).

But this aversion for close engagement with housing policy sits at odds with other areas of national life, where our national governments – irrespective of political colour – are expected to play a role. If petrol prices, for example, skyrocketed overnight to over $2.50/litre, I can't imagine our Federal Government would leave it with a 'no comment.' If health insurance costs rose even faster than they are now, and hordes of people left the private system, you know the Federal Government would be there with its hands on the policy levers.

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Housing is for nearly all Australians the biggest single investment they will ever make. Much smaller investments in superannuation are heavily regulated. Relatively small bank deposits and the meagre interest they earn, also heavily regulated. Even relatively inconsequential transactions with retailers arguably have more national public policy focus than the housing market (and of late, the rise of online sales will likely increase this involvement in the chase for GST dollars).

I am not for a moment suggesting regulation of housing markets, just that our national government (irrespective of politics) might want more of an informed say in how the market operates under national, state and local government regulatory controls, for the following reasons:

  • The Federal Government is a direct beneficiary of new housing construction via the GST (which only applies to new dwellings). A typical $450,000 new house or apartment includes $45,000 in GST revenue collected by the Commonwealth (and ultimately redistributed to the states). There are currently (roughly) 150,000 dwelling starts each year in Australia, so multiply that out and you get (even more roughly) a healthy $6.75 billion per annum in GST on housing alone. Housing starts are currently at a 30 year low. To return to the long term average, they'd need to rise by a third. That means another $2billion in potential annual revenue for the Federal Government if the market returned to its long term trend. I'd call that an incentive. (You could argue that the GST is a state tax, which it is. But the original deal by the states promised they would ditch stamp duty in favour of the GST. They didn't. The Feds may redistribute the GST revenues but they also have a clear interest in how much revenue is generated and economic efficiency generally).
  • Our banks are heavily exposed to housing. Read the financial press and even if you disagree with the World Bank and others, it's clear that if housing fails in this country, the banks fail too. Now I don't think housing will fail and I don't think there is a 'bubble' but I do think there is serious malfunction of policy as it applies to new housing. You'd think a connection between a healthy housing sector and the viability of the banking sector would be a good reason for some more formal public policy interest?
  • Our Reserve Bank is concerned. Read the many statements by Governor Glenn Stevens, and even go back to the era of Governor Ian MacFarlane. The Reserve Bank itself understands the importance to the economy of creating new supply rather than inflating existing prices and frequently passes comment on this. The RBA is also acutely aware of the relationship between monetary policy and the housing market, along with the rest of the economy. I'd call something of such interest to the RBA also something that should be of more formal interest to a Federal Government.
  • There's a clear question of generational equity. Young people are finding it harder to enter the market. Low cost, new housing has all but disappeared. Income multiples for people on low to median wages are too high, so home ownership is either deferred, or abandoned by many. This also increases pressure on social and assisted housing (meaning taxpayer funds). But as prices rise, those already in the market gain as their equity grows. These people can leverage their equity to buy more housing, as investors. They compete for lower cost housing against first time buyers or lower income households, and win. It is creating a new landed class, which is a tragedy for a nation which prided itself on its egalitarianism. I'd call that a compelling social policy reason.
  • There's a demographic and retirement funding issue to consider. Research suggests that in the future, a small minority of retirees will retire owning their own home. Some reports estimate that in the future, more than 90% will retire with a mortgage. As our population ages and we live longer, that's a very unstable economic base for future retirement funding and aged care. It's looming like a massive demographic sink hole of increasingly welfare dependent old people, with fewer assets than the comparable generation today. Getting young people into the housing market and saving to own your own home has a very strong economic case going for it. I'd call that a good reason for the Federal Government to be more closely involved.
  • There's evidence it is changing our society. People are deferring family formation, and having fewer children, and mortgages (if you have one) take up more and more of your household income, meaning less to spend on the rest of the economy. Peter Costello wanted us to have one for dad, one for mum, and one for the country. If housing were more affordable, maybe we would.
  • Politically, it's more than important. Any government which moved to (for example) tax the family home would quickly find the voter sentiment on this issue transgresses all political boundaries. Supporters and opponents alike would turf them from office. Liberal Prime Minister Bob Menzies many years ago wrote of the central importance of home ownership (in his landmark 'Forgotten People' speech in 1942). Many national leaders since then have echoed those sentiments (though few expressed them better). If home ownership and housing is so central to our family way of life, and given we're confronted with increasing concerns that this is being fundamentally changed by dysfunctional regulatory and planning policies, it would seem reasonable grounds for a more formal presence in housing policy debate.

This does not mean we need a Federal Housing department or a Minister for Housing. But it could warrant a small advisory unit with the 'real world' knowledge of how new housing supply is affected by the three levels of government, and what sorts of measures should be avoided and which promoted to create a healthier system with less distortion.

Land use and planning policies introduced around much of the country from the early 2000 onwards have had a serious impact on the strength of the new housing sector. That means not only less income for the Federal Government, but less economic activity (ie jobs) and potentially more long term welfare dependency.

In those circumstances, the Commonwealth is entitled to express a say in the efficiency or otherwise of planning and development policies that affect this market. In fact it's entitled to demand it.

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This article was first published on The Pulse.



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About the Author

Ross Elliott is an industry consultant and business advisor, currently working with property economists Macroplan and engineers Calibre, among others.

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