Exacerbating Australia's housing shortage

The question of housing affordability continues to be - as then prime ministerial aspirant Kevin put it in 2007 - the 'ultimate barbecue stopper'.

And with affordability deteriorating further as more people chase a limited supply of real estate in our major population centres, many current and aspiring homeowners are asking what the federal government can do about it.

The truth of the matter is the federal government can't simply ask vendors to lower their asking prices, just as it cannot make grocery or petrol prices lower. Labor learnt this the hard way with their ill-fated FuelWatch and GroceryWatch schemes.

While state governments are primarily responsible for provision of land for housing, the federal government, through profligate spending and poor administration, can certainly make the housing shortage worse.

To provide some context, when the Rudd Government came to office in 2007, it inherited an enviable set of books from the Howard-Costello Government, with no Commonwealth debt and a $20 billion surplus.

One figure that didn't receive much attention was the gap between the Reserve Bank of Australia (RBA) cash rate and the average variable mortgage rate. At the end of the Howard government this gap was 1.85 per cent, but fast-forward to September 2010 and the gap is now 2.9 per cent - a jump of 56 per cent in barely three years.

The increase is no coincidence. Since it was elected, the Rudd-Gillard Government quickly spent the surplus and embarked on a massive debt-funded spending spree, all in the name of saving Australia from recession.

Whether it achieved that is highly doubtful, but what is clear is that by competing with banks in the wholesale funding markets at a time when credit was already tight due to the global financial crisis, the government helped drive up the cost of finance. Banks now have to pay more for their money and are simply passing on the increase to you in the form of higher monthly repayments.

Smaller developers also continue to feel the credit squeeze, finding it harder to obtain finance for smaller residential projects, further adding to the shortage which now stands at 178,400 as of June 2009, according to the latest National Housing Supply Council (NHSC) State of Supply Report.

But not only did the government's heightened activity in the debt markets make the cost of servicing a home loan higher, the projects they spent the money on actually exacerbated the shortage of housing.

The best example of this is Julia Gillard's $16.2 billion Building the Education Revolution (BER), which the PM credits with saving 200,000 jobs.

This 'nation building' all sounds good in theory but the problem is the BER was introduced at a time of acute skills shortages in the residential building sector that have continued unabated. Latest figures from the Housing Industry Association (HIA) highlight a persistent shortage of skilled tradespeople in several categories, including carpentry, tiling, electrical, painting, plastering, plumbing and roofing.

Further, the HIA is on record as saying: "The structural shortage of skilled labour in the residential sector is an obstacle preventing an adequate supply of new homes. Addressing this shortage therefore forms a vital component to ensuring Australia's critical housing shortage improves."

The upshot is that of these workers could have been employed in the residential sector, building homes that consumers actually chose to spend their money on, rather than government make-work schemes.

Despite the litany of waste and rorting in the BER, the program will continue for another 18 months, continuing to suck resources out of the private home building sector, adding to the shortfall of houses and driving up prices.

And with the RBA poised to start hiking interest rates in the coming months, it makes no sense for the government to keep its foot planted on the stimulus accelerator while the RBA is hitting the brakes.

The PM would have you believe that thousands of tradesmen would otherwise be left on the scrapheap, collecting unemployment benefits, but the facts show that many of them could have been hard at work stimulating a real private sector recovery, not an artificial one.

So when Julia Gillard and Wayne Swan tell you that their spending saved us from the worst of the GFC, have a look at your latest monthly mortgage statement because you have been paying for it.