Housing policy must be as egalitarian as the political rhetoric surrounding it

The presumption that we are, and ought to be, an egalitarian society is a deep-seated element in Australian political culture. This obviously does not mean that there are not significant differences in wealth or social standing between individuals. It does imply that all Australians have the right to an adequate standard of living, that there is an equality of regard in dealings between people, that the interests of each count equally in political considerations, and that differences in social position largely reflect individual achievement, rather than inherited status.

Given the apparently widespread commitment to egalitarianism, it is striking that there has been so little serious discussion or public concern about recent changes in the patterns of housing in Australian cities, where most of us live; changes that have profound implications for the character of the Australian polity. (Here I will focus on the situation in Melbourne, but this can be generalised to other cities.)

Let me point to some of the most significant of these changes. First, though there have been spectacular, and well-publicised, rises in real-estate values, such rises have not been universal nor evenly spread; while prices have soared in inner suburbs, in many outer suburbs they have risen much more slowly, stagnated or even fallen.

Second, as differences in the value of housing between suburbs have been increasing, differences within suburbs have been decreasing. In 1995 a fifth of inner Melbourne's housing was low-cost - by 1999 only a tenth was. In outer suburban Dandenong, on the other hand, the amount of low-cost housing had risen in the same period by 168 per cent. In the light of these figures it is hardly surprising that greater polarisation between suburbs in terms of house prices has been accompanied by a similar polarisation in the economic status of the residents of those suburbs. As difference between suburbs has increased, so has homogeneity within them.

Third, differentials in wealth and location are increasingly also correlated with differences in household composition. Areas of rapid growth in house prices are also marked by rapid increases in one-person households, and smaller household sizes generally – smaller both in terms of the rest of the city and in terms of historical norms. On the other hand young families are increasingly also housed on the fringes of the city. The average household size in (inner suburban) East Melbourne, at 1.73 persons per household, is almost exactly half the average household size in (outer suburban) Sunbury, at 3.47 persons per household. In inner city suburbs such as Carlton and Southbank, 60 per cent of people are single. Unsurprisingly, age profiles tend to be very different in these different areas – with very few children and not many old people in the affluent inner areas.

Fourth, home ownership for the poorer half of society is becoming increasingly less affordable, reversing the trend towards owner-occupied housing. In the generation that grew up in the Depression and the Second World War, 88 per cent came to own their own homes, with a historic high of 72 per cent of all houses owner-occupied. As the chances of home ownership in the major cities recede for a large portion of the population, so the percentage of the population that owns the house they live in is steadily falling, with the rate of owner-occupation predicted to settle in the 50-60 per cent range.

Fifth, as more low-income earners find their accommodation in the rental market, the cost of such accommodation has been increasing, even with the provision of government rent assistance to some 10 per cent of the population. It is estimated that around 750,000 low-income households now suffer "housing stress", paying so much for accommodation that they are unable satisfactorily to supply all their other basic needs. Of these households, some 400,000 rent their housing.

It should be emphasised that these changes are not simply the consequences of the working of the free market. Government policies favour home buying by owner-occupiers in a variety of ways, relative to both renting and other forms of investment. First, there is no tax on the "imputed rent" of owner-occupiers. If someone buys a house and rents it to someone else, any net profit is subject to income tax. Rent charged will, accordingly, be increased to cover this tax. On the other hand, if the same person buys that same house and lives in it themselves there is no exchange of money for the cost of occupation, and so no liability for income tax. In other words, a home occupier will be able to purchase better accommodation than a renter for the same price. Second, and uniquely, no capital gains tax is payable on the sale of people’s own homes – though it is on rental properties (and indeed all other forms of property). Again, this means that renters must pay a higher price for the same accommodation. (Though the effect of this has been mitigated by the recent halving of the tax payable on capital gains.) Finally, the assets test on the eligibility for the pension does not apply to the family home.

There are a number of troubling aspects of these developments. Australia is an affluent society which has long prided itself on its ability to provide a satisfactory standard of living for its members. Increasingly, however, poorer Australians are unable to afford satisfactory housing, or can do so only at the cost of doing without other fundamental needs. This is occurring, at least in part, as a consequence of a taxation system under which the well-off can gain access to tax breaks for the purchase of houses in areas where substantial capital gains are occurring, while the less-well-off are either unable to buy a house at all, or can only purchase in areas where they are unlikely to see any appreciation.

The current system, then, can be criticised as unfair. Furthermore, it threatens to undermine the health of Australia’s political culture. Civic virtues such as tolerance, mutual respect and understanding between different groups of people, capacity for public discourse, and the like, are fundamental to the functioning of a liberal democracy that embodies egalitarianism. As the classes in Australia become ghettoised, with households increasingly surrounded by other households like them, these virtues are more difficult to foster. How can a child, for example, grow up with anything more than a notional respect for other ways of life if they never encounter them?

Moreover, the interests of the classes are actually becoming increasingly opposed. The prosperity of the well-off is dependent on the continuation of the high value of the residential property market and of the policies that underpin that value. Any move to change these policies is vigorously opposed, to the point where there is now a virtual political taboo on even discussing such issues. However, those policies are contributing to the economic, social and political marginalisation of the poorer 50 per cent of our society. If we want to go on thinking of ourselves as living in an egalitarian society, we must be prepared to make fundamental changes to the system by which we provide housing to our people.