Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.

 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate


On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.


RSS 2.0

Anything but affordable housing

By Gavin Putland - posted Tuesday, 1 July 2008

Property investors don't "provide" housing unless they build new homes. Those who buy existing homes don't add to the overall supply, but merely turn homes for sale into homes to let. This doesn't address the overall shortage. It doesn't even address the shortage of rental homes, because the reduction in the supply of homes for sale throws potential owner-occupants onto the rental market. So, contrary to the self-serving propaganda of the property lobby, the full deductibility of negative gearing is not an incentive to "provide" housing, because it is available for existing homes as well as new ones.

All this has been belatedly acknowledged by the Senate Select Committee on Housing Affordability.

The Senators cited two submissions suggesting that negative gearing be limited to new homes, and one submission suggesting that the concessional taxation of capital gains be similarly restricted. I made both suggestions nearly five years ago (letter in the Sun-Herald, July 20, 2003). Moreover, the Senators recommended that the First Home Owners' Grant (FHOG) be larger for new homes than for established homes - albeit nearly five years after I suggested that the grant be available only for new homes (letter in the Daily Telegraph, September 30, 2003).


The National Rental Affordability Scheme (NRAS) looks similarly promising in that it offers subsidies only for new construction. But there the good news ends.

Housing subsidised under the NRAS must be offered for 20 per cent less than market rents. Sub-market rents mean waiting lists (because if the waiting lists disappear, the stock has merged with the rest of the market; that is, the rents are no longer sub-market). Waiting lists mean unmet demand. Thus the decision to employ sub-market rents is a decision not to solve the problem.

Furthermore, the need for a subsidy imposes a fiscal limit on the volume of new construction.

The Federal Government has indicated that it will fund up to 10,000 dwellings a year for up to ten years. According to the Reserve Bank (Statement on Monetary Policy, November 2007), the underlying rate of demand for new dwellings is about 180,000 a year, which exceeds the current rate of construction by about 30,000 a year. Even if all construction funded by NRAS were additional construction, the scheme would not alleviate the housing shortage; it would merely reduce the rate at which the shortage gets worse.

But of course the additional construction due to the NRAS will be less than the stated 10,000 units per year, because some of those units would have been built even without the subsidy (and let for market rents). In this way the NRAS resembles the private health insurance rebate, which was introduced by the Howard government for the stated purpose of encouraging private insurance, but which is wasted to the extent that it is paid to people who would have taken out private insurance anyway.

Under the NRAS, corporate entities offering housing for 20 per cent less than market rents will be subsidised to the tune of $8,000 per dwelling per year. This might seem to imply that developers planning to build dwellings with rental values less than $40,000 per year ($767 a week) would find it economic to let those dwellings for 20 per cent less in order to get the subsidy. But it's worse than that, because the Federal contribution to the subsidy ($6,000 per year) is in after-tax dollars whereas the rental values are pre-tax. Allowing for tax, the maximum market rent at which developers could profit from the NRAS is $1013 a week, which the 20 per cent discount reduces to $810 a week. How affordable is that?


It is further proposed that any family qualifying for Commonwealth Rent Assistance will be eligible for NRAS housing, in which case the allowable income for a family with three children will be $80,000 a year. How needy is that?

If this Government had been serious about boosting the supply of accommodation, it could have used its first Budget to confine negative gearing, the capital-gains concession and the FHOG to new construction. Failing that, it could at least have made the capital-gains concession contingent on offering the properties for rent.

For purposes of income tax and GST, it could have deemed every investment property to be earning an annual income of, say, 4 per cent of the assessed site value (excluding buildings), so that property investors would need to build accommodation and seek tenants in order to cover the tax bill (and would not be further taxed for so doing). None of these things happened, notwithstanding submissions by this writer.

While Housing Minister Tanya Plibersek understands the importance of building rather than buying, and has indeed produced a scheme that rewards investors only for building, the scheme's flawed design and inadequate scale show that Plibersek either isn't serious or has been hobbled.

The NRAS is the obligatory attempt to be seen to be doing something about the housing crisis. Meanwhile the continuation of other policies will worsen the shortage of housing, driving up rents and prices for the benefit of incumbent property owners at the expense of renters and buyers.

  1. Pages:
  2. Page 1
  3. All

Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

33 posts so far.

Share this:
reddit this reddit thisbookmark with Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Gavin R. Putland is the director of the Land Values Research Group at Prosper Australia.

Other articles by this Author

All articles by Gavin Putland

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Photo of Gavin Putland
Article Tools
Comment 33 comments
Print Printable version
Subscribe Subscribe
Email Email a friend

About Us Search Discuss Feedback Legals Privacy