In the lead-up to this year’s Australian federal election, the issue of housing affordability received zero attention from the Coalition.
For example, of the 35 discussion papers outlining the Coalition’s policies on just about everything – including such meaningless topics as “a safe and prosperous Australia”- there was no policy on the single biggest purchase anyone will make and by far the biggest asset class in Australia: housing.
I was hopeful that when Malcolm Turnbull first rose to Prime Minister there would be a greater focus on housing policy. However, in his first ministerial list, which included 40-odd ministerial positions, a dedicated “Minister for Housing” was conspicuously absent. The closest we got was a Minister for Cities and the Built Environment, although this was consigned to the “outer ministry” and ignored most of the important issues, which showed just how much importance the Turnbull Government ascribed to housing policy in Australia.
Moreover, in the lead-up and during the federal election campaign, we saw the Coalition strongly oppose Labor’s policy to reform negative gearing and the capital gains tax discount for the fear that it might actually lower housing values and make homes more affordable.
The Coalition did mutter some vague thoughts on the need to boost housing supply, but did not release any actual policy or funding to back up its lip-service.
So, it is a fair assessment to conclude that the Turnbull Government has so far been MIA on housing.
With this background in mind, it is interesting to read the Housing Industry Association’s (HIA) latest plea for a dedicated housing ministry within the Turnbull Government:
“The incoming Commonwealth Government needs to focus on building the new homes for our growing population, meeting the housing needs of our changing demographics, addressing the housing affordability challenges confronting younger generations, supporting the 321,595 businesses that operate across the residential building industry, and importantly, enabling the industry to grow and expand its contribution to the Australian economy”…
“Australia needs a Commonwealth Housing Minister – a senior Minister in cabinet to provide national leadership, to coordinate federal, state and local government housing programs, to guide important industry policy reform nationally, and ensure housing has a front seat in cabinet discussions around taxation reform, national budget repair, infrastructure and workforce development.”
For once I am in agreement with the HIA.
With the Australian housing market at its most expensive level ever relative to incomes and rents, household debt at its highest ever level, and first home buyers largely missing in action, Australia desperately needs coordinated policy action and leadership at the federal level.
The key driver for the rapid appreciation of Australian home values is the hyper-inflation of land costs:
So far, the Coalition has pinned the blame for this land cost escalation on the states for the lack of land supply and infrastructure, dysfunctional planning systems, and excessive tax burdens. This is a cop out.
It is the federal government that has chosen to open the immigration spigots, leading to strong inflows of new residents into Australia’s cities (especially Sydney and Melbourne). And given the massive vertical fiscal imbalances present in the federal system, it is no surprise that the states have attempted to prevent growth of the urban footprint in a bid to save on infrastructure costs. They simply cannot afford to fund this growth without federal help.
This is where the federal government should be playing a leading role in housing policy to assist in boosting affordable supply for the expanding population, rather than ignoring the issue altogether.
For example, the federal government could offer incentive payments to the states to free-up land supply, relax planning, and build housing-related infrastructure. The federal government could also pay the servicing and development costs of bringing the land to market and then recover part or all of the cost from rates or taxes on the land over the next 20-30 years (explained here and here). Alternatively, if the federal government remains reluctant to fund such vital infrastructure, it could instead set up a Municipal Utility bond model (explained here and here), like the one operating in Houston Texas, and then let the growing self-managed superannuation fund sector do the funding.
These are just three potential policy options out of many. The important thing is that the federal government stops ignoring the whole supply-side issue and takes a genuine leadership role, as well as providing the states with funding and resources to cope with the growing population.
New Zealand has shown us how reform can be done. The current National Government has a dedicated housing ministry, led my housing minister Nick Smith. New Zealand’s parliament has also reached broad political agreement on freeing-up Auckland land supply (see here and here), thus sowing the foundations for reform.
The RBNZ deserves some credit, too, since it has placed intense pressure on policy makers to get their acts together on supply, shaming them into action and providing them with political cover. This is in stark contrast to the limp-wristed RBA, which chooses not to issue direct statements on housing policy, thus giving our politicians a free pass to ignore the issue.
In short, Australia desperately needs genuine leadership from the federal government to drive supply-side reform and improve housing affordability for the growing population. This all starts with the implementation of a genuine housing ministry.
