Hockey’s comments on housing affordability last week managed to offend everyone… but was he wrong?
Joe Hockey is an idiot. That seems to be the general consensus.
Last week was another nail in Hockey’s political coffin. He went off script. He told us what he really thinks. He pointed out the bleeding obvious.
What on earth was he thinking?
And now Hockey is the scapegoat for every young Australian who can’t get in to the house they want.
What happened to Hockey shows us exactly why politicians don’t speak their minds anymore. You can’t say what you really think, and you can’t point out the obvious. The game is all about style over substance.
Try to say as little as possible, with as much style as possible.
And in this sense I think Hockey is an idiot. I think he should of known how the media and the public would receive free-range thoughts on housing affordability from him.
Hockey is a divisive character. He should know that. If people had their doubts, images of him smocking cigars the night before budget, or saying that poor people don’t drive that much, cemented his image as one of the ‘elites’.
I don’t know how much substance there is to that perception, but he should know that that’s the perception he’s working with.
And in that sense, a hot-button topic like housing affordability is a massive danger zone for the Treasurer. It is the last place he wants to go ‘off-script’.
When asked about housing affordability, he should have made some comforting noises, nodded his head in concern, reaffirmed his government’s commitment to the Australian dream, and flagged some intention to have another enquiry at the appropriate time.
Which is what every Treasurer, Housing and Finance Minister for the past 20 years has done.
But no. Hockey had to tell us what he really thought. You bet he won’t be doing that again.
And what does he really think? What vile opinions lie in his dark and loathsome heart?
These were the take-homes…
If housing was unaffordable in Sydney nobody would be buying it…
and
The starting point for first home buyers is to get a good job that pays good money
and
I workout on a punching bag filled with live kittens.
Ok, so in the context of a hot-button topic like housing affordability, these comments could have been delivered with more sensitivity. Sure. But are they wrong?
What’s he saying with the first one? I think the point he was trying to make, in his own ham-fisted kind of way, is that what we’ve got in Sydney is prices determined by a market system.
The price is set by what people are willing to pay. The government doesn’t set the price of housing. The market does. So if you’ve got a problem with the outcomes, then you’ve got a problem with the market.
And I think Hockey’s right to remind people of that. People seem to forget it. People seem to want the government to step in and just say, from now on, all houses will cost $200,000.
Maybe the government could do that, but we’re now talking about a radically different economic model – a model that just hasn’t worked anywhere else.
Because if you set the price too low, then you just create black-market outcomes. I’ll sell you my water-front home for $200K, if you make a $1.4m donation to my mum’s charity.
So prices are not unaffordable in a purely economic sense. From the market’s perspective, prices are exactly right. Not too high, not too low. Just right.
(Of course people only see markets through their own eyes. If I can’t afford it, then the market is unaffordable. No lectures in first year economics are going to shift that perspective.)
But Hockey is responding for calls for the government to “do something”. But Hockey’s saying, if we rule out setting price ceilings and messing with the market, what do you want us to do?
The only option that’s really available to governments is to increase supply. More supply takes some of the competitive pressure out of the market. But as Hockey points out, that’s (mostly) a state issue.
“As I’ve said on numerous occasions, we have to increase the supply of housing in Australia…
I raised it with the state treasurers who have primary responsibility for housing stock in Australia…
And that’s why I said repeatedly yesterday, the response has to be to build, build, build. Because we have a supply problem.
There’s no shortage of demand, there is a supply problem in Australia, and particularly in Sydney and Melbourne, to a lesser degree in Brisbane over time.
I steal children’s lunch money and invest it in stock options.”
And that’s mostly right. Mostly in the sense that the Federal government could do something to help the States with their business if they really wanted to. They could set money aside to help with infrastructure costs that make fresh land more readily available.
If they really wanted to do something they could. They can’t completely pass the buck.
But people are looking for a quick fix. And to those people he’s saying, there is no quick fix. The market is doing its thing and we’re not about to mess with it.
The second point he made which drew howls of outrage from do-gooding pen-pusher in the country, was:
“The starting point for first home buyers is to get a good job that pays good money”.
But in what world is that not true?
If you don’t have a job, it’s hard to get a mortgage. And I don’t know if you remember the 80s, but even if you had one of those ‘jobs for life’ you still had to beg your bank manager for a mortgage.
It’s a lot easier now.
And the point he was making is that interest rates are at record lows. So if you’ve got a job you can take advantage of ultra low interest rates. Those rates are available to everybody.
To me, it’s the bleeding obvious. Hockey’s right. But he’s still an idiot to go wading into a hot-button topic with a media looking for any excuse to jump all over our ‘fat-cat’ Treasurer.
These are the times we live in.
Is Hockey right? Is he an idiot?
What should the government do about affordability?
Trev Stavros says
Housing prices are largely being driven up by investors, many of whom are overseas investors.
Simon says
and artificial shortage,
land shortage is reasonable in hongkong, but you need about 20,000 people homeless in each capital city to keep house prices firm
Hamish Blair says
Yes we need councils to allow sub-divisions of larger blocks into smaller ones. Last time I checked that weren’t making any more land.
Brett says
No we need infrastructure to where there is plenty of land. Follow on from what Richard Lewis says. Australia has plenty of room and it is state and local gov that can have the biggest influence on that. and please don’t anyone try and blame negative gearing!
Hugh says
The median house price in Sydney is approaching $1M. As a common example of how this budget
will impact pensioners – a man bought an investment house in the NSW Central Coast (just north of Sydney) in 1987
for $75K, now worth $530K with a net income of $300pw. Due to rising values which
outstripped the miserly pension assets threshold, he currently gets only $200pw
part pension (which is less than 50%) & has no superannuation or other
assets apart from his own small home. So
the government is already saving $240pw. Under the cruel budget proposal, from 2017 he
would get no pension but only have the investment property rent as income, which would be
inadequate. If he sells he would only
get $400K after fees & CGT, & might lose pension entitlements for 1
year if that capital gain is assessed as income. If he invests the proceeds he would get $240pw
with an eventual part pension of around $220pw. Apart from any drawdown on this capital, it
would be devaluing due to inflation. Retirement planning which started 40 years ago has been thrown into disarray.
Simon says
I bought shares in 2007, just before the GFC. If that was my only retirement plan and I kept those for 40 years would you say that I had adequately “planned” for my retirement and that the government should change all the rules so that I didn’t ever have to sell those shares to live on? Don’t be ridiculous. This man is not complaining about his PPR but rather an investment which has not returned as much as he hoped. But it is paying something, despite his choice not to invest in a capital city, which anyone who has done any research or self education on property investment knows is the most likely source of capital growth.
Financial Literacy is poor in Australia. Everyone should read “The Richest Man In Babylon” in school and have explained to them the basics of how, on ANY income, they can invest in their long term financial wellbeing using the power of patience when combined with forethought, discipline and compounding. Then we might not have so many people spending 105% of their income each year and then bleating about how unaffordable things are.
We live in one of the wealthiest countries of the world with almost the smallest spread between rich and poor. What we call below the poverty line is middle class in many of our neighbouring countries. Our social security is the envy of many and our opportunities are almost limitless. Stop blaming the government for your own lack of planning and action.
And yes, my wife and I were renting and scraped together the money to buy our first house in an area well away from the CBD many years ago. We’re teaching our kids that they must earn money rather than expect to be given it. They now respect that money is worth something as it represents their time and effort and they are realistic and responsible with its use and understand that the onus is on the individual to save and invest in their future.
Sydney house prices are doing what they did in 2000-2003. They have done it before and will likely do it again. Three years of rapid growth followed by seven years of stagnancy. Very similar to Australia’s forty year cycle of droughts and floods. But saying that it has happened before doesn’t sell newsprint and houses surrounded by trees in a bushfire zone or built below the flood line make great TV footage.
Simone Fillis says
I think it is the insensitivity of what he said that got the hard working people of Australia riled up. Obviously you need to have a job in order to meet mortgage repayments but it is not only the ability to pay a mortgage but the entire cost of living in Australia that is getting to people. I live in Perth and it never seems to get a mention. Housing in Perth is very expensive and yes I agree it is the state governments that takes advantage of the competition that exists between consumers to get into the market that allows them to release limited number of blocks in a land release and therefore consumers don’t have a choice but to compete for blocks and pay the price that people have to pay to purchase them, however if you are not a first home buyer and don’t get the relief from government grants you need a 20% deposit which equates to approximately 80 to 100K just to get into the market or then having to pay the incredible Mortgage insurance that goes with not having a 20% deposit. I believe that it is the banks that need to be regulated with these things like mortgage insurance, governments be it state government with the stamp duty and also limiting foreign investors that may give hope to some struggling Australians trying to get into the housing market.
Zvezdana Oteri says
Exactly, Hockey stated the obvious, and more than obvious it was patronising. It’s like saying the sky is blue, as if that would be useful to a discussion about resolving smog. Really? You don’t say? You have to get a good job to buy a house. What extraordinary insight Mr Hockey. Thanks for that gem.
He’s not being lambasted for telling the truth, as the author seems to think.
KS Palmer says
Part of the problem Simone Fillis is that many people now want to start in the type of house and location their parents finished in. They have unrealistic expectations of having the family home and everything in it new from the start and all this without giving up the nights out, foreign holidays, meals out, new clothes and all the rest people spend their money on. If you are not a first home buyer then you must have had a home in the past. What happened to the equity in that to use as a deposit? Home ownership is not a human right. Somewhere safe and decent to live is but not ownership. And people need to accept that. They also need to accept that they are unlikely to be able to afford the house of their dreams in the location of their choice as their first home. No-one ever achieved that, you had to work up to it over many years. Why do you think it should be any different for the current generation?
Simone Fillis says
I am not afaid of working hard as I have done since I was able to. I also don’t expect to live in a lavish home to start but when you are paying on average $280,000 for a 300m2 block then add the house to that you are still looking at approximately 400K. I think that is unreasonable as for equity, unfortunately when you go through a separation/ divorce and you are paying huge rents as well as child support expenses it is very hard to save the kind of money you have to get into the market, I am guessing that you were fortunate enough to not go through these things in life and that is great but I think you may not completely understand how hard it is for a large portion of the population who may find themselves in a similar situation.
KS Palmer says
Actually Simone I have gone through all the same things. So as a single person I had to make serious sacrifices to be able to buy a two bedroom unit over many years. The difference being I did it myself on a below average wage with no expectation of anyone ‘helping’ me. And I only bought just three years ago in an area I didn’t particularly like at the time because I couldn’t afford to buy where I wanted. Yes It took almost 20 years to save enough to be able to afford the mortgage by myself and all the strata fees, upkeep and so on. I gave up holidays, eating out, expensive clothes, I don’t have a smartphone, pay TV or the latest technology but I have my unit! So I am saying it can be done if you really want it without whining how tough you have it. We all have it tough but we get through.
Macca says
I did a search on western Sydney yesterday and I found units for 250-300k and houses for 450k and upwards. There is no housing affordability issue. There is just an aspirational sense of entitlement issue.
Paul says
People need to stop being housing snobs. In this age of entitlement you are not entitled to live in a $1m house just so you can be close to where you grew up; there are plenty of suburbs in Sydney in Blacktown; Penrith; Liverpool & Campbelltown $00 to $600k range; or if you have to have your close to city pad then accept your first place may be a unit.
KS Palmer says
Here Here! And guess what, home ownership is not an entitlement. It is something you have to work hard for – start small and make your way up to the dream home in the preferred location.
Alex Cook says
Here Here! from me too! My first house was not in an area I wanted to live in. I could not afford to live where I wanted. I renovated the house, made some money and invested in vacant land. I then lived in a transportable building for 5 years, producing 3 kids along the way! It pisses me off when people say how “Lucky” I am to live in a my dream house on 27 acres in Sydney! Luck had nothing to do with it! It was planning, planning, hard work and sacrifice! Sure, I love where I live now and am making more money on my PPR than I could hope to earn in a job but I don’t consider myself lucky. Stop being a snob and move further out! Create a job out there while you are at it and employ someone else so they can come and join you. Create your own demand! It all starts with you, not with the bone heads in parlement.
Richard Lewis says
I want to make the point that Australia is a large continent and it should not be necessary for us all to live on top of each other in the major cities.The Government should be be actively supporting employers to set up businesses in suitable country towns, particularly along our coastline, where people can enjoy a high standard of living. If you create jobs in nice towns people will move there. It would require a lot of infrastructure spending plus tax incentives but would relieve the pressure on Sydney and other cities and stop the degradation of living standards caused by traffic jams and housing costs. Children could grow up on a quarter acre block instead of in a high-rise.
It would also be worth telling Mr Hockey that there is only a limited number of highly paid jobs, and if your average employee was offered the chance to grab a job with much higher pay he or she would do so even if they are not buying a new home.
Jayde Rachel Ashen says
oh that is a nice thought, but then there is this thing called URBAN SPRAWL… Now Urban sprawl is exactly what has happened in WA and as a result, a huge amount of money has had to be spent on upgrading roads, freeways and highways, public transport additional schools to supply these new estates, more shopping centers, more hospitals (do you know how much money a hospital costs to build… it’s in the BILLIONS). if everyone grew up on these quarter acre blocks, that’s approximately 5 million families across Australia occupying 5,058,500,000sqm of land. now next time you wanted to visit your friends or family don’t be surprised if it takes you 3 hours to get there….so think about the additional infrastructure you would need to support that amount of land and living space….. not to mention the environmental impact it would have for the amount of land you would need to clear to create these lavish lifestyles you would have us all living… I hope your not an urban planner, because if you were this country would be in SERIOUS TROUBLE.
zar kers says
Would be nice if we stopped *sprawling* in to forests and good farmland :,(
J Rayner says
Well written Richard, concise and to the point. The crux of this matter is the availability of those ‘Good jobs’ or any job really. People will make their way to work wherever it is (fifo for example) but the government is not actively doing anything to promote business and therefore job creation. Hockey doesn’t have a crisis, heck, every time prices go up 10% he makes another million, why would he want that to stop! There could be a ‘good job’ avail as treasurer coming up though!
Sam says
I am retiring next year, and, after doing the sums, it is more financially attractive to move offshore to live. It is less expensive on so many levels in many other equally desirable locations. With a small retirement income it makes more sense in my case to make the move.
Perhaps the rollout of NBN will bring about rejuvenation of country towns in Australia and make them more attractive for young people to consider as work and lifestyle options, rather than Sydney or Melbourne.
London is suffering large housing price increases and has many foreign investors buying there, and not necessarily residing there. Probably many other large international cities have the same issues with so many people able to afford to pay higher prices for housing and governments either unwilling, or unable, to stop the inflow of this higher purchasing power. Market forces.
Paul Miles says
Of course what he said is logical, and would be perfectly reasonable in a certain context. But that’s not the point, is it? His context is occupying the post of Federal Treasurer, he is responsible for the financial direction and well-being of Australians, he has a very poor history of overweening hubris and completely out of touch statements. And he’s about the worst, most ineffectual Treasurer the country’s ever seen. (Certainly in my lifetime of 58 years!)
He sees – or at least appears to see – such problems only though his own experience and that of the circles within which he moves. Get a good job! Clear.
But when he loses his job as Treasurer or his seat in Parliament, guess what? He won’t end up at Centrelink, experiencing all that trauma along with thousands of other Australians who have lost thier jobs through no fault of their own. (But are blamed for it by the government and right-wing commentators because there are lots of votes in scapegoating!) And he won’t be competing for jobs that are way below his qualifications and that hundreds of other applicants are also competing for. Or for jobs that simply are not statistically in existence, because the number of unemployed far exceeds the number of jobs available. Particularly if you live in a certain place or are of a certain age group. And he won’t be wondering how he will cope, financially and emotionally. He will instantly be snapped up to serve on some well-paid board or offered a uni post that real Australians have to work for – and earn. Or the Party will take care of him. And he knows it. He will never experience any of that – and doesn’t have the first inkling of a clue about what it’s like to experience it.
He may think that. I may think that. But the contexts are universes apart. And he just doesn’t seem to get it.
That’s why he’s an idiot.
zar kers says
Heheh thanks Paul, so true 🙂
J Ashen says
House prices might be going up over east, but they are going down in Western Australia, so if you can’t afford the lifestyle of living in the eastern states, perhaps you should consider moving where the house prices are more affordable…
Simon says
The problem isn’t politicians speaking their minds, it’s finding out what is actually in their minds
I lost respect for Hockey over finding out that he pays his wife 2G of public funds / week to rent canberra house, 100G of tax payers money / year.
I didn’t used to go on the dole when I was out of work, because I thought it was wrong to bludge off other people, the $300 / night allowance is reasonable for short term overnight stay in unfamiliar city, only politicians would think it’s reasonable to tap public funds like that for long term accommodation.
isabella says
Simon, you need to educate yourself about the difference between claiming a legal deduction and paying his wife ‘2G of public funds’. He didn’t spend ‘100G of taxpayers money’. He claimed a legal deduction for every night he was away. If he wasn’t staying in that rental, he’d be staying in a hotel. I think the amount you can claim is like $264 a night. You can claim it too. I do. It just so happens that he stays away more nights than most. No money was ‘taken’ from taxpayers. Ugh. I get so annoyed when people sensationalise these things. That money never existed as such. It’s simply a deduction you can make when you’re actually working and adding value to the other side of the ledger. It doesn’t exist as cash otherwise to be stored in public funds.
Simon says
you get so annoyed, but you could just google it,
and find it’s not a deduction, but an ‘allowance’ free money from the public purse
it’s money that used to exist in taxpayers pockets, and now exists in a politicians pocket because of an overgenerous perk they’ve voted themselves
the free market is good for factory workers, who compete directly with asia, where rent is $40 / week for a house, but not good for politicians
Simon says
when an arsonist burnt my house and biz in the middle of the night, (and a few other peoples) the salvos didn’t help,. because ‘I might have forged the paperwork from the fire dept. and rolled in soot to get a free shirt’ the dole office didn’t help
because I said I said I was working for free for my rent and people I owed money too after the fire, and they said if you’re working, then we can’t help you, I wasn’t eligible for the $900 GFC stimulus payment, because I didn’t put a tax return in,
I didn’t put a tax return in because of the fire, but, ‘I was in the wrong fire,
the govt. only sponsors disasters that are good for votes, if you’re in the ‘wrong fire’ then instead of getting a stimulus payment, you get a fine for ‘not putting a tax return in’ while you get out of a fire in underclothes and have nowhere to live
Simon says
I have a friend who owns land in rockbank, it only grows rocks, no good for farming, and it’s in growth corridor,
but…
the govt. green wedged the whole area, it’s costing a fortune in rates, and it won;t be opened for housing until the land holders in the area sell the land to the local govt.s mates, then they’ll magically be able to rezone it.
Mark Rumbelow says
I think a lot of people are forgetting that Sydney has become one of the great cities of the world.
it is a highly desirable city to live in, hence upward pressure on prices.
has anyone priced a 3 brm house with a backyard in London, Paris or New York lately?
bazza says
Hockey is right about housing affordability. You need to build many more homes to slow down price growth. Except to build more houses local government needs to release more land to build more houses. Then the laws need to be changed to make it worthwhile for Builders to build homes. Currently the law is stacked so far against the Builder that it has truly become a mugs game to be a Builder. This is a major reason as to why supply is not keeping up with demand. Yes, a builder needs to be held accountable for their work, but not to the point where engineers and surveyors take no responsibility for their work and it all falls back to the builder.
Charles says
The government is messing up the market by negative gearing.
Kathy says
Poor kittens and children!
Nick says
IT’s the amount of money people can borrow that’s the problem, the more you can borrow the higher house prices will become. In the 80’s mortgage interest rates hit 17.5% which meant we had to sell up and move on. How many of you will be going out backwards with NEGATIVE EQUITY when the interest rates start rising and you can no longer afford your “cheap” mortgage? Declaring yourself bankrupt isn’t going to solve anything you’ll still owe the bank in the end.
Where the problem lies is that the calculation for how much you can borrow is wrong if you take into account your income and your partners income and your annual bonuses and if neither of them eventually materialise you are going to be in deep trouble. The only way to control house prices is in fact to legislate the method of calculating your loan. In the UK in the 70/80’s the maximum you could borrow was 2.5 times the main bread winners income this had a knock-on effect of controlling house prices to an affordable regime. If there was another income to take into account and an annual bonus then you paid off your loan quicker but it was never included in the base calculation. There were no trailing fees to brokers either and therefore less incentive for them to increase your loan application to unsecured limits. Get rid of the brokers, limit borrowing to 2.5 times one of the household incomes and you will control house prices within an affordable range. Good luck trying to get people to accept that – so beware of what will happen when the interest rates start to climb again!
Marlon DE COURCAY says
There are only 2 real issues: foreign investors in the residential housing market forcing up prices, and Unsustainable Population Growth from migration. Both need to be curtailed.