The government’s secret agenda to pump up house prices is frustrating some economists, but the latest Senate Inquiry won’t change diddly squat.
The government is currently running a Senate Inquiry into Affordable Housing.
Don’t expect much to come of it. Senate Inquiries are a bit like going to the dunny to have a think. You get to roll some pretty ideas around in your mind, it kinda looks like working, but at the end of day, there isn’t much to show for it – or at least nothing to be proud of.
I don’t expect that this one will be much different. “Affordable Housing” as a topic has been on the political agenda for decades. We all understand the issues. We even had a National Housing Supply Council for 4 or 5 years there, which regularly published informative reports that the government ignored.
It’s since been disbanded.
What new information could there possibly be for the inquiry to consider? If we’re talking about supply and affordability, then we’re talking long run factors. I’ve been watching closely, and I’m pretty sure I haven’t seen any radical game-changers jump out from behind a rock in the past few years.
Oh well. It’s what government’s do. Make reports for people to ignore. But some people still take them seriously.
Like our man Saul Eslake. His is a name worth looking out for. He’s the chief economist at… actually I don’t know where he’s at right now. He was with ANZ for a long time, then JP Morgan… at any rate, let’s just say he’s one of the most respected economists in the country.
He was also on the National Housing Supply Council when it was around, so when it comes to housing, he knows what he’s talking about.
Anyway, he’s made a submission to the inquiry, and given it the title of… wait for it…
“50 Years of Failure”
I love this guy.
The point he’s trying to poke the sleepy politicians with is this: if house prices are too high then it’s been because the government’s been asleep at the wheel, or has let the agenda be hijacked by vested interests.
In his words:
“Politics – more than any other single factor – means that Australians are likely to have to live with a dysfunctional housing system for a long time yet to come,
BAM
Government policies including cash assistance to first-time home buyers and negative gearing have only served to inflate the demand for housing whilst doing next to nothing to increase the supply and therefore made affordability worse.
KAPOW
While political parties and governments professed to care about first home buyers, the reality was that they preferred to garner the votes of the 5.8 million households who sought policies that would increase house values.”
ZONK
So Saul ‘The Avenger’ Eslake isn’t pulling any punches. And he’s laying the so-called ‘affordability crisis’ (which I’m not completely buying mind you) squarely at the feet of the government.
He’s reminding us that prices are set by the interplay between supply and demand. The government’s done a lot of tinkering with demand, but has really been dragging the chain with supply.
Why?
My guess is because supply is about the new release of land and planning regulations. It’s the government responsibility. And so if there’s a problem with supply, then the government’s got to deal with it.
Forget it.
There’s at least 27 forms you need to fill out first.
And that’s why the housing debate’s gone nowhere for so long. The government doesn’t want to admit that it might need to do something about it. They keep hoping there’s some solution out there, in the market.
You can imagine how the conversation went, can’t you.
NHSC: We’ve found out what’s causing the constipation of new supply and the inflated prices.
Govt: Great. What is it?
NHSC: It’s you.
Govt: You’re disbanded.
And you could see how The Avenger, who probably put a lot of his (highly valuable) personal time into the NHSC, might end up with an axe to grind.
(I heard the first draft of the submission was called ‘50 Years of being dip-shits’, but it didn’t make it past the editors.)
And Eslake points out how hypocritical it is to cry crocodile tears over affordability, when the only policies you put in place are designed to pump up prices.
Like the First Home Owner Grants (FHOG). As Eslake notes, governments have spent a crap-can of money on FHOGs, with most of it coming in the past ten years or so. This chart tracks FHOG spending over the last 50 years, in 2010-11 prices. The splurge in recent years really jumps out at you.
But as he rightly argues, if you pump demand without doing anything for supply, then you’re just going to get rising prices. Maybe there’s some rebalancing between investors and first home buyers, but the price rises are inevitable.
And so from an affordability perspective (and remember FHOGs are always sold on ‘helping out the struggling first home buyers’), it’s a total failure.
I agree with him up to here, but I wouldn’t say that the policy was a total failure. Because FHOGs were never about first home buyers.
They weren’t even about housing.
FHOGs were about fire-proofing the economy. They came at a time when the economy was looking shaky – like during the GFC when Rudd was at the helm, or after the dot-com crash under Howard.
They were designed to preserve household wealth and thereby protect consumption expenditure. They were designed to stop the economy going to the wall.
And for better or worse, I think they did that.
And that’s why housing policy is now an essential part of the macro-policy tool kit. And if affordability’s an issue, well, it’s not really our problem. As long as prices are up and consumers are spending, there’s nothing here to worry about.
And as much as this is going to frustrate Saul ‘The Avenger’ Eslake, that’s exactly why this inquiry’s going nowhere.
Time on the dunny well spent.
Michelle says
Love your humour, love your writing, you totally rock!! How do you always get it so right!!!
Andrew says
The Housing Market is just like the banking sector- too big to fail and put simply, the government will always protect it as to not do so is political suicide. They have 5 levers they can pull to ensure the housing prices will always trickle upwards in a consistent manner
1. Interest rates, and as a result – Forex rates
2. Supply through planning
3. Grants and Stimulus to buyers
4. Accelerate Population growth through immigration
And the failsafe lever of last resort
5. Increase foreign investment in domestic housing.
In the end it’s the Last two which will always protect the Australian Housing Market. There are millions of Indian, Chinese, Malay and Indonesian US dollar millionaires queuing to drop anchor in our cities. They can afford to buy prime real estate as both an option on thier future residency and a relatively secure store of wealth, all that’s needed to access this demand is the stoke of a politicians pen. It doesn’t even need new legislation! I’m told that in China, there are more Millionaires than there are Australians in Australia!
If you were seriously wealthy, what and where would you buy for your elderly parents or your kids? “Follow the the bouncing ball” Health Care, Public Transport, Schools and Universities
Marc montano says
Well said, well researched & well thought out. I agree entirely.
Peter says
thats India too.. has been so for decades
John Unconnected 2 XPM says
I am sure the greatest problem causing the lack of & cost of housing is in Local Government.The explosion in the number of Bureaucrats & Planners in LG is incredible. These grew out of Gough’s Land & Environment Act in the 70’s & have grown exponentially since.
Before this I remember there being one planner for Sydney, one for Northumberland & I think 2 for the rest of NSW. Now there are thousands all trying to justify their existance by ‘regulating’ (ie impeding) development & progress. MOST PEOPLE JUST GIVE UP FRUSTRATED! Less land becomes available & fewer, dwellings result. Hence prices rise!
Peter says
The toxic culture in government ingrained for many years is the issue. What should take a month or so, shorter it they would collaborate with the public, developers, real estate investors, take sometimes years.
this is a culture of why cant we do this, rather than how we can do this
its a culture of I don’t care, its not my life, its yours and your risk .
Sometimes, its subtle, and because its a cultural thing, pervasive and all constricting in local governments and their planning professionals, state and federal government departments
They have the power, but no incentive at all to get things done. they wont take a risk, Ill cover my ass every time.
If you assess what unnecessary costs (time , holding costs, fees) are added to new developments, you would be ashamed and amazed.
The Chinese build a high rise building every few weeks, we don’t get to finish the application in this time. Forget the argument that they don’t build them as well.. BS
America is a can do country, or at least historically . They value successful people who get off their bums and take a risk
Our country is being strangled by Banks, Unions, Local and State Government, Valuers (who are stooges for the banks). The banks are protected by government , with limited competition who gouge the community, business alike. That’s why they are so profitable.. most profitable in the world in one of the smallest markets.
We are a social welfare state, that values the hand out, rewards low productivity and awash with regulation (some necessary and much of it unnecessary)
why would anyone want to try anything here!. we export all raw materials and value add nothing. if we took Indonesia’s lead and only allowed value added materials, our GDP , employment would rocket, so would immigration .. the key to survival.
when it runs out, too late well be back living on the backs of our farmers.. whose rate of return on their farms is pitiful. no business person would accept this level of profitability, with the risks in involved
time to wake up Australia! its a con job
PS I am a successful educated professional executive with plenty of international experience, and frankly pissed off that you people.(. yes… you people…..). are ruining my country (that fact that it is yours too, doesn’t help)
I have plenty of facts and personal experience to support the above opinion BTW
JJ says
Peter, I totally agree with everything you have said, there is too much red tape here for any normal hard working person to get ahead, and all the taxes and fees kill you, in the end what are we working for? Things have got to change or Australia will turn into a communist country, just work for your daily feed! It disgusts me what governments have done here and now all our industries are packing up and going offshore.
Mark says
Saul Eslake is currently the Chief Economist for Bank of America Merill Lynch
Saul says
Thanks Saul!
Graeme says
All of the above is absolutely correct…
BUT it all comes back to one thing… wages!
We cant add value to our resources because the cost of wages would make the product uncompetitive compared to what can be produced by the rest of the world.
We cant release large areas of land to be developed into houses to catch up with the demand and eventually bring down prices because of infrastructure. We lack it, and we cant do the infrastructure because of wages. Most infrastructure that is being put in place around Aust. is being forced and subsidised either directly or indirectly by Tax from the mining industry.
The problem is the Unions have been too successful at getting us out of the coal mines. We needed them then, but now, like cane toads that were needed to clear up the cane beetle and then became a pest so have our Unions become the cane toad of modernised society.
Nature eventually rebalances things… the cane toads will eat everything in their path until the food is all gone and then they will starve until the numbers rebalance. Ice caps melt to balance global warming. At the end of the day it is a sealed system and will rebalance. Whether we survive, that is yet to be seen.
Capitalism is much the same in that it eventually rebalances. Unions push up wages, so big business (Qantas, GM to name just 2 recent ones) move off shore to where wages are more competitive. Then Unions move into those countries and eventually the wages rise in that country too. Then to attract business back someone breaks rank and tells the unions where to go. They get back the business they lost and the cycle starts again.
Back to the matter of affordable housing… The problem is no one wants to supply it.
Every state has it’s Housing Commission houses and the tenants on those houses trash them and don’t pay the rent. There is a scheme NRAS (National Rental Affordability Scheme) designed to provide affordable housing. It has been operating for about 5 or 6 years now. The tenants get a 20% discount and the landlord get $10,000pa for 10 years from the Govt. Even though the tenants are getting a great deal on the rent (better than they would get elsewhere) they don’t pay the rent and they trash the houses.
NRAS has also served to push up house prices. The Builders and Property Marketers, like any normal greedy human, see a great opportunity and want some of that $100,000 the investor is going to get, so up go the prices.
There is unfortunately a joke that would be funny if it wasn’t true “The peasants are revolting… yes they are!” Unfortunately the people that need the most help, don’t appreciate it when they get it and hence no one wants to provide affordable housing.
It’s a shame but that is what we will have to endure for some time yet.
peter says
yes , Australian wages are too high , and we will see all of our opportunities go offshore but still but we have a great untapped source of low wages.. through GUEST WORKERS IE temporary immigration from low income countries some with skills others not..
but pay them double what they get now, and it will still be 10% of union wages.
Guest workers are used all over the world, to assist in each countries development, why not here.
they would do the work that Aussie unionists would not do
using guest workers would have saved Holden.. unions stopped this cold
so what.. you aren’t taking jobs away from Australians, you are providing higher paid jobs for skilled Australians, and better pay for the others
where does it say this is not a win win for all except union bosses mentally tied to a mentality that existed in the 50s
Its all about power and control. some conscious and some unconscious., some hidden and others out in the open
I would like to see a strong vigorous entrepreneurial Australia, where the people who take the risks and make the effort are rewarded. this is not the case right now
Bank and Union bosses are CYA people, no risks, back handers for all. we just don’t know how to change this..
the professions (lawyers, accountants) are all beholding to the business people and politicians, its where they get their fees
So we have a controlling class here in Australia, and firmly in control of all levers of power.. we have a lot of people who feel they have no control, so they do not bother any more… its not too bad, we have footy, cricket, tennis and the beaches and great weather.
frankly I don’t how to change any of this, but it is of great concern where Australia will be in 50 years
joe petranov says
WHAM
Higher prices means more stamp duty for
GOVT COFFERS …take that home buyers
Kathy says
Ah yes, good old stamp duty. A tax that exists nowhere else in the world except Australia and one of many that was supposed to be reduced or abolished with the introduction of GST.
If we want Australia to progress instead of wallowing where it is now with a very real chance that we will regress, we should start by rethinking the constitution and getting rid of state governments.
Debbie Ryan says
Why don’t we increase immigration for major infrastructure programs. Pay prospective immigrants 2/3 of an Australian base wage for 2 – 3 years then they are entitled to full citizenship and conditions. Projects like the Snowy river scheme could be the example.
Increased infrastructure allows for increased development. Immigrants create a need for the development. Immigrants learn new skills and make a contribution to their new country.
Australia is built on hard work and hard work or contributing to your new country is good for self esteem. Allowing immigration without an ability to earn money and encouraging idle behaviour will only lead to crime. What alternatives are here for desperate people?
Peter says
Too generous .. Why do you need to give them citizenship ?
They would love to get a good wage and sent it home to feed their families
Debbie Ryan says
We want the immigrants to stay because we need to create demand for future developments. They will have learnt skills and have a better understanding of Australia and can therefore
contribute further to our country. I think an increased population will also help our national security. Overpopulated countries will be looking at our space.
Peter says
I agree with you . but i am talking about a different type of immigration, a temporary immigrationm one where they provide low cost labour to make Australia competitive , guest workers come here to earn relatively good money compared to what they can earn at home. send money home, looks after families, but eventually they go home.
the immigration you are referring to is skilled migration, where they bring valuable skills and attitudes to this country. we need high value opportunities and jobs for Australians and the skilled immigration we want. we need to value add our minerals and farm products .. the current situation is a national disgrace
Its a matter of national survival in the long term,
Bruce says
Graeme: don’t tar everyone with the same brush, most housing tenants are good people, it is the 1% at the bottom like the 1% at the top that are the scum of the earth, but for different reasons.
Peter: wages here are only high here in relation to the third world, the real average wage, not the official average wage, is low compared to the cost of living, and guest workers under the law get paid the same as Aussie workers, not one fifth, if they don’t it is because of sum bag bosses.
I would like to see the people who tell us to work harder and longer for little more money if any because they can’t afford to pay us more, to take a 10% pay cut, I am sure that a million or 3 less in there bank won’t put them on struggle street.
Peter says
The law is wrong. We benefit and the guest workers benefit. The cou try benefits
Peter says
The government is currently running a Senate Inquiry into Affordable Housing.
Simple answer …….. cut the red-tape and bureaucratic bullshit and open up more land in rural Australia. Affordable,clean,secure and very liveable.
Melbourne is becoming more unliveable by the day. Can you imagine 6-7 million people living in Melbourne??? Better not to …….just start thinking of an exit strategy now!!!!!!!!!!!
Fresh air,freedom and amazing lifestyle options.
Rural Victoria…. abreath of fresh air.
Cheers,
Peter
Debbie Ryan says
if you start infrastructure in rural areas and immigrants live there whilst working there is a reasonable chance that a percentage may stay.
peter says
we dont want guest workers too stay, we want highly skilled people to stay.
i know that sounds uncharitable, but its a tough world out there,its not going to get better, we need a highly skilled, educated workforce to compete, WE WILL NOT COMPETE against mass populations of Asia etc
your kids and and your grandkids depend on us
we can help no one in the world being a poor country, and Keatings Banana republic is soon upon us
Look at Japan, with NO RESOURCES, LOOK AT SINGAPORE, NO LAND NO RESOURCES, Hong Kong (no resources, no land no democracy).. how are the thriving.. smart people
We need to be smarter , and quickly
Melanie says
Nice write up John! There are SO many facets & opinions to this debate!…
I guess I should also say, Happy Australia Day!
And then remember that in the end, we are still actually part of Asia. 😀
I like to stir the pot, so I will also say that as much as our Old Guard pollies & local rednecks would like to ensure that this stays the (white, rich, straight, Christian) Australia we have known & promoted for decades, this will not be the case in the decades to come. Sorry if that comes as a surprise!
It will be interesting to watch the changes & growth in housing market cycles & business in general over the coming years, all of which are tied together down the chain of “affordability”.
Most of this will come from the much touted “foreign investment”, or more to the point, outright ownership of business & property in Australia, which also creates further supply & demand markets. Unchecked for decades & supported by successive government policies, allowing Anyone cashed-up from Anywhere to buy Whatever & Wherever they please here!
WHO actually IS on first base & do we care if they own it?!..)
Most (thinking) developed countries have tighter restrictions on how much of “Whatever” can be purchased by foreign entities & have even tighter registers on Who-owns-What. Nope – not us good ol’ Aussies!!
Come on in, people – we’ll sell out our businesses, properties, development land, farms & raw resources to you DIRT CHEAP. Then we’ll sit on our hands & let your foreign owned companies dictate how things will roll in this country, while you ship all your “profits” home to the Motherland tax-free, leaving the good ol’ Aussies & their ever-shrinking tax-base to pick up the tab for you!
With the added bonus of the last 60 years of backwards-thinking on taxation from all sides of government, we now have people bitching & whining about high-wages & lower productivity apparently stifling the country. To put that into a new perspective: Yes, I believe that for what our politicians are paid in our top-heavy, bloated political system, I certainly feel I don’t get a lot of bang for my buck & their overall productivity is highly suspect & questionable at best!… 😀
I’m all for entrepreneurs & the “free market” going hard-core at whatever they do best, but at the end of the day, when talking about affordability, someone has to pay the bills & build infrastructure to keep this Monopoly game going!
We could all go back to 1950’s wages, as long as our costs of living were also at 1950’s levels. But somehow that won’t wash. So instead of crying about unions & wages, then getting cheap labour in from overseas as a solution, perhaps we should try getting our own government to GROW A SET & tackle the base of the taxation problem first…
In particular, if our foreign friends & masters were paying their fair share, this frees up some extra working capital for everyone down the food chain. A true “affordability” perspective on housing, (plus utilities, business overheads, transport, education, health care, etc) begins with what the people in this country CAN actually afford, to support the current system. With the system remaining as it is into the future, we simply need more & more working people to prop it up & thus create a new cycle of supply & demand chaos, that was never fixed the first time around.
The circle of life – it’s a beautiful thing! 😉
Aussie! Aussie! Aussie!….
Myles says
Interesting reading the above comments. Most people skirt about the real issues with wages being to high,(which have to match housing remember the chicken and egg theory ) affordability of housing & land (as if we have a shortage of it ) Union bashing ( more an era issue I think ) Foreign ownership ( important with some assets I believe ) and the list goes on.
Running a country is like running a business with the shareholders being you and me. Sorry for all you do-gooders and those that think otherwise, just hope that great credit card holds out for you. Everything costs.
And like any business you are either lean and mean with direction or fat and useless with no direction ie domed to failure in the real world.
Yes I am talking about all those government department at all levels. Twenty per cent or more are public servants in this great country. And if you cant see the problem their I think you must be one.
People talk about things having a way of balancing out or correcting themselves. Just one problem these are the same people in control of that great big credit card with the power to lift the limit.
So you see it could be a long time before we see a correction to the problem.
And when pay back day comes and we are bankrupt it could be a long time before we get off the floor especially when the cupboard is bare.
What we need are smart people with balls even just one in the top job would be a start ( I think we might have one now ).
And well that’s taken it out of me so off to do get some retail therapy now were did that card go.
Bruce says
Myles we do not have one at the top, we do not even have one anywhere in Parliament, what we have is what we always get, a Government of the rich, for the rich, by the rich and the gullible.
John Unconnected 2 XPM says
I don’t think it matters much whether we rid ourselves of State governments or local but WE CAN’T AFFORD BOTH & local now seems to do nothing useful! Try to build something or get a pothole fixed or drain cleared if you need proof! Their Libraries & garbage contractors could be run from State capitals & proper Police could look after any really essential dog turd duties that Council Patrol persons now use to justify their existence. The huge salaries their bureacracies are paid are mind bogling & the wasted time & money caused by overzealous use of Development Application laws is unbelieveable. Check out Leichhardt & Lake Macquarie NSW if you know anyone still living there!
krishla naidoo says
Chris,
I cannot agree more with all the above comments. Its a damn disgrace Australia that the average Aussie cannot afford to buy a home in there own country.
Where has the lucky Australia dream gone out the window.
Where are the jobs some one working 7 hours a week is classed as full time . What a lot of bullshit? Let them come clean with the Australian people there are no jobs. Who is fooling who?.
We should create jobs first so people can pay there tax’s big business should pay tax’s. We are highest Tax country in the world why are we paying tax twice . Tax on Wages and tax on food? Retire’s have to work till 70 years the gold post is moving further. How can people plan for there future, when there is no stability in jobs What,s is the future of this country if there parents finding hard to find a job where are the children going to find a jobs.
Gov should release land so people should be able to be support them selves.
In the early day’s people where given land and had to be self sufficient and not relying on Gov hand outs , that worked,In stead of selling everything offshore.
No countries in the world that are selling off all there assets what is here for our children & grandchild nothing.
Gov should go back to the drawing board put there thinking caps on and get this country back on it feet instead of playing the blame game.
RELEASE MORE LAND AND CREATE JOBS………. Everyone want’s to work.
If there is no work the poor is going to take from the rich and crime is on the high wake up Australia and smell the coffee……..
Not rock science’s
Income verse expenses if your income is low expenses are high we are heading for national disaster.
We have an epidemic where people commit a crime and becoming TV star’s
has society lost its values sick.
There is a reason for everything kids are drinking and doing drug’s at a young age why? there is no future for them?
Let stop winching and help save our nation………
Angie says
As usual a brilliant post Jon
One of your best!
Angie