The Senate Inquiry into Housing Affordability has made some bold but toothless recommendations. Some of the thinking is good, some of it is just a bit fuzzy-headed.
The Senate published its Inquiry into Housing Affordability on Saturday. And look, I haven’t read it all (there are 496 pages!) But I did take a look at the Executive Summary (because, why yes, I’m an executive).
Some of it isn’t bad, but the recommendations are Woollies isle of wet lettuce – with suggestions that the government should maybe look at issues a bit more. Do a bit more research, or consultation or whatever.
The good stuff – getting rid of stamp duties and removing supply bottle necks – is spot on, but just isn’t a Federal issue. Talk is cheap.
An agreement to explore shared equity arrangements and to revisit NRAS also has promise, but there’s not much detail yet.
Anyway, I think it might be easier to have a look at what they said, and I’ll offer some thoughts as we go.
Executive Summary
In this report, the committee underscores the importance of affordable, secure and suitable housing as a vital determinant of wellbeing. But, based on the evidence, the committee finds that a significant number of Australians are not enjoying the security and comfort of affordable and appropriate housing—that currently Australia’s housing market is not meeting the needs of all Australians.
Aw, I feel all warm. Like Justin Beiber gave me a kitten.
Sustained growth in median housing costs above the rate of median household income growth in recent decades has made it increasingly difficult for a growing proportion of Australians to afford housing that is safe, secure and appropriate to their needs.
Ok, maybe they’re being lazy, but you can’t compare house prices to income without factoring in changes to the interest rate environment. Houses are worth more relative to incomes, but the interest on loans is a lot less than it used to be, so housing serviceability is about where it always was. If this is your measure of ‘affordability’ then you’ve already missed the point.
Added to the general decline in housing affordability, and indeed compounding the trend, the stock of affordable housing—that is, housing appropriate to the needs of low- to moderate-income households—has failed to keep pace with demand in recent decades.
Really? Where’s the evidence for that? And what does it even mean? If you just asked people if they wanted cheaper housing, who would say no? We all want to pay as little as possible. The question is whether they can. And I haven’t seen any evidence to say that they can’t.
The committee does not believe the issue of housing affordability in Australia is rightly categorised as either a ‘supply-side problem’ or a ‘demand-side problem’. With this in mind, it is clearly evident that supply is currently not keeping pace with demand in the housing market. In this context, policy interventions that add to demand without addressing or at least accounting for supply-side constraints risk inflating house prices and exacerbating affordability problems.
No? Then how should it be categorized? A raw-materials problem? A lack of motivation problem?
But the rest I agree with. You can’t look at demand without looking at supply, and on the supply front Australia is dragging the chain, and the price of housing in Australia reflect this.
Worsening housing affordability is reflected in declining home ownership rates. This decline is troubling for a number of reasons, not least because home ownership can be an important means for people to achieve financial and social wellbeing. Moreover, high rates of home ownership also provide broader economic and social benefits to the community. As such, while the committee believes governments should work to improve affordability outcomes for all types of housing tenure, it considers it appropriate for governments to promote home ownership.
This all seems difficult to argue with, until you remember that homes that aren’t owned by owner-occupiers are owned by investors. So increasing home-ownership means decreasing home-investorship – talk that makes me nervous.
I forget the exact stats. Ownership has fallen from something like 70 to 60% in a generation – actually I think even that’s an overstatement. And it sounds bad, but it must also be true that investorship has gone from 30 – 40% of the population. More people are seeing the power of property investing. Good on ‘em.
But I do agree that governments have a role to play in helping people understand the complexities of the property market. I reckon we get Dymphna Boholt to develop a unit for high-school students. I’m sure she’s not busy…
The committee makes a range of recommendations directed primarily toward improving home purchase affordability. They include state governments phasing out conveyancing stamp duties…
What? Did I hear that right? The government wants to kill stamp duties!?! You beauty!
But then you remember that this is the Federal Government talking, and stamp duties are a state-based tax. And right now, stamp duties are holding up the budgets in NSW and Victoria.
Talk is cheap. I’ll put that in the “believe it when I see it” category.
But wait, there’s more.
…, to be achieved through a transition to more efficient taxes, potentially including land taxation levied on a broader base than is currently the case.
Um, hang on a sec…
…a number of recommendations are made with the intention of ensuring land supply, urban planning and zoning processes have a positive effect on housing affordability.
Again, this is exactly the right idea, get the planners up off their arse, but this is the Feds talking down to States. They’ve got no power here.
There’s a fair bit of waffle after this. They reckon the government should look into negative gearing and the capital gains tax a bit more, without saying what they reckon one way or the other.
The shared-equity proposals are interesting, and I’d like to hear more. And I think there is scope for NRAS 2.0 – one which tightens up the scheme and locks out the rorts.
But all in all, there’s nothing too wild or woolly in any thing I’ve seen. We’re still 18 months out from an election.
My bet is the pollies just hope it all goes away.
How would you tackle housing affordability?
Would you abolish stamp duty?
Michael Franks says
Abolishing stamp duty may mean that properties unfit for habitation would become candidates for renovation as the figures would then work better. Very often the stamp duty costs kill the deal.
Michael Fordyce says
no way the state government will abolish stamps! They were supposed to when they introduced gst, however that never happened and now the greedy fat cats are loving the extra income! Great idea, but total pipe dream.
Pat says
Yes get rid of stamp duty or reduce it to 0.5 or 1% then people can afford to buy plus those who wish to, can renovate for a profit. This will also help unemployment and give people and the community better housing & urban renewal. Capital gains should not apply if you have an investment property you don’t live in and not living in your own place but paying rent. All this would help the gov in many ways. More investors supply housing to people (the gov can’t do it as seen) help the retail market – reno’s, also trades will have more work, plus keep a lid on house prices. It will also get more people into the housing market. Or like my Dad said to me many years ago, to make the first home you buy and live in make the first 100 or 200k tax deductable. Or do all the above this would create a building economy for everyone and give everyone a chance to get into a property market and greatly improve the retail, trades, and get the people of the dole by letting people make money out of doing up there own properties.
It seems since I was a kid the Gov don’t look at ways to improve this sort of thing they just look at the ways to tax people instead of fixing things like- get rid of land tax , stamp duty, etc
Or even let people buy there own home using there super as a deposit that surely is a must, its really our money and to deny people of this should not be legal.
Charles says
Stamp duty isn’t the problem. Negative gearing and cgt concessions are the killers
DC says
stuck record Charles, if you get rid of incentives for the investor , do you think the government will supply more public housing ??? I don’t think so
Charles says
There are no such things in Europe and North America. The market does the job. Abolishing these market distortions is the way to go. Unfortunately the politicians are corruptive. I am not a renter
DC says
I know , you said so last week
Hamish Blair says
In the USA you can claim a deduction for the interest on your mortgage (up to $1m) and the rate of tax on capital gains is only 15%.
Roger says
Suggestion was to remove Stamp Duty (State Tax) but replace with “Land Taxation levied on a broader base”, guessing this would be a Federal Tax, wonder how that income would then be redistributed if it was? Maybe a “fair distribution ??” just like the current GST arrangement isn’t? Would be interesting to see the details on that proposal.
Seems to me the elimination of Stamp Duty on the first home, using a reasonable base price still remains a more meaningful action. For investors, tuff luck, we pay and have to factor that in to the equation, and if that means we leave homes for the FHB’s that are savy enough to see the potential then to me that’s how it should be. For foreign investors make it a higher rate again. At least that way the affordability equation won’t mean that real estate prices just do a step increase in value to soak up what would have been paid in SD.
Fforeggub says
Good article
There is no doubt that State Governments will resist removal of Stamp Duty but everyone should realise the true robbery of this tax
In the table below you will see house prices in Melbourne in the Outer West and Inner East of Melbourne around 1980. You will see the stamp duty payable at that time and the effective salaries earned by the buyers then. The final column shows the Stamp Duty as a percentage of their salaries.
Step forward to 2015 and take the average house prices now with the Stamp Duty payable. Then apply the same percentage of salary as in 1980 and you will see that in the Outer West you should be earning $550,000 and Inner East $1,150,000 for stamp duty to be the same percentage of income. Tell me please has anyone had that level of increase!
This is bracket creep gone mad.
Year Location Price Stamp Duty Salary SD% of Salary
1980 Outer West $30,000 $520 $15,000 3.47%
Inner East $80,000 $1,720 $30,000 5.73%
2015 Outer West $400,000 $19,070 $550,096
Inner East $1,200,000 $66,000 $1,151,162
wade says
The removal of stamp duty will add stamp duty to house prices. I’ve paid very little stamp duty, Why? Simple, I paid very little for the property in the beginning.
How can everyone do that? It’s not simple but it can be done. people move to the cbd – where the jobs are – then the lifestyle follows – coffees in cafes etc.
Give businesses incentives to move to rural areas. People will buy bigger houses on bigger blocks – in turn will create many more jobs during construction phase and maintenance jobs thereafter.
Lifestyles will change, coffees by the pool or garden.
‘Pack your bags! We’re movin to the country’: to stimulate the economy.
Jac says
What is “housing affordability” anyway? Its a subjective topic. I know a couple (hes a CPA, she’s a masters graduate) they have rented all their adult lives and have no intention of signing up for a mortgage. On the other hand another guy I know just bought his first house at the age of 21, used the money all his buddies would have spent on their first car as his deposit and bought a small 2bdr dual oc house in Alton West. Those who want to afford a house, will, those who say they cant may just complain and miss out on the capital gains of such an asset. As for “stamp duty”, I would abolish if I could, but the govt never will.
Simon says
if the Nauru govt. could get it’s hands on money like our stamp duties, they could have kept the lie alive for much longer
To keep people paying crazy money for australian houses, you need to keep about 20,000 people homeless in out capital cities.
Society doesn’t let the rich own all of the water, or air, and drip feed it to the poor, there should be entry level housing available to every person who works, even if it’s just a $2000 double garage with plumbing, if everyone has a place to live, then it’s not immoral to let the rich make whatever money they want at the top end of town
Boris says
Michael, Michael & Pat are correct. First Stamp Duty is only money for old rope for the Govt. What do you get in return for Stamp Duty payment?…Diddly squat!!! I recently had a deal fall through because I had to factor in Mortgage insurance and Stamp Duty took me over my affordability threshold. Why can’t mortgage insurance be paid to the Govt in return for their Mortgage guaranteeinstead of being provided by the banks insurance arm?…Something like MAIB? This is low risk for the Govt and buyers with low affordability would benefit. Pat mentions the use of Super as deposit. Of course this would be the optimal for those scratching for deposit. Property is the most secure investment towards retirment. This is why most people are deperate to buy their first home as they realize that this is the most stable money pot that can be used when they finally retire. The Govt do not want this to happen as they are using your super at the moment to prop up govt expenditure. Govt also do not want self funded retirees as they cant get their hands on those funds anymore. Interesting to investigate how much Stamp Duty members of parliament pay when they buy their countless investment properties….. How much do they contribute to Govt revenue?
Mary says
This is a great article to stimulate thought on different options. I get annoyed when we here everyone taking about housing affordability for first home buyers. It’s not just first home buyers. Many people for many different reasons including having worked hard trying different investment & business ideas to only find themselves back at square one, have problems with housing affordability. How does a young family save $30+k min to get a deposit. We do meet serviceability but have no way on one income to get the deposit & no family who can help. & it’s just not as simple as saying go get a full-time job. Suitable Jobs aren’t easy to find & a basic salary is not enough by the time u cover other expenses created due to 2 parents working such as child care (tho that’s not all).
We’ve been renting for 9 yrs & it does effect your well being & sense of security especially the way renting is managed in this country. We r happier now, tho in a crappier house, because our landlord leaves us be, no 3monthly inspections & jerk landlords who don’t live in the real world. We r great tenants & never miss a payment. But we do want our own place & have made many tough decisions to get us moving toward that goal but it still looks & feels like an impossible dream.