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,
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.
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.”
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.
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.
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.