A Ranking Of The Government’s Most Likely New Housing Policies By How Cooked They Are
The outlook is far from desirable.
I’m not going to beat around the bush: house prices in Australia are utterly fucked.
Two of the world’s ten least affordable cities are in Australia — Sydney and Melbourne. The median house price in Sydney is now over $1 million, rents are skyrocketing, and the best advice our government can give is to tell us to move to the country. Thanks Barnaby, you absolute dropkick.
Look, things are not good in the housing space. Particularly for young people, who are facing being locked out of the market for a generation.
So far the government has refused to acknowledge there’s even a problem, let alone propose any serious solutions. But it looks like things could be about to change! The treasurer, Scott Morrison, has been dropping big hints that this year’s federal budget, due in May, could actually feature some new policies to tackle the housing affordability crisis. Some potential policies, like winding back negative gearing, have been kicking around for a while. But there’s a few new ideas that have been floated more recently.
Let’s take a look at what policies the government could be considering and whether they actually make any sense.
Letting Young People Spend Their Superannuation
Okay, so housing is really expensive. We’ve established that. A 10 percent deposit on the median priced house in Sydney will set you back $100,000. But it turns out the average Australian couple in their late thirties have a combined superannuation savings of about $60,000. That’s a good potential head start on a deposit, right?
Even though the idea sounds kinda tempting on the surface it’s actually deeply, deeply cooked. The superannuation system is about ensuring we have enough money saved up to retire on. In an ideal situation — and the one our parent’s generation will experience — people will own a house and have enough super saved up to retire comfortably.
If we trade in that super for a house, we’re robbing Peter to pay Paul. Except we’re Peter, and Paul is some rich boomer with a dozen investment properties, all too happy to milk us dry.
There are other problems too. If everyone started spending their super in the housing market the increased demand could drive up prices even further.
As the ABC’s Michael Janda has also pointed out, just because house prices have increased massively in the past few years, there’s no guarantee they’ll keep going up. There’s a real risk that the market could get trashed down the track, meaning our retirement savings (now tied up in the housing market) would decrease in value.
Cooked rating: Abso-fucking-lutely, tremendously cooked. This is horrible idea. It doesn’t fix the housing crisis, it just gives young people the opportunity to give up the chance of a comfortable retirement. It’s bad, bad policy. So of course the government is reportedly considering it.
“Increasing supply” is just a technical term for “building more houses”. So far it’s the only policy the government has when it comes to housing. Except it doesn’t really count as a policy, because the government isn’t even building the houses — private developers are. And the federal government doesn’t control planning laws — the states do.
So really the “policy” is just Scott Morrison telling people to suck it up and wait for more houses to be built.
On one hand it seems like an intuitive solution. If demand is outstripping supply, leading to increased prices, surely we can fix that by boosting supply? The problem is it isn’t that simple.
As numerous experts have pointed out, we don’t really have a supply problem in Australia. There’s been a boom in construction and houses are still going up in price. And even if state governments did release more land to allow even more construction, there’s no guarantee prices would drop.
Private developers aren’t just going to build more houses to decrease prices out of the goodness of their hearts (if they even have hearts). It would just reduce their own profitability.
Economists have been pointing out that the housing market doesn’t work the same way as say, the market for fruits and vegetables. It’s way more complex, largely due to investors. When prices go up, demand doesn’t drop. In fact, the opposite can happen where investors jump in and try ride that sweet, sweet wave.
“The problem is you can’t apply Year 10 economic theory to a metropolitan housing market,” one economist recently put bluntly, in a savage burn directed at Scott Morrison.
Cooked rating: Highly cooked because it’s dumb policy that hasn’t worked and is also extremely bloody lazy.
Getting The Government To Chip In
Known as the ‘shared equity model’, this concept relies on the government chipping in a bit of cash to help first home buyers in return for owning a stake of their house.
The Victorian government has actually started rolling this out as part of a trial scheme and there are calls for it to go national. If home buyers can save up five percent for a deposit, the government will help finance 25 percent of the total cost. But they’ll own that 25 percent — meaning that when the property is sold, they’ll take a cut.
It could help see a lot of people break into the market for the first time. But it does have risks.
Someone who had previously saved up enough for a $750,00 house could now theoretically buy a $1 million one with the government’s help. By effectively chipping in 25 percent of the cost of a house, the government could end up sending prices even higher.
It will be interesting to look at the outcome of the Victorian trial to see if it actually helped first home buyers, but if the federal government ends up actually spending some cash to improve housing affordability, that’s a good thing.
Cooked rating: Not that cooked!
Ending Negative Gearing And Other Tax Loopholes
Negative gearing is essentially a giant tax loophole for property investors. It costs the government about $5.5 billion in a year, and helps create a situation that makes property a very lucrative investment, crowding out first home buyers.
There’s another tax loophole called the capital gains tax discount that massively benefits property investors. It costs the government about $6 billion a year. Both of these polices disproportionately benefit the top 10 percent of income earners and they’ve been blamed for driving up prices.
Only a handful of countries allow negative gearing, because it’s a really dumb policy. It’s basically a hand-out to property investors (which doesn’t really make sense in an environment where they’re crowding out people trying to buy their first home).
Winding back those tax concessions would go a long way to evening the playing field.
Cooked rating: This idea is the total opposite of cooked. It is un-cooked. It is raw. It is a very good idea and it should be implemented immediately. The government, of course, has ruled out any changes.
So there you go. A fully cooked to un-cooked analysis of the possible housing affordability measures the government could roll out. The main takeaway? The government has already canned the best and most sensible idea, and looks set to introduce the worst one.
How good is politics?
Feature image via Wikicommons/Donaldytong.