Scott Morrison Just Gave A Huge Speech On Housing And It Made No Sense
The treasurer either doesn't understand what he's talking about or he's deliberately contradicting himself.
The closer we’ve been getting to the federal budget in May, the more hints the government has been dropping about its long-awaited policies to help solve the housing affordability crisis.
Today we were blessed with two such hints. The first is courtesy of a report in The Australian suggesting the government is seriously considering a plan to allow first-home buyers access to their superannuation to help buy a house. As we’ve discussed previously, this is an absolutely terrible idea that will likely drive prices up and destroy the retirement savings of an entire generation.
The second little policy tease comes via a lengthy, 4,500-word speech the Treasurer, Scott Morrison, delivered to the Australian Housing and Urban Research Institute in Melbourne today. The speech covers lots of aspects of the current situation, including how expensive houses are in Sydney and Melbourne, the huge number of property investors in the market and the fact people are renting for far longer than they used too.
Here’s the full video if you would like to ruin an hour of your life:
The big problem is it doesn’t make sense.
Look, At Least He Understands The Problem. Kind Of.
The first part of Morrison’s speech is actually not bad. He lists a few economic goals that Australians aspire towards including having a job that allows them to “support and care for their families” and own their own home. Yep, sounds about right.
Morrison goes on to describe home ownership as a “positive for the Australian economy” and society. He then lists a whole bunch of depressing statistics including the fact that home ownership among 25-34 year olds has declined by 10 percent over the past decade and the amount of money that age group is spending on mortgage repayments has increased by more than 50 percent.
Things are not good for young people trying to crack into the housing market, according to Morrison. Which is absolutely spot on. But where is the crucial bit about what they, the government, are doing to help fix this?
Not Everyone Can Be A Winner
There’s one line from Morrison’s speech that gives the game away:
“More than two thirds of Australians who live in owner-occupied homes would agree that reducing the value of their home is not a good plan, and it is not the government’s plan.”
On the surface it seems to make sense. Why would the government introduce policies to reduce the value of someone’s house? I’ll give you one reason: to improve affordability. Prices don’t actually need to drop to improve affordability. The rate of growth could just slow down enough to allow wages to catch up.
The problem is housing price growth has been way, way faster than wage growth in the past few years. Houses in Sydney now cost 12 times the median income. Back in the 1970s, it was only four times the median income.
Unless wages increase massively (wage growth is at record lows by the way) the only way property becomes more affordable is if house prices either stop growing or drop. The fact that Morrison explicitly says he doesn’t want that to happen indicates he isn’t serious about improving affordability.
Something’s gotta give. We can’t keep house prices at historic highs and improve affordability. The two things are incompatible, especially when it looks like incomes aren’t about to increase anytime soon.
The other problem with this bit of Morrison’s speech is that he’s using owner-occupiers as a scapegoat for property investors. Nearly half of all home loans are being granted to property investors. That’s a huge amount of demand coming from people looking to make an easy buck, not looking to put a roof over their heads.
The fact that Morrison used this speech to again rule out changes to negative gearing — a policy that exists solely to benefit property investors — is further proof that they’re the demographic he really cares about.
Renters Don’t Want To Rent Forever
Morrison spends most of the speech talking about the predicament faced by renters. Here’s how he defines the problem:
“Research by CHOICE, the National Association of Tenants’ Organisations and National Shelter, reports that just over half of renters say they rent because they can’t afford to buy their own property.
“Because of this, they are staying in the rental market for longer — a dynamic that puts upward pressure on rental prices and availability and even more pressure on lower-income households, increasing the need for affordable housing.
“[A 2014 study] showed a marked lift in renters with higher incomes between 2006 and 2011, supporting the observation that first-home buyers were increasingly staying in the private rental market for longer.”
This makes sense. People are renting for longer because the housing market is off the charts. The obvious solution is to make it easier for people to buy a house. But as we’ve discovered above, that’s definitely not what the federal government is keen on.
Morrison goes on to explain why having people rent (when they should owning) is a problem:
“Increasing numbers of higher income earners privately renting has the obvious effect of lowering availability of affordable rental stock to those on low incomes.
“The AHURI research calculated that the shortage of affordable and available dwellings for households on the lowest 20 percent of incomes, which deducts affordable dwellings occupied by those on higher incomes — the crowd-out factor — was 271,000 dwellings in 2011, up from 211,000 in 2006.”
So we’ve got people on higher incomes renting, when they should be in the housing market, crowding out those on lower incomes. And the reason those higher income renters can’t get a house is because property investors are driving up prices.
What’s Morrison’s answer? To defend property investors!
“If mum and dad investors were not part of our private rental market, there would be fewer rental properties available, meaning higher rents, further crowding out of those on lower incomes and even greater pressure on already overstressed community and social housing resources.”
This makes no sense! If, for example, we abolished negative gearing and pushed property investors out of the market that wouldn’t make houses disappear. A property investor doesn’t burn down a house they can no longer afford it. They sell it.
Who would they sell it too? Owner-occupiers!!! All those renters who shouldn’t be renting could end up owning property instead. In just a few lines Morrison has managed to contradict the whole first half of his speech.
This idea that society needs property investors because they provide a public service in the form of making houses available for rent is absolute horseshit. Firstly, there’s no evidence that harming investors by cracking down on negative gearing increases rent.
And more importantly: as Morrison himself argued, there are too many people renting at the moment who should be buying property. But they can’t because investors have pushed the price too high. Property investors aren’t doing anyone but themselves a favour, and pretending like they are by calling them “mum and dad investors” is spurious rubbish.
The treasurer either doesn’t understand what he’s talking about or he’s deliberately contradicting himself for reasons that aren’t clear. Either option is very bleak.
Osman Faruqi is a Junkee’s News and Politics Editor. You can follow him on Twitter at @oz_f.