By RH
Equitable reform within the Australian housing market can never be achieved without a detailed understanding of the various market problems and a broad knowledge of property development while setting aside political ideology. Serious intent is required by placing all elements of the housing market on the table for analysis and revaluation. Full government co-operation is essential in order to achieve affordable housing opportunities for a large portion of Australia’s population.
The housing market is in fact divided into a number of independent specialised markets each having a unique interrelationship that cannot be ignored. The methodologies for land acquisition, planning, design and construction vary considerably depending upon the intent of land acquisition and purpose of development.
There should be no illusion that housing affordability in Australia’s large east coast cities has become a critical issue. Housing cost is forecast to increase a further 4 to 6 per cent during 2017. This is of lesser concern to those who are financially stable and participating in the Primary Market but of serious concern for the younger generations and low-income earners in Secondary Markets where they see little possibility of ever owning their own home. A number of well-respected economists have reported on the seriousness of this problem that has been allowed to grow and smoulder. Housing affordability has been of concern to many Australians extending from a period prior to the 2000 Sydney Olympics.
I clearly remember Prime Minister John Howard being interviewed by a reporter around this period. The reporter asked what the government intended to do about the rising cost of housing in Sydney. Howard’s response began with his little sardonic laugh ‘Herr, herr, I’ve never heard anybody complain about the value of their house increasing.’ Is it possible that the prime minister failed to understand the importance and implications of this question or did he consider that lower income families were not suitable householders? Whatever the prime minister’s view, very little appears to have changed except for the booming price of housing.
Former federal Treasurer Joe Hockey, when confronted with housing affordability, advised that if you could not afford a house then you should go find a better paying job and suggested also the possibility of starting your own business. Current Treasurer Scott Morrison (apparently aware only of a Primary Market) considered that although ‘… housing is expensive and increasingly unaffordable’ this did not mean that it was over-valued (SMH, October 24, 2016). The Treasurer’s approach avoids reforms but looks to the states for expanding land availability, simplification of planning regulations and, possibly, some concessions thrown in – typically market self-adjustment ideology welcomed by developers and agents.
Nevertheless over the last twenty-four months two parliamentary enquiries have been conducted into Housing Ownership. The first commissioned by Joe Hockey in 2015 and chaired by Liberal MP John Alexander was instructed to report on potential reforms to the housing market and had received for assistance a thirty-page RBA report prepared by Dr Stephen Koukoulas. This enquiry was terminated and although the former committee chairman Alexander requested that the government reconvene the enquiry so it could ‘address the imbalances in the market between investors and owner occupiers’ the request was rejected. A second parliamentary enquiry chaired by Liberal MP David Coleman was established following the April, 2016 federal election and handed down its report on home ownership on 16th December 2016. The committee concluded that there was no ‘structural problem’ with housing affordability and failed to make any recommendations to the government for reform. lt did however suggest that the housing market was weak and that ‘… supply should be boosted in appropriate markets.’ (SMH, December 17, 2016). lt is somewhat difficult to accept that by adding a burst of new land to an already overheated housing market the cost of housing will be reduced – something like throwing shovels of coal into the engine of a steaming train.
lt is important to understand exactly what is going on here. The federal coalition government recognizes housing (all categories) as private industry which functions under the ‘law’ of supply and demand and must be left to private enterprise free of government interference. Under this ‘law’ the government ideology believes that if housing costs become excessive due to some abnormality in the market (such as insufficient land supply or increased foreign investment for example) then this problem will eventually balance out equitably by the market forces of supply and demand. The provision of government assistance therefore to the young, mid/low income earners, those with minor disabilities and the elderly, is considered undesirable government interference in private enterprise. This ideology is even more deeply entrenched in a government that has shown little enthusiasm in addressing growing inequity.
There are however serious fundamental flaws in this government approach. Firstly, persons on medium to high incomes who are financially stable have no requirement for government assistance. They are in control of their own plans and can manage their own financial arrangements to purchase, sell and repurchase appropriate property in the Primary Market. The stark irony however is that these are the parties,to which the government (believing in the free market of supply and demand) has provided generous property tax concessions including negative gearing which, in reality, is a wealth creation support system. These concessions amount to a stimulus package applying to the reasonably well off in the community with sufficient financial means to invest – to become minor property developers. This stimulus package creates strong demand for older, cheaper housing that can be used to create personal profit. The renovations or redevelopments undertaken by these ‘developers’ are (and quite correctly so) directed to attract the most lucrative market available which is unlikely to be low-income families who receive no tax concessions for investing in housing.
Purchasers seeking houses in expensive suburbs close to major business centres require no direct government assistance and enjoy the opportunities available in the Primary Market. lt is very unlikely that boosting land supply will greatly affect this entrenched market. lt is the Secondary Market in the outer suburban areas that may benefit from boosting carefully planned land supply. But unless the existing problems are thoroughly understood, and new releases planned and properly managed to support lower income purchasers the ‘heat’ from the Primary Market will flow on limiting any real benefits.
Purchasers are entitled to expect that politicians would understand that the highly inflated Australian housing markets, carrying over 1.4 trillion dollar of household debt, requires cooling by eliminating excessive stimulus through investors, low bank interest and tax incentives that force out genuine home buyers. The Australian housing bubble has required urgent attention for at least a decade but fortunately the government now appears to be taking the problem more seriously. If the problem is ignored further and ideology controls decisions then the ultimate result could be a devastating market correction or recession resulting in total disaster for millions of trusting Australians.
Secondly, there exists a serious divide between Primary and Secondary Markets although requirements here seamlessly merge under various circumstances depending upon location and the financial capacity of the parties. The category described as Secondary Markets is used to include several important independent sub-markets each requiring special consideration and support if housing equity is to be achieved. The first in this category (SM1) is housing for younger adults who have not obtained full financial stability and low-income families. This category is followed by SM2 which includes independent older couples or singles and adults with manageable disabilities many of which seek to downsize thereby releasing their larger properties onto the market but wish to remain private property owners. These groups may merge but SM2 has much to offer the Primary Market given government support through innovative land planning and zoning.
Thirdly, there exists a market for the elderly, very old and the infirmed where special facilities and care are essential. This market is supported by various well known companies and institutions offering some excellent opportunities but almost all require the surrender of property ownership and this market is not under consideration here.
lt is the responsibility of a democratically elected government to protect the vulnerable, poor, the old and those with disabilities. The financially secure do not require the same support and protection from government as the weak and if government is unable to meet this responsibility then its core values and very existence must be questioned. lt is through secure home ownership that families become stable, sound education is made possible for children and a base is developed upon which families may invest and become prosperous; they develop capacity to participate. To many in this country this is understood as a core Australian value yet over 2.5 million live below the poverty line and of these 24 per cent are children. This base core of Australians requires special assistance and must not be forced into serfdom.
lt is in the Secondary Markets SM1 that innovative government support is essential. These individuals and families may never find it possible to participate in the Primary Market no matter what concessions the government may offer. There are only two possibilities; one is that housing prices will collapse due to inflated imbalance or as a result of serious recession. The second is that government will investigate the existing housing problems thoroughly and take responsibility for the Secondary Market through innovative planning and special purpose zoning for SM1 and SM2 housing spread throughout city suburbs. With this zoning in place the Primary Market can be left to balance out under market forces and various government initiatives.
A percentage of the SM1 young adults and low-income families will be forced to rent due to financial circumstances but can be encouraged to save and in due course apply as a purchaser providing they are registered in a government development plan that provides financial incentives and controls zoning and property acquisition for SM1 residential housing. This proposal is not intended as a revamped Housing Commission but a private professional management service overseen by state government that provides the zoning, manages design, construction, sale (and resale) of specific purpose accommodation units.
In a nutshell, young workers studying and developing their careers require inexpensive, compact but well designed, modern accommodation located in a variety of suburban areas reasonably convenient to transport and/or their centres of employment. The situation is similar for low-income families requiring simple, well designed and affordable accommodation where they can grow and stabilize without struggling to survive. As the young singles or families become financially stable they can then move on (possibly into the Primary Market) selling to another SMl purchaser. There can never be any benefit to Australia in having young adults and families struggling to survive.
Modern planning and design has been seriously overlooked and old-style housing and land subdivision must be brought into the twenty-first century and specifically to satisfy the existing Australian environment. Groundbreaking opportunities exist for housing to be mass produced very economically using new technologies in prefab and standardised modular units that can be integrated into almost endless configurations and layouts by good architects resulting in outstanding modern designs. These modern concepts produce quality housing that would satisfy most Australians in both design and economy but the modular units must be mass produced. These projects, once initiated, can be replicated cheaply and without limit by private enterprise under selected tender. This brings us to planning, zoning and management – no increase in land supply or concessions can provide serious, long-term support to the Secondary Market unless government takes the initiative and responsibility for planning and zoning for SM1 housing. The objective is to supply convenient, simple but well designed, budget accommodation and the opportunity is affordable, quality housing. The alternative is the Primary Market increasingly unaffordable for SM1 purchasers.
When we look at Secondary Markets SM2 purchasers which includes older downsizing couples or singles and other adults with manageable disabilities the approach is similar to SM1 but requires very selective land acquisition close to town or city centres with easy access to transport, large shopping centres and entertainment. Most of the clients would be financially stable and requiring simple accommodation of good standard architect design with provision for aging and/or disability requirements but of restricted space limiting the extent of house and garden work.
This is not a proposal for institutionalized retirement villages. lt is a requirement of stable adults requiring property ownership and privacy. This may appear an unlikely market until it is realized that now close to 15 per cent of the population is over the age of 60 years and the numbers are increasing rapidly. These aging citizens and those with manageable disabilities, in many cases, find the management of their large houses extremely stressful and seek to downgrade to comfortable accommodation that relieves them of pressure but find the planning, search and management of this transition within the Primary Market result is extensive delay in older good quality housing stock arriving on the Primary Market thereby further increasing housing demand and higher costs.
The SM2 market would be of valuable support in balancing the Primary Market in inner city suburbs through earlier introduction of older quality properties but could never prove successful without full government support through town planning and zoning. Development planning, architectural design, construction and management of the projects would be private enterprise.
The housing proposal described above seeks to introduce twenty first century planning into an old problem damaging Australians and their future. Special purpose zoning is introduced by government and Primary and Secondary Markets become totally independent resulting in modern, affordable housing and a market balancing incentive. SM1 and SM2 housing may be purchased or sold at any time by qualifying parties. The bubble in the Primary Market may be managed by government eliminating investment incentives and stimulus packages or by allowing balancing through market forces.
The major problem in achieving equality in the Australian housing markets is the recalcitrant nature of government which failed to notice that the king was, in fact, unclothed when it presented its December 2016 report on housing affordability. Without thorough, ideology free, analysis of these markets followed by innovative planning and full government support for the tormented Australians struggling for housing security it will be unlikely to ever achieve true equality in the Australian housing markets.
[textblock style=”7″]
Like what we do at The AIMN?
You’ll like it even more knowing that your donation will help us to keep up the good fight.
Chuck in a few bucks and see just how far it goes!
Your contribution to help with the running costs of this site will be gratefully accepted.
You can donate through PayPal or credit card via the button below, or donate via bank transfer: BSB: 062500; A/c no: 10495969
[/textblock]
Answer YES. Though the gates will be shut after the bull has bolted.Too much cash being made to shut this ponzi bonanza down at the moment
We watched a very naive and wet between the ears Michael Potter from The Centre for Independent Studies being interviewed on the Project last night suggesting young ones should get into their super to buy their first home. Absolutely pathetic person commenting on something he knows very little about?
Sam, according to the Centre for Independent Studies, Mr Potter is an expert on everything.
“Expertise: taxation, superannuation, social security and welfare, workplace relations, competition policy, infrastructure investment and regulation, general business regulation, economic inequality.”
X being the unknown, spurt being a drip under pressure
He actually looked liked he was going to have a Nervous breakdown after Waleed Aly stated some obvious facts to him. I don’t think he gets away from his computer very much.
The simple answer to your initial question is “Yes”.
Until such time as the government addresses negative gearing and CGT concessions, there will be no alleviation of the problem.
With regard to the $1.4 trillion household debt, there was a recent article by Ian Verrender.
“Right now, our banks have more than $1.5 trillion in outstanding home loans on their books. More than one third of that total, $543 billion, has been lent to investors.”
His article points out an historical fact.
“The reason, they’ll explain, is that for a significant fall or even a correction to take place, there needs to be a trigger — some cataclysmic event that would cause a spike in unemployment and a big uptick in forced sales.”
http://www.abc.net.au/news/2017-04-10/debt-distribution-poses-new-threat-to-housing-market/8429578
Whilst he cites the run-up to the GFC and the banks profligacy in their lending practices, there is a further historical precedent in the ‘recession we had to have’. In both instances, the banks were reckless, the government and regulators were wilfully ignorant. Who picked up the tab? The unemployed, the newly homeless and the taxpayer, through the ‘bank guarantee’ mechanism.
What makes this more urgent is the structure of Australian debt. With regard to the housing market, we have an additional problem in that 1/3rd of current mortgagee’s have insufficient ‘buffers’ in their mortgage, ie any interest rate rise will render their mortgage at risk. We have economists predicting a 1 in 3 chance of recession in the next twelve months. We have a growing unemployment and underemployment problem, exacerbated by casualization of work environments and non-existent wages growth.
Recent history demonstrates that banks will not act. It is better for their balance sheets to have debt on the ledger (which is an asset), rather than call in the debt and have to show provision for ‘bad’ or ‘doubtful’ debt (which is a liability). Historically, the banks are better off if the ‘house of cards’ crumbles. They will resort to the ‘too big to fail’ argument and take the government guarantee, with the usual disingenuous apology.
If, and it’s a big if, we had a government that was competent, they would be urgently planning a ‘soft’ landing.
Grandfather all non-housing negative gearing, to be phased out over a six or twelve month period.
Grandfather all housing related negative gearing over a five year period. Ie, in the first year, cap the negative gearing entitlement to an amount not exceeding the ‘average’ current negative gearing claim amount and reduce it by 20% per annum thereafter. This should encourage those ‘over extended’ to liquidate gradually. Some return to ‘taxation equity’ would be an added benefit.
With regard to the 50% CGT concession, it should also be grandfathered over a five year period. Whether it be a 10% reduction per annum or a ‘staggered’ approach to manipulate the market would be for ‘experts’ to calculate.
That’s just the ‘demand’ side. As to the ‘supply’ side, there is much historical information that supports the post WW2 housing policies (on a global basis), that could easily be refined with some modern funding mechanisms, such as government/borrower partnerships.
There is some context in the Rear Vision broadcast (transcript included);
http://www.abc.net.au/radionational/programs/rearvision/the-housing-crisis/8379724
Notwithstanding the complexities of the market place so well explained in your article, a national uniform policy approach, with the support and assistance of council’s and state governments shouldn’t be that hard to work out.
“The major problem in achieving equality in the Australian housing markets is the recalcitrant nature of government which failed to notice that the king was, in fact, unclothed …..”
Indeed.
Thank you RH and commenters. Take care
“Is the housing crisis being totally ignored by the government?”
Impossible. Every facet of the ‘crisis’ has government paw-prints all over it.
ATO: Investors are treated as some kind of protected species.
I’m over my taxes getting diverted to speculators who use their borrowing power to outbid home buyers at sales/auctions of existing properties. Land inflation is destroying the value of labor and is one of the main causes of the demise of manufacturing here. CGT discount is a major distortion of prices – drop it to 25 per cent, see if that helps. I’ll add that investors are required in the market, but how about some balance?
FIRB: There is the free-for-all/anything goes, money-laundering buy-up of existing properties.
10,000s of property have been bought illegally and what is FIRB doing about? Time for an broad audit of recently purchased homes in high-value suburbs near the top State govt schools. Stop the flood of foreign capital entering the Aus market by introducing the 2nd tranche of Anti-Money Laundering legislation.
APRA: What if bank lending was properly supervised?
Interest Only loans have destroyed affordability over the last decade and yet it’s only in the last month that APRA said ‘boo’. Same with equity-mate loans and Loan to Value Ratios that hit 105% at their peek. If Australia banks cannot afford to lend without going offshore to borrow, so be it.
Treasury: Giving the green light to policies that further allow the erosion of economic conditions by the FIRE sector and other parasitic entities is not part of their charter. They can do better.
Immigration: Running a program that gives Australia a 3rd world rate of population growth so that various Ministers can utter the phrase ‘jobs and growth’ does not hide the fact that such growth is designed to hot-house prices for land. There is no solid argument for having a population growth rate above replacement.
MSM: The Propaganda Unit for the Govt of the day has had its turn, and what a mess they’ve left us with.
The ‘housing crisis’ is the result of not ignorance but a sleepy consciousness.
Let’s all pretend to be asleep and say nothing can be done, that’s the virtual message they’d have you believe.
Can you see through it?
Or have you been fooled into believing the whole thing was accidental and beyond remedy?
Great post Bradley.Everyone should watch the documentary “Inside Job”. On the last Global economic crisis.The Neo cons want all regulation taken away and let the market rip.It is a little different here but greed is universal.
http://documentary-movie.com/inside-job/
Great Documentary Egalitarian