From The Age
RUTH WILLIAMS
April 18, 2010
IN THE months before the last election in 2007, the Labor opposition promised to take the housing affordability debate in a ''new direction''. It held a housing affordability summit, released a paper and pledged to find a way to solve what was then being described as a ''crisis''.
''There is a disconnection between our nation's current economic prosperity and the housing reality for many Australians,'' Labor said. Few disagreed. But as the next federal election approaches, the ''crisis'' again looms large - just as big and complex a problem as it was three years ago.
Figures released yesterday revealed Melbourne house prices have surged almost 30 per cent in the past year alone, and Melbourne's median house price stood at $524,500 - an amount the average full-time worker would take more than eight years to earn. In the years after World War II, right up until the 1980s, an average house in a capital city cost about three years of average earnings.
The figures are bad enough, but the long-term impact is serious, economists and researchers warn.
Retired Australians who never owned a home will struggle on the poverty line. Cleaners, waiters and other low-income workers will face long commutes to their jobs in the cities. Caravan accommodation, which already shelters 50,000 Australian households, will become more common. And the society that once prided itself on egalitarianism and the ''fair go'' will be cleaved by an irreversible social divide, with generations of families locked out of home ownership and into rent.
''In short, current trends suggest home ownership will be a middle-class privilege in the future,'' says Terry Burke, professor of housing studies at Swinburne University's Institute for Social Research. ''Australia will be a society increasingly divided by tenure.''
The Rudd government, having made housing affordability such a prominent part of its 2007 election campaign, has put in place its promised first home saver accounts. It has launched a half-billion-dollar fund to encourage construction of affordable homes, and channelled $5.6 billion of the economic stimulus package into its social housing initiative. The results of these will take some time to assess - as long as a decade, the government suggested in its recent State of Australian Cities report.
But although these measures have drawn some applause, the government has also been criticised for its decision to boost the first home buyer grant as the global financial crisis hit. Originally a Howard government plan to ease home buyers through the introduction of the GST, the grant has proved popular and difficult to dislodge. The Rudd government's boost doubled the grant for existing homes to $14,000, a move it now says was an important factor in Australia's economic recovery.
But critics, like economist Saul Eslake from the Melbourne-based Grattan Institute, argue the grant and the boost make affordability worse by stimulating demand for housing but not adding to the available supply. ''It's hard to think of another policy in any area that governments have supported for so long in the face of such little evidence that they work,'' Eslake says. ''It is the definition of insanity.''
The boost expired in December, and there are signs that the housing market - also hit by successive interest rate rises - has started to ease as a result, especially in the below-$500,000 market. The REIV is now calling for the boost to be reinstated, or even increased. But Eslake is critical that even the diminished $7000 grant remains in place.
''Anything that temporarily boosts affordability, such as increased government assistance or lower interest rates, is very quickly extracted by vendors,'' Eslake says. ''If we had a market where supply and demand were in better balance, that wouldn't happen.''
Australia's population is surging, but not enough houses are being built to keep up with demand. Last year, Australia's population grew by 2.1 per cent, almost double the global average, and Victoria's rate of 2.2 per cent outstripped the nation as a whole.
ALTHOUGH Eslake and others say this growth helped keep the economy growing during the global downturn, it worsened the national housing shortfall. This sat at about 85,000 dwellings in June 2008, according to the National Housing Supply Council, whose latest report is imminent. More recent estimates suggest a more acute shortage - as many as 200,000 homes.
And the latest figures suggest that Victoria is falling further behind on its housing needs every year. The state will need another 600,000 homes before 2030, the Brumby government says. Based on its Melbourne @ 5 million plan, released late in 2008, room for some 284,000 new homes must be found in fringe areas, and 316,000 slotted into existing suburbs. The state government calculates Melbourne's growth areas need an average of 14,605 lots a year until 2013 just to keep up with demand. But only 12,015 lots were built last financial year - a shortfall of more than 2500 lots.
And the gap is worse when it comes to the 316,000 new homes needed in established suburbs - roughly 15,000 a year from 2009 until 2030. Over the past three years, major redevelopments (those involving 10 or more new dwellings) delivered an annual average of just 8436 new homes. Even considering that redevelopments yielding nine or fewer new homes are not included in the figures, that annual target is likely to remain a long way off.
Industry analysts like BIS Shrapnel say apartment construction has slowed, in part, because banks have tightened their lending to property developers following the global financial crisis. But they say that misguided policies from governments of all levels have also had an impact, adding that this is more the case in NSW and Queensland than in Victoria.
The issue straddles all three levels of government, which often seem to be pushing in different directions. The federal government tempted potential first home buyers with cash handouts, even as the Reserve Bank started raising interest rates. John Brumby's state Labor government faces criticism for being interventionist and opaque on planning matters, while local governments are accused of being too slow and too influenced by anti-development concerns of residents.
As Matthew Quinn, managing director of Stockland, Australia's biggest home builder, put it last month: ''Population growth is a federal government responsibility. Planning policy and infrastructure delivery is managed at the state level. And then it's up to local government to deliver approvals. There's a total disconnect between the different levels of government and without action housing affordability problems are going to get worse.''
Not only does housing affordability cross three levels of government, it also veers into some of the nation's most controversial policy debates. For instance, it is one facet of the suddenly prominent population debate, which culminated this month in the creation of a new Rudd government ministry and the promise of a newly minted ''population policy'' within a year.
It raises questions about the extent to which changes to foreign investment rules a year ago - described by Burke as ''inexplicable'' - fuelled an unregulated spike in property speculation by non-residents.
It has implications for the post-retirement needs of Australia's ageing population, with researchers warning that the pension and superannuation will fall far short of supporting future generations of retirees who never owned a home.
It will feature in the future tax system review, the Rudd government's comprehensive tax inquiry launched in May 2008, delivered last December and due for public release before the budget in May. And it is a continuing flashpoint in the vocal debate about higher density living in Australian suburbs - set to feature prominently in Victoria's state election this November - and land release issues on the suburban fringe.
But, most of all, it raises big questions about the future make-up of Australian communities and the values underpinning Australian society.
''If something is not done, there will likely be a substantial decline in the home-ownership rate over the next decade,'' Eslake says. ''That might fundamentally challenge some of the assumptions Australians have about how they want to live, how they build security in retirement. Property is the way most Australians make whatever wealth they have … it raises fundamental questions about the distribution of wealth, about how people bring up their children, and the foothold they have in their communities.''
When it comes to the housing affordability debate, disagreement persists about whether it is best managed on the supply side - by simply building more houses - or by trying to reduce demand, such as by winding back tax perks linked to property investment. New housing supply in cities like Melbourne can come from two places - the fringe, or existing suburbs. But roadblocks stand in both directions.
Turning paddocks into newly minted suburbs requires money for roads, schools, sewerage and other services. But who should pay? This has been the subject of disagreements between landowners, developers and governments Australia-wide, most recently in Victoria, where the Brumby government's plans for a new infrastructure tax on city fringe land sparked strong opposition from building groups and landowners.
The legislation was defeated in parliament in February. The government says it will not extend the urban growth boundary unless an infrastructure tax is in place. And there is, of course, an argument that many people simply don't want to - or can't - live on the fringe, where they may face long travel times to get to work or to see friends and family.
''We need to release more land, but there's not much point in releasing land on the outskirts of the cities where people can't get into jobs,'' says Sydney University's Judith Yates. She says that, to make fringe developments viable, more focus is needed on providing proper transport infrastructure and stimulating employment in areas outside the city.
IF THERE are difficult questions around fringe development, higher density development in established suburbs provokes even more strident debate. The state government recently pledged to forge on with its goal to increase housing supply in established suburbs, unveiling plans to free up surplus government land so it can be used in housing developments, and saying it had ''refocused'' its development agency, VicUrban, from fringe projects to so-called urban infill. But plans for a higher density Melbourne have faced steadfast opposition from residents in well-serviced, attractive inner and middle suburbs - opposition that shows no sign of flagging as the state election approaches. ''Among the obstacles to the construction of infill are local government planning laws and avenues for local opponents of higher density development to obstruct that,'' Eslake says. ''I don't doubt that people feel strongly about these things, and local governments reflect that.''
Groups like Planning Backlash and Save Our Suburbs are unapologetic, saying they are merely trying to preserve their way of life and protect suburban environments.
Their stance is supported by US research group Demographia, which is linked to US conservative think tank Public Purpose, whose annual report on international housing affordability classifies 22 Australian cities as ''severely unaffordable''.
Demographia argues that policies encouraging urban consolidation are actually, in part, to blame for Australia's housing crisis. It argues part of the solution lies in freeing up urban growth boundaries and releasing more land on the fringes.
With so much angst surrounding the construction of new dwellings, Burke argues the focus should instead turn to reducing demand for housing. He says the tax system - especially negative gearing - should be changed to make investing in established property less attractive.
Negative gearing allows investors to claim as a tax deduction their ''losses'' on a rental property they have borrowed to buy - losses being any shortfall between their interest payments and the rent. Its supporters say that it helps ensure a steady supply of rental properties, but it also pits wealthier middle-aged investors against first home buyers.
Australian property investors love negative gearing. A recent Investor Pulse survey found more than 50 per cent would be against ending the practice. Even if the future tax system (or Henry) review comes down against it, the Rudd government is not considered likely to change it.
The release of the Henry review is imminent - the government has pledged to make it public before the budget next month. ''I obviously won't be pre-empting any release of the Henry review,'' said Housing Minister Tanya Plibersek this month. ''But we understand that housing supply and the way that tax influences housing supply is the absolutely critical issue here.''
For the moment, the debate about tax has been drowned out by other matters, including health reform before tomorrow's COAG meeting and the ongoing debate about a ''big Australia'', which has highlighted the stark gap between the rapid rise in new arrivals and the less rapid construction of new homes.
The Reserve Bank notes that average annual population growth has been 340,000 over the past five years, up from an average of 240,000 a year in the previous half-decade. But the number of new homes started in the past five years, an annual average of 150,000, has actually declined from 155,000 in the five years before.
But the population debate does not begin and end with the housing affordability issue. Just as scrapping negative gearing could have unintended consequences on the rental market and packing more people into existing suburbs could add pressure to roads, schools and hospitals, easing the immigration intake would affect Australia, especially the economy.
''There are no simple solutions, and no magic bullets,'' Eslake says. ''It must involve all three tiers of government - all of them have some responsibility for the mess, and solving it requires contributions from all of them.''
Labor's 2007 discussion paper on the issue spoke of the need for ''housing policy co-ordination'', for an end to the ''blame game'' between the Commonwealth and the states. But it emphasised that improving housing affordability ''does not mean'' reducing the value of existing homes.
Opposition Leader Tony Abbott this month expressed a similar view when asked about whether restrictions on foreign real estate investors should be tightened. ''Aren't people entitled to get the best price they can for their property?'' was his response.
While happy to bemoan the fate of the frustrated first home buyer, politicians will not consider any solution that involves house prices easing. And this may be the biggest problem of all.
''Ultimately, the solution to the housing affordability problem is cheaper houses,'' Eslake says. ''We have a belief in this country that governments must always try to keep house prices going up. It's time we questioned that.''
Source: http://www.theage.com.au/national/the-impossible-dream-20100417-sljf.html
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