Fair Housing Australia attended the Flash Forum on Affordable Housing this week, on 2 May. following is its policy solutions for affordable housing and rationale.
- Develop a National Housing Policy with specific housing objectives that can then be used to inform other policies like tax, foreign investment, tenant rights, financial regulation, planning and development, infrastructure planning
- Quarantine negative gearing and remove CGT discounts
- Reinstate the pre-2009 foreign investment policy which stated that the net impact of foreign investment policy for housing is to “maintain greater stability of house prices and the affordability of housing for the benefit of Australian residents.”
- Tax land banking and empty dwellings
- Restrict the level of leverage self managed super funds can use to invest in housing
- Include full housing costs in the RBA’s calculation of inflation
- Improve renter’s rights and security of tenure
- Remove all FHB incentives
Australia needs an overarching housing policy and objectives that informs tax policy, foreign investment policy, land/housing policy etcetera.
Currently we do not have an overall housing policy objective, so it makes it very difficult to have a sensible debate about all the related issues, such as tax, foreign investment, tenant rights, land tax, financial regulation, planning and development and infrastructure.
What should be the objectives of our national housing policy?
- House to income ratio target?
- Home ownership target?
- Liveability objectives?
We are still trying to define this ourselves, but do believe that this should be part of the national conversation. We would like to include an overarching housing objective in our Fair Housing Australia Plan.
This is something that government will not be able to achieve between now and the budget but we suggest anyone who is serious about making sure housing fulfills its purpose, engages and promotes this idea – an idea for further discussion in forums, in the media and in parliament.
Negative gearing and capital gains tax changes – can these be geographically targeted?
No they simply cannot.
If we are saying these concessions are impacting prices in Sydney and Melbourne, then they will already be distorting prices in other capital cities and regional areas, and impacting affordability for residents of those areas.
Excluding certain regions from tax reforms will amplify the level of distortion in those regions as investors focus their boosted buying power to those areas.Our recommendation is that negative gearing is quarantined according to
Our recommendation is that negative gearing is quarantined according to asset class and Capital Gains Tax discount is completely phased out. With both concessions phased out by 20 per cent a year over a five year period.
First home owners grants and other incentives
This is a terrible idea and has been well proven to do nothing to aid affordability and everything to increase prices. FHB incentives stimulate the market, and because most purchases are leveraged:
- It pushes up prices by more than the absolute value of the incentives injected into the market
- This increase in prices rise leads to larger mortgages for FHBs, home buyers, and investors.
- Which of course means extra debt and interest repayments over the life of the loan for FHBs.
At the household level, average repayments are already an extraordinary 30 per cent of household income (and more if you’re in Sydney). There isn’t much more you can do especially when you consider this is based on historically high numbers of double income households. Every increase is going to create major social problems for families.
The alternative is to actually remove investor subsidies and other distortions, which will actually lower the cost of mortgages compared to what they otherwise would be.
Also, the implementation of FHB incentives delay the need to fully reform the other policies which are distorting demand within the market.
The option of using superannuation to fund home ownership
Firstly, this is an incentive, and as stated previously, we should not be increasing the demand side of things and the concept is wholly negative as they will not address the issue, and will make debt levels worse.
Also, what kind of person would want to undermine retirement savings in attempting to address the housing crisis?
Foreign Investment Controls
Yes, these should be implemented.
It is not well known that until 2009 Australia’s foreign policy explicitly included the following words regarding its foreign investment rules-
The cumulative effect should be to maintain greater stability of house prices and the affordability of housing for the benefit of Australian residents.
At the same time that this was removed a number of foreign investment restrictions were also removed.
Currently, foreign investment is worth around $20billion a year or more to the housing market, which is 6 per cent of the value of annual home sales, and by no means a marginal impact.
We need to reinstate the requirement that foreign investment rules are implemented, which maintain price stability and affordability for the benefit of Australian residents.
The example in Vancouver is an excellent example of the positive impact on affordability when overseas investment is addressed. In the short term, we need to start with a measure such as the Vancouver foreign buyer tax but across all regions as we know Toronto last week had to implement their own 15 per cent tax to deal with an influx of investors.
In the medium to long term, we need to monitor the extent to which foreign investment is impacting affordability, and adjust our foreign investor rules, to maintain affordability.
How well will interest rate levers work – official and effective – and will prudential banking regulations have an impact?
With housing costs excluded from inflation calculations, we haven’t been measuring the true cost of living. This wasn’t the case up until 1999, and we have a very strong case for considering if we should be including it, as we did previously. Contrary to popular belief the RBA does not have a narrow mandate to just control inflation and employment levels as best it can – the Reserve Bank Act states that:
It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank under this Act and any other Act, … are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:
(a) the stability of the currency of Australia;
(b) the maintenance of full employment in Australia; and
(c) the economic prosperity and welfare of the people of Australia.
By excluding housing costs from its definition of inflation the RBA is implicitly saying that house prices are not a relevant factor when measuring the economic prosperity and welfare of the people of Australia. This is at best guilt by omission and at worst downright deception of most Australians and even the media.
This will not change between now and the budget, but we need to start the conversation/debate!
APRA’s mandate is to ensure that banks are prudent through their lending standards and practices and they should absolutely be tightening lending standards where they find banks not being prudent enough. However, they cannot be asked to implement additional measures for the sake of offsetting a lack of tax and housing policy reform.
How is the property and development industry likely to react?
For those in this industry who are committed to developing liveable cities and developments – measures that aim to solve runaway land prices should be very much welcomed. Excess land prices eventually make it impossible to design and construct liveable developments, because the price of land dominates purchasers capacity to buy.
You end up with developments that have insufficient setbacks, insufficient indoor areas, unreasonable building heights, insufficient open space, are energy inefficient, and do not follow sustainable design.
So this is already a major issue as we look around Sydney and see terrible developments being built because developers need to make a profit and can only do so by squeezing a ridiculous number of people into each square metre.
So measures to address land prices should be embraced by developers.
We recommend that the industry needs to lobby decision makers on this issue. For example, the Greater Sydney Commission (because we would like everywhere to be even half as liveable as Point Piper, Ms Turnbull), Department of Planning, Cabinet etcetera, on the implications of excess land prices. It needs to be written about a lot more in industry publications so it is better understood.