We’ve not been very happy with some of the Productivity Commission’s past missives on land use zoning. Deregulate, it said – and all housing woes will be healed.
We don’t think so.
It was as if competition policy worked just as well in our built environment as it might in widget-land.
The Reserve Bank of Australia, unfortunately, followed suit when it too waded into the deregulate zoning furphy.
It was a precursor to its other big misstep – on interest rates (thereby spoiling its previously pretty-excellent record on running monetary policy) when it failed to warn borrowers that what goes down might eventually go up again ( and sooner and faster than you thin, especially when it’s interest rates.)
All of this history is what made us very happy this week to see Danielle Wood appointed to head up the Productivity Commission as chair, after nearly 10 years at the Grattan Institute and three years as its chief executive.
Why we rejoice is that Wood is a person who seems to understand complexity and doesn’t go looking for the dog-whistle silver-bullet “solutions” that draw growing numbers of people in these challenging times (though we understand the attraction; we really do.)
We first saw Wood in person at a Committee for Sydney summit in 2021 and she was totally impressive.
The key argument she made, that sound economic policy sprang from sound social policy was “like a bell” of sanity. Calm rational thinking – centred on humanist principles, instead of the economic rationalism served over decades as some kind of panacea – that promised rewards would flow, but only from puritanical pain. (Usually to the benefit of some and the detriment of others).
The AFR jumped onto the announcement on Wednesday to cite some of the policy calls Wood’s made – the undercurrent being that these could be problematic for some of its readers.
That’s the point, right?
Cutting back on the overly generous tax concessions for the very wealthy might hurt a few people, but hey it’s good for the rest of us.
Providing 90 per cent subsidised child care makes sense at the best of times – and when there are severe labour shortages it’s probably a good idea to incentivise all the labour you can, right?
Wood has a strong tax reform bias – which is a must when it comes to evening out the intergenerational inequities of the housing market – even to the point where she supports a lift in the GST. (We draw the line at this because we see this as a regressive tax: those on low incomes are forced to spend all or nearly all their available finances on necessities and so pay a proportionally bigger share in tax, while those on big incomes might not know what to spend their excess incomes on. What other reason can there be for $100,000 kitchens or Patek Philippe watches? At least these will attract GST, so that’s something. )
At the Committee for Sydney event Wood said we needed to understand that Australia’s economy had changed.
We needed to turn our attention away from the fading capital intensive economy to one focused on our human resources – our people, The Fifth Estate reported.
Australia was now a vastly different place to its past – with eight out of every 10 jobs in services. There are more advertising account managers than there are miners, she said.
This was something that the NSW and federal productivity commissions both recognised when they said the best policies to concentrate on were those that would invest in human capital.
Here’s more from our report at the time
Report after report and research lead to the same conclusion, she said. We get the best dividends economically and in every way to invest in our people. And that starts with education to make us the smartest people on the global block.
Her personal favourite was pre-school education.
“I’m not sure why we haven’t had a big national conversation about quality preschool education. The data is in, it’s so important for brain development, Especially for disadvantaged people.”
It circumvented all kinds of social and economic costs.
A $5 billion investment would yield benefits on a par with the company tax cuts. And longer-term benefits as well, she said.
There’s aged care and dental care, and better affordable health among others.
The Covid stimulus focused, as usual, on energy, mining and manufacturing. It was a missed opportunity to invest in human capital.
“In the middle of the crisis we do what we’ve always done and put it into the construction sector.
“Some of those hardest hit sectors [such as tourism, education, and the arts] did not receive a share of the stimulus.”
Two years later housing has emerged as the other huge fail of our need to invest in people.
Wood has her work cut out for her. The fledgling YIMBY (Yes In My Back Yard) movement has fallen behind the Pied Piper of simplistic housing solutions.
Yes, we absolutely need more housing supply but let’s be careful to ensure a good chunk of the housing that’s approved in the zoning fast track that will inevitably come to pass – because the mainstream press has made housing and the YIMBYs a political issue – is genuinely affordable or social.
Ex-Toga boss Fabrizio Perilli who fronted the cameras in an ABC television segment on housing on Wednesday night (and who was a speaker at our Tomorrowland 2022 summit) can see the problem.
So called “affordable” housing at his apartment project on the old Balmain Leagues Club site at Rozelle would still be woefully out of reach for most first time buyers, he said, when affordable means 25 per cent discount to market, and prices average around $2 million.
With this kind of dynamic we absolutely need taxation reform as some people have proposed.
Negative gearing needs to be limited. But we also need limit the capital gains tax free status of the family home. Heresy, we know. But why should someone whose house value goes from $10 million to $20 million through absolutely no effort of their own, get that windfall gain all to themselves, when it’s thanks to the stable lovely socio-economic infrastructure we have all contributed to – and the sweat of other people’s taxes that pick up the state tab?
Check out Tim Williams’ entertaining explanation for the housing crisis in this issue, where he points out that the house price surge happened in both the UK and Australia at a time of no population growth!
As we like to say it’s the cost of money that drives a huge part of the housing market. And the tax regime.
Under Wood’s stewardship The Grattan Institute’s Brendan Coates and Joey Moloney, published a few important observations on housing in The Guardian in April this year.
Among a string of proposals to ease the crisis was expanding the use of “head-leasing” (leasing and subletting housing to vulnerable people), buying homes to turn them into social housing and downsizing the Airbnb market.
The article also points to the Productivity Commission’s own review of housing assistance that argued for more rent assistance.
Looks like Wood might be among friends.