Rob Stokes at a public event on planning issues

The NSW Planning Minister Rob Stokes is right in his analysis of housing affordability – profoundly so. Despite claims to the contrary, we will not reduce house prices in Australia just by building more homes. We have tested that proposition both here and internationally.

Here are the facts. Annual housing supply in Sydney has more than doubled since 2011 and house prices have gone up over 40 per cent. Australia already produces more homes overall than the UK, when we have a population of 24 million and theirs is over 60 million. Sydney is producing more homes than London with just over half the population.

However, house prices continue to rise far quicker in Sydney than London, and Australian than the UK.

To the idea that more supply along with solve housing affordability, I wonder: How many more do we need to produce to see prices fall? Politically, who wants them to fall?

And even if much larger supply numbers were theoretically possible, who would fund, build and sell them? There is a market for housing after all.

Developers are in business to make a legitimate return. They don’t and can’t just supply homes regardless of the return. They build the number they assess the market can absorb and which the banks will fund. You cannot expect them to do otherwise

There is no moral judgement in this: this is just a market reality and they deliver well within that framework.

So unless there is some subsidy from government or some incentive that changes the market fundamentals, the private sector cannot raise its delivery radically beyond what it is achieving at the moment – let alone a number that has any serious downward impact on prices.

I have watched these markets internationally for a decade now, advised governments on them in the UK and here, and researched the Sydney housing market in some depth. I cannot see the answer coming from supply.

Demand is a problem. On two levels. One is that cheap money has flooded the world since the 90s, and Australia since the crash. With historically low interest rates this has inevitably meant asset prices have risen. There is a wall of cash out there, both domestically and internationally, which will not be reduced until interest rates rise. This in itself is leading to the crowding out of first time buyers from the housing market. In Sydney now they are only 6 per cent of the market, almost half what they would have been in the 90s.

However, the second level of this problem is not just increased liquidity overall but also about who is accessing this liquidity. The minister is right in identifying that it is existing home-owners seeking investment opportunities, who are beneficiaries of generous tax exemptions and the life-time gains from compulsory superannuation.

They are able to leverage the cheap international finance to further crowd out young bidders, while also being able to pay that regressive tax, stamp duty. Multiple home ownership has increased as first time buyers have declined.

In Rob Stokes, we now have an Australian politician calling this out and naming the problem for what it is. He is authoritative on this subject, as the best informed planning minister in Australia and one who has overseen a radical increase in housing supply.

He has learnt that something other than increasing supply has to be done if we are to restore housing affordability to first time buyers. As someone I know to be a highly ethical politician, he is clearly concerned post-Trump and Brexit that economic growth whose benefits are accruing only to some is resulting in a city that is not what he himself describes as a “just city”.

Although he will be attacked for what I think is a moral stand actually based on the facts, I believe most people will be with him in spirit. Australians are fair people and our system of incentives around housing is resulting in too many losers.

Tim Williams is chief executive officer, Committee for Sydney

5 replies on “NSW Minister Rob Stokes is right to call out negative gearing”

  1. Good to see this follow up to the academic call for a re-think by Bill Randolph and Peter Phibbs et al. All we need now is for the industry to deliver on its promise to have all new homes to have minimum access features by 2020. And no, it will not cost more – need more than ambit claims on this. Landcom (now Urban Growth) did the numbers in 2008 and found if designers thought about universal design and accessibility from the outset (not tacked on ideas) it would cost no more. We are all getting older (luckily).

  2. It is very true that home owners keep on buying more properties because the banks are willing to lend plus the government is rewarding the investors. Fist time buyers in Sydney can’t afford to put down a $200,000 deposit. There are many renters in Sydney not because they all love to rent but they can’t buy houses at this price. The system is rewarding the rich. Many in Government including the prime minister own investment properties so they are reluctant to touch the subject of negative gearing. You are very right in saying that increasing the housing supply will not solve the problem. Foreign investors and cash rich home owners will buy everything that comes to the market. I think the game will end when the economic conditions change in the global market. Change in interest rates means mortgage repayments will go up, investors will flee, there will be oversupply of houses. High prices are not good for anybody.

  3. Yes, we should discuss negative gearing. No, we shouldn’t pin our hopes on it being done away with in the near future, much the less that solving the housing affordability problem.

    Negative gearing is one incentive for personal investment in the provision of rental housing. We should ask why the provision of rental housing in Australia relies so much on personal investment by individuals. To put it simply, it’s because these days, public housing is a very small component of that supply, and in Australia there are very few institutional investors in the rental market. When have you last heard of a block of apartments built for, or purchased by say a large superannuation fund? I can only think of the Defense Housing Authority as a significant player.

    So we should examine why we would discourage ‘mum and dad’ investors. Do we want the supply of rental housing to drop? Are we sure that dampening competition by individual small investors would automatically turn unsatisfied renter demand into owner occupiers?

    I am no housing economist. But even I can figure out that pointing the finger at negative gearing is over-simplifying a complex problem. Why is that considered a brave or ethical act by a minister?

  4. Brilliant piece Tim.

    I have been doing a course about “Ethical Cities” and one of the questions posed to participants was in regards to ethical leadership and real world examples of this. The really honest assessment by Minister Stokes was an example I cited.

    For some reason some politicians and industry stakeholders are still so lost in their own rhetoric and self interest that they keep regurgitating the “supply” line. Kudos to the person who dares to call it for what it is. What was that saying about Insanity being defined as doing the same thing over and over again and expecting a different result….

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