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Housing affordability inquiry another toothless tiger

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The real issue of housing affordability

There is a major issue in this country about housing affordability, and no, Chinese buying is not a problem as long as we increase supply. Michael Pascoe comments.

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Viewers of those great documentaries, Yes, Minister and the ABC's The Hollow Men, will understand exactly what happened this week when the House of Representatives Economics Committee chair, Kelly O'Dwyer, announced an inquiry into housing affordability: nothing.

As Sir Humphrey would advise, when wanting to be seen to be doing something about an issue without actually doing anything about the issue, hold an inquiry. But Sir Humphrey also knew that you don't want to hold an inquiry without already knowing what the answer will be. That was a lesson lost on a previous coalition government when the Painters and Dockers royal commission ended up exposing the bottom of the harbour tax scandal that seemed to capture more Liberal supporters than Labor types.

Thus it's important to limit the inquiry's scope to something relatively minor and avoid the big problems. And that's just what O'Dwyer is doing her "Inquiry into foreign investment in residential real estate".

Barney Gardner, 65, was one of the public housing residents in Millers Point who have been told they will soon have to move on.

Barney Gardner, 65, was one of the public housing residents in Millers Point who have been told they will soon have to move on. Photo: Tamara Dean

The inquiry's official name is a euphemism for the alleged Asian invasion, those hundreds of millions of rich Chinese supposedly Hoovering up the nation's bricks and mortar, leaving local-born would-be first home buyers sheltering under bridges or having to buy something less that absolutely ideal, or perhaps being forced to take off for another gap year overseas instead.

Meanwhile there are serious problems about Australia's housing affordability that an inquiry won't go anywhere near. There are the bad tax policies, the inefficient and simply dumb local and state governments, the gormless politicians unwilling to take on the NYMBYs and the low level of public housing investment. But the terms of O'Dwyer's little sideshow means that big stuff won't have to be faced.

It's safe territory for the ambitious O'Dwyer – hmmm, there might be a spare assistant minister's job about. The inquiry can be seen to be doing something about a barbeque stopper subject with the answer already known: no, Chinese buying is not the problem, it's that we need to grab the opportunity to increase supply.

Kelly O'Dwyer announced the inquiry into housing affordability.

Kelly O'Dwyer announced the inquiry into housing affordability. Photo: Wayne Taylor

That lack of supply and the constraints on it is something that can unite the left and right. The Centre for Independent Studies is making the point on these pages today while anyone remotely involved with social welfare can tell stories of the hopeless battle of the homeless.

But it's hard, that tricky open-ended issue of housing affordability. Opening up the very smelly can of worms might mean the government would be challenged to actually do something, starting with tackling the distortions and disincentives built into the tax system. For starters, hands up what politician want to embrace a broad, no-exceptions land tax? Who wants to reduce NYMBYs' local power? No hands are visible among those interested in holding or winning government.

That's way too hard. Best to keep it limited, traipse around a few of the likely suburbs and listen to people complain for a while and go home to file the report that could be written before it starts.

Perhaps it's symptomatic of our housing myopia that as the economics committee inquiry was announced, a little circus act  was launched in Sydney when the State government belatedly moved to continue something started by its predecessors: selling off the multi-million dollar terrace houses in the Rocks presently used for a lucky few public housing tenants.

The cosseted tenants understandably aren't happy about losing their privilege, bemoaning the loss of "generations" of welfare entitlement, their subsidised housing in a prime waterfront area. Of course, the landlord deciding to sell a property is something that the rest of nation's renters in the private sector know rather well. And any admission of generations of welfare housing is the most effective argument of all for changing it.

The money raised from the Rocks sales must be quarantined from the government's other demands and applied as a boost to the public housing budget, but when the price of the average Sydney unit is $530,000, only Clover Moore and like-minded souls could justify lavishing a property worth $3 million on a single tenant who effectively won the lottery by inheriting it.

Wonder if the Sydney Lord Mayor is more interested in a few of her voters than the best use of scarce resources – it's the sort of irrational behaviour that typifies politicians and housing.

Michael Pascoe is a BusinessDay contributing editor.

38 comments

  • One of the major problems for housing affordability is state governments deliberately creating a shortfall of land by heavily controlling land releases to maximise stamp duty revenue.

    The ACT Government has unashamedly stated they will delay land releases to prop up their budget.

    Land releases should be assigned to an independent agency.

    Commenter
    Richo
    Location
    Canberra
    Date and time
    March 21, 2014, 1:53PM
    • This Inquiry is criticised above because it's not broad enough to tackle other issues of housing affordability. But the Senate is already currently conducting that broader inquiry - including into tax policies etc. How embarrassing. It's here:
      http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Affordable_housing_2013

      This much-needed new inquiry is focussed on examining whether foreigners buying Australian houses is contributing to rapid house price inflation and home unaffordability. You can make a submission to this new focussed inquiry here:
      http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=economics/foreigninvestment/index.htm

      Commenter
      Gatsby
      Date and time
      March 21, 2014, 2:26PM
    • When foreigners buy newly built homes it does not push up house prices: +1 supply of a new home, +1 demand from foreigner for home.

      But when foreigners buy existing homes it DOES push up house prices: +0 supply of a new home, +1 demand from foreigner for home = increased scarcity of property = prices rise.

      Foreign purchases of established property have skyrocketed 700% in just 3 years to now be over $5bn every year (per FIRB). It’s not the only factor but it’s a major one we can fix easily.

      When foreigners buy newly built homes it creates jobs, but there is zero benefit to the Australian economy from allowing rich foreign financial speculators to purchase established homes that would otherwise be bought by Australian families needing a roof over their head.

      Contact your MP or contribute a short submission to the Inquiry if you’re sick of seeing your hard earned deposit rendered worthless because foreign speculators are pushing prices out of reach of younger Australians.

      Commenter
      James
      Date and time
      March 21, 2014, 2:29PM
    • This has nothing to do with race and everything to do with supply and demand for Australian houses. Assume there are 10m homes in Australia. If you change from allowing 23m Australians to demand those homes to instead allowing 7bn people to demand those homes, of course prices skyrocket.

      It's also about a level playing field. I pay ~47% marginal tax to the Australian govt which pays for our schools and hospitals. Why should I get outbid at an auction by someone paying 15% tax in HK (none of which funds our schools).

      Many countries are rife with corruption - why should hard working Australians who play by the rules get outbid in an auction by someone who's money comes from dodgy military or government connections.

      There's no level playing field with foreigners - this must be fixed.

      Commenter
      James
      Date and time
      March 21, 2014, 2:36PM
    • Amen, James! Hear hear!

      Commenter
      No foreign ownership!
      Date and time
      March 21, 2014, 4:02PM
    • @Richo: I agree that it's part of the problem, but I'm not sure that an independent agency is the solution. Getting rid of stamp duty is a better solution. State governments live in fear of a market slowdown, as stamp duty revenue falls away very quickly. A broad-based land tax would be more consistent - while slightly linked to prices, at least it's not massively leveraged to them. And it might remove one barrier to empty nesters moving out of their over-sized houses, freeing up more family-sized housing.

      Commenter
      Phil
      Location
      Sydney
      Date and time
      March 21, 2014, 4:08PM
    • So correct me if I am wrong, but ... we have an article pointing out an inquiry into nothing as the reporter decides to talk about none of the real issues of housing & housing affordability.
      Supply is not the problem. Dribbled controlled supply does not help.
      Pushing too many investors into the market with a free equity belief & tax minimisation mindset is a huge part of the problem.
      Property is the most distorted market we have in this country. Most institutions are pedaling hard to maintain it at all costs.
      But wow ... if there was a serious housing inquiring ... I would kiss some shiny shoes on either side of politics.

      Commenter
      Yuppy
      Location
      Yuppy Ville
      Date and time
      March 21, 2014, 4:38PM
  • What about the other white elephants - negative gearing and discounted capital gains!

    The number of first home buyers recently hit a record low and they are now clearly outnumbered by property investors. Since when did we think it a good idea to turn the residential property market into a speculative market?

    Commenter
    The truth is out there
    Date and time
    March 21, 2014, 1:58PM
    • "discounted capital gains"

      Totally agree. The 100% discount given to owner-occupiers should be scrapped.

      Commenter
      Phantom
      Location
      Perf
      Date and time
      March 21, 2014, 2:20PM
    • Negative gearing stimulates investment in housing/construction, increases supply and therefore improves affordability.

      Commenter
      just_me_again
      Location
      Sydney
      Date and time
      March 21, 2014, 2:57PM

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