So we are going to have a summit about the state of the Australian housing market? Do we really need a summit to tell us the bleeding obvious? That housing is extraordinarily expensive in a massive country like Australia and housing available for rent is both expensive and in short supply right across the nation.
If Albo is serious about fixing housing and rental affordability, especially in the context of Big Business lobbyists demanding that the borders be opened so they can once again access supplies of cheap vulnerable and easily exploited imported labour, he needs to accept that the Federal government must take responsibility for a problem it is about to make a lot worse as it caves in to the demands of Big Business and opens up the borders to high rates of immigration.
The “Plan” that ALP took to the Federal Election was not so much a plan as a sprig of limp parsley draped over a stringy chop in a butcher’s window.
6,000 social housing properties built per year over 5 years by the Housing Australia Future Fund will barely make a dent in the shortage of affordable housing considering Albo plans to open the borders wide as soon as possible. Nothing wrong with more social housing but what Australia needs is low cost housing generally and that means a lot more housing as fast as possible
The $329 million Help to Buy scheme is also unlikely to do much more than push prices of houses up even higher as it will operate as a lucky dip for new home buyers and does nothing about reducing the cost of new housing to new home buyers.
The fastest way to fix the affordable housing problem is to lower the cost new housing to new home buyers AND perhaps more importantly, severely restrict the rate of population growth via immigration until sufficient additional housing has been built.
But we already have enough housing!
There is a weird mob who chooses to ignore the fact that the national rental vacancy rate is super tight at about 1% and the evening news is full of stories about families struggling to find housing that is not infested with mould, falling apart and does not require a bidding war with other desperate applicants to secure.
This weird mob loves their graphs and stats and insist that the housing shortage is imaginary and there are “theoretically” enough houses even if they are not available for people to rent. Sometimes they acknowledge this and insist that the easiest solution is for the government to try to find the ‘hoarded’ bedrooms / homes and then force or hassle or tax the owners of that housing to make the bedrooms / homes available that they currently seem uninterested in making available ….even when nice fat rents are already on offer and there will be a queue of renters up the street.
They often have a bunch of complicated plans about encouraging empty nesters to down size and squeezing folks to sell their holiday homes. Nothing wrong with having ambitious plans but the reality is that no politician is going to want to hassle people out of their homes (or even their media rooms or spare bedrooms) or to rent out something they currently don’t want to rent out.
We just need a lot more housing
I know it is shocking news but given the rates of population growth that Australia clocked up over the last 20 years of near “open borders” immigration is it really any surprise that we don’t have enough houses even though high rise units have been sprouting like mushrooms and suburbia has been spreading across the fields like water over a broken levee.
For several years Australia was a leader in the number of construction cranes over our cities and still it was not enough. We simply could not build fast enough to keep up with the floods of people that the Liberal government was letting through the front door.
To make matter worse, COVID-19 made working from home a thing and people decided they needed bigger houses or more room to do it. Plus people decided that having a holiday home in Australia up or down the coast or in the bush was a good idea in age of pandemics. Combined these two factors generated a big jump in the demand for housing which helped to suck dry housing markets even while the borders were closed. This change in the demand for housing is likely to be permanent if not get worse as work from home becomes a permanent feature of modern Australian life.
When will we know if we have enough? The magic of a 4% residential vacancy rate.
There is a single metric that will let us know if we have enough housing and that is the residential tenancy vacancy rate.
When that is at least 4% we will know that we have enough housing. 4% means that 1 in 25 houses in the rental market are vacant and looking for a tenant. That is the kind of vacancy rate that keeps landlords honest and working hard to attract and keep a tenant. A bit like how Big Business like an unemployment rate of above 5% to keep the workers on their toes and not pushing for pay rises. Some slack in the market is a good thing for tenants.
A 4% vacancy rate means that tenants have choice and are not fighting like rats in a bucket for a roof over their heads. It means that landlords are less likely to ignore mould, broken appliances and safety hazards. They might even update the 1960s kitchen and bathroom.
They might even reduce the rent!…..Shock horror.
But we are not going to get a vacancy rate of 4% without a lot more houses being built right now.
How do we drive the construction of new housing?
The first thing is to ensure that as much capital as possible is directed to new housing construction rather than pumping up the prices of the existing housing stock.
Pumping up house prices was the Liberal Party’s idea of economic management and it has been a complete flop in terms of ensuring sufficient new housing was built. After 9 years of Liberal Party economic vandalism we have very expensive houses and a yet shortage. That takes a particularly mendacious degree of policy incompetence. Well done the Liberal Party.
A full rebate of the GST on new housing
The Federal Government should immediately provide new home owners with a rebate of 100% of the GST they paid on a new house. This will be easy to calculate and implement. Home owners will present their contract of sale for the new house or unit and 10% of the purchase price will be rebated by the Federal government.
The advantage of a rebate is that it avoids the complexity of making new housing GST free (like fresh food and a few other items). The new home owners will pay the GST on their new home but will then receive a cheque from Albo and Jim a few weeks later. They can use that cheque to make a big repayment on their mortgage.
Receiving a 10% rebate from Albo and Jim will make new housing more attractive compared to existing housing and that should encourage more new housing construction.
A full rebate of State and Local council levies and development charges on new housing
This is the big item and will make the most difference to ensuring that most capital for housing is directed to new housing construction rather than pimping the prices of the existing housing stock.
Currently most state and local governments run a “first home owner pays all” model for funding the cost of public municipal services for new housing. Leaving to one side the unfairness of requiring home buyers to borrow money to pay for public services, that will benefit the community for decades, when so many prior generations received those public services for the price of an ongoing small rates charge each quarter, the need to service vast tracts of raw farmland each year only arises because the Federal government is running a massive Big Australia program for Big Business.
If Albo and Jim want to open the borders to keep Big Business happy and create the need for massive expenditure on infrastructure they should contribute directly to the cost.
This can be done by providing new home owners with a rebate of the full cost of the state and local government levies that they were forced to pay as part of the purchase price of their new house. Forcing the Federal government to pay for the infrastructure costs of newly developed land might make them think twice before opening the borders on the demand of Big Business.
For many houses those state and local government levies comprise almost 50% of the cost of a house.
By providing a rebate to the home owner the State Government and Local government still collect the levies and can apply them to the provision of services for new housing but the Federal government who is responsible for pumping up the population picks up the tab.
Picking up the tab might even encourage the Federal government to impose a special levy or big fat new tax on Big Business so they directly support the cost of the infrastructure required to support their demands for expanding customer numbers and an imported cheap workforce. It might also encourage the Federal government to question the design requirements and bloated size of some of the levies that the state and local government impose on new developments.
And if the Federal government doesn’t want to pay for the infrastructure required by the Big Business Big Australia program why the hell should young home buyers?
When will we be able to end these two special measures?
It is likely that these measures will be permanent but if by some miracle they produce a residential vacancy rate of more than 5% consideration can be given to reducing the rebates or withdrawing them until the vacancy rate again falls below 4%.
But given that a Big Australia is the obsession of the political class in Canberra across the spectrum from conservatives to open borders Greens it is likely that we will need to direct a lot of capital to new housing and infrastructure for a long time to come.
For too long Canberra has run a Big Australian program for Big Business and forced the average Australian to wear the bill.
Just these two measures – a rebate on GST and a rebate on the costs of State and Local government levies alone are likely to:
1. Reduce the cost of new housing by about 30-50%
2. Increase demand for and the supply of new housing
3. Reduce the cost of renting as the residential vacancy rate climbs to 4%.
3. Force the Federal government to think more seriously about the costs of caving into the demands of Big Business for a rapidly growing population.