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Housing Affordability

Evan Hadkins' archive is here; his most recent piece was Work and Holidays.

Part of the campaign – and political discussion before it – has been the issue of housing affordability. And those who live in Sydney will know why. In some published polls Sydney is one of the world’s most expensive cities for housing – up there with London and Los Angeles.

Housing affordability in Australia largely means purchasing a home. While the laws regarding tenants remain the way they are this will continue to be the case. Just one example: the NSW government is revising tenancy laws – the big benefit that they propose for tenants is that they will be given four weeks notice before they are thrown on the streets if their landlord goes broke. Currently they can return home to find the locks changed. It seems unlikely that tenants will be given any extra power by governments any time soon, so the focus needs to be on long-term, secure, affordable housing. So, we need to be talking about home ownership or long-term rental.

I have a suggestion for long-term, secure, affordable rental. It relies on the fact that many old people will die childless and that these people will often own their own homes. I propose the setting up of a fund that these people could leave their homes to. These properties could be rented out long-term for the cost of maintenance plus a margin so that extra properties could be bought. This would mean an expanding and sustainable pool of properties available for below market rental.

I have sent this idea in an email to a number of players in the housing debate. Two replied: one said they’d talk about it to others (I’ve heard nothing more) and the other said it was too small to matter and that charities were given houses anyway. This latter individual didn’t say how many extra houses his strategy of lobbying government had produced in the last 12 months (I think I can guess and I think you can too).

My reply to the one who trashed the idea was, first, I suspect there could lots of homes given to the fund if there was a high profile campaign fronted by a personality with credibility (Cate Blanchet?). Secondly, as Dan Millman says: a little of something is better than a whole lot of nothing. Thirdly, it would be sustainable and not subject to the vagaries of government policy and somewhat insulated from the market.

For this to work it is essential that this housing NOT be targeted to high needs groups. This requirement (imposed by government funding to housing co-ops) means that the landlords are expected to provide for free a number of high demanding services. It makes the proposal unviable. (Governments naturally would like these services provided for free but this is hardly realistic.)

I think this is simple, practical, workable, and would do some good. I think the main thing required to make it a goer is an organisation willing to house the fund and a high recognition individual with credibility (if not Cate how about Dick Smith?) willing to push it.

I don’t think this is the only possibility. So please – contribute your ideas.

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Howard policy has made inflation worse.

The Howard Government has made inflation worse, and helped push interest rates up. On skills training, it dropped the ball in its first budget. Many of its cost savings came from scrapping Working Nation, set up by the Keating government to retrain the unemployed so that, as recovery came, Australia would have the skilled workers to meet its needs. That ball remained dropped until recently.

In 2005-06, the OECD Employment Outlook records, Australia invested just 0.04 per cent of its GDP in training the unemployed, the third lowest among the OECD's 25 rich members. By then, skills shortages were already acute. Skills shortages cause wage rises which cause inflation which causes higher interest rates. On this one, Howard's Government has no excuse.

Second, instead of using budget policy to ease pressure on interest rates, as in the past, Howard has increased the pressure by shovelling money into voters' pockets while the Reserve tries to slow their spending. On Treasury projections, personal income tax will shrink from 12.1 per cent of GDP in 2004-05 to just 10.3 per cent in 2008-09 — adding $20 billion a year to consumers' spending power.

In past booms, monetary and fiscal policy have worked together. More jobs and higher wages increased tax revenues, reducing the need for rate rises to slow the economy. Now the Government has dropped its end so it can deliver big tax cuts.

The higher interest rates predicted next week are a result of the Howard/Costello policy of big tax cuts. The incompetence of the Howard/Costello government is costing us all in higher prices and higher interest rates. It is time to send a message to our politicians that we do not want tax cuts, when the are usually followed up with interest rate rises.

11 Percent of Australians live below the poverty line.

Australia has recorded 15 years of almost unbroken economic growth. In fact, from 2001 to 2006, growth averaged 3 per cent a year — well above the average rate of economic growth in the OECD. Yet new figures released recently by the Australian Council of Social Service reveal that a staggering 11 per cent of Australians live below the poverty line set by the OECD. This equates to about 2.2 million Australians (including 412,000 children).

Disturbingly, the data shows that over time the divide between the "haves" and "have nots" has become a gulf. In 2003-04, there were 9.8 per cent of Australians living below the poverty line. Ironically, for a country that prides itself on a "fair go", our nation is becoming more unequal as each year passes.

Howard's comment that "this is as good as it gets", are cruel words offering no hope to the 2.2 million Australians who are living in poverty. How can these forgotten people, Australia's real battlers afford to put a roof over their heads with rent and house prices skyrocketing. The trickle down theory is  a joke.  No wonder  Howard  is loosing the support. He has taken from the poor to give to the rich in the form of tax cuts.

Am I the only one who can see this?

Housing un-affordability is a policy deliberately engineered by both Labor and Liberal governments at State and Federal levels for the stated - actually repeatedly stated - purposes of supporting the housing construction industry which employs large numbers of people and which contributes directlly to Party coffers.

The construction industry bosses actually state this over and over and over.

The construction industry unions are also important to the Labor Party, and they need huge and growing demand for housing, too.

The housing industry (and the major parties) then pretend to be 'concerned' about housing affordability, as if they're not directly benefitting from the policies driving up record demand for housing in the first place!

It's as if there was record demand for caviar, and the price of caviar was going up and up and up, and the caviar suppliers started posturing in the media about the 'un-affodability' of caviar.

Oh, dear! Oh, shame! Caviar is sooooo expensive! What should we do in between going to the bank with all the loot?

And yet, oddly enough, nobody in the caviar industry ever did anything about the ever exapanding demand for caviar except whinge about the cost of GST on caviar or how hard it is to get waiters to serve their stuff up in restaurants. And then pump-prime the caviar market again!

Gee? What a surprise?

Well, it's the same for the housing industry. Where everyone else is blamed for the problem except the industry, up to and including working mothers and too many national parks, while the industry and its clients are making squillions.

Demand for housing is expanding at record rates in Australia because we have massive rate of population growth (about twice that of China's believe it or not) and liquidity for housing finance is cheap because of historically low interest rates.

These are government policies beyond socially acceptable criticism.

Ernest, you yourself referred to the  "21 per cent bank rates in 1982".

The only way housing affordability in Australia can be cut is by reducing demand.

That can only happen if we reduce population growth and reduce liquidity in the housing finance market.

Fewer people looking for somewhere to live. And/or higher interest rates on housing loans.

There's no way on earth the major parties will ever do that, and how they've locked you all into that position is by making population growth a sacred cow that nobody can question or criticise - and by pretending that current record low interest rates are "too high".

Sucked in.

The article by Matt Wade

The article by Matt Wade in the SMH Economic luck runs out for PM is a reasoned "big picture" of the false economy that Howard and Costello has traded on for most of their 11 years.

The constant attacks on the Keating years are, as they always have been, trumped up to hide Howard's miserable ability to run any sort of economy.

It seems to me that pointing to Costello as a "genius" at managing the economy is not only misleading but, has become blatantly dishonest.

 

As the Macquarie Bank economist stated, Costello only has to "appear" to be managing the economy - the Treasury does the managing.

After years of false claims that the world economy doesn't have much influence on our management (this to disparage Paul Keating) Costello is now pointing to a world wide "tsunami" due to China's growth.  He implies that the Chinese government has allowed their booming economy to get out of control.

Meanwhile, the "New Order" catchcry is "Go For Growth" - fair dinkum.

Under his management funding to every area of Federal responsibility has been reduced in real terms, including skills and education. He denies that we had our own share of "subprime" mortgages when most of our citizens are personally aware that that is not true.

We should ask ourselves about the double standards of the Howard government for example:  why does a government which boasts about seriously reducing welfare, (regardless of the adverse affects that may have) suddenly "cares" about the pensioners and the aged?

Why? When Costello made his infamous “work till you drop” policy and wants the retirement age increased to avoid aged pensions.

In both of those areas Howard/Costello has failed miserably and it is of course, the spectre of losing power that motivated the temporary largesse. And Howard would have already factored in how he will change that, along with many other non-core promises, should he be re-elected.

Costello has also denied that his management over the years has caused the present increases in Bank rates.  This while using his "Crystal Ball" predictions that the roof will fall in if Kevin Rudd is elected.

The truth is more as Matt Wade sees it rather than the "New Order" robots.

NE OUBLIE.

Howard's 1982 11% Inflation being Repeated?

IN the SMH on May 8 2006, Paul Keating's advice to Labor was Labor must take on Govt over interest rates, private debt: Keating

How right was this advice when, according to the article, Labor's primary vote was 38 per cent compared to 43 per cent for the coalition.

On the ABC T/V's 7:30 report he was quoted as saying:  "Bob Hawke and I, I think created a new constituency for Labor, [the] young and those people on middle incomes and those self-employed and smaller businesses," he said.

But he says that Labor must tackle the Government on the issue of interest rates.  "John Howard had the highest interest rates in Australian history - 21 per cent bank rates in 1982," he said.

"What did he leave?  He gave us a huge recession and 11 per cent inflation.  We had interest rates peaking at 18 per cent, but we came out of it with 1 per cent inflation."

What hypocrisy for Howard to claim superior economic management.

It is rarely mentioned now after Howard "stared down" the entire Coalition Cabinet, that Costello has claimed that Howard always spends carelessly and he [Costello] has to find the money.

This will continue should the "New Order" because Costello hasn't got the "ticker" to challenge Howard's total control.

This means a Howard win in the election means "more of the same".

Lindsay Tanner stated on Lateline last night that the current nine consecutive increases in rates since 2002 has been caused by the Howard government's policies.

We are already in the highest interest rates in the world and Howard keeps fuelling them in every stop he makes in the campaign.

Buying votes for his election with our taxpayer funds.  Is anyone keeping a record?

Let's hope that backfires as well.

NE OUBLIE.

Howard has done a lot . . .

Agreed.

Howard has done nothing for eleven years.

A crisis in housing affordability, public transport collapse, pollution, urban sprawl, ill-health and social cohesion are issues that all of us in cities face, regardless of our income.

For around the past decade there's been a reluctance to consider our cities and their prospects as being of national, as well as state, interest.

In countries like the UK and US, cities are central to national policymaking.

The US Department of Housing and Urban Development (or HUD) is charged with managing a national program of public housing, as well as creating initiatives to generate better neighbourhoods for communities.

When Tony Blair came to power in the UK, he set-up a Social Exclusion Unit and an Urban Task Force, both charged with international fact-finding forays and identifying methods to reduce social inequalities, improve the physical and social fabric of neighbourhoods and a plan for an urban renaissance.

In Australia we have moved nowhere on a national, co-ordinated and strategic response to urban planning, housing affordability, social exclusion, neighbourhood decline, environmental amenity and infrastructure.

We have often left these issues to the market, or to chance.

In other areas federal intervention has been counterproductive............

The lack of a strategy to combat the deficit and conditions in the private rental sector has been largely absent from this agenda, even while the majority of those on low incomes and housing stress are in this tenure.

Affordability is just one example of the way in which our cities have been left to generate wealth for many, but with the consequence that we have ignored the growing numbers of those excluded from these opportunities.

It is about time the Federal government accepted some of the responsibility for the cost of housing. While it has increased immigration, it has done nothing to help the growing numbers of Australians struggling to put a roof over their heads.

Eleven Years

Yes, Howard has done nothing.  And the states have done nothing.

And the agreement with the private sector - housing co-ops and so forth - has gone nowhere because the governments want them to be unpaid welfare providers.

How I long for the return of a decently funded and well run Housing Commission kind of system (though not the idiocy of 'targeting it to the poor' so that you end up with welfare ghettos - some designed for cars and then targetted at those who can't afford to run a car! 

It is disgusting and scandalous IMHO.

Howard has done a lot for Housing Unaffordability

I strongly disagree that Howard has done nothing, he has actually done the opposite!

Under Howard, Australia has significantly increased its immigration rate, cut capital gains tax and introduced first home owners grants.

Increased immigration has increased demand, the tax changes had allowed more money to be thrown into real estate. These changes do not directly encourage any increase in the supply of housing, but mostly bid up the price of existing real estate.

Couple this with historically low interest rates that coincided with Howard's reign, this simply allowed people to borrow more,  with the simple impact of bidding up existing housing stock.
 
It should be noted that the states are very happy with high immigration and a bubbly housing market, this maintains growth in stamp duty income, and provides employment for all those involved (real estate agents, financial services, building materials, finished goods to furnish houses and of course those people that work in construction.)

 The states see population growth as a driver for their economies, specifically by providing employment in the sectors I mentioned above

http://www.theaustralian.news.com.au/story/0,20867,21599990-5006786,00.html

But Deputy Premier Anna Bligh said a population cap was a simplistic solution that would place pressure on the economy.
"The only way we could really do that is to put a fence up at the (Queensland) border, or to cancel or freeze all new home building approvals,'' she said.
"That would have a very serious impact on the construction industry that a lot people rely on for jobs.

So there it is in plain English, Anna Bligh saying directly because some jobs are reliant on population growth, it is of itself the direct reason for the policy to continue it, without looking at all the other costs both environmental and economic.

 

Skilled Immigration

I suspect the reason for skilled migration is underfunding of training.  (That employers might fund this seems to never be considered.)

One of the occupational groups given preference under the program is hairdressers (I kid you not).

Yes, skilled migrants push up rents, especially in those areas where rents are already high - such as Sydney.

If I had my druthers we'd train Australians (it's not hard really) and replace part of the skilled migration quota with refugees - and provide adequate programs for them (this also is not hard and there are many initiatives that have met with success.  Naturally there is difficulty - the trauma that some of these people have been through is truly appalling.  It is also not sometimes appreciated that these people come from countries where there is civil war and so there is a good deal of distrust relating to what side people were on.).

I suspect the major parties don't talk about their boosting of immigration because they don't want to alienate even one vote - even those on the right wing.  The only pollie who said much negative about Pauline Hanson's policies as I recall was Bob Brown.  The shame on this issue is pretty evenly distributed between the major parties I think.

I'm not an economist.  However, the tax impact is lack of capital gains tax on the family home, negative gearing and investment properties as I understand it.  This was somewhat moderated by the extraordinary changes to super which made it more attractive than the family house.

I can't see a market based solution to housing affordability.  I think it requires some intervention by those not beholden to the market (government could do this, but don't look like they the slightest intention of doing so).

Immigration Policy

Kevin Andrews might be known in some circles as "Minister for No Immigration", but I think a wider look at the Howard's government is warranted.

Nearly all the focus by those opposing any immigration  policies of the current government relates to the treatment of refugees and the size of this intake which has hardly moved, and if you look at the stats:
source: http://www.refugeecouncil.org.au/arp/stats-02.html
The refugee intake was higher in 1994/1995 and 1995/1996 (14,650 and 16,250 respectively), than at any other time since Howard was in power. The intake is currently static, and around 13,000 per annum.

The big increase has been in skilled migration.  In the year to Sept. 1996, net overseas migration was 83,450
source:
http://www.ausstats.abs.gov.au/ausstats/free.nsf/0/5CCAA444A3E9EA26CA25722500049479/$File/31010_0996.pdf   [[page 3]]

In 2004/2005 it was 123,424
In 2005/2006 it was 131,000
the current target is 144,000 for 2006/2007
source: Wikipedia (which in turn has links to the original sources). You then have to include the new (and expanded) working Visa catogaries 457 & 458.

If the success of the Howard government's policy is measured by numbers alone it has been an astounding success. Howard is seen as "tough" on refugees and by inference to also not encouraging other migrants, but he is actually very encouraging of immigrants with the requisite skills and money.

So how does this relate to housing affordability?
Nearly all debate and mention of the housing affordability crisis relates to to the supply side, simplified by how do we build more and issues with taxation and how it impacts on housing costs. It true that taxation policy at the federal level has encouraged over-investment in housing by reducing capital gains tax and the introduction of first home owners grants, but these changes have had more of a one-off impact and most of those who were encouraged into the housing markets, either as investors or owner-occupiers have done so. The opposite can be said for state taxes which have increased costs of building (but not in all cases such as Victoria where there is no stamp duty at all on off-the-plan real estate purchases).

There is also another side, demand. It virtually gets no coverage, just an incidental word. The real estate industry is very well aware of it.
Today ABC's AM program had a brief report:

They were quoting from a report from forecasting firm BIS Shrapnel that increasing immigration is increasing rents, which in turn increases inflation (rent alone counts for a 5.3% component of the CPI number), which will in turn increase interest rates and of course further reduce housing affordability.

Even the Productivity Commission came out with a report noting that the economic benefit of immigration is "very small" [Richard: sorry, I lost  the link, can you send it in?]

The ultimate question is: "Why are we importing increasing number of people?" when there are obvious impacts on housing affordability, not to mention other negative impacts such as water restrictions, (car) traffic congestion, congestion on public transport, significant increases in infrastructure costs to cater for population growth, destruction of farmland and bushland on our urban fringes.

 Why don't we simply start at getting immigration levels back to what it was when Howard came in, increasing the component of refugees, provided proper funding is made to properly integrate them. Then we will see some of the air taken out of the housing bubble.
 

FF

I'm not an economist so I don't know the ins and outs of tax deductability and its effect on affordability.  However, the first home owners grant was quickly taken up by the market - ie. it was a developers or real estate agents grant: the prices just went up.  I don't see why this would be much different.

The lowering of cost by more affordable interests rates did not lead to cheaper housing so why should tax deductibility?   

I'm sure bankers like it - they get subsidised by the government. 

Making more land available?  Unlikely I think.  There's lots of land available where people don't want to live (Ravenshoe is a short drive to the tropical wonderland of beautiful Cairns and hinterland.  Going to move there?)

I'd be very interested to see the details on how they plan to work with the housing industry.  Seeing the industry protested about having to provide any space at all for poor people it would need to be pretty astute politicking I would think.

I still think it is the market that is the problem.  People want a good price for their house (preferably a fantastic price for their house) and for their children to be able to afford their first house.  We need to address this contradiction.

FF on housing affordability

MEDIA RELEASE
SF/212. Thursday October 21, 2007

A TAX PLAN TO TACKLE HOUSING AFFORDABILITY CRISIS

Housing affordability is at its lowest level since records began 23 years ago and with interest rates on the upward cycle, urgent action is now required to help Australians buy their first home.

“Family First calls on both Mr Howard and Mr Rudd to focus on helping first home buyers get into their first home, ” Family First leader Steve Fielding said today.

“Family First tax policy gives first home buyers a tax break for the first five years of their mortgage that will see first home buyer’s save a huge $410 per month on the average mortgage. This will mean first home buyers will enjoy the same tax advantages that investors enjoy.”

Under Family First’s first homebuyers tax plan, announced back in May 2007, first home buyers can claim the interest costs on their mortgage as a tax deduction – which means families can finally get out of the rental trap and into their first home.

The Housing Industry Association announced today that the First Home Buyer Affordability Index fell to its lowest level ever in September.

“The call to give first home buyers tax deductible home loans has been backed by Mr John Symond (Aussie Home Loans) in August this year and Mr Saul Eslake (ANZ Chief Economist ) just last month,” Senator Fielding said.

“More and more young families who dream of buying a house are kissing those dreams goodbye. Family First’s policy will make first homes much more affordable.”

“Families are battling to make ends meet with soaring petrol prices and rising grocery costs, electricity and other bills. This policy will help families break free from the rental trap and achieve their Great Australian Dream.”

Family First also calls on state and federal governments to release more land suitable for housing and work more closely with the housing industry to promote affordable housing for first homebuyers.

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