HOUSING: by Colin TeeseNews Weekly
Home ownership: the unattainable dream?
, July 21, 2007
How did Australia in the past succeed in making home ownership and rental accommodation accessible to lower-income families, asks Colin Teese.All the indicators seem to be depressingly clear. Housing affordability, generally, is a serious problem. We all know that house prices are continuing to increase to the point where they are beyond the reach of ordinary people.
Yet, that's only the headline problem. There is more. At the same time we are moving towards a critical shortage of rental accommodation. We can anticipate that this will push up rental prices to the point where low-income groups seeking living accommodation will suffer the same plight as for those seeking to buy a house.
We should not look to the market to deliver more rental housing at lower prices. We know that has not happened with house ownership. Is it any wonder that even politicians must now concede there is a problem with housing affordability? It won't be long before the same will be true of the rental market.Market failure
What any reasonable person might conclude from all of this is that the housing sector is experiencing the effects of market failure. When the market is unable to deliver houses - either for purchase or rent at prices ordinary people can afford - then the market should be assumed to have failed.
We may choose to argue about why, but the fact of failure cannot be denied.
Nevertheless, neither the Prime Minister John Howard nor any of his ideological fellow travellers is about to admit to market failure - especially in the present political climate. With the Labor Opposition leader Kevin Rudd putting in place a summit on housing affordability, Mr Howard is, understandably, casting about for someone to blame - anything, to divert attention from his own responsibility.
He has set upon state governments for their alleged failure to make more land available. In some states there may be scope for releasing more land which might help a little, but that is not the core of the problem - which even the Treasury admits in a recent report.
The truth is there are fundamentals underlying the problem, which neither Mr Howard nor those around him of the same ideological persuasion can afford to acknowledge.
High on the list of unmentionable problems is the fact that there has been a very large percentage shift in the distribution of national income away from wages and into profits (see my article in News Weekly
, May 26, 2007). This change can be identified as among the most important reasons for the rapidly inflating house and share prices.
This redistribution of income away from wages and towards profits has left workers comparatively less well off and therefore unable to cope with escalating house prices. The workers and families most seriously affected are those on low incomes, who are new entrants into the housing market.
The 2001 Australian census figures confirmed the plight of low-income wage-earners. In a 2004 study, commissioned by the Australian Family Association, eminent Monash University sociologist Bob Birrell - drawing heavily on these figures - demonstrated that, in 2001, of men aged 25-44:
• 29 per cent lacked full-time work.
• 17 per cent received less than $15,600 a year (at 2001 prices).
Nothing we know should lead us to expect that the situation has improved significantly since 2001.
It would be tempting, though not necessarily helpful, to follow Mr Howard's example and look for facile solutions ahead of considering all the facts.
A better approach may be to go back and review how Australia in the past has made home ownership and rental accommodation more accessible to lower-income families.Entitlement
First, let us dispel a myth. The entitlement of low-income families to affordable housing - especially house ownership - cannot truly be said to have been part of our heritage since Federation. Indeed, it was only after World War II that "the Great Australian Dream" (as Coalition minister Malcolm Turnbull recently termed it) came to be considered as a right.
It was born, not of the free market, but of a deliberate and conscious application of a range of government policies, including a bipartisan commitment to full employment and reliable, well-paid jobs.
Apart from full employment, housing affordability was supported by a number of central policy underpinnings. Government-owned banks in each state were essential to the plan. Each was dedicated to managing the savings of low-income earners and to lending to that same group for the purpose of house purchase.
Loans from these banks for house purchase were strictly limited to low-cost housing. Borrowers enjoyed the benefit of interest rates for such loans being fixed at below commercial rates for the life of the loan.
House purchases under these arrangements were usually in new areas; and, at the time, incoming purchasers could not always expect their new homes to be immediately connected to sewerage or serviced by sealed roads.
Quite obviously, the absence of these services represented an inconvenience, but it did help to make the initial package more readily affordable. Moreover, at the time, state bank loans for house purchase were not expected to cover garden landscaping or internal soft furnishings. These would be acquired later as the incoming families found the means to acquire them.
Much of the work - both internally and outside the home - would be done personally by the incoming owners during leisure time.
Most of those circumstances no longer apply. Perhaps, expectations of immediate gratification were lower then than now, though that may not be in itself a decisive factor.Low-income families
That apart, material circumstances for low-income families were different in a number of crucially important and advantageous ways. Wages were better, relative to national income, and working hours generally were more regular and the working week shorter.
Reliable, well-paid and permanent employment was considered as much a right as house purchase. A family might reasonably expect to be able to live in a newly acquired family residence for a long time. A man's working life was considered secure and it allowed him sufficient leisure time to continue to improve the family home at weekends and after work.
Moreover, since the home mortgage was based on interest rates fixed for the life of the mortgage, the burden of repayments was reduced as the weekly wage-packet increased over time.
As a safety net for the truly disadvantaged, there were state-owned houses available for rent at affordable prices.
The system at that time undoubtedly had its shortcomings, but it did at least provide the economic and social framework which made home ownership for most a realisable dream.
Perhaps then, we had something like what a former French Prime Minister, Lionel Jospin, said he wanted for his country - "a market economy but not a market society".
Today, we need something like that if we are to deliver on the expectation of home ownership to low-income Australian families. Possibly, economic life itself, as it is presently organised, is the obstacle.
At the beginning of this article we suggested that the present crisis in housing affordability can be traced back to market failure. But it may also be that we are expecting too much of the market when we ask it to deliver house ownership to low-income families.
If the free operation of the market could not deliver the house ownership dream all those years ago without government intervention, when the wage share of national wealth was much higher, how can we expect it to do so in the present less favourable circumstances?
We are told that we need to tolerate a wage/profit ratio much more heavily slanted towards profits than ever before, in order to maintain a certain kind of prosperity based on low-price inflation and high consumption of consumer goods - even if such an arrangement inflates house prices beyond the reach of those starting families.
Under this kind of economic system it seems clear that what Mr Turnbull recently called "the great Australian dream" is only selectively available. Despite Mr Turnbull's pious hopes, it is an unattainable "dream" for the high proportion of young males without full-time jobs. This will remain the case while ever they are obliged to rely on market-based solutions.
It should be recalled that, even in the best of times, when home ownership was a legitimate expectation of those on moderate incomes, it was only achievable with a considerable amount of government intervention, under ideal working conditions, and on the basis of lending arrangements outside the commercial lending framework.
If we are looking for solutions, that's the model we should be looking to recreate. Nothing else makes it possible to extend the privilege of home ownership to those on lower incomes. Furthermore, if rented accommodation is not to be available at prices they can afford, how then are those on low incomes to be housed?Political question
The moment that question is asked, the problem ceases to be economic in any sense and becomes political. That would seem to provide a difficulty for either side of politics in our present political climate, unless one side or the other can disentangle itself from an absolute commitment to the idea of free-market solutions to problems the market cannot deal with.
In all of this, the Labor Party should, historically, be more readily disposed to understand and deal with such problems. Indeed, it appears to have been dealt what should be an important strategic advantage over its opponents.
The pity is that all the evidence suggests it remains incapable of exploiting that opportunity.- Colin Teese is a former deputy secretary of the Department of Trade.