EDITORIAL by Peter WestmoreNews Weekly
Housing affordability: what has gone wrong?
, July 4, 2015
When Federal Treasurer Joe Hockey was recently asked about the crisis of home ownership for first-home buyers, he responded by denying that homes were unaffordable in Sydney, where average prices are around $1 million.
He said: “Look, if housing were unaffordable, no one would be buying it.”
In a separate comment at the same press conference, he said the starting point for first-home buyers trying to enter the market was “to get a good job that pays good money. Then you can go to the bank and you can borrow money and that’s readily affordable.”
Not surprisingly, Mr Hockey’s comments were widely criticised in the media.
Many of the critics pointed out that Mr Hockey on a Treasurer’s salary, with his merchant banker wife, living in a $5 million home in Hunter’s Hill, is completely out of touch with the realities facing many young couples struggling to get a job, let alone service a mortgage.
There is a serious problem of affordability of homes, particularly in the large capital cities, and neither the current government, nor its predecessor, have done anything to resolve it.
Mr Hockey’s comments suggest that there are no plans to resolve the problem any time soon.
Some have argued that the problem is caused by foreign buyers, others blame negative gearing, and still others point to the lack of land being made available for housing. Each of these factors has contributed, but the problem is actually far more deep seated.
A country with a large current account deficit and that has been living beyond its means for years requires a constant inflow of a lot of capital to maintain its standard of living.
Inevitably, a great share of this capital will find its way into housing, squeezing out local buyers. This happens despite the government’s attempts to restrict foreign buyers to construction of new homes.
In relation to negative gearing, the fact is that all businesses are able to offset their losses in one part of their business against income in others. It would be punitive to prevent negative gearing in housing while allowing it elsewhere in the economy.
In any case, negative gearing in housing maintains the existing rental stock at more affordable levels.
In Australia today the attraction of home ownership as an investment arises from the fact that it is almost the only form of capital gain that does not attract capital gains tax. No government would be willing to impose capital gains taxes on the family home.
One of the main problems in Australia is that there is no incentive for families to save rather than consume, or to invest in productive assets rather than in housing.
It is also clear that in mega-cities such as Sydney, Melbourne and Brisbane, where new homes are being built 30 kilometres or more from the CBD, the cost of housing has skyrocketed; or, in the words of Reserve Bank governor Glenn Stevens, gone “crazy”.
For young people, there are additional problems. In our consumerist society, the virtues of saving and thrift have been largely abandoned, as anyone who passes pubs and nightclubs any day of the week will observe. Until the 1960s, most young people began to save for a house. Today, few do.
Whole industries are now based on separating young people from their money, including the advertising industry, gambling, and the mass media. Governments – state and federal – have been happy to encourage this trend, as it brings more money into their coffers, regardless of the long-term adverse consequences.
Many of those who have received a higher education have unpaid HECS debts, often amounting to tens of thousands of dollars. Additionally, there have been fundamental changes in the workforce over the past 40 years, with a radical shift away from full-time permanent employment to part-time and casual employment, and short-term contracts.
For employers, these arrangements may be more “efficient” or may save money, but they have had a devastating effect on the capacity of young people to save for a home or to service a mortgage. After all, if you don’t know whether you’ll have a job next month or next year, how can you risk a $500,000 mortgage?
Governments, unwittingly, have made things even worse.
Decentralisation policies that would have created real employment in rural and regional Australia, have been sacrificed in favour of major infrastructure developments in the capital cities. And by cutting family benefits, as Mr Hockey did in his last budget, and by committing even more to direct payments to the child-care industry and to child-care subsidies, the government is forcing both parents into the workforce.
A generation ago, the normal expectation was that a family would be able to buy a home in any capital city in Australia on a single income. Despite 40 years of increased productivity and prosperity, this is clearly no longer the case. What has gone so wrong?
Peter Westmore is national president of the National Civic Council.