EDITORIAL: Solving the housing crisis
by Peter Westmore
News Weekly, August 4, 2007
Can we ever revive the great "Australian dream"?
Forty years ago, home ownership was the hope and expectation of every Australian family, and home ownership rates in this country were the envy of the rest of the developed world. This was a time when most families still relied on a single income-earner, when employment was measured in terms of full-time jobs, and there was substantial security of employment.
It is a paradox that, despite the massive increases in incomes, employment and wealth in Australia since the 1960s, the "Australian dream" of home ownership, as it was called, has become for many families an impossibility, or is achievable only as a result of both parents working full-time, with inevitable adverse consequences on family formation and the birth rate.
Labor leader Kevin Rudd has put forward various policy options, including special tax-privileged savings accounts for home savings, expanding the Commonwealth's shrinking investment in public housing, introducing shared-equity schemes by which banks or the government itself could share home ownership, and subsidies for building affordable housing, or keeping rents low.
The Prime Minister has responded by suggesting that the problem was due to the failure of state and local governments to release land, thus pushing up land prices.
Soaring home prices
There are many causes of soaring home prices, not mentioned by politicians.
One important cause, identified by a very experienced industry leader from South Australia, Bob Day, is the artificial scarcity of land, caused by the anti-competitive behaviour of state and territory government land agencies, which own large tracts of public land on the fringes of the cities, and sell this land at enormous profits.
Mr Day knows what he is talking about. He has put more families into homes in Adelaide than almost anyone else in the country. He has put forward a five-point plan to address the problem. He says:
1. Urban growth boundaries or zoning restrictions on the urban fringes of our cities, wherever they have been applied, need to be removed. Residential development on the urban fringe needs to be made a "permitted use". In other words, there should be no zoning restrictions in turning rural fringe land into residential land.
2. We need to encourage small players back into the market by abolishing compulsory "master-planning". If large developers wish to initiate master-planned communities, that's fine; but don't make them compulsory.
3. Allow the development of basic serviced allotments, i.e., with water, sewerage, electricity, stormwater, bitumen road, street lighting and street signage. Additional services and amenities (lakes, entrance walls, childcare centres, bike trails, etc.) can be optional extras if developers wish to provide them and buyers are willing to pay for them.
4. Privatise planning approvals. Any qualified town-planner should be able to certify that a development application complies with a local government's development plan.
5. No up-front infrastructure charges. All services should be allowed to be paid for through the rates system, i.e., pay as you use, not before you use. Mr Day says first-home buyers on the urban fringe are subsidising, through their electricity, water, sewerage and council rates, the massive repair and upgrading of existing, older infrastructure in the inner suburbs in order to accommodate wealthy "in-fill" homebuyers.
In addition to these proposals, there can be no doubt that home prices have been inflated by a decision of the Hawke/Keating Government, in the mid-1980s, to broaden substantially the capital-gains tax base, but to exempt the principal residence.
The effect has been to force hundreds of thousands of people to view their home as the principal source of their personal wealth. Making the home a principal form of tax-free investment for many Australians has pushed up house prices, particularly in the capital cities.
The solution to this problem is not to impose a capital-gains tax on homes, which is a political impossibility, but to exempt a range of socially and economically desirable investments from capital-gains taxes.
The existing capital-gains tax regime is very complex, but its yields are relatively modest. Making long-term investment in Australian industry and agriculture, for example, free of capital-gains tax would encourage capital into areas which are often starved of investment funds.
Australians also want a return to concessional, fixed-interest mortgages for low-cost housing and more public housing for low-income earners who cannot afford a home.
A further measure to improve home affordability would be the reintroduction of economic incentives to encourage decentralisation, i.e., home construction in rural and regional Australia, instead of seven capital cities located on the coastal fringes.
As Mr Day says, "Ensuring that home ownership is the expectation of the many rather than the privilege of the few, is one of the most important and tangible ways in which we can encourage self-reliance and strengthen Australian families."
— Peter Westmore is national president of the National Civic Council.