A five second video circulated on social media a few weeks ago, titled “Man Scares Girlfriend”. It shows the camera operator creep up on his sleeping girlfriend, shake her awake, and shout “Our parents’ generation destroyed the housing market!”
Housing affordability has become a perpetual political issue. Whether negative gearing should continue to be permitted was a consistent feature of debate during the 2016 Australian federal election. For some, the tax subsidy is seen as a policy lever that can be switched to directly and swiftly address the current housing affordability crisis.
According the Australian Bureau of Statistics (ABS), the average price of a residential house as of December 2016 was $656,800.
The usual narratives assume disinterested market forces that act unchecked, and without being interfered with. And so it is said by some that baby boomers have ruined the housing market through malicious intent, and in particular thanks to the wealth they have accumulated through the mining boom. The issue is presented in these narratives as the failing of a generation of people that has led to the currently situation, as if such malicious intent could be spread across a generation; as if the situation was foreseen, and a plan was perfectly devised and executed.
Another argument that appears with frequency is that owning multiple houses is a perfectly appropriate way of earning extra income. This idea of folksy entrepreneurship apparently motivates the “fake tradie” commercial during the federal election campaign, who laments Mr Shorten’s “war on him”, despite his “just wanting to get ahead through an investment property”.
This is an issue of demand outstripping supply that can only be remedied by building more properties. Indeed, Treasurer Scott Morrison repeated this prescription for solving the housing problem as recently as 4 March.
These narratives, these ghost stories, are useful for successive governments of all levels, for each party can point to the historical inevitability of the housing situation, which results not from direct policy intervention in the market, but instead through the caprices of the market.
However, the reality is far more complex.
A recent history of housing policy
Housing policy became a political issue in the years directly following World War II. A chronic lack of housing stock, visible social disadvantage, and the consensus view surrounding government intervention according to the Keyensian consensus all led to the formulation of the Commonwealth-State Housing Agreement (CSHA). The CSHA allocated funds for new dwellings that were available to be rented at lower cost than the private market. Since the first CSHA, there have been numerous revisions to the agreement, which exhibit a general trend of progressively restricting the number of people who are able to access such housing.
The first hint of smoke from the housing market came during the Hawke-Keating years (1983–1996). A greater emphasis was placed on encouraging a market economy to regulate housing was preferred policy. Particularly telling of this period was that the then-Treasurer Keating introduced negative gearing in 1985 to stimulate private investment in new housing developments. When negative gearing was abolished only two years later in 1987, it was almost immediately reinstated because of political pressure from property developers.
The situation improved in the early 1990’s with numerous policy initiatives at the Commonwealth level centered around housing policy. Housing and urban policies were comprehensively reviewed in this period, and a number of statutory bodies were established, including the Indicative Planning Council, the Building Better Cities Program, and the Social Housing Subsidy Program. Greater cooperation was fostered between the Commonwealth government and the States, and a more negotiated approach was adopted. This led to a flourishing of reforms in urban policy, which in turn lead to greater funding for infrastructure and for the construction of affordable housing. It was not to last. What were wafts of smoke during the Hawke-Keating years became a bushfire during the Howard years.
The Howard government
At the beginning of its tenure in 1996, the Howard government scrapped a number of policies that were designed broadly to reduce the cost of housing, to increase the provision of social housing, and to promote more responsible urban development. The statutory bodies mentioned above were all disbanded. The Commonwealth government abandoned the pursuit of proposed changes to the CSHA in 1997, largely removing any Commonwealth stipulation on what states were required to spend on social housing. This gave states the opportunity to divest from social housing as a savings measure. In the early 2000s, the rebates on social housing rents were decreased to generate more revenue for the government.
Howard did make some attempt to allow new buyers into the market with the introduction of first homeowners’ grants with the introduction of the GST in 2000. But this did not show any great effect on the market, since by 2000, years of a hands-off approach to housing, and of deference to market forces, meant that houses were already too expensive for many buyers.
Perhaps the most grossly unequal measure was the introduction of capital gains tax concessions to rental investors, instituted in 1999. This, combined with existing tax concessions such as negative gearing, allowed owners of rental properties to accumulate further properties. While the intent may well have been to encourage construction to fit the supply-and-demand narrative, this sort of policy will certainly have the effect of concentrating property ownership in fewer hands, and to lock many out of owning property. The proportion of households that own their own home fell by 4% between the 1994–95 financial year and 2013–14, while the number of households that rent grew by 5%.
This means that there were approximately 2.5 million more renters in 2014 than there were in 1995. According to the ABS, in the same period, the population of Australia had a net increase of 1.28 million. The growth in the rental market far outstrips the growth in population, both as a proportion, and in raw numbers.
Paradoxically, we find in the same period a marked increase in the proportion of dwellings that are unoccupied.
Once again, the percentages understate the raw numbers they represent. The increase of 1.1% translates to 336,812 additional dwellings that are not occupied. This increase corresponds to the growth of population and the growth of renters, which suggests that the housing stock that is available is unaffordable. Unfortunately, the census data for 2016 has not been released at the time of writing, but we should not expect anything less dire.
Howard’s intervention in the housing market was deliberate, and one that he had championed well before coming into office. And so, the Howard government’s greatest achievement in housing policy was for the Commonwealth government to disabuse themselves of as much responsibility for the provision of housing — both social and private — as they could.
The Rudd and Gillard governments in an attempt to address the situation introduced three major policies: The National Rental Affordability Scheme (NRAS) in 2008; The National Affordable Housing Agreement, which replaced CSHA, in 2009; and the Social Housing Initiative (SHI) also in 2009.
The NRAS and the SHI both saw the construction of a large number of dwellings, but they did little to better the affordability of housing generally, for they continued the trend of transfer of responsibility of social housing to the private and community sectors. Government support of these schemes came in the form of funding or subsidies, rather than actual delivery of service. While the schemes were certainly productive, they continued the ideological line that was established under the Hawke-Keating government.
The Abbott-Turnbull governments
The Abbott government withdrew the meagre responsibility for housing that the Rudd and Gillard governments instituted, instead opting to resurrect the market-reliant, hands-off approach of the Howard government. Turnbull, despite avowals to address housing affordability issues, has continued the Abbott government’s apparent unwillingness to address the issue proactively, and has ruled out making any changes.
The continuation of such policies comes at a time in which all signs point to some change being required. Consider the following, recent reports. Confidence in the housing market as a good place to store savings has dropped to its lowest level in forty years. An estimated 2,000 people over the age of seventy sleep rough each night across the country. Meanwhile, housing investment continues to grow, with an increasing number of loans granted, and reports of landlords artificially inflating prices of recent developments.
The effect of this consistent deferring of responsibility for housing has not only affected prospects for home ownership. Despite the mission of public housing being ostensibly to provide assistance to low income earners, the policies of the last twenty years have paradoxically caused the proportional cost of public housing to increase the proportion that households have to spend per week on their housing.
This translates to an increase of $46 per week, with the dollar value set at 2013–14 levels for all measurements during the period. This problem is compounded by a stagnation and subsequent decline in the rate of wage growth throughout the same period.
Note that homeowners with mortgages experienced a decrease in the proportional cost of housing, probably as a result of tax measures and historically low interest rates. This follows the same trajectory that was noted above: those who own land, especially those who own investment properties, are burdened less with the cost of that land, in the vague hopes that they will build more places for people to live. But this doesn’t imply that the houses that are built will be affordable by those who earn less.
Any narrative about a solution to the affordability of housing in Australia that relies purely on market forces and their exploitation is deficient. Such narratives ignores the role that policy decisions have played on making housing less affordable, both for new buyers, but also for occupants of public housing. The current situation is not merely the result of past buyers in housing market, be they malicious or benign.
Instead, the housing affordability crisis has been driven largely by the lack of political will by both major parties to take direct responsibility for the service delivery of affordable housing, or even to force private developers to do so.
But the ghost story of housing policy need not have a tragic end. An array of options should be considered when pursuing solutions, such as a recent proposal in Sydney that would see mandated provision of affordable housing, increasing its availability closer to the city. The Guardian’s Greg Jericho lists a number of policy options that may improve the situation, though each comes at considerable political cost.
Whether the current government is willing to bear this cost remains to be seen.
ABOUT THE AUTHOR
Lochlan Morrissey is a PhD candidate in Philosophy of language at Griffith University. His areas of interest are data science, machine learning, and education policy.