ECONOMY

Tom Devitt,  HIA Economist HIA has advocated, for decades, that the key obstacle to housing affordability in Australia is on the supply side. Now there is yet another report that agrees.

The Federal House of Representatives Standing Committee on Tax and Revenue released the final report from their Inquiry into Housing Affordability and Supply in Australia, titled ‘The Australian Dream’ on 18 March 2022.

The Report, including the Chair of the Inquiry, Jason Falinski, came down firmly on one side of the issue — the unaffordability of housing in Australia, and consequent decline in homeownership, are attributable to planning systems and government interventions that restrict housing supply, not the tax system or the Reserve Bank or any lack of usable land.

The House of Representatives Standing Committee on Economics’ 2016 Report on the inquiry into homeownership concluded the same, that governments should focus on boosting supply in under-served markets. This was backed up by the UDIA, which claimed that an historical national undersupply of 200,000 dwellings emerged from the 2005-2012 period and has only been marginally offset by record construction rates in recent years. HIA estimates that we will have to build 1.66 million houses by 2030, just to keep up with the demand from population growth.

Many submissions to this Inquiry, including from the Centre for Independent Studies and the Property Council of Australia, focused on the role of planning restrictions in limiting density and housing supply, and thereby inflating prices.

The RBA estimated that in Sydney and Melbourne, planning restrictions contribute over 40% to the price of detached houses and apartments. In fact, ‘econometric analysis has shown that in some places in Australia, planning restrictions are responsible for 67% of the cost of housing’.

The OECD, the IMF and multiple foreign governments have reached similar or stronger conclusions. There are numerous international examples too, from Florida to Finland to Japan, where planning reforms and boosted housing supply produce widespread benefits. Boosting housing supply won’t be an immediate cure to the problems of housing affordability. Remember that new housing commencements across Australia each year only represents about 2% of total housing stock. The Grattan Institute, however, estimates that, if this were increased to 2.5% and sustained for a whole decade, that ‘national house prices and rents could be between 10% and 20% lower than they would be otherwise’. The Inquiry consequently set out a series of recommendations which, if implemented, would reap the benefits associated with greater homeownership across Australia: • reduced wealth inequality; • accelerated family formation; • improved mental health and childhood outcomes; • reduced extremism; and • increased stability of democratic institutions.

RECOMMENDATIONS

The Report proposes that the Australian Government provide infrastructure, and even direct payments, to incentivise state and local governments to adopt improved planning and land administration processes. It also proposes a grant scheme for localities that improve the supply of housing and affordability.

Media attention will gravitate towards one specific recommendation, which proposes that first home buyers are given the ability to leverage superannuation assets as collateral for a home loan, rather than just using it as a deposit. This is a valuable means to help Australians bridge the deposit gap and achieve homeownership sooner and is consistent with HIA research that says Australians believe homeownership and superannuation are both important determinants of financial security in retirement. The Inquiry’s caveat that such a move should only be implemented if the supply of housing can be improved at the same time, to avoid upward pressure on prices, also reflects a pragmatic approach.

It is pleasing to see recommendations aimed at supporting the rental market, including the recommended retention of existing negative gearing provisions, as they help drive lower rents, higher housing supply, diversity of ownership and the efficiency of the tax system, outweighing the nominal impact it has on housing prices. While not being directly referenced in the recommendation, capital gains tax arrangements were also discussed in the Report.

Stamp duty was also identified as a key impediment to housing affordability. There are several recommendations relating to stamp duty that reflect HIA’s position on reforms that:

• The states replace stamp duty with land tax over time, thereby removing an unnecessary obstacle to homeownership, increasing housing turnover, and stabilising government revenues. • The Australian Government undertake a review into how such a transition could be managed. • The Commonwealth Grants Commission ensure that states undertaking such reform are not disadvantaged in the distribution of GST.

• As an interim measure, states should adjust stamp duty rates to redress the impact of bracket creep and introduce indexation to address the impact of home price variation in the future.

The Report also questioned development charges, recommending that the Australian Government work with states and territories to reform their approach. The justification for this recommendation notes an escalation in fees and charges that are applied to residential developments. While HIA continues to call for these taxes to be removed and a new model for funding community-based infrastructure identified, where they remain in place, they must have a nexus to the households that pay and a commitment to deliver the infrastructure in a timely way. Other recommendations relate to a wide range of measures including:

• improving access to crisis housing; • funding for community housing providers; • homelessness services; • a review of the tax and regulatory environment for the build-to-rent market; • preserving APRA’s role in managing residential mortgage lending; • preserving the Reserve Bank’s Charter, specifically excluding an explicit house price consideration; • improving data availability; • the operations of the National Housing Finance and Investment Corporation.

While these efforts to boost housing supply won’t solve all our problems overnight, the evidence is clear. You can’t have affordable housing without housing.