Time to end the Treasurer’s ‘housing supply’ con

From The New Daily.

When Derryn Hinch told the ABC on Monday that “owning your own home is not an Australian right”, he was unwittingly throwing his weight behind a huge con.

That con, in essence, is to convince voters that a major structural undersupply of dwellings is responsible for the current housing affordability crisis.

The argument is utterly bogus, though Mr Hinch may not yet understand why.

When asked if young Australians had “unrealistic expectations of where they can afford to buy homes close to the city”, he replied:

“You’re right. You’re 100 per cent right … it’s the expectation that, you know, here I am, I’m married, I’m da da da da, and therefore I should have a house.

“Now, in many European countries, and you look at places like New York City, most people – I think I’m right in saying this, or it was some years ago – most people rent, they don’t buy, they can’t afford it.”

Sounds reasonable, until you look at the number of Australian residents per dwelling.

Houses have grown a bit bigger on average, but even in ‘bubble state’ NSW the average number of residents per dwelling has been virtually flat since the millennium (see chart below).

housing crisis sydney

And yet our political leaders, hand-in-glove with property developers and the banks, try to create the illogical impression that average house prices have risen because people want to live close to city centres.

Treasurer Scott Morrison told the Australian Housing and Urban Research Institute in Melbourne on Monday that “… just over half of renters say they rent because they can’t afford to buy their own property”.

“Because of this, they are staying in the rental market for longer – a dynamic that puts upward pressure on rental prices and availability and even more pressure on lower-income households, increasing the need for affordable housing,” Mr Morrison said.

“Increasing numbers of higher income earners privately renting has the obvious effect of lowering availability of affordable rental stock to those on low incomes.”

The Treasurer’s logic is completely flawed.

When a renter becomes a home owner, they vacate one property and occupy another. When a high-income earner sells their home and decides to rent, they vacate one property and occupy another.

The average number of Australian residents per dwelling is not affected by that process.

If immigration, or the birth and death rates, ever get substantially ahead of the national supply of housing stock, that really would be a supply issue – we’ll know more about that when the second round of 2016 census data is released in June.

But until that happens, rising prices in one area should be offset by fewer dollars chasing properties in another area.

So why does that not happen?

Well actually, it does. House prices are falling in Perth, for instance, as mining-related workers head east to look for new jobs. Rental vacancies in that city have risen from around 1 per cent to 5 per cent in the past four years.

But those relative shifts between one capital city and another, or between inner and outer suburbs, have been dwarfed in the post-millennium era by the credit bubble that began to grow when generous discounts to capital gains tax were legislated in 1999.

Twin distortions

The 50 per cent CGT discount, combined with existing negative gearing provisions, meant that property investors could afford to borrow more to bid up house prices. As they did so, owner-occupiers were forced to try to match them.

The entire market has been lifted, like a harbour full of different-sized boats, by the same tide – cheap credit and ridiculously generous tax incentives for investors.

The two most important causes of the housing affordability crisis are, therefore, the ones Mr Morrison has already vowed not to reform.

To make planned affordability measures in this year’s budget seem plausible, Mr Morrison’s housing supply con must be maintained.

Mr Hinch should not join that effort. Owning your own home may not be an Australian right, but shopping for a home in a market that is not systematically distorted to benefit investors, developers and banks certainly is.

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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