I firstly acknowledge the traditional owners of the land on which we meet, the Eora people and acknowledge elders past, present and emerging.
We thank them for the stewardship of our land over 40,000 years.
Thanks for inviting me to be here today.
It’s good to be at another CEDA event, particular after the release of your “Housing Australia” report.
A report which highlights the 40 year problem we have on our hands.
You make the point that without policy intervention, this problem will be with us for 40 years – something that is completely unacceptable.
As the Treasurer proclaims that his job on housing affordability is effectively done, this report highlights its well and truly not.
This report comes on the back of other recent research highlights from the likes of the Household, Income, and Labour Dynamics Australia survey (HILDA) or the recent Census and confirms the trends we’ve been watching over the last decade.
- runaway house price growth
- collapsing home ownership for people aged under 40
- families being forced to move to the outer fringes of cities where employment is harder to find
- Supply not keeping up with demand
This at a time when living standards are under pressure, household debt is at record highs and wages growth is at record lows.
This is why housing affordability has been at the forefront of our policy agenda.
We have been an activist Opposition, putting out detailed policies, leading the policy debate.
Labor’s policy offering
Since early 2016, we have announced several tranches of policies aimed at addressing housing affordability.
At the centre of this are our reforms to negative gearing and capital gains tax.
For years people said it was in the too hard basket.
We have the most generous property investment tax concessions in the world, yet people wonder why in recent years property purchases have been dominated by property investors.
This not only worsens housing affordability, but encourages excess leverage which reduces the resilience of our economy to shocks.
The Government is increasingly isolated on this.
The list of people or organisations supporting reform is large and growing.
This year we had the former Reserve Bank Governor Glenn Stevens back the need for negative gearing reform in his report to the NSW Government.
And he joined a chorus of experts calling for reform, including:
- The IMF
- The OECD
- The Government’s own Financial System Inquiry
- Grattan Institute
- Australian Institute of Company Directors
- Saul Eslake
- A run of Liberals such as Jeff Kennett and former Premier Mike Baird
- And of course, the Committee for Economic Development in Australia (CEDA)
But it’s not just about negative gearing and capital gains, as important as that is.
Labor is the only major party with a suite of policies that look at both the supply and demand side of the equation.
This is why we’ve announced further tranches of policies that will:
- Prohibit direct borrowing by self‐managed superannuation funds
- introduce a uniform vacant property tax across all major cities
- Increase foreign investor fees and penalties
- Establish a bond aggregator to increase investment in affordable housing
- Boost homelessness support for vulnerable Australians
- And importantly, getting better reform through our Housing Agreements with the states
It’s quite ironic that while the current government argues that our housing woes are purely supply side matters, one of its first acts in government was to abolish the National Housing Supply Council.
A body that was established under the former Labor government, tasked with tracking important housing supply metrics - housing demand, supply and affordability.
Critically this body also sought to highlight current and potential gaps between housing supply and demand.
As Associate Professor Emma Baker notes in your Housing Australia report, since 2013 “our monitoring and prediction has been based upon more piecemeal and unstandardised data collections”.
It’s why Labor has committed to reinstate this body and its important functions if we get elected to government.
A revamped National Housing Supply Council with an expanded remit will allow housing policies and outcomes to be assessed against the original objectives.
Getting better results from COAG housing agreements is also critical, particularly because this is how the Commonwealth can influence reform at the state level which is where a lot of the action is on the supply side.
We understand there are inefficient and costly bottlenecks when taking housing development through planning and zoning processes.
As the CEDA Housing report notes “States and local government have various regulatory tools available such as improving approvals processes, facilitating land release and rezoning and changing planning requirements to reduce costs directly or indirectly by reducing uncertainty and holding costs”.
It’s why we’ve made clear that through an improved and more disciplined COAG process, we will work to get better outcomes out of our housing agreements.
Better outcomes in important areas like planning and inclusionary zoning.
For instance, in the United Kingdom, London has a target of 50% inclusionary zoning for affordable housing for every development with 15 or more residential units. New York requires up to 30%.
Here in Australia, despite some calling for 5-10%, the City of Sydney requires just 2% of inclusionary zoning in certain areas. So we are well behind where other cities are heading in this space.
All these areas of reform are critical for lowering the cost and increasing the supply of new housing stock.
In contrast, the government’s policy offering is at best, light on.
Earlier this year, the government told us the centrepiece of the budget was to be comprehensive housing affordability package.
Instead we got a complete sham.
The measures in the Budget tinkered at the edges but will do nothing to put first home buyers back on to a level playing field with investors.
The one big lever in the commonwealth Government’s hands – curbing negative gearing and capital gains tax concessions – and the Government failed to pull it.
The budget brought with it a grab-bag of unrelated measures that will barely tinker at the edges.
The centrepiece of their policy offering was their super saver scheme.
A measure that will not only increase demand, but will undermine retirement incomes along the way.
We are still yet to see legislation despite the scheme apparently starting nearly two months ago.
This hasn’t stopped the Treasurer boasting about it being effective on July 1.
This has led to the bizarre situation where the Australian Tax Office has had to put out a warning to potential homebuyers encouraging them to avoid using the Government's super saver scheme altogether until the supporting legislation is locked in.
Addressing housing affordability good for growth
Home ownership is not just about putting roofs over people’s heads, as important as that is.
If the housing affordability crisis isn’t turned around over the coming decades it will have more far reaching economic consequences.
Firstly, home ownership is one of the primary ways in which people build wealth, effectively a tool that helps to keep a lid on worsening inequality.
And secondly, falling home ownership could stifle innovation and entrepreneurial activity that ultimately risks future economic growth and human potential.
Impact on inequality
Recent HILDA data has highlighted the disturbing distributional implications of declining home ownership, and how it could create a negative feedback loop for worsening inequality.
HILDA data shows that just 1 out of the 4 young people aged 18 to 39 now own a home, down from more than 35% in 2002, a fall of more than 10 percentage points.
In 2002, young people who didn’t finish high school weren’t that far behind those that went on to attain a university degree, with 33% owning a home.
But today, just 13% of who those don’t finish school are likely to own a home, a drop of more than 20 percentage points, three times the fall of young people who have attained a degree at university.
Falls in home ownership have been very large for clerical and administrative workers but have declined only very slightly for professionals.
This highlights the potential for the housing crisis to entrench intergenerational inequality.
Historically, the family home has been the biggest source of wealth accumulation for Australian households – or said another way, as rate of home ownership falls, the "wealth have nots" grow.
People want to own a home for their long-term financial security.
The most recent Australian Bureau of Statistics Household and Wealth income survey drives this home.
Average household wealth for those households who were renting had just 13% of the wealth of owner occupiers who owned their home outright ($1.4 million).
Grattan Institute research has also made it clear that people who owned a home captured most of the increase in wealth in Australia over the last decade.
As they’ve pointed out over the last decade, “older households made big capital gains. With lower and falling rates of home ownership, younger households shared less of this windfall”.
And as CEDA’s Housing Australia report notes, owning a home also provides a tax preferred savings vehicle.
While renters trying to buy a home get taxed on their accumulating savings.
We know that worsening inequality would have consequences for jobs and productivity and is a barrier to more sustainable and enduring economic growth.
As the OECD made clear in recent research, the rise in inequality observed between 1985 and 2005 in 19 OECD countries knocked 4.7 percentage points off cumulative growth between 1990 and 2010.
The message is clear, if we want to achieve our full growth potential and reduce inequality, this has to include the potential to buy a home.
Impact on growth, jobs and innovation
But I also want to mention a less discussed element of what declining home ownership could do to our future living standards and stifle economic growth.
Economic growth is the most powerful poverty alleviation programs going around.
What’s not often spoken about is how falling home ownership might play out in the real economy, in particular the impact the declining home ownership on entrepreneurship and innovation.
To get their ideas off the ground, young and aspiring entrepreneurs often need to use their homes as financial security because their ideas are new and the markets and profitability of their ventures highly unpredictable.
In previous work, the RBA has pointed out “that higher housing wealth provides collateral for small-business borrowing and is associated with higher levels of business formation”.
Or as the 2014 Financial Systems Inquiry Interim report also stated “The requirement for residential security for a loan disproportionately disadvantages new ventures and younger Australians, who are less likely to have ‘bricks and mortar’ collateral”.
This means that at least in part business formation relies on young people owning a home so they can back in their own ideas.
If small businesses are reliant on the equity in their homes to get their ideas off the ground, less home ownership has the potential to suck entrepreneurship and innovation from our economy, leaving ideas as…. Ideas never pursued.
This so called ‘housing collateral channel’ should be taken seriously.
If it’s not, we will continue to get entrepreneurs, but less of them.
And only from those postcodes where the proportion of home ownership is high.
So thanks for inviting me to be here today.
Putting first home buyers back on a more level playing field is not only good for aspiring home owners, but it will also be good for the economy.
Preventing worsening wealth inequality and supporting business formation, innovation and entrepreneurial activity.
It’s an area we simply have to get right.
That’s why Labor has developed such a comprehensive policy suite when it comes to housing.
And why we will keep working and announce important policies to improve housing affordability.