AARON PATRICK: Housing debate ignores a lost decade of growth

As the political world argued today over raising taxes on investors in two separate parliamentary inquiries, the most important problem was largely ignored.

Australians’ average incomes have barely improved since 2011 or 2012 after taking account of inflation, an Australian National University economist, Ben Phillips, told a Senate committee on the housing problem — a phenomenal failure of policy that all Australian governments should be trying to fix.

This lost decade of economic progress helps explain why so many voters are turning to One Nation leader Pauline Hanson. A poll published today put her as the most popular political leader, and far ahead of Liberal leader Angus Taylor.

Both sides deserve blame. Under two periods of Labor rule and one Coalition, governments chose not to upset interest groups, including unions, environmentalists and powerful industries, at the expense of everyone who doesn’t have a lobbyist on a retainer to front up at a Senate hearing for them.

On Monday, two Senate inquiries in Canberra debated the tax increases on investments the government says will make housing more affordable. Although there were thoughtful contributions, many repeated ideas that would prolong Australia’s lost growth beyond two decades.

A couple of hours after Dr Phillips’ testimony, an academic from a “City Futures Research Centre” complained that houses and apartments have come to be seen as financial assets, because prices have risen so much in recent decades. A “right to housing is something we should be formalising in law,” Hal Pawson told the committee.

A place to live is, of course, among the necessities of life. But 238 years of white settlement would suggest housing will be provided without laws that would get courts involved in the housing market.

Going back in history, it is hard to find a time when property was not seen as a financial asset. In the Bible, God instructs Jewish prophet Jeremiah to buy a field from his cousin as a financial hedge against war.

Problems and solutions

That said, evidence that something is wrong with the contemporary property market is easy to find. On Monday, SQM Research reported the national rental vacancy rate was 1.2 per cent in May, and as low as 0.3 per cent in Darwin. With so few houses and apartments available to rent out, asking prices rose 7.8 per cent over the past year.

Given renters are often struggling financially, the increases will require some people to cut back on new clothing and food.

The necessary changes aren’t a mystery. Economists have been studying them for decades.

The most important thing to do, in an era of high immigration, is to build more homes, according to Jocelyn Martin, the Housing Industry Association’s managing director. “High rents, rising house prices and declining home ownership rates are symptoms of a shortage of housing,” she told a separate Senate inquiry into the Budget changes today.

One of the great ironies of the Budget changes is the government admits that its tax changes will cost 35,000 homes that would otherwise be built. (The government argues separate investments in roads, bridges, stormwater drains and other local infrastructure will offset the fall by getting 65,000 houses and apartments built over ten years.)

Liberal senator Andrew Bragg, the opposition’s housing spokesman, got into a testy debate today with Susan Lloyd-Hurwitz, the former CEO of a $7 billion property developer who now chairs the National Housing Supply and Affordability Council.

The council is an arm of the federal government and therefore expected to defend the Budget, which it did. Ms Lloyd-Hurwitz said high prices made the economy less efficient, worsened global warming and contributed to bad health, which is why her organisation, promoting increased housing supply, agreed with a policy that will reduce it.

“You think it’s good for super funds to be bigger landlords; you think it is good to suppress supply because there is a social argument for doing so?” Senator Bragg asked her. “Those are your positions, are they not?”

“That’s correct,” Ms Lloyd-Hurwitz replied.

“I think that’s an odd position for a supply council to have,” Senator Bragg said.

‘Tax-hike forum’

They ran out of time to discuss the merits of making more rental homes available versus slowing the growth in prices. But the conversation was another example of the institutional impediments to policies that could make Australians better off, which economists describe using the word productivity.

Without productivity growth, or a more efficient society, workers won’t be paid more, they say.

Housing is one of the most inefficient parts of the economy, and therefore central to the debate. High taxes, rigid labour rules, voluminous regulation, rampant inflation and Nimby-dominated councils make building homes far harder and more expensive than they need to be.

The debate over the capital gains tax increases and limiting negative gearing misses the broader point, despite their impact. Sydney has just recorded its second-largest price fall ever. Buyers are on strike. Almost half the homes auctioned on the weekend failed to sell, according to REA and Domain.

Last year, Anthony Albanese and Treasurer Jim Chalmers held a meeting of experts to discuss how to make the economy more efficient. They called it a “productivity roundtable”. Today, the chief executive of the Property Council, Mike Zorbas, said the meetings, which suggested changes incorporated into the Budget, had been shown to be “largely a tax-hike forum”.

Australia has a big government and needs to fund it. But cloaking tax increases as economic reform isn’t going to make Australians better off.