1

Saul EslakeMelbourne

2nd September 2013

Australian housing policy: Fifty years of failure

Address to the 122nd Annual Henry George commemorative dinner

Note: the opinions expressed in this talk are solely the author’s, and should not be attributed or imputed to any other organization with which he is connected or associated.

2

Up until the past decade, the housing stock grew at a faster rate than the population

Sources: Australian Bureau of Statistics, Census results; author’s calculations.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1947-

1954

1954-

1961

1961-

1966

1966-

1971

1971-

1976

1976-

1981

1981-

1986

1986-

1991

1991-

1996

1996-

2001

2001-

2006

2006-

2011

Occupied private dwellings

Population

% pa

Inter-censal periods

Inter-censal growth in population and the housing stock

3

Home ownership rates rose substantially between 1947 and 1961

Note: percentages are of occupied private dwellings excluding those for which tenure is not stated.Sources: Advisory Council for Intergovernment Relations, Australian Housing Policy and Intergovernmental Relations, Discussion Paper No. 14 (1982), Appendix B, Table B4.

50

55

60

65

70

75

1911 1921 1933 1947 1954 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011

%

Census

Home ownership rates at Censuses

4

The average number of people per dwelling increased between 2006 and 2011 – for the first time in 100 years

Sources: Advisory Council for Intergovernment Relations, Australian Housing Policy and Intergovernmental Relations, Discussion Paper No. 14 (1982), Appendix B, Table B3; Australian Bureau of Statistics, 2011 Census Quickstats and earlier Census reports.

2.50

2.75

3.00

3.25

3.50

3.75

4.00

4.25

4.50

4.75

1911 1921 1933 1947 1954 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011

Number

Census

Average number of people per occupied private dwelling at Censuses

5

Home ownership rates haven’t increased at all since 1961

Note: percentages are of occupied private dwellings excluding those for which tenure is not stated.Sources: Advisory Council for Intergovernment Relations, Australian Housing Policy and Intergovernmental Relations, Discussion Paper No. 14 (1982), Appendix B, Table B4; Tony Kryger, Home Ownership in Australia – Data and Trends, Parliamentary Library Research Paper No, 21 (February 2009), Table 1; Australian Bureau of Statistics, 2011 Census Quickstats.

50

55

60

65

70

75

1911 1921 1933 1947 1954 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011

%

Census

Home ownership rates at Censuses

6

Despite substantially lower interest rates since 1991 home ownership rates have fallen in almost every age bracket

Sources: Judith Yates, Hal Kendig & Ben Phillips, Sustaining Fair Shares: the Australian Housing System and Intergenerational Sustainability, AHURI Final Report No. 2011 (February 2008); updated for 2011 Census Results by Judith Yates, communication to author.

25

61

7579

70

25

7881

67

7979

73

64

47

0

10

20

30

40

50

60

70

80

90

15-24 25-34 35-44 45-54 55-64 65+ All

Age of household head

1961 1971 1981 1991 2001 2011

%

Home ownership rates by age of household head, 1961-2011

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� be married or engaged

� be under the age of 36

� have saved up to $1500 ‘in an approved form’ (generally, with a financial institution whose major business was lending for housing) in three years

� be buying a new, or newly-built home …

� … valued at less than $14,000

� and have not previously owned a home

The First Home Owner Grant was really just the first of the 2000s explosion in ‘status-based welfare’

To get a grant under the 1960s Home Savings Grant Scheme you had to :

� have a family income of less than 155% of average weekly earnings

� and have not previously have owned a home

To get a grant under the 1980s First Home Owners Scheme you had to :

� have saved up to $2500 ‘in an acceptable form’

� have a family income of less than 155% of average weekly earnings

� and have not previously have owned a home

To get a grant under the 1970s Home Deposit Assistance Scheme you had to :

� have not previously have owned a home

To get a grant under the 2000s First Home Owners Grants Scheme you have to :

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Governments have spent at least $22½bn on cash grants to first home buyers over the past fifty years

Note: expenditures shown are calculated as nominal values deflated by All Groups CPI.Sources: Advisory Council for Intergovernment Relations, Australian Housing Policy and Intergovernmental Relations, Discussion Paper No. 14 (1982), Appendix G, Tables G5 & G6; Australian Government, Budget Paper No. 1, Budget Statements, 1983-84 through 1994-95; Commonwealth Grants Commission, 2008 Update Report (Attachment D) and Report on GST Revenue Sharing Relativities, 2010 Review Volume 2; CoAG Reform Council, National Affordable Housing Agreement: Performance Reports 2009-10 and 2010—11.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11

$bn in 2010-11 prices

Financial years ended 30 June

Expenditure on assistance to first home buyers

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‘Negative gearing’ became much more attractive after the 1999 decision to halve the rate of capital gains tax

Sources: Australian Taxation Office, Taxation Statistics 2010-11 (latest available); author’s calculations.

Taxpayers with rental income

Taxpaying property investors

0

5

10

15

20

25

94 9596 979899 0001 0203 0405 060708 0910 11

$bn

Financial years ended 30 June

Interest paid by property investors

-10

-5

0

5

10

94959697 989900010203040506 0708091011

$bn

Financial years ended 30 June

Net rental income

45

50

55

60

65

70

94 9596 979899 0001 0203 0405 060708 0910 11

% of total

Financial years ended 30 June

na

Loss-making landlords as pc of total

8

10

12

14

16

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

% of total taxpaying individuals

Financial years ended 30 June

10

0

5

10

15

20

85 86 87 88 89

% ch from year earlier

Sydney

Melbourne

Brisbane

Adelaide

The assertion that the abolition of negative gearing in the mid-80s caused a “landlords’ strike” is an urban myth

Note: Shaded area denotes the period (from July 1985 until September 1987) in which negative gearing was not available for property investments. Sources: ABS; Real Estate Institute of Australia.

Rents

0

5

10

15

20

85 86 87 88 89

% ch from year earlier

Hobart

Darwin

PerthCanberra

Vacancy rates

0

1

2

3

4

5

85 86 87 88 89

% (moving annual median)

Melbourne

Brisbane

Sydney

Adelaide

0

1

2

3

4

5

6

85 86 87 88 89

% (moving annual median) Hobart

Perth

Canberra

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Negative gearing hasn’t done anything to improve the supply of rental housing compared with other countries

Sources: Real Estate Institute of Australia; US National Association of Realtors.

Rental vacancy rates

0

2

4

6

8

10

12

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

%

US

Australia

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Housing policies that would work

� Abolish grants to and stamp duty exemptions for first home owners and ‘negative gearing’ for investors (in all assets)

� Redirect funds thereby saved (or revenue no longer foregone) to programs that increase housing supply, directly or indirectly

� Expand or replicate programs which actually work and are ultimately self-funding, like Western Australia’s ‘Keystart’ shared equity scheme

� Replace State and Territory Government stamp duties on land transfers with a more broadly-based land tax (with no-exemption for owner-occupiers)

� Take a more ‘holistic’ view of urban infrastructure investment, recognizing that investments in transport infrastructure can expand the supply of housing –and fund such infrastructure in part by ‘betterment levies’ on increases in land values

� Reduce the extent to which infrastructure and services in new housing estates are funded by ‘upfront’ charges (and if necessary allow local authorities to incur more debt, and service it through rates)

� Reduce the cost, complexity and regulatory uncertainty associated with ‘brownfields’ and infill developments in established areas

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Important Notes

This document has been prepared by Saul Eslake (the author), to accompany his talk to the 122nd Annual Henry George Commemorative Dinner, organized by Prosper Australia and Earthsharing Australia (‘the organizers’) on 2nd . No part of the document is to be reproduced, made available online, circulated or otherwise distributed without permission of the author, or of the organizers of the event.

This document does not purport to constitute investment or business strategy advice. It should not be used or interpreted as an invitation or offer to engage in any kind of financial or other transaction, nor relied upon in order to undertake, or in the course of undertaking, any such transaction. No representations of any kind are made, nor are to be inferred, about any securities or financial instruments whatsoever based on anything in or inferred from this document.

The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable. The views expressed in this document are those of the author. Neither the author, nor any entity by which he is employed, nor any body of which he is a member or with which he is in any other way associated or affiliated, nor any of their affiliates or subsidiary or related entities however makes any representation as to their accuracy or completeness and the information should not be relied upon as such.

All views, opinions and estimates herein reflect the author's judgement on the date of this document and are subject to change without notice. The author, each and every entity by which he is employed, and each and every body or entity of which he is a member or with which he is otherwise associated, their affiliated and subsidiary entities expressly disclaims any responsibility, and none of them shall be liable for any loss, damage, claim, liability, proceedings, cost or expense (Liability) arising directly or indirectly (and whether in tort (including negligence), contract, equity or otherwise) out of or in connection with the views, opinions and contents of and/or any omissions from this document except to the extent that a Liability is made non-excludable by legislation.