Tuesday, April 11, 2017

Federal Budget Watch - priming the pumps

There have been a few developments since we last looked in on expectations for housing affordability measures in the coming Federal Budget. For instance there's the establishment of an affordable housing taskforce to come up with a UK style affordable housing bond aggregator that will suit local conditions, as well as intensifying speculation that first home buyers could be allowed to raid their superannuation funds in order to come up with a deposit before applying for a loan. In his address to the Australian Housing and Urban Research Institute yesterday, Treasurer Scott Morrison all but confirmed he will pursue these policies, which he believes will deliver housing affordability while ensuring house prices continue to soar.

It was an interesting speech, full of all the usual stuff about supply not keeping up with demand. It made a point of noting the majority of investors in the private rental market are small time speculators, holding only a single rental property with a low yield while hoping it will rise in value and deliver a solid capital gain. It suggested that any change to negative gearing would come at a cost to renters (although it didn't go into any detail about what that might be). And it had yet another go at the National Affordable Housing Agreement, suggesting its $1.3billion-ish annual spend is not producing the right outcomes because the effects of unaffordable housing are still being felt by low-income households.

What it didn't do was seriously consider the key drivers of unaffordability in our housing system. It steered clear of the capital gains tax exemptions that encourage home-owners to shovel excess income into their housing rather than other, higher taxed investments. It made no reference to the impact that small-time investors who trade in the same housing market - buying and selling mostly established dwellings - are having on the shape of the private rental market. It didn't even come close to considering what's recently been described as the financialisation of housing - the notion that a dwelling is is not a basic necessity but a means of accumulating wealth - is what's driving up the cost.

Or rather, it didn't consider these things to be a problem. In fact, in focusing on new ways to entice private investment into residential property - through the development of an affordable housing bond aggregator on the one hand, and providing incentives to stimulate home-ownership on the other - it goes so far as to suggest that further financialisation of housing will be the solution.

It's easy enough to see how allowing first home-buyers to dip into their superannuation will put upward pressure on prices. The more people have to spend, and the more competition there is in the market, the higher they'll be able to go. Without curbing existing tax breaks investors will continue to ride on the coat-tails of owner-occupiers, trading in the same market and pushing prices even higher. No doubt this will be to every buyer's satisfaction, once they become an owner, but for those who remain unable to buy despite their (potentially) increased access to debt it will simply exacerbate all the existing problems of relying on rental housing as the only long-term option.

Presumably this is where the bond aggregator and the development of new affordable housing portfolios comes in. According to the Treasurer in his speech yesterday, "the bond aggregator would issue bonds to the market, and on-lend these funds to community housing providers - allowing them to access cheaper and longer term finance". He also said "the goal is for affordable housing to be conceived not so much as a real estate investment, but a longer term fixed interest investment that can comfortably sit within institutional investment portfolios".

Perhaps the Treasurer has missed a point here. While financiers may be able to distinguish between affordable housing and real estate investment, community housing providers will not. They'll be buying, selling and renting into the same rising markets as everybody else. And while ever land values and housing costs continue to rise, so too will the need for "cheaper and longer term finance" for those who would deliver affordable housing to those markets. Community housing landlords may be accustomed to pushing against strong headwinds, but to date they've not had the full weight of Australia's affordable rental housing policies foisted upon them as they do. If we are to expect them to succeed, we may have to offer them more than just cheap debt. Taking some of the heat out of Australia's housing markets might also have to be on the table, and this means reforming negative gearing and capital gains tax concessions.

There's a final point to be made following the Treasurer's remarks yesterday. He concluded, correctly, that "there are no single solutions and the payback is achieved in some cases over a generation - not an electoral or budget cycle". With this in mind, let's acknowledge that whatever measures are proposed on budget night next month will be small consolation to many of the growing number of Australians who currently rent their home. Affordability is one thing, but knowing you can be evicted without a good reason is something else entirely. It's well beyond time to bring our renting laws up to scratch.

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