Saul Eslake: 50 years of housing policy failure
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One of Australia's most respected economists, Saul Eslake, presents to the 122nd Annual Henry George Commemorative dinner. Government intervention has compounded rather than eased affordability ...

One of Australia's most respected economists, Saul Eslake, presents to the 122nd Annual Henry George Commemorative dinner. Government intervention has compounded rather than eased affordability pressures according to the systemic data delivered here.

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Saul Eslake: 50 years of housing policy failure Presentation Transcript

  • 1. 1 Saul Eslake Melbourne 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. 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. 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. 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. 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. 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 75 79 70 25 78 81 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
  • 7. 7 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 :
  • 8. 8 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
  • 9. 9 ‘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 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 $bn Financial years ended 30 June Interest paid by property investors -10 -5 0 5 10 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 $bn Financial years ended 30 June Net rental income 45 50 55 60 65 70 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 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. 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 Perth Canberra 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
  • 11. 11 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
  • 12. 12 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
  • 13. 13 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.