Government to blame for housing crisis: Grattan Institute

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The Grattan Institute is making a habit of throwing fuel on the housing affordability fire, this time blaming the governments of the past two decades for our current housing affordability woes.

The think tank has released a 177-page report containing 13 policy recommendations it believes will improve housing affordability in Australia. It warns how our housing mess was caused by governments in the past taking easy options and looking for short-term fixes rather than taking long-term views about migration and supply.

The Housing Affordability: Reimagining the Australian Dream report also claims that a two per cent rise in interest rates, coupled with record low wage growth, will have a catastrophic effect on mortgage holders, including retirees.

Since the late 90s, the rate of Australians aged 65 and older who are mortgage free has slipped from 82 to 75 per cent. Some renters, especially those on low incomes, pay up to 35 per cent of their money received on housing.

Retirees with a mortgage will find it difficult to square away debt upon retirement, meaning many will rely on superannuation to pay off their homes, leaving them with a shortfall in retirement income and possible reliance on a part or full Age Pension.

The answer, the report says, is boosting housing supply, increasing medium to high density housing along transport corridors and possibly removing powers of planning approval from local councils.

As well as this, there may be a need to replace stamp duties with general property taxes, limit negative gearing and reduce capital gains tax from 50 per cent to 25 per cent, although this is secondary to increasing supply by up to 50,000 homes a year for 10 years. This could leave housing costs between five and 10 per cent lower than they would otherwise.

“It’s been a perfect storm of rising incomes and falling interest rates, rapid migration, tax and welfare settings feeding demand, and planning rules restricting supply. As a result, house prices have more than doubled in real terms over the past 20 years. The strains are most acute in Sydney and Melbourne. Since 2012, house prices have risen 50 per cent in Melbourne, and 70 per cent in Sydney,” says the report.

Grattan Chief John Daley also said that home building has not kept pace with strong immigration, and that if the government does not improve planning and infrastructure, it may need to cut migration.

“The Commonwealth Government should develop an explicit population policy, articulating the appropriate level of migration given evidence of the impact of migration on the wellbeing of the Australian community, accounting for both actual and optimal infrastructure and land use planning policies.

“[And] if planning and infrastructure policies do not improve, consider reducing Australia’s current migrant intake.

“Reducing immigration would reduce demand but it would also reduce economic growth per existing resident [so] first-best policy is probably to continue with Australia’s demand-driven, relatively high-skill migration, and to increase supply of housing accordingly.

“But we are not suggesting that is the best outcome,” said Mr Daley.

Read more at www.grattan.edu.au

What do you think of the Grattan Institute’s suggestions? At what value should the family home be included in the assets test, if at all?

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Written by Leon Della Bosca

37 Comments

Total Comments: 37
  1. 0
    0

    Housing crisis can easily be fixed: From a certain date (maybe Jan. 1 next) all housing cost like stamp duties and interest rates, council rates insurances etc to be tax deductible like is
    the case in many other countries. But any property bought from that point on be subject to capital gains tax. This would help the home buyer and hurt the endless property speculators
    buying and selling and thus driving up property prices. The family home buyer would not be forever checking how much his place has increased in value and would not be tempted to sell to make a quick tax free profit just to try to do the same all over again with his next purchase. This nation is obsessed with house prices and it all has to do with the tax free profits offered. Houses bought with tax deductability could then also be included in future asset tests. Without a new system our young ones will never be home owners.

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      I can’t believe that this “institute” places immigration as a , probably the, major cause of housing in-affordability. We’ve had high immigration for the last 65 years, but, the incredible increase in the price of housing has really only taken place in the last 20 years, maybe even less than that.
      And what happened back then?? Governments desperately trying to win votes, introduced incredibly generous tax incentives, in particular reducing capital gains tax to 50% and enabling trusts and super funds, SMSFs, to borrow to buy property and of course added to negative gearing rorts.
      The bleeding obvious happened and is still happening, The supply demand ration was shattered, as the “normal” supply demand that occurred pre 2000, the “demand’ primarily came from people buying a house for a home. That ratio was turned on its head with investors tearing into the property market,further aided by the lowest interest rates in our history, and have totally distorted demand to the ultimate extent of making the former home buyer incapable of affording to compete with the government subsidized investors, many of whom had multiple investment properties, just to further exacerbate the imbalance!!!
      The vast majority of the next two generations of young people will never be able to buy a home as we have known them to be. Those multi high rise blocks that we see all over the world, will become the norm, called “affordable housing”.
      With the government looking for simplistic solutions to embarrassing political problems,viz, no sex in Minister’s offices to solve further sex scandals, well, maybe the Treasurer will suggest that we ban the production of avocados that prevent young couples from buying a new home by wasting their hard earned on smashed avo breakfasts! What a farce.

  2. 0
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    Gimme a break!

    Those rentseekers at the Grattan Institute are forever blaming governments and demanding that they spend more cash.

    Whoa – this cash is not plucked from a tree – it comes from my (and your) taxes.

    So, the choice is either spend your own money on your house cost or give it to the government for programs to (maybe) reduce house costs.

    The latter is a bit like a charity today – how many cents in the dollar would actually get to reducing house costs – bet you not much.

    But, your own $1 is fully $1 in your own direct payment for your house.

    So, Grattan Institute – nick off and stop pontificating and trying to spend my money for me.

    Not withstanding which, buying a first home has always been costly – I remember my parents struggle 70 years ago – let alone our own many sacrifices and extra jobs 40 odd years ago.

    Home ownership is not a “right” as lefties/greens would have us believe.

    • 0
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      The Lefties are correct. Home ownership SHOULD be a right! The two problems are (1) immigration and (2) greedy financial institutions.

    • 0
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      K-A-L – there you go again, bank bashing! Every time you comment you just reinforce the fact that you are an idiot!

  3. 0
    0

    Its not rocket science !

    Its called supply and demand. Increase immigration, reduce mortgage rates, give incentives to investment buyers, encourage overseas buyers and you create a market where demand outstrips supply. Low interest rates allow the system exist against low wage rises until … drum roll.. interest rates increase. The perfect storm waiting to happen. The only possible solution is to keep demand outstripping supply i.e. keep immigration at high levels despite infastructure struggling to keep up.

  4. 0
    0

    One way to lower the cost of housing would be to stop greedy councils, governments and utility suppliers milking the land developers. I have just subdivided my house block to create a separate lot for my daughter to build on. Every step of the way officialdom has had their hand in my pocket for fees etc. This is not money going toward the provision of infrastructure as that’s already there. It’s not for provision of power, water, sewerage works as I paid for that myself. It has been a money grab from a captured source (me) which has highly inflated the cost of subdivision.
    These fees could be waived because by encouraging 2 lot subdivisions, the councils and utility providers gain ongoing customers/revinue without any investment.
    As it is these fees with the added GST add thousands to the cost of a simple 2 lot subdivision which is either passed on to the purchaser or in some cases would make subdividing a block not cost effective when considering the loss of value of the host property.

  5. 0
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    Leaving aside any welfare expectations (and refugee intakes), we need to know why people want to come to Australia. It seems to me most people would talk about lifestyle, opportunity – education and work -, clean air, environment, safety, and such like. What no Government of any hue wants to acknowledge is that this inscessent clamour for a bigger population is destroying the very things people come to Australia for. With a quarter of a million new resident migrants every year who all have to housed, fed, educated, employed, treated and transported mostly in and around Sydney and Melbourne, it is inevitable that there will be a strain on resources and infrastructure. As these needs are gradually met, and still more people come, we are destroying the very things people choose to come here for. Open spaces are no more, the quarter acre block is no more, high rise high density living is being thrust on everyone, getting from A-B is fraught with frustration (and not to mention inconvenient and expensive), certain types of crime escalate, ‘tribal’ wars play out on the streets and suddenly Australia is no longer the mecca it once was. It is becoming more like many other overdeveloped countries with all their inherent difficulties. Australia has a huge land mass its true. What is also true is that about 10% of it is inhabitable (compare that with USA at 40%, South Korea at 30% and UK at 70%) leading to ever increasing residential towers where family homes once stood. And still the number of dwellings can’t keep pace with population growth. Higher prices result.

    We could (and probably should) reduce the incoming new demands until we can cater for the demands already here. Until we have enough roads, public transport, housing, schools, hospitals, aged care, food production, water and sewage systems, energy production and so on, for all those already here, all we can look forward to is ever increasing costs for less and less.

  6. 0
    0

    Cut immigration and end negative gearing along with capital gains tax concessions.
    House prices will fall and remain lower.
    Will not harm resident home owners. The losers will be the property speculators who are milking desperate home seekers and renters for everything they can. Young people mortgaged up to the hilt and in debt for most of their lives just to have a place to live.
    Shame on our society and the greedy speculators with all their tax avoidance lurks and the complicit governments who have created this situation.

    • 0
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      As I said Dave – give genuine family home buyers tax concessions for stamp duties and interest rates for borrowings as well as council rates and charge capital gains taxes should they want to sell the place. Would sort out house buyers from the speculators.

  7. 0
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    Australia is one of the most heavily urbanised countries, with more than 50% of the population living in Brisbane, Sydney and Melbourne (and close satellites) – have huge swathes of land in the “outback, yet successive state and federal governments seem to have bent over backwards to see these country areas effectively de-populated (country train lines cut, gov departments all in the major population centres etc). Then they announce a cash incentive for people to go to these same country centres, but don’t seem to ensure the required infrastructure, jobs etc are out there. Maybe it’s easier to control the populace when they are jammed in, or maybe their developer mates can make more profit crowding us all into a smaller metropolis ????

  8. 0
    0

    Yes stop immigration for a period and see what effect it has on Australia the model we are using is just not working.Sure some people have made a fortune out of our population growth as we can see in the gap between the have and the have nots.Australia will be effected more than most countries by climate change and the last thing we need is a large population, our numbers will increase any way if immigration is stopped.

  9. 0
    0

    There is no housing crisis
    It’s fake news
    Plenty of houses out there for rent and sales

    • 0
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      Yes but the prices are way too high.

    • 0
      0

      Too high according to who?

      Average home is $400- $700k depending on where you live

      That’s only 3 – 4 times an everage couples annual salary

    • 0
      0

      What planet are you on mate ?

    • 0
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      Are you talking to Dave ?

      If you’re talking to me – then you are the one on a different planet

    • 0
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      House prices are high in the inner cities. In country areas, they are cheaper than ever if you factor in low interest rates to calculate the lifetime cost of home ownership rather than just looking at the price tag. I suspect even in the inner cities the cost is much lower than the price tag suggests. Calculate the lifetime cost vs. what those of us who paid 18% interest had to pay for a home. The situation appears very different indeed – especially if you consider higher junior and female wages and the fact that childcare subsidies now allow for two-income families, whereas our generation struggled to achieve two incomes when children were young.

    • 0
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      So Rainey – things are bette now
      Yet you continue to whine about how tough people have it

    • 0
      0

      Better for some, Raphael. Other factors make it very tough for some. And I DO NOT ”whinge”. I make objective and often very critical comment on social and economic wrongs and in response to comments by others that I either agree with or take exception to. It’s called ”debate” – constructive debate actually. I have nothing to whinge about. My life is great. But I object to the denigration and insults dealt out to those who have genuine problems and seek a hearing. And I reserve the right to be critical of flawed government policies.

    • 0
      0

      You’re whinging about nothing as usual
      People are living better now than any time in history

      More disposable income, more leisure time, holidays, benefits of technology….
      The list goes on
      And here is Only Grumpy Rainey bitching and moaning that some people have more wealth then others

  10. 0
    0

    Again the usual villains are blamed for housing affordability, I wasn’t aware that negative gearing was introduced for the benefit of greedy property investors, rightly or wrongly I thought negative gearing applied to all forms of investment, I know of many people who borrowed money to invest in the stock market, at tax time they claimed back all the interest that they paid on their investment, when they sell their investment, if they have held said investment for more than 12 months then their capital gain is only assessed at 50% the same as property investors, and no I don’t have a vested interest the only property I own is the one I have lived in since the 60’s. The main contributing factor in my humble opinion for a rise in housing costs is the increased cost of land, when I bought my block of land the cost was approximately 20% of the total cost of my home, nowadays the cost of land is equal to or more than the total cost of the home, so why has there been such a huge cost in land, to give it some respectivity in the 60’s I paid $2000 for my land which was in a fairly good area, the cost of our modest home was $10000, today in a similar area for a smaller block of land expect to pay $450000-$500000, you could build a home twice the size of mine for $350000-$400000, so why has land gone up so much? The area I live is in the Illawarra.

    • 0
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      Jim – I was offered a housing block in Doncaster, east of Melbourne for $1700 cash in 1970 by the developer of an estate there. Was 22
      at the time and did not want to saddle myself with a piece of dirt. Never thought that 40 years later, the same block would be $400’000. So I would agree about your argument about the price of building land.

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