Australian housing policy: Fifty years of failure

Address to the 122nd Annual Henry George commemorative dinner

Saul Eslake

Melbourne 2nd September 2013

Note: the opinions expressed in this talk are solely the authors, and should not be attributed or imputed to any other organization with which he is connected or associated.
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Up until the past decade, the housing stock grew at a faster rate than the population
Inter-censal growth in population and the housing stock
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 19471954 19541961 19611966 19661971 19711976 19761981 19811986 19861991 19911996 19962001 20012006 20062011 % pa Occupied private dwellings Population

Inter-censal periods
Sources: Australian Bureau of Statistics, Census results; authors calculations.

Home ownership rates rose substantially between 1947 and 1961

Home ownership rates at Censuses
75 %

70

65

60

55

50 1911 1921 1933 1947 1954 1961 1966 1971 Census

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.
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1976

1981

1986

1991

1996

2001

2006

2011

The average number of people per dwelling increased between 2006 and 2011 for the first time in 100 years
Average number of people per occupied private dwelling at Censuses
4.75 4.50 4.25 4.00 3.75 3.50 3.25 3.00 2.75 2.50 1911 1921 1933 1947 1954 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 Number

Census
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.
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Home ownership rates havent increased at all since 1961

Home ownership rates at Censuses
75 %

70

65

60

55

50 1911 1921 1933 1947 1954 1961 1966 1971 Census

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.

1976

1981

1986

1991

1996

2001

2006

2011

Despite substantially lower interest rates since 1991 home ownership rates have fallen in almost every age bracket
Home ownership rates by age of household head, 1961-2011
90 80 70 60 50 40 30 20 10 0 15-24 25-34 35-44 45-54 Age of household head 1961 1971 1981 1991 2001 2011 55-64 65+ All 25 25 47 61 % 75 64 79 73 81 78 79 70 67

79

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.
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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 : 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 To get a grant under the 1970s Home Deposit Assistance 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 2000s First Home Owners Grants Scheme you have to : have not previously have owned a home To get a grant under the 1980s First Home Owners Scheme you had to : have a family income of less than 155% of average weekly earnings and have not previously have owned a home

Governments have spent at least $22bn on cash grants to first home buyers over the past fifty years
Expenditure on assistance to first home buyers
3.0 $bn in 2010-11 prices

2.5

2.0

1.5

1.0

0.5

0.0 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11

Financial years ended 30 June

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 201011.
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Negative gearing became much more attractive after the 1999 decision to halve the rate of capital gains tax
Taxpaying property investors
Taxpayers with rental income
16 14 12 10 8 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Financial years ended 30 June % of total taxpaying individuals

Net rental income

10 5 0 -5 -10 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Financial years ended 30 June $bn

Interest paid by property investors

25 20 15 10 5 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Financial years ended 30 June $bn

Loss-making landlords as pc of total

70 65 60 55 50 45
na

% of total

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Financial years ended 30 June

Sources: Australian Taxation Office, Taxation Statistics 2010-11 (latest available); authors calculations.
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The assertion that the abolition of negative gearing in the mid-80s caused a landlords strike is an urban myth
Rents
20 15 10 5 0 85 20 15 10 5 0 85 86 87 88 89 Hobart 86 87 88 89 6 Perth Darwin 5 4 3 2 1 0 85 86 87 88 89 Perth
% ch from year earlier

Vacancy rates
Adelaide 5 4 Brisbane Melbourne 3 2 1 0 85 86 87 88 89 Hobart Sydney Melbourne
% (moving annual median)

Sydney

Brisbane

Adelaide

% ch from year earlier

% (moving annual median)

Canberra

Canberra

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.
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Negative gearing hasnt done anything to improve the supply of rental housing compared with other countries
Rental vacancy rates
12 %

10 US 8

4 Australia 2

0 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

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

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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 selffunding, like Western Australias 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.

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