Adjournment Speech – Response to Housing Affordability inquiry

May 13, 2015

Senator Bob Day

Adjournment Speech on the Senate Economics References Committee’s report “Out of Reach?”

For the vast majority of Australians the prospect of owning their own homes remains a central ambition. Family First affirms home ownership as a symbol of equity, providing Australians the opportunity to have a tangible stake in the nation. Last week, a new report into housing affordability entitled Out of reach? was issued by the Senate Economics References Committee. As predictable as the sunrise, the report’s recommendations focused on demand drivers rather than the true culprit—that is, lack of supply.

Like the Productivity Commission and the Reserve Bank before them, the report tackles the usual suspects—capital gains tax, negative gearing, readily accessible finance, rent-to-buy schemes, first-home buyers’ grants and the phasing out of stamp duty. Moreover, solutions are not found in merely allocating more funds, adding more layers of bureaucracy or commissioning more reviews into the housing sector. These proposals offer nothing more than bandaid relief, and fail to get to the heart of the issue.

Australia does not have a housing affordability problem. One can get a brand-new house built for around $100,000. What Australia has is a land affordability problem. For exactly 100 years, from 1900 to the year 2000, the average Australian was able to buy their first home on the average wage. Traditionally, the median house price was around three times the median household income. For example, when the median income was just $1,000 per annum—$20 a week—in the early 1960s, one could buy a basic house on a basic block for $3,000. That is three times. When the median income rose to $10,000 per annum in the 1970s, the median house price was $30,000—again, three times the median income. When the median income was $40,000 per annum in the early 1990s, the median house price in most capital cities was $120,000. Today, the median house price is closer to 10 times the median household income. At 10 times the median household income, a family will fork out approximately $500,000 more on mortgage payments—that is principal and interest—than they would have, had house prices remained at three times the median income. That is $500,000—half a million dollars—that they are not able to spend on their children’s education or family comforts. It is $500,000 the parents did not need to earn but, instead, could have spent more time at home, instead of paying for child care.

The elephant in the room has been, and will continue to be, this: increases in median house prices are due to the skyrocketing price of land. Over the past 15 years the price of residential land across capital cities has increased nearly fivefold, from an average of $150 per square metre in 2001 to an average of $500 per square metre by 2013.

In the report released last week, the only submission that accurately approached this problem of land supply was one from a Professor Dalton of RMIT University. His concerns are focused on Victorian developers, who inflate the costs of land by preventing its timely release. To quote Professor Dalton:

We saw a policy initiative that started in the 1970s—the nationally supported land development companies run by state governments, some of which still exist in various forms—to challenge that oligopolistic behaviour on the fringes. I think that oligopoly still exists to some extent and needs investigation.

Let me start by emphasising what Professor Dalton gets right. Family First does acknowledge the need for small players to be encouraged back into the market by abolishing so-called compulsory ‘master planning’. Too much land is exclusively released into the clutches of large developers and too little provided to smaller players. If large developers wish to initiate master planned communities, so be it. But state governments should not make them compulsory.

Also of great concern is the cosy relationship these developers have with state land management agencies. But what does Professor Dalton get wrong? Namely, it is the assumption that state land management agencies exist to challenge corporate developers and their monopolisation of land. As I stated in my own submission to the affordable housing inquiry, the land development agencies are in fact in cahoots with the larger developers. As indicated by Professor Dalton, when the South Australian land management agency was established by the state government in the early 1970s, its primary aim was to assist housing affordability. Let me quote from the land management act of 1973, when its mandate was ‘the provision of land to those members of the community who do not have large financial resources’. Further, the land commission was charged such that it ‘shall not conduct its business with a view to making a profit’.

By 1981, just eight years later, those noble motives were removed from the legislation and, lo and behold, replaced with the mandate to ‘maximize financial returns to government’. Note the blatant shift of emphasis from the original aim, from the interests of the buyer—’those members of the community who do not have large financial resources’—to the interests of the seller, the land management agency, from ‘maximizing returns to government’. In 2013-14 alone, this unethical transition helped the state governments of Australia collect windfall profits of nearly $600 million. In effect, the Australian taxpayer is funding the very agencies that are hindering their ability to acquire affordable housing.

Family First’s platform has been and always will be—or hopefully always will be; never say never—’every family, a job and a house’. The unaffordability of land is a grave injustice to all Australians who desire the moral, social and economic security of their own home. The Out of reach? report continues the narrow focus on demand-driven solutions and the promotion of bloated bureaucracies. Unless future committees choose to address the neglected issue of land supply, housing affordability for all Australians will continue to remain forever out of reach.