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A first instalment on budget analysis

Dear ,

I intend to do some deeper analysis of the budget later but in the meantime I wanted to draw your attention to the media release we put out on Labor's "Housing Accord" late on budget night.

We don't get invited to the Budget Lockup, and even if we did, it's not possible to focus on everything (that would be the opposite of focus really). So our release concentrated on housing policy, an area where we have credibility, because of our affordability index, and expertise.

This policy is pretty emblematic of the budget as a whole. Faced with an economic emergency that some of us could see coming down the road since COVID collided first with renewables and second with the war in Ukraine, Labor has done no serious thinking about it. Their answer is to do more of what they did last time, and reach back to the 60s for their industrial policy, a reflection of the proclivities of the Treasurer, who was Wayne Swan's offsider, and the Secretary of the ACTU, who appears to still have a Mao hat under her bed.

Our inflation is a consequence of a massively expanded money supply to "cope" with COVID, and a sudden shortage of goods to spend it on, caused by supply-chain problems and sanctions. One of these on its own was enough to give us problems, but two produces forces we haven't seen since the 20s and 30s (where protection played the same role as sanctions).

Traditionally the first budget of an incoming government is tough. They know what needs to be done, and that the electorate won't like it, so they do it as long before the next election as they can, knowing that they'll be hung by reality if they don't do it, and hung by the electors if they do it too late.

The savings, such as they were, were easy and gained mostly by redirecting money from coalition electorates, and the rest were pretty much like painting over the last coat of paint on an old Queenslander without bothering to sand it back.

Which brings us to the "Housing Accord". This was a promise, using unspecified cooperation between unspecified entities including business, state governments and unions, to build a million houses between 2024 and 2029 - slightly less than the number of houses we've built in every five-year period since 2013-2018 - and to mnimally increase the stock of social housing. So 9 years in opposition, and that is the best they can do! Forgive me if I'm not just underwhelmed, but fearful for the future.

The release is below.

Regards,

GRAHAM YOUNG
EXECUTIVE DIRECTOR
.

Much ado about not very much

According to Graham Young, Executive Director of the Australian Institute for Progress the budget promise of one million new homes over five years is mostly “smoke and mirrors” and would actually represent a reduction in house starts over the last five years.

“Between 2014 and 2021 there were 1,029, 047 housing starts. That includes the beginning of COVID when starts dropped to 175,356 and 182,523 in 2019 and 2020 respectively.

“Despite material and manpower shortages the figure rebounded to 230,730 in 2021 and is 93,781 in the first two quarters of this year.

“All this was achieved on current levels of government assistance. If the government policy is anything more than a media opportunity the Treasurer needs to demonstrate that housing starts were about to fall and that this policy rescues them.”

Mr Young said the housing affordability crisis is unlikely to be solved by the federal government.

“Housing affordability is a product of regulation (too much, the wrong kind and poorly administered), taxation, and infrastructure imposts. Another contributor is low interest rates which cut both ways, pushing land and housing prices upwards at the same time as they potentially make servicing a housing loan cheaper. And a third is population growth.

“None of these factors is controlled by the federal government apart from population growth, where it sets immigration targets.”

Mr Young said that an annual permanent immigration target of 190,000 implied a need for around 86,000 houses, or an additional town the size of Toowoomba, three Wagga Waggas or one Ballarat each year.

“This is a huge handicap on the current supply just to start with.”

Mr Young criticised the lack of detail.

“The accord seems to be a cobbled-together collection of policies that already exist - such as the Home Equity Scheme, or state government welfare housing building programs - with a promise to bring industry and government together and for the federal government to build 10,000 welfare homes.

The scheme also involves superannuation funds who will receive some sort of rent support from the government to make it worthwhile.

“Most rental stock is currently owned by private individuals, and it is unclear to me how substituting superannuation funds and rental subsidies for private individuals and negative gearing achieves anything.

“The returns on residential real estate are modest because private investors accept lower rental income in return for being able to gear up and make good returns on the capital invested. This strategy is not available to superannuation funds who are restricted in terms of gearing.

Mr Young said that the measures did nothing to address the most severe affordability crisis which is rental housing.

“The budget admits that its measures won’t have effect until 2024, but for those unable to obtain a rental because of lack of stock, those could be the worst two years of their life.

“Again, the federal government has a limited role to play here, but part of this shortage of rental properties seems to be due to state government regulations shifting rights from landlords to tenants and making housing unattractive to them.

“A small expenditure establishing an inquiry to look into these matters, coupled with a campaign to make state governments see sense, would have been the best investment in the housing crisis this budget could have made.”

For further information contact Graham Young 0411 104 801.