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.