Opinion A real plan to make homes affordable again

A real plan to make homes affordable again

housing bubble affordability
Young Australians are squeezed out of the housing market. Photo: Getty
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When political leadership fails the nation, others must step into the breach – just as accounting firm KPMG has done this week in a report offering solutions to Australia’s housing affordability crisis.

The report isn’t afraid to point the finger: “… politicians and bureaucrats have acknowledged affordability is a fundamental barrier for many in society to be able to purchase and enjoy their own homes, but haven’t been able to offer any tangible reforms to help the situation.”

Well not until just recently, anyway. At the last election it was something of a shock to see a major party – Labor – suggesting property tax reforms to halt rampant house-price inflation.

chris bowen negative gearing
Shadow treasurer Chris Bowen: took property tax reform to the last election.

The Coalition, by contrast, has maintained the do-nothing approach of previous governments.

As KPMG puts it, “the solution adopted appears to be one where if we wait, the problem will decline as the economy strengthens, wages grow and affordability improves – until of course house prices rise and interest rates increase, pushing affordability back down from that brief window of hope”.

Ten-year itch

It’s a decade since the firm looked at the housing market in detail, and the report’s author, KPMG chief economist Brendan Rynne, found several things had changed.

He writes that “wages, interest rates and housing supply” have become much more important in driving prices higher.

Well yes, in the past decade, the mining boom component of national income did push up prices – though that will diminish going forward. The same can be said of housing supply, which is about to suffer an ‘apartment glut’ shock.

Record low rates, on the other hand, look set to stay low for a very long time – the RBA surprised nobody by leaving rates on hold at its meeting on Tuesday.

Three elephants

Mr Rynne argues that there are three ‘elephants in the room’ that need to be acknowledged when debating affordability:

  • Topping his list are “taxation and regulatory arrangements that distort investment decisions” – something The New Daily has frequently examined;
  • Next is the idea that ‘affordable housing’ does not have to mean ‘home ownership’ – something that renter-friendly countries, such as many European nations, demonstrate;
  • And finally, Mr Rynne notes that many of the homes being built are just too big and fancy. He writes: “…if we measured housing capacity by the number of bedrooms we might find that there is significant ‘over-supply’ of accommodation for our population.”

The picture of the housing market drawn by KMPG is complex, so in turn it has suggested a fairly complex suite of solutions.

The biggies

Right at the top of that list of solutions is a halving of the discount applied to capital gains tax, which KPMG thinks would make “property investment marginally less attractive”.

That measure, which is already part of Labor’s platform, makes a lot of sense – though unlike Labor, KPMG does not argue for negative gearing reforms as well.

apartment boom
A large surplus of apartments is forecast for Australia.

Another sensible reform, in policy terms at least, is to do away with stamp duty, local council rates, insurance add-ons such a bushfire surcharges, and to roll all of these into a single ‘property services tax’.

That’s also a great idea. Not only does it remove the ‘hurdle’ of stamp duty for home buyers, but economists widely acknowledge that such a broad-based land tax is about as good as it gets when trying to raise revenue without distorting economic activity.

That said, getting federal and state governments to agree on such a reform would be a huge task.

Some of the other measures recommended are more problematic.

For instance, there’s a call for ‘shared equity’ programs “to be provided by government and/or the private sector”. That would mean a home buyer would still feel they owned the home, but would have a silent shareholder owning part of the equity.

The problem with doing that is it allows prices to remain unreasonably high, rather than bringing them down.

Will Canberra listen?

While it’s refreshing to see all these reforms laid out in one report, it’s disappointing that they are taking so long to filter into the national debate.

Ultimately, the major parties know what to do about housing affordability. Reports such as KPMG’s might just help them have enough guts to get on with it.

To read more columns by Rob Burgess click here.

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