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Solving housing affordability

Solving housing affordability

Let’s accept that in some areas we have a serious problem with housing affordability. As to whether we have a crisis largely depends on where you live or how old you are. However, chances are that if you’re under 30 and living in Sydney or Melbourne, you probably don’t yet have a mortgage and, looking at rapidly escalating prices, don’t hold out much hope of ever achieving the status of home owner in these cities.

The trouble with Australia’s housing affordability crisis is that the pain is not evenly distributed. If you had the benefit of purchasing before the current Sydney/Melbourne bull run you are most likely benefiting from historically low interest rates and increased equity, making a second or third property investment an attractive proposition. There is no affordability crisis for this group other than concern for the future property aspirations of any offspring.

So any crisis is about accessibility and the prospect that a generation of younger Australians in our major capitals may be locked out of home ownership for their lifetime or suffer extreme hardship to get a foot on the property ladder. And to make their lot even tougher, they are caught in a vicious cycle where there is a limited supply of private rental accommodation and prices are at an all-time high.

Not to be confused with housing affordability we also face challenges in regard to affordable housing. Much of the public commentary around the issue displays a failure to understand that these are two quite different issues. Affordable housing encompasses a range of housing options including Government owned and allocated public housing, social housing often supported by charities, and privately owned low-cost housing often integrated as part of a mixed broad scale residential precinct development.

The supply of affordable housing has been gradually declining over many years pushing many low income families into the private rental market where they must compete against those on higher incomes.

Historically, the provision of affordable housing to support those in need has largely fallen under the remit of our social welfare systems, either at a Federal or State level. As the pressure on the public purse grows, it is clearly time to think about new ways to deliver affordable housing through different sorts of government, private sector or individual investor partnerships.

For the private rental sector to assist in resolving the affordable housing issue we need to stop taking pot shots at investors or blaming overseas investors for pushing up prices beyond the reach of young Australians. The investor market has been critical to Australian housing supply for decades, and it will be even more important in the future as the ability of Governments of all types to fund the needs and expectations of our society is placed under growing pressure.

If you believed the media coverage in recent times, you would either think that “the housing affordability issue” will either be fixed by increasing supply or getting rid of negative gearing. The problem with much of the recent commentary is that it suggests there is a simple solution to a complex problem. Just as there is no single Australian real estate market, there is no universal housing affordability crisis and therefore no universal solution. There are clearly major barriers for first home buyers wanting to purchase in Sydney or Melbourne, and given the projected population increases and associated demand for housing over the next 20 years, there’s unlikely to be much change for these cities without major market manipulation which our collective Governments will not and should not undertake.

The ongoing and often shrill calls to curtail negative gearing as a panacea for all of our challenges also needs to be resisted for the very fact that it will produce a range of unintended consequences that will only harm recovering markets in areas such as Brisbane and the Gold Coast, and struggling regional areas where permanent population drift is hurting local economies and the local property markets. Any changes to the property taxation arrangements that are designed to limit the growth of markets that have experienced 25% to 30% capital growth over the last two years are likely to result in declines in the many areas of our country where corresponding price movement has been marginal or negative.

If you’re an owner-occupier in regional Australia who has never had the ability or desire to invest in a second property, you’d feel justifiably aggrieved if your only significant asset dropped in value as a result of policy changes whose main aim was to assist or placate home purchasers in Sydney and Melbourne.

Those who have taken advantage of negative gearing to buy investment property come in many guises. Along with the mum and dad investors, many of whom have purchased to assist their children, are first home buyers who have got a foot in the door thanks to the tax concession. Why not make it easier still for first time buyers by removing the requirement to live in the property without compromising their First Home Buyer subsidies.

If changes are to be considered to the investment foundations of our property markets, they need to be carefully tailored to address specific challenges. We need to start getting serious about more global and integrated policy settings across all levels of government.

These could include greater access to superannuation savings for home ownership, postcode based regional modifications and restrictions to Capital Gains Tax and negative gearing arrangements, better alignment of APRA and banking policy to ensure more targeted and sophisticated application of changed policy settings, replacement of government stamp duties with broader based property based duties, increased provision of affordable housing in all new developments but especially where government is the landowner, security of tenure for long term tenancies and reining in the outrageous windfalls that come with Government rezoning of land.

We are well past the stage when we looked to Government for cradle to grave security. Nonetheless, ingrained deep in our psyche of what it means to be Australian is an expectation that we care for those least able to support themselves.

In this respect, we need the government to continue to provide affordable or social housing for the many thousands who through life circumstance or disability require support throughout their lifetime. But we also need government and institutions to support and encourage the supply of new homes whether that be for purchase by investors or owner occupiers. To find the appropriate balance in this complex field is the real challenge for our political leaders, and recent history across the entire political spectrum may lead you to question the extent to which this can occur.

 

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