Wednesday, 28 February 2007
Matters of Public Interest
The media has painted a bleak picture for young Australian people seeking to buy their first home. Just a couple of days ago, the residential development council released a survey showing that only 17 per cent of property experts believe that young Australians would actually be able to afford to buy their own home. These young people will struggle to overcome surging land prices, where the average house price is nearly nine times the level of the annual median family income. There is no doubt that Australians do want to own their own home. It is part of the great Australian dream. The benefits of homeownership cannot be underestimated and they are not purely economic. It extends far beyond the simplistic acquisition of assets. Homeownership generates much wider benefits for our country’s social capital. Homeownership allows families to put down roots and become part of a community. It gives people a sense of control over their destiny and a feeling of security and stability. Owning a home gives people a tangible stake in the community in which they live.
In his famous ‘Forgotten people’ address in 1942, Sir Robert Menzies articulated the profound significance of the family home when he said:
The home is the foundation of sanity and sobriety; it is the indispensable condition of continuity; its health determines the health of society as a whole.
He later continued:
Your advanced socialist may rage against private property even while he acquires it; but one of the best instincts in us is that which induces us to have one little piece of earth with a house and a garden which is ours ...
Sir Robert’s insights into the importance of homeownership and his exposure of the double standards of the Bollinger bolsheviks on the other side of the chamber are still relevant today. For months, the extreme socialist left of the Labor Party have pranced about and whinnied about the high cost of housing, offering no solutions, only looking to apportion the blame. They sought to blame interest rates, they blamed our national prosperity and they have blamed anyone and anything to avoid confronting those really responsible. The Labor Party have pointed the finger of blame everywhere except where it should be pointed—at their own kind, because the real culprits in making housing unaffordable are their comrades in charge of the state Labor governments. Housing unaffordability is not simply a product of interest rates or national prosperity; it is caused by the blatant profiteering by the modern-day robber barons masquerading as the state Labor governments.
As the Productivity Commission in their 2004 report into first home ownership identified:
The debate around housing affordability needs to be refocused to where action is urgently needed—that is in the area of property taxation, in particular stamp duty, and land supply ...
Both of these are state government responsibilities. And it is not just the Productivity Commission; most major industry groups and stakeholders have been saying this for years. The evidence is everywhere—it is overwhelming—and the only people who have chosen not to see it are in the Labor Party.
The Labor opposition are complicit in a scandalous cover-up to protect the woeful economic credentials of their state comrades. Listening to their poor excuses for failure proves that denial is not just a river in Egypt. The opposition benches are in denial; the state governments are in denial; but the Australian people deserve to know the truth.
Despite the overwhelming evidence, the spendthrifts running the state coffers have continued to fail local communities and prospective homebuyers. The state governments are the ultimate hypocrites on this issue. Publicly they feign concern and voice their sympathies for those trying to enter the housing market, and yet at the same time they have their grubby hands out and their coffers open to accept massive sums of money in the form of stamp duty. They fleece the poor homebuyer to pay for their own inept, incompetent financial management skills. Nowhere is that more evident than in my own state of South Australia. Shamefully, in July 2002 the South Australian state government increased stamp duty for properties valued at more than $200,000 even while property prices were rising dramatically.
The high-taxing Rann government are propping up a very well padded public service at the expense of struggling homebuyers. On the average South Australian home, the state Labor government slugs the buyer around $10,500 in stamp duty, and a further $1,700 in land tax fees. Punch a few numbers into a computer for $1,700; it’s very nice work if you can get it! But it is absolutely no help to homebuyers who are in total $12,200 worse off than they should be.
It is even worse in other states, which are all run by more Labor comrades. State governments levy so much tax on property that it has been labelled ‘world’s worst practice’. According to the Warburton-Hendy international tax benchmarking study released last year, Australia has the highest property tax burden of all major OECD countries. The report stated:
Of the OECD-10, Australia has the highest financial and capital transaction tax burden (includes taxes such as stamp duties on conveyances).
But what do we hear from the federal Labor Party about the real cause of the escalating cost of housing? Absolutely nothing. Instead, they seek to play the blame game. They blame interest rates, even though mortgage rates have averaged 7.15 per cent under this government, compared with an average 12.75 per cent under Labor administrations. The Labor Party even blame our high levels of prosperity, but even Paul Keating’s former economic adviser John Edwards has praised it, saying: ‘Over the past decade, real wealth in Australia has doubled. There hasn’t been a decade like it for the past 100years.’
But the ALP seem to think that this prosperity is a bad thing. I can only conclude that they must want to go back to the bad old days of ‘hard Labor’, with 17 per cent interest rates, high unemployment and low wages growth. And with no coherent economic policy of their own, they are desperately trying to play the blame game. If they want to blame someone, federal Labor might need to talk to state Labor. But that will probably never happen. Typical Labor incompetency—one arm does not talk to the other arm, because there is no brain in between.
There is quite simply no doubt that stamp duty on property transactions drives up housing costs for all Australian families. But there is even more dirty laundry attached to Labor’s stamp duty slug that needs to be aired. In their 2004 report into first home ownership, the Productivity Commission identified this dirty laundry as the ‘lock-in effect’. The commission said that stamp duty inhibits the turnover of property—that it discourages people from moving as their immediate housing needs change. There is clear evidence of this in the types of homes that people are currently building—the ‘McMansions’, as they are referred to in the popular press. In the past 10 years, nearly half of all McMansions were built by childless couples. A young married couple without children simply do not need a five-bedroom, double-storey house with a rumpus room, two lounge rooms and three bathrooms. At the other end of the spectrum, older Australians often remain in large family homes long after their families have moved on. Perhaps these people would like to purchase more appropriate accommodation, but they are scared off by the cost of stamp duty—paying $10,000, $20,000, $30,000 or more in stamp duty tax is a huge disincentive. Therefore, they ‘lock in’.
There is also evidence that stamp duty impairs regional labour mobility. This hurts our regional areas that are already suffering through skills shortages and, of course, the drought. Mr John Freebairn, Director of the Melbourne Institute of Applied Economic and Social Research, states: ‘Conveyance duties operate as a disincentive to reallocation of ownership.’ You can understand just how much of a disincentive stamp duty can be: if a couple moves three or four times throughout their lives, based on today’s figures, they will pay close to $100,000 in stamp duty—almost a third of the cost of an average home. Most people actually move more than three or four times during their adult lives, so the real cost is actually higher.
The greedy state Labor governments are making existing housing unaffordable and new housing even more unaffordable because of their punitive property taxation policies. It does not end with stamp duty. The Labor greed continues. Current state government land release policy failures have led to a rapid escalation in the price of land and, therefore, housing costs. According to the Australian Property Council, ensuring adequate supply of land for new housing is the main influence on market pricing. The Property Council explicitly stated: ‘The fact that the supply of land has not been allowed to meet underlying demand has eroded housing affordability.’
State governments have actually sought to limit the outward expansion of their capital cities. For the past 20 years, the consolidation movement has taken hold. It has stifled land supply and has consequently sent land prices skyrocketing. So we experience the most basic supply and demand law of economics at work: restrict the supply and watch the prices go through the roof. By restricting the supply of land, state governments have been able to increase the price of land and this has increased the amount of property tax that state governments collect.
In South Australia, the charter of the Land Management Corporation—a state government corporation responsible for managing and developing South Australia’s portfolio of land assets—has gone from providing ‘an adequate supply of land’ and maintaining ‘land affordability’ to ‘maximising returns to government’. Note that interesting policy shift on the part of the Labor state government. And now state governments are pocketing their greedy bounty at the expense of homebuyers. Where land once represented only 25 per cent of the cost of a new house and land package, it now represents around 50 per cent. In real terms, the cost of building a home has remained relatively static. The affordability issue is inextricably linked to the rising cost of land.
Housing affordability begins at the entry level, and most entry-level housing is on the urban fringe. If you restrict supply at that point, up goes the price and down goes affordability. What has really occurred is that the state governments have held on to land and they only release it when the value is high, maximising their own returns but causing undue hardship for Australian homebuyers. This is shameless profiteering and greedy irresponsibility. To top it all off, it is adding to the issue of rising rents. As property owners are slugged with ever-increasing rates of land tax, they are forced to pass on those costs to their tenants.
Labor government policy failures are adding to the housing affordability crisis. Labor governments are failing local communities and homebuyers where they need to pay for their irresponsible spending sprees. Where Labor has wilted, the Howard government has stood tall. The Howard government understands the need for everyday Australians to own their own home and that the best way to do this is through a strong economy. The Howard government has done the hard yards on tax reform, running budget surpluses and formulating policy to keep interest rates low.
It is the Howard government that introduced the First Home Owners Scheme. It is the Howard government that worked diligently to see our economy grow consistently throughout our term. And it is the Howard government that paid off all of Labor’s $96 billion debt that was threatening to make Australia a fifth-rate banana republic. Federal Labor need to talk to their state Labor counterparts about their punitive taxation and land release policies if they are at all concerned about housing affordability in this country. The state Labor governments, awash with money from property taxes—and let us not forget the GST windfalls they are all receiving—are wasting a once-in-a-generation opportunity to use their strong financial positions to make a fairer property tax system and assist the homebuyers who need it most. Labor state governments are simply failing to deliver better outcomes for Australians looking to buy a home. Instead of trying to reduce the financial burden on homebuyers, they simply sit back and watch the money roll in.
I will finish by quoting Chris Lamont of the Housing Industry Association, who just last week said about housing affordability:
The cause of the problem lies in an undersupply of ready-to-develop land, the multiple planning hoops developers must jump through in order to get a building completed, and the fact that State and Local Governments regard housing as a cash cow to be milked to underwrite their budgets.
The people of Australia deserve better. They simply cannot afford the waste associated with state Labor governments and they cannot afford the waste associated with a federal Labor government.