Arthur Sinodinos (NSW, Liberal Party) Share this | Hansard source

In answer to Senator Whish-Wilson, we should have a debate and we are having a debate—not just today, as there is an ongoing debate. There will be a debate through the rest of this year, and there will be a debate in the context of the tax white paper and in various other contexts. I will come to some of those in a minute.

The fact that the market is strong does not in itself mean that we have a generalised crisis in the housing sector. A lot of speakers are focusing on the situation in particular segments of housing demand, and I will come back to that, because at the moment we are having very high rates of clearance, which shows that demand across the board is quite high. It is not just restricted to Sydney or Melbourne, but I concede that there have been particular price pressures in Sydney and Melbourne, particularly in Sydney. I will come back to that. But housing construction, housing supply, is starting to respond. It was up 4.7 per cent in the March quarter of this year, the highest since 2009. So demand is up, but supply is up.

I want to go to some of the issues that perhaps are constraining supply, and to make the general point that this discussion needs to be a comprehensive one on all the factors that potentially impact on the affordability of housing. I also want to make the point that this debate is too narrow if it focuses on a subset of particular taxes.

There is no doubt that there has been a big contribution to demand in the housing market in recent times by investors taking advantage of low interest rates. That is what lower interest rates do: they tend to stoke demand for loans, and there is no doubt that investors have been in the market in a big way. How are the official family, if you like, including the Reserve Bank and others, addressing this? The Prudential Regulatory Authority, which has the main responsibility in this sector, has actually provided guidance to the banks on restraining the growth in lending to investors. That is important. It is not saying the banks should constrain lending to first home owners; it is saying they should constrain the growth in lending to investors, holding over the banks the prospects of them having to raise or hold additional capital against loans to investors for that part of the market. Now, that is important because it frees up the monetary policy of the Reserve Bank to focus on economic growth across the country. The whole point is to use the prudential regulator to focus, in this case, on investor demand and free up monetary policy so that we can focus on the overall level of demand and growth in the economy.

Foreign investment policy is also being enforced so that overseas investors are targeting new housing. We are getting rid of the situation where it was possible for people to buy existing housing and bid up the cost of that housing. There is a wall of capital coming towards Australia from overseas. Through better administration and foreign investment policy, we are seeking to encourage that wall of capital into new residential construction as well as commercial real estate.

But let us keep it in perspective. Low interest rates mean that repayments for many people are below pre-GFC levels. The change is that the amount of debt people have taken on has gone up. There is no doubt that that is an issue, and the Reserve Bank is keeping an eye on that. But that is focusing on the demand side—and I will come to tax a bit later on.

The point is that we are now acknowledging the role of supply constraints in housing, particularly in markets like Sydney and Melbourne. The latest minutes of the Reserve Bank of Australia—and Senator McLucas was talking before about the role of the Reserve Bank—explicitly focus on this:

Noting that housing price growth in other cities—

that is, other than Sydney or Melbourne—

and regional areas had declined over recent months, members discussed the strength and composition of underlying supply and demand conditions in different parts of the housing market. They also observed that there was a relatively low stock of dwellings for sale in Sydney and Melbourne and that dwellings took only a short time to sell.

So, we have a supply issue that we have to continue to address.

What is the government doing about that? At the recent meeting of state and federal treasurers, the federal Treasurer instigated a COAG or Council of Australian Governments review of supply issues, to be led by Tim Pallas, the Victorian state Treasurer—because many of these issues are local and state government issues. They go to restraints on land and planning controls, zone regulations and the like. We need to be more flexible in that regard. There was a report done for the Menzies Research Centre about a decade ago, when Malcolm Turnbull was the chairman of the centre, by Christopher Joye, who now writes for The Australian Financial Review. That report isolated the relative reduction in the supply of land relative to demand over the last three decades as being an important factor in raising the price of housing in major markets, particularly in markets like Sydney.

Today's editorial in TheFin Review, which I do not often quote in this place, made the point that there are also structural issues at play. It says:

… in the 2000s, the resources boom crowded out housing and infrastructure investment. Now a big wave of apartment, road and rail development is trying to catch up, often in the face of anti-development activism.

All of us on each side have our prejudices, we have our ideologies and we have our views. In coming to this debate, we have to ask ourselves: are we doing things, particularly in the inner city, that constrain our capacity to augment the housing supply? What is happening is that many people do not want to live on the ever-increasing fringe of large metropolitan cities; they want more affordable housing closer to the city. This is an issue for subgroups in the economy with particular roles, like essential services workers and others, who are never going to be investment bankers, so they are never going to be able to afford to live in Mosman and other areas like that in my home town of Sydney—not unless there is that capacity to target more affordable housing. It is not necessarily a case of more subsidies for housing per se. It is also a case of accepting some of the restraints on development, in a balanced way. We have to have regard to the environment and think about conservation goals, but we have to have the capacity to do that in a balanced way, particularly in these inner city areas. That is going to be very important, going forward.

My other concern about the narrowness of this matter of public importance today is that it focuses on a couple of taxes and, without really canvassing the pros and cons of removing those taxes, says that they must go because we predict there may be a particular effect on the housing market. But this is quite complex. In the case of negative gearing, there is quite a debate that goes on about the impact of removing negative gearing in the 1980s. There are a number of views that can be tested on all of that, and there are contrary views. The Greens and others, in the context of the tax white paper and other processes that are afoot at the moment, do have the opportunity to canvass those and demonstrate their propositions in more detail, and they should do that, because this needs to be backed up by the facts, not by an assertion that 'because I don't like a particular tax or because I think it goes to particular individuals, that tax should just go'.

In the case of capital gains tax, we also have to be careful at a time when people, including Labor, are promoting the concept of greater entrepreneurship and more innovation, and focusing on start-ups. Capital gains tax issues are important in that context as well. It is not just a matter of looking at a tax narrowly, in the context of one particular market. We need a comprehensive approach to tax reform. We cannot do tax reform on the basis of looking at just one or two taxes, because balanced tax reform involves looking at direct and indirect taxes, what we do about income tax, what we do about taxes on capital, what we do about taxes on land—and taxes on land is one of the taxes left out of this MPI, something that has been recognised in the past as another potential revenue raiser.

What do we do about stamp duty? It is a major factor. How do you pay for things if you remove stamp duty? These are the issues. It is not just a matter of saying that certain concessions have to be removed and it is all very fine. What do we do about the balance, as I said before, between direct taxation and indirect taxation? My plea is to look at these issues in the context of more comprehensive tax reform and to isolate issues around affordability, particularly for certain social groups, like issues of social housing, and put them in the context of how we also marshal more private capital to provide social housing, as the Baird government in Sydney is seeking to do through opening up more land for housing, both private and social.