Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

In July, I visited the east Kimberley and the Pilbara regions of Western Australia to speak with key organisations. Everyone is aware of the boom in the Pilbara as the mining industry tries to keep pace with the demands of China and India. The east Kimberley is a region that the federal government is increasingly interested in, as it is one of the few regions of Australia which has adequate water to irrigate crops. However, there are significant infrastructure problems in both these areas, and they are problems which the federal government could address if it had a mind to.

The Commonwealth government needs to invest in roads, ports and airport infrastructure in the regions. This should be a priority for the Commonwealth. The Pilbara value of iron ore and petroleum products, including liquefied natural gas exports, amounted to some $22 billion in 2005-06, which was about 25 per cent of Australia’s total mineral and petroleum product exports in that year, or around 14.5 per cent of Australia’s total merchandise exports in that same year.

It was clear from all of my meetings and my own observations that social infrastructure, in particular the availability of housing, needs urgent and coordinated attention. It is a problem in Kununurra and the east Kimberley. Social infrastructure, in particular housing, in the Karratha-Dampier area of the Pilbara is a very significant problem, and the lack of it is impeding the progress that can be made in one of the most important economic regions in Australia. As with my previous visits to Karratha, I came away with an abiding impression of immense frustration at the lags in the provision of affordable and available accommodation and the supporting social infrastructure, and the lost opportunities as a result. I remain surprised at the almost universally low housing density in Karratha-Dampier, where apartment blocks are uncommon.

Before I get into my comments on the Pilbara’s particular problems with respect to social infrastructure, let me lead in with some comments on house prices in general. The increase in Australian house prices has been phenomenal. In the last 20 years, house prices in Australia have more than quadrupled. In real terms, after taking inflation into account, houses are now 80 per cent more expensive than they were 10 years ago. In some capital cities, such as Perth and Brisbane, the increase has been even more dramatic. This asset inflation has been welcomed by many homeowners but it has created plenty of problems for those without homes. The Commonwealth HIA Index of Housing Affordability is at its lowest level since the index was established in 1984, meaning that, despite our overall economic prosperity, owning a home is harder than ever for many Australians.

Despite lower interest rates and higher overall national disposable income, housing affordability has deteriorated dramatically, with the ratio of an average house price to annual household disposable income increasing from 2½ times in 1986 to 5.4 times in 2006. Whilst fluctuations in housing prices can be cyclical and market driven, the federal government have played an important role through its policies, including taxation policy. They have encouraged Australians to take advantage of tax concessions. The combined effect of negative gearing and capital gains tax concessions have helped promote speculative investment and have reduced housing affordability.

Negative gearing is different from standard business practice. The principal motivation is not to earn regular business income from an investment but to make a capital gain on an asset when it is finally sold. Negative gearing enables the minimisation of the annual holding costs off by setting annual operating losses against other income for a tax benefit. Business investors in rental property seek to make an annual profit and therefore seek a commercial return, which means the rent must be affordable to the class of renter targeted. Negative gearing, in contrast, encourages speculative investors to focus on asset inflation, not annual profit.

Despite the great national benefits of the previous Labor government’s compulsory superannuation contributions—now over $1 trillion in savings—Australia’s tax system has had, overall, less incentives for savings, and has, rather, encouraged the accumulation of wealth through borrowing to buy assets that are expected to appreciate at a rate faster than inflation. A key stimulus for the most recent housing boom and consequential crisis in housing affordability was the 1999 decision by the Liberal-Nationals government to implement a 50 per cent concession on capital gains tax for properties held for longer than one year.

The appeal of negative gearing was greatly enhanced by this decision. If you look at the graph showing the acceleration in house prices, it trends sharply upwards from the year 2000. This change to capital gains tax law in 2000 was supported by Labor but opposed by the Democrats. The doubling in Australia’s capital cities house prices has occurred since that decision. The investment surge was fuelled by borrowings, largely funded by increased bank borrowings offshore, in turn helping to raise Australia’s foreign liabilities to record heights.

To go back to the Pilbara, there is a great deal of frustration among local councils and business at the lags in the provision of affordable and available accommodation and supporting social infrastructure, and the lost opportunities which result. Considerable research has been done in the area of housing affordability and availability, and several papers have determined that it is not simply a lack of supply that is to blame—and that is right. However, the focus of these papers is generally on major metropolitan areas rather than on booming regional areas. Attempting to resolve policy issues on this broad scale is important, but a targeted approach to key regional or local centres of national significance is also warranted, particularly where employment opportunities and unprecedented growth have put pressure on lagging social infrastructure.

It is time to ensure that housing and social infrastructure lead to or at least match, rather than lag, development in the Pilbara to maximise the growth potential of that region. The Treasurer has proposed an audit of land supply in the states to determine how further land can be released to fulfil the demand for housing. It is an axiomatic economic principle that if you wish to meet demand you have to increase supply, and if you increase supply prices will fall or stabilise. In my view the Treasurer’s proposed audit should not just be broad scale but should have a number of target areas identified for early intensive analysis and reporting, of which the Pilbara should have priority. It is also likely that, with major gas projects coming on line in the next decade offshore of the East Kimberley area, similar pressures will be felt by communities there, and the matter should be addressed urgently so that similar problems do not increase in that region.

When a major event requires it, like the cyclone in Queensland, the Commonwealth and the state act quickly to process approval for planning requirements, land, services and supporting infrastructure, and more rapid construction performance. There is no reason such a mentality or approach could not be applied in the north-west of my state to address these problems. We all know that supply lags are a feature of land development and that housing supply cannot always respond to surges in demand, because of the lead times needed to service lots, to redevelop land and to construct dwellings. Sometimes it can take years to make land construction-ready with roads, water, electricity, drainage and sewerage.

Recommendation 6.2 of the 2004 Productivity Commission inquiry report, First home ownership, stated:

State and local governments need to give priority to the scope to .... streamline permit approval processes to enable minor or uncontentious developments to by-pass unnecessary informational or consultative requirements ...

This is a laudable recommendation, and I note that the Commonwealth government supported it. However, the problem goes much deeper. In Western Australia the Western Australian Land Authority Act 1992, known as the LandCorp act, which established LandCorp to develop and release land in WA, requires LandCorp to comply with the provisions of approximately 36 state acts for each land release. It is also legislatively required to consult with relevant parties, and there are often further Commonwealth obligations which need to be addressed. All of these requirements put pressure on its ability to release land quickly or to address shortages which arise, particularly in rural and regional areas.

There are also other obligations which come into play. For example, the 2003 National Charter of Integrated Land Use and Transport Planning requires the Western Australian planning minister, through LandCorp and in consultation with the minister for transport, to have regard to the aims of that charter when considering land release. So, although it is easy to say that the state governments should be streamlining their processes, there are legislative safeguards which, although proper in intent, will actively impede this intention. In the circumstances, the Commonwealth should investigate whether there are any aspects of Commonwealth or state legislation which impact on the streamlining process and whether it is appropriate that they be adjusted to assist with the streamlining process. I should make the point that the Productivity Commission did not do that job. One of the objects of Western Australia’s LandCorp act, set out in section 3(d), requires the agency to dispose ‘of surplus government land assets to maximise the financial return to the state’. Let me repeat that: ‘to maximise the financial return to the state’.

This section, read in conjunction with section 19, which requires LandCorp to ‘act on commercial principles’, requires the agency to ensure that it is maximising its return. Maximising profit rationally requires the management of LandCorp to ensure the highest prices are realised. This is likely to conflict with an aim of increasing supply significantly, so that land prices fall or remain stable, since that will result in lower prices and lower dividends from LandCorp to the state government.

Such an objective in the Western Australian act means that, to fulfil its objects clause, LandCorp may be compelled to limit land releases to ‘maximise financial return’ or at least not release so much land as to have a negative price impact on the market and cause property prices to fall. In other words, supply is being constrained. This is obviously a complex area. In the Australian on 17 July 2007, Michael Cooney pointed out that:

... governments should work together to expand supply in the local housing markets where there really are supply problems. For example small funding pools—

from the Commonwealth—

made available to local governments to convert brownfield sites and release new land in target areas could make a considerable difference.

That is a suggestion that would fit well in the Kimberley and the Pilbara and would be greeted favourably by the locals and those seeking to work in the area but who cannot at the moment because there is nowhere to live. Recommendation 7.2 of the Productivity Commission report states that:

Investments in items of social or economic infrastructure that provide benefits in common across the wider community should desirably be funded out of borrowings and serviced through rates, taxes or usage charges.

Particularly in the Pilbara, this is a contentious matter and again an area that needs attention. The Shire of Roebourne, as an example, is not in receipt of high rates or taxes from the surrounding industry due to the way in which the state values industrial land. This means that large industrial projects around Karratha pay less tax to the local council than the local shopping centre, even though those large industrial projects generate income of billions of dollars.

The presence of these large companies generating huge amounts of money wrongly gives the impression that the shire has a substantial revenue stream and is therefore able to provide extensive local services. This is not the case. This is a matter which the Commonwealth government could perhaps address through a regional assistance package, which would assist the councils to provide further and better social infrastructure for the region.

I note in passing that the Productivity Commission saw regional centres as places which might ease housing affordability pressures. However, in Karratha, where house prices are tipping the $1 million mark, and Kununurra, where $700,000 is the going rate, there is certainly no respite from high house prices.

In conclusion, since the Commonwealth has taken an open and public interest in housing and since the Pilbara is a region of vital national significance, responsible for an estimated 16 per cent of Australia’s output, I think there is a case for targeted attention by the Commonwealth, particularly in view of the Pilbara’s considerable proposed further development and projects. I would start with the Commonwealth campaigning for state authorities, such as LandCorp, to have their objects and processes changed so that their main job is to meet demand and not to make a profit.