Senate debates

Wednesday, 3 February 2016

Statements by Senators

Housing Affordability

1:38 pm

Photo of Bob DayBob Day (SA, Family First Party) Share this | | Hansard source

I rise today to commend the work of international research organisation Demographia and its directors: US urban planning and transport expert Wendell Cox and New Zealand urban planning consultant Hugh Pavletich. It was an honour to be asked to write the foreword to the recently released 12th Annual Demographia International Housing Affordability Survey.

The survey covers 367 metropolitan markets in nine countries including Australia, the United Kingdom and the United States. The survey is arguably the most comprehensive metropolitan housing affordability survey on the planet. The survey rates middle-income housing affordability using the median multiple formula, which is the standard recommended by the World Bank, United Nations and Harvard University and is used by the OECD, IMF, The Economist and others. The world has been provided with a great service by this simple formula to measure true housing affordability—a multiple of household incomes.

By this formula, for more than 100 years the average Australian family was able to buy its first home on one wage. The median house price was around three times the median income, allowing young homebuyers easy entry into the housing market. The median house price has increased, in real terms, by more than 300 per cent, from an average index of 100 between 1900 and 2000 to an index over 300 by the year 2008. Relative to incomes, house prices have increased from three times median income to more than nine times income. During the life of a housing loan, that is $600,000 they are not able to spend on other things including clothes, cars, furniture, appliances, travel, movies, restaurants, children's education, charities et cetera. It is a similar story in other nations that Demographia has surveyed—the UK, US, Canada, New Zealand, Ireland and Japan.

The economic consequences of this have been devastating. Economic capital structures have been distorted to the tune of hundreds of billions of dollars. For those on middle and low incomes the prospect of ever becoming homeowners has now all but vanished. Housing starts are below what they should be and so have all the jobs associated with them: civil construction, house construction, transport, appliances, soft furnishings—you name it. Not to mention billions of dollars in lost taxes and other housing-related revenue to state and national governments.

This housing market distortion and misallocation of resources through supply-demand imbalance is enormous by any measure and affects every other area of a country's economy. New homebuyers pay a much higher percentage of their income on house payments than they should. Similarly, renters are paying increased rental costs reflecting the higher capital and financing costs paid by landlords. National housing industries have been decimated, as have industries supplying that sector.

Getting these distorted economies back into alignment is going to take some time but this realignment is necessary to rectify a terrible mistake. Homeownership has long been a feature of Western life. Homeownership levels rose sharply in the postwar period and became a symbol of equality, security and stability. Homeownership built family wealth and gave families a tangible stake in their nation—so much so that it was celebrated in the great Australian film, The Castle. For the vast majority, owner occupation of the home in which they live was, and remains, a great ambition.

So what happened? Why have house prices skyrocketed? While influential bodies in Australia like the Productivity Commission and the Reserve Bank focused on demand drivers such as capital gains tax treatment, negative gearing, low interest rates, readily accessible finance, first homebuyers' grants and high immigration rates, few looked at the real source of the housing affordability problem: land supply for new housing stock. Demand factors played an undeniable role in stimulating the housing market and those factors were, for the most part, in the hands of national governments. However, the real culprit—the real source of the problem—was local and state governments and their land management agencies refusing to provide an adequate and affordable supply of land for new housing stock to meet demand.

The massive escalation in land prices in Australia's five mainland capital cities causes a multitude of detrimental impacts. Establishing affordable rental accommodation for those in greatest need becomes even more difficult for social and public housing authorities as they seek to purchase land and housing in a greatly-inflated market. Road widening and major infrastructure projects experience cost blow-outs as land acquisition costs skyrocket. Establishing schools, community centres, health services and business facilities becomes difficult and, at times, impossible. The whole community suffers through increased tax, transaction, finance and establishment costs.

The so-called 'scarcity' that drove up land prices is wholly contrived. It is a matter of political choice, not geographic reality. It is the product of restrictions imposed through planning regulation and zoning. Quite apart from the economic foolishness of it all, it is morally wrong for legislators to enrich some—that is, established home owners—while impoverishing others—first home buyers. We have to restore the conditions where a couple can pay off a mortgage on one income so they can start a family in their 20s, not in their late 30s or early 40s.

Governments which made home ownership the privilege of the few rather than the rightful expectation of the many have produced intergenerational inequity and breached that moral contract between generations. In human affairs this moral contract between generations dictates that we should leave things better than we found them. The home ownership moral contract has been breached. We have denied the next generation much more than a home; we have denied them the security and benefits that go with home ownership and the opportunity to build wealth that provides them with options in later life. Many now defer having a family in the hope that they will somehow be able to put together the funds to buy a home later in life. If they cannot afford to buy a house, they certainly cannot afford to have children. And when retirement comes, those who own their homes have much more control over their lives than renters do. They can choose where they will live and how they will live.

I have talked with countless young families about their home-building dreams. Building companies will build homes whether they are on the urban fringes or in the so-called 'urban infill'. The cost of building a house is unchanged. I say to Senator Gallagher: if we built cars in South Australia as cost-effectively as we build houses, we would have a thriving automotive-manufacturing sector. The changed cost in housing is in land prices.

I ran on a platform of 'Every family: a job and a house' and until my last breath in this place I will champion that cause. Given the vast social and economic benefits that flow from home ownership, restoring housing affordability should once again become one of this nation's most important priorities.