The Senate's inquiry into affordable housing: Six submissions
Late last year, in December, the Senate referred an inquiry into affordable housing to the Senate Economics References Committee. Submissions are being sought, until 25 March 2014.
Already, there have been six comprehensive submissions. Jonathan Chancellor recently shared his insights into this inquiry.
Here is your cheat sheet as to what is contained within the six current submissions. To see them in full, with their supporting evidence, head to the Parliament of Australia website.
While the results of this inquiry are unclear, with many in the past being criticised as having failed, it's worthwhile acknowledging that should some of the proposals be considered they would have significant impacts on property owners, investors, tenants and prospective first home buyers.
1) Grace Mutual Limited, Andrew Tyndale, Director - a not-for-profit entity designing investment mechanisms to attract wholesale funding into the social sector, in particular in relation to the National Rental Affordability Scheme. To date, we have assisted in the financing of more than 1,000 houses under NRAS
Key points about NRAS:
- Brought about public awareness of affordable housing
- Resulted in a significant number of affordable dwellings being constructed – at least 20,000 new affordable rental dwellings, positively impacting 30,000 tenants.
- Unclear, complex and poorly drafted regulations have been an issue
- Too much NRAS has been wasted on university student housing (at least 4,000).
- State government, ATO and associated treatment has been inconsistent.
- Under-resourcing of application reviews resulting in loss of projects.
- NRAS offers support incentives to build, but the greatest need for developers is capital (debt and equity).
Proposal: A 10-year, interest-free loan would be preferential to NRAS-like income support. This would be implemented by an Affordable Housing Finance Corporation.
QUOTES YOU DON’T WANT TO MISS:
“NRAS offers income support incentives to build new affordable rental properties, but the greatest need for developers and housing providers is capital - both debt and equity.”
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2) Saul Eslake – Economist, Member of National Housing Supply Council
- Home ownership has declined dramatically among the younger generations.
- The National Housing Supply Council estimates a shortage relative to the underlying demand in the order of 228,000 dwellings at June 30, 2011.
- We have declining family sizes, family breakdowns and an ageing population, all contributing to an increased number of stock needed to house the same number of people.
Two principal reasons for the failure of the stock of housing to grow:
- Direct contribution of the public sector to housing stock has declined.
- State and local government planning schemes and policies around the provision of suburban infrastructure have made it difficult for the private sector to provide supply – particularly of the affordable variety.
Points of importance:
- Negative gearing should be changed, although Eslake does not argue it should be abolished entirely.
- Only 40% of interest, and other expenses, associated with investments should be allowed as a deduction.
- Capital gains should be taxed at 60%, rather than 50%.
- This would not just be for property investments, but for all investors.
- Could be ‘grandfathered out’.
PROPOSALS:
Abolish all existing policies serving only to increase prices of existing dwellings
Redirect the funds thereby saved (estimates included in the original article) towards programs funding the construction of new dwellings (such as through developer grants or contributions).
Expand or replicate programs such as WA’s ‘Keystart’ scheme.
Change the taxation of holdings and transactions in land, by replacing stamp duty on land transfers with broader based land taxes and potentially higher rates for undeveloped vacant land in urban areas.
A more ‘holistic’ view of urban infrastructure needs to be taken as this will open up Greenfields developments.
Revisit current models of financing for infrastructure and services in ‘greenfields’ housing estates to reduce the upfront charges.
Reduce the cost, complexity and regulatory uncertainty associated with ‘brownfields’ and ‘infill’ developments.
QUOTES YOU DON’T WANT TO MISS:
“John Howard – who could ‘do the math’ better than most – often used to say that no-one ever came up to him complaining about the increase in the value of their home, or asking him to do things that would reduce the value of their homes so that younger people could buy them more readily.”
“It’s hard to think of any government policy that has been pursued for so long, in the face of such incontrovertible evidence that it doesn’t work, than the policy of giving cash to first home buyers in the belief that doing so will promote home ownership. And it’s pretty obvious why. Cash grants and other forms of assistance to first-time home buyers have served simply to exacerbate the already substantial imbalance between the underlying demand for housing and the supply of it.”
“Another long-standing policy which I have long argued has not only failed to deliver on its oft-stated rationale of boosting the supply of housing – in this case for rent – but has actually exacerbated the mis-match between the demand for and the supply of housing, as well as having distorted the allocation of capital, and undermined the equity and integrity of the income tax system, is so-called ‘negative gearing’.”
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3) Steve Walker
Western Australia focus.
State governments are at odds amongst themselves and the federal government over funding and the approach, while the NGO/NFP and private sectors are doing it their own way, assisted by funding from both.
Little funding is being sought from direct public investment (other than NRAS-type tax incentives), which could be improved upon.
There are a number of different bodies and representative groups, but little cooperation among themselves.
Housing needs to be looked at more holistically, as a blend of both financial and social gain, to ensure that it has both aspects.
Consolidating the 230 smaller community housing organisations under one structure would be a good start. A co-operative arrangement is a potential opportunity.
QUOTES YOU DON’T WANT TO MISS:
“Breaking down all the rhetoric and jibber jabber the solution is cash based, of which very little is currently available and/or budgeted for in growing capacity for social/affordable housing!”
“Providing shelter is a ‘Band-Aid’ fix, what we really need to be understanding of is the root cause, why are these Australians in need, what has caused their need to be extreme and can we do anything about it and the drain caused on government funds? Can we teach people to be more self-supportive?”
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4) Authorship withheld
Government policies are negatively impacting on land prices through the current tax regime, which facilitates property speculation, land supply policies are not matching demand, lax lending standards are casually supervised and a policy of rapid population growth is not matched by provision of infrastructure services.
- A population policy needs to be articulated
- The annual cost to the government when looking at tax exemptions for home owners and losses to investors needs to be looked at
- Fully privatising land supply or using forced land acquisitions against land-banking entities could improve supply
- Land value tax can replace existing income/consumption taxes such as stamp duty (see Henry Tax Review)
- Vacant land and speculative hoarding – should be taxed more
- Tax system facilitates speculation and needs revision (negative fearing, capital gains discounts, interest only)
- Interest only loans, high leverage loans and similar should be reviewed
- FHB assistance is inflationary
- SMSF loans for residential property have a potential danger
- The real estate industry needs to be more accountable
- Allowance of temporary/student visa holders to buy existing property needs explanation
PROPOSALS:
1. Government draft a population policy so as to properly manage resource and administrative issues which includes housing and urban development;
2. Allow negative gearing claims for new construction only, apply grandfathering provisions to negative gearing for existing dwellings;
3. CGT discount, as recommended by AFTS, move to "more neutral personal income tax treatment of private residential rental investment . . through a 40% discount on all net residential rental income and losses, and capital gains”;4. Land value tax to replace stamp duty, income and consumption taxes;
5. Increase land taxes on vacant land or vacant property held by absentee landlords for more than say two years;
6. Removal of first home buyers assistance;
7. ABS publish data related to land price inflation as part of the CPI;
8. ABS gather genuine vacancy rate statistics so as to reveal degree of speculative land hoarding in major cities;
9. APRA reports to the Senate on the inflationary impact of interest-only loans, equity loans and high LVRs on land values;
10. Commission a study into land-banking, urban planning and the role of government in facilitating affordable land releases;
11. Commission a comparative study into the benefits of private industry assuming control of land releases versus a German style system of meeting demand via “compulsory acquisition” from land-banking entities;
12. Legislate that SMSFs only use full recourse loan arrangements on low LVR;
13. Ban the use of vendor bids at property auctions;
14. Mandate that property sales commission be set at maximum of 1%;
15. RE agents update a government website designed to capture property sale price data and this data is made publically available, as are share prices;
16. Proof of Australian citizenship or visa status to be lodged at all sales;
17. FIRB publishes data on all sales to foreign buyers of residential real estate;
18. Appropriate government minister to appear before the Senate and explain how allowing temporary residents and foreign student visa holders to purchase existing residential real estate improves housing affordability;
19. Politicians submit to the public record the subject of talks they have with property lobbyists, registered and unregistered;
20. Senate inquiry into government policies, as they relate to land supply, demand and pricing is in order. Such an inquiry should include a focus on the effect of real estate industry lobbying on policy formulation.
QUOTES YOU DON’T WANT TO MISS:
“An inquiry into affordable housing is really an inquiry into affordable land.”
“This is the third Inquiry in 10 years to directly look at housing affordability. After reviewing the work of earlier inquiries and other literature, it is difficult to believe this matter is being taken seriously.”
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5) Home Loan Experts, Otto Dargan, Mortgage brokers
- Developers face barriers to build:
Cites AMP’s Shane Oliver, regarding the government’s need to work to release more land to build on and the easing of restrictions.
- Negative gearing should not be abolished:
An estimated 4.5 million Australians are renting, and the abolishment would result in higher rental rates. The government would need to spend more on public housing to accommodate these people.
- APRA’s new LVR policies are too restrictive:
Policy constraints current exist on the banks, and if they are to follow New Zealand’s maximum LVR reduction it will make it harder for first home buyers to enter the market as many tend to borrow around 90%.
- FHOG is effective:
In fact, it should be extended to a full exemption from stamp duty for new buyers.
QUOTES YOU DON’T WANT TO MISS:
“Limiting the LVR to 80% would require buyers to save up double the amount of deposit to make a purchase.”
“As mortgage brokers we see that FHOG is very effective in helping new buyers buy their first homes.”
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6) Bob Day - is a former National President of the Housing Industry Association. He was elected as a Senator for the State of South Australia at the 2013 federal election.
The reduction in home ownership has caused losses in other ancillary industries, such as soft furnishings and appliances. Higher costs are causing people to spend more money on housing, and less in other areas such as education and health.
First home ownership is about a start in the market, and it can really only happen on the urban fringe.
The first, major, step in restoring affordability will be getting the government to step aside from a land management role. This should allow the natural supply/demand forces to return to the market as the government has been too restrictive.
PROPOSALS:
- Urban growth boundaries need to be removed, as well as the concept of a number of years supply of land available – let the public decide.
- Upfront infrastructure costs need to be removed and it should be seen as a pay as you use through your rates concept, rather than getting those who can least afford it, the first time buyers, to pay upfront. In some capital cities these costs, taxes, fees and charges added more than $100,000 to the price of a finished allotment.
- The Productivity Commission’s failure’s consequence was that many state governments were stifling land supply through their planning/regulatory mechanisms to make money.
- Land development and housing industries have not been inherently incapable, and are ready and willing to bring on substantial amounts of new stock, they just need the land.
QUOTES YOU DON’T WANT TO MISS:
“The capital structure of our economy has been distorted to the tune of hundreds of billions of dollars and for those on middle and low incomes the prospect of ever becoming homeowners has now all but vanished.”
“It was the best of times, it was the worst of times. For those fortunate enough to own their homes, 1995 - 2005 were boom times as personal wealth skyrocketed and family homes doubled in value. It was a very different story however for those on low and middle incomes stuck on the rental treadmill, seeing their hopes of buying their first home disappear into the mist.”
“The tragedy is that they arrived at them too late. One only needs to consider the exponential demand for mobile phones, laptops and plasma televisions that arose during the same period to realise that increased demand does not necessarily lead to an increase in price. In the case of mobile phones, laptops and plasma televisions the rise in demand vastly exceeded the demand for housing, however due to an even greater supply of these goods their prices actually fell - in some cases by more than half.”
“There was, and still is, nothing "inherently" restricting the supply of new housing in Australia.”