Treasurer Morrison says tackling housing affordability needs a scalpel-like approach

Treasurer Scott Morrison has said the housing affordability problem, mainly in Sydney and Melbourne which houses 40 percent  of Australia’s population, has to be dealt with a ‘scalpel’ approach, "not a chainsaw as advocated by the Labor Party."

He said the “principal cause of declining housing affordability is the failure of housing supply to adjust to increased demand, driven by higher economic growth”.

Batting for a careful and calibrated response, Morrison said drastic steps could “spark a negative housing shock that would undermine our economic confidence, negatively impact household consumption and retard economic growth”.

He noted that the proportion of Australian households that own their own home has fallen marginally from 71 per cent to 67 per cent over the last two decades.

“Between 2002 and 2014, home ownership among 25 to 34 year olds declined more significantly by almost ten percentage points to less than 30 per cent. That is more than 160,000 young people that would otherwise be home owners. For 35 to 44 year olds it fell by more than ten percentage points to 52.4 per cent.”

Higher house prices are making it tougher for potential homebuyers to transition into ownership.

He cited research by CHOICE, the National Association of Tenants' Organisations and National Shelter, that said just over half of renters say they rent because they can't afford to buy their own property.

Because of this, they are staying in the rental market for longer — a dynamic that puts upward pressure on rental prices and availability and even more pressure on lower-income households, increasing the need for affordable housing.

“Our response must first strive to remove obstacles that restrict supply responding to genuine demand. These impediments are well known, planning delays and regulations, supporting infrastructure and services, the cost of new development, taxes and charges and access to sites, including Government land, just to name a few,” he said.

As an example of the scalpel-like approach, he said a good example was the recent action taken by the Australian Prudential Regulation Authority to limit the share of housing lending that is interest-only. This follows their earlier intervention in December 2014, placing a speed limit on investor credit growth that halved previous levels.

He noted the decline in home ownership and increase in mortgage costs has been most pronounced in family-forming households and that Australians are increasingly carrying into their retirement larger mortgage debts, or are renting.

“The proportion of home owners aged over 45 with a mortgage has increased and, according to the Productivity Commission in 2015, the most frequent use of superannuation lump sums was to fund housing, including paying down mortgages.”

He cited Saul Eslake's recent report to Superannuation trustees saying, "it is likely that an increasing proportion of new retirees will use some or all of their accumulated superannuation savings to discharge their outstanding mortgage debt' and that 'an increasing proportion of retirees will be living in privately rented housing, spending a higher proportion of their income on rent."

These are the facts and they represent a problem that needs to be addressed in the broader national interest, said Morrison.

“As a Government, we acknowledge that for certain Australian households, housing affordability is an issue regardless of where they live due to economic reasons such as not having a job or social reasons such as having a disability.”

The government is working on a taskforce to look at harnessing large-scale private investment through a bond aggregator concept.

The bond aggregator would issue bonds to the market, and on-lend these funds to community housing providers — allowing them to access cheaper and longer term finance.

The Housing Finance Corporation (THFC) in the United Kingdom, has operated a similar model successfully for over 30 years, he said. THFC has provided more than £5 billion worth of loans which is assisting the provision of affordable housing throughout the UK.

"Of course, if found to be viable, a housing bond aggregator is only a part of the solution. A variety of complementary reforms are required to increase the supply," said Morrison.

For the full text of speech, click here.