Addressing the Australian Housing and Urban Research Institute in Melbourne yesterday, Treasurer Scott Morrison stressed that “dealing with housing affordability must involve a scalpel, not a chainsaw”.
“Our policy response must be careful and calibrated, lest we spark a negative housing shock that would undermine our economic confidence, negatively impact household consumption and retard economic growth,” he said. “And our response must be comprehensive — there is no silver bullet. We don't claim instantly affordable housing.”
APRA’s recent action taken to limit the share of housing lending that is interest-only was a good example of the scalpel approach, Mr Morrison said.
He highlighted that the housing affordability issue is particularly acute in Sydney and Melbourne where supply has “failed” to keep pace with rising demand.
“Sydney and Melbourne have seen median house prices increase by 19 per cent and 16 per cent respectively in the past year and both have increased by around 8 per cent per year on average over the decade. Since 2006, the average number of years required to save for a deposit in these markets has increased from five to eight years in Sydney, and from four to six years in Melbourne.
“Prices in Brisbane and Adelaide only rose on average by 3 per cent per annum over the decade while Perth growth was only 0.3 per cent.
“Obviously, there's not a single national housing market and affordability is not impacting all Australians the same way. However, it is worth remembering Sydney and Melbourne are home to 40 per cent of Australians and the significant housing challenges faced in Sydney and Melbourne do have national implications,” he said.
Further, Mr Morrison underscored that the nation’s household debt has risen to 123 per cent of the economy ($2.1 trillion), 80 per cent of which is housing debt, heavily influenced by householder borrowings following higher prices in the eastern states, including from investors.
Mr Morrison emphasised that there are “no single or easy solutions” to the issue, and criticised past governments and other stakeholders for seeking to “oversimplify the issue by promising Australians they would all be able to buy the house they wanted at the price they can afford by changing one tax. It's not only wrong and dangerous policy, it's cynical and cruel”.
Disrupting negative gearing ‘not without cost’
Mr Morrison noted that 27 per cent of Australia’s housing stock is owned by investors, 5 per cent by public housing and community housing agencies, and the balance owner-occupied.
He contrasted this with the UK where just 18 per cent of stock is owned by investors.
“In the UK just 18 per cent of stock is owned by investors,” he highlighted.
“Interestingly, in the UK where they do not have negative gearing, rent as a percentage of income is on average 25 per cent higher (26 per cent of income) than it is in Australia (20 per cent).”
“Regardless of one's opinions of the merits or otherwise of negative gearing, it is an established and structural component of Australia's housing markets. Disrupting negative gearing would not come without a cost, especially to renters, let alone the wider economic impacts. Proponents of disruptive negative gearing changes have ignored this fact.”
Boosting institutional investment in affordable rental housing
Mr Morrison briefly outlined a potential solution for affordable rental housing, highlighting that the UK moved away from grant models some time ago in favour of a “sizeable” community housing sector.
“UK stock transfers have contributed significantly to a new housing sector that has been innovatively and creatively meeting new housing policy goals in a post grant environment.”
“The creation of a housing association sector in the UK has, within budgetary constraints, allowed a larger affordable rental sector to emerge which would not have developed with councils alone, and that the sector has been robust, resilient and innovative in housing delivery. The UK's experience is valuable for Australia.”
According to Mr Morrison, other solutions are being pursued by state governments including asset recycling in NSW. Victoria is increasing its direct investment with a $1 billion social housing growth fund and is also pursuing shared ownership.
“I will have more to say about this in the budget, but our attention to these issues and response will not begin and end there,” he concluded.