Speaking at the McKell Institute’s Housing Affordability Summit in Sydney on Wednesday, shadow treasurer Chris Bowen stressed that evidence of Australia “facing a crisis in housing affordability is crystal clear”.
Mr Bowen pointed to the fact that house prices have risen by 30 per cent on average across the country over the past few years, and home ownership is at 60-year lows.
He also highlighted that rates of property investment are currently “at record highs”, with the number of investors with at least five properties growing at three times the rate as the group with just one property.
“This is a matter of social justice,” he remarked, adding that rapid house price growth and record leverage has increasingly become not only an issue of fairness, but also one of financial stability.
“I made the case last year that the alarm bells were starting to ring on household debt and that ballooning leverage undermines our financial stability and provides for dangers in the event of a global downturn,” he said.
In Mr Bowen’s view, financial instability can “cause real damage” to the economy, and a property-based economic shock would especially impact those who are least able to afford it.
“People of wealth can and usually do diversify their portfolio, spreading their risk,” he said. “People of less wealth tend to have most or all of that wealth tied up in the family home, and thus be particularly vulnerable to shocks.
“As the RBA’s recent Financial Stability Review noted, around one-third of borrowers currently have no accrued buffer or a buffer of less than one month’s repayments and most worryingly these people tend to be those with newer mortgages or are lower-income or lower-wealth households.”
Mr Bowen drew on the events of the GFC, underlining that one of the reasons for the depth and severity of the US slowdown was the rapid increase in household leverage in the lead-up to the crisis.
“The IMF Economic Review has observed that ‘the initial economic slowdown was a result of a highly-leveraged household sector unable to keep pace with its debt obligations’,” he said.
“US and UK debt to disposable incomes is now down to 112 per cent and 150 per cent respectively, well down on the peaks they experienced in the lead up to the GFC. But Australia’s household indebtedness has gone in the other direction with an investor-led property boom playing a major role. We are going against international trends, and in the wrong direction.
“The most recent OECD data shows Australia’s household debt to disposable income hit 211 per cent in 2015 and has continued its ascent since then.”
The shadow treasurer concluded that reforming negative gearing and the capital gains tax discount, and changes to superannuation rules, are not only in the interests of the nation’s first home buyers, but also in in the interest of a healthy Australian economy and a resilient financial system.
As such, Mr Bowen emphasised that negative gearing reform in particular is a necessary precursor to a “proper” housing affordability policy.
“A refusal to deal with negative gearing in particular puts potential first home buyers at a distinct disadvantage compared to investors,” he said.
Further, he highlighted that Labor last week announced its second tranche of housing affordability policies, building on tax reform:
• Facilitating a COAG process attempt to get a consistently applied state-based vacant property tax across all major cities
• Increasing foreign investor fees and penalties
• Establishing a bond aggregator to increase investment in affordable housing
• Boosting homelessness support for vulnerable Australians
• Getting better results from the National Affordable Housing Agreement, including in areas like housing supply and inclusionary zoning
• Prohibiting self-managed superannuation funds from borrowing
He concluded: “It’s not the government’s responsibility to dictate to households and businesses whether they should borrow money and how they spend it.
“But it is a government’s responsibility to ensure that policy settings are appropriate and do not adversely distort economic decision making.”