THURSDAY, 19 MAY 2016
SUBJECT/S: Labor’s plan for housing affordability
LISA CHESTERS, FEDERAL MEMBER FOR BENDIGO: It is great to be here today with Andrew Leigh, who is our Shadow Assistant Treasurer. We have just come out of a housing affordability and negative gearing forum, which is a hot topic in this election, and definitely locally. Here in Bendigo we know the statistics - there are approximately 5,000 individuals that negatively gear current property. The good news is that under Labor's policy is that they will be grandfathered - there will be no effects to that 5,000. What excites me about Labor's policy is that it will encourage investment into the housing supply demands that we have here. We have talked at length about the need for investment for social housing, housing for people with a disability, housing options for retirees - whether they be self-funded or pensioners. There is a housing issue here in Bendigo and in central Victoria. I believe Labor's policy is going to help that, not hinder that. I am going to hand over to Andrew, who is going to give his thoughts and his feedback on today's forum, and also to answer any questions that you have got.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Thanks Lisa. It is great to be in Bendigo with Lisa Chesters - a passionate advocate for Bendigo and central Victoria - and somebody who is a strong voice for this region in Canberra. We have had a terrific housing affordability forum, talking through Labor's plan to increase the homeownership rate in Australia. The homeownership rate now is as low as it has been since the 1950s. We know that the benefits of negative gearing and the Capital Gains Tax discount don't flow evenly across the Australian population, but in fact half of them go to just the top 10% of income earners. People in occupations such as surgeons and anesthetists are many times more likely to negatively gear than people in occupations such as police officers, teachers, firefighters, and nurses.
Labor will ensure that existing investments are grandfathered - if you own a negatively geared home now, you will continue to enjoy negative gearing, and continue to enjoy the current Capital Gains Tax discount when you sell. But our policy says that from 1 July 2017, negative gearers will need to purchase a new home to enjoy the current arrangements. That is because we want people who are negatively gearing from 1 July 2017 to be adding to the total housing stock. We do the same thing with foreign investors, we ask them to buy new homes. We do the same thing with first homeowner grants, which Liberal and Labor state and territory governments across Australia have changed in recent years so that they either only exist for people who buy new homes or are more generous for people who buy new homes.
By getting the tax settings right, we can ensure that more Australians have that experience of having a home that they can call their own. Today I asked people in the forum to put up their hands if they owned a home and remembered the first day on which they walked into that house. As best as I could tell, everyone who owned a home could remember day one, that experience of buying their own home. We can’t deny young Australians that, but the current policy settings do just this. That’s why people like Malcolm Turnbull in 2005 and Joe Hockey in his farewell speech have criticised the current negative gearing arrangements. It is why Jeff Kennett has commended Labor’s policy and independent experts such as Chris Richardson, Saul Eslake, Jillian Broadbent and Warwick McKibbin have all called for reform.
Labor is listening to the Henry Review experts. We are listening to the Financial Systems Inquiry. We are listening to the Reserve Bank of Australia. Because we recognise that the current negative gearing arrangements encourage investors to concentrate their wealth in a single asset class, to make a recurrent loss in the hope of making a capital gain later. The current arrangements aren’t good for financial stability. They are not good for extending the dream of first homeownership. Bill Shorten and Chris Bowen have taken a bold decision to put our ideas out there and we are here to at this forum in Bendigo today to dispel Malcolm Turnbull’s not-so-scary scare campaign and to talk about how Labor’s plan can make the dream of home affordability a reality. We are happy to take questions.
JOURNALIST: So can you explain in basic terms, as you would explain to a twelve year old child, how it will make the dream of owning your own home a reality?
LEIGH: Well what we are doing is saying that our tax policies settings should encourage investment in new housing. At the moment, 93 per cent of people with investment properties hold existing homes. So if you thought that this was a policy that would increase the housing stock, well it is a policy with a 93 per cent failure rate. Labor will cease negative gearing on new purchases after 1 July 2017, except if that purchase is of a new home - except if you are adding to the total housing stock - and making sure that housing supply keeps up with the voracious demand we have seen in the market over recent decades.
JOURNALIST: Do you have concerns that this policy could impact rental availability and affordability in a place like Bendigo? Where there might be not as many places available for the lower income earners?
LEIGH: I don't have that concern, and that is because we have the experience of the 1980s. The period from 1985 - 1987 saw a much more radical change than the one that Labor is proposing now. Yet if you look at nationwide rents over that period, careful analysis by Saul Eslake and by the Grattan Institute has shown that there was no nationwide change in rents as a result of that policy. We are confident that this is a policy which won't cause frogs to fall from the sky, locusts to ravage the earth, depression to come across Australia - as some Liberal shills would have you believe. They don't want to stand on the side of first home buyers. They want to stand on the side of people buying their seventh, eighth, ninth, tenth home. Labor will be there, saying it is not good enough, to have the home ownership rate in Australia at its lowest level in 60 years. We have got a housing affordability plan; Malcolm Turnbull h as just got a scare campaign.
JOURNALIST: Why don't you just increase the first home-owners grant in regional areas?
LEIGH: Well the first home-owner grant is one part of our housing affordability package. But the concern that people have raised is that it might simply get capitalised into higher house prices. By changing negative gearing, we are going directly to the source of the problem, as identified by a range of independent experts.
JOURNALIST: How will that affect house prices?
LEIGH: We have seen over recent years, nationwide, house prices growing four or five times as fast as wages. Now with wage growth as low as it is [for] thirty years, we need to make sure that young Australians don't have that experience of saving and saving, but finding that house prices are massively outstripping their pay package. House prices will, nationwide, continue to rise as a result of Labor's policy, but they won't be outstripping wages in the way they have been in recent years.
CHESTERS: I’ve just got a comment for Adam, just about his comment. So just talking to renters locally, the argument being put forward by some of our real estate agents is a little bit ridiculous because what will happen is that the top-tier renters will actually move into homeownership, so there will be less people looking to rent. So the fear that rents will peak under this policy is a little bit ridiculous because people who are desperate to get into owning their first home are currently renting, they are going to move into the home ownership market so therefore we are going to have less renters, so there is not going to be that pressure on rent that some of the real estate agents are actually suggesting. Our generation, Generation Y, we are the ones who are not moving into home ownership like our parents and grandparents. We want Gen Y, we want people in their 20’s and 30’s to be able to own their own home so oner so they can start paying it off and have it settled by the time they retire. And that’s what not happening at the moment.
JOURNALIST: How will that happen? How will people be able to buy homes faster?
CHESTERS: Because this policy is about if you want the tax incentive of negative gearing, we want you to purchase new homes to help create more housing stock. That means when you go to buy existing homes, there will be investors who are looking to make a profit, or investors who are looking to breakeven and then there will be first homebuyers. So we are trying to create an environment where if you want to get the tax break, then help us build the housing stock. That is also going to take pressure off rents because there will be more housing stock for people available. So this scare campaign that it is going to cause a peak in rents is just nonsense.
JOURNALIST: But aren’t the new houses going to be just as expensive if prices won’t go down?
LEIGH: Well what we need is more housing supply in Australia. Housing is ultimately a question of supply and demand. Over the past couple of decades, Australia has had one of the fastest rates of population growth in the advanced world, but housing production has not kept up. That’s one of the factors that has driven up house prices in Australia. This has been recognised by a range of economic experts and it is why rules around foreign ownership have been introduced to ensure foreign buyers are pointed towards new supply and it’s why the rules around first homeowner grants have been changed to point them towards new supply. Liberals at the federal level supported both of those two changes, yet somehow they think that if we do exactly the same thing with negative gearing, that the sky will fall in. It is just another Liberal scare campaign and it is deeply disappointing from a Prime Minister who, just a decade ago, was talking about the risks of excesses in negative gearing.
No more questions? Thanks everyone.