BUILDING BETTER POLICIES, The Australian, 17 March
Over the past decade, few countries have had as much demand for new homes as Australia. Our population is growing faster than almost any other advanced nation. Demography is reducing average household sizes. We tend to prefer homes that have a bit more space and use a lot less energy.
But don’t take my word for it. As Malcolm Turnbull said a few years ago, ‘the reason we have a housing affordability problem is because we are not building enough dwellings’. Over for many years, housing construction has simply failed to keep pace with demand.
It’s surprising, therefore, that Mr Turnbull has failed to embrace Labor’s approach of encouraging investors into new housing. Under the plan developed by Bill Shorten and Chris Bowen, a Labor Government would see negative gearing maintained for current investments, but restricted to newly built homes from 1 July 2017.
Right now, only 7 percent of investors buy new homes. The effect of Labor’s policy would be to say to investors: ‘if you want negative gearing, we need you need to help the community by adding to the housing stock’.
There’s nothing new in this philosophy. In 2001, the Coalition doubled the federal First Home Owner’s Grant for people buying new homes. Then Treasurer Peter Costello justified this measure on the basis that it would ‘stimulate the building sector, including many small businesses, which of course will have flow on benefits to other parts of the economy’.
At a state level, we’re seeing the same pattern. In 2012, Coalition governments in Queensland and New South Wales restricted the first homeowner grant to new built homes. In 2013, a Coalition government in Victoria did the same. In 2014, a Coalition government in Tasmania similarly changed that state’s first homeowner grant so it excluded existing homes and applied only to new dwellings. In 2015, Coalition governments in Western Australia and the Northern Territory did the same.
That’s six Coalition governments at the state and territory level who have restricted the first homeowner grant to exclude established dwellings and apply only to new homes (as Labor governments have also done in South Australia and the ACT). In each case, the reason is simple: if society is supporting first home buyers, we also want to make sure that they’re increasing the total number of dwellings, not simply driving up the prices.
The funny thing is, I don’t remember a single Coalition politician claiming that making established homes ineligible for the first homeowner grant scheme would cause the housing market to collapse.
In fact, the current federal Coalition Government has applied a similar philosophy to the housing market. Assistant Treasurer Kelly O’Dwyer is on the record as supporting the way in which our foreign ownership rules channel buyers into new construction: ‘Foreign investment is encouraged in new dwellings whether they be apartments, units or homes because in addition to creating more supply, it also creates more jobs for the building and construction sector – all of which helps to grow our economy.’
In his report for the McKell Institute, University of New South Wales economist Richard Holden recommended restricting negative gearing to new homes, noting that ‘a shift in tax incentives toward new construction has the potential to have a material impact on housing supply’. Professor Holden estimated that such a policy would boost the supply of new homes by 10 percent, adding $4.5 billion to the housing construction sector.
Last year, when he was sounding more like a cabinet minister than a haunted house operator, Scott Morrison talked about the lack of housing stock as one of Australia’s most pressing social problems. Over the past quarter century, he pointed out, ‘the price [of houses] has more than doubled the increase in wages’.
Alas, Mr Turnbull and Mr Morrison now seem more interested in trying to scare people than solve problems. If it makes sense to use first home buyer grants to encourage new home building, and it makes sense to encourage foreign buyers to build new homes, then surely the same goes for negative gearing? If Labor’s policy is a risk to the housing market, then why don’t we see Coalition politicians arguing against the way our foreign investment and first homeowner grant schemes operate?
On at least eight occasions, Coalition governments at the federal, state and territory level have channelled demand away from established homes and into new homes. It was the right approach for first homeowner grants and foreign investors, and it’s the right approach for negative gearing too. Because getting enough housing supply starts with building the right policies.
This opinion piece was first published in The Australian on Thursday, 17 March, 2016.