19/05/2011 - 00:00

Homing in on systematic policy failure

19/05/2011 - 00:00

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Governments from both sides of the political divide have failed to address the issue of housing affordability.

Homing in on systematic policy failure

PREMIER Colin Barnett incurred the wrath of the mainstream media for his comments on air-conditioning and housing prices that have allowed his opponents to portray him as living in an ivory tower.

Last year, when defending power price rises, Mr Barnett was pilloried for suggesting air-conditioning is a luxury. In my view he was right. I grew up in Perth and have lived here most of my life. I’ve never lived in a home with fixed air-conditioning.

There are days, very few of them, when I curse this. But before you reach for the violin, the reality is that in the hierarchy of needs, even in baking-hot Perth, air-con is well down the list.

The premier stumbled onto less stable ground last week when he suggested young people need to lower their sights when looking for a home.

While there is a hint of truth in this statement – because generation Y stays at home too long and gets hooked on the luxuries offered by the parental nest – he has lost touch with the fact that, in just a few years, housing has become very expensive.

In failing to grasp this important issue, which has been simmering in Western Australia since at least 2006, Mr Barnett has lost a golden opportunity to condemn his state and federal rivals. It is they who created and continue to nurture the conditions that allowed the housing boom to flourish and ruin the home ownership ambitions of a new generation of voters.

At a state level, blame for the housing boom must lie in part with the past state Labor governments, which stood back and enjoyed the benefits of fast-rising stamp duty revenue as both house prices and turnover accelerated without considering the consequences. Certainly this market-based move was very much due to demand rising as a result of boom conditions in the resources sector, coupled with bad federal policy that has overly encouraged investment in property. But even amateurs in the study of economics know that the answer to rising demand is increased supply.

Labor, biased by an apparent view of social engineering, which favours centralisation, found itself in agreement in the bureaucracy. Instead of acting to release more land, it throttled supply and demanded a re-engineering of our key city towards infill.

The middle of a boom was no time to demand local governments, town planners, builders and property owners to get their heads around a new way of thinking. Instead, it should have been fast tracking land developments to accommodate those who want to live here in the conditions for which Perth was famous – cheap blocks with plenty of room.

I have heard those who were in power in those days blame developers for drip-feeding supply to the market. Every property developer I speak to denies there are better profits in slowly releasing land but, if there were, why didn’t the state act to increase competition by empowering other land owners with fast-tracked authority to develop?

And why would a Labor state government miss the opportunity to belt up a few rich property developers if the facts supported this case? Instead, the view is the government rather enjoyed the higher prices for the stamp duty it gained at the same as assuaging its ideological need to stop urban sprawl.

Mr Barnett’s government has made many noises about fast-tracking land releases but I have seen little evidence of it making much difference. He needs to show some results in this area.

In addition, many in the property sector viewed the previous state government as a participant in the profit taking, through the unnecessary intercession of its land agency LandCorp. The legacy of this has not gone away.

Mr Barnett’s government appeared to have stopped this problem in Perth’s residential sector, but some blame the state agency for continuing this practice in industrial land releases and regional markets. It will be interesting to see if LandCorp’s activity in Karratha makes land more affordable.

Another source of pain for new homebuyers is the way new estates are now required to meet the future costs of services up front. In the past, state and local governments eager to accommodate new arrivals to feed economic growth wore the cost of this development.

That subsidy has been reversed and many costs have not just been shifted to the buyer, they appear inflated. Imagine if, more than 100 years ago, new land in Kalgoorlie bore the cost of the water pipeline from Perth? How many blocks would have sold then?

As a result of this thinking, land is now a much more significant component of a new home than it used to be. This is not the only cost that inevitably and indirectly flows through to us and our families. The political cost of reducing housing affordability has created a series of costly counter measures, which means taxpayers continue to be burdened directly despite the user-pays system.

First homeowner grants and Keystart loan arrangements don’t come cheap. It is simply a round robin exercise, with a costly bureaucratic loading.

In my view, Mr Barnett would be better off promising to meet the future cost of schools, water pipes and electricity wires in order to get new workers more cheaply accommodated, rather than getting involved in the dangerous world of joint equity housing loans.

Of course, the premier’s real target ought to be the federal government.

Julia Gillard and Wayne Swan did not create the tax system that so wrongly slants investment into housing, but they now manage it. They both talk about reform but nothing would be so fundamental as to make housing affordable again.

The combination of negative gearing, which encourages loss making investment, and homes free from capital gains tax is absurd. I have no problem with property mogul aspirants wanting to mimic the rich, who have showed property is a good store of wealth, but the present system distorts things by favouring high income earners who can turn over their owner-occupied homes tax free – quite likely the opposite of the original policy’s intended effect.

Why should the primary residence be free from capital gains tax? How does this help stimulate home ownership, especially when the benefits are at the end of the ownership period, not the beginning?

If this policy is untouchable, then why not at least restrict it to those who own one property? If you can afford a second property, surely you should no longer have the privilege of a capital-gains-tax-free home?

I would hope that the net effect of his would be to shift housing investment from loss-making negative geared individuals to real development companies (which don’t have capital gains tax free home investment to worry about) that create new housing rather than compete with owner-occupiers for established stock.

Maybe I am wrong, but I’d like to see something that removes the incentives to over-invest in property at the expense of other parts of the economy. Making real businesses more attractive to those with capital might unlock the potential of this country and, helpfully, reduce the cost of housing at the same time.

• markpownall@wabn.com.au

 

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