Just as market forces were about to push the price of housing down in Australia, the Treasurer stepped in with some new regulation. Phew. Some first home buyer’s nearly snatched a good deal, but luckily the Treasurer was there to protect the property developers from the oversupply their building bonanza created.
[First pubished by the Australian Financial Review – read here]
No issue creates a bigger flood of nonsensical econobabble in Australia than “housing affordability”. It’s a meaningless term engineered for the sole purpose of allowing politicians to pretend they are simultaneously on the side of home buyers and home sellers. What’s remarkable is the willingness of the media and others to play along.
Most politicians are adamant that they want petrol, fresh food and health insurance to be less expensive. We talk about the price of petrol and the price of milk. We don’t talk about “petrol affordability” or “bread affordability” let alone create an index of the price of bread divided by median household income. Talking endlessly about “housing affordability” allows politicians to duck the simple question of whether house prices are “too high”, “too low” or “just right”.
The absurdity of this situation was revealed during the federal election campaign when the Coalition attacked the ALP’s plans to reform negative gearing on the basis that such changes would, wait for it, put downward pressure on house prices. Oh, the humanity!
The Coalition’s rhetorical solution to the imaginary issue of housing affordability is to reject changes to the tax treatment of investment houses and instead blame environmentalists and state governments for “restricting the supply of housing”. Of course this week’s redefinition of “second-hand property” by Treasurer Morrison makes a mockery of such a position. Having spent years pretending that increasing the housing supply would make housing “more affordable” the Treasurer has now acted to prevent an increase in apartment supply from pushing apartment prices down.
The Coalition playbook makes clear that when it’s not the environmentalists’ fault, it must be the unions’ fault. On cue Malcolm Turnbull recently empathised with the terrible plight of “young Australian couples that can’t afford to buy a house because their costs are being pushed up by union thuggery”. A quick look at the data suggests no such link, but if Donald Trump taught conservatives anything it’s that data is for losers.
According to the ABS construction wages have, in recent years, risen more slowly than average wages. It also shows that construction worker productivity has grown faster than construction worker pay which means the unit labour cost of building a house has been declining in real terms, not rising.
More pesky ABS statistics compiled by Dr Jim Stanford of the Australia Institute’s Centre for Future Work show that construction labour costs account for only around 10 per cent of housing prices; that this proportion is falling; and that construction labour accounts for about the same proportion of the price of a house as real estate fees and stamp duty.
But just as Pauline Hanson can “prove” that the reef is safe from climate change by breaking off a bit of coral it seems the Coalition can prove that unions and environmentalists are to blame for rising house prices by donning a high-vis jacket.
Rapid population growth (unrelated to the tiny number of asylum seekers who arrive each year), allowing self-managed super funds to borrow to buy housing, the 50 per cent capital gains tax discount, negative gearing and rising income inequality are the main causes of rising house prices. But not only do government ignore these issues, it uses the weasel word “affordability” to pretend it is concerned, rather than pleased, about rising house prices.
The Treasurer’s rapid response to the “threat” of falling apartment prices makes a mockery of the notion that the government is concerned with the fact that people on ordinary incomes can no longer afford to buy ordinary houses.
If we really want to have a “grown up” conversation about housing we need to start by dumping the meaningless term “affordability” and have an honest conversation about whether we want housing to be cheaper or dearer. Or we could just keep on blaming environmentalists and unions. I bet I know which the government opts for.
Richard Denniss is the chief economist for The Australia Institute @RDNS_TAI