‘Getting worse’: Sad reality of house prices
BUILDING more housing was supposed to be the great big fix for our overheated property market but it's not been as effective as expected - and there's one important reason why.
In the last few years Sydney has been undergoing its biggest-ever housing construction boom, with over 200,000 homes expected to be built in the five years from 2016.
It was supposed to help meet demand in a city that has seen prices rise by 70 per cent since 2012. Melbourne has been undergoing a similar boom after its house prices rose by 50 per cent.
But a NSW parliamentary inquiry into land release and housing supply has been told the massive construction projects have had a minimal impact on prices in the state.
According to The Daily Telegraph, Shelter NSW principal policy officer Adam Farrar told the inquiry it had not been enough.
"We've seen record delivery of housing in NSW ... but it hasn't (been) done in a way that's made any impact on affordability."
While Mr Farrar acknowledged "you don't turn the Titanic immediately", he said he would have expected to see more of an impact.
Last week CoreLogic released data showing that housing prices in Sydney fell for the first time since 2012, dropping by 0.5 per cent in the year to February.
But Sydney's median house price is still at $880,743.
A report released by the Grattan Institute this week slams "neglectful" governments over the past 20 years for taking easy options and creating a housing mess.
It said the Howard Government's 1999 capital gains tax changes encouraged property investment and pushed up prices, but harmed low-income earners in particular because a lot of this investment was put towards cheaper homes they would otherwise have bought.
It describes the politics of real housing reform as "poisonous" and warns young, low-income families are the hardest hit when it comes to buying a home.
"It's bad. It's getting worse," the institute's chief executive John Daley told AAP, summing up the outlook for housing if nothing is done.
It now takes about 9-10 years for an average household to save a deposit on a typical dwelling, compared to about six years in the early 1990s.
Australians are also spending more of their income on housing, especially low-income earners.
NSW Premier Gladys Berejiklian said her government's stamp duty concessions have had a positive impact getting people into the housing market.
"We know the challenges are still there but, as a government, the policies we have put in place are having a wonderful outcome," she said.
But Mr Daley says you don't increase supply by giving people more money.
"You increase supply by freeing up planning," he said.
This is why prices are not coming down.
BUILDING IS NOT KEEPING UP
Even though there is a lot of construction going on, there is also a lot of new people arriving in Sydney every day.
The Grattan Institute report noted that "today's record level of housing construction is the bare minimum needed to meet record levels of population growth driven by rapid migration".
The growth in housing is also not enough to make up for the shortfall in properties created during previous years when not enough new properties were being built.
"For much of the decade from 2005 to 2014, annual housing construction was at or lower than the average of the previous 25 years, even though population increase was much higher," the report said.
Unless states are prepared to reform their planning systems, the Grattan Institute suggests the Federal Government consider reducing Australia's migrant intake.
"If projections for future population growth are right, then future rates of construction will need to be even higher than at present," the report said.
Currently Sydney's population is forecast to increase by 1.7 million people by 2036.
"Even today's record rates of housing construction in Sydney just exceed, and in Melbourne fall short of, what is required to accommodate the population increases projected in state governments' strategic plans," the report said.
The NSW Government's most recent city plan, the draft Greater Sydney Region Plan suggests a minimum of 725,000 extra dwellings will be needed between 2016 and 2036 to cater for the increasing population.
A 2016 Intergenerational Report estimated there was still an undersupply of 100,000 dwellings in NSW, according to the NSW Treasury.
The Grattan Institute has suggested building an extra 50,000 homes a year for 10 years could make a difference, reducing Australian house prices by 5-20 per cent than they would have been otherwise.
IT'S THE NIMBY'S FAULT
One of the barriers to getting more homes built is getting current residents on side. Most people don't want new developments being built next door, ruining their views, overshadowing their houses or bringing in more traffic.
"Most people in the established middle suburbs already own their house," the Grattan report notes.
"Most of them don't like new developments in their neighbourhoods - the NIMBY syndrome. And so most people in Sydney believe that additional population should be housed primarily outside the existing Sydney boundaries."
But as Bernard Keane argues in Crikey, high and middle earners have effectively "weaponised" NIMBYism to prevent more housing being built in the crucial "middle ring" of cities.
"This is a class war, in which people on high and middle incomes have used a skewed tax system and NIMBYism to enrich themselves at the expense of low-income earners and young people," Keane writes.
It doesn't help that Australia's tax and welfare system also discourages older people from downsizing.
WHAT CAN WE DO?
Despite the challenges, the Grattan Institute report says boosting housing supply would have the biggest impact on affordability, even if it takes time.
But it believes the Federal Government can improve housing affordability immediately by reducing demand.
"It should reduce the capital gains tax discount to 25 per cent; abolish negative gearing; and include owner-occupied housing in the Age Pension assets test," the report recommends.
And unless state governments are prepared to reform their planning systems, it believes the Federal Government should also consider reducing Australia's migrant intake.
However, it believes this is a last resort if states are not prepared to change their planning systems, and it is not a preferred option.
When it comes to the Age Pension, the report recommends changing the asset test to include homes above a certain value (for example, $500,000), and at the same time, to raise the value of assets that do not reduce the pension to the same levels that applies to non-homeowners.
Grattan chief executive John Daley said limiting negative gearing and reducing capital gains tax will help in the short term, but won't help nearly as much as getting housing supply right.
"If you got rid of capital gains tax and negative gearing you might have some money to bribe the states with," Mr Daley said.
The report also states it does not support other measures spruiked at improving affordability including encouraging people to moving to regional areas, further stamp duty or other concessions for first-home buyers, shared equity schemes not targeted to low-income households or financial incentives to encourage seniors to downsize.
Treasurer Scott Morrison has pounced on the Grattan report, saying it concedes Labor's attack on negative gearing and capital gains tax is nothing but a "tax grab".
But Labor has hit back, saying there are serious ramifications of not dealing with housing affordability, far removed from the "mission accomplished" attitude of the Turnbull government.
Meanwhile former prime minister Tony Abbott has renewed his call for a cut to the migration intake.
"The best thing we can do, I think at the federal level, is scale-back the rate of immigration, not forever, but certainly until infrastructure, housing starts ... catch up," Mr Abbott said.
But Housing Industry Association managing director Shane Goodwin warned houses will not get built if the population doesn't grow.
"The main driver of population growth in Australia is migration," Mr Goodwin said in a statement.
WE NEED TO CHANGE
The Grattan Institute believes housing affordability must be tackled and said Australia's high housing prices are forcing people to rent longer, which is generally less secure and blocks people from taking advantage of the tax and welfare benefits of home ownership.
"Rising house prices have contributed to greater inequality," the report notes.
"Homeowners' wealth has increased dramatically due to rising house prices.
"Younger people and those with lower incomes who have missed out on buying a house are being left behind. Increasingly, getting the benefits of homeownership depends on the wealth of your parents.
"Higher levels of household debt may also worsen any future economic shock, because people with higher debt are more likely to cut back their spending."
The report also notes that growth in people's real incomes is also being held back by the increasing cost of housing.
"Incomes for the lowest 20 per cent of households have increased by about 27 per cent since 2003-04. But with housing costs rising faster than incomes, real incomes after housing costs have only grown about 16 per cent over the same period," the report says.
"Both homeowners and renters in the bottom 20 per cent of income earners are spending more on housing. Rising housing costs have affected higher income earners less."