Tag: Tax Reform

Super for housing a ‘dumb’ policy, says Coalition MP

From The New Daily.

Nationals MP Andrew Broad says capping negative gearing would be a better approach to tackling housing affordability than allowing Australians to dip into their superannuation.

Allowing people to dip into their super would be a “lazy way to address the issue”, the Coalition backbencher told The New Daily.

“Dumb policy is dumb policy, basically,” he said.

“People don’t want us to touch superannuation. I think realistically it has no legs because it would get blocked in the Senate anyway. But more so it has no legs because it is not sound policy.

“[It] won’t work and it has negative consequences on young people’s retirement.”

The Victorian federal MP was backed up by former health minister Sussan Ley, who tweeted that young Australians “need their super for retirement”.

However, plenty of other government MPs, including the Resources Minister Matt Canavan, have urged Treasurer Scott Morrison to embrace the superannuation proposal, which the government’s Expenditure Review Committee is expected to consider this week.

Instead of using super, Mr Broad said he preferred a cap on the number of homes or total dollar figure that can be negatively geared — although he was strongly opposed to Labor’s outright ban on the tax deduction.

“As long as the threshold is fairly high, you could say, once you’ve deducted more than $50,000 from negative gearing, you can’t deduct any more than that,” he said.

“We’ve got to reward people who want to buy one or two investment properties. We don’t need to have a tax regime that allows people to buy 10 or 20 and be in competition with someone who’s trying to purchase their first home and put a roof over their head.”

Meanwhile, other Coalition MPs are publicly lobbying to keep the super proposal alive, with Resources Minister Matt Canavan adding his support on Wednesday.

“This is, I think, a legitimate idea — it’s had support from people like Paul Keating in the past, it’s used in other countries, it’s something we should certainly consider,” he told the ABC.

Liberal backbenchers including John Alexander, Ian Goodenough, Tony Abbott, Tony Pasin and Craig Kelly have stated their support.

Mr Kelly told The New Daily he’d be disappointed if the policy wasn’t in the budget.

“But obviously the budget is not the only time that this change could be made,” he said.

Pointing to Australia’s declining rate of home ownership, he added: “It’s becoming harder and harder for young people to afford to get that deposit.

“I don’t think that is good for the country.”

Assistant Treasurer Michael Sukkar has previously said the super for housing idea could work as part of a broader suite of affordability measures, while Finance Minister Mathias Cormann is on the record as saying it would push up house prices.

Treasurer Scott Morrison is reportedly in favour of allowing Australians to divert their super into a special account, according to the ABC.

If the policy is adopted in the budget, it would still be subject to the whims of the Senate crossbench.

One Nation supports allowing people to access their super, Nick Xenophon and Jacqui Lambie are open to the idea in some form, while the Greens and Senator Derryn Hinch oppose it outright.

Time to end the Treasurer’s ‘housing supply’ con

From The New Daily.

When Derryn Hinch told the ABC on Monday that “owning your own home is not an Australian right”, he was unwittingly throwing his weight behind a huge con.

That con, in essence, is to convince voters that a major structural undersupply of dwellings is responsible for the current housing affordability crisis.

The argument is utterly bogus, though Mr Hinch may not yet understand why.

When asked if young Australians had “unrealistic expectations of where they can afford to buy homes close to the city”, he replied:

“You’re right. You’re 100 per cent right … it’s the expectation that, you know, here I am, I’m married, I’m da da da da, and therefore I should have a house.

“Now, in many European countries, and you look at places like New York City, most people – I think I’m right in saying this, or it was some years ago – most people rent, they don’t buy, they can’t afford it.”

Sounds reasonable, until you look at the number of Australian residents per dwelling.

Houses have grown a bit bigger on average, but even in ‘bubble state’ NSW the average number of residents per dwelling has been virtually flat since the millennium (see chart below).

housing crisis sydney

And yet our political leaders, hand-in-glove with property developers and the banks, try to create the illogical impression that average house prices have risen because people want to live close to city centres.

Treasurer Scott Morrison told the Australian Housing and Urban Research Institute in Melbourne on Monday that “… just over half of renters say they rent because they can’t afford to buy their own property”.

“Because of this, they are staying in the rental market for longer – a dynamic that puts upward pressure on rental prices and availability and even more pressure on lower-income households, increasing the need for affordable housing,” Mr Morrison said.

“Increasing numbers of higher income earners privately renting has the obvious effect of lowering availability of affordable rental stock to those on low incomes.”

The Treasurer’s logic is completely flawed.

When a renter becomes a home owner, they vacate one property and occupy another. When a high-income earner sells their home and decides to rent, they vacate one property and occupy another.

The average number of Australian residents per dwelling is not affected by that process.

If immigration, or the birth and death rates, ever get substantially ahead of the national supply of housing stock, that really would be a supply issue – we’ll know more about that when the second round of 2016 census data is released in June.

But until that happens, rising prices in one area should be offset by fewer dollars chasing properties in another area.

So why does that not happen?

Well actually, it does. House prices are falling in Perth, for instance, as mining-related workers head east to look for new jobs. Rental vacancies in that city have risen from around 1 per cent to 5 per cent in the past four years.

But those relative shifts between one capital city and another, or between inner and outer suburbs, have been dwarfed in the post-millennium era by the credit bubble that began to grow when generous discounts to capital gains tax were legislated in 1999.

Twin distortions

The 50 per cent CGT discount, combined with existing negative gearing provisions, meant that property investors could afford to borrow more to bid up house prices. As they did so, owner-occupiers were forced to try to match them.

The entire market has been lifted, like a harbour full of different-sized boats, by the same tide – cheap credit and ridiculously generous tax incentives for investors.

The two most important causes of the housing affordability crisis are, therefore, the ones Mr Morrison has already vowed not to reform.

To make planned affordability measures in this year’s budget seem plausible, Mr Morrison’s housing supply con must be maintained.

Mr Hinch should not join that effort. Owning your own home may not be an Australian right, but shopping for a home in a market that is not systematically distorted to benefit investors, developers and banks certainly is.

The Facts About Using Super For Housing

Given the reported idea of using super to assist home buyers is back, again, data from our core market model offers some important insights into the potential number of households who may benefit. So here is our analysis.

First we look at the average super balances households have by age groups. No surprise, younger households have lower balances because they have not been saving so long, and not benefitted from compounding. In addition, we see that households who “want to buy” a property tend to have a lower value in super than those in the general population.

Next we look at the number of households in each age band, who are “want to buys”, and the number who have a minimum balance of $25k and $50k in super – this is important because most prospective purchasers will need a deposit of at least $50k.

From this we estimate that from the pool of want to buys aged 20-35 of 315,000 about 77,000 would be potentially able to benefit from accessing super for property purchase, or about 24%. So it may make a small dent in the number trying to get into the market, but overall it is a small proportion of the 616,000  “want to buys” we identify across the market.

In addition of course there is the argument that this will simply lift prices in this sector of the market, as a zero sum game, as well as the point that risks in housing are higher (especially at current high prices) and reduced super contributions especially in the early years means compounding is reduced so in later life balances will be lower.

 

Outrage at ‘really dumb’ resurrection of super-for-housing idea

From The NewDaily.

Reports that the government is again considering hacking into superannuation to solve the housing crisis have angered experts and regular Australians alike.

Anonymous sources within the Coalition have leaked to the ABC, The Australian and others that the plan is still in play, despite Treasurer Scott Morrison previously saying the government had no such proposal.

ABC political reporter Andrew Probyn reported Monday night that the proposal was being actively investigated for inclusion in the May budget.

Liberal backbench MP John Alexander, a vocal member of the advisory panel formulating the government’s housing affordability package for the May 9 budget, is known to be fighting for the idea. He is supported by fellow backbenchers Tony Abbott and Craig Kelly.

Assistant Treasurer Michael Sukkar wouldn’t rule it out in an interview with Sky News on Tuesday. He said the government is “pretty keen to examine measures that can bridge [the deposit] gap and allow first home buyers to get into the market as soon as possible otherwise the goal posts keep shifting”.

The super-for-housing idea, as commonly understood, would allow prospective first-time buyers to put their super savings toward a deposit. This would be in keeping with Mr Sukkar’s “keen” focus on removing the first hurdle to home ownership.

Treasurer Morrison told a conference on Monday it now takes eight years to save for a home deposit in Sydney and six years in Melbourne.

However, experts are horrified, as are many Australians, that super savings could be tapped in an attempt to solve this problem.

Economists, academics and even former PM Paul Keating, the godfather of compulsory superannuation, have all warned it would push up prices, expose the savings of Australians to a undiversified asset, erode their income stream in later life, and push up the cost to taxpayers of age pensions.

In fact, Malcolm Turnbull once dismissed it as a “thoroughly bad idea” and Finance Minister Matthias Cormann warned it “will not improve housing affordability” when it was floated during the Abbott years.

On Tuesday, Opposition Leader Bill Shorten described it as a “raid” on super. “Most young Australian’s don’t have much super at all,” he told a press conference.”

This is borne out by a recent report that estimated the average Australian aged 25-29 had only $16,000 in super in 2014.

Mr Shorten also noted, as many experts have done, that the “secret” of superannuation is compound interest. Theoretically, thousands of dollars could be lost in retirement if a worker’s capital is eroded early in their working life.

“If you raid that superannuation when it is in very small amounts at the start of people’s careers, you just won’t have enough super to retiree on,” he said.

“If the government wants to do something about housing affordability, rather than raid superannuation and starve people of income in retirement, you need to reform negative gearing in capital gains tax deduction.”

Affordable housing in, negative gearing stays, says Treasurer

From The Real Estate Conversation.

Treasurer Scott Morrison has spoken of his commitment to home ownership as an achievable goals for Australians in a speech for the Australian Housing and Urban Research Institute today.

He said the government is looking at new ways to help renters and fund affordable housing, but he said negative gearing will stay.

“Home ownership is a positive for the Australian economy, our society and the nation’s finances,” said Morrison, but he said that recent data shows home ownership is declining in Australia, especially for young people.

The data shows that the proportion of home owners has fallen from 71 per cent of Australians to 67 per cent over the past 20 years. For Australians aged 25 to 34, home ownership is down by almost 10 per cent between 2002 and 2014, and currently sits at around 30 per cent.

Morrison said, “That is more than 160,000 young people that would otherwise be homeowners.”

Laying the foundations for the upcoming 6 May budget, Morrison said Labor’s proposal to change negative gearing tax breaks will not help Australians hoping to buy their first home, because it will increase rents, making it harder to save for a deposit.

Morrison said renters need greater security. He said that over 85 per cent of private renters move within five years, and almost one third of moves are forced, which is three times the rate of other household arrangements.

Morrison said, “This is particularly concerning for families with children.

“These families need housing stability to have consistent, reliable and beneficial access to the services they rely on such as schools, medical assistance and other supports.

“This means access to longer term leases,” he said.

Morrison said the federal government could establish an Affordable Housing Finance Corporation that would use a “bond aggregator” model that has been successful in the UK, and which is aimed at garnering tens of millions of dollars in investment into community and social housing.

Morrison called on state governments to release greater supply of land, to alleviate some of the housing supply shortages.

Glenn Byres, Chief of Housing and Policy for the Property Council of Australia, said the Treasurer’s highlights the complexities in dealing with the housing and rental markets.

“We agree with the Treasurer’s assessment that the rental market is working well, but the housing supply pipeline in our cities is not,” he said.

“Housing supply across Australia is hindered by government property taxes and charges, unnecessary red tape, and planning systems that were built to constrain growth rather than facilitate it,” said Byres.

He said the Government is right to be looking at ways to kick start private investment in Australia’s housing markets, saying “the private sector is ready, willing and able to help.”

“The Federal Government should also be looking at ways to incentive the states and territories to encourage new housing supply using national competition payments,” suggested Byres.

Byres agreed with the Treasurer about the delicate balance between negative gearing and the rental markets.

“‘Negative gearing disruption’ is about making housing investment less attractive which will, in turn, impact the rental market,” he said.

“We believe there is scope, as part of broader tax reform, to reduce the capital gains tax discount to 40 per cent in the May Budget,” said Byres.

Mr Byres said the Treasurer was rightly focused on increasing supply through more investment and addressing supply constraints.

Nicholas Proud, chief executive officer of PowerHousing Australia, the body representing 28 Community Housing Providers, has welcomed Morrison’s commitment to address affordable houing shortages.

Helping new supply, creating more social and affordable housing, supporting first home buyers, and helping seniors to downsize are all step in the right direction, he says.

Adopting the UK’s bond aggregator model will open streams of institutional funds to increase the supply of social and affordable housing, said Proud.

“While public housing has decreased by 24,000 since 2007, community housing in Australia has over the same period grown from 33,526 to 72, 410 dwellings as per the recent Productivity Commission Report on Government Services,” said Proud.

“Providing funds through to the community housing sector will deliver more affordable homes more cost-effectively and assist those on low incomes through to first home ownership with more options,” he said.

To read the Treasurer Scott Morrison’s speech in full click here.

More On Negative Gearing Distribution – The Wealthy Benefit The Most

Last week we discussed data from our core market model on negative gearing, and using our segmentation demonstrated that some, and more wealthy segments, benefit the most.  There is room to trim the excesses, without necessarily removing gearing overall.

Today we look at another perspective, which supports this argument. We estimate that 61.7% of households with investment property are negatively geared – this has been rising significantly, as investment property penetration as risen.  Around 2.4 million households hold investment property, but not all is mortgaged or geared.

The first chart shows the value of investment property mortgages mapped to the value bands of investment property held. The orange area are households who negatively gear, the blue those who do not. This shows that the larger value portfolios have more gearing, and therefore get the greater tax benefits.  Note also the small, but important peak in portfolio values above $2m. We are seeing the rise in the “professional” investor class, or Portfolio Investors as we call them.

Another way to look at the value distribution is by the number of properties held in the investment portfolio. Again the orange area is property negatively geared, the blue, not geared.  We see a significant spike in gearing above 5 properties, as well an an expected strong distribution in one or two properties. Our modelling shows around 79% of households have one or two properties.

The overall costs of negative gearing and capital gains tax concessions are an estimated $7.7 billion annually, and three-quarters of the capital gains tax concessions are enjoyed by the top 10 per cent of income earners.

So, in our view, the Government should be looking to curtail the gearing available to multiple property holders, and limit the total amount which can be geared. Those two simple measures would take heat out of the market, reduce the tax burden and still allow “mum and dad” investors to benefit.

A categorical “NO” to negative gearing reform is a major mistake. Treasurer, please note! As it stands, as mortgage rates rise, and investment loans will bear the brunt of these rises, actually the poor tax payer pays for this, insulating geared investors from the extra costs. Treasury should be modelling the extra impost this will be on the budget.

 

What housing issues should the budget tackle? This is what our experts say

The Conversation has published many articles by Australia’s foremost academics on policies that affect housing. In the lead-up to expected announcements in the federal budget in May, we review the arguments in the articles since January 2016 – 81 were identified, of which 58 concerned housing policy.

This article focuses on the most frequently mentioned aspects of housing policies and other policies that had unintended effects on housing – fiscal policy, land supply and planning approvals, and affordable housing. A concern with politics and inequality was a consistent theme. Recent articles have discussed a possible housing bubble.

This article considers demand-side market distortion, supply-side blaming, and inequality. The second article will consider housing affordability and prospective policy changes.

Demand-side distortions

The discussion of fiscal issues most often involves the following government responsibilities:

  • negative gearing and capital gains tax exemptions – a federal responsibility;
  • stamp duty (state government); and
  • the need to replace stamp duty with land taxes and to implement value-capture taxes on unearned rises in land value (state and local governments).

The First Home Owner Grant and the use of superannuation savings to buy housing were seldom mentioned. The same is true of the Reserve Bank and the role of the Australian Prudential Regulatory Authority in regulating housing lending.

The macroeconomic implications of fiscal issues were largely not included in the housing debate. The irony is that both major parties support market distortions – the Coalition government somewhat moreso than the Labor opposition.

This is where politics enters the picture. It is recognised that:

70% of voters own their houses … Housing accounts for more than 60% of the value of total assets held by Australians.

Home owners have a vested interest in stable, if not increasing, housing prices. As a result, it was observed:

The default position for politicians is to sound concerned about housing affordability, but to do nothing.

Reading the articles caused me to think the debate should be framed somewhat differently and focused on market distortions. These are a negative when policies:

  • give rise to price distortions;
  • divert capital from more productive investments to less productive ones;
  • divert consumption from other goods and services and associated jobs as a result of inflated housing prices and mortgage payments;
  • create risks: household debt and exposure to interest rate rises, bank mortgage lending, the housing market, the national economy;
  • raise transaction costs;
  • reduce labour market efficiency by discouraging labour mobility; and
  • exacerbate inequality.

Market distortions, when transparent, are positive if they serve social ends like affordable housing and reduced inequality.

With some variation in interpretation, Conversation authors agree that negative market distortions arise from the fiscal policies listed earlier. Negative gearing and capital gains tax are “perverse incentives in the tax system”. Together, they have “simply added fuel to the fire” of increasing housing prices.

Negative gearing is … a subsidy for buyers … The problem is one of too many buyers willing to pay high prices, and negative gearing is designed to create more buyers willing to pay more.

So negative gearing encourages people to invest in property, and it particularly encourages them to invest by borrowing most of the price of the house … This is a very odd kind of housing and investment policy, seemingly designed to encourage people to over-extend and expose themselves to big risks if property prices were to fall.

Capital gains tax is “diverting capital from other productive investments in the expectation of tax-free capital gains”.

Lopsided lending for private housing has diverted finance away from business investment.

The articles also identify distortions to the economy, household debt and Australia’s budget deficit. An example is:

… the unusually generous treatment which the Australian tax system gives to the costs of and returns from debt-funded property investment.

And, referring to a possible housing bubble:

… double-digit increases in house prices, combined with unprecedentedly high household debt (more than 120% of GDP, the third highest in the world) and household debt servicing ratios (also the the third highest in the world), make for a precarious situation.

… the CGT exemption cost the budget A$46 billion in 2015-16. Removing the exemption altogether would wipe out the budget deficit in one swoop.

Another author notes that by:

… making homes default savings accounts essential to our long-term welfare security … we have come to depend on them for much more than housing … A welfare system that relies on home ownership in a globalised era is … critically vulnerable.

The articles on market distortions lead to firm conclusions. Fiscal policies that benefit home owners significantly distort the economy, inflate housing prices, and create risks that permeate from households to the national economy.

Supply-side blaming

It must be noted from the start that:

New supply is a small fraction of the total stock of dwellings (about 2% in Australia). Prices are set by the total housing market …

Discussion of housing prices that singles out supply-side issues is thus poorly grounded. This is contrary to Treasurer Scott Morrison’s view:

The issue here is fundamentally about supply.

He seems to believe that:

… the most important factor behind rising prices has been the long-running impediments to the supply side of the market.

Morrison seeks to push states to remove residential land use planning regulations that are supposedly unnecessary and impeding the supply of housing.

Several articles observed that it is easy for the federal government to express dire concern about affordability and to blame state and local governments for planning and building regulations slowing the supply of land and housing. State governments sometimes repeat this mantra, blaming local governments.

It was observed that home owners are susceptible to scare campaigns by property sector bodies about the claimed impact of possible fiscal reforms It was also observed that Morrison was the Australian Property Council’s national policy and research manager from 1989 to 1995, and is well versed in blame shifting.

Are the supply-side problems dire? It appears not. In Sydney and Melbourne:

… approvals are running at about double the actual dwelling construction levels, so “fixing” the planning systems is unlikely to have much impact on dwelling supply levels.

Growth in the national housing stock has kept pace with population growth for almost a decade.

Developers release land to the market at a rate that sustains prices.

Developers … simply won’t allow supply to get ahead of demand in a way that would put significant downward pressure on prices. Dwelling approvals in Sydney and Melbourne are running way ahead of building starts, but housing projects are released in stages to avoid swamping the market.

As a result:

Record construction rates have co-existed with unprecedented and ongoing property price hikes.

The issue is less the scarcity of land than speculative acquisition of land. The developers benefit from unearned increases in value arising from zoning changes, and then from a managed release of land to the market.

For these reasons, some articles proposed taxes should accompany rezoning. A vacant land tax was also mentioned.

Developers are unlikely to release land at a rate that improves affordability by lowering prices. Dan Peled/AAP

Many articles also worried about where land is being released. The need for planning and the importance of location have long been evident:

In his 1972 election campaign, Gough Whitlam loudly proclaimed that in modern Australia an individual’s health, wellbeing and life chances were shaped more by where they lived than the job they held, their religion, race or ethnicity.

Promoting inequality

In effect, all home ownership in Australia is subsidised. It’s a form of social welfare biased in favour of the wealthy. For example:

… Australian governments have effectively subsidised housing through taxation incentives for home ownership.

For instance, the exemption from capital gains tax:

… results in the payment of income support to those with substantial wealth tied up in their principal residence.

… the current benefits of exempting the main residence from CGT flow mainly to high-income earners, with more than 50% of the benefit flowing to the top 20% of households … [capital gains tax] is a perk for the rich.

… negative gearing is a tax deduction … the higher your marginal tax rate, the more you get. Someone on $200,000 will receive about half their loss back. Someone on $30,000 will only get about a fifth.

… most of the gains go to a small subset of investors with lots of properties and on very high incomes. The “mums and dads” get a relative pittance.

In addition to fiscal measures:

… the lack of well-located affordable housing is an economic productivity concern as well as a social problem.

Intergenerational inequality in home ownership is not included here. While often mentioned, it is “framing the housing affordability question the wrong way”. The divide is determined by class and perpetuated by those with wealth in property and the potential for intergenerational wealth transfer in the housing market.

A specific insight concerns the geography of mortgage stress. Mortgage stress is more a result of household income than the price of the house. Rather than Sydney and Melbourne, where mortgages are highest:

… mortgage stress is highest in Tasmania and South Australia … Households in regional areas are also facing more mortgage stress than their city counterparts.

If attention turns from house prices to mortgage stress, the geography of housing angst turns to regional Australia and to “employment and income statistics”.

Beware simplistic mantras

It is hoped this article leads to some introspection regarding the causes of housing affordability problems. Australia has for too long persisted with the mantra of housing prices being caused by problems of supply.

This is not a political statement. It was Labor that established the National Housing Supply Council. The emphasis on supply is so very misleading. The focus should be on the functioning of the housing sector and on those unable to enter the housing market.

It is hoped as well that this article has caused some concern regarding the macroeconomic distortions and productivity costs associated with housing policies and, more to the point, policies that are not intended to affect housing.

The failure to resolve housing issues, besides being thoroughly unfair, is also a failure to improve the productivity of Australia’s economy.

Morrison rejects pressure for negative gearing to be examined

From The Conversation.

Treasurer Scott Morrison will renew his warnings against tampering with negative gearing, in a Monday speech urging more institutional investment in both rental residential real estate and affordable housing for low-income earners.

As the government prepares its housing package for the May budget, Morrison will also seek to keep expectations realistic, saying one budget cannot turn around the various affordability issues in isolation.

“There are no single or easy solutions and the payback is achieved in some cases over a generation – not an electoral or budget cycles,” Morrison says in the speech, a copy of which was released ahead of delivery.

The policy response on housing “must be careful and calibrated, lest we spark a negative housing shock that would undermine our economic confidence, negatively impact household consumption and retard economic growth,” he says.

“The more than two-thirds of Australians who live in owner-occupied homes would agree that dramatically reducing the value of their home is not a good plan, and it is not the government’s plan.”

The escalating prices in Sydney and Melbourne in particular have led to widespread calls for the government to soften its opposition to changing negative gearing but it has dug in. There is, however, internal debate in government circles about whether to change the capital gains discount.

Morrison says the response on housing must be comprehensive – because there is no silver bullet – and involve all levels of government, with co-ordinated action. It must first remove the range of obstacles restricting supply.

“We don’t claim instantly affordable housing,” he says. “Anyone making such claims would soon be found out and rightly punished for it.”

He says the rental sector has not escaped affordability challenges even though rent increases have not mirrored those of housing prices.

About 47% of low-income rental households in the capital cities spend more than 30% of their household income on housing costs.

Higher house prices are making it harder for potential buyers to move into ownership, he says, and this means they are staying in the rental market longer. That puts pressure on rents and availability and even more pressure on lower income households, increasing the need for affordable housing for them.

More housing is needed not just for homeowners but for renters – “for key workers such as nurses, teachers and police officers who can’t afford to rent or buy in the communities they serve and for those on low incomes, the disabled and the disadvantaged.”

Morrison once again will attack the performance of the National Affordable Housing Agreement, as not adequately delivering.

Rental yields for investors are 2.1% in Melbourne and 1.8% in Sydney, and less for affordable and social housing stock.

Despite low yields, 27% of Australian housing stock is owned by investors. This compares with 18% in the United Kingdom. Unlike Australia, there is greater institutional ownership of residential real estate in the UK and even more in Europe and the US, Morrison points out.

“Here, our private rental stock is owned by mums and dads.”

“Figures to be released later this week show two million taxpayers in Australia have an interest in a residential investment property. 72% own just one property and 90% own no more than two. Just over 1.3 million of these taxpayers negatively gear their investments, including 58,000 teachers and one in five police officers. Two thirds of those taxpayers who negatively gear their investments have a taxable income of $80,000 or less.”

In the UK, where there is no negative gearing, rent as a percentage of income is on average 25% higher than in Australia, Morrison says.

“Australian residential property investment is more geared to capital gain than yield.

“If mum and dad investors were not part of our private rental market, there would be fewer rental properties available, meaning higher rents, further crowding out of those on lower incomes and even greater pressure on already over-stressed community and social housing resources.

“Regardless of one’s opinions of the merits or otherwise of negative gearing, it is an established and structural component of Australia’s housing markets. Disrupting negative gearing would not come without a cost, especially to renters, let alone the wider economic impacts. Proponents of disruptive negative gearing changes have ignored this fact,” he says.

“This would not be good for the 30% of Australian households who rent.”

But Morrison says attention needs to be paid to how there could be more institutional involvement in rental residential real estate. “This would diversify the basis of ownership and inoculate risk, while potentially delivering greater stability and certainty as well as greater innovation in product offerings.”

It would need to be fundamentally driven by the private sector.

A variety of reforms is also required to increase the supply of affordable rental housing for key workers and those on low incomes, he says. A housing bond aggregator is one being examined. This model aggregates and sources capital from the bond market for lower interest, long-term loans to providers.

Morrison says he hopes an appetite can be cultivated among Australian super funds for investment in affordable housing. “What could be more in the interest of nurses, teachers or police pension fund members than investing in affordable housing for nurses, teachers and police officers?”

“As with residential real estate, this will require the same prerequisites to establish a new institutional investment class. However, more specifically for affordable housing, it will require de-risking the income stream and mitigating tenant risk.

“There are a series of options available for government to provide greater certainty in this area,” he says.

Early super release ‘wrong solution’ for housing

From InvestorDaily.

Giving young Australians early access to their super to finance a house purchase would do nothing to address the underlying problem, says the Committee for Sustainable Retirement Incomes.

Home ownership is a “fundamental determinant of living standards in retirement”, said Committee for Sustainable Retirement Incomes (CSRI) managing director Patricia Pascuzzo, and declining rates of home ownership should be a significant concern for policy makers.

Allowing young Australians access to their super prior to retirement to finance the purchase of a house would go towards fixing this problem, and could potentially improve young people’s engagement with the super system, Ms Pascuzzo said, however the proposal carried “one major flaw”.

“It was the wrong solution for the problem at hand, namely housing affordability. Moreover, in the absence of other measures, it had the potential to exacerbate the problem of housing affordability,” Ms Pascuzzo said.

A number of other solutions, such as the reassessment of tax breaks proposed by Financial System Inquiry head David Murray, would be far better suited to addressing housing affordability issues, Ms Pascuzzo said.

“A number of other policy measures could be actively considered as part of an integrated retirement incomes policy agenda that would also indirectly improve the environment for first home buyers,” she said.

“These include reconsidering the extent of the tax-preferred status of the home and/or including housing in the age pension means test, so long as the exemption limit is set sufficiently high to ensure no pensioner suffers a loss of cash income.”

First Scramble the NBN, Now Housing

The AFR reports today that Scott Morrison is advocating increasing supply as the recipe to solve the current housing issues, and is standing firm against a crescendo of calls to curb negative gearing tax breaks (though may be more amenable to capital gains changes).

I was reflecting on the current state of play, given RBA, APRA, ASIC (three members of the Council of Financial Regulators – the Treasury being the fourth) are all underscoring the risks in the housing sector. Investors are in the firing line.  Logically, negative gearing should be curbed.

But then I started to consider the political agenda, and wondered if there are parallels with the second class service the current NBN solution is delivering; at least to me. Essentially, Turnbull wound back Labor’s fibre to the end-point solution by arguing that there was a better, cheaper, quicker way. It became do anything BUT what Labor proposed. The result, in my case at least is a slow, unreliable NBN solution, unable to deliver acceptable bandwidth at peak times, and no upgrade path. The political battle may have been won, but the end outcome is frankly horrid. As a digital business we suffer the result every day! The cabinets on the local street corners (now daubed with tags and grafiti) will be a lasting tangible monument to a politically catalysed outcome.

But, now, are we seeing the same with Negative Gearing changes, which Labor proposed, and which have been opposed by the Government ever since?  Has it become caught in the same trap as the NBN? Had Labor kept it’s power dry, would we have seen changes to negative gearing already?

Could it be that on principle, the Government won’t concede this to Labor, and so will literally go round the houses to avoid changes to negative gearing?

This despite the many calls, from responsible and well informed sources who say that it is the tax breaks which are driving the investment property sector. This is also confirmed in our surveys.

Will the legacy of the unwillingness to tackle such a core element in the landscape cost us a housing crash? As we argued recently, it is looking more likely that we will need a correction to defuse the current heady trends.

But if the needs for a political wins outweighs good policy, it is highly likely we will get the housing equivalent of the NBN. We think Australia deserves better.