Housing has become on of the most pressing issues in Australian politics. The cost of housing, the lack of housing and how to fix the problems. The Hon Michael Sukkar MP became the Minister for Housing and Assistant Treasurer in the newly elected Morrison Government after the 18 May 2019 election. Throwing down the gauntlet, on Monday, 28 October 2019, Michael Sukkar outline the many new policies emerging to help first home buyers get into the market alongside policies to encourage older Australians to downsize and open up new opportunities for younger buyers. 

HOUSING IN AUSTRALIA – HOW THE MORRISON GOVERNMENT IS BACKING AUSTRALIANS’ HOUSING CHOICES

MICHAEL SUKKAR

Good evening. Firstly, can I thank Gerard and Anne Henderson for the invitation this evening.

For three decades, The Sydney Institute has been at the forefront of debate with many speakers using this forum to argue for the development of public policy for the good of the nation. And it is an honour to continue in that tradition this evening.

In recognition that housing is one of the most important sectors of the Australian economy, the Prime Minister and the Treasurer handed me a dual role as Minister for Housing and Assistant Treasurer.

that housing is one of the most important sectors of the Australian economy

It is a role I relish and tonight I would like to use this occasion to reflect on the current state of the housing market and its importance to our country.

In particular, I want to emphasise the importance of housing to the Liberal Party, the current challenges we face in housing including the factors behind these issues and how the Morrison Government plans to address them.

Importance of housing to Liberal values

As we celebrate the 75th anniversary of the founding of the Liberal Party of Australia, a topic with which Gerard Henderson has some familiarity – having written and launched his book Menzies’ Child for the 50th Anniversary of the Party’s foundation back in 1994 – it is timely to reflect on our values Sir Robert Menzies pursued at our Party’s formation.

A policy area Sir Robert consistently emphasised was housing and its importance to families, communities and ultimately our country. In his Forgotten People speech on 22 May 1942, prior to the Liberal Party’s formation, he said:

A policy area Sir Robert consistently emphasised was housing and its importance to families, communities and ultimately our country. 

The material home represents the concrete expression of the habits of frugality and saving … one of the best instincts in us is that which induces us to have one little piece of earth with a house and a garden which is ours; to which we can withdraw, in which we can be among friends, into which no stranger may come against our will.

Sir Robert, was essentially outlining what we now call the great Australian dream, he continued:

The home is the foundation of sanity and sobriety: it is the indispensable condition of continuity, its health determines the health of society as a whole.

For Menzies, the aspiration to own a home was, as it is today, a fundamental Liberal value alongside the right to own private property.

Coming out of the post-war reconstruction period, Australia was faced with a housing challenge which emerged from the depression and the aftermath of the Second World War.

Under the Menzies Government, funds were designated for the purchase of housing through permanent building societies. In 1964, a Home Savings Grant was brought in to assist “young married persons” to purchase or build their own home. Then, in 1965, there was the introduction of the Housing Loans Insurance Corporation to insure approved lenders against losses arising from making housing loans – the precursor to what we know as Lenders Mortgage Insurance which is offered privately today.

Under the Menzies Government, funds were designated for the purchase of housing through permanent building societies.

By the end of Menzies’ unprecedented term as Prime Minister in 1966, home ownership had risen to an all-time high of 71.4 per cent of the population. The housing record of the Menzies era was widely regarded as a monumental success, not just socially and economically but also politically.

John Howard in his book, The Menzies Era, The years that shaped modern Australia, makes the point that:

The proportion of Australians who owned their own home… was a measure of the success Menzies had in delivering a sense of prosperity and stability to middle-class Australians: one of the explanations for his continued political success.

In my view, the corollary to this is that that falling levels of home ownership, if continued unabated, represent an existential threat to the values and political relevance of the Liberal and National parties.

falling levels of home ownership, if continued unabated, represent an existential threat to the values and political relevance of the Liberal and National parties.

In representing the values of thrift, living within ones means and strong economic management, I believe our success has been directly related to the high proportion of Australians who experience the tangible benefit of these values through home ownership. Having Australians invested in the prosperity of our nation in this way I believe has also been a bulwark against radical left wing economic ideologies, which from time to time may fade from view, but which never completely disappear.

Therefore, in my view, when one understands the formation of the Liberal Party and, in particular, the value that our founder Sir Robert Menzies placed on housing – noting the unprecedented political success he enjoyed – this should lead all contemporary Liberals to redoubling our efforts to regain the mantle as the party of home ownership.

And I will outline tonight how this work continues under the Morrison Government.

The current state of the property market

As it currently stands, the housing market is undergoing a period of significant adjustment. With the market having slowed over the past couple of years, there are signs that the established market is starting to stabilise.

the housing market is undergoing a period of significant adjustment. With the market having slowed over the past couple of years, there are signs that the established market is starting to stabilise.

It was clear at the last election that Labor had home owners and property investors in their sights by proposing a doubling of Capital Gains Tax and the abolition of negative gearing. Deloitte Access Economics has commented that under Labor’s plan, construction of new housing would fall, 7,800 construction jobs would have been lost, rents would have increased, construction activity would have declined by $766 million, our GDP would have taken a $1.5 billion hit, while making it harder for first home buyers to get into the market.

And make no mistake, the market was alert to Labor’s plans and had factored them in to their long term planning.

However, with the re-election of the Morrison Government it is clear the market has breathed a sigh of relief, as we have also seen national auction clearance rates recover back to early 2017 levels and auction volumes are starting to improve. After falling since late 2017, combined capital city dwelling prices rose in July 2019 for the first time in almost two years, and have continued to rise.

While price indicators suggest the established market is showing signs of stabilising, residential building approvals have continued to trend down since late 2017 suggesting that new housing construction activity will continue to moderate.

While price indicators suggest the established market is showing signs of stabilising, residential building approvals have continued to trend down since late 2017

Dwelling investment has fallen from record highs since late 2018 and is forecast in the 2019-20 Budget to fall by 7 per cent and by a further 4 per cent in 2020-21 as existing projects are completed. The projected falls in housing starts represent, in my view, the most alarming statistic that may negatively impact housing affordability.

Housing affordability

According to the 2016 Census, 67.1 per cent of Australians own their own home. While this has remained relatively stable over the years, it has steadily declined for two decades and is still on a downward trajectory. Australian spending on housing has increased from about 10 per cent of total pre-tax household income in 1980 to about 14 per cent today.

Australian housing stock is becoming increasingly expensive and people are spending more of their income on housing. Dwelling price rises accelerated in the mid-1990s. Real house prices increased by about 2 per cent a year from the 1970s to the mid-1990s. Since then, real house prices have risen by about 5 per cent a year.

Australian housing stock is becoming increasingly expensive and people are spending more of their income on housing.

Australian dwelling prices have grown much faster than incomes, particularly since the mid-1990s. Over the long term, prices have risen rapidly in all cities, and most regions, although there are variations from year to year. Average prices have increased from around 2-3 times average disposable incomes in the 1980s and early-1990s, to around 5 times more recently. Median prices have increased from around 4 times median incomes in the early 1990s to more than seven times today, and more than eight times in Sydney.

Causes of housing affordability issues

In my view, it has been a perfect storm of rising taxes and regulatory costs, population growth, and cumbersome and unresponsive planning rules, restricting supply, which have led to the decline of housing affordability in Australia. This is most acutely felt in Sydney and Melbourne, where house prices have risen 70 and 50 per cent respectively since 2012.

it has been a perfect storm of rising taxes and regulatory costs, population growth, and cumbersome and unresponsive planning rules, restricting supply, which have led to the decline of housing affordability in Australia.

So, let me go through each element of this perfect storm with you in more detail.

Taxes and regulatory costs

It may shock Australians to learn that the biggest cost to building a new dwelling is the taxes and regulatory cost component. In fact, the Centre for International Economics’ modelling shows 50 per cent of the cost of a new house and land package in Sydney can be attributed to taxes and regulatory costs. Melbourne is estimated to be 37 per cent and Brisbane 32 per cent. And, undoubtedly, it is the purchaser who absorbs the vast majority of these costs.

that the biggest cost to building a new dwelling is the taxes and regulatory cost component.

To break the Sydney costs down, 26 per cent relate to statutory taxes. This is a combination stamp duty, GST, income tax, and other taxes on immovable property.  The other material component is regulatory costs, such as holding costs, rezoning costs, professional planning consulting costs, which represents 21 per cent of a Sydney House and Land package, and I will touch on planning and zoning challenges in a moment.

Decreasing supply – planning and zoning issues

The second major challenge for housing in Australia is the impact of slow, unpredictable and cumbersome state based planning and zoning rules. As widely documented, including in the Productivity Commission’s Shifting the Dial report (2017) and the Harper Competition Policy Review (2015) there are a range of material concerns about planning and zoning regulations.

In some cases, developers must navigate numerous zone types and categories which contribute to lengthy approval timeframes and excessive compliance costs. There can also be capacity, capability and resource challenges for local councils and differences in the role of third-parties in review.

Higher land prices mainly reflect restrictions on supplying more dwellings: much urban infill is limited by planning restrictions; and greenfield development at the urban fringe are often limited by slow release of land, planning approval delays, and uneconomic developer charges, particularly in Sydney.

Higher land prices mainly reflect restrictions on supplying more dwellings: much urban infill is limited by planning restrictions

Development in middle suburbs has increased in recent years, especially in Sydney. But today’s level of housing construction is the bare minimum needed to meet population growth. The failure to approve enough development reflects the fraught politics of NIMBYism. The problems of housing affordability may get worse unless state governments move on supply.

We are working closely with state governments to support and  encourage reform and therefore better supply.

In this respect we are supporting increased density on transport corridors. But one area we have had less success is the encouragement of state governments to increase the supply of greenfield land and ensure that excessive developer charges do not make development uneconomic. This issue though continues to be most acute in Sydney.

Increasing demand – population growth

The third major issue I see with Australian housing policy has been the management, or lack thereof, of population growth. Australia’s population growth has shaped the nation we know today — both from an economic and social perspective.

During the past decade, Australia’s population grew at an annual growth rate of 1.6 per cent, significantly higher than most other developed countries. But this has not been universal. Sydney, Melbourne and South-East Queensland have experienced strong population growth. While some regions, particularly outer regional and remote areas, have experienced low growth or a declining population.

During the past decade, Australia’s population grew at an annual growth rate of 1.6 per cent, significantly higher than most other developed countries.

A lack of co-ordination between federal government migration policy and settings and State Governments has meant this increased demand for housing has not been met. This is a critical component of the Morrison Government’s plan to address housing supply issues. Later, I will remark on our plans to address this disconnect.

What are the answers – more supply!

The only universal answer to these problems is more supply. The need for more housing supply, especially in Sydney and Melbourne, has been the focus of analysis and government policy for some time.

On most estimates, dwelling approvals fell well behind population growth for the decade from 2005-14. Construction has only started to get close to matching population growth in the past couple of years; the backlog of a decade of under-supply remains. If projected population growth rates are right, then future rates of construction will need to be even higher than current elevated levels.

If projected population growth rates are right, then future rates of construction will need to be even higher than current elevated levels.

Morrison Government action

As I have said, due to the unique nature of our Federation, the direct role for the Commonwealth in addressing the predominant issues with housing affordability and particularly housing supply is one of targeted intervention such as with the first home buyers and reform led by example and co-ordination.

Morrison Government response: assisting FHBs

One immediate way that the Morrison Government is seeking to address inequities in the housing market is to provide additional support first home buyers. This is recognition of the fact that it is getting harder to save a deposit. In the early 1990s it took around six years to save a 20 per cent deposit for a typical dwelling for an average household. It now takes around nine to ten years.

It has been calculated that the median deposit for first home buyers increased from about $42,000 in 2008 to almost $70,000 in 2014. The challenge of saving an initial deposit is now typically a bigger barrier to home-ownership than the initial burden of mortgage repayments, and so younger households increasingly rely on contributions from the “bank of mum and dad”.

So younger households increasingly rely on contributions from the “bank of mum and dad”

First Home Loan Deposit Scheme

Recently, the government passed legislated the establishment of the First Home Loan Deposit Scheme. Our Scheme will enable first home buyers to purchase a modest home with a deposit of as little as 5 per cent, allowing them to get into the market earlier. The Scheme will commence at the start of 2020 and is set to provide up to 10,000 guarantees to eligible first home buyers per financial year.

Applicants will be subject to eligibility criteria, including having taxable incomes up to $125,000 per annum for singles and up to $200,000 per annum for couples. The Scheme will be available for new and existing dwellings and will be subject to regional price caps, which I announced yesterday.

First Home Super Saver Scheme

We have also put in place the First Home Super Saver Scheme to assist potential new buyers build a deposit inside their superannuation to save for their first home. This effectively represents a salary sacrificed tax cut to accelerate the saving of a deposit. Since 1 July 2018, the ATO has released super saver amounts for more than 4,400 individuals to the value of $54 million — an average of around $12,000 per person.

Morrison Government response: remove impediments

One of the consistent criticism of state based stamp duties is the impediment to mobility and its distortionary impact on behaviour. We have therefore taken a view that the Commonwealth where possible should get our own house in order in this respect. For example, in recognition of the impediments for older Australians seeking to downsize, the government introduced the downsizer superannuation contribution concession.

In recognition of the impediments for older Australians seeking to downsize, the government introduced the downsizer superannuation contribution concession.

This measure allows Australians aged over 65 to contribute up to $300,000 to their superannuation fund from the sale of their principal residence in the form of an exempt non-concessional contribution, which does not count towards the $1.6 million balance test. Since 1 July 2018, we have seen over 6,000 people take-up the downsizer measure, contributing over a combined $1.4 billion to their superannuation funds while freeing up housing for younger families.

Morrison Government response: more housing supply

As I’ve said, we believe that it’s unacceptable that the supply of new housing is so badly constrained by state and territory planning and regulatory bottlenecks. The Morrison Government will use all possible levers to encourage States and Territories to undertake the politically difficult, but necessary reforms to increase the responsiveness of housing supply. And since becoming Minister for Housing we have demonstrated our tangible willingness to support such actions.

For example, the government recently waived Tasmania’s historic housing debt totalling $230 million partly as a result of the Tasmanian Government’s commitment to implement a state-wide planning scheme. Which will unquestionably promote greater housing supply in Tasmania.

National Housing Finance and Investment Corporation – more social and affordable housing supply

We are also keen to support new supply of social and affordable housing, with the post-world war two, state based public housing model coming under significant pressure. That is part of the reason that the government established the National Housing Finance and Investment Corporation to administer an affordable housing bond aggregator.

We are also keen to support new supply of social and affordable housing, with the post-world war two, state based public housing model coming under significant pressure.

NHFIC has now been operating for over a year and to date, is financing and supporting the delivery of an additional 560 social and affordable rental dwellings. NHFIC has reached some important milestones — in March this year, it announced the successful launch of its first bond issue of $315 million. In July, NHFIC announced its first construction loan — a two-year $45.7 million loan to community housing provider BlueCHP. The loan will fund the construction of new dwellings in affordable housing projects at Lane Cove and Liverpool.

NHFIC also administers the $1 billion National Housing Infrastructure Facility which will help finance critical infrastructure —such as electricity, water and sewerage, telecommunications and transport — to help unlock new housing supply.

Morrison Government response: lead by example on divestment of surplus government land

While the Commonwealth Government only has a fraction of the landholdings that State Governments have, again we have decided to lead by example in divesting surplus Commonwealth land for housing projects. For example, in September, the government announced the sale of the Bulimba Barracks a 20-hectare site in Brisbane, which will unlock the development of over 800 new dwellings.

Separately, the government is divesting 127.8 hectares of surplus Defence land in Maribyrnong – approximately 10 kilometres from the Melbourne CBD. This land, once remediated, is capable of sustaining the development of between 3,000 and 6,000 dwellings.

Morrison Government response: infrastructure investment

Another challenge of housing supply is that it needs to be underpinned by investment in infrastructure to meet the needs of our growing cities. In the 2019-20 Budget, the Morrison Government announced record investment in infrastructure across the nation of $100 billion over the next decade and committed to a 20-year plan for fast rail. This is important because the cost of congestion to the Australian economy is already significant and rising.

Another challenge of housing supply is that it needs to be underpinned by investment in infrastructure to meet the needs of our growing cities.

The Bureau of Infrastructure, Transport and Regional Economics estimates the cost of congestion in Australia’s capital cities was $25 billion in 2017-18, rising to $40 billion a year by 2030. The Melbourne Institute’s Household Income and Labour Dynamics in Australia (HILDA) survey points out “commuting times have on average increased by 23 per cent in 15 years”. And importantly the Morrison Government recognises that future infrastructure investments must better align with migration and population policy.

Morrison Government response: better population policy

Undoubtedly, our population growth, and the migration settings that support it, have been key drivers of our economic growth. It has made a significant impact on our workforce participation rate as well as our productivity.

My colleague, the Minister for Population, Cities and Urban Infrastructure, Allan Tudge, said recently, that Treasury has estimated that a sixth of our per capita wealth over the last 40 years has been due to population factors. And while we have seen the benefits of growth, we also see every day on the way to work, or on the way to taking the kids to school, that this growth has put pressure on the liveability of our cities, as our infrastructure, and housing approvals and construction have not kept up.

Treasury has estimated that a sixth of our per capita wealth over the last 40 years has been due to population factors.

The Government released a national population plan — Planning for Australia’s Future Population — earlier this year. It’s an integrated plan to manage population growth in our cities and support our regions. The plan commits to introduce two new regional (provisional) visas for skilled workers, which are due to commence from 16 November 2019.  The Government recently announced the number of places set aside for regional visas will increase from 23,000 places to 25,000.

Workers will be required to live for at least three years in areas outside the three largest capital cities – Sydney, Melbourne and Brisbane – before they can apply for permanent residency. The plan commits to reduce the permanent Migration Program from 190,000 to 160,000 places for the next four years starting from this year. And it commits to create incentives for international students to consider going to universities in regional areas and smaller cities.

As part of the plan, the Government has established the Centre for Population — based within the Department of Treasury — to help improve the evidence base and coordinate research and analysis on population planning and management. I shall be working closely with my colleague, the Minister for Population, Cities and Urban Infrastructure, Alan Tudge to ensure that the government continues to work with other levels of government to develop a comprehensive National Population and Planning Framework.

I commenced this address by emphasising my ambition for the Liberal Party to reclaim its heritage as the Party of home ownership. I have also outlined the myriad of practical challenges we face. From the unique aspects of our federation, the over-reliance on housing taxes, housing supply constraints and the misalignment of population policy from infrastructure delivery – the challenges are enormous.

From the unique aspects of our federation, the over-reliance on housing taxes, housing supply constraints and the misalignment of population policy from infrastructure delivery – the challenges are enormous.

But I hope that I have also demonstrated that, from Menzies to Morrison, a common thread exists; and that is a desire to make it possible for all Australians who aspire to own a home to do so.

Of course, there is much work to be done, but with renewed commitment and effort I am confident that we can make a tangible impact on the contemporary problems we face with the same determination shown by our forebears.

So, let me finish by, again, thanking The Sydney Institute for the opportunity this evening.

Menu