Subject: tackling the issue of housing affordability
EO&E…………………………………………………………………………………………………………………………
DEL IRANI:
With me in the studio is Liberal Senator for Victoria Scott Ryan. He is also the Special Minister of State, and the Minister Assisting the Prime Minister for Cabinet. Hello to you, Senator.
SCOTT RYAN:
Good afternoon, how are you?
IRANI:
Good thanks Senator, good to have you with us. Also joining us from our Sydney studio is the Federal Labor member for Gellibrand, Tim Watts. Hi Tim.
TIM WATTS:
Great to be with you Del, I wish I could be in Melbourne.
IRANI:
Yes, same here. But it’s good to have you on the line nonetheless. And we’re looking forward to company from our listeners as well, your calls are always welcome here. The number is 1300 222 774 or you can send us a text for your questions on 0437 774 774. So I want to kick off the discussion this afternoon by talking about this proposal to allow young people to tap into their super to put down a deposit on a house. Senator Ryan, let’s start with you; what do you think of think of this proposal. Do you support it?
RYAN:
Well firstly I’m not going to comment – and nothing I say should be interpreted in the context of the budget coming forward on May ninth, I think that’s important to say because people can run away with those things. This has been looked at by both sides of politics over 25 years. On previous occasions it’s been dismissed. There’s nothing wrong with looking at it again – the same reasons we said no before, do they still apply? I’m a little bit sceptical of it, but at the same time it’s trying to look at what is housing affordability in some parts of our two largest cities. Because it’s not a national problem, it’s not even a problem right across Melbourne. It’s a problem in parts of Melbourne and parts of Sydney. So I think we should keep our mind open to looking to ways to tackle it.
IRANI:
You said you were a little bit sceptical. Where is the scepticism coming from? What part are you not sure about?
RYAN:
Well I suppose it’s been looked at before, it hasn’t been progressed before, and I’m not sure if any of the reasons it hasn’t been progressed before – which range from the main factor driving housing issues is supply; it is simply unique to increase supply, it’s the oldest rule of economics, it will lower price – it won’t change that, and there’s also the impact on retirement incomes and on an already complex superannuation system.
IRANI:
It’s really interesting you say that because on yesterday’s show we were speaking to Chief Economist at Urbis, Nicki Hutley and here’s what she had to say…
[EXCERPT]
…speaking to your point Senator Ryan. Tim Watts, I’d like you to come in on this issue. What’s your take? Do you think it’s a good idea?
WATTS:
This issue feels like to me like an episode of the Walking Dead. I mean, this idea is a horror show but it seems to be un-killable on the Liberal side of politics. Malcolm Turnbull said not long ago that this was a thoroughly bad idea for exactly the reasons that Nicki outlined. This pours additional petrol on the fires of demand that are currently burning in our housing market. But despite that it’s been advocated by Tony Abbott, by Pauline Hanson, but most worryingly behind the scenes it’s been reported, by the Treasurer and by the Assistant Treasurer Michael Sukkar. This is exactly the wrong approach to addressing the housing affordability crisis. If the government was serious, it would be acting to take that petrol out of the fire, look at changes to our tax system that are currently advantaging investors buying their third, fourth, fifth properties over people trying to buy their first home, and that means changing negative gearing and changing the capital gains tax concession as Labor has been advocating for quite some time.
RYAN:
Whereas what Tim wants is for those investors to compete with new home-buyers on our new housing estates, particularly in our outer suburbs where you have people often making their first home purchases. This is an issue…
WATTS:
No that’s not it at all. Our policy is that the negative gearing and capital gains tax concessions should be limited to the construction of new housing supply.
RYAN:
Exactly, so they’re competing with new home-buyers and first home-buyers.
WATTS:
We’re expanding the supply of housing, exactly, as you argued earlier. More supply means prices become more affordable.
RYAN:
This is an issue upon which there is no silver bullet.
IRANI:
Okay one second, one person at a time. Let’s just go into Tim’s point about taking negative gearing completely off the table. There are some that might say, Senator Ryan, that by Scott Morrison saying we’re not going to touch negative gearing at all, you’ve removed a really great option there. I mean he’s sort of backed himself into a corner. What do you say about that? No changes to negative gearing?
RYAN:
We’ve said we’re not going to play with a decades-old tax principle and accounting principle that would mean that you could negatively gear other investments but you couldn’t negatively gear a house. It will have an impact on house prices that are established, it will increase rents for those who are renting in established housing. Labor want to see all that investment money go into the estates particularly in newer areas of our cities where they will compete with people who are often buying their first home. The biggest tax impost on housing comes from the fact that we pay tens of thousands of dollars in stamp duty, every time we buy a house. The biggest restrictor of liquidity in the housing market, there being more houses for sale as people down-size, is stamp duty. I’ve been through this with my own family, where it cost my mother a fortune to go from a larger house to a more appropriately sized smaller house, because the state government racks up a $40,000 stamp duty ticket they clip on the way through. That is one of the biggest barriers to housing affordability that you’ve got to find your 10 per cent deposit, your mortgage insurance if you don’t have a 20 per cent deposit, and on top of that, find $30- to $50,000 stamp duty in any one of the established suburbs in our major cities. But none of the state Labor governments will talk about that. They want to talk about this furphy of negative gearing that even Andrew Leigh, Labor’s Assistant Shadow Treasurer, couldn’t say what impact that would have on housing affordability yesterday.
IRANI:
And Tim Watts I want to put that question to you because Labor’s policy on negative gearing is that it should be confined to new dwellings, but if you make those changes, aren’t you worried about the impact this could have on the rental market?
WATTS:
No that’s another furphy that’s been put around for the length of the existence of this negative gearing/CGT relationship. The reality is that housing affordability is at a 60 year low at the moment in Australia. And if you look at the relationship between wages and house prices in Australia, you can spot the moment when the Howard government introduced these tax changes, introduced the capital gains tax discount, because that’s when it kicked-off, that’s when that relationship between what people are earning and what property prices cost, really exploded in Australia. And this is a fundamental issue that needs to be tackled at the root cause. If we want nurses to live close to the hospitals that they work in, if we want teachers to live close to their schools that they work in, if we want kids to live near their parents, we need a housing market that lets people buy property near to where they live and work. That’s not happening at moment and the tax system is causing that.
RYAN:
Nothing you’ve said, Tim , is going to change the price of housing in the areas where it is particularly acute, which is really within 15-20 kilometres of, let’s talk Melbourne here, this side of Springvale road, south of Bell street, probably this side of Williamstown road and north of sort of South road down on the Nepean Highway. Nothing you’ve proposed there Tim – and you shouldn’t mislead people, that’s going to make it easier to buy a house in Box Hill or Essendon. Nothing at all.
WATTS:
Scott if you think housing prices aren’t out of control west of Williamstown road, you’ve got to get out more, because Sunshine is booming in my electorate at the moment.
IRANI:
We know for a fact, from independent data, that house prices particularly in Sydney and Melbourne are in double digits and they’re not showing any signs of slowing down. I want to get our listeners in on this conversation. I’m talking to Tim Watts who is of course the ALP member for Gellibrand and Senator Scott Ryan who is of course the Liberal Senator for Victoria. We’ve got a text in here, ‘Hi Del and guests, why can’t we have a different interest rate for Sydney and Melbourne and the other places lower?’ That’s from Anthony. That’s a good question because one criticism is that this is very much a Sydney and Melbourne issue, it’s not a national issue.
RYAN:
It’s the same problem the Europeans are asking about Greece and Germany. I mean, you had a monetary union, you have one monetary policy. To have a different interest rate, you would need to have a different currency, in effect.
IRANI:
So it wouldn’t work? What’s your view on that Tim Watts?
WATTS:
Well I do want to push back a little bit on this idea that this is only a Melbourne and Sydney issue. If you look at, again, that ratio between wages and property prices and you take out cities in Australia, cities of less than one hundred thousand people, we are still at the most expensive property prices in the world compared to Canada, compared to the US. This is not limited to Melbourne and Sydney. This is a nation-wide issue and it indicates that the drivers of this problem are national causes, causes like the negative gearing and capital gains tax arrangements that we have that apply to everyone across Australia today.
IRANI:
Well I just want to say that there are, the latest data does show that in places like Perth for example there’s actually negative price growth, so it’s actually quite different to what we’re seeing in Melbourne and Sydney. But let’s take a call now, We’ve got Dan from Glen Iris in Melbourne, hi Dan.
CALLER:
Hi Del, how are you?
IRANI:
I’m good thanks Dan. Do you have a question for the politicians here?
CALLER:
Not really, more of a comment. I’m an accountant; I’ve been in the practise for 36 years and watched property prices over that time. Currently I think that there are two drivers to the prices in Sydney and Melbourne where the prices are rising the fastest. One is the very high loan-to-value ratios; I mean people can borrow 90, even up to 100 per cent from the banks. And I think if the government want to intervene at all, they have the power to limit the percentage that the banks can lend of the price of the property. So if people have to generate a higher deposit or more equity, then that might pull them back a little bit at auctions and so-on. The second one is that there’s lots and lots of foreign buyers from the Asian region who are very cashed up and you’ll find in inner-city Melbourne that a very high percentage of sales are to foreign buyers from the Asian region who don’t have to borrow money. Canada, I think, correct me I could be wrong, I think Canada have a tax on foreign investment in property which has dampened the market over there. So they’re two drivers. I’ve watched negative gearing and from what I see of it, a lot of the negative gearing is in the lower-end of the market, particularly a lot of young people who are actually trying to get in to the market and using negative gearing to assist them. So I’m not so sure that that’s really the cause. I mean it does contribute, but I think the other two areas in particular being able to borrow 90 to 100 per cent of the property value, I think that’s a big driver.
IRANI:
And particularly this rise of interest-only loans – Dan, I appreciate your call. He made some really interesting points, one about the tightening of regulation. But we’ve seen APRA and ASIC tighten regulations. That doesn’t seem to be working Senator.
RYAN:
It has worked. I think the counter-factual is always a challenge – what would it be like if they hadn’t have done what they’ve done around loan valuation ratios for increasing interest rates for investor loans, top pulling back on interest-only loans – look there may be some more work to do there. That’s often very technical in nature and that’s why we leave it to APRA. On the other point he made about foreign buyers, I think it’s the city of Vancouver in Canada that introduced those rules, but what’s been found there and in London, is for people who are coming in with money that they don’t need to borrow – we have a higher stamp duty in Victoria I believe at the moment for foreign purchases – those marginal differences don’t make a difference for those for whom it is a place that money has been parked. I will however say that hundreds and hundreds of illegally purchased properties are now being forced for sale under Kelly O’Dwyer and Scott Morrison and that wasn’t done for many years. We had to bring back the regime that foreigners couldn’t buy houses because it went to water a bit under Kevin Rudd and Julia Gillard. But I will say also that I know there have been reports of this in the Eastern suburbs of Melbourne, but let’s not forget they can be Australians of a foreign extraction who are buying houses, and people who have permanent visas are also allowed to buy houses. So just because someone looks different doesn’t necessarily mean they’re a foreigner.
IRANI:
Tim Watts what’s your view on this? Is enough being done to curb this foreign investment, or foreign buyers in the market?
WATTS:
Let me do something really radical here Del, and just agree with the last point that Scott made there.
IRANI:
That is very radical indeed.
WATTS:
I try to limit these occasions to save us all the embarrassment. But that’s a really good point that Scott made then because yes there are illegal foreign purchases happening in the Australian market at the moment but the reality is that as the Census is coming out at the moment, we’re seeing that more than 2 per cent of Australians are born in China, almost 2 per cent of Australians were born in India. We’ve had an enormous influx of people from Asian-heritage backgrounds into this country who have become Australian citizens and they are entitled to buy a place to live in. I say that because my father-in-law is a Chinese-Australian and I’ve been to many property auctions with him when I was trying to buy a house and if you just judged him by his face, you might think he was a foreign buyer when the reality is he is just as Australian as you or I. So kudos to Scott there. But the one thing in relation to the caller’s points though that I just wanted to jump on is the first home buyers – so I’m 34 at the moment. In the year of my birth in 1982, 6 in 10 people of my age owned a house, now the current figure in 4 in 10. So if first home-buyers are using negative gearing to get into the market, they’re doing it at a far lower rate than was happening 30 years ago.
IRANI:
And we’re getting lots of calls actually around negative gearing, we’ve got Damon from Werribee on the line, hi Damon.
CALLER:
Hi. Just got a query – the point has been raised that if negative gearing was removed that rents would increase. Now the alternative to that is, and it may happen briefly if negative gearing was, and I’ll use the term limited rather than removed, that the rents, if you can’t rent a property for a higher rent it would be for, and really in respect to industry, you don’t buy equipment to lose money and therefore you wouldn’t buy a property to rent out to lose money. That’s effectively what negative gearing is, to some effect. But if you can’t rent it out for enough money to pay for the mortgage and all the other keep and costs, then the price is forced down.
RYAN:
The challenge here is that tax policy applies nationally, but the markets for rental and real estate aren’t national in the same sense. Because we know we have a different property market in inner suburban Sydney and Melbourne than we do in regional Australia, to use two opposite ends of the spectrum. There’s also the issue that negative gearing can be used by people for a period while they might have only one income in a house, knowing that I can use negative gearing for the time-being but when both parties go back to work in a house-hold they can, it can be more affordable. It can be an estimate based on what rents might do over time. I mean negative gearing is not only something that only applies to property. Being able to deduct the cost of an investment against income is a pretty old accounting principle and under Labor’s proposal if I did it through a corporate vehicle it would be okay, you just can’t do it for your household budget.
IRANI:
Well one of the reasons why it’s most widely used is in the housing area and it is one of the reasons we’re seeing is widely used and it is one of the reasons people are saying it has helped inflate those property prices, Senator Ryan. I’m talking to Senator Scott Ryan and ALP member for Gellibrand, Tim Watts. We’re doing Pollie-Graph at the moment and we’re taking your calls. The number is 1300 222 774 or you can send us a text on 0437 774 774. We’ve got Les on the line. Hey Les.
CALLER:
Yeah G’day. Look I just want to make this point and it’s a matter of principle. There are people out there on $50, $60, $70 thousand dollars a year who cannot afford to buy a house. Yet their taxes, part of their taxes is subsidising the expenses of an investor who might have three or four or five houses. Now how on earth can you say that’s fair? And let me say this to Senator Ryan – you’ve lost the argument, mate. If you go into any pub, you’ve absolutely lost the argument and this is going to not go well for you in 18 months’ time at the next election because people are overseeing the wealthy get away with more than they’re entitled to and this is a very good example of that. And you have tried to come up with every possible solution to this housing affordability problem, but you won’t attack the thing that is the most obvious and causing the most distress and that’s negative gearing.
IRANI:
Les, thanks for your call. Senator Ryan, what do you have to say?
RYAN:
Well let’s look at the tax system in this country. The top 1 per cent of income earners pay more tax than the bottom 50 per cent of income earners. The top one per cent pay more than the bottom half. The top quarter pay more than two-thirds of income tax in Australia. That is before welfare transfers, that is before Medicare spending and before social services spending and the like. So the gentleman there talks about so-called subsidies, a lot of the people he mentioned and people we do have social housing for, aren’t in the income tax system. And I would put to people that those on high salaries, particularly those who are in the normal tax system as salary earners, are paying substantially their fair share. The top 1 per cent I think pay about 70 per cent of all income tax in Australia. So let’s talk about fairness both in terms of contribution as well as in terms of received.
IRANI:
I want to give Tim Watts an opportunity to respond to that, Tim?
WATTS:
Well politics is about priorities isn’t it and I couldn’t agree with Les more. If we’re looking at where we should be allocating scare resources I don’t think we should be giving a leg up property investors buying their second, third, fourth, fifth home over young Australians trying to buy their first property.
IRANI:
Alright let’s take a quick break and look at the traffic.
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My name is Del Irani and I’m joined in the studio by Liberal Senator for Victoria Scott Ryan, and from our Sydney studio Federal Labor member for Gellibrand Tim Watts. It is time for Pollie-Graph and we are taking your calls. Kai from Surrey Hills is on the line, hi Kai.
CALLER:
Hi I was just wanting to ask, everyone is talking about all these different policies, but where do we actually want prices to go in your local area? Like do we want it actually to go down I mean the RBA’s got 2 to 3 per cent inflation target, what’s the target? We don’t have a target. When you’re trying to do policies to go to a target where we don’t know where the political parties stand? So what is the target for the political parties?
IRANI:
Okay so you’re asking what do Labor and Liberal think is the answer, where do they stand on this. Is that what you’re asking?
CALLER:
In 5 years, where do prices go? 2 to 3 per cent with inflation, 12 or 10 per cent? Like, what do you want?
IRANI:
That’s a great question Kai, thanks. So what is your target? Where do you want prices to be in 2 or 3 years’ time, Senator?
RYAN:
You don’t want them to fall. We’ve seen in parts of America – I’ve visited some of them – when housing prices fall, it has an incredibly negative effect on the economy. As a general rule, you want them to go roughly with wages, and a lot of the boost over the last twenty years has been, not just in Australia but in similar countries – female labour force participation and more equality in the workplace. So you’ve got a lot more two-income households, you’ve got a lot more professional income households trying to buy in smaller and smaller parts of our cities because they commute to the CBDs for work. And that’s put quite extraordinary pressure on what you call that inner 15 kilometre-ring where it is incredibly hard to see how someone could save from scratch to buy a house that might be well over 1.5 million dollars.
IRANI:
So in percentage terms, if you don’t want it to fall, but what’s the number you’re looking at?
RYAN:
I think you want it linked to where wages are.
IRANI:
Wages are at all-time record lows.
RYAN:
But they had been, for example in the Howard era we had strong house price growth, we at the same time had 20 percent real wage growth after inflation. In the Hawke-Keating era they went up by a little but I think there was only about 2 percent I think real wage growth.
IRANI:
Which is where it’s at right now, it’s under 10 per cent.
RYAN:
And so that’s where I think you don’t set a number, but in broad terms you want it to go with wages. And wage growth, we look forward to it increasing over time, but it will vary over time.
IRANI:
What about you Tim Watts? What’s your target in terms of where you would like to see price growth on houses?
WATTS:
Well my target is for the tax system not to make a crisis worse and that’s what’s happening at the moment through negative gearing and CGT. As Scott said, we are at record-low wage growth in this country, less than 2 percent. Property price growth in some of our capital cities has been up to 20 percent over the last year. So you can see that gap between what people are earning and what people are forced to pay in property prices is growing. Now what the Labor party is saying is that we think we can tweak our tax laws in a way that will stop pouring petrol on that fire, stop making that problem worse, and then over time the market can resolve that situation. We’re not talking about setting specific targets in that respect. It’s just about making sure that our policy settings aren’t making a crisis worse.
IRANI:
Okay let’s get Suzanne from Warranwood on the line. Hi Suzanne.
CALLER:
Hi how are you?
IRANI:
I’m good thanks Suzanne, do you have a question for the politicians?
CALLER:
Not a question, a comment. I’m really sick of hearing and blame from politicians and blame the Asians – I mean do what the Europeans and the Asians do. They work hard, they have a deposit, they’re maybe not be going out getting the latest shoes and having your lattes and the latest car. It’s ridiculous. What people need to do is just work hard, save hard.
IRANI:
You think that the answer is that simple, that it’s just a matter of putting more money away?
CALLER:
It is, look partially, I think people want things right now. It took me a long time to get my first house. I’ve now got a beautiful house, I am a sole parent, I’ve got one child at university studying to be a doctor. I’ve got another one here who’s entitled to Centrelink benefits but we don’t claim them. We work hard and it’s as simple as that. And this blaming this and blaming that, everybody is really sick of it or I am anyway.
IRANI:
Suzanne thanks for your call. Tim Watts what are your views on it, is it as simple as that? Work hard and just knuckle-down and save money?
WATTS:
I really wish it were that true, I mean that’s our values, work hard and be rewarded. Unfortunately our system is not rewarding hard work at the moment. Again, go back the year of my birth in 1982; The price of houses, the ratio from wages to house prices was about 4. So 4 times your wages is the median house price. Today it’s at 14. Now, you can work as hard as you like, but you effectively need to work three times harder at a wage level in order to get to those prices. There are other factors involved like interest rates and things like that, but that just gives you an indication that it’s far simpler than just have a few less avocado toasts as they say, a few less lattes – this is a structural problem in the market.
IRANI:
Senator?
RYAN:
See what Tim just did there was to dismiss your caller by saying it’s not more than just a few smashed avocados. That’s not what the lady was making the point, it was about long-term saving. And prioritisation for government does require prioritisation from individuals as well. It is completely false to compare now to 1982. Just look at female labour force participation, just look at two-income households, just look at the average education level. And so we are earning much more and that would expect that multiple to go up purely because we spend more on things that are considered to be luxuries and location and housing is one of those items as we get wealthier. So this is a problem for which there is no silver bullet, an no-one should believe the snake-oil salesman of Labor saying, oh just get rid of negative gearing it will make it all better. Andrew Leigh, their Shadow Assistant Treasurer, couldn’t even say what the difference would be when asked about this only yesterday. We’ve got an issue with stamp duty, we’ve got an issue with transport, we’ve got an issue with how difficult it is to commute in our larger cities as they become more populous, and state governments have completely failed to invest in transport infrastructure as Melbourne alone is one million people bigger than it was 20 years ago. So anyone that says there is one simple solution to this is trying to sell you a pup.
IRANI:
There certainly isn’t one simple solution to this very complicated issue, but if the solution that is being put out there which is how we began and how I’d like to wrap this particular segment is of course whether using your super is the right solution and the jury is very much still out on that, isn’t it?
RYAN:
As I said, I think there’s no problem asking the same question that was asked 20 years ago but if the answer is different the circumstances have to be different.
IRANI:
Senator Scott Ryan and Tim Watts, appreciate both of your time on Pollie-Graph this afternoon. Thank you for joining us.
RYAN:
Thanks for having me.
WATTS:
Pleasure.
IRANI:
That was Tim Watts, the ALP member for Gellibrand and Senator Scott Ryan, Senator for Victoria and of course the Special Minister of State, and the Minister Assisting the Prime Minister for Cabinet.
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