2019-01-06
By Rob Delves, GI Co-editor
The Greens policy to build 500,000 affordable rental homes is absolutely correct… But Where’s the money going to come from?
I want to make two main points around The Greens federal election policy priority of Housing for All.
The first point is that the slogan ‘Housing for All’ is absolutely correct. It encapsulates the reality that current policies have created a huge gap between the Housing Haves and Have Nots. Furthermore, our proposed solution ‒ build 500,000 affordable low rent homes – is precisely what is required to deliver Housing for All.
Various housing economists have calculated that an essential building program such as this will require up to $10 billion each year in public money – such is the current gap between market rentals and what those huge numbers in housing stress can afford. Therefore, my second point is about where this revenue should come from: it should be raised from reversing the policies of negative gearing and the capital gains tax discount, plus introducing a broad-based tax on property owners, which will be fairer and raise several billion dollars more each year than the stamp duty tax it should replace.
So, firstly, why am I enthusiastic about our Housing for All campaign? To get people thinking about the current state of housing, it’s a useful and illuminating exercise to ask people to brainstorm two questions:
1. Why is a home so important? A related question is: Why do we say “Homeless” rather than “Houseless” to describe people who don’t have a secure roof over their heads?
2. If you can afford it, why is owning much better than renting?
The first question produces a fairly universal set of ideas, regardless of whether you are asking people in Perth, Paris, Philadelphia or Phnom Penh – and groups are usually surprised at just how many ideas they generate; in other words, just how much a good life depends on a good home. A safe, secure, decent home is absolutely essential for physical and mental health and well-being, a feeling of belonging. It’s an essential base from which you can go out and participate in society, a place to enjoy intimacy and provide hospitality, and much more. However, for the second question, most Australians would recognize that there’s not such a clear set of universal principles at play. It depends on the policy settings of each country – and for at least 60 years Australian government policies have deliberately set out to make property owners kings and renters at best second class citizens.
In the 1940s the Federal Labor governments combined with state governments to seek a mix of home ownership and secure affordable rental, which included pegged rents and a large role for public housing. For example, from 1947 to about 1956, my parents, myself and my brother lived in a small but comfortable family home in Melbourne on a weekly rent pegged at £3 ($6 for those too young to remember the colonial currency!) I think my father earned about £14 per week, so it was very affordable rent.
However, once Menzies ushered in the trifecta of home ownership-car ownership-suburban sprawl, rental rights and the provision of state housing were virtually forgotten. The Great Australian Dream really kicked off in the mid-1950s: home ownership became almost the only the way to achieve a secure roof over your head. In 1971 I bought my first home in Melbourne: at $10,250 it was just below the median price and exactly twice my annual salary as a third year teacher. Menzies chipped in with $500 towards the deposit to further encourage me into membership of the Great Australian Dream Team.
Then, in the Neoliberal era, and especially in the Howard years, new policy settings made property the best way to build wealth. Vast amounts if you bought more than one property. Policies such as negative gearing and the capital gains discount screamed loudly at people – you’re crazy if you don’t get on board the property investment train. This was one of the key reasons why house prices rose much faster than wages, leading to the creation of the housing haves and have-nots and the crisis of unaffordable housing that has become worse every decade since the 1980s. An interesting analysis published in 2015 showed how the relationship between median wages and the median prices of a wide range of items changed in the 50 years between 1965 and 2015. In nearly every case, wages had increased much faster, so that things like cars, refrigerators, TVs, air travel were much more affordable in 2015. The one standout exception was the price of a house, and therefore renting, especially in capital cities. For example, if house prices had increased at only the same rate as wages over the 50 years, then in 2015 the median price of a house in Perth would have been much less than $200,000. The official figure for 2015 was $549,000, and though prices have eased closer to a median of $500,000 today, the gap between wages and house prices is still enormous.
John Howard was very smug about the results of his housing policies. Speaking on ABC radio in 2003, he said the following:
"Can I make the point that there’s nothing wrong with people having more valuable houses. I don’t get people stopping me in the street and saying John, you’re outrageous, under your government the value of my house has increased."
Well, in my opinion, lots of people should have told him that his housing policies were indeed outrageous. They were causing great harm – unjust inequality, housing stress, poverty and homelessness ‒ because the flip side of housing wealth for some is the stress of unaffordable housing for many others. Our current situation is the very opposite of Housing for All and it’s driven by policy choices. John Falzon, CEO of the St Vincent de Paul Society, wrote in The Guardian in 2017:
"It is political choice, through subsidies and tax concessions, to allow housing to become a speculative sport instead of a human right."
The Greens won’t have too many people disagreeing with our analysis that Australia is failing to deliver this essential human right for all. Our houses are too expensive, and the people bearing the brunt are those on the minimum wage or unemployed who are struggling to find a decent, affordable place to rent. Low incomes and high rents ‒ the reasons for housing stress are pretty obvious if you’re below the median weekly income. Housing stress is defined as having to allocate than 30% of your income on rent and this crisis affects well over 500,000 people, with another 120,000 in the extreme stress of being homeless. In 2016, Anglicare analysed 67,000 properties available for rent and found that, under that 30% definition, only three were affordable for people at or below the minimum wage.
The Greens believe that the main driver of housing inequality and lack of affordability are these policies that prioritise owning a home above all other forms of shelter, creating an obsession with home ownership and with the growing wealth it creates. By contrast, we support policies that focus on ensuring that everyone has a decent secure home at a price they can afford. The security is as important as the price. We need to change the settings so that people who rent can enjoy the same security as owners – this is my home, I can settle here and put down roots in the community, I have the freedom to decorate and garden to make the place my own, with a long secure lease. We need to end the situation where owners are kings and renters are second-class citizens.
To be more precise, we oppose the following policies: the neglect of public housing, the over-reliance on the private sector to deliver housing for all, the way negative gearing and capital gains tax discount make housing unaffordable and disadvantage everyone who isn’t a property investor, the fact that property ownership is taxed wrong way and not at high enough rate. By contrast, The Greens argue that Australia needs to build thousands of affordable homes for rent – a total of 500,000 at a rate of at least 20,000 every year. We acknowledge that the private sector can’t deliver this, because rental returns would be well below the costs of building and therefore public money needs to bridge the gap.
So, onto my second point: where’s the money going to come from – the $10 billion per annum that most economists estimate the building program will demand? About half will come from abolishing negative gearing and reducing the capital gains discount. As with so many policy areas, The Greens have been pushing Labor to do this right thing for yonks and they’ve finally agreed, at least to some extent. As far as I’m aware, The Greens haven’t proposed a set of revenue raising initiatives directly linked to paying for the home building program. I want to suggest that the other half should come from abolishing stamp duty and replacing it with a broad-based annual property tax.
Obviously, a proposal to tax property owners will be hit by a storm of opposition, so it’s important to have a strong justification for it. There are plenty of justifications presented in many papers and books about housing economics. The best I have read is in Peter Mares wonderful book No Place Like Home: Repairing Australia’s Housing Crisis (chapter 11, Paying for the Repairs). The annual property tax will replace Stamp Duty, which is manifestly unfair and also an unreliable source of revenue.
The ACT Government introduced exactly this change, survived the firestorm of abuse and was re-elected, so it can be done, though doubters may say that Canberra is an atypical Labor-Green city! So far, the ACT reform has been revenue neutral – the new property tax is set low, so that the revenue is the same as from the Stamp Duty it replaced. Once fully implemented, a broad–based property tax should be designed to raise considerably more. Economists agree it will need to be phased in gradually over at least ten years, until it reaches approximately $600 per year on a median value Perth home. It should be a progressive tax, so it will rise steeply for homes worth well over $1 million. Finally, owners who are clearly asset rich but cash poor should be given the option of deferring payment until the house is sold or passed on in the estate – we’re not forcing grandad and grandma out of their home.
Does this form of raising revenue accord with Greens principles? Absolutely. It taxes something bad (unearned inflation in property value), it’s progressive (targets those who can afford to pay) and it’s tied to addressing an important social injustice (extreme housing stress and homelessness). The current generation of home owners and investors will try to argue that the huge increase in the value of what they own is down to their sheer hard work and home improvements, but the truth is exactly the opposite: nearly all the increase in property values accrues from the attractiveness of the area – things like improved public transport, street trees, retail, schools, health services, businesses, jobs, parks and gardens. Because of these things, the value of your property goes up even if you do absolutely nothing. Property developers know this very well. Just ask any estate agent what are the three main things that determine house value: location, location, location.
It is a matter of basic fairness that the people who’ve benefited from these massive windfall gains in property wealth should be taxed to pay for the unmet housing need that is partly caused by their gains. The fact that it is politically difficult doesn’t change the fact that it is one of the clearest example we have of the wonderful Aussie Fair Go.
Header photo: Billboard circa 1904.