Labor’s housing policy

Found via crikey (and some other blog, I think – blogging is so incestuous). The ALP has released a paper on housing affordability, and what they intend to do about it (if elected. I mean, once elected).

Two things are interesting about policy/electioneering papers: (i) they can be light on their references, especially when referring to numbers; and (ii) they’re for the purposes of winning elections. In this case, that started in the Executive Summary:

  • The current Government’s response to this growing crisis has been to point to the interest rate peaks under the previous Federal Labor Government more than a decade ago.
  • A debate about 17% interest rates seventeen years ago is no more productive than one about the 22% rates when the current Prime Minister was the Treasurer of our nation.

That’s pretty much as early as you can get without calling the paper “We’ll fix housing while John Howard keeps being a whiny dick” – which, by the by, I would love to see. The device has yet to be invented that is capable of measuring how much I’d enjoy seeing that.

On to some content. We know housing affordability is declining. Perusing my own, short, archives shows that the issue has arisen every week or so in the papers, and Labor’s paper runs through the numbers again:

  • The proportion of 18-34 year olds buying houses has declined from 48% to 44% between 1994 and 2004;
  • The proportion of first home owners as a proportion of the market has declined from 21.8% in June 1996 to 17.5% in February 2007;
  • A decline in the proportion of Australians with mortgages who have paid them off from 41% in 1996 to 33% in 2006.

These numbers are fine, for what they are, but remember only we decide that it is a problem. As the Labor party has done, with the first line of their paper:

Every Australian has the right to secure affordable housing.

That’s true, but that is not the same as owning a house, which the paper then launches into. The economics of home-ownership numbers needs to follow the demographics of them. We’re not the baby-boomer generation. We’re not loads of babies born into an era of exploding wealth and access to middle-class amenities while buying up cheap land around cities. We’re the generation born into credit and credit crunches, advertising selling us the Ten Thousand Things as essential to our very being, while all the land our parents got cheap for houses has been…taken for their houses.

I’m suggesting that there should be no surprise the numbers are heading the direction in which they are. The good times have been and gone, for these statistics. Making credit easier for potential home-owners has only managed to achieve the obvious: house prices have gone up everywhere. Everyone has the right to secure affordable housing (or rather, everyone has the right to expect that privilege in a country such as ours – except, apparently, Indigenous people), but not everyone has the right to own a house. It’s up to us to decide, per generation, what the proportions ought to be.

Labor has decided – or at least, figured out our feelings on the matter.

Home purchasers have experienced eight interest rate rises since 2002, with four of these rate rises in the last two and a half years. With record high house prices and record levels of debt, Australian families are more vulnerable and sensitive to interest rate rises than ever before.

Australian families have larger average home loans than ever before and mortgage repayments are consuming a record amount of household income. Increases in repayments involve difficult trade-offs for families.

This places many hard working families under unprecedented pressure – far too many families are now only one interest rate rise from mortgage difficulties or even default.

Parents now worry that their children will not be able to realise the dream of home ownership and this is borne out by the statistics which show a declining proportion of younger Australians able to save for a deposit.

Moreover, families who are saving to buy a home are having increasing difficulty finding affordable rental housing, and are paying a greater proportion of their incomes on rent as a result. These expenses reduce a household’s ability to save for a home of their own.

Those would be the future talking-points, then. I particularly like the one about the parents who are worried about their children. That really does tap into something, and reaches all generations (even non-young couples struggle to own a home, and those couples have voter parents, also). I’m not sure Labor has the handle on the policy response that I’d like, though (my commentary is italicised):

If Australians are to realise their housing aspirations, affordability must improve. (Agreed)

This means keeping downward pressure on interest rates

(What? No. Interest exist to deal with inflation, to move the economy via certain sectors. It is a hard thing to manage, and cannot handle multiple policy goals simultaneously. More importantly if the economy is at full employment, like ours is, interest rates need to go up, not down); helping people into home ownership (I don’t know what this means)

…implementing policies that induce growth in new construction

(Where? New construction can only occur where there is currently no construction – that’s too far ‘out’ for anyone to want to live there. There will be no public transport, meaning families will need one car, possibly two, making their living costs just as great)

…encouraging investment in affordable rental properties (not just high end rental properties)

(Encouraging investment in less-profitable enterprises is going to be tricky. Will they offer tax incentives? Subsidising landlords is hardly going to be popular)

…and monitoring the rate of new household formation. It also means adequately funding safe and secure housing for the most vulnerable Australians.

(No, that is a welfare policy, not one concerning housing affordability. I certainly agree with it, and wonder where the hell you’ve been on the issue for the last decade, but it is a different policy)

Improving housing affordability does not mean reducing the value of existing homes, which are usually the primary asset of any individual or family.

(I’m confused – you want to make housing more affordable, without bringing down the values of houses that currently exist – have you a shadow minister for Magic? You either have to make houses cheaper, or make the purchase of a house cheaper. If you don’t do the former, the latter will only increase the price of houses, and you’re back to where you started. Which, incidentally, is how we got to this point)

A lot of the discussion is now vs. 1996 or before (i.e. the last time Labor was in charge, which is very clever).

Two key pieces of information that the paper presents are the incomes needed to buy houses:

Map of incomes

And the costs to mortgage-holders of the interest-rate increases that Howard said would happen if Labor won the last election:

Cost of interest rate increases

Both are very good, however: showing the income required to buy the median-priced house, like that, quantifies the ground Labor needs to cover. Those are pretty big incomes where I grew up. Moreover, while it’s a good point to make regarding interest rates, that election talking-point will only degenerate into he-promises-she-promises. No party can promise interest rates will do a certain thing – again, just ask Norman Lamont.

Rudd should probably attack inflation – specifically this globalised inflationary pressure, in countries (like ours) in which we thought it had been beaten. Australia’s low-inflationary growth was in large part brought about by Labor policies, which it (and interest rate rises) have followed Liberal governance. Those are credible arguments. To some extent that’s happening – Labor’s policy focus on productivity a case in point.

And so on. The paper discusses low-income housing, Indigenous housing, etc. All very good but, as I said, these are welfare policy concerns, not housing policy concerns. Some discussion of affordability of rental housing (which is also in serious decline) but that is simply-enough fixed, if the government (Federal or State – we really don’t care) itself takes reponsibility for providing some stock of rental accommodation, and corporatises management so that it becomes separated entirely from even an appearance of welfare housing.

Two very good points this paper makes are that (i) land releases, despite what they said early on, are not likely to be effective, and are not likely to have contributed much to the current problem, and (ii) there is land and housing available in areas with fewer and fewer people. Part of the problem is the government’s management of inward migration (and, for that matter, internal migration). Improving the infrastructure of, and amenities in, rural and regional areas (see: broadband, doctors-in-country-towns) could help salvage dying towns. It also might not: I don’t believe there’s enough water coming for a lot of those areas to hold out for long – a generation, at best. I’m a pessimist, though, in this regard. In any event, the reasons we don’t live in these areas, in favour of urban areas, are able to be overcome.

This is an important point, though. The structure and nature of the demand for housing follows upon the architecture of the movement and placement of people and economy within Australia – specifically, lumping it all in a few cities. We simply don’t have the continent that the US has, or the resources, for their model of sprawl (which is good, the way oil is going). But improved transit systems to rural areas, and improved technological and commercial infrastructure linking them with everything else, would do more for the distribution of demand for housing, and therefore the affordability of housing, than anything else.

As long as we all want houses in the same places that thousand of other families want houses, and where houses have already been built, this problem isn’t going away.

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