Recent comments by Prime Minister Tony Abbott and Treasurer Joe Hockey highlight the biggest problem with Australia’s housing debate: pure unfettered stupidity. Faced with a social issue that requires real solutions and hard decisions; the federal government has instead stuck its head in the sand and hopes it will just go away.
Reserve Bank governor Glenn Stevens was having none of it yesterday, declaring that the Sydney market had become “crazy” and a genuine “social problem”. It was strong language from a normally circumspect public servant.
“What is happening in housing in Sydney I find acutely concerning for a host of reasons,” Stevens told the Economic Society of Australia yesterday.
“I think some of what’s happening is crazy, but we [the RBA] have a national focus and so that just increases the complexity.”
If Stevens believes that a market has gone ‘crazy’ then there’s a good chance it went past that point long ago. It’s been well documented how slow the RBA was to endorse the use of macroprudential policies -- particularly given the swift action of the Reserve Bank of New Zealand.
The data itself suggests that current dynamics in the Sydney property market are unprecedented over the past few decades. The only comparable episode, in the early 2000s, resulted in real Sydney dwelling prices falling to such an extent that they didn’t pass their 2003 peak for another decade.
Earlier this month, Treasury secretary John Fraser warned that the Sydney property market was “unequivocally” in a bubble. Nevertheless, Hockey and Abbott won’t have a bar of it.
“The starting point for a first home buyer is to get a good job that pays good money,” Hockey said earlier this week. “Then you can go to the bank and borrow money.”
“If housing were unaffordable in Sydney, no one would be buying it.”
It’s a simplistic view of the world that suits the ideological foundations of a party famed for its usage of three-word slogans. If only life was that simple.
In the Sydney property market it is no longer enough to simply find yourself a good job. An individual can earn between $80,000 and $90,000 in Sydney while renting and make minimal progress towards saving up for a housing deposit.
Increasingly younger Australians are relying on their parents or grandparents for financial support either directly through rent-free living or via cash handouts. Misguided housing policy has created an intergenerational property market in which the wealth of one’s parents is the single best indicator of whether you can enter the market.
Born to poor parents? Tough luck. Get a better job, deadbeat.
Hockey’s arguments in favour of negative gearing were no better, repeating the same lies that saw him caught out on Q&A a few months ago.
“If you change negative gearing in a market like Sydney, with a very low vacancy rate, you are going to push up rents, which will have a horrendous impact on some of the lowest income families,” Hockey said.
No available evidence supports Hockey’s hypothesis (It is time to scrap negative gearing, April 17). A more likely effect is that it would make housing more affordable and trigger an increase in home ownership.
The affordability debate is itself an unusual one. Most assessments, for example, completely ignore the biggest barrier to buying your first home: the deposit.
My colleague Adam Carr dedicated 898 words earlier this week to debunking the myth of housing unaffordability (The housing unaffordability myth, June 9). He mentioned the word ‘deposit’ on only one occasion and completely ignored it in his calculation of housing affordability.
Many Australian households must shake their head in disbelief. Consider a household earning $100,000 per year; based on a savings ratio of 10 per cent -- higher than the estimate in the recent national accounts -- it would take this household 16 years to save a 20 per cent deposit on an $800,000 property.
Ten per cent a year might not seem like much but remember that this household is probably paying off its HECS debt and might be looking to have children. Perhaps they don’t want to live a life of serfdom to our major banks by overleveraging. It’s no surprise that so many turn to their parents for help.
It’s remarkable how affordable housing can be when you ignore the parts that are unaffordable. Unfortunately, first home buyers in Sydney face a market in which nominal prices have increased by 35 per cent since the end of 2012. During the same period, nominal wages in New South Wales have increased by 5.4 per cent.
Which brings us back to Hockey’s original statement: where exactly are these good jobs that pay well?
Employment growth has, over the past decade, been lacklustre and the federal government continues to forecast that employment growth will remain subdued over the next five years. Youth unemployment remains elevated by historical standards.
At the same time, wage growth -- minimal though it is -- continues to be concentrated within higher wage sectors. Rising asset prices -- and the concentration of those asset holdings -- means that measures of inequality are at a multi-decade high and continue to rise.
Meanwhile, our political leaders are championing higher property prices. What they fail to understand is that high land prices are a crippling barrier for many Australian corporations. It’s a key reason, along with high wages, why Australian manufacturing continues to retreat. It hurts shopkeepers and department stores; any business that requires a physical location to operate is hampered by Australia’s record setting property market.
When Hockey and Abbott are spruiking property prices they are taking a populist stance to an issue many Australians care deeply about. But what they are really doing, even if they don’t realise it, is championing financial inequality and pursuing an anti-business, anti-growth agenda (What Abbot doesn’t get about the housing market, June 2).
Abbott and Hockey find themselves, through no fault of their own, managing an economy in the midst of an unprecedented structural change. There is no room for error and neither possesses the political capital to weather an economic storm.
With the Sydney property market teetering on the brink of calamity, it is time that our political leaders realise that rampant property speculation is actually an impediment to productive investment. Unfortunately the federal government, as with its predecessor, doesn’t have a sound housing strategy and, as a result, it doesn’t have an adequate economic plan either.