The contortions of senior Treasury officials to avoid using ‘the B word’ for the housing market at the parliamentary inquiry into home ownership on Friday had all the hallmarks of a classic episode of Yes Minister.
Their boss, Treasury Secretary John Fraser, recently declared there was “unequivocally” a housing bubble in Sydney and parts of Melbourne.
On Friday, Fraser’s senior staffers appeared loath to repeat his words, as time and again one MP after another posed the question.
“The Treasury’s view is that house prices have been growing very strongly,” Jenny Wilkinson of Treasury’s macroeconomic group told the inquiry repeatedly during more than two hours of questioning. “There are different ways in which words are used in relation to this particular market.”
And later: “I don’t think there is a consistent definition (of a bubble) which is used over time by everyone.”
The bubble question isn’t just a point of semantics. MPs were trying to gather information from the top advisers to Joe Hockey on whether a boom and bust cycle is underway in the housing market, which would have serious economy-wide consequences.
That information would help guide whether broader reforms are needed, either the sort of macroprudential controls that the RBNZ seems to be having some success with in the frothy Auckland market, or bigger tax changes to negative gearing and capital gains that have been raised in the Tax White Paper.
Wilkinson conceded Treasury has done no analysis on the impact of negative gearing on house prices, and hasn’t been asked to by the Treasurer.
Labor MP Jim Chalmers, who prompted the revelation when he asked Wilkinson to comment on Moody’s analysis that negative gearing adds $44,000 to the cost of an average home, said the lack of tax analysis was “extraordinary”.
A Senate inquiry that reported in May urged Treasury to investigate what effect tax deductions for investors were having on house prices and rents.
Over and again, officials from Treasury’s macroeconomic and revenue groups took questions on statistical details, historical comparisons, international comparisons and tax policy “on notice”, meaning they’ll look it up and respond at a later date. Their homework to answer basic questions will last well through the winter recess.
Treasury didn’t even get its submission to the House Economics Committee by Friday’s deadline. Apparently a draft is sitting on the Treasurer’s desk.
In fact, until mid-morning, there was only one submission on the inquiry’s web site, from an unknown new group LF Economics which enjoyed a short flame of publicity this week with predictions of a housing ‘bloodbath’. Alan Kohler has looked into their credentials elsewhere today: (A tax for our housing bubble trouble, June 26).
Over and again, MPs asking about the current state of housing markets in Sydney, Melbourne and regional areas were given highly theoretical responses out of Economics 101 that suggested supply would eventually catch up with demand.
The frustration of committee members was palpable. Most of the MPs are old enough to have adult children in the generation that is being systemically locked out of home ownership by surging prices that have outpaced gains in inflation, wages, rents and GDP. Sydney prices are up 39 per cent in three years, Melbourne by 22 per cent.
Recent surveys by Domain Group show that more than 50 per cent of residents in New South Wales and Victoria, and 47 per cent of Queenslanders, believe that owning their own home is unattainable.
One of the MPs voiced concern that people who are outbid by investors for a home will become part of a class of “tenant serfs”, funding the acquisition of more and more properties by a “landlord class”.
In the end, another government inquiry into housing affordability is probably the last thing that’s needed. What would be infinitely more useful would be for the government to consider the issues raised by its own Tax White Paper, continue to consult with some of the 900 individuals and organisations that put in submissions as part of that process, and take proposed changes to the next election.
Changes don’t have to be radical. Negative gearing doesn’t have to be abolished; ACOSS has put forward a sensible proposal in which losses on investment properties can only be claimed against rental income and not wages (Negative gearing is in Abbott's too-hard basket, April 17).
Even though the Murray inquiry concluded that negative gearing and capital gains concessions pose a systemic risk, and the tax discussion paper found they cause distortions in the economy, the government has baulked at reform.
Without changes, the rising imbalances in every MP’s electorate between boomers and older Gen Xers who have been lucky enough to ride the two-decade surge in housing prices, and anyone under 45 who hasn’t been so lucky -- the owners and the renters -- will only worsen.