Economist Saul Eslake has slammed Australian housing policy, saying government self-interest has led to the worst affordability problem in more than 50 years.
In a submission to the senate economics references committee on affordable housing titled “Australian Housing Policy: 50 Years of Failure”, the chief economist at Bank of America Merrill Lynch said that between 2001 and 2011, housing stock grew at a slower rate than the population for the first time since the end of World War II.
He blamed government policies, including cash grants to first home buyers and negative gearing, for inflating the demand for housing without increasing supply.
"Politics - more than any other single factor - means that Australians are likely to have to live with a dysfunctional housing system for a long time yet to come," he said in the submission.
Mr Eslake said in the submission that negative gearing "has actually exacerbated the mis-match between the demand for and the supply of housing, as well as having distorted the allocation of capital, and undermined the equity and integrity of the income tax system".
He also said the abolition of policies that "serve only to increase the prices of existing dwellings, such as cash grants to and stamp duty exemptions for first time
buyers, and ‘negative gearing’ for investors" would be one of a suite of reforms that could be implemented to "switch from policies which inflate the demand for housing to policies which boost the supply of housing."
Earlier, Antony Cahill, National Australia Bank’s executive general manager in charge of lending and deposits, outlined confidence house prices will continue to lift in 2014, according to The Australian Financial Review.
Mr Cahill said the sector, led by the largest market of Sydney, was performing “strongly” and we should see house price gains persist for a while yet.
“When you look at where we are in terms of values across the market place, affordability remains at good levels at this point in time,” he told the AFR. “We still believe there is room for house prices to grow.”
Mr Cahill pointed to low interest rates as a key to fuelling demand, while adding that Sydney could be in for more moderate growth this year given it outpaced most other markets last year.