Australia’s housing crisis: The market can’t meet our needs

Australia has the most expensive housing of any country in the world – only the city/region of Hong Kong is more unaffordable. Housing is the largest expense for low-income households and more than 60% of renters face “housing stress”. The number of people in Australia without secure housing is growing: 105,000 people are homeless and 173,000 are on public housing waiting lists. Services aren’t keeping up with demand and more than half of the people who attempt to access homelessness services are being turned away. These people are most likely to be young (42% are 12-24 years old), survivors of family violence (56% of homeless women), LGBTIQ (40% of young homeless people) and Aboriginal (25% of total homeless population).  Meanwhile, an estimated 218,000 homes lay empty in Melbourne, Sydney and Perth!

For many homeowners the picture is not a whole lot better. With average house prices reaching $720,000 in Melbourne and over $1 million in Sydney, many households have taken on huge debt to live the “Australian dream” of owning a home. As house prices have doubled over the last decade, so too has household debt. The average national mortgage loan is now $372,400.

Even those who have seen their personal wealth rise with property values may not benefit in the long term. With more than 40% of mortgage loans covering just the interest needing to be paid back, owners only benefit if house prices continue to rise. It is worrying then that a number of hedge fund managers have argued that Australian house prices are over-inflated by around 50%, and that the scene set for prices to come crashing down.

This untenable situation – whole generations of Australians being locked out of the housing market while speculative investment drives housing prices to dangerous heights – is what has made housing a focus of the 2016 federal election.

In particular the focus has been on the policies of negative gearing and the 50% discount on Capital Gains Tax for property investors. These policies are not the source of the housing crisis (the treatment of housing first and foremost as a commodity is the actual cause) but they have absolutely exacerbated the situation by simultaneously reducing tax revenue while fuelling property speculation.

In short, a property investment is ‘negatively geared’ if the rental income is less than the investment costs (the mortgage repayments, agent fees, rates etc). These ‘losses’ can be deducted from other taxable income, including wages. This means that many high-income earners pay less tax than they otherwise would because they invested their money in housing to avoid paying tax. This only really benefits the investor due to the massive 50% discount on Capital Gains Tax. This means that when the investor sells the house that was negatively geared they pay way less tax on the money they make than they would have if they simply paid the original income tax. These policies go hand-in-hand to create a speculator’s paradise, allowing the rich to increase their wealth through expansive property portfolios subsidised by taxpayers.

The inherent flaws in these policies have been well known for a long time. It was the infamously neoliberal Labor Hawke/Keating Government that expanded negative gearing to include income tax on wages (thereby giving incentive to speculate in property to reduce your tax bill). Then, just six moths later, the same government reversed the decision.  Under pressure from the investment industry it back flipped again two years later to reinstate the policy of negative gearing that we know today.

Just like user-pays education and private health insurance, the policy of negative gearing was aimed at giving the market control of something previously regulated by government. After World War Two, huge government housing schemes were enacted to house returned soldiers and begin what was supposed to be an era of prosperity. Entire towns and suburbs across Australia were built under this public scheme. As these projects were scaled back in the 1970’s, a new political orthodoxy took hold.

The neoliberal approach was to put housing supply and demand in the hands of the market.  Financial incentives would be offered to private investors to build more housing and provide rental properties for those who couldn’t afford to buy a house. Overall, it was argued, this would be cheaper and more efficient than the public housing projects of the previous decades.

Like every other neo-liberal policy implemented at this time, negative gearing has proven a complete and total failure. For ordinary people, that is. It has cost the public tens of billions in lost revenue, enriched mainly the top 20% of income earners and made ever owning a house a pipedream for anyone under 30 who isn’t a millionaire.

For big business it is a very different story. For Australia’s finance sector it has been a never-ending cash-buffet to gorge upon. The big four Australian banks now own $1.6 trillion dollars in mortgage assets. A total of 60% of the loans they give are related to housing. It is Australia’s property bubble that has fuelled the banking sector, allowing the banks to report $30 billion in cash profits last year alone!

With over 90% of mortgages being taken out on already existing properties, housing prices have been driven up. This means the size of mortgages, and therefore the profits from interest rates, have been driven up too. Sky-high property prices mean developers have made billions, particularly on properties geared towards investors. These have typically been city apartments aimed at international students, or brand new housing developments on the edges of Melbourne where land is cheap. An affordable family home within a 30 minute commute of the CBD of a major city has become so hard to find that such housing is now the preserve of the rich.

Nothing exposed this farce better than Malcolm Turnbull’s attempt at defending negative gearing during his election campaign. To sing the virtues of negative gearing he paraded a family with a baby in front of TV cameras. The couple had bought a negatively geared investment property in Sydney in the name of their one year old baby daughter. They were living with their parents, with their baby daughter, as they rented out the property for the tax advantage. They hoped, they said, to be able to move into their own home one day, after buying more investment properties to negatively gear.

The fact that this scenario of a couple with kids living with their parents while they gamble on the housing market was the best example Turnbull’s team could find of the “Australian dream” demonstrates, if nothing else, just how dead that dream is.

And this is just one side of the story. As billions in tax dollars have been lost to negative gearing, over the same period the reserve of public housing has shrunk by 32,000 homes. Not only have governments been subsiding the property investments of those at the top, they have been selling off the public housing needed by those at the bottom. It is this – the total lack of investment in public housing – that has had the most impact on housing instability.

Simply getting rid of the disastrous policies of negative gearing and the Capital Gains Tax discount will not be enough to solve the housing crisis for those at the bottom. But phasing out these policies will raise an extra $119.5 billion in tax revenue over ten years. If this money were used to embark on a mass, Australia wide public housing project to provide housing for the 173,000 people on the current waiting list, it could almost immediately eradicate homelessness, create jobs for the unemployed, and take enormous pressure off the lower end of the rental market. This would be the most direct route to making housing affordable and accessible to those currently suffering the most.

But no-one is talking about building public housing. All of the major parties, including the Greens, have bought into the neoliberal mentality of looking for market solutions to social problems. Over and over, this approach has made these problems worse.  That is why the solution to the housing crisis starts with ordinary people campaigning for public investment into public housing. A housing project that focused on public investment into quality, sustainable public housing, if explained properly, could win the support of everyone affected by the current housing crisis. That’s almost everyone except the rich! Such a campaign could also form the beginnings of a movement of working people that breaks the mould of neoliberalism by putting forward socialist solutions to the problems capitalism creates.

This article is featured in the Winter 2016 edition of The Socialist. You can read the first edition of The Socialist online here. You can buy a copy of The Socialist here.

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