You are on a good income, you live in the national capital, and yet you can barely make ends meet.
Welcome to Canberra’s fastest-growing club.
David Tennant has helped run the Care financial counseling service in Aukna Street Civic for more than a decade.
He says five years ago his only customers were low to middle income earners. None earned more than $45,000...
These days he says 1 in 8 of his clients earn at least that much. In the first half of this year he received calls from more than 100 financially stressed Canberra residents on incomes higher than $45,000 – some of them a good deal higher.
Financial stress in order to afford housing is no longer exclusively a low-income problem, and no longer a rest-of-Australia problem.
In a report released yesterday the St Vincent de Paul Society outlined the case of a ACT mother and father with three children who have been evicted by a landlord who wanted to redevelop their home and forced into crisis accommodation. They can’t afford the rents now being charged; they are living on food stamps and with only one car between them are finding it difficult to travel the long distances from their crisis home to school and work. Their relationship is under stress and their oldest son is developing behavioural problems.
This Thursday in Parliament House the Labor leader Kevin Rudd will host a National Housing Affordability Summit to try to get to the root of the problem and what can be done to fix it.
It will fail on both counts.
Labor doesn’t really want to know the root of the problem, and nearly every one of the solutions proposed to fix it either won’t work or is politically unpalatable.
Labor has devoted an entire section of its pre-summit paper New Directions for Affordable Housing to what it says are the reasons for declining affordability. It lists rising interest rates, demand outstripping supply, land release processes and the cost of building.
Nowhere in the Labor document is what the Macquarie Bank’s housing specialist Rory Robertson rightly describes as “the elephant in the living room” – the trigger for the post-1999 surge in housing prices that neither side of politics will acknowledge.
In that year the government halved the headline rate of capital gains tax. From then on any profit earned as a result of selling an investment such as a house at a was taxed at only half the rate as money made from employment, interest or dividends.
Robertson bought an investment house himself. As he said a few years later: “Since September 1999 it is almost as though the Australian tax system has been screaming at taxpayers to gear up to earn increased capital gains rather than to work harder to earn increased wages or salaries.”
The Tax Office says that in that financial year the number of extra Australians piling into the housing market as investors topped 88,000. The Reserve Bank described the surge of real estate investment by Australians who already owned homes as “unprecedented, both in terms of previous experience in Australia and experience overseas”.
Although the new superannuation tax concessions that came in to force this month have since opened an even more generous tax dodge investors are still piling into housing keeping prices high.
As Robertson puts it, “middle-aged investors still are out there buying well-located family homes that otherwise would have been home to first home buyers. Around the country after each Saturday afternoon’s round of auctions, younger would-be first home buying couples still are trudging back to their rented accommodation as disappointed underbidders.”
Australian house prices have doubled since 1999. Sydney has become the world’s sixth most expensive city. Refugees fleeing those prices have pushed up prices in every other city.
The businessman John Ralph, who recommended the tax cut to the Treasurer back in 1999 (in line with some very specific terms of reference) didn’t see it coming.
His report predicted instead a boom in investment in “innovative, high-growth companies.”
Instead Australians bid up the prices of the things they understood.
(And for which they could get a “depreciation allowance”. I have never understood why an asset such as a home unit designed to appreciate in value should get a concession for depreciation. In the lead up this week’s summit the Housing Industry Association has even called for a doubling in the depreciation allowance in a manifesto it has shamelessly entitled a Fairer and Affordable Housing Plan.)
Only one politician went on the record at the time predicting what would happen. Labor’s Mark Latham, then a backbencher, described the proposed capital gains tax cut as “the thing that tax avoiders want. They want incentives to move out of trading income into trading assets. They want the opportunity for property and asset speculation in the Sydney land market rather than a taxation system which promotes value-adding in the information technology sector.”
Latham was prescient. As Labor leader he asked Access Economics to investigate the economics of reinstating the full rate of capital gains tax. He panicked and abandoned the idea when news of it became public.
Under Kevin Rudd, Labor won’t even acknowledge the trigger for the boom that has made houses unaffordable for most of the Australians who don’t already own them. Removing the capital gains tax concession (even removing only it for new investors) would depress housing prices.
The sad truth is that none of our political leaders want that, although they rarely say so. The Coalition’s Ross Cameron, then the member of Parramatta, was a candid exception when he explained in 2003 that rising house prices “makes for happy voters.”
“It does create this problem of how you get in for the younger people but, on balance, it's a positive thing” he said at the time.
More than two-thirds of Australian households already own or are buying the place in which they live. They have a clear interest in prices rising. Census figures suggest that they are digging into the increased equity higher prices have given them in order to continue to fund their lifestyles, in some cases remortgaging previously unmortgaged properties. They would be devastated if prices seriously fell.
Labor’s housing summit on Thursday will try to work out how to do the apparently impossible – make housing more affordable without making it much cheaper.
Economists have a name for the sort of process that got us into this mess: “hysteresis”, a one-way change that once made is impossible to completely undo – as impossible as unscrambling a scrambled egg.
