The Federal Government’s housing policy, Community and Nation, made public this week, is an adept reallocation of resources and responsibilities that will favour federal Labor and, on balance, not make a great deal of difference in housing outcomes.
Under the plan no-one will spend more than 25 per cent of their income on rent; people on the public housing list will be able to use their rent subsidy in the private market; people will be able to get it in a lump sum to put a deposit on a house; and there will be $80 million more in Better Cities money. In all 500,000 people will get government money. The Federal Government will finance the subsidies with lower capital grants for housing to the states. The states are to take over the control, management and provision of housing stock.
Notice how the Federal Government gets the politically pleasant task of handing out the money. That comes in the form of subsidies and in Better Cities money (75 per cent of which goes to Labor electorates, according to the Opposition). The subsidies, of course, include the lump sum to help form a deposit. (That nice federal Labor Government giving out deposits on houses like a rich uncle.) Notice how the states have to cop the politically more difficult task of dealing with housing stock. If there are not enough houses or if the standard of them falls, tenants will blame the state governments.
The housing industry lobby groups have been bought off. They are salivating at the thought of subsidies for private renting and for deposits on houses.
It is an economically irresponsible plan. The subsidies for rent and deposits will not work in isolation. They will inevitably affect the housing market, by driving rents and prices up. One does not have to be an economist to realise that; just a passing knowledge of human greed will suffice. If there is more money around and more buyers in a market, prices go up. The subsidies will be partially self-defeating, but people will feel the Government is helping them, and that is what counts politically. Worse, the subsidies will divert resources from other industries into the pockets of the housing industry. Time and time again subsidies have been shown to result in inefficiencies in an economy which ultimately drag down the living standards of all.
A more efficient way of helping people would be to reduce taxes, especially at the low end … both federal incomes taxes and the various state taxes that impact on low incomes, particularly stamp duty. But that way, of course, the Federal Government would not be seen as the provider.
Cutting taxes and reducing government spending would also reduce interest rates, which would do more to help people get into their own home than government hand-outs. More micro-economic reform to reduce real-estate and legal costs would also help.
The statement is another illustration of what has been wrong with Labor’s approach in many areas of public policy: tax high and hand back to an ever enlarging group of government dependants so it can get political kudos. It is applying band-aids to a series of self-inflicted wounds. It is a very inefficient way of delivering resources, to the detriment of all.