I N FEBRUARY, 2002, the then ACT Minister for Housing Bill Wood set up the ACT Affordable Housing Taskforce. It reported and the Government responded. The Government promised: an expanded land release program; broader eligibility for stamp duty concessions; and more money for community housing organisations to provide affordable housing. Nonetheless, the median price of a dwelling in the ACT went up. Property taxes went up. Rents as a proportion of income went up. Then in 2004 the taskforce had another crack at it with a ”final report” titled ”strategies for action”. The Government responded. The response was full of blather such as: ”Safe, appropriate and affordable housing helps to provide dignity and the opportunity to develop a sense of belonging to a community. Without appropriate and affordable housing, communities are not sustainable.” Still, the medium price of a dwelling went up. And property taxes went up. And so did rents.
This week the ACT Government responded to the report of the Affordable Housing Steering Group which reported to the Government (but not publicly) in March. It promised (again): an expanded land release program; broader eligibility for stamp duty concessions; and more money for community housing organisations to provide affordable housing. It promised two other schemes it thinks will help. My guess is the median price of a dwelling will go up. Property taxes will go up (beyond CPI or any other sensible measure). And rents will still go up. The all new shinny 2007 affordability report made no mention of the failed 2003 and 2004 reports. It seems the government and its advisers simply do not understand. They are not the solution to the problem; they are the problem. Not just the ACT Government, but the Federal Government as well.
What exactly is the difference between now and the halcyon days of the 1960s and 1970s when every young couple could ”afford” a home of their own? First, the Federal Government has imported a lot more people. You cannot import more than 100,000 people year with a finite amount of habitable land and expect the price of land to stay flat. Add to this natural population growth and the recipe for higher land prices is obvious.
Secondly, tax. There were no residential land taxes in the 1970s. Stamp duty on the median house was $20 about $150 in today’s money. Yes; that’s right. I know because I paid it. And there was no GST, which has added between 6 and 9 per cent to the cost of a dwelling. Also there were few if any development charges or betterment taxes.
Thirdly, planning rules. Interest costs build up while land lies fallow awaiting planning approval. Planning approval takes longer and costs more than in the halcyon days, for no demonstrable benefit. We have a few worthwhile environmental requirements but other than that the built form probably gives worse residential amenity or aesthetic pleasure now than in the 1970s. What is the point of the ACT Government raising huge amounts of money in property taxes and then spending it to make housing more affordable? It is absurd. Did you know that 32 per cent of the ACT Government’s own-source revenue comes from property taxes alone? Make that 34 per cent when you add the duty on insurance of dwellings.
All of that gets passed on to renters and home-buyers. What a grab. And they wonder why housing is unaffordable. Yet of the 62 recommendations, not one recommended a general reduction in property taxes, let alone something as radical as indexation or abolition. Other things were seen to be more important for housing affordability, like Recommendation 62: ”Implement an education campaign to ensure people who move to Canberra update their address with Medicare immediately.” Wow. That will strike a blow for lower house prices.
Yes. I will declare an interest. I pay property taxes. That, incidentally, let’s me tell you with some confidence that landlords pass those taxes on to tenants whenever they can. But that does not trouble governments. Blame the grubby landlord for high rents. If the Real Estate Institute had any brains it would get its agents to itemise land tax separately from rent on the lease. So rent would be to take a realistic example $400 a week plus $85 a week land tax. Spelt out thus, tenants would be in uproar.
The government is proposing two schemes to ”help”. One would allow partial equity, so the home-buyer has to raise only 75 per cent of the value and the mortgage financier wears the other 25 per cent. Upon sale the financier gets a proportionately bigger cut if the value goes up. Sure, in the unusual event that the value goes down the home-buyer only loses whatever equity they have put in. But these schemes are a demonstrable rip-off under which the financier wins nearly all the time scooping up the juicy portion of the capital gain and being exposed to minimal risk of downturn.
The other scheme allows a home- buyer to ”rent” the land from the ACT Government and buy the building. At any time the homebuyer can buy the land for the new market value. Again the home-buyer misses out on the juicy capital gain that comes from increasing land values. Assuming good motives, it again shows that governments do not understand housing markets. The land increases in value while the dwelling on it depreciates. Indeed, after 40 years or so the land is worth more vacant than with a 40-year dwelling on it. By then the dwelling is worse than worthless; you have to pay someone to bulldoze it. Oddly enough, since the halcyon days, housing has become more affordable. The construction cost of the average dwelling in Australia has risen by about the inflation rate over the past 30 years, whereas incomes have gone up more. The house has
become more affordable but the cost of land, taxes and planning have made the total package less affordable. And when all is said and done, how unaffordable are houses today compared to the halcyon days? I don’t want to do a Monty Python ”loxory” skit here, but when couples in the halcyon 1970s moved into their affordable houses they probably spent a higher portion of their income on mortgage servicing, but it did not matter as much. I suspect there was no pressure to have the place immediately kitted out with all the latest from Ikea, Bing Lee, Freedom and Domayne. Besides, the place was most likely 110 to 130 square metres an affordable space not a 250 square metre McMansion or BoganVilla. The affordability crisis is to a large degree a creation of the new home- buyers themselves and over-taxing governments who ironically are now so worried about the votes of home- buyers that they think they have to be seen to do something about it while still retaining the property-based revenues they use to buy other votes. Bring on the Affordability (Let’s Be Seen To Do Something About It) Taskforce Advisory Steering Group 2008 and excuse my cynicism.