The seven most common suggestions for

'fixing housing affordability'

Jennifer Duke | 16 October 2014

Affordability, and the lack of it, is a big topic

for those working in the property industry
and those buying into the property industry.
Some do not believe the affordability issue
exists, such as observer Terry Ryder who was
recently writing on what he sees as a
mythical issue, [Terrys comments included]
and has been for some years.
Others believe we are at a crisis
level.[editorial included]
Property Observer has compiled a list of the
seven most regularly suggested ways to
improve housing affordability and assist first
time buyers enter into the market.
Add yours to the bottom of the post, and
debate how effective you think these suggestions would be.
More first time buyer grants
Providing first time buyer grants to assist new home buyers get a foot on the property ladder at
first seems to make a lot of sense. Giving them a cash injection looks as though it will give them
a leg up.
Unfortunately, this isn't necessarily the case. Terry Ryder notes that, particularly at present with
grants aimed towards new property, they do little to bridge the gap between the cost of a new
home and the cost of an established home.
Meanwhile, Steve Keen refers to these hand outs and grants as a "poisoned chalice" that create
bubbles. It certainly isn't an uncommon perspective. Many believe giving out first home owners
grants merely serves to increase property prices by the value of the grant.
Improving supply with more developments
This is often pushed by development companies or lobby groups, however does contain a some
grain of truth improve supply to keep up with demand. Simple? The reality is a little more
complicated.
1|P a g e

This would involve, in some states and territories, an overhaul of planning and the development
approval process. Rezoning may need to occur. Cheap housing supply benchmarks may need to
be set, and there would have to be consensus on what "type" of housing should be built.
Even if we did reach this point, it's unclear whether the increased supply would actually have an
effect.
A recent article, which looked closely at supply and demand, argued that houses are not the same
as bananas or other commodities when it comes to supply. ]
The argument, from academics Nicole Gurran and Peter Phibbs, is that prices for housing are set
by the total market, not just the new builds. When prices go up consumption does not decrease, as
it might with bananas, and that rises in prices are often accompanied by a decrease in interest
rates.
Even if improving supply is the solution, there are locals to also deal with. The McKell Institute's
Peter Bentley previously wrote that dealing with a NIMBY attitude will be an issue.
Allow first time buyers to access their superannuation
A hugely contentious suggestion, and one that has been played out in other countries: Is
superannuation the silver bullet for new buyers?
The Housing Industry Association (HIA) is keen, with their executive director Graham Wolfe
noting that it would assist with their deposit.
Accessing superannuation for a home deposit would provide temporary access to their personal
savings. Provided it was repaid to their superannuation accounts over a period of time, similar to
university HECS repayments, their retirement savings would be assured, he said.
HIA urges all stakeholders to support measures aimed at improving access to home ownership
for first home buyers, including assistance in breaching the deposit gap.
However, a number of experts, including wHeregroup's Todd Hunter, remain opposed to the idea,
saying that it would detract from the security and purpose of superannuation.
There is also the issue around what would occur if the property purchased drops in value, and the
simple truth that not all young first time buyers have saved much in the way of superannuation.

Negative gearing reform

Tax reform, especially pertaining to negative gearing, is discussed every time a new budget
comes up. Whether it's grandfathering the tax benefit out of existence, removing it completely, or
some other change, the proposal always winds people up.

2|P a g e

Some suggest that removing negative gearing benefits takes away the incentive for investors to
buy into the market. Investors are often described as competing with first time buyers and
subsequently driving house prices up.
Abolishing negative gearing may also remove financial advantages for investors who can afford
to pay more, knowing it will cost them less to hold.
Others suggest that taking away benefits around negative gearing removes the incentive for
investors to buy rental properties, which some argue assist the provision of rental housing stock.
For those, an exodus of investors from the market is a bad thing.
You can read both sides of the argument here.
Alter stamp duty
Stamp duty is also widely considered a tax that stops new buyers, in particular, from getting into
the market. Suggestions around replacing it with a broad-based tax have been thrown around,
while others just want first home buyers to be given back their stamp duty exemption for
purchasing any property.
Removing it completely is often proposed. In fact, BIS Shrapnel's Angie Zigomanis argued
earlier this year that stamp duty is almost entirely responsible for lagging first home buyer
numbers.
Others suggest that giving older downsizers a relief from stamp duty would help open up larger
established properties for upsizers and first home buying families. This is already in place in
some areas.
Stamp duty concessions and other property tax cuts, particularly for first home buyers, seem to
garner the most expert support.
Macro prudential measures
While macro prudential control is not necessarily on the cards from the Reserve Bank of
Australia (RBA), it has been the topic of some debate over whether it could help with not just
lending standards but also affordability via the reduction of loan to value ratios (LVR),
particularly if aimed towards specific sectors of the market.
Observer Catherine Cashmore recently reflected on a BIS Shrapnel report which found that while
reductions in the maximum LVR can restrain demand, debt service to income ratio measures
were assessed to be more substantial.
However, the report noted that only tax changes affecting the cost of buying a house, which bear
directly on the user cost, have any measurable effect on prices and that none of the policies
designed to affect either the supply of or the demand for credit has a discernible impact on house
prices.
3|P a g e

"The study puts this down to the can buys still outnumbering the growing pool of credit
constrained cant buys stressing that the importance of housing supply was not explicitly
considered. Therefore if we want to lower house prices or put in place policies to aid
affordability, we need to look outside the limited powers of the RBA alone," writes Cashmore.
What macro prudential measures will do, writes Lindsay David, is push new buyers to the
sidelines for an immediate period of time and assist them from getting themselves into too much
debt.
"[However, it will] negate their fair chance to own a home like their previous generations have
for a much lower cost," he writes, asking "Where does this leave us?"
Changes to foreign investment in Aussie property
The most popular debate around affordability over the past months has been the issue of foreign
investors fuelling property prices across the country.
Whether it's hitting foreign buyers up with an extra fee, increased enforcing of the current rules or
an overall abolition of the investment, all manner of things have been suggested.
Unfortunately, it seems experts are split about whether foreign investment is substantially
pushing up property prices, despite the record numbers seen in recent months.
Cameron McEvoy suggests that the affordability issue from foreign investors may be contained
to specific suburbs and specific types of properties.

4|P a g e

There is no Australian housing affordability

crisis: Terry Ryder
4 September 2012
I keep reading about our affordability crisis and
wonder whether Ive teleported into a parallel universe.
The one I live in doesnt have a crisis in affordability.
The latest data suggests that affordability is at its most
attractive level in 10 years. A combination of lower
prices, cheaper loans and higher incomes has put homes
without reach of more people.
Various sources, including the RBA, keep telling us the relativity between prices and household
incomes has changed very little in the past 10 years some say in the last 20 years.
Rather than an affordability crisis, we have an analysis crisis. The information channels are
cluttered up with individuals and organisations running political campaigns or pushing vested
interests, aware that the claim of a crisis will always gain an easy passage through to
publication.
For some, the existence of a crisis is a given. They bypass consideration of whether this is real or
unreal and proceed directly to finding solutions.
If you set out with a mission based on a fallacy, theres a good chance the solutions you come up
with be equally erroneous.
And so it is with the possibly well-intentioned but seriously misguided souls who devote much of
their energy to solving a non-existent problem.
The solutions offered by Australians for Affordable Housing and others are all measures that
would create of new raft of problems without solving any of the existing ones.
These include eliminating government grants to first-home buyers and so-called tax breaks to
property investors.
The first assumes government leg-ups to first-time buyers inflate prices, while the other is based
on the assumption that investors are responsible for prices rising.
Both are furphies, unsupported by any research evidence. (There are other fictional causes of
rising prices, like the mythical shortage of new homes). The reality is that prices tend to rise
when buyers are competing to secure property. The biggest force in real estate in that regard is
the one group that never gets mentioned in the debate about why prices rise: home buyers other
than first-home buyers.
5|P a g e

First-home buyers are not a major force in pushing prices. Theyre a small part of the overall
market. Even at their peak in 2009, when low prices and very low interest rates inspired many
to get into the market first-time buyers comprised only a quarter of the market.
Ditto property investors, which are generally a minority element in property markets. But theyre
a popular choice as culprits, given that only greedy people seek to buy property beyond the
family home. Some reports have added extra emotion to the furphy by calling investors
speculators, which most investors are not.
Investors, like first-home buyers, are a market minority. The other thing these two categories
have in common is this: theyre the least likely to pay an over-the-top price. Investors dont come
at real estate emotionally, the way home buyers do, and they dont have a strong motivation to
get property at the lowest possible price. If you cant get it at a price that stacks up, you move on.
First-home buyers bring emotion to the table but not capacity. They are constrained by financial
reality in terms of how much they can pay.
The one buyer category with the financial capacity, motivation and collective force to influence
prices are home buyers other than first-home buyers i.e. trade-up buyers.
At any point in time, they comprise the bulk of the market. They dont receive government grants
and they dont get any tax benefits. But, when theyre out in force, the competition they create
generates price growth.
So eliminating negative gearing wont make homes cheaper. Nor will cutting grants to first-home
buyers. Both will create new problems (like pushing up residential rents) without fixing the
existing one, assuming you believe the problem exists.
The huge weakness in the argument of those who perceive a crisis is that they want to hurt the
majority to help a very small minority.
Around 70% of households are owners. Of the remainder, some are renters by choice. Others are
renters who want to become owners and one day will be successful. There remains a small
section who aspire to be home owners but will never be able to achieve it (the reasons for which
are many and varied).
Some campaigners would like to see measures to erode property values to assist this group,
something that will never happen because no politician will facilitate the deflation of what is the
biggest asset of most households and the basis of their financial future.
It would simply be against the national interest to do so.
The people who see a crisis need to get back to the drawing board. But, please, do some
research first, rather than wasting everyones time by bringing emotionally charged furphies to
the national debate.
Terry Ryder is the founder of hotspotting.com.au and can be followed on Twitter.
6|P a g e

Government should ignore the self-interested

NIMBYs and fix Sydney's affordability crisis:
Peter Bentley
Peter Bentley | 17 July 2012
Sydney continues to be Australias most expensive city in which to rent or buy a home.
Housing affordability has hit a crisis point. In Sydney it now costs 9.2 times the median
household income to purchase a home, while 20 years ago it cost five times the median income.
While Melbournes median house price is around $529,000, Sydneys has grown to a whopping
$641,000. This has flowed through to the rental market, with the median weekly asking rent for a
house in Sydney now at a high of $500, while Melbourne is around $350.
One of the main reasons Sydneys housing market has hit crisis point is a lack of housing supply.
Over the past five years, Melbourne dwelling approvals totaled 182,026 while Sydneys lagged
behind at 97,884.
In 2010, the total shortfall of housing as estimated by the National Housing Supply Council was
73,700, with projections that this shortfall would continue to grow rapidly, eventually reaching
190,000 by 2020.
The McKell Institute recently made a submission to a New South Wales government discussion
paper that will inform the development of a new Sydney Metropolitan Strategy.
In our submission, we exposed that over the last five years only two of Sydneys 10 regions met
their housing targets as set by the previous Metropolitan Strategy.
This has resulted in a Sydney-wide deficit of over 46,000 homes since 2006, based on the
previous Metropolitan Strategy targets.
One of the key reasons for this under-delivery is the increase in narrow minded, self-interested
individuals who oppose the building of any new homes in their suburbs.
Not in My Backyard (NIMBY) resistance to new housing is stifling Sydneys ability to provide
the number of homes the city needs and further exacerbating Sydneys housing affordability
crisis.
The current planning system in New South Wales has placed too much emphasis on mitigating
the local impacts of new housing development and less on the state and regional importance of
providing homes for people.
7|P a g e

The McKell Institute proposes a detailed action plan to ensure Sydney begins to boost the supply
and affordability of homes in Sydney.
The McKell Institute action plan proposes:
The return of the Sydney terrace - The proliferation of terrace and semi-detached housing in
Sydney will significantly increase density, while providing a form of housing that residents seek.
The Institute has identified 41 middle-ring suburbs ripe for a terrace revolution, whereby existing
quarter-acre blocks with one home could be knocked down and developed into three new terrace
homes.
Dual occupancies - From the mid 1990s, restrictive policies effectively banned this form of
development. The McKell plan would see those restrictions lifted.
Code-assessable approach to development and binding timeframes Developments that conform
to the relevant statutory plan should be allowed to proceed immediately, and binding timeframes
should be in place to prevent lengthy delays for all development proposals.
One plan to rule them all - The metropolitan strategy should have legal weight and take
precedence over the local plans of NIMBY-inclined councils.
Transport-oriented development - A renewed focus is needed on constructing high-density
housing around Sydneys railways stations and transport hubs.
In recent years Sydney has failed to deliver the housing people seek at a cost they can afford.
The McKell Institutes action plan provides a roadmap to meet the housing needs of the majority,
not the self-interests of the few, and allow Sydney to reach its full potential in the years ahead.
The institutes full submission can be found here.
Peter Bentley is executive director of the McKell Institute

8|P a g e