KGB Interview: Bob Day

The Family First senator-elect says changing the pension system without addressing home affordability is futile, land prices are pricing first home buyers out of the market, and new 'unaligned' senators will disprove allegations of disorganisation.

Family First leader and senator-elect Bob Day tells Business Spectator's Alan Kohler and Stephen Bartholomeusz:

AK: Well, Bob Day, you wrote a paper last year in which you talked about the high cost of housing in Australia, which is now six times income rather than three times as it was some decades ago. But as one of Australia's biggest homebuilders, are you also seeing a bit of a paradox in that prices have gone up, as you point out, but demand is very strong at the moment?

BD: Well, it's where the demand is coming from. There's a massive demand, but that pent-up demand is not being fulfilled, particularly at the first homebuyer level. You say it's six times median income. It's actually nine and ten times median income in some cities, like in Perth and Sydney, and that's where the real problem is. The entire economy has been distorted because of this massive increase in the median house price multiple; that is the ratio of house prices or median house prices to median household incomes.

AK: But as you say, the demand is not being restricted in some way by the high price.

BD: Well there's a lot of investor housing. You looked in one of your graphs, Alan, at the first homebuyer market. I mean for a hundred years the average young couple could buy their home on one wage and get started in the housing market. That's no longer the case. So, to talk about housing demand as if it's, you know, across the board is very, very misleading. Yes, there is demand for housing, but a lot of it's for established real estate and that's coming to a large degree from investors, not from where it should be then. And what I'm concerned about is the entry or the lack of entry into the housing market by first homebuyers in particular.

AK: So what's caused the big increase?

BD: Well, it's pretty obvious what's caused it and that's massive increases in land prices.

AK: Yes, but what's caused the big increase in land prices?

BD: Well, what always causes a big increase, lack of supply, increase in upfront infrastructure charges, time delays, those sorts of things. I mean for a hundred years what happened was when we needed more housing, we would build more housing stock on the urban fringes of our cities and first homebuyers got into the market, eventually those fringe suburbs became inner suburbs and that's how the system worked.

But then about fifteen years ago or thereabouts, there was a massive policy change and that was more towards urban consolidation, urban densification and limits were placed on the development of new housing stock and new housing supply on the urban fringe. And let's always remember it's not increase in demand that causes increases in prices. It's the lack of supply and reduction of supply.

I mean a great example of that is that, you know, plasma TVs and digitals TVs and computers ten years ago were huge prices and there was a massive demand for them, but as the supply increased the price dropped. Now, we're not seeing that in housing because the supply of new housing stock has just literally dried up.

SB: Bob, I accept there's a lack of supply, but it's also the cost of the available supply, isn't it? As we've seen governments push the cost of infrastructure away from the public sector onto the developers.

BD: Well you say developers, you mean onto the first homebuyers. The developer is really just the middleman and it's this concept of forcing first homebuyers to pay for the cost of infrastructure upfront -- and that is before they've used it.

Now, it was always the case that homebuyers paid for their infrastructure, but they paid for it as they used it, in their water rates, electricity charges and various utility costs from council rates, shire council rates and so on. But the major policy shift with infrastructure of costings and financing was that that infrastructure -- that's water pipes, sewer pipes, electricity, roads and so on -- instead of paying for it as you use it every time we turn on a tap, every time we flick a switch, drive down the road and so on, they then started to charge before they'd used it. So there was a massive policy shift.

And that just priced first homebuyers out of the market, to a situation we have now where when an inner suburban infrastructure needs to be upgraded and we've all driven down fifty- sixty- eighty- year old streets where they're having their water and sewer pipes being replaced, they don't knock on every door and say: "Look we are putting in a new pipe here. Can you cough up ten thousand dollars?" That's paid for out of the rate systems. That's paid for as they use it and yet they're the people who own their own homes. Their houses are worth a million dollars and yet the poor old first homebuyers are still paying the same rates for their water and electricity, but they're having to pay for their infrastructure upfront. And that is just so inequitable.

SB: You've referred a couple of times to the impact that investors have on the housing market. Would you advocate some sort of policy in response to that? For instance, negative gearing is obviously has a significant influence over investor behaviour.

BD: No, I wouldn't, but that's not where the problem is. I don't have a problem with all this. Inner suburban houses cost a million dollars and investors want to buy them and rent them out. That's not a problem. My concern is always at the entry point -- whether it's an entry to a job or an entry to homeownership. That's where it's all about. That's what's distorted the market and that's what I want to go into Parliament to fix.

AK: So, what caused that policy shift that you talk about fifteen years ago? Whose policy shift was it?

BD: Well, it was the combination of two things. It's usually the combination of an ideology, usually brought about by a model campaign or some such. And in fact, they used to call it the 'Baptists and the bootleggers' phenomenon. It was a term that was coined back in the Prohibition days in America where the Baptists lobbied and campaigned to have alcohol banned because it was immoral and destroying the families, but at the same time the bootleggers were making money out of the illegal liquor, so they were also lobbying for the Prohibition.

And these days the modern day version of that is where you've got environmentalists and urban planners who have this pathological hatred of urban growth and urban sprawl and so on and so they campaign on the environmental and these other things, even though these things don't stack up to or stand up to scrutiny. And at the same time you've got land developers and others who are making a lot of money -- and in particular state government land management agencies, your Landcoms and LandCorps and Renewal SA or whatever reincarnation they have of their various agencies. And they're making an awful lot of money out of land restrictions. So, land supply has become a cash cow for state governments.

So, you've got this combination where the politicians, the policy makers can stand on the Baptist soapbox or the environmental or urban planning soapbox, but at the same time make untold amounts of money out of the pockets of first homebuyers. That's how it happened.

SB: Bob, you referred to why you want to go into the Parliament to make a difference. When you go into Parliament I think you'll be one of eight kind of unaligned senators.

BD: Yes.

SB: How's that going to work? I mean is there going to be a bloc? I think there are six conservatives within the eight. Is there going to be a bloc of six?

BD: Well, as you know, there are six new senators and I'm one of them. And look, we've met, we've discussed these things. We're all committed to two things. Number one, to represent our states. The Senate is the states' house. That's why it was created and every state has the same number of senators. So we recognise, number one, we're there to represent our state.

And secondly, to pursue the policies of our particular parties. Now, we're all agreed on one thing: we want to do a good job. And now, I know we've been variously described as a bunch of, you know, mish mash, flotsam and jetsam, Star Wars aliens, a barnyard and so on, but you know we're really committed to proving the media wrong and others and say "look, we want to do a good job".

We recognise that the Abbott government has a very strong mandate on a number of policy matters and we want to work with the government wherever we can, but at the same time we have our own particular policy agendas that we campaigned on and that we want to raise in the Parliament.

AK: So what specifically do you want to bring up and what do you want to put forward?

BD: Well, Family First has always had a policy of, you know, every family, a job and a house and their finances under control, a safe neighbourhood to live in, secure retirement. Those sort of things where if families have got someone, they've got jobs, the kids have got jobs, they own their own home, they've got a secure retirement, you almost don't need the government, you know. You're pretty much safe. My fathers-in-law used to say when poverty comes in the door, love goes out through the window. So, we want to make sure that poverty doesn't come in the door, so that families can get on and do what they do best and that is raise the family, be good citizens and make a contribution. So, that's the main policy areas that I'm concerned about.

AK: Okay. But in relation to what you've been talking about, first homebuyers and people getting a job, what specific things do you want changed?

BD: Well, the obvious question is well, you know, why doesn't everybody have a job and have a house? And that's when you start to discover the barriers to entry to things like homeownership. And we've talked about some of those things. About land supply, infrastructure costs, those sorts of things.

You can still buy a brand new house and I know all too well and you can have a look at the new homes list out in any of the weekend press and you'll find homebuilders offering to build you a brand new house, three bedroom, two bathroom, double garage for probably about a hundred thousand dollars. But trying to find a block of land on which to build it, that's where the challenge is. Now, it wasn't that long ago a block of land, you know, would cost you a third or a quarter of the price of the house. Now it costs double the price of the house. So that's one area, the land area, infrastructure, time factors and so on.

And when it comes to jobs, why doesn't everybody have a job? Well, there again, you know, the restrictions of people getting a job are just almost insurmountable. We've built a huge brick wall across the road to employment and every rule and regulation and award and everything you can think of which prevents young people in particular from getting a job just needs to be removed.

AK: Such as what? Come on.

BD: Well take apprenticeships or, you know, young people, for example. And I go out to some of my building sites, or I used to, and there are guys and they're middle-aged and they're laying bricks and trowelling off concrete and, you know, I'll say to them, why don't you get yourself an apprentice or an assistant?

And then they ravel off all of this: It's too expensive, it's too complicated, it's too dangerous, risky, we can't afford it if it doesn't work out and so that, you know, these guys are knocking off work at three o'clock because they've got bad backs and so on. And then I'll go down to a local shopping centre and there are young lads hanging out on skateboards and I'll say "look, you know, boys, you've got the day off or what's happening?" And they said "oh no we're trying to get a job." And I'd ask them. I said "well have you thought about an apprenticeship?" And they said "yeah we've applied, you know, lots and lots of times, but it's just very, very hard."

I know how difficult it is for a young person to get an apprenticeship or to get a start in the workforce. It's almost impossible. And I'm thinking, what am I missing here? We've got tradespeople. We've got a trade shortage. We need young people. And then you discover, you know, just how much it costs for a tradesperson to take on a young person and you speak to some of these young people, you know, and they're pretty up to date with what's going on. They'll say look, you know, I've got a sister who's a student nurse and a brother who's studying engineering. You know, they're students, but I can't get a job as a student builder, for example.

And I've said look would you be willing to, you know, to get an apprenticeship would you be willing to work for the equivalent of what you're getting on the dole? And said of course he would. Now, that's basically just about every other young person does. And just about every other young person in training, whether they're studying, you know, podiatry or studying as student teachers or a student nurse or a student lawyer, they get a student allowance. They're studying, they're learning to be all those things, but if you want to learn to be a bricklayer or learn to be a carpenter or a student builder, you know, suddenly all the rules change and there are barriers there and you just can't get in. And this needs to be addressed. It's just ludicrous and it's costing young people their lives and their future.

SB: Bob, I'm sure you're conscious that at the last election the government promised not to make any substantive changes to the Fair Work Act. But on the issue of young people and trade skills, there's been a significant downgrading over the last couple of decades of apprenticeships, vocational trading and the trade colleges have all but disappeared. Is there something we can do that front?

BD: Yes. I think the problem is that it's all being run by the government and we need to get them out of it. I mean once upon a time it was a private arrangement between families and their sons or their daughters and the tradesperson. And then suddenly the whole thing now has been completely overtaken by government. They run everything. And I think if you took it out of the realm of the government and let people decide for themselves.

Because so many apprenticeships these days, when you come across them, they're usually a father and son or an uncle and a nephew or somebody who knows somebody, a family member, that sort of thing. People can work it out for themselves if they're allowed to. But I think we just need to free that up. And they don't need any changes to the Fair Work Act. I think if the relationship between tradespeople, builders, young people and so on was more along the lines of students, then that would be a way without making any changes to the Fair Work Act. In other words, get it out of the area of industrial relations. It's not an industrial relations issue or problem. You know, it's the world of education and whether you're learning teaching or learning nursing or learning engineering or learning media studies or learning bricklaying, you know, that's where it needs to be redefined.

AK: But Bob, you're going to have some power now. You're going to be able to say to the government "I'm not going to pass the paid parental leave scheme" or "I'm not going to repeal the carbon tax unless you do this". So, what are those things that you're going to actually hold out for and use your power to achieve?

BD: No. Look, I think the power of the argument should be enough. I mean we've got forty per cent youth unemployment in some areas. We've got trade shortages. We've got home ownership issues. We've got a housing affordability crisis. I mean, everybody knows that. Every person I speak to, everyone I know, people all understand these things. Now, there's a political will to do it and we've just got to convince my fellow political colleagues to do that as well. But it doesn't have to be a horse trading trade-off.

AK: But Bob, sometimes you have to argue with a stick behind your back.

BD: Well, let's try the easy way first, you know. We'll try the carrot first and see how that goes. And maybe I'm being a little bit naïve, but I think the situation is so serious with our young people and youth unemployment and so on and housing affordability. I think that is so serious that I think playing horse trading games doesn't need to be a part of that.

AK: You've got your finger on the pulse of the house building market. How are you seeing things at the moment?

BD: It's still a tough market because of access. There's a pent-up demand. There's a demand and for two hundred thousand new homes a year and yet Australia's building nowhere near that number. And all that's going to happen is that fewer and fewer people are going to own their own homes.

And all this talk about pensions, changing pensions from sixty-five to sixty-seven to seventy is absolutely meaningless without the context of homeownership. Because if you don't own your home by the time you retire, you're going to be in really big trouble in this country.

Now, everything that's been based on and the backdrop of most pension discussions these days is that most pensioners own their own homes. Because they bought in before all the land restrictions -- they bought in when house prices were three times income.

People coming into the housing market now are buying in at six, eight, nine, ten times income and they're not going to be owning their own homes. So, all this talk about pensions and seventy years old is just a moot point. It's futile even talking about it without the other side of the coin and that is homeownership. You'll never be able to pay off a mortgage or pay rent on pensions. It was never based on that. But that's the way it's going.

SB: Bob, a number of the issues you've touched on cross the boundaries between the federal and state jurisdictions. Do you have a view about our current model of federalism?

BD: Look, I'm the secretary of the Samuel Griffith Society and I'm a great believer in federalism, states' rights. I mean South Australia, my home state, was once the number three state. In fact, it was the leading state in the Commonwealth -- we always argued -- with some of the contributions that South Australia made at Kingston and others towards the formulation of the Constitution in the early days. South Australia now has become the mendicant state. Because for South Australia the states have no power over their own destiny. They can't be competitive anymore, whether it's industrial relations or taxation or whatever it is.

And South Australia used to lead the Commonwealth in all sorts of things, but not anymore. In fact, it was once the case that -- and you'd appreciate this, Alan -- that twenty, twenty of the top one hundred publically listed companies in Australia, you know the BCA list, twenty of them had head offices in Adelaide. And you remember, names like Faulding and Southcorp and, you know, News Limited and Standard Chartered. You name it, there was a long list of very impressive national companies. We're now down to just one or two.

So look, federalism is where it's at. It's an important thing that needs to be fixed. And that is, for the states. And fortunately I'll be a senator representing my state, as will the others. But some of these areas certainly need to be addressed and put back on the table.

AK: Thanks very much for joining us, Bob.

BD: My pleasure. Any time.

AK: Great.

SB: Thanks, Bob.