Political capital locked up in house prices

As Australia comes to terms with its national problem with housing supply, both parties are realising that property prices could become a hot topic for the next election.

“Whichever party puts a roof over people’s heads stands the best chance of winning the election,” trumpeted Britain’s Telegraph newspaper this week. 

Politics has gone wonky and weird in the mother country, and both sides of the House of Commons are coming up with crack-pot schemes  to overcome the growing problem of too few homes to house the population. 

Britain isn’t the only nation with a housing problem. Lagging construction rates in Australia for the past decade and a recent exodus of first-home buyers from the mortgage lending market are the latest (and greatest) indicators that we’re in trouble. 

Housing could become one of the core themes of the next federal election (not counting a possible double dissolution on the carbon tax) if, that is, either side can come up with ways of improving a national problem with housing supply. 

Yes, the supply constraints are at local government or state government levels, but punters neither know nor care much about that if one side of federal politics thinks it can make housing a hot issue. 

That’s not unlikely. In the past three years, federal politics has been dominated by a carbon tax that affects homeowners by adding around 10 per cent to their electricity bills. 

A house that pays $500 a quarter (about double what the Burgess household pays) would be walloped with an extra $50 in price rises due to the carbon tax, plus a great deal more due to network charges and, in some states, gas prices. 

Meanwhile, many of the same households have average mortgages of $300,000-$350,000, costing an average repayment at historically low rates of around $1791 to $2088 per month (or $5373 to $6264 per quarter).

Putting those two cost of living issues side-by-side, it’s clear which is actually shaping the lives of a large bloc of voters: those with mortgages, who comprise about a third of the adult population. 

But is it a political issue? If a political opportunist chooses to make it so, then yes. 

All the ingredients are there for a classic political campaign. Step one is to make the population very afraid of something: “we’ll become a nation of renters!”. Step two is to demonstrate why your own side of politics is the only one that can save the nation. 

And slowly but surely, a broken housing sector is what we need saving from. 

Take, for instance, the worrying drop off in borrowing for new dwellings. 

HIA senior economist Shane Garrett said on Monday: “Compared with twelve months ago, new home lending activity has increased markedly. However, growth has completely stalled over the past six months even though activity was already rather low by historical standards.

“The patchiness we are continuing to see in areas of the home loans market means that another interest rate cut from the RBA before the end of 2013 is important in order to ensure that the market recovery fires on all cylinders. 

“Current policy settings have proven to be insufficient to drive a sustained recovery in new home lending and a renewed focus on housing policy reforms is needed to copper-fasten the recovery.”

But could Tony Abbott, or Bill Shorten promise anything substantial to get things moving? Both sides have promised or delivered the kind of fiscal restraint to keep borrowing rates down. As explained previously, Labor’s fiscal consolidation post-GFC has been highly disciplined (Gear up Hockey, it’s time to get on the roads, October 1), despite oceans of commentary to the contrary. 

So if low rates aren’t enough to get things moving, how about first-home-owner grants? As Steve Keen has detailed over the past few years in many articles, they can be used to stimulate borrowing, but that is simply not translating into the building of new dwellings.

One area that could be looked at is the GST that applies to new homes. It is around one-quarter of the taxes and charges that “drive a wedge between home builders and buyers” according to Garrett.  Taxes and charges, including having to pay infrastructure bills up front, make up 40 per cent of the cost of a new dwelling.

GST relief on new homes would be a costly promise, but it would also be a powerful political selling point, as well as a straightforward way to improve affordability. 

First home buyers are currently being spooked into continuing to rent. As Stephen Koukoulas pointed out earlier this week (First home buyers are not locked out, October 15) that is not necessarily a problem in itself. The craving to ‘own’ a home is a very English and Australian cultural obsession that nations such as Germany and Netherlands find as bizzare as we find their habit of wearing Birkenstocks and socks. Weird.

But politics isn’t about reason. If Aussies want to own their own homes but can’t afford to do so, there is political hay to be made in at least promising to fix the problem. 

Stamp duty — a highly inefficient state-based tax — can’t be touched by Abbott or Shorten. But other areas can. 

One theme that cropped up during the election was Tony Abbott’s promise to create the federal department administering the NDIS in Geelong, a city that might otherwise fall into decay after Ford announced it would stop manufacturing cars there. 

Most quarters of federal politics think the NDIS is a good thing, and concede that it requires a large number of public servants to administer (anyone who thinks that’s all ‘waste’ should read Sue O’Reilly’s compelling defence of the scheme).

Cramming them all into Canberra is good for property speculators in the national capital, but housing them in Geelong is an opportunity to build more affordable homes, or at least keep a floor under the homes of retrenched Ford workers. 

Moreover, federal assistance with infrastructure of new housing estates is a vote winner, and can open up areas of housing that state governments can’t afford. 

This is particularly true of transport. Abbott vowed to be one of our nation’s great road builders, whereas Labor spent more heavily on rail during its six years in power, and tried (again) to get inter-city high speed rail happening. 

But perhaps the easiest way to claim to be fixing housing is to take a lead in reforming planning law around the nation. 

State and government planning approvals are slow, and different in every jurisdiction. Creating harmonised planning laws would be extremely difficult, but extremely helpful, according to Garrett. 

Australia might not yet be at crisis point, as the UK is increasingly considered to be. But in politics, creating the crisis — and solving it — wins votes. The question is whether it will be the Abbott or Shorten teams that can pull it off.