AUSTRALIAN HOUSING: HIPSTER BREAKFAST CHOICES OR A NATION OF SPECULATING SPIVS?
A SERIES OF QUESTIONS Is Australia in a housing bubble that will inevitably burst? What drives housing inflation in Australia? What is the nature of housing tenure in Australia? What is wrong with our policy settings? What might a reform agenda consist of?
Overseas experience suggests that housing busts occur when demand declines abruptly after an extended period of rapid growth in supply House prices Australia and other Housing completions Australia and selected advanced economies other selected advanced economies 325 300 275 250 225 2000 = 100 Spain Australia NZ UK 350 300 250 1990s average = 100 200 175 150 125 100 75 50 25 0 200 Canada US 150 Ireland 100 50 0 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Australia UK US Ireland Spain 90 92 94 96 98 00 02 04 06 08 10 12 14 16
The shortfall between housing supply and underlying housing demand has been greater in Australia than most other western nations Population growth and housing investment in Australia and other advanced economies, 2000-2014 2.0 1.8 % pa Population growth 10 9 % of GDP Housing investment 1.6 8 1.4 7 1.2 1.0 6 5 OECD average 0.8 OECD average 4 0.6 3 0.4 2 0.2 1 0.0 0 Source: International Monetary Fund, Australia: Selected Issues, Country Report No. 15/275 (September 2015), p. 11.
Housing completions vs population growth 250 '000s (annual rate) Change from year earlier (000s) 500 225 Population growth (right scale) 450 200 400 175 Completions (left scale) 350 150 300 125 250 100 200 75 80 84 88 92 96 00 04 08 12 16 150 Source: ABS.
Something else is going on 3.00 Housing CPI Australia 2.50 Capital Gains Tax Change GST Introduced Chnages to SMSF invest in Property Visa Foreign Investors New Home Owners scheme Population Australia 2.00 Introduced FHO Grant Established House PI Eight Capital Cities Median Rent Sydney INDEX 1.50 Attached Dwellings PI Eight Capital Cities Interest Rate Australia 1.00 0.50 Mar-96 Jun-96 Sep-96 Dec-96 Mar-97 Jun-97 Sep-97 Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Source: various ABS, RBA in unreleased National Shelter report housing Inflation
What else drives house price inflation
Concessional tax treatment of property investment debt and assets overwhelmingly benefits the top 20% of households, by income or wealth Distribution of property assets and loans (other than owner-occupied dwellings) by income quintile Distribution of property assets and loans (other than owner-occupied dwellings) by net worth quintile 60 % of total 80 % of total 50 70 60 40 Assets Loans 50 Assets Loans 30 40 20 30 20 10 10 0 Lowest Second Third Fourth Highest 0 Lowest Second Third Fourth Highest Disposable income quintiles Net worth quintiles 49% of all investment property assets are owned, and 52% of property investment debt is owed, by households in the top income quintile. 72% of all investment property assets are owned, and 51% of property investment debt is owed, by households in the top net worth quintile.
Housing supply is also now rising more strongly but much of that is being driven by foreign investors (and very little by local investors) Residential building approvals 260 '000s (annual rate) Private residential building approvals, by type of dwelling 140 000s (annual rate) 50 45 Financing of new dwellings A$bn Foreign investors ( FIRB approvals) 240 220 200 120 100 Houses 40 35 30 25 Australian investors (borrowing) Australian owner-occupiers (borrowing) 180 80 20 160 140 120 60 40 15 10 5 Other dwellings 0 100 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 20 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Note: grey lines in first and second charts above show seasonally adjusted data; thicker coloured lines are the ABS trend estimates. Sources: ABS; Foreign Investment Review Board (FIRB).
Changing Housing Tenures From Michael Lennon Housing Choices: Source ABS
Social Housing starts by years Social Housing in Decline so dedicated new supply required 25 000s % 20 15 10 5 30 25 20 15 10 5 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Financial years ended 30 th June Public sector dwelling completions (left scale) Public sector as a % of total completions (right scale) Up until the mid-1970s, the public sector made a significant direct contribution to boosting housing supply: since then its contribution has steadily diminished Note: figures for 2014-15 re for the first three quarters of the year at seasonally adjusted annual rates. Sources: Advisory Council for Intergovernment Relations, Australian Housing Policy and Intergovernment Relations, Discussion Paper No. 14 (1982), Appendix G; ABS, Building Activity, Australia (8752.0), March quarter 2015. 0
The only area of growth nationally has been in community housing Mainstream social housing stock Community housing stock, by State 450 '000 80 '000 400 70 350 60 300 250 50 200 40 150 30 100 20 50 10 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 30 June 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 30 June Public housing Community housing NSW Vic Qld SA WA Tas NT ACT Note: The above charts exclude housing provided under State & Territory and community Indigenous housing programs. Sources: Australian Institute of Health and Welfare, Housing Assistance in Australia, 2015; Productivity Commission, Report on Government Services, 2016.
Australia s AHPs comparison of constant share of stock at 1996 levels with actual (1996-2006) and projected (2008-2028) stock levels.
Australian Housing Assistance - CRA Forecast of 39% increase in number of people living in private rental between 2011-2031 as tenure share creeps up towards 30% of all Australians Projections of 30% increase in housing assistance budget between 2011-2031 Currently 897,000 households living in private rental housing satisfy income eligibility tests for public housing 652,000 either elderly (65 years or over), disabled (or with a long term health condition) or parents with dependent children. Source: Wood, G. 2016 14
Perhaps the divide in housing is more between owners and renters? The net worth of renter households was on average only about 13% of that enjoyed by owners with no mortgage, and about a fifth of the net worth of home purchasers (ABS)(HILDA) The proportion of renters is now roughly equal to the numbers of outright home owners (30.9%), down from nearly 42% in 1995 The proportion of households renting from a private landlord has grown from 18% in 1994-95 to 25% in 2011-12. Public or social housing has fallen from 5.5% to 3.9% over the same period Government subsidies for home ownership amount to around $8,000 per household per year, but renters get only around $1,000 per year Property Investors get on average $4,000 per year (CGT & NG) In all some $45b for ownership and $8b to renters (CRA, NAHA,Partnerships) Source: http://www.rba.gov.au/publications/confs/2011/yates.html
Housing Policy or broader?: Allied Policy areas Planning Inclusionary zoning (SA and under consideration in NSW, Vic, Qld) Capture of value uplift Planning Scheme incentives Infrastructure development Transport Oriented Developments Financing affordable housing like infrastructure Decentralisation More cities between 500,000-1m pop, Qld may have advantages over other states Tax Policy (packaged with state tax reform over 15 20 years) Capital Gains Tax exemptions (Investors) Negative Gearing
Common ideas to improve levels of affordable (inc social) housing Utilising private finance both equity and debt based on a govt incentive/bond/underwriting Growing housing with broader tenure & a better financial base Robust regulations preferably properly national (currently Vic and WA are outside the National Regulatory System) Transfers from states to CHPs (although not in Qld at the moment) Tax changes to mediate the market distortions CRA as a payment to public tenants to equalise the treatment of Public Housing and Community Housing perhaps as a common operational payment instead of a welfare payment Maintain and increase NAHA as a base level payment per capita but get states to have a matching component and gradually move out of direct provision or the current funder, regulator, provider role
The End Thanks for your attention