Scott Morrison is a “once bitten, never shy” sort of guy. Having had a bad experience in the high profile debate over whether to change the GST, which ultimately came to nothing, the Treasurer this week launched into the hot topic of housing affordability.
The question is, can he and the government manage the issue or will it, too, turn on them?
With tax, the then-new Turnbull government put “everything on the table”, only to produce a package limited in scope and reform. Even the centrepiece of that - a company tax reduction over a decade – will have to be pared back to pass the Senate.
The opposite approach is being brought to housing affordability. Morrison wants to confine what’s put on the table to the supply side. Attacking demand would crash the market, he says. So in his Monday speech to the Urban Development Institute of Australia he focused on the need to cut planning regulations to free up land.
But the pressure is strong for a broader discussion.
Morrison’s address had plenty of statistics illustrating the problem. Over the past 20 years the proportion of Australian households owning or paying off their home has fallen from 71% to 67%; the proportion of home owners over 45 with a mortgage has risen significantly.
As Morrison said, “the real pinch point” is breaking into the market. “Across the country, a 20% deposit on the nationwide median home loan is more than 100% of annual household disposable income … well above the 60% levels that were the norm prior to 2000.” The proportion of home loans to first home buyers was 13.4% in August, the lowest since February 2004; this compared with the long term average of 19.4%.
Morrison noted that the housing issue had implications for retirement incomes. If it takes longer to pay off your mortgage, you can save less for later, or perhaps eventually need to use some of your superannuation to clear your house loan. He didn’t observe, but it is also true, that many younger people facing the challenge of getting together a deposit will also have the burden of starting to pay back student debt.
Malcolm Turnbull is said to be very anxious the government search for solutions to the affordability challenge. Expert opinion and common sense indicate this search should be as broad as possible, looking at the demand as well as the supply side.
The government knows this. Before the last election it considered imposing some restraint on negative gearing. But, wanting to sharpen the contrast with Labor, which proposed bold changes to negative gearing and capital gains tax, it did not go ahead.
Thus its attempt to put the affordability issue into the straightjacket labelled supply - with emphasis on regulations that are state and local rather than federal government responsibilities - is very political, when what’s needed is an open-minded quest for the best evidence-based policy.
Already the containment is being resisted.
Last term the government had a parliamentary inquiry underway by the House of Representatives economics committee into home ownership, chaired by Sydney Liberal John Alexander. Alexander was moved to another committee; by the time of the election the inquiry had not reported. Post-election Turnbull, hosing down another problem, had the economics committee divert onto quizzing bank CEOs.
Now Alexander wants the housing inquiry reconstituted under his House committee on infrastructure, transport and cities. That would make a lot of sense - much work was done and shouldn’t be wasted. Alexander wrote to Morrison in September seeking the reference, but hasn’t heard back yet.
This is a nice dilemma for Morrison. Alexander is widely on the record arguing the demand side is important and, what’s more, that investors are making it hard for young first home buyers. The evidence indicated “investors were trampling on the opportunity for people wanting to buy a first home”, he says.
Alexander believes there is a case for tweaking negative gearing - though he does not support Labor’s policy which would have been “catastrophic” - and for looking at capital gains tax provisions. He describes negative gearing as an “incredibly dynamic tool” and likens it to a high-powered car that needs to operate within a speed limit.
He says the policy objective should be a gradual transition “to maximum home ownership” and a reduction in “speculation and opportunism” in the market.
Not only does the government have to decide about the parliamentary inquiry but Morrison has said he will take up the issue of freeing up planning regulations with state treasurers when they meet in December.
This can be seen as pushing the issue onto the states. The perennial debate has also re-opened about how a shake up of state taxes could help.
Morrison faces the risk of perceived failure if the federal government raises expectations then little happens. Even if the states pledged to regulation reform, results would come in the medium term.
The other danger for Morrison and the government is that opening up the housing affordability issue is moving the play onto Labor’s ground. The opposition’s position on negative gearing doesn’t seem to have cost it votes on July 2. It gets the opportunity to run it again, arguing that it has a ready-made policy to respond to the problem the Treasurer has put right at the centre of the political agenda.