Address to the Sydney Institute - The Housing Crisis: The Coalition’s Approach

1. Philosophy

We believe in home ownership

When it comes to housing, our starting point is that all Australians should aspire to own their own home. This is the Australian Dream.

As Robert Menzies said:

"One of the best instincts in us is that which induces us to have one little piece of earth with a house and a garden which is ours."

Millennials and Gen Zs were raised to believe, as were all post war generations, that if they work hard and save, they will be able to own their own home.

But we currently find ourselves in an unacceptable situation.

Australians who have entered the workforce over the past two decades have done everything right. They have worked for their little piece of earth and Australian Dream in the same way as their parents, but the dream is increasingly out of reach.

The dream is turning into a nightmare. And the future looks bleak.

Australia is failing a generation of young people and is locking in a poor outcome for these people because of these key structural factors:

• Not enough houses have been built;
• Planning and zoning laws have wrecked development and private developers have been demonised and penalised;
• Construction is at record lows;
• Labor is running the biggest migration expansion since the 1950s;
• Deposits are unobtainable. The combination of HECS debt, 11% super contribution rates, interest rate hikes, cost of living pressures and housing price growth has left young people with a record high mountain to climb for a decent deposit;
• A home loan is becoming unattainable for the typical worker; and
• Labor has prioritised corporate home ownership over individual ownership.

What follows are perhaps the three most critical statistics.

The first is the cost of a house relative to the cost just a generation ago. In 2000, the median house price in Sydney was $287,000, or 5.7 times an estimated average household income of $50,000.

According to the 2024 ANZ CoreLogic Housing Affordability Report, the median house price in Greater Sydney is now 11.7 times an average household income - more than double over that period.

The second is the length of time needed to save for a 20 percent deposit. According to ANZ CoreLogic figures, this is now 11.1 years nationally. In Sydney, it is 15.6 years.

The third is the percentage of first home buyers entering the market. The ABS stated in 2020 it was 23 per cent. It has declined under Labor to 19 per cent in 2023.

Unfortunately, there is no silver bullet. The solution is messy and complex. But in short, we need to stimulate construction, build a lot more houses and find ways to tilt the scales in favour of younger people.

Younger Australians are frustrated with politics, frustrated with the system and in some cases considering extreme solutions which will not work. It feels like the system is rigged. And it is.

Westpac research shows that the fall in home ownership rates across younger age groups have been sharp. In 1960, 60% of those aged 25-34 owned a home. This has fallen to less that 45% in the 2020s:

JWS Research polling shows that housing affordability is the biggest issue for Australians aged 18-34, with over 65% of respondents noting it as the biggest issue.

Many Australians now resent the free market. As British author Douglas Murray put it:

“It’s not clear why people who don’t have any ability to accumulate capital will love capitalism. It is clear to me why if you don’t think you ever have a chance of owning a flat, an apartment, you might find an ideology, which claims that it can solve every inequity on earth, has an appeal.”

Australia is becoming a nation where your parent’s wealth determines your likelihood of housing success.

A recent Westpac survey found that just under 60% of prospective first home buyers expected to receive support from the ‘Bank of Mum and Dad’.

People not institutions

In giving up on individual ownership, Labor has adopted a corporate housing policy.

In doing so Labor will subsidise foreign fund managers and institutional investors to construct and rent homes to Australians. Young people will be serfs to foreign fund managers or local union super funds.

The Housing Australia Future Fund (HAFF) is one of Labor’s main policies to lock in institutional advantage.

As part of the HAFF, the Government has committed $350 million over the next five years in availability payments for institutional investors.

The administration of these payments remains totally opaque and I fear taxpayers could be feathering the nests of institutions.

Another Labor idea is tax breaks for foreign investors in the build-to-rent sector.

In the 2023-24 Budget, the Government committed to halving the managed investment trust withholding tax rate for build-to-rent developments from 30 to 15 per cent.

It will also increase the capital works tax deduction (or depreciation rate) available for these developments by 4 per cent.

This new tax cut for corporate housing applies to buildings of more than 50 dwellings. Treasury says it will cost $30 million by the 2026-27 financial year and is currently under formal consultation.

This is not an accident. This is the formalisation of a housing policy for corporations and foreign investors, not people.

I fear the Government will double down on their corporate housing policy by locking in additional tax incentives for institutional investors.

A preview of this approach can be found in Alan Kohler’s recent Quarterly Essay, The Great Divide: Australia’s Housing Mess and How to Fix It. Kohler describes the effect of subsidising institutional investors for policies like “build to rent” as follows:

“All that would do is offset the tax advantage that individual owners get from negative gearing and capital gains tax, which is unavailable to institutions and is the reason Australia doesn’t do build to rent – since tax-advantaged individuals outbid institutions.”

The poor old institutions. Do they really need another leg up beyond the HAFF’s availability payments and the foreign tax cut?

Housing Minister Collins now has a blueprint to lock in corporate ownership. The National Housing Supply & Affordability Council report she commissioned titled Barriers to Institutional Investment, was the first order of business given to the Council. The number one priority.

The report explicitly and enthusiastically states:

“Institutional investment in housing typically refers to equity finance invested by institutional investors in a collection of related dwellings to provide rental services at scale. It stands in contrast to the single dwelling provided by the individual landlord.”

The blueprint contains 11 recommendations to permanently change the foundation of Australian housing.

Labor clearly believes the major super funds and foreign fund managers are the only solutions to the housing crisis. Where does this leave the Australian Dream? It squeezes it out and puts it on a path of extinction.

The corporate housing policy is lazy thinking and simply rewards the government's vested interests. More could have been done to understand and respond to the very concerning data from Barrenjoey analyst Jonathan Mott.

Mott says that since the pandemic, twice as many owner-occupied mortgages have been written to households with income over $200,000 compared to households with income below $100,000.

Meanwhile, CoreLogic says a salary of more than $280,000 is needed to purchase Sydney’s median house of $1.4 million.

Labor is silent on this. This is something that the Australian Prudential Regulation Authority (APRA) should be looking at. Indeed, it was revealed recently in analysis by Loan Market that the Government’s income caps as part of their so-called ‘Help to Buy’ scheme will fall significantly short of the price caps set for Sydney and Melbourne.

Low and middle-income families will find it increasingly impossible to obtain the mortgage required to cover the difference as part of that scheme. This is another Labor boondoggle on housing that ignores reality.

The Government should be gearing the policy settings to enable institutions to better serve consumers, not letting them buy up the whole shop. Labor seems clueless on housing and on financial services.

Last year, ANZ CEO Shayne Elliot said that:

“If you want a loan you have to be better off, and essentially rich…

There is a cost of regulation which impacts lending. That’s why Labor should be asking APRA to report on the real cost of regulation for first home buyers.

Other prudential regulators overseas (like the Monetary Authority of Singapore) must consider the impact of capital adequacy provisions on the economy. But APRA does not.

We can have banks which are both unquestionably strong but easily able to lend to first home buyers.

Although APRA’s approach to bank capital arrangements have resulted in reduced risk, they may have also contributed to less growth and fewer first home owners.

In the last Parliament, the Coalition wanted to reduce the cost of lending regulation because we understand the deadweight cost of duplicate laws.

Getting institutions to better serve aspiration could form part of an alternative to Labor’s corporatist approach.

This will be challenging policy terrain as we consider the impact of the various capital adequacy and responsible lending laws. But we must try.

If the average working Australian is going to lose access to capital for a mortgage to fund their family home, we will cement the intergenerational divide.

Whilst the other parties are giving up on home ownership, the Coalition has always been committed to the aspiration of home ownership. Individuals, not institutions.

We care about home ownership because it gives people the best foundation for life. It has been a feature of Australian liberalism since the 1940s.

Menzies put it at the centre of his offering. In fact, it was Menzies who said in 1953 that:

“This Government, therefore, believes in home ownership. It is opposed to governments, either Federal or State, becoming, by degrees, universal landlords. It does not believe that that is a function of governments.”

Menzies understood the economic and social benefits of home ownership. In many respects, Menzies is the founding father of the Australian Dream.

His statements on individual home ownership was a major contrast from the nationalised banking (and housing) system being sought by the Chifley Labor Government.

Had Chifley’s plan prevailed, there would never have been a post-war private housing boom.

Menzies was able to bring about a housing boom, at a time when there was a lack of housing supply, and record high migration intake.

According to the ABS, at the end of the Chifley Government, net overseas migration was 149,000 in 1949. But only 57,000 dwellings were completed in 1949-50. This was roughly only one new dwelling for every 2.6 migrants.

In other words, we have seen this migration-housing imbalance train wreck before.

By the end of the Menzies Government, dwelling completion had risen to 113,000 in 1965-66, with net migration stabilising at 112,000 in 1965.

In 1982, Malcolm Fraser said of Menzies’ housing policy:

“Today almost 72% of Australian households own or are buying their own home, compared to around 50 - 55% in the late 1940s.”

Addressing this issue will be at the core of our offering at the upcoming election. It is shaping up to be the housing election with three clear choices emerging for the Australian electorate.

2. Labor’s record

Turning to Labor’s record after two years, it is clear Labor has given up on home ownership. Younger Australians now face:

• Vastly higher interest rates;
• Lower building approval rates;
• Higher construction costs;
• Higher immigration; and
• A Government more focused on institutions than individuals.

Perhaps worst of all, Labor’s supply policy is in tatters. Its promise to build 1.2 million homes in five years has been savaged by the Minns Government.

Premier Minns has declared that it will be “extremely difficult” for New South Wales to meet its portion of the target because of delays to construction and labour shortages.

The Labor Government is too distracted by vested interests to develop any serious policies to address interest rates, increase building approval rates, lower construction costs and steady immigration.

1. Building approval rates are too low

ABS data has shown that building approvals dropped to 12,520 for the month of February. To put this in context, not all approvals translate to construction and Australia would have to construct at least 20,000 homes a month to meet the 1.2 million homes promise.

2. Construction costs are a huge hurdle

For a second year in a row, the construction industry leads the nation in insolvencies. Data released by ASIC shows that 2,213 construction companies entered insolvency during the 2022-23 financial year. As of March, 1,913 additional companies have faced the same fate.

Housing supply can not be increased without looking at the builders of houses, the construction industry.

According to Master Builders Australia’s analysis of ABS Producer Price Indices, the cost of building and construction output has increased by 39.8% since the pandemic.

In September 2022, the Productivity Commission (PC) recommended that the Government commission an independent review of the productivity of the construction industry, and associated regulations, like the National Construction Code.

Of course, Labor has done nothing with the PC’s advice and have continued to let construction industry costs spiral out of control.

Construction industry bodies have pointed to the cost of materials and labour as a key driver of the crisis in the industry.

The MBA’s analysis of lending data for land and house purchases says that on average building costs make up 62% of a purchase price with the cost of land making up the remaining 38%.

Building costs don’t only include the materials and labour needed to build a home, but also 'intermediate services.'

These services which include legal and conveyancing services, don’t actually contribute to the completion of houses, but are required by regulation.

According to the Master Builders Association, intermediate services on average made up 46.3% of total building costs in 2021-22.

In other words, taxes and regulation cost almost half the cost of building a house.

To date, there has been no attempt to properly assess whether these intermediate services have constrained supply.

It is a hive of vested interests which Labor doesn’t want to touch. For example, why not include the e-conveyancing system in the new competition reforms? Reports indicate that a $20m benefit would accrue from collapsing this monopoly.

3. Migration figures are soaring while supply dwindles

At the same time, net migration has reached a record high. In the year to September 2023, the ABS measured net migration at 548,800, while only 170,000 new dwellings were constructed.

This is a ratio of one house for every 3.2 migrants, worse than the 2.6 migrants to housing ratio at the end of the Chifley Government.

Compare this with the historic peak of 216,000 dwellings completed under the Coalition in 2016-17, with a net migration figure that year of 262,000. This was a ratio of 1.2, much closer to parity.

With only an additional 67,000 dwellings being approved since September 2023, Labor is placing unneeded strain on the housing market.

When discussing supply, workforce and skills shortages cannot be ignored.

With homebuilders struggling to compete for labour with large infrastructure projects around Australia; Labor has done nothing to encourage more people to gain the trade skills needed in the construction sector.

And, within the skilled migration envelope, Labor has made it harder for construction companies to bring in skilled temporary construction workers.

In particular, Labor’s decision to exclude construction workers from the Core Skills Temporary Migration Stream, has made it harder for chronic skills shortages in the construction industry to be filled by skilled migrants.

As a result, the Grattan Institute recently reported:

“Migrants who arrived in Australia less than five years ago account for just 2.8% of the construction workforce, but account for 4.4% of all workers in Australia.”

By reprioritising construction skills within the core skills temporary migration scheme, temporary workforce bottlenecks could be eased while we train a bigger domestic workforce – without adding to overall housing demand by bringing in more migrants.

This would help to lower home build prices – but I wonder whether the inflated costs of construction actually suit Labor’s official family members - the CFMEU and CBUS.

What else has Labor done? They promised to establish a National Housing Supply and Affordability Council. While the Federal Housing Minister, Julie Collins, established the Council in December 2022, the body didn’t hold its first meeting until February this year.

Labor’s Help to Buy Scheme, which has thankfully stalled in the Senate, is not a home ownership policy. It’s a home nationalisation policy.

This shared equity scheme is utterly underwhelming. It will be available to a mere 10,000 households per year and cost the Commonwealth $5.5 billion, while the Government retains an up to 40 per cent stake in the home.

Lots of words, no action. Labor’s policies are all window-dressing wrapped up in big numbers.

3. Supply

Put simply, we haven’t built enough houses. Unfortunately, Labor’s supply targets have already failed.

At the current rate, we are going to be over two hundred thousand dwellings short of Labor’s target.

When the Commonwealth has so few levers to pull on supply, it must be incredibly careful on making such pledges, which is why the failure on the 1.2 million target is so disappointing.

Planning and zoning

Even more so than the regulatory cost of state and local government construction, planning and zoning regulation must be closely scrutinised for options to increase supply. But there are limited levers the Commonwealth can pull.

The most recent five-year report from the Productivity Commission, recommended the need for state governments to revise their planning laws and regulations to ensure that the required development isn’t being restricted.

Building approvals have slumped to their lowest levels in 12 years. We are tracking in the wrong direction.

In part, the drop in approvals can be linked to the lack of confidence in the construction industry. But building approvals are subject to state planning law.

Looking at these instruments broadly, there is a case for reforming zoning to increase building approvals.

Here in NSW, the primary planning instrument, the Environmental Planning and Assessment Act 1979 (EPAA) reads more like a NIMBY bible, as opposed to a planning instrument.

A 2018 RBA report showed that zoning restrictions added $489,000 to the cost of an average house in Sydney, compared to only $159,000 in Brisbane.

Reducing zoning restrictions has been shown to increase development. Economist Peter Tulip analysed developments in Auckland before and after they removed zoning restrictions on medium density developments. He found removing these restrictions increased housing supply in Auckland by 5% and doubled the rate of construction.

Planning and zoning has been a mess for some time so fixing it - noting this is a state and local government issue not a federal one - is another thing that must be done to increase housing supply and ultimately, individual home ownership.

Here in NSW, even the slightest planning reforms have shown to be effective in increasing supply.

In the same analysis, Peter Tulip demonstrated that the removal of restrictions on granny flats in NSW in 2009 saw a five-fold increase in construction by 2020.

If we are going to solve the supply problem, we need to look at building on what measures have worked. Granny flats have provided an innovative solution to the housing crisis by allowing people to add a dwelling to their existing property.

The other states should explore making it easier for landowners to subdivide a property with a granny flat.

Equally, airspace above existing buildings can be utilised for innovative modular rooftop homes. This is a means of unlocking supply.

Recently I visited the Liverpool local government area in Sydney where the council is going to waive fees for developers. Liverpool will cut taxes to drive new housing developments. This is exactly what is needed.

When states make laws or implement regulations that make it harder to increase housing supply, they should be penalised.

One example would be the recent Planning Direction in NSW to limit the use of caravans and movable homes on private dwellings.

Such a bureaucratic measure does nothing to help with supply, it just removes market choice.

At a minimum, we should be having a conversation about how to hold states accountable, when they make decisions that constrain supply.

Tax

We understand that boosting home ownership can’t be achieved with a single policy.

The problem with much of the discourse on housing is that there is an assumption that a single policy change will solve the issue. Many have tried to falsely attribute the housing crisis to tax policies, including negative gearing and capital gains tax exemptions. Indeed, Senators Lambie and Pocock have recently joined the Greens in promoting such changes through a big media campaign.

If we abolished negative gearing tomorrow, it would have a miniscule impact on house prices.

According to Peter Tulip of the Centre for Independent Studies:

“negative gearing and the capital gains discount are estimated to boost house prices between 1 and 4%, while having a smaller negative effect on rents.”

Whilst the Greens and elements of Labor are continuing on with their class warfare arguments, they ignore the key statistics.

Australian Taxation Office data tells us that more than 70 per cent of investors in the housing market own just one property.

These people are providing supply into a market which is severely constrained.

Minister Julie Collins’ Housing Council’s report on bolstering corporate housing ownership complains that the “dominance in the residential market of individual landlords is a barrier to institutional ownership…”

The philosophical hinge point is between mums and dads or major super funds or foreign fund managers. Currently, we have Australians, mums and dads owning houses. Why would we want to replace them with corporations?

In any event, I see no good case for shocking the supply side of the market with a tax tweak which the economists say would have a minor impact on pricing.

4. Demand

Why super isn’t working on reducing age pension

Whilst supply side reforms are important to boosting individual home ownership, we cannot ignore demand side reforms.

The simplest demand side reform is allowing Australians to use their super to buy and stay in their home.

It’s absurd that super funds invest in residential property, but you’re unable to use your super for your home.

Our policy from the last election was a good start and the Senate report will set out options to allow Australians to make their own judgements - to maximise first home ownership and to hasten home ownership.

Next week, the Senate will hand down its first report on super for housing. It will present ideas to improve on the Coalition’s policy to open super for first home buyers.

The most common attack is that we want Australians to “raid” their super. I think it’s quite ironic, given that Labor’s HAFF is primarily designed for Big Super to raid the housing market.

But this attack is usually followed by a criticism that opening up super will make Australians more reliant on the aged pension.

What these arguments neglect is that homeownership is a vital form of saving for the future.

What’s more, super has failed to deliver what Paul Keating promised for workers. But it hasn’t failed to feather the nest of the funds and their union affiliates.

In short, superannuation has not worked to replace the age pension, and it will never fulfil that role.

The 2023 Intergenerational Report projects that expenditure on the aged pension would fall from 2.3% of GDP in 2022–23 to 2.0% of GDP in 2062–63.

While this may appear to be a helpful statistic to the super boosters, a majority of Australians are still projected to be receiving a pension or other income support payment by 2062-63.

The IGR projects a decrease to the number of pension recipients of only 15% in the forty year period between 2022-23 and 2062-63.

After 70 years of compulsory super, most Australians will still be on the Age Pension. Combined with the shocking trajectory for home ownership, it is a massive failure of public policy.

For many Australians, their super balance is their biggest pool of capital. Denying young Australians their capital for their own home, is a cruel self interested proposition from Labor and Big Super.

For example, according to the ATO, the average super balance of a millennial in their late thirties was roughly $80,000 in 2021. It is mean and unjust to deny people access to this potential deposit.

Long term impact

The second criticism of opening up super for individual home ownership is that it would be inflationary and will only push up house prices further.

This is coupled with the notion that the returns on super are worth more than the value of a house.

Both of these points fall over, because they are made without accounting for key considerations and inputs.

The first of these, that super for housing would be inflationary, has been made with reference to previous first home buyer schemes.

Economist, Cameron Murray, debunks this point by highlighting that without an end date to the scheme, there won’t be a rush for people to access the scheme out of fear of missing out:

“So I think the price effect is probably small, and definitely temporary, and in the debate we don't get that subtlety.

… it will probably smooth back to where it would have otherwise been, and from then on everybody who can use their super gets the benefit.”

Housing economist, Peter Tulip said Big Super’s claims on the inflationary effect were exaggerated:

“[I]t seems implausible that it would be anywhere near that big…We have had experience of financial assistance to first-home buyers and that's had very big effects on lending by those people. It hasn't had a very big effect on overall house prices.”

The Grattan Institute’s Brendan Coates said the scare campaign on increased prices by the Super Members’ Council were sensationalist:

“And that does seem excessive given we're talking about a $10 trillion housing market and the additional money made available out of super, depending on how it's designed, is going to be a small share of that in additional demand.”

Secondly, the argument that the returns from super will be worth more than the home's value fails to consider an aspiring homeowner’s position today.

Whilst aspiring homeowners are saving to enter the market, they are more than likely renting a property on the private market.

Recently, independent actuaries, Michael Rice AO and Jonathan Ng, modelled cameos comparing the financial position of a prospective 35 year old homeowner who used their super to buy a home with their position if they continued to rent until preservation age.

The cameo concludes that if the 35 year old uses super for a 20% deposit on a unit valued at $800,000, after 30 years, the value of the equity in that unit is worth $1.2 million in today's dollars. Compare this to keeping that deposit in superannuation – it would only grow to $319,000.

This massive difference is because property is a highly geared investment. Rental payments are a pure expense. Mortgage payments build equity. Rent rises with inflation, while the mortgage's real cost shrinks over time.

Using super for a home deposit offers significantly better outcomes compared to being a lifelong renter. But Labor and their vested interests are working overtime to try and discredit super for housing.

The closed minded, ideological approach and the assumption that super is the only vehicle for retirement clearly damages home ownership prospects.

That is why the Coalition supports super for housing.

To conclude, Labor has adopted a corporate housing policy as it has given up on individual home ownership.

Labor has lazy solutions. But they are solutions which snugly fit the contemporary Labor outlook where big institutions rule the roost. These are the solutions that will kill the Australian Dream.

We are the only party that still believes in the Australian Dream which is why the individual, not the institution, is the centre of our focus.

We are the only party fighting for the Dream because home ownership has always been a Liberal value and something Labor has never signed up to.