Opening remarks to the Real Estate Institute of Australia Housing Affordability Roundtable
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Thank you very much Glenn, thank you Peter Bushby and the REIA for all the work that you do in the area and may I acknowledge my Parliamentary colleague Senator Alan Eggleston as well.
Ladies and gentlemen, housing is an issue of importance to all Australians, and it’s an issue that the Australian Government takes seriously. In fact, my first speech as a Minister in the Abbott Government was on this very issue.
And that’s because we understand that the availability and affordability of housing close to jobs and services is important for economic participation, for labour mobility and for family wellbeing.
Indeed, home ownership has gone from just a dream to an expectation.
Home ownership provides security of tenure, a secure base for raising children, and a means for accumulating wealth for retirement.
Over the first few decades following the Second World War, Australia did pretty well in the home ownership area.
According to census data provided by the ABS, the percentage of private dwellings owned or being purchased grew from 52.6 per cent in 1947 to 70.8 per cent in 1966.
Those were the Menzies years and increased homeownership was part of the program first articulated in his “Forgotten People” speech of 22 May 1942.
We should recall that mid-1942 was one of the bleakest eras of historical memory; Hitler’s Wehrmacht was marching from triumph to triumph from the top of North Africa to the steppes of Russia.
Singapore had fallen just a few months earlier and Australia seemed threatened itself by an on-flowing tide of Imperial Japanese conquest.
And while America had finally entered the war, the tide had yet to tilt in favour of the Allies.
And yet at this darkest of dark hours, Sir Robert Menzies conveyed a remarkable vision that defied the dour news of military reverses and defeats.
Remarkable not only in its optimism about the ultimate victory of freedom over fascism, but also in its ambitious vision for a better Australia.
In that speech, Robert Menzies mentioned the word ‘home’ no less than twenty times.
He said in part:
“The home is the foundation of sanity and sobriety; it is the indispensable condition of continuity; its health determines the health of society as a whole … If human homes are to fulfil their destiny, then we must have frugality and saving for education and progress”
Ladies and Gentlemen, wiser words have never been uttered.
And the expansion of homeownership during the Menzies years is simply one of the many measures that are a testament to the greatness of Australia’s 12th Prime Minister.
But as times have passed, circumstances have changed.
And in recent years a national housing problem has emerged in Australia. In fact, put simply, as a nation we do not build enough private dwellings for our growing population.
Since the mid-1980’s, we have produced on average around 150,000 new private dwellings annually, decade after decade.
Over the same period, our nation’s population has grown by 44 per cent; that is, more than 7.1 million people.
And in the five years up to the 2011 Census, the average number of persons per dwelling was growing for the first time in 100 years.
The fact is that there has been an absence of national leadership in driving a solution to the housing supply crisis that is looming.
The national shortfall in housing stock in 2011 was estimated at around 228,000 dwellings. Assuming historic demographic and supply trends continue; this gap will increase to nearly 370,000 dwellings by 2016, and 663,000 by 2031.
We cannot ignore the impact of this on individual Australians and more broadly on our economy.
Fully accommodating this growth will require gross production of more than 180,000 new dwellings per year.
While I am encouraged by the recent growth in building approvals to around 180,000 over the past 12 months, there is more to be done.
Performance is variable across the states and you have all seen recent media coverage about overseas investment in Australian housing.
At a minimum, this production rate needs to be maintained for several years to improve affordability.
Further, the fact that home ownership in the 25-34 year age group has dropped below 50 per cent for the first time in 50 years is very concerning.
Ladies and gentlemen there has been a significant deterioration in housing affordability amongst potential owner-occupiers over the past 15 years.
I noted with interest the recent Adelaide Bank-REIA quarterly housing affordability report for December 2013 which recorded deterioration in mortgage payment affordability in all states and territories except the Northern Territory.
The quarterly report for March 2014 is likely to show that in affordability remains high given recent increases in dwelling prices, subdued wages growth and the lack of an official interest rate cut during the quarter.
Rising house prices means that home ownership is now beyond the means of many young families, with rising rents putting pressure on low and moderate income households.
This in turn is having a social impact with young people renting for longer and making life decisions like family formation later, while renting.
We are also likely to see an increase in the level of debt in retirement as those who do enter home ownership do so later and pay off debts for longer.
This in turn has implications for our Age Pension system, which assumes that a majority of people will own their home outright in retirement.
Rising rents are also having an impact on Commonwealth Rent Assistance which is a supplement paid to those receiving income support and family payments to assist with the cost of renting – Government outlays are increasing but at the same time failing to address the significant levels of housing stress for those on income support payments.
Ladies and gentlemen we want to ensure that current and future generations have the same opportunities as previous generations to enjoy the advantages associated with home ownership.
Housing affordability is particularly critical for many young Australians looking to purchase their first home.
The current housing shortfall means that home ownership is beyond the reach of too many Australians, and the rental market is often prohibitive.
The 2011 Census indicated that the overall level of home ownership continues to fall.
This is one of the reasons why we are working hard to encourage state, territory and local governments to streamline planning and development processes, review the taxes and charges levied on home construction and purchases, and increase the release of land for new homes.
State and territory governments also have primary responsibility for providing incentives to encourage and support first home owners.
I am committed to working with my state and territory counterparts to drive reform.
I have long campaigned for greater transparency and accountability and I believe that it is past time to reform the National Housing Agreement to incentivise performance. It should set benchmarks and performance measures and it should drive competition.
The Government is aware that there are a number of different opinions on the appropriateness of the taxation treatment that currently applies to investments in residential property.
Given that the Government has already announced an examination of the operation of the taxation system through a white paper process, it would be inappropriate for me to comment on issues such as negative gearing and capital gains tax discounts which are likely to be thoroughly considered as part of this process.
There has also been considerable recent media and community interest in foreign investment in residential real estate in Australia.
As with other areas of policy the Government is mindful that there may be scope to improve the operation of the current foreign investment regime to ensure that it is achieving its intended policy outcomes.
That is why on 19 March 2014, the Government referred the House Standing Committee on Economics to undertake an inquiry into the current operation of Australia’s foreign investment regime in relation to investment in residential real estate.
These are matters for the Treasurer in the first instance.
Ladies and gentlemen, if we are to come to grips with our housing dilemma, then we’ll have to think outside the box.
And one of the most interesting innovations to appear in the housing space is something that some might consider a contradiction in terms – a not-for-profit real estate agency.
HomeGround Real Estate commenced operations in Melbourne earlier this year and hopes to have a portfolio in excess of 150 properties by year’s end.
Around 100 of those will be homes and units rented at market rates with another 50 or so offered at reduced rent.
The business plan also hopes to feature 16 properties of rent-foregone housing.
This new model of social enterprise housing will provide expert property services to investors and socially-minded property owners, with the proceeds used to assist individuals and families already homeless or at risk of homelessness.
These property owners will be willing to forego a percentage of their rental income to provide affordable sub-market rates to low-income tenants.
And HomeGround Real Estate also hopes to acquire properties granted by philanthropically inclined owners that will be used to house tenants who might otherwise be homeless.
Rental income will be used to maintain properties at a high standard with any excess returned to the company.
If we are to address our home affordability and housing problems with any hope of success, we’ll have to embrace innovative responses like these that break the traditional mould.
Ladies and gentlemen, I want to grow the entire housing market for all Australians.
And as a government, we must energise the housing construction sector.
And to do that, we need to leverage private investment.
And we need to work across the public, private and community sectors.
Unless we do these things we face a looming social crisis.
We need to ensure that government policy and funding is well targeted and effective in addressing housing issues. For example;
- Are we effectively addressing affordability of housing?
- Are we effectively directing our policies to assist those most in need of assistance for housing?
- And what is the proper role for the Commonwealth and the States and indeed Local Government in addressing housing issues?
These are all issues which should be looked at and considered in detail. While our Tax White Paper and our Review of Federation will consider some of these issues they will not comprehensively deal with housing policy as a whole.
I encourage strong, robust and further ongoing dialogue across the housing sector. – and more broadly across the community.
The government remains steadfastly committed to consulting with the whole housing sector, to gather ideas and suggestions for future housing and homelessness reforms. Now is the time for growth. Now is the time for innovation. And, now is the time for real reform.
This consultation will contribute to the Australian government’s longer term consideration of housing over the coming months.
Thank you again for inviting me. And I look forward to engaging with you all.