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Alan Kohler: We need an AEMO for housing to match supply with demand

The major parties are too scared of losing votes to tackle housing affordability, writes Alan Kohler.

The major parties are too scared of losing votes to tackle housing affordability, writes Alan Kohler. Photo: TND

Here’s why nothing effective is being done about housing affordability.

In the past 12 months, every Australian who owns a house or apartment, which is most of us, made an extra $82,648, on average, from the increase in its value, and since only half of that gets taxed, it’s more than the average wage.

The ABS reports that the total value of dwelling stock at the end of March was $10.7 trillion, $917.4 billion more than a year ago, and there are 11.1 million dwellings.

Actually the 12-month capital gain for home owners was 12 per cent, since there is a total of $2.3 trillion in mortgage debt, so the total equity of Australia’s home owners increased from $7.5 trillion to $8.4 trillion.

Over five years, the compound growth in the value of Australian housing has been 10 per cent, much more than the 7.4 per cent annual return from the sharemarket.

Safe as houses

Woe betide any politician stupid enough to blow the whistle on that gravy train.

But if you own a house, don’t worry – they’re not stupid: Housing won’t be made more affordable. It is not politically viable to do anything that costs anyone any money, let alone the majority of citizens a lot of money.

It means the drawbridge to the castle of home ownership, in which most voters are happily ensconced, has been pulled up: Only those with a boat to cross the moat can gain access to it, because the median house price in Australia has doubled as a multiple of average weekly earnings in the past 25 years, from four to eight times.

It is a devastating failure of government policy at all levels that has changed Australian society for the worse.

The real issue

The “boat” in the metaphor is access to parents’ housing equity for the deposit and a salary much greater than average; it has to be both.

Even if someone on average weekly earnings managed to get hold of the $150,000 deposit and then borrowed $625,791 (80 per cent of the price) to buy the median-priced house, they would have $500 left a week to live on. A couple with two kids, working full time, both on average weekly earnings, would have $867 a week left for food, clothes, utilities and medical. Not enough.

It’s not much better any more if they rent. Median Australian rent is now a record high of $627 a week, leaving the average couple with two kids living in the median rental roughly $1000 a week after rent and child care.

The cost of housing is creating a generation of insecure renters and working poor, because the supply of housing is so inadequate and chaotic.

Potential solution

There needs to be a kind of equivalent of the Australian Energy Market Operator (AEMO) for housing.

That is, the National Housing Supply and Affordability Council with teeth, and with its own staff instead of the secretariat of Treasury that it uses now.

Of course, AEMO actually runs the National Electricity Market which couldn’t be done with the national housing market, but a key problem with housing is that supply decisions are both dispersed and divorced from demand.

No one has the job of researching the national housing market and ensuring it is in balance, as AEMO does with energy. In developing the 2024 Integrated System Plan, AEMO “collaborated with more than 1300 stakeholders, produced 60 presentations and reports, and considered more than 110 submissions from industry, consumer and community representatives and governments”.

What’s the point of going to such trouble and expense to make sure every household has enough affordable gas and electricity if the house itself is unaffordable?

Short-term rentals

And first up, a new Australian Housing Market Operator (AHMO) would have to deal with the growth in short-term rentals (STRs), mainly Airbnb, at the expense of long-term leases.

A group called Grounded, which advocates for community land trusts, has studied STRs in depth across 13 markets and found that earnings for them are 80.9 per cent above those of long-term rentals.

No wonder investors are taking properties off the long-term rental websites and putting them on Airbnb instead.

Karl Fitzgerald of Grounded says that 74.2 per cent of new housing supply in the markets he looked at was directed to short-term rental and that Airbnb now accounts for about 35 per cent of the total rental supply pool.

Fitzgerald suggests that a “Locals First Airbnb Cap ‘n Trade” system be introduced, in which there would be a cap on the number of licences issued, reduced by 5 per cent every two years until the balance between short- and long-term rentals returned to what it was.

Licences could be traded and would increase in value as the supply of them shrank. Karl Fitzgerald wants the revenue stream directed towards community land trusts, or shared equity ventures driven by local communities.

Intricate balance

But no matter how it’s done, there clearly needs to be more muscular government management of the balance between short- and long-term rentals.

Victoria has proposed a 7.5 per cent levy on short-stay properties, but that looks to be in doubt and would make only a marginal difference anyway.

The shift of properties from long- to short-term rental is a national problem and needs to be tackled nationally.

One thing the federal government has announced to boost the supply of rentals is legislation to give tax incentives for “build to rent”, which is where is institutions develop housing to own and rent for the long term.

This type of housing represents 5 per cent of housing supply in the UK and 12 per cent in the US; in Australia it’s 0.2 per cent because negative gearing and the capital gains tax discount mean developers get a better price selling off the plan to individuals.

Ambition unmatched

The new bill will reduce the managed investment trusts (MIT) withholding tax rate from 30 per cent to 15 per cent and increase in capital works deduction from 2.5 per cent to 4 per cent. That’s it.

The Property Council of Australia says it won’t work. “The legislation does not match the government’s welcome ambition to get us to the 150,000 homes we know are possible,” chief executive Mike Zorbas said last week.

Meanwhile, the core federal government housing target of 1.2 million new homes over five years won’t be met either, according to the National Housing Supply and Affordability Council.

Whether giving that council some teeth, and staff, could return housing to being affordable again, as opposed to just balancing supply and demand from here to stop it becoming even more unaffordable, is another matter.

Returning housing affordability to what it was – that is, the house price to income ratio back to four times instead of the current eight – would take 20 years of oversupply and stagnant prices.

That would not be popular.

Alan Kohler writes twice a week for The New Daily. He is finance presenter on the ABC News and also writes for Intelligent Investor

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