To tackle housing affordability Scott Morrison must get more homes built

Fri, 10 Mar 2017  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/australia-news/2017/mar/08/to-tackle-housing-affordability-scott-morrison-must-get-more-homes-built 

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To tackle housing affordability Scott Morrison must get more homes built

Scott Morrison is aiming to make housing affordability a key policy aspect of the federal budget in May. If the treasurer can set in place policies that go towards achieving this, it will be good news for the economy and for issues of fairness and equity.

Housing affordability is relatively easy to calculate because it is the interplay of house prices, household income and the level of mortgage interest rates. Nothing else drives affordability, although having a deposit helps too.

There are three factors that can improve affordability: falling house prices, rising wages and lower interest rates.

These factors can combine to make homes easier to buy, such as when a large fall in interest rates compensates for a moderate increase in house prices. But there is also conflict. For example, a solid rise in wages, which would in isolation improve affordability, is almost certainly going to be linked to a tight labour market, rising inflation pressures and rising interest rates. As such, any plan to materially improve affordability through the wages side of the equation would likely run into the problem of higher borrowing costs.

Let’s look at a scenario of a moderate fall in house prices – say 5% a year over a couple of years. At face value, this would appear to be a controlled, soft landing for housing. In Perth, there has been just such a fall over the past two years but affordability has not improved significantly as it has been accompanied by a doubling of unemployment, a surge in part-time employment and record low wages growth. Affordability has been hampered by the weakness in household income growth as the economy has faltered, in part, because of the housing market weakness.

With full employment and moderate wages growth a policy aim, and interest rates often at the whim of global markets and international economic conditions, perhaps the most meaningful way to tackle affordability is through house prices.

Given the bipartisan policy approach to immigration, which contributes the lion’s share of the 350,000 to 400,000 increase in Australia’s population each year, prices are best contained via a sufficient increase in supply.

By 2022 Australia’s population will be about 2 million more than it is today. Whether these new Australians rent or buy a dwelling is secondary to the fact that the number of dwellings in Australia needs to increase by about 800,000 just to meet that demographic demand. The current level of building approvals is just enough to meet that level of growth having been stronger than that during 2016 (noting that there are around 40,000 dwellings demolished and replaced with new ones each year).

Suffice to say that any shortfall in building will skew house prices higher.

Morrison’s upcoming budget cannot have much, if any, influence over wages growth or the level of interest rates in the short or long run. What federal government policies can influence is demand and supply of dwellings. On the supply side, the government can provide financial incentives for state and local governments to release land that is well-serviced by quality infrastructure – such as roads, public transport, schools, hospitals, leisure areas and places to work.

At the margin, negative gearing and capital gains tax changes are important issues to be sure, but they matter little if there is an ongoing supply and demand imbalance in housing. Those tax changes are more about equity, fairness and removing a distortion to the property market, and as a result are worth pursuing. In the short run, they would no doubt take some of the heat out of the housing market. Over the longer run, the impact of changes to negative gearing and capital gains tax would be slight as the focus switched to supply.

As the Treasury will no doubt be briefing Morrison, there are policy changes that can help influence housing affordability. They centre on issues to do with supply, which is where the attention should be in the budget.

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THE LATEST FROM THE KOUK

Why don’t governments deliver policies that are good for the electorate?

Mon, 21 Aug 2017

This article first appeared on The Adelaide Review site at this link: https://adelaidereview.com.au/opinion/politics/paying-fair-share/ 

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Paying Their Fair Share

It’s the age-old question: why don’t governments deliver policies that are good for the electorate? Well, the answers are numerous.

Politics and policymaking should be simple. After all, being in government and delivering what voters want — making them happy in other words — and increasing the chances of re-election seems to be the proverbial win-win scenario.

Which begs the question, why don’t political parties do it?

Why don’t they deliver policies that are good for the electorate and good for their re-election chances?

Let’s cut to what the voters, in general, want.

A policy framework where each person who wants a job gets a job is key. In addition, access to quality and affordable health care and education, from kindergarten to university to trades training is fundamental. There are other issues that are basic, simple and fair.

Voters want the government to provide aged-care services that treat the older members of society with dignity. We want decent infrastructure, especially pubic transport and roads. We want people who are doing it tough to be supported by a welfare safety net — a decent rate of pension, unemployment benefits and disability support.

So far, so good.

Australia has given up on solving unemployment

Sun, 20 Aug 2017

This article first appeared on The New Daily website at this link: https://thenewdaily.com.au/money/finance-news/2017/08/16/stephen-koukoulas-unemployment/ 

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Australia has given up on solving unemployment

 It is a sad state of affairs to realise that the current crop of Australian policy-makers have effectively given up on reducing unemployment.

Treasury reckons that the lowest the unemployment rate can go without there being a wages and inflation breakout is around 5.25 per cent.

The Reserve Bank of Australia notes something similar, forecasting that even when the economy is growing strongly at an above-trend pace, the unemployment rate will hover between 5 and 6 per cent.
The current unemployment rate is 5.6 per cent or some 728,100 people – enough to fill the Melbourne Cricket Ground about seven times.

Given the Treasury and RBA estimates, it looks like Australia will never see fewer than about 700,000 people unemployed – no matter what kind of improvement we see in the latest jobless figures on Thursday.
It seems to be a peculiarly Australian issue. In the US, the unemployment rate is 4.3 per cent, in the UK it is 4.5 per cent, in Japan it is 2.8 per cent while in Germany, the unemployment rate is 3.9 per cent. And none of these countries is experiencing a wage/inflation problem. Indeed, even with the very low unemployment rate in Japan, wages are actually falling.