Treasury Laws Amendment (National Housing and Homelessness Agreement) Bill 2017;Second Reading

March 01, 2018

It is a pleasure to follow my colleague and friend the member for Fremantle. I commend his heartfelt address on the importance of homelessness and tackling that scourge.

The three key pillars of our great Australian society are: dignity in work and retirement, the universal provision of health care and access to quality education. But another key element is what many call the great Australian dream, which is really a fundamental human right: the ability to access quality and affordable housing. That's why I rise to speak today on the housing affordability and homelessness crisis that so many Australians are facing right now.

This bill, the Treasury Laws Amendment (National Housing and Homelessness Agreement) Bill 2017, amends the Federal Financial Relations Act 2009 to repeal the current National Specific Purpose Payment for housing services and replaces it with new funding arrangements under which payments to the states and territories will be contingent on their being party to primary, supplementary and designated housing agreements. On this topic, I should note that in Labor's last budget annual homelessness funding under the NPAH was $115 million. In the Abbott government's disastrous 2014-15 budget, however, $44 million a year in capital funding was cut from the NPAH. This bill, unfortunately, maintains the current levels of funding, meaning many service providers will continue to operate at less than their potential or not at all. However, opposing this bill would put in jeopardy programs that rely on the current funding provided, and that is an unacceptable risk. As a result, Labor will not oppose the passage of this bill.

This highlights the serious issues in our housing sector, which I will turn to now. There can be no doubt that there is a massively increasingly level of unaffordability in our housing market. The ratio of housing prices to average household disposable income has moved from around three in the 1990s to well over five. This shift has coincided with a very significant change to our taxation system. This increase in unaffordability of housing has been much higher in large capital cities. I regret to say that Sydney, Melbourne, Adelaide, Brisbane and Perth are now in the top 20 most unaffordable housing markets in the world, with Sydney second and Melbourne fifth. We have seen in the same period a big shift to an investor share in the housing market. In 1985, just nine per cent of home loans by total value were held by investors. It's now over 43 per cent. At the same time, we have seen a big decline in first home ownership. In the second half of the 1990s the average share of first home buyers in the share of total home buyers was 22 per cent. Now it's floating at around 14 per cent. We've seen a significant fall in those aged under 34 being able to buy a home. So we've seen declining first home ownership and younger people being shut out of the market.

At the same time, we have seen low- and middle-income earners also being shut out. Between 2002 and 2012, we saw the share of middle-income earners able to buy their homes decline by 19 per cent, and for low-income earners there has been a 15 per cent fall. This has been associated with increasing inequality in our society and the rise of insecure work, making it much harder for low- and middle-income Australians to buy their first home. At the same time we've seen a very significant fall in the share of housing loans going to new housing stock. In 1992, 18 per cent of home loans were for new housing. It is now around six per cent. This is despite a very big increase in the investor share of home loans, as I alluded to before.

So we've seen increasing housing unaffordability and young people, poor people and first home buyers being shut out of the market at the same time we've seen a very big increase in investor home loans. These trends are very worrying, and they're principally being driven by two factors. The first is the normalisation of low inflation and hence low interest rates. The second is the decision by Peter Costello and John Howard, some of the laziest economic managers we have seen in this country, to introduce a massive 50 per cent discount on capital gains tax.

The interaction of negative gearing and the 1999 capital gains tax discount has driven the rise in housing unaffordability and has shut generations out of the housing market. Before 1999, on average, rental income in this country was positive—that is, housing investors paid tax because they made a profit on their rental properties. In 1999-2000, for example, there was about $150 million of rental income that was positive and paid tax. Since that change to capital gains tax, we have seen a massive collapse in net rental income. Each year, recently, rental losses have run between $5 billion and $8 billion—that is, landlords in this country have claimed in net terms about $5 billion to $8 billion in rental losses that they then reduce their other taxable income against. Expenses claimed as a percentage of gross rental yield increased from 98 per cent in 1999 to 123 per cent. That means each landlord, on average, is claiming $5 in expenses for every $4 of gross rental income they receive, and that is a very worrying trend.

Why is this occurring? It's because of the negative gearing for taxation treatment interacting with capital gains. So what we now see is a very large number of landlords happy to lose money on their annual returns for their rental property. They are speculating that they will, in turn, get a significant capital gain that will then receive a 50 per cent discount when they sell that property. The Reserve Bank, in its testimony to a House economics committee inquiry into housing affordability a few years back, said that there is no doubt that this is a factor in the massive price explosion post 1999 and that there was a case—these were their words—'for reviewing the treatment of negative gearing and the interaction with capital gains tax'. Most experts in this sector who are not in the pay of the property sector agree with this analysis. You just have to look at the fact that rental yields, on average, are well below share yields. If a rational investor saw a gap between how much they would make with rental property and how much they would make from investing in shares, they would flow their investments to shares as the better asset class. They are not doing that, because of the capital gains tax and their long-term speculation.

Let me make it clear: there is no economic justification to privilege capital gains over other income streams. There is simply no economic justification. They are all forms of income. They should all be treated equally. It demonstrates the inbuilt class bias of the conservative parties in this parliament. This is the real class warfare, where they reward the owners of capital over workers, who receive income in general for their labour rather than as a capital gain. Who benefits from this? The discount on capital gains tax costs taxpayers $4 billion a year, and 75 per cent of this benefit goes to the top 10 per cent of income earners. Seventy-five per cent of this $4 billion a year cost goes to the top 10 per cent of income earners. Negative gearing costs $3.7 billion a year, and 50 per cent of this goes to the top 20 per cent of income earners. This is clearly unaffordable and massively inequitable.

By contrast, Labor's developed a sensible policy to tackle housing unaffordability, principally by limiting negative gearing to new housing stock. Investors should be welcome to negatively gear if it increases the housing supply by investing in new housing, and this is obviously something that's very relevant for low-income people renting and for the massive number of people who are homeless. We will reduce the capital gains tax discount to 25 per cent, which effectively deals with real capital gains rather than nominal capital gains through inflation. Importantly, we'll grandfather existing investments so that we do not change the tax treatment for people who have made decisions already. This is sensible policy directed at tackling housing unaffordability, unlike the view of the Liberal coalition government.

I would like to deal with a few myths that are being perpetrated in this debate. Firstly, there is the myth that negative gearing and the capital gains tax concession are driving new housing supply. This is patently wrong. As we've seen, new housing has fallen from 18 per cent of home loans to six per cent. Secondly, there is the myth that the experience in the mid-eighties when negative gearing was abolished somehow led to a massive rent rise. This is absolutely wrong. Treasury in their evidence to the House economics committee confirmed that there was no case for someone to make that conclusion. When negative gearing was abolished in the mid-1980s, rents went up in Sydney and Perth because of the finance and mining booms, but rents fell in Brisbane, Melbourne and Adelaide. Rental price increases roughly track the general price increase. Thirdly, there is the myth that the benefits of negative gearing disproportionately go to low-income earners. That, again, is very, very wrong. I've already outlined the distributional benefit, and the RBA testified to the economics committee that most of the people, if not all of the people, with a very low taxable income who claim negative gearing and capital gains tax discounts are actually wealthy retirees, who have most of their income exempt due to another decision from Peter Costello.

So, any debate about housing affordability in this country must be grounded in tackling those twin distortions in the tax system—the negative gearing aspect and the 50 per cent discount for capital gains tax. Both of those things have fuelled a massive speculative boom in this country that has put home ownership out of reach for most young Australians and most low- and middle-income Australians, sadly. That is one aspect of tackling the housing affordability crisis in this country.

Other key components of Labor's policy have been to facilitate a COAG process to introduce a uniform vacant property tax across all major cities. Again, a House economics committee inquiry in 2014 saw considerable evidence about foreign investors buying properties in this country as a way of offshoring their savings—putting their savings somewhere safe and secure, away from governments that, let's just say, probably have a more unconventional view about property rights. That's understandable from their point of view. Usually these properties are bought off-the-plan and are supposedly adding to new housing stock, but often they're left vacant, and that means that they're not adding to new housing stock in this country. So we've committed to a new COAG process to introduce a uniform vacant property tax across all major cities. We've committed to increasing foreign investor fees and penalties, and we will limit direct borrowing by self-managed superannuation funds. This was another aspect of the housing inquiry that was quite worrying.

We saw a very significant rise in direct borrowing by self-managed superannuation funds to make speculative investments in property. Not only is this driving a bubble that is making housing unaffordable; but it undermines, I think, the stability of our superannuation system. If there is any significant correction in our housing market—and we're seeing flat prices at the moment but we haven't seen a dramatic fall anywhere outside of a few areas of the economy dependent on resource booms—if there is a whole, widespread price correction, we could see a lot of people's self-managed superannuation funds completely wiped out. Not only would this force a very rapid downselling of these properties, which, again, would add more properties to a declining market, therefore making the cycle even more vicious and dramatic; it would also undermine the retirement incomes of hundreds of thousands of Australians. So it's a very sensible policy to limit direct borrowing by self-managed superannuation funds. These are all sensible and practical reforms that have been developed over the last few years and that will have a tangible impact on housing affordability and homelessness.

The housing sector is yet another victim of the coalition's inability to come up with a comprehensive and effective plan for the future of Australia and for the thousands of vulnerable people who are being left behind because of this government's inept approach to policy. We're not the only ones who think so. In response to the most recent budget, Homelessness Australia said that the budget fails to deliver the big picture solutions needed to end homelessness. James Toomey of Mission Australia was also disappointed by this government's inaction, claiming that rents are becoming increasingly unaffordable for older and younger Australians alike, with those on Newstart and the aged pension struggling to find a home within their electorate. In my own electorate Nova for Women and Children helped hundreds of people struggling with homelessness last year. They stated that the three main reasons people sought their assistance were domestic violence, the housing crisis and housing affordable stress. Labor has concrete policies to help tackle all three.

Homelessness and housing remains one of the great unsolved policy challenges at the federal level. It requires a cooperative policy across all three levels of government, but ultimately it requires a government committed to nation building, committed to repeating the great investment in housing stock that we have seen under successive Labor governments—the Curtin and Chifley governments most notably, but even with the Rudd government's commitment to the National Rental Affordability Scheme. We need a government committed to doing that again. Unfortunately we have a government committed to doing the opposite.