The day after the 2008 Federal Budget, Gavin Putland (our Research Officer) sent three letters to newspapers.
This one was sent to THE AGE, which exercised its editorial discretion not to publish:
Cop-out On Inflation And Rents
If a Budget is to be anti-inflationary, it must stimulate supply more than demand. Most importantly, it must stimulate supply of accommodation, not only because residential rents feed into the CPI, but also because goods or services cannot be supplied unless (a) enterprises can afford commercial accommodation, and (b) employees can afford housing within commuting distance of the enterprises, on wages that the enterprises can afford to pay.
To boost the supply of accommodation, the Budget could have made the First Home Owners’ Grant available only for new construction, or confined negative gearing to new construction, or made the discounting of property investors’ capital gains contingent on new construction, or at least on offering the properties for rent. None of these things happened.
Meanwhile the Government proposes to increase the intake of immigrants, ostensibly in order to boost the supply of labour. Never mind that immigrants also demand goods and services and, most importantly, housing!
These observations show that the top priority of this “Labor” budget was not to contain inflation — let alone rents — but to maintain a desperate shortage of housing in order to drive up rents and prices for the benefit of incumbent property owners.
The next one was sent to the AUSTRALIAN, which was similarly discreet:
Budget Hypocrisy On Housing
Federal Budget measures ostensibly aimed at streamlining the approval of housing developments (a State responsibility!) will not induce developers to proceed with approved developments or to offer developed lots for sale, instead of hoarding lots in anticipation of higher prices. Neither will they induce property speculators to build housing on vacant lots or to seek tenants for neglected or boarded-up dwellings (which do not appear in official vacancy rates because they are not available “to let”).
If the Government had really wanted to boost the supply of housing and improve affordability, it could have overhauled income tax so that every investment property is deemed to be earning an annual income of (say) 3.5% of the assessed site value (excluding buildings), instead of whatever rent is actually paid. This measure would require property investors to derive income from their properties in order to pay the tax, but would not tax the actual income, while the exclusion of buildings from the tax base would avoid penalizing construction. So land approved for development would indeed be developed, and vacant lots would be built upon, and empty buildings would be offered to tenants or buyers.
That the Budget contained no such provision shows that the Government, contrary to its rhetoric, wants to maintain a shortage of housing and thereby drive up rents and prices for the benefit of incumbent owners.
But the HERALD SUN, to its credit, published the following on Saturday, May 17:
Problems with Rent Scheme
THE Government’s National Rental Affordability Scheme will pay landlords to offer housing for less than market rents. There are two problems with that.
First, the volume of housing that can be offered is limited by what the Government is willing to spend. Second, sub-market rents mean waiting lists — in other words, unmet demand.
In short, the scheme represents a decision not to solve the problem!
The real solution involves stimulating the construction of housing, especially at the bottom end of the market, so that market rents become affordable.
But that’s unacceptable to current property investors who want the supply of housing to be as tight as possible to maximise rents and prices.
Well, at least we know who’s calling the shots.