Petition for Genuine Housing Reform

by Karl Fitzgerald | Aug 22, 2014 | Campaigns, Commentary

A Petition by Rational Radical

Hi, my name is Matt, and I’m one of many young Australians currently locked out of home ownership by record high prices. My friends know me as very vocal and frequently angry about housing affordability issues. Well the latest development in the saga that is the Ozzie housing market truly has my blood boiling. So for once I decided to get up from my armchair rage, and do something about it. And that development is Senator Nick Xenophon’s plan to lock out even more youngsters from buying their own home. So in the spirit of grass-roots Democratic action, I’ve created a petition, which I will deliver to Nick Xenophon and as many other Australian politicians as I can.

Petition to Senator Nick Xenophon

Scrap your dangerous and self-serving plans for first home buyers to use superannuation for housing deposits and instead push for the real solutions to housing affordability.

Nick Xenophon has recently announced plans to introduce a bill that would allow first home buyers access to their superannuation savings in order to help fund a home loan deposit. His plan is based on the Canadian Home Buyer’s Plan. But Senator Xenophon has clearly failed to do his homework, because the scheme actually worsened housing affordability, with Canada now one of only two countries in the world more overvalued than Australia. In fact, the politician responsible for this Canadian policy disaster recently decried the scheme, and openly admitted that it was actually designed to stop house prices from falling.

This dangerous scheme, which has been widely condemned by media, economists and housing experts, will simply be the latest government intervention to ensure that house prices remain forever out of reach from a whole generation, and to prevent market forces from returning house prices to rational levels.
Additionally, this plan will massively endanger the retirement savings of young Australians, as proven by the 35% of Canadian participants that have not paid back their retirement funds in the allowed time-frame, and further highlighted by existing rules in Australian allowing self-managed super funds to invest in property – a practice in which some participants have lost up to 75% of their investment and have gone bankrupt.

Canadian Real House Price Index 1970 – 2014 – Home Buyer’s Plan was designed to stop price falls, and succeeded

Housing affordability is the single biggest issue facing the current generation of young Australians and has devastated their ability to establish families and secure their future. They are being held to ransom by a system that wants to maintain high prices at any cost. Like most Australian politicians, Nick Xenophon stands to benefit from the rise in prices that this policy will cause, having personal interests in 8 investment properties and associated mortgages. The motivation for this policy must therefore be openly questioned and viewed with scepticism. Politicians of all stripes have recently been shown to posses vested interests in property investments totalling about $300 million.

So is it any surprise that despite decades of attention and research on the issue, politicians have repeatedly passed policies to ensure that ever increasing values are enjoyed by existing landowners (including themselves), rather than ensuring reasonable access to all. We have been sold down the river on a boat of lifelong crippling and dangerous mortgages with promises of future price rises, price rises that even the RBA admits will be hard to come by in future, and will therefore need to be supported by devious policies such as this.

Parliamentary Property Holdings 2013 – Nick Xenophon in 8th place out of $300 million of real estate assets. Source: Australia: Boom to Bust by Lindsay David, Paul D. Egan and Philip Soos

Young Australians have endured decades of myths about the causes and solutions for high house prices, and have been lectured by countless politicians, economists, bankers, spruikers and landowners of the need to “just save more and expect less”. They believe that young Australians don’t understand basic economics and will continue to vote for policies that are against their own interests. But young people know that affordable housing is a crucial aspect of a healthy economy, and that there are many obvious solutions.

They could start with scrapping negative gearing on investment property, a policy that has added at least an estimated 9% ($44,000) to current median values, and coupled with capital gains tax concessions, has fuelled 2 decades of speculative demand for housing and cost taxpayers billions every year. We know that housing supply must be freed up, and the obstructive urban planning system reformed. We want proper oversight of foreign ownership laws and the banning of self-managed super funds from investing in housing. We want punitive and inefficient stamp duties to be replaced with a broad based land tax. The list goes on (see below). If Nick Xenophon were serious about housing affordability, he would advocate for any or all of these well researched solutions, but they would directly threaten his personal investments, so they’re not likely to be considered.

Screen Shot 2014-08-21 at 8.43.21 pm

Tax breaks for housing cost $42.4 billion in 2012. Source: Bubble Economics by Paul D. Egan and Philip Soos

How much longer will young Australians be punished for being born on the wrong side of the current 20 year housing boom? Don’t let policy makers convince you that there are no solutions, or worse, that throwing more money at young people won’t just get absorbed into prices and fuel excessive demand like all the other ‘free’ cash for housing. Instead, let’s view this is a rare opportunity for an independent senator to challenge the status quo and push for real change. It’s long overdue, it’s time now. Let’s make this petition viral and deliver it to every politician in Canberra, every newspaper in the country, and every hard-working blogger in the country that writes about these issues on a daily basis. We must send politicians like Nick Xenophon a very strong message that we are many, we are watching, we vote, and we will not be taken for fools.

It’s time that the Australian government and Australian politicians finally stood up for the mountains of evidence and research into the real causes and solutions for housing affordability in this country. It’s time that young Australians told politicians that we DO understand the real causes of sky-high house prices, and we will NOT be conned by yet another policy designed to keep prices rising forever. We must let them know that there are real solutions that get ignored time and time again, and that we suspect that the protection of personal and political interests are the only reason that they are ignored. We know that Australia’s future economic stability, prosperity and equality depends on solving the housing affordability crisis, and it’s time to listen to the evidence and for the first time in history, pass a policy that represents the interests of the 4.5 million voters that don’t own a home.

Sign the petition

Thank you, a generation of excluded Australians will be grateful for your support.

Further information:

A long history of policy ‘failures’ designed to prop up house prices

Negative gearing of investment properties
Capital gains tax concessions and exemptions for residential real estate
Numerous first home buyer grants and concessions
Aged Pension means test exemptions for primary place of residence
Relaxation of rules for foreign investment in real estate
Allowing self-managed super funds to borrow money to invest in real estate
Strict urban containment policies coupled with ‘neighbourhood character’ low density standards
Intentionally obstructive planning approval processes
Upfront infrastructure charges on new housing
Failure to adequately tax land bankers and land speculators
Systemic enabling of political donations from property developers and land bankers
Long term relaxation of lending standards and prudent financial regulation

Nearly all of these policies or regulatory settings have been sold as innovative ways to improve affordability, but as a direct consequence, we now have the third most expensive housing in the world, close to the lowest proportion of first home buyer lending in history (9%) and the highest proportion of investor lending (45%). Are we foolish enough to believe that these policies have helped first home buyers, or do we acknowledge that they were actually designed to maintain high prices? Are we going to stand by and let another policy con-job be added to this shameful list? Or are we going to finally force parliamentarians to face facts and provide some real solutions?

The real evidence-based solutions

Scrap all remaining first home buyer grants and stamp duty concessions. Artificially giving buyers access to larger deposits – and by extension larger loans – has long been proven to simply add to the price of housing by at least as much as the additional funds. The long running First Home Buyer’s Grant has been referred to as the “First Home Vendor’s Boost” because it was simply built into sale prices and then some, as buyer’s borrowing capacity was increased by orders of magnitude above the grant amount.
Phase out negative gearing on investment properties, which currently add at least an estimated 9% premium to prices, and has helped to create an entrenched culture of real estate speculation.
Phase out the capital gains tax exemptions and concessions on residential real estate, which make negative gearing an attractive investment strategy.
Restore rules disallowing self managed super funds from borrowing to invest in real estate, which has added to investor demand and destroyed savings in the process.
Restore stricter rules and oversight on foreign investment in real estate, which account for an estimated 20% of current property transactions.
Introduce a maximum asset value threshold for the home exemption from the pension assets test, which currently discourages down-sizing and efficient use of housing stock.
Root and branch reform of the urban planning system to free up the supply of new housing and enable increased development of appropriate, responsible and sustainable medium density housing in existing urban areas.
Replace volatile and distortionary stamp duties with a broad based land tax (as is already happening in the ACT), to improve the efficiency and fairness of the housing market, discourage speculation and land banking, and help to fund much needed infrastructure.
Implement macro-prudential controls to curb speculative investment and enforce higher lending standards.
Review of current capital reserve conditions and other financial regulations that govern the levels of risk in our banking system, which are currently extremely high according to some ratings agencies and independent bodies such as the IMF; mostly thanks to runaway mortgage lending in the order of 60% of our major banks’ assets.

This is not even an exhaustive list, but these well-researched and ideas have long been advocated by countless independent economists, analysts, commentators and housing experts, but are never mentioned openly by politicians in power, because they would actually address the problem of housing affordability, the very opposite of the intention of policies like that proposed by Nick Xenophon. Truly affordable housing would rejuvenate long-term economic activity and prosperity, and would also go a very long way towards addressing inequality. Perhaps more importantly, these policies would help to reduce the very real risks to economic and financial stability that overvalued housing presents, risks whose consequences could be devastating for all Australians, including landowners, if (when) we finally go down the path of other notable historic housing market corrections.

References

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13 Comments

Matt Ellis on August 22, 2014 at 9:50 am

Thanks a lot for your support team! I’ve followed your work for many years, and wouldn’t have arrived at these sort of conclusions without the excellent research and analysis of experts and organisations such as Prosper Australia. Keep fighting the good fight!
Karl Fitzgerald on August 22, 2014 at 10:53 am

and respect to your campaigning nouse. An economic democracy is the necessary evolution.
Jessica Savage on August 22, 2014 at 12:08 pm

Very well written and researched, hats off to you.
Link to petition – just in case someone missed it (i did)

http://www.change.org/en-GB/petitions/1901610
betts on August 28, 2014 at 3:53 pm

Taking on Australia’s biggest business to change its laws to make 80% of its voters suddenly 20-30% poorer.

Good luck! I signed. I’m another Gen Y debt slavery chump. Thinking about simply moving overseas to a country that rewards someone who works.
Karl Fitzgerald on August 28, 2014 at 4:51 pm

Chin up Betts, its a gigantuan challenge but theres over 4.5m renters versus 2.1m investors! We need that 100th monkey to throw off the disempowerment. 66% of households are landowners. Surely 17% of them are straining under high mortgages or are frustrated at 30 year old kids living at home? The demographics are changing. Common Sense is on our side and so are you! Thanks for your support. Take out a Trial Subscription to our 110 year old Progress Magazine, join our enews and come and unfurl your frustrations at one of our many events ;)
Simon on August 28, 2014 at 9:03 pm

Karl,
You have done an amazing job here.
I could not agree with you more.
Im a dad of 3 beautiful young bubbies, single income earner, and woukd live to be able to afford a mortgage for my family. All I want is the chance for my wife and I to pay off a house. But Australia has chosen to turn its back on their youth. It advertises to them what they think by artificially incentivizing them to tread into an overpriced property market, which in turn just drives prices up even further by whatever grant is on offer. There is absolutely NOTHING being done about housing affordability in Australia. Most of the powers that be are BABY BOOMERS, who have had opportunities that young people these days just dont have eg.where house to income ratios were not the today absurdity of over 7-8 to 1. I could go on and on, but as an advocate for my little people and my beautiful family, and the youth of today, I am so sick and tired of this ponzi scheme that is being perpetuated currently and only gaining momentum instead of abating. THE SOONER OUR PROPERTY BOOM BUSTS, THE BETTER OFF OUR YOUTH WILL BE. Good luck to you Karl and all our people who only want a chance……..not even to speculate for gods sake, just a chance like our privileged predecessors had.
Simon
Karl Fitzgerald on August 29, 2014 at 2:24 pm

thxs Simon, but all the credit should go to Matt Ellis who made the petition. We fully agree with your sentiment, one of the reasons we launched the Dont Buy Now campaign in early 2011. These issues are covered in our weekly radio show/ podcast, the Renegade Economists. Check these 3 terms to make property speculators stammer. The people are awakening.
Adrian Burchall on September 7, 2014 at 1:53 am

I’ve been waiting for a housing price correction since 2003 as I believed even then that housing was overvalued. Since then real prices have doubled. Sorry Matt but the politicians don’t care about you – they operate under a political calculus that 2 million lost votes from the disenfranchised young is far outweighed by the number of owner occupiers and investors. Owner occupiers and investors also know that all three levels of government will always look after them – government is always aware that if they preside over a 30% price correction they will be out of office for a generation (three terms at least). Owners and investors know that the government realises this and so can be assured of ever rising values. Don’t forget that the Federal Government has loads of ammunition remaining in the locker to keep the price rises going. It has a headroom of 4% on interest rates (yes I do believe the Reserve Bank of Australia would ultimately do what the Federal Government tells it, and they think the same way anyway), the ability to further restrict new house building and increased immigration. And don’t forget China – the Chinese are recycling a lot of their savings and windfalls from corruption in to foreign real-estate. All three levels of government just love this, as well as the banks and real-estate industry.
In short, prices are going to keep rising or at the very minimum stay high. We are in a very different when from when I was young. As for myself, I’ve completely given up the idea of home ownership and instead put my savings into superannuation. It saddens me that I will not be able to afford a house to retire into in Australia – but I’m lucky in that I also have a European Union passport and will be able to buy a retirement home in Spain or Portugal and have enough left over to live on. An option for you is to go to live in America or Europe and get citizenship there and buy where prices are less elevated – because things are not going to change here sadly.
Matt Ellis on September 9, 2014 at 2:55 pm

Hi Adrian,

While I pretty much share your pessimism about the government’s desire and ability to change things as they are now, it doesn’t preclude a moral duty to fight against injustice and to campaign against policy ideas that may well make things worse. Imagine what governments could get away with if everyone genuinely gave up on the progressive agenda. History moves in waves, and proves that drip by drip the water-wheel is turned, slow moving “progressive” reform is a permanent feature of human history.

Specifically, you refer to 2 million lost votes from negative gearers – well there’s 4.5 million renters out here, and I therefore believe that an independent Senator such as Nick Xenophon actually has every reason to pursue some genuine reforms given such an untapped political opportunity. He may have investment properties, but he has been (belatedly) upfront about that, and (hopefully) has none of the political donor obligations of the major parties. I believe that he spies a genuine chance to wrong-foot the major parties, so I believe that it’s very valuable to speak to him about what reforms to pursue and which ones to NOT pursue!

Also, the long and indisputable history of economic/land/credit bubbles prove that no matter how much a government may “just love” prices to keep rising forever, the economic reality never accommodates their wishes in the long term. I’m fairly sure that the governments and central banks of the US, Spain, Greece, Ireland etc., were also pretty happy for prices to rise forever, and indeed had very similar public and regulatory attitudes of “it’s different here, we have good quality credit and a housing shortage blah blah…”. Needless to say, they didn’t rise forever.

The devastating risk however, is that such eventual capitulation will wreak financial and economic havoc just as it did elsewhere in the world and in Australia’s previous bubbles. Largely thanks to the once in a century mining boom, coupled with regulatory and policy “innovations”, we escaped the GFC with only a brief downturn in housing, but rather than use that unique opportunity to address the imbalances in our economy, we doubled down on the bet that prices would rise forever and keep spurring our “miracle” economy onward and upward. We have further enlarged the already massive risks in our 20+ year land bubble, and at the same time are heading into a huge downturn in commodity prices, mining investment and manufacturing, a steady increase in unemployment, record high private debt levels and government austerity, and with a financial system that looks shakier by the day.

So while we cannot avoid an inevitable return to rational prices for land, the imperative is to push hard for the necessary reforms to attempt to mitigate the damage already done, (at the very least to not make it worse), and more importantly, to establish the reforms that will prevent the same thing from happening again in future. It often takes a crisis to bring about change, so lets get on board this pending (existing) crisis and talk about the changes that we want to see.

Leaders of all stripes and levels of responsibility rely on the commonly held belief that change is too difficult. They want us to throw our hands up in despair because it makes their job easier. Do we want to make their job easier, or do we want them to address the difficult questions? We’re asking Nick Xenophon to raise these difficult questions, because he’s already put his hand up. The early signs are that he might be listening to a lot of voices telling him this is a bad idea. I therefore encourage you to sign the petition, and tell ten friends about it, and ask them to each tell ten of their friends. Drips can quickly become torrents that way.
Endless pumping of the bubble on September 16, 2014 at 5:09 pm

Well today September 16 , Kelly Dwyer who was supposed to be investigating the effect of 10% of buyers being proxy/temporary foreign residents, lifting the market 100 to 200k by their efforts, mentioned instead she was sympathetic ! to using super for homes.

Essentially a tax break (mainly for upper income earners) to add to house prices.

How many ways can the govt pump the market – last year
added SMSFs, Foreign buyers, now lets add super.

The govt aim is to pump the price, – perhaps it only ever talks to happy boomers.
Karl Fitzgerald on September 18, 2014 at 10:25 am

thankyou Malcolm, that is vital intel. Where did you read, hear that?
kris on March 3, 2016 at 5:23 pm

youth party of Australia should be created to convey the message properly to the current and opposition government

1. NO FDI in housing sector by foreign residents.
2. stop negative gearing tax benefit.
Karl Fitzgerald on March 4, 2016 at 9:15 am

We could go even further, which the petition hints at, and Land Tax away the capital gains. That would deter both the FDI and negative gearers by taxing away the source – easy, barely taxed unearned incomes.