The Treasurer who told us to simply change jobs to afford skyrocketing Sydney has revealed his real motivations for ignoring the land bubble.
He dropped the bombshell on 3AW with Neil Mitchell:
“Yeah, well I come from a family of real estate agents…”
The locked out generations can now understand why Hockey has fallen so easily into line with the housing lobby. The real estate industry do all they can to keep the bubble going, and now they have their man in the driver’s seat.
That Hockey is from a real estate family also informs as to why he has been steadfast in shying away from negative gearing reform. The Treasurer even goes as far as to push the misinformation that removing negative gearing will lead to higher rents. Saul Eslake gave the masterclass as to why this was incorrect at the 122nd Annual Henry George Commemorative dinner presentation.
Supporters of ‘negative gearing’ argue that its abolition would lead to a ‘landlord’s strike’, driving up rents and exacerbating the existing shortage of affordable rental housing. They repeatedly point to what they allege happened when the Hawke Government abolished negative gearing (only for property investment) in 1986 – that it ‘led’ (so they say) to a surge in rents, which prompted the reintroduction of ‘negative gearing’ in 1988.
This assertion is actually not true. If the abolition of ‘negative gearing’ had led to a ‘landlord’s strike’, as proponents of ‘negative gearing’ repeatedly assert, then rents should have risen everywhere (since ‘negative gearing’ had been available everywhere). In fact, rents (as measured in the consumer price index) only rose rapidly (at double-digit rates) in Sydney and Perth – and that was because in those two cities, rental vacancy rates were unusually low (in Sydney’s case, barely above 1%) before negative gearing was abolished. In other State capitals (where vacancy rates were higher), growth in rentals was either unchanged or, in Melbourne, actually slowed (see Chart 7).
For over 20 years the HIA have advocated for First Home Buyer access to superannuation. Hockey pushed the destructive concept after another Canberra insider with extensive property holdings, Nick Xenophon, had floated the access to enable deposits. Like the First Home Buyers Grant, if all FHB’s have access to more money, it becomes a seller’s subsidy.
Lost amongst the debate of the growth in housing prices is the need for a clearer distinction in qualitative demand. The fourth wealthiest Australian, apartment king Harry Triguboff entered the debate with this exercise in economic theory:
The chief economist at NAB, Alan Oster also recently said ‘There is no bubble because there is genuine demand.’
A clear distinction must be made between speculative demand and housing demand. With investors continuing to grow and home buyers falling further and further behind, genuine demand should see owner occupiers dominating. Peter Martin informs us:
As recently as the early 1990s owner-occupiers accounted for 84 per cent of new home lending, leaving investors with less than 15 per cent.
When the Howard government halved the headline rate of capital gains tax in the late 1990s, investors accounted for 33 per cent of the money borrowed.
But for Hockey, supply and demand are simple concepts.
“I know, it’s a difficult concept for some to get their heads around, supply and demand, but it’s not that complicated. If you increase supply to meet the demand, then obviously you won’t get the growth in property prices that you may have thought if you have less supply.”
Supply matters little when investors easily crowd out First Home Buyers, with an armoury of 23 advantages set to keep them ahead of the game.
Instead of addressing this overwhelming investment pressure, Hockey has zeroed in on the populist sideshow of foreign investment. Last night our Speculative Vacancies report was referenced on the 730 Report (at the 7.30 minute mark).
Foreign investors are the tip of the iceberg when it comes to speculative demand. Hockey must read the Speculative Vacancies conclusion and push the nation towards genuine economic reform. Elsewise he may well be looking for a new job soon!