The Verve of Vested Interests
The Property Council of Australia’s shameless threat to both sides of politics to look the other way on negative gearing reform is a slap in the face to the democratic process. Is this the stick accompanying the $2.4m in carrots donated to both sides of politics? For the PCA to issue this threat in the same week as the revelation of such donations reminds one of ‘taxation without representation’.
Negative gearing is a damaging subsidy from the public purse to property investors. The incentive was created to increase the supply of housing. Instead, the number of property investors have swarmed to crowd out both supply and homebuyers. Foreign investors have jumped on the bandwagon. Negative gearing has cost over $50 billion in the last 22 years, whilst national land prices have increased by more than $4 trillion dollars. It is well known that over 90% of negatively geared property goes towards buying existing property in prime locations, adding little to supply. The most recent capital gains tax expenditures for housing amounted to $54.5 billion. Meanwhile the government wrestles with increasing the regressive GST to raise a mere $14bn a year.
Successive Victorian governments have delivered the nation’s most aggressive land supply pipeline for the development industry. Each re-zoning delivers millions in windfalls at the stroke of a bureaucratic pen tick. Red tape has been cut around the country to deliver supply. As clearance rates drop in some cities, we sit with baited breath to see if a reasonable return on public policy will be met in terms of affordability. Demographia’s recent finding that it takes a record 10 average incomes to pay for a home in Melbourne demands that house and land prices be allowed to fall.
Marginal seat threats are now a textbook response from lobby groups to intimidate government policy. Politicians in the past would shout down such bias, but now political parties rely on donations to pay for campaign advertising on what was once known as the ‘public airwaves’, the verve of vested interests has grown. Recently anointed with an Australia Day honours award, Mitch Hooke led the Minerals Council of Australia in an elaborately funded campaign to destroy the mining tax in 2010. They spent $22m on the campaign, threatening to roll out high profile candidates in all marginal seats. Soon after the Hotel lobby engaged in similar tactics with regards to pokie licensing reform. Victorian taxi license owners were not powerful enough to defeat the rent-seeking reforms implemented by the Napthine government, but have now convinced the Andrews government instead.
The commodification of real estate is reaching new heights and if the PCA is to have their way, only set to increase. A 334% increase in global foreign investment occurred in just the last 6 years reports Savills. Global real estate assets were quantified at $217 trillion, almost a third greater than the combined value of all equities and securitised debt instruments. Because of this size, property advocates are already demanding tax cuts to support their industry. This despite most of this value being attributed to locational land value and not productive, risk taking effort.
Whilst some 400,000 negative gearers in marginal seats have been used as a warning to politicians, those 1.73 million first home buyers who have purchased property since 2000 must be considered. And what about the growing number of lifetime renters? Will those who have grown under the weight of immense mortgage debt (Australia now has the largest mortgage debt per GDP in the world) see the sensibility in taking out larger and larger mortgages for the rest of their lives? Those FHB’s who bought in 1991 had an average $65,000 loan. Those who bought in 2000 had an average mortgage of $135,000. Today that is $335,000. What will it be in 2030?
Prime Minister Turnbull must stare down vested interests for the greater good. But will he when 94% of current MPs are property investors? We all need to find our voice to avert future generations from enduring what appears likely – multi-generational mortgages. Just who are rising property prices good for?