Economist Warns Housing Affordability Issues Causing Wealth Inequality
25 October 2017 at 4:10 pm
A leading economist has warned that declining home-ownership rates among younger people is a major contributor to rising inter-generational wealth inequality in Australia.
Saul Eslake, the former chief economist of ANZ, addressed the issue of housing affordability on Tuesday at this year’s Australian Council of Social Services (ACOSS) National Conference, held in Melbourne in partnership with VCOSS.
The conference brings together community leaders, policy makers, academics and people with lived experience to collectively tackle the issues driving inequality in Australia, with this year’s event focused on ‘Australia in 2030: Creating the future we want’.
“There are few more important needs that we as people have than housing. Housing, when properly done, is a source of security, shelter, a form of identity, and for some who are fortunate, a path to accumulating wealth,” Eslake said.
“When done badly, it is none of those things. It’s a source of angst, anxiety, and in some cases, a path to poverty.”
Eslake said Australia’s overall home-ownership rate at last year’s census was the lowest at any census since 1954.
“The most recent Australian census shows that the home-ownership rate in 2016, of 65.5 per cent was lower than at any time since the census of 1954.”
“About half of this decline has happened since 1991, a period during which interest rates have been roughly half of what they were in the previous two decades, and when governments have spent millions of dollars, ostensibly on schemes designed to promote greater rates of home ownership.”
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He said these figures concealed a decline in home-ownership rates among younger age groups, which was leading to rising inter-generational wealth inequality.
“The home-ownership rate has dropped 11 percentage points amongst households aged 25-34,” he said.
“Declining home-ownership rates among younger age groups, has been a major contributor to rising inter-generational inequity in the distribution of wealth.
“The median net worth of households aged 55 and over has doubled over the last 14 years.The median net worth of households aged 35 to 55, has increased by about half [of that] over that period.
“But the median net worth of households aged 25 to 35 has increased by less than 20 per cent.”
He added that potential first-time home-buyers were being “squeezed out” of the housing market by investors, which increased the demand for rental accommodation.
“You can’t say investors are having no role in declining home ownership when you consider that 25 years ago, first home buyers and investors received about 18 per cent of the lending for housing, whereas in recent years the share of housing finance going to first home buyers has fallen to 10 per cent, while the share going to investors has risen to 50 per cent,” he said.
He also said the long-standing assumption that most retirees would own their homes outright “will become increasingly invalid”, noting that social housing was catering for a diminishing proportion of senior households requiring rental accommodation.
“An acute problem, which will become more onerous if something is not done, is addressing a lack of social housing,” he said.
“The stock of social housing has been declining significantly over the last 15 to 20 years, largely as a result of the decline of funds given to it.”
Eslake outlined a number of policies to address this crisis, including curtailing negative gearing and reducing the capital gains tax discount, to reduce the competition that prospective owner face from investors. He said this would not lead to a decline in the supply of rental housing.
“The figures that are often stated, that this would cause a decline in availability of rental housing is much exaggerated. Because every investor who no longer buys a property, frees one up for someone to buy who wants to live in it,” he said.
As well as this, he called for a reform of tenancy laws, to provide greater security and protection for renters.
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“Since a larger proportion of our population will be renting over the foreseeable future, state governments need to reform tenancy laws to give tenants more security and greater capacity to make rental houses, homes they can be proud to live in and express their identities,” he said.
“Those are the sort of policy changes I’d like to see over the next 15 years, to give us a housing market that meets people’s genuine needs, rather than just providing vehicles for speculation.”
ACOSS CEO Dr Cassandra Goldie told Pro Bono News that a reform of tenancy laws was vital, and said the rental rights movement was now incredibly important in Australia.
“One of the realities with what we’ve allowed to happen with housing in Australia, where policy has overwhelmingly been driven by vested interests – in particular those involved in accumulating more wealth through property investments – is that the people living in the housing that is the subject of all this property investment have been virtually forgotten, Goldie said.
“There’s changes we’ve seen in Victoria, proposed by the Andrews government, is an excellent of example of a government that recognises the political opportunity of legislating better rights protections for people that are renting.
“Because the human impact of people being evicted from their home without any ability to have a voice in that process, has meant that most people live with constant, underlying stress that they may have to move.
“There’s no question that this is an issue in the community where there’s great potential to mobilise more around the voice of renters in Australia.”
The Australian Greens leader, Richard Di Natale, also spoke at the joint ACOSS-VCOSS conference. He told Pro Bono News about his party’s vision for housing affordability in Australia, which included leading the campaign to abolish negative gearing and the capital gains tax discount.
“We also think there are benefits from moving away from a system of stamp duty towards an ongoing system of land tax,” Di Natale said.
“In first instance that’s revenue neutral, but that would go some way to ensuring there’s more mobility in the housing market, so that people with big properties are more likely to downsize because they don’t face those big stamp duty hurdles.
“We also would argue very strongly for measures that address homelessness, greater investment in social public housing and making sure that we’ve got homelessness services that are able to meet the extraordinary demand that’s out there in the community.”
The conference discussion was underway as the federal government introduced the National Housing and Homelessness Agreement Bill 2017 into Parliament, which immediately drew criticism from the sector.
Homelessness Australia and National Shelter said the Bill failed to guarantee urgently needed additional federal resources for housing and homelessness and presented the risk of funding cuts.
‘’Despite holding most of the policy levers driving homelessness and the housing crisis – social security, rent assistance, taxation, and federal funding of social housing – the federal government is seeking new powers to cut funding if the states and territories don’t meet federal demands to reduce homelessness,” chair of Homelessness Australia, Jenny Smith said.
“This looks like a government that is looking to spend less on an urgent social problem, instead of finding a solution.”
The organisations said the Bill provided a framework to pass responsibility for increasing social housing supply to the states and territories without any additional funding.
“Without any extra resources, the federal government will hold a Sword of Damocles over the heads of the states and territories – if they don’t achieve significant increases in social housing. This law will enable the federal government to cut the current limited federal funding provided to them”, executive officer of National Shelter, Adrian Pisarski, said.
“We urgently need the federal government to step up to the plate and work with the states and territories to put the necessary investment on the table to solve the appalling lack of availability of social housing – instead they are simply throwing the plate at the states and territories and placing unnecessary pressure on the overwhelmed service system,” Pisarski said.