On the present trajectory of political fiddling about housing affordability, the odds are reasonable that Scott Morrison's second budget will include National Housing Lotto. Registering to bid at any auction will incur a $10 charge that buys a ticket in the Saturday night draw of a home in whatever market is looking soft.
Sure, you might have been after a Newtown garage or Fitzroy graffiti opportunity, but a Brisbane CBD unit or Karratha donga would keep the rain off your head just as effectively. And the infrastructure for running NHL already exists via the various charities offering prize homes on the Gold and Sunshine coasts. Housing affordability solved.
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Can Scott Morrison really tackle housing affordability, rental stress and homelessness in his second budget? Michael Pascoe comments.
It's not much worse an idea than some that have been suggested and apparently are about to be tried. In a way, it already happens – how many lottery tickets are bought by would-be home owners, spending a few dollars to dream the dream home dream?
And there is a tenuous precedent in the Starr-Bowkett societies way back in the day when banks were tough and mortgage finance scarce. They were mutual societies with a membership subscription that built up to become interest-free loans, the order of allocation decided by lottery. It was a different time.
Getting finance isn't such a problem now. Rather, the easy availability of finance, the escalation of borrowing power, has become part of the housing affordability problem. As previously reported, increased borrowing power is a key price driver when supply is constrained or slow to respond.
But there are numerous factors at play in housing affordability and no easy solutions, especially when petty party politics rule out touching some key elements of the problem – negative gearing and its interaction with the capital gains tax discount.
So with two months to go till the Federal Budget, there's plenty of time to place your bets on what might be in Treasurer Morrison's foreshadowed housing package.
Poor old ScoMo carried a terrible burden into his first Budget: a looming federal election. And now he has fashioned a rod for his own back by promising this one will address not just housing affordability, but also rental stress and homelessness. I don't know why he didn't throw in "no child living in poverty" and go for the full quadrella.
![In a way, the National Housing Lotto already happens – how many lottery tickets are bought by would-be home owners, ...](/web/20170310141120im_/http://www.smh.com.au/content/dam/images/g/t/m/s/z/b/image.related.articleLeadwide.620x349.gutis6.png/1488977413137.jpg)
Landing any leg of that housing trifecta would be a massive achievement, but all three would be beyond loaves and fishes.
Morrison announced his junket, er, trip to the UK was about studying London's solutions to the housing affordability problem. That is a little confusing as London has not solved said problem. The Economist magazine regularly lays the blame at the feet of NIMBYs opposed to new London housing, but Morrison's hints seem to point towards offering improved financing for social housing providers.
More social housing could help a bit with rental stress and homelessness. It also fits philosophically with the government's preference for non-government providers. For all that housing at the roughest end of the pineapple has been an increasing problem, government housing's share of accommodation is at an all-time low.
As the Reserve Bank submission to a House of Representatives inquiry in 2015 showed, government is decreasingly interested in being a landlord.
There's also the stock mantra of housing affordability being purely about supply, so I suspect ScoMo will reiterate the usual talk of encouraging states to rezone land and make life easier for developers. Take that up with local councils. Good luck.
.And to keep One Nation happy, a promise to somehow further tighten Foreign Investment Review Board rules could get a look in. But that's about it.
It's to be hoped that Morrison will be persuaded that further fuelling demand by increasing borrowing power would be counterproductive. While he made a positive noise about Victoria trying state co-ownership, saying it was "very interesting", his spokesman was quick to hose such enthusiasm down. And there was an expressed preference for the private sector trying it.
The private sector has tried it. You might have noticed how it hasn't taken off.
The Treasurer was quicker to observe that Victoria's stamp duty cut would increase prices.
It was framed quite succinctly in the Twitterverse - it's crazy for a state to be offering tax breaks for one group of buyers to help them compete with the federal tax breaks for the other group.
@1petermartin @TheKouk Crazy to offer State tax breaks for one group to help them compete with Federal tax breaks for the other group...
— Andrew Plumley (@ajplumley) March 6, 2017
The Victorian initiatives to effectively increase borrowing power are a bit like the Paradox of Thrift – it might be good for one individual but it becomes a problem if done en masse.
The one part of the Victorian package that could prove positive overall is the idea of a vacancy tax. An extra tax on the properties purchased purely for capital gains and left sitting empty would encourage their letting, increasing rental supply and thereby further cooling rents, taking some pressure off the overall housing system.
But ScoMo will be left trying to build a housing policy while only looking at the supply elevation – the demand side covered by negative gearing and CGT politics.
He won't sleep any easier if he digs out a 2004 Productivity Commission report on an earlier dose of housing affordability concern:
"The dominant source of the widespread escalation in prices has been a general surge in demand – above the normal increases associated with population and income growth – to which supply was inherently incapable of responding, at least in a way that could moderate the pressure on prices in the short term. There are several elements to the explanation … Cheaper and more accessible housing finance is a central part of the story. With inflation under control, interest rates fell through much of the 1990s and, in recent years, have been about half their levels of a decade earlier.
"For owner occupiers, a halving of the interest rate almost doubles the mortgage potentially obtainable, as well as nearly doubling the price of a home that can be 'afforded' for a given budget or income.
"In most markets, such an increase in demand would have had an initial impact on prices, but this would soon have induced extra supply, moderating price outcomes over time. So why hasn't this happened in the housing market?Â
"The short answer is that, apart from any regulatory hindrances, the supply of housing is inherently constrained from responding quickly to sudden demand pressures. Even in a best-practice supply chain, it can take several years to bring new land on-stream, to provide the associated infrastructure and to construct new dwellings. But even if this were not so, there would have been major price pressures in the recent cycle, because much of the surge in demand came from people seeking to upgrade their dwellings (mainly in established areas) in response to increased purchasing power.
"Even if only a small proportion of households attempt to buy a higher quality or better located home, the price of all housing is soon bid up."Â Â
And that's just the impact of owner-occupier upgraders without getting into the tax distortions that encourage investors – receiving tax deductions at their top marginal rate but paying tax on their profits at half price.
Oh well, let's have another look at that National Housing Lotto.Â
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