Senator FERGUSON (4:01 PM) —I listened carefully to what Senator Bartlett had to say in relation to what he perceives to be the crisis in housing affordability. If you were to listen carefully to what Senator Bartlett said, you could come away with the impression that every house that was bought on the open market was bought by an investor who wanted to make money. In fact we all know, of course, that a vast majority of the houses that are bought in the Australian market are bought by home owners who live in those homes. Senator Bartlett talks about home ownership getting out of the reach of ordinary Australians. In fact, if you look back through Australian history, home ownership has always been out of the reach of some Australians, which is something that we need to remember. We also need to remember that in Australia home ownership is at a far greater level than it is in many other countries in the world. In many countries of the world, people do not even have the dream of owning their own home or living in the sort of comfort that many Australians live in.

The question we really need to ask is: why are these house prices at the level they are, particularly those paid by people who are buying houses to live in themselves? The reason they are at that level is that there are two or more people who are prepared to pay that sort of money for a house to live in themselves. That is why home prices are at the level they are at present. It is not because they are artificially put there but because there is more than one person who wants to pay almost that amount of money for the house that they are looking to buy. If you want to take that out of the system, then you want to go to the old Eastern bloc countries where housing was always provided by the government and you waited your turn and it did not matter whether you could afford anything or not.

Senator Bartlett raises the issue of negative gearing. Negative gearing is always the old chestnut. Whenever house prices go up, it is said to be these terrible investors who are negatively gearing their purchases who are forcing up the prices of properties and, because of the taxation arrangements that are in place, getting an enormous return over those people who would choose to buy their own home and live in it themselves. If we want to talk about doing away with negative gearing as we know it in the housing market, we need only look back to the one time in recent history when negative gearing was abolished. It was abolished in the June quarter of 1985 by the Hawke Labor government and reinstated in the June quarter of 1987—a two-year period when there was no negative gearing. And what happened in that period when negative gearing was abolished? Rents increased by 37 per cent across Australia during that period. For example, the average rent for a three-bedroom house in Sydney rose from $160 a week in June 1985 to $252 a week in June 1987—a 57½ per cent increase in the two years that negative gearing was abolished, which decreased the number of rental homes that were available and so pushed the price up.

Is this what Senator Bartlett wants? Does he want us to do away with the taxation treatment of negative gearing so that rents can be pushed up and put out of the range of those Australians he talks about who find home ownership unaffordable and so that rental properties become so expensive that it makes it more difficult for them to even rent a home on the weekly budget that they live on? Would it be fair to restrict deductions for interest paid on rental property loans while we allow for deductions for interest on loans for other purposes such as, currently, people who take out loans to purchase shares or other investments? Are we going to particularly single out the housing industry as the one area where we are not going to allow negative gearing to exist? In spite of Senator Bartlett talking about quarantining it against future capital losses, it is what happens at that time that impacts directly on housing, not what may happen at any time in the future.

Negative gearing does not arise from any specific provisions in the taxation legislation. Rather, where interest is paid on money borrowed for acquiring a rental property, a deduction is allowable under the general deduction provisions. It is not a specific provision just for housing. It flows from the general principle that tax deductability is allowed for and generally limited to expenses incurred in earning an assessable income. So it is not a special provision but a general provision in the taxation agreement.

When one talks about home ownership and the fact that houses are much more expensive today than they have been, one ought to have a look at some of the underlying reasons. We have the lowest interest rates in 30 years and we have a strong economy. The household mortgage rates of 6.8 per cent are the lowest for 30 years, so it is no wonder that people are encouraged to buy their own homes. We need to remind this chamber constantly that under Labor these rates peaked at 17 per cent. Houses were unaffordable when interest rates on a new home were 17 per cent. Australians are now saving over $7,000 a year in interest payments on an average new home loan of $190,000 compared to what they would have been paying under those interest rates.

This government's aim to provide Australia with a stable and a strong economy has forced house prices up because all the strengths of the Australian economy have enabled people to put more of their income into investing in homes. We need to remember that, since 1996, this government has created over 1.2 million new jobs, which have enabled more people to purchase new homes. With new buyers in the marketplace, it is no wonder under our free market system that the price of housing has increased.

Let us not hear about the issue of housing affordability being the fault of the federal government and that they are the only ones who should fix it. How about the states playing their role? How about requesting the states to look at what they collect in revenue and stamp duty? As well as looking at the price of housing going up, we should look at the effect that stamp duty has had on being able to save a deposit for a home and being able to afford to buy it. Just to give you an example, when Premier Carr was elected in New South Wales the stamp duty payable on an average priced home was $5,420. What is being paid today for an average home bought in New South Wales? The average stamp duty paid on a median house price in Sydney today is $16,415. It is not just the federal government that have impacted on housing affordability. How about a call to the states to reduce the amount of stamp duty that they collect, which has been a windfall for the states in the income that they get in their budgets.

In Victoria, when Premier Bracks was elected in September 1999, just four years ago, the average stamp duty collected on a median house was $3,780. Today it has more than doubled. The stamp duty collected on a median house in Melbourne today is $17,200. So, when you talk about a crisis in home affordability, do not just accuse the federal government of the things that it has done in relation to housing affordability. How about getting the states to become more responsible by making sure they give some concessions on stamp duty to try to ease the pressure that is on new home buyers?

In his urgency motion, Senator Bartlett talked about the crisis in housing affordability. We need to remind him that, as a result of work done since the September quarter, as he would know, there has been a sudden drop in the last month in the prices of units and houses. It has slowed considerably for the December quarter in Sydney and Melbourne. We can expect that trend to continue. The cycle that we have had of house prices rising and then falling is likely to be just one of the normal cycles that has occurred throughout the history of our nation. The crisis that Senator Bartlett talks about is already starting to abate.