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Insight

Thursday 31 July 2003

Housing Debate

Buying a house in Australia is becoming increasingly difficult. Housing affordability - the cost of buying a home compared with o ur ability to pay - is at its lowest level in 13 years. Perhaps most worrying is that some pundits believe house prices will keep increasing faster than wages. It's potentially a hot political issue as the boom spreads into regions and suburbs surrounding our biggest cities. Joining Jenny Brockie to talk about it tonight - Shadow Treasurer Mark Latham and Robert Mellor, director of building services for the global research and forecasting company BIS-Shrapnel.

JENNY BROCKIE: Gentlemen, thanks very much for your time. Robert Mellor, you're arguing that this housing boom isn't going to go away. What do you think will happen to the cost of housing across Australia in the medium to longer term?

ROBERT MELLOR, BIS SHRAPNEL: Well, I still think over the next few years in an environment of very strong economic growth, very strong population growth, that we're still going to see quite strong house price growth.  

Maybe not up around 20% per annum we've seen over recent years but we still could be seeing 10% per annum plus, particularly in cities like Sydney and Brisbane, and that's going to be driven by that continued high population growth and in the case of city of Sydney in particular land shortages.

JENNY BROCKIE: So you see land shortage as the major pressure on housing or do you think this population growth issue is equally important?

ROBERT MELLOR: Well, I think the critical thing is we are seeing much higher population growth coming in from overseas than what we were, say, three or four years ago.  

 

At the moment we believe the latest estimates from the Bureau of Stats are showing that overseas migration into Australia is running at about 140,000 per annum. That compares to around about 100,000 per annum for the latter part of the 1990s.  

 

So that's a critical driver. Not all of those people are out into the housing market as owner-occupiers but certainly it's adding to demand particularly from a lot of students studying here in Australia from overseas and that's adding to rental demand in many markets. So, you know, whichever way you look at it, stronger population growth ultimately flows through for demand to housing whether we're talking owner-occupiers or renters.

JENNY BROCKIE: Mark Latham, what's Labor going to do about that?  

 

Population pressure, immigration as part of the issue here, what are your plans?

MARK LATHAM, SHADOW TREASURER: Well, we've really got a housing affordability crisis in Australia. So I think you need to do many things in response.  

 

In Sydney, which is the toughest housing market, I think policies to redirect migration growth to other regions would be helpful. I think policies where the Federal Government could be releasing more of its own land, more effectively, we don't want to add to urban sprawl but I think there is a land supply issue in Sydney.  

 

But most importantly at a federal level I think we need some new assistance programs to help people get into first home ownership. In Sydney at the moment, someone on a nurse's wage can't buy a 3-bedroom home in any part of the metropolitan area.  

 

So when you get the people who service our communities, the nurses, the child-care workers, the policemen and the firemen can't actually live in the community, it's much more than a problem for them - it's a problem for all of us.  

 

So if we can provide some targeted measures to help those people get into first home ownership - and I think to also recognise that in this country we need to build a culture of savings where people put money aside for their children, put money aside for a home deposit, we need some Federal Government incentives to help people save for housing.  

 

Let's face it - there's no magic wand, there's no overnight solution. We need some long-term, structured savings programs where people can get into these tough markets.

JENNY BROCKIE: Let's talk specifics. What would Labor do?

MARK LATHAM: Well, we're about to release research papers for policies called nest egg accounts and match savings accounts and the whole philosophy really is to provide government incentives for families who save, who put some money aside over time to accumulate a home deposit, to build up a savings record to make themselves creditworthy so they can get a mortgage.

JENNY BROCKIE: So matching dollar for dollar?

MARK LATHAM: Well, they are heavy incentives, heavy incentives by the Federal Government to recognise that people who want to help themselves want to get into first home ownership, they need a bit of help from the Federal Government.

JENNY BROCKIE: So, is it help in terms of dollar for dollar matching? Is that what you're talking about?

MARK LATHAM: Well, the match savings accounts, absolutely, and the nest egg accounts - that that's a program where families who want to save for their children would receive some incentives and Federal Government assistance to try and build up some money over a lengthy period of time so their children can start out with a nest egg of resources, put that into home ownership and realise the great Australian dream.

JENNY BROCKIE: So are you talking about welfare here, people on welfare, or are you talking about working families as well?

MARK LATHAM: Well, I'm talking about a program where it's something for something. I hear a lot of families in my own electorate say, "Look we want to save, we want to put money aside for the kids, we want to build up a home deposit but we get no incentives, no encouragement, no help out of Canberra." We want to help the families that are trying to help themselves.

JENNY BROCKIE: So working families, you're proposing, dollar-for-dollar matching their savings to help save up for a house

MARK LATHAM: Low income families, the matching would be there, and the nest egg approach is one of trying to build up money for young adults so they've got a chance of getting into the home ownership market and realising the great national dream of owning their own home.

JENNY BROCKIE: And just quickly - tax incentives, lower tax on savings?

MARK LATHAM: Well, I think there is an argument for tax incentives for families that want to save over a period of time, put some money aside for their children because this is really a generational issue now.  

 

What you've got are people who've got home ownership, have had a big escalation in prices, but those who haven't are finding it very hard to literally get a foot in the door. So, it's the next generation we need to think about in terms of new home ownership schemes.

JENNY BROCKIE: Robert Mellor, will any of this work and does government really have a role here or is the market just going to do what the market's going to do?

ROBERT MELLOR: I think there's a bit of both. I think the market will do what the market's going to do. Government policies are not going to change the outlook for the market in the next two or three years.  

 

Obviously, for many people in the market, over a long period of time, house prices are rising faster than wages. I mean that's the reality. I mean, if you look at the long-term figures going back even 20 and 30 years, you're looking at around about a 3 percentage point increase per annum above inflation.

JENNY BROCKIE: But is what Mark Latham suggesting likely to ease the pressure on prices?

ROBERT MELLOR: Well, you can argue in the short-term, basically, if you encourage more people into the marketplace they will bid up prices, particularly in a boom market.  

 

I think that's one of the dangers we have at the moment, is that we do have a boom mentality out there and, in fact, with some of these things that have been spoken about in terms of trying to reduce government taxes or cut back the level of stamp duty, I think one of the dangers is that any additional money that people have at their disposal will ultimately bid up prices further.

JENNY BROCKIE: Mark Latham, just on the question of population pressure, is there a case for lowering immigration levels do you think?

MARK LATHAM: I think the immigration debate is about redirecting the flow. Sydney grows by 1,000 people a week, mainly driven by migration and if we got some incentives and policies to redirect that growth to other regions, other parts of the country that want higher population, you do something that's very important in Sydney.  

 

You lower the demand for housing. You can improve the land supply particularly with Commonwealth intervention then you start to ease a lot of these pricing pressures in what is the toughest market.

JENNY BROCKIE: But people are always going to want to come to the big city, aren't they? A lot of people are always going to gravitate back to the cities, because it's where work is, it's where the best-paid jobs are.

MARK LATHAM: Well, if people can start in the regions and build their businesses and their families in the markets, the housing markets that are easier for them and they're not adding to the demand problem in Sydney, certainly that's something that's very important. It's a leading part of Labor policy to try and achieve that goal.

JENNY BROCKIE: Robert Mellor, the question everyone wants answered - anyone thinking of buying, what's your advice at the moment?

ROBERT MELLOR: It's not going to get cheaper tomorrow or in two y ears' time. The way we see the market, particularly in markets like Sydney, is that there will be further growth.  

 

In some markets maybe like Melbourne and Adelaide where there's been strong growth and there's not going to be maybe as fast population growth over the next few years.  

 

The price growth may be only marginally better than inflation but in places like Sydney and Melbourne, no point waiting for prices to fall because they'll be much higher in two and three years' time, though I will say, our view is that interest rates could rise quite significantly over 2005 and 2006. If that was to occur and prices were to go up another say, 25%, 30% in some markets between now and then, you could face a correction, particularly in the Sydney market during, say, 2007.

JENNY BROCKIE: We'll have to leave it there. Robert Mellor and Mark Latham, thanks very much for joining us tonight.