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Tuesday, 7 February 2017
Page: 80

Mr COLEMAN (Banks) (17:00): On behalf on the Standing Committee on Economics, I present the committee's report, incorporating dissenting reports, on the inquiry into home ownership, together with the minutes of proceedings.

Report made a parliamentary paper in accordance with standing order 39(e).

Mr COLEMAN: by leave—This inquiry was established to assess issues related to home ownership in Australia, and potential policy responses by government. The committee's report was published in December last year.

There is no escaping the fact that prices in all markets are driven by supply and demand. If supply is insufficient to keep up with demand, prices will rise.

The committee heard evidence regarding the large increase in property prices, particularly in the Sydney and Melbourne markets, in recent years.

The committee also heard evidence that the supply of housing is failing to keep pace with demand. Treasury noted in its appearance before the committee that land release had not been keeping up with population growth. It also noted that New South Wales, where house price increases have been the largest, has had a particularly low level of new housing development in the period since 2004. There was a widespread agreement, across most of those who gave evidence at the inquiry, that more needs to be done to address housing supply issues. As the Urban Development Institute of Australia noted 'planning, zoning and approvals processes in many cities can be extremely slow, adding considerably to the cost of new housing'.

Over the past decade, there have been 164,000 more households formed in Australia than new dwellings created. And 56,000 of that undersupply has been in one state—New South Wales.

The committee is strongly of the view that more needs to be done to address supply issues in the housing market. This will lead to a better balance between supply and demand, and reduce the upward pressure on prices.

As noted in the report, overly bureaucratic approval processes are holding back supply. The committee welcomes the recent statements of the New South Wales government, in particular, that increasing the supply of housing is a high priority.

The federal government also has a role to play in initiatives to boost supply, as noted in the report. The committee welcomes the government's Smart Cities initiative, which will partner with state and local governments to help to deliver housing where it is needed most. One of the first City Deals is focused on Western Sydney—an area where housing supply has continually failed to keep up with demand. The committee would also welcome further initiatives to boost housing supply in underserved markets.

On the demand side, the key issue discussed in the inquiry was the impact of investors on the housing market. Several witnesses before the inquiry noted that there had been an increased level of investor activity in recent years, particularly in the Sydney and Melbourne markets. In December 2014, APRA acted to address the growth in investor lending, requiring authorised deposit-taking institutions to introduce a 10 per cent growth benchmark for investor loans. While APRA stated in November 2016 that this action has been successful in slowing investor borrowing, the committee notes that it may be appropriate for APRA to use this tool again in the future. The committee will raise this issue with APRA in future hearings.

During the inquiry, some witnesses called for increases in taxes on investors, as a means of reducing demand for housing. Those who supported such a change generally called for increased income tax through the whole or partial abolition of negative gearing, and an increase in capital gains tax rates.

The committee rejects this approach and strongly opposes any increase to capital gains tax, or increase to income tax through the abolition of negative gearing.

There are a number of facts on this issue that need to be pointed out clearly:

Those who call for an increase in income tax and capital gains tax on investors say they do so because it will lead to more affordable housing. But they also argue that it will have only a very modest impact on house prices—often saying about one per cent or two per cent. But if the focus of the policy is on affordable housing, why impose a tax increase of more than $32 billion on Australians if you believe that it will make virtually no difference to house prices?

Those who also advocate for capital gains tax and income tax increases focus not only on property but on all forms of investment.

This is a very important point. If your goal was to address housing affordability issues, why would you increase taxes on things that have absolutely nothing to do with housing?

Sixty-one per cent of the value of assets on which capital gains tax is levied—held by individuals—are completely unrelated to property. And within the 39 per cent that is related to real estate, some of that is commercial and industrial real estate, which of course also is completely unrelated to residential real estate. But those who advocate a capital gains tax increase do not advocate it only on residential housing but on all forms of investment, and that is a significant issue.

It would also require an increase in capital gains tax on someone who invested in a factory or a farm or a small business like a suburban cafe. If you increase capital gains tax by 50 per cent for everybody, you increase it not only for the housing market but for all forms of investors, including areas that have absolutely nothing to do with housing affordability.

The committee strongly rejects those proposed increases to income tax and capital gains tax. The proposed 50 per cent reduction in the capital gains concession would leave Australia with the second-highest rate of capital gains tax in the world and would lead to reductions in house prices and increases in rent as investors exit the market. It is an approach the committee wholly rejects.

In summary, the report finds supply issues need to be addressed by all levels of government. More needs to be done to address undersupply. The committee is strongly opposed to increases in income tax and capital gains tax, which would cost Australians tens of billions of dollars. It is a wrongheaded approach which the committee rejects.

I commend the report to the House.