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D. R. Dossetor address to the Housing Industry Association, Sydney.



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Prime Minister of Australia

Speech

D.R Dossetor Address to the Housing Industry Association, Sydney Exhibition and Convention Centre, Sydney

02 May 2008

E&OE

Thank you for the invitation to address the Housing Industry Association.

The HIA’s annual D.R. Dossetor Address pays tribute to one of the fathers of the Australian housing industry.

Few Australians did more to pursue the dream of universal home ownership than Randal Dossetor.

He was a key figure in the Builders and Allied Trades Association (BATA) and instrumental in the formation of the HIA.

Randal Dossetor’s generation was the first generation of Australians to embrace mass home ownership.

For those that had grown up in the depression, home ownership was a rock of security - a roof over their heads that could not be taken away.

For those that had returned from war, home ownership was the tangible realisation of the freedom for which they had fought for.

For those post war immigrants that had travelled across the world to make a new life for themselves, home ownership was a stake in Australia - proof that they had established a foothold in their new homeland.

In the post-war period home ownership became an important part of the Great Australian Dream. The suburban quarter a cre block with a hills hoist, a BBQ and a shed became an iconic Australian image.

The objective of our Government is to continue and strengthen the great Australian dream of home ownership. It is to move Australia closer towards a home-owning democracy.

Our Government’s goal is to expand the number of homes and to expand the number of home owners.

Before explaining our housing policy in great detail, let me outline the economic policy framework within which we operate.

The Economic Context

The new Australian Government is committed to building a modern, competitive Australia capable of meeting the challenges of the 21st century - to secure the nation’s future and the future for working families.

We are committed to developing policies beyond the next electoral cycle; policies which face up to our long term problems, and secure our long term future.

And we are committed to policies which build a strong economy that delivers for working families.

Building a strong economy means:

z Responsible economic management at a time of global economic uncertainty. z Investing in long-term productivity growth by dealing with the long-term neglect of our predecessors in skills, infrastructure and business deregulation.

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z Waging a war against inflation by reining in government spending to put downward pressure on interest rates.

But the Government is equally committed to an economy that delivers for working families under financial pressure.

Responsible economic management must do both: build the overall strength of the economy while doing whatever we can to assist families under financial pressure.

Working Families Under Financial Pressure

The cost of living is rising more rapidly than it has in more than a decade.

Last week inflation hit 4.2 per cent on a year-end basis.

This comes on the back of the Government inheriting from our predecessors the highest inflation rate in 16 years.

Now we in Government spend a lot of time pouring over the figures.

But let me tell you in practical terms what high inflation of this nature means for household budgets.

Over the past year, food costs have risen 5.7 per cent, mainly due to increases in a broad range of household groceries.

For example, a litre of milk has gone up 11.6 per cent over the past year.

A loaf of bread is now 9 per cent more expensive than it was 12 months ago.

The cost of filling up the family car now costs 18.9 per cent more than it did a year ago. That’s nearly 20 cents in the dollar.

Health costs have risen 4.6 per cent over the past year, mainly due to an increase in net hospital and medical services rising 5.5 per cent.

Over the past 12 months education costs have increased by 4.3 per cent.

And where the rubber really hits the road for many families is the fact that they have now had to deal with 12 interest rate rises in a row.

And it is the role of government to do everything within its power to provide relief from this pressure.

The job of our government in this Budget is to place maximum downward pressure on inflation and, therefore, interest rates.

The RBA is seeking to counter inflation by raising interest rates and thereby reducing overall spending in the economy.

The Government must cut spending too - because if Government spending continues to increase at the same rate as under our predecessors, it will put further pressure on inflation and interest rates.

That’s why a budget surplus based on real cuts in government spending is necessary to reduce some of the pressure on working families from high interest rates.

I have said before there is no silver bullet we can use to relieve financial pressure on families.

But where we can act, we must act.

We, as a government, must tighten our belt.

We must engage in responsible spending.

We must reprioritise current government spending.

And that is what we will be doing in the upcoming Budget.

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The Budget begins a new era of responsible economic management

Prior to the election, I committed to conservative economic management through producing budget surpluses across the economic cycle.

In this Budget we will honour that commitment - although that will mean making cuts to a number of existing government programs.

We have set a target of delivering a surplus of at least 1.5 per cent of GDP to help fight inflation and place downward pressure on interest rates.

Our predecessors set a target considerably less than that for the upcoming financial year.

This Budget will also be a down payment on Australia’s long term future.

We will take up the challenge to provide new long term economic leadership for Australia, in key areas like education and health.

We will develop new solutions to Australia’s big future challenges like climate change, the ageing population and the rise of India and China.

These were areas of policy neglect by our predecessors.

We intend to deal with this neglect by acting in the nation’s long-term interests.

Finally this budget will also support working families under financial pressure.

We promised to support working families and we’ll do that in this Budget

Some economic commentators say we shouldn’t be delivering tax cuts to working families, but we understand the pressure they are under.

Our message is clear and simple: there are tax cuts in the Government’s Budget for one simple reason - family budgets are under real financial pressure.

Therefore, as we frame this Budget, we must do three things:

z Wage a continuing war against inflation; z Invest in the nation’s future; and z Provide support to working families under financial pressure in the here and now.

And all along, ensuring that we keep a weather eye on unfolding global economic circumstances and maintaining a fiscal position that provides flexibility to deal any unforeseen challenges that may arise.

The Housing Affordability Challenge

We are committed to expanding affordable housing as part of our larger goal of restoring economic opportunity and a sense of security to working families who are trying to build secure lives for themselves.

Accessible, high quality housing is central to our vision for Australia’s future.

Our ambition is for Australia to be a home-owning society, to extend the opportunity of home ownership to as many people as possible, and to provide high quality, safe, secure homes for those who aren’t yet in a position to own their own home.

A place to call home is fundamental to Australian values.

The home is the physical foundation of the family. It is a base from which we raise our children, be part of a community, and build a career.

Home ownership is not just about ensuring that people have a place to live. Homes are also financial assets. For many Australians their home is their largest asset, accounting for on average 55 per cent of wealth.

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Owning a home gives us the certainty of a roof over our heads when we retire, making it a little easier to live on the pension.

A few months ago I received a letter from a woman from the town of Woodford - about 70km north-west of Brisbane.

She was evidently a hard working single mother with two children still at home. She wrote that she currently does ten hour shifts at a laundry and could “never think of sitting at home and not working.”

But because of the costs of her two sons’ education, their bus tickets, and the rising price of fuel, she was slipping further and further away from her dream of saving for a home deposit.

She wrote “I wanted to send you this letter to ask you for some help with the housing problem, not only for me but all the other families who struggle week to week in our tiny town.”

I remember what it is like to feel the sense of security that comes with home ownership.

My mother first bought our family home in Nambour shortly after my thirteenth birthday.

For our family, that home was a source of pride; a weight off our minds; and sense of security.

For the same reasons, owning a home is of deep personal importance to many Australians.

It is our commitment to working families that makes us so determined to act where we can on Australia’s housing crisis.

One of the most significant pressures on working families is the rising cost of housing.

Consider the facts:

z In the last twelve years the median house price in Australia has risen by 200 per cent, compared with an increase of a little over 35 per cent in the CPI. z In 1996, the average home cost four times the average annual wage. A decade later the average home cost seven times the average annual wage. z In the past decade, the size of the average first home buyer mortgage has more than doubled - from $107,000 to

$228,000 at the start of this year. z To buy an average priced home you now need a six figure salary to service the loan. z In 1996, the mortgage repayments on an average loan soaked up 17.9 per cent of average household income. By the end of 2007, mortgage repayments on an average loan soaked up 32.3 per cent of average household

income. That is an increase from around one in six dollars going on the mortgage to almost one in three dollars. z Among low and middle income families alone, there are some 1.1 million families in housing stress - that is who are in the bottom 40 per cent of income earners spending more than 30 per cent of disposable incomes on housing. This is 220,000 more families than in 2004 - an increase of a quarter in just three years.

Home ownership for many these days is as much stress as it is security.

Each 25 basis point costs a household with an average mortgage an extra $58 per month. Thus is it likely that households now face an extra $5,000 a year as a direct result of the interest rate rises on an average property over the last two years.

The consequence of housing stress is working families under pressure.

It also means fewer home owners - and more people stuck in the rental trap.

This means a tighter rental market.

That means fewer places to rent and higher rents.

The Real Estate Institute of Australia reports that rental vacancy rates have now slipped below 3 per cent in every capital city.

Rents are rising quickly. In the past year newly negotiated rents rose by about 13 per cent.

Causes of Declining Affordability

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At the core, the main reason for the growing housing affordability problem is that there have simply not been enough houses being built to meet the demand for housing.

Just this week, the Housing Industry Association released its March Quarter National Outlook.

It makes for sober reading.

According to economists at the HIA, the forecast number of new dwellings, ‘housing starts’, for 2007-08 is just 154,000.

This is only marginally higher than that recorded for the previous two years.

And is still well below the 170,000 housing starts recorded in 2002-03 and 2003-04.

In 2007-08, according to the HIA, the ‘underlying requirement’ for new dwellings based on population growth was at least 170,000.

That means we have had a shortage of 15,000 homes for this financial year alone.

According to the HIA, in 2008-09, as a result of interest rate increases, we’re expecting to build an extra 154,000 new homes.

It is not until 2009-10, that low affordability and announced new housing policies are expected to see a noticeable increase in housing starts.

The Government's Housing Policy Initiatives

The new Government has an ambitious housing policy agenda.

After more than a decade of neglect, this country needs one.

We now have a Housing Minister, Tanya Plibersek backed up by Departmental capacity in the Department of Families, Housing, Community Services and Indigenous Affairs.

The previous Government didn’t have a Housing Department.

The previous Government did not even have a Housing Minister.

We’ve also got clear goals to drive policy making:

z We want more Australians to own their own home. z We want enough housing supply to meet demand. z We want first home buyers to have bigger deposits when they buy a home. z We want a more affordable rental market that attracts private sector investment. z We want to reform the system of public and community housing. z And we want to halve the rate of homelessness.

While we are, of course, taking a very disciplined approach to public spending in this budget - to put downward pressure on inflation and interest rates - we are introducing more new housing policies than any budget in living memory.

The 2008 Budget will include a significant package to tackle the housing crisis.

It includes measures to make saving easier, to cut housing costs, to increase the number of affordable rental properties, and to build homes for homeless people.

This new assault on the housing crisis is in addition to existing measures, such as Rent Assistance and First Home Owner’s Grant.

As we move into the second half of the year, we will also be re-writing the book on social housing policy in this country.

The Council of Australian Governments, where the Federal and State Governments negotiate responsibilities and funding arrangements, is knuckling down to deal with the public housing challenge.

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The old Commonwealth State Housing Agreement will be replaced with a more comprehensive and streamlined National Affordable Housing Agreement.

The new Agreement will bring together all housing assistance programs including Commonwealth Rent Assistance, the First Home Owners Grant and homelessness programs to create more affordable housing for those who need it.

National Housing Supply Council

The first housing policy commitment we made last year was to establish a National Housing Supply Council.

This Council will be the chief adviser to the Federal Government about housing demand and supply in this country.

We are establishing this body in recognition of the simple fact that Australia cannot address housing affordability without building more houses.

In the last three years alone, we’ve added almost a million people to Australia’s population.

These people have to live somewhere.

And as the figures I cited earlier demonstrate, we simply haven’t built enough houses in recent years.

That’s why our policy measures are so focused on the supply-side of the housing affordability equation.

The truth is that no-one has been asking the question of how many houses we need, of what kind, and in which locations, for over a decade.

The Council will publish an annual State of Supply report to analyse the adequacy of construction and land supply for the next 20 years.

The Council will bring together information:

z On the demand side: demographic data about population growth, immigration and settlement; and information about household formation and changing housing preferences for an ageing population and to meet the challenges of climate change

z on the supply side: land release and availability, planning frameworks and the impact of infrastructure projects.

Industry has information and direct experience in key areas such as skills availability and access to materials.

Currently no-one pulls all of this together to provide clear advice and forecasts so that we can get housing supply right.

The Minister for Housing, Tanya Plibersek, last week announced Dr Owen Donald as Chair of the National Housing Supply Council.

Dr Donald is a former Executive Director of Housing in Victoria and the first Executive Director of the Australian Housing and Urban Research Institute - AHURI.

Today, I am pleased to announce that Dr Donald will be supported by a first class team of housing advisers, with expertise in construction, skills, planning and urban development.

The members will include three property industry experts who are here with us today:

z Former Manager Director of Australand, Brendan Crotty z Managing Director of Wilson Homes and HIA Board member, Stuart Wilson; and z The HIA’s Policy Chief Executive, Chris Lamont.

Welcome aboard.

Other expert members of the council will include:

z ANZ Chief Economist, Saul Eslake z Former Director General of Planning NSW, Sue Holliday z SGS Economics Director, Marcus Spiller

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z WA Urban Development Coordinator, Marion Thompson; and z University of Sydney, Associate Professor Judy Yates

I am looking forward to the first State of Supply report in January next year.

It will greatly assist in making sure housing supply catches up with demand over time.

If the HIA analysis is right, we already have a housing deficit in the tens of thousands, and it will get worse in coming years as the annual underlying requirement for housing is going to rise above 175,000 a year.

Based on these numbers from the HIA, over the next six years or so, this country is going to have to build an additional one million new homes.

That won’t solve housing affordability - but it will make a difference.

Building an extra million homes will require a huge effort and considerable resources.

Aside from what Governments do, it will require a huge construction project.

We’ll need more land.

That’s why the Commonwealth, State and Territory Governments are conducting a land audit to facilitate improved housing supply by identifying surplus land for possible release for housing development.

Skilled Workers

We’ll also need more workers.

As the housing industry has argued, we can’t build more houses without more skilled workers to build them.

Under the previous Government skill shortages in many industries - but especially residential construction - were neglected.

According to the Housing Industry Association, we will need an additional 20,000 skilled tradespeople over the next three years alone if we are going to build the houses that we need.

The new Government is acting urgently to address the skill shortages by training Australians.

The Government is going to deliver an additional 450,000 training places over the next four years.

We have already fast tracked 20,000 new training places in areas of skills shortages.

We’ve also established Skills Australia, which will advise the government on skill shortages across the economy.

Today I am pleased to announce that at its first meeting later this month, Skills Australia will consider as a matter of priority the specific needs of the residential construction sector and work towards quantifying what proportion of the 450,000 places this sector needs for the long term.

The HIA has also argued that migration is part of the answer.

The Government acted earlier this year to increase the permanent skilled migration target for 2007-08 by 6000 places, as an immediate response to the skills crisis.

Alongside the permanent skilled migration program, the temporary (457) visa program has also continued to grow strongly and is likely to reach 105,000 in 2007-08.

This is a start because we’ve listened to the needs of industry and business for who labour shortages are a real concern.

To date the numbers of people coming in through migration programs to work in the residential construction sector have been relatively low and we need to do more to attract skills into the sector.

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Housing Affordability Fund

The 2008 Budget will include a $500 million Housing Affordability Fund to drive housing construction activity.

The Fund will be used to address two components of house costs: infrastructure charges and levies and ‘holding costs’ caused by planning delays.

It has been estimated that housing linked infrastructure charges can add up to $68,000 on a new home in some parts of suburban Australia.

Those charges pay for all sorts of important infrastructure like water, sewerage, transport, and parklands.

But when these charges they are passed on to the homebuyer, it can push the dream of owning a new home out of reach.

The Housing Affordability Fund will form a partnership between the Commonwealth and local governments - to invest in this infrastructure to reduce the cost of new homes.

Another part of the equation is ‘holding costs’ - costs associated with planning and approval delays such as interest, land taxes, council rates and staff costs.

These too can add tens of thousands to the cost of a home.

Our partnership with local government will also address the need to streamline planning and approvals processes to reduce the cost of homes.

First Home Saver Accounts

Our biggest new housing investment in the upcoming Budget is the establishment of First Home Saver Accounts.

Over the next four years, the Commonwealth will invest around $1 billion in these special accounts to help people save a deposit for a house.

If a person sets aside a proportion of their income to the account it receives a government co-contribution.

And when it is growing with interest inside the account, it is taxed at the low superannuation rate.

Our analysis shows that a couple on average wages putting aside 10 per cent of their incomes for their first home, could be able to save a deposit of up to $80,000, depending on returns. This is considerably more than if they held the money in a normal bank account.

The Accounts also support national savings. We estimate that the Accounts will contribute around $4 billion to national savings within four years.

In recent months, the Treasurer has been consulting closely with the financial services sector to make sure we get the details right and have the necessary legislation in place by the end of the financial year.

National Rental Affordability Scheme

Another ambitious commitment is our National Rental Affordability Scheme.

This Scheme aims to create a new asset class for institutional investors in affordable residential housing.

The Scheme will provide an annual incentive to institutional investors to build new homes and rent them to low and moderate income earners at 20 per cent below market rates.

The Australian Government will provide institutional investors with an annual $6,000 refundable tax credit for new buildings.

State and Territory Governments have agreed to contribute at least $2,000 per annum in cash or in kind for each home.

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Each property will attract this subsidy for 10 years, at which time the property may be rented at market rates or sold.

In the first five years the Government aims to bring 50,000 properties on line.

If there continues to be demand, the Government will expand the Scheme to 100,000 properties over the following five years - a major new investment in Australia’s affordable housing stock.

I expect new partnerships to emerge between institutional investors, property developers and community housing agencies.

Today I am pleased to announced the release of a Rental Affordability Scheme Technical Paper for investors, developers and broader housing industry.

The Technical Paper sets out the key features and operating conditions of the Scheme.

We propose delivering the Scheme in two phases: an Establishment Phase - allocating 11,000 incentives for dwellings built over next two years. And an Expansion Phase - allocating 39,000 incentives for dwellings built from 2010 to 2012.

In early June we will release National Eligibility Criteria for projects under the Scheme.

At the end of June we will put out our first call for Expressions of Interest under the Scheme.

By the end of this year we expect to put out two further calls for Expressions of Interest for projects which will attract the incentive.

With rents rising and working families under pressure, we have no time to waste.

Conclusion

Let me finish where I began.

In the 1950s the precursor to the HIA, the Builders and Allied Trades Association (BATA) was established to promote housing industry and build a new generation of homes for a new generation of Australians.

In the post-war years, Australia benefited from a significant commodities boom. But at the same time the nation faced high inflation and an acute housing shortage.

The paradox of the 1950s economic boom was that the persistent housing shortage meant that even though the country was getting richer, the dream of home ownership was receding out of the reach of many Australians.

There are obvious parallels to today.

The objective of our government is to tackle inflation, take some of the pressure off working families, and to do what is possible to make home ownership affordable.

So that young people can realistically aspire to own their own home.

So that young families can once again see their home as a source of security rather than a source of financial stress.

There is no silver bullet to Australia’s housing shortage, but it is the role of government to do everything within its power to provide relief from this pressure.

After all, it’s working families that have made Australia the country that it is today.

I don’t have to tell this audience that a big part of the realisation of these ambitions lies in our ability to build more homes.

That’s where you come in.

This government wants to continue to support you in your vocation, your business, your profession. We want you to be building Australian homes.

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We want the HIA, in the spirit of Randal Dossetor, to continue its work to make the Great Australian Dream a reality for more and more Australian families into the 21st century.

It is part of building a stronger, fairer Australia for the future.

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