CHAIR —Dr Edgerton, do you have any comments to make on the capacity in which you appear and, following that, any opening remarks?

Dr Edgerton —I am appearing in a private capacity as a representative of my family, from Carindale in Brisbane, and also as the operator of my website www.geocities.com/homes4aussies. I sincerely believe that I am representing, with my best intentions, all working families and everyday Australians. As the document which I just handed to senators states, the housing affordability crisis is affecting my family. I was part of the brain drain, having been overseas for a few years. When we came back to Australia I was not able to get a job in my field as a scientist and we put off having a family. We started trying to have a family and fell pregnant but I had not got a job. My wife, who is an accountant, can earn much more money than me as a scientist, so the decision was taken that I would be a stay-at-home dad. As it turns out, our little boy has severe allergies. He has an anaphylactic reaction to some common foods, which means that I am now a long-term stay-at-home dad.

The housing affordability crisis led (1) to me giving up on my career as a scientist and (2) to us putting off buying a house for five years because we are unable to afford it, even though my wife is an accountant of 14 years. If interest rates were to reach nine or 10 per cent we would be severely squeezed and at high risk of losing our house. Now our ability to save towards that house has been severely cramped by a rent rise of 20 per cent or $260 a month. From speaking to the agent the other day it looks like we are in for another rise in a couple of months.

Whilst I agree that development, supply of new housing and so on are major issues, the massive incentives to investors is a very significant issue. I have here, as was presented in my submission, an advertisement on property investing, on how to build real wealth, suggesting that an investor should buy a house each year. The second point in the advertisement is ‘how to use your tax to pay for your property’. Giving investors more money in their pocket to prise first homebuyers out of the market is a major issue. The problem is that, as we heard from the previous speakers, the UDIA, they consider that new developments are mainly for first homebuyers. The investors are not buying new houses. They are basically competing for established houses and pushing up the price of established houses. So the enormous tax concessions, which according to George Megalogenis are costing Australian taxpayers $9 billion a year, are not leading to an increase in the supply of housing. They are providing investors with more purchasing power, which is pricing first homebuyers out of the market and is not leading to an increase in supply.

CHAIR —Thank you. We appreciate your interest (a) in coming here today, (b) in making a submission and (c) in being available to make some comments to us. I am very happy for my colleagues to ask you any questions they may have, if you do not mind.

Dr Edgerton —Absolutely. If I make some comments I should be available to answer some questions.

Senator HUTCHINS —You were talking about your rent having gone up by 20 per cent. Over what period has that occurred?

Dr Edgerton —We had a 12-month lease. In December we got a notice saying that our rent for the next six months would be 20 per cent higher. So we had a 20 per cent increase for six months and we have been informed that we will have another increase.

Senator HUTCHINS —Are you aware of whether that is because the landlord has had an increase in taxes or charges applied to him? Is it because of demand and supply and because there are more people looking for a house?

Dr Edgerton —Certainly it is supply and demand. I know that our landlord has owned our house since before 2001, so has enjoyed a capital gain of 150 to 200 per cent. He owns at least six residential properties that I know of as well as commercial properties. In terms of his costs, I am not sure. He would certainly be positively geared on our property given that he bought it before the boom. The rent that we have to pay now would be more than the repayments on his initial purchase price.

Senator IAN MACDONALD —Just to be clear, what exactly are the property tax rorts that you are referring to?

Dr Edgerton —The negative gains provisions, allowing the offsetting of losses on investment properties against other income; the capital gains tax concessions, only having to pay tax on 50 per cent of the capital gain; and the new one, which I am quite concerned about, with warrant type investments into investment properties within self-managed superannuation funds. All of these provide investors with extra purchasing power, which tends to be channelled to established housing.

Senator IAN MACDONALD —Are you critical of the capital gains tax exemptions for sales of private houses?

Dr Edgerton —Yes, I cannot see any reason why capital gains tax should not be on a private house as well.

Senator IAN MACDONALD —Your argument is that if an investor, say, did not get the capital gain on 50 per cent of the profit they would not be investing in houses; therefore people who wanted to live in those houses would be able to buy them?

Dr Edgerton —It would make it less attractive—for speculation, more so. There would be a relatively quick turnover. I think that investors are to be encouraged, but they are not to be encouraged to buy established housing. My view is that Australians would be better served if the incentives were based entirely on newly constructed houses rather than established houses so it led to an increase in supply, and I would be quite fine with an increase in those incentives on newly constructed houses, in this period where we are facing such an enormous undersupply.

Senator IAN MACDONALD —The argument being that, if there were more investors in new homes, they would more readily let those new homes to people who wanted to rent them? I suppose that is part of it.

Dr Edgerton —Yes, absolutely.

Senator IAN MACDONALD —The other part is that it would mean that established homes would not be such an attractive investment; therefore, the market might force the price down, which would mean that people like you could buy them at a reasonable price. Is that the argument?

Dr Edgerton —Yes, and those investors who still want to buy established houses will be accepting a yield of seven or eight per cent, because of course rental yields are going to improve because they are buying the houses at more rational prices. Pricing is mainly to do with the anticipation of a capital gain, nowadays, rather than actual rental yield, as I think virtually everyone accepts.

Senator IAN MACDONALD —That suggests—which is my understanding—that buying a place as an investment on the current rental return is not a terribly profitable exercise.

Dr Edgerton —No, because house prices have almost tripled due to the massive speculation we have had in the market. My argument is that houses are being valued as speculative assets, not as homes for Australians anymore.

Senator IAN MACDONALD —Yes. This has nothing to do with the inquiry, but what sort of scientist are you?

Dr Edgerton —Aquaculture. I worked for Biosecurity Australia for a while in quarantine policy development. I am an expert in freshwater crayfish diseases actually.

Senator IAN MACDONALD —Right. You are the people the local prawning industry used to love to hate—

Dr Edgerton —I was the person that they hated!

Senator IAN MACDONALD —Okay! I used to be fisheries minister, as you may recall.

Dr Edgerton —Until I left to go to France.

Senator IAN MACDONALD —I wish you well. It is an indictment of our society that scientists find it hard to get a job, whereas people like accountants do not—no disrespect to your wife or to the accountancy profession. I wish you well in what you are doing.

Dr Edgerton —Thank you.

CHAIR —Any further questions? Senator Colbeck.

Senator COLBECK —I am interested in some of the comments you have made to Senator Ian Macdonald. I sympathise with you in respect of the 20 per cent increase in your rent, but effectively that rent is moving with the market. That is essentially what is happening, isn’t it?

Dr Edgerton —Absolutely, and I do not hold it against my landlord personally. The point is that the market has got a massive undersupply of rental properties, and that, as I understand it, is why we give such significant concessions to investors. That we have this crisis right now shows that those incentives do not lead to an increase in rental supply; they lead to an increase in the proportion of houses being owned by investors. They do not lead to an increase in rental supply, and that is clear.

Senator COLBECK —I think you have pretty clearly stated that we need to shift our incentives towards the provision of new infrastructure rather than recycling, if you like, older infrastructure through the market. Is that right?

Dr Edgerton —Yes. I am sure you would be aware of the report by Steve Keen which shows that basically most of out credit expansion over the last 15 years has gone into paying more and more for the same assets rather than building more assets.

Senator COLBECK —You do not see any need to put any controls within the market with respect to rental increases, or anything of that nature?

Dr Edgerton —Fundamentally, I am against putting distortions in there. My point of view is that these tax concessions are the distortions and they need to be removed from the market to allow it to function properly. In the short term, while we are facing such a crisis, because the crisis has in part been caused by distortions maybe we need to add to them for a little while, but I think that the end game is to have a market free of distortions and then new house pricing and rentals will be a lot fairer with a free market.

Senator COLBECK —So potentially balancing out the way that taxes, one way or the other, are impacting on the market is a key to what you are talking about. Whether or not it is the removal of, say, the development taxes that are impacting on the cost of new development to make that more attractive, or, as you are saying, the incentive-to-invest taxes, there needs to be some rebalancing so that there is a direct move towards the opening up of more supply, rather than just recirculating the existing supply.

Dr Edgerton —Absolutely.

CHAIR —I want to ask you a question about your website: basically, what sort of a reaction have you been getting to homes4aussies?

Dr Edgerton —Quite positive. I also use some other outlets to blog and draw attention to my website. The other day someone said, ‘I would like to see some constructive comments against you so that we can open up the debate.’ I responded by saying, ‘Most of the comments that I get are just derogatory slurs and not wanting to actually talk about the issue based on facts.’ I have just been surprised, to be honest. I have had a lot of positive comments, as you will see in the guest books. But then you get a lot of people who are just so narrow and so out for themselves. They are so ‘anti’ to considering things to open up and increase fairness. My proposition, particularly with the first home savers scheme, is that what will happen without a significant increase in supply is that prices will plateau or maybe even drop a little bit. But in 2011, with these incentives to investors still in place, they will start buying again and by the time that people get access to first home savers accounts, prices will be beyond what is in those first home saving accounts. So the prices will start moving up.

People say to me, ‘Well, if you are a bright guy and you can predict that then why don’t you start investing and take advantage of that?’ My point is that I do not want a society which is two-tiered; where people use a system to get ahead at the expense of other people. I would rather see a much fairer system where everyone can afford a home, because it affects not just people who are going to buy but it affects people who are renting as well. At the end of a decade and a half of economic growth, we are seeing an up-tick in homelessness. I do not think that this is the way it should be in our society.

CHAIR —Thank you for your interest in the inquiry and for appearing here today.

[11.10 am]