“Housing is absolutely essential to human flourishing. Without stable shelter, it all falls apart.” Matthew Desmond, American Sociologist.
Inequality is the greatest threat to our society; and nowhere is that inequality more evident than in housing. The rich get richer with ever more houses; the poor get rent stress or homelessness.
The housing policies of the major parties are ineffective against this rising inequality, some are even counterproductive. Nevertheless, the coming federal election gives an ideal opportunity to discuss just how radical a change is needed.
The housing problem
Two thirds of Australian households have the security of owning (or paying off) a house, which is increasing in value faster than any other investment. But the other third struggle to rent those increasingly expensive houses.
Current political discussion focusses on the former: how to make houses ‘more affordable’ to buy, with lip service paid to renters who are consigned to ‘affordable housing’, as if such a thing exists. This dichotomy lies at the base of the failure of our current housing policies.
Failed solutions
Lack of supply and low interest rates are popularly held to blame for the spiralling house values, making a ‘first home purchase’ out of reach. But increasing supply and putting up interest rates won’t fix the problem. We have enough supply already: there are more houses than households, although some (holiday houses) are not available for full time occupation. Low interest rates are only useful if you have a deposit, which is increasingly out of reach unless you (or your parents) already have a house.
The proffered solutions will only make the situation worse: the shortfall is nowhere near enough to justify opening up huge swathes of land at the edge of our cities, as the Liberal’s Jason Falinski has argued. And every attempt to help first home buyers with a grant or reduced deposit has seen house prices rise in response. Totally counterproductive.
Covid made it worse
Several years of low interest rates have seen a rapid rise in house prices, beyond their real value, and that encourages those who already have a house to acquire another, and then to use that house for income. And Covid has only accelerated that process in two ways.
Firstly, ‘working from home’ prompted many to move to the regions. Cashed up, they pay city prices for houses, reducing affordability in areas of lower wages and pushing up rents. This forces the locals, many of whom rented, to move ‘out of town’.
Secondly, closed borders created a rise in local tourism and holiday rentals within Australia. So, the smart money buys a second or third house in a holiday destination and then puts it on short term, but highly lucrative, rental such as ‘Air B&B’. That formerly reasonably priced house is no longer available for long term occupation or rental. The decrease in available properties means higher rents.
The two issues have combined to destroy the livability of many towns, particularly on the east coast. In holiday towns like Byron Bay, or regional centres like Kiama, the general population, particularly key workers, are priced out of the towns they have lived in for years or generations. These coastal towns could soon resemble the sprawling and continuous ‘100 mile city’ described by Deyan Sudjic in his book of the same name.
A better solution
Current political analysis misses the root cause: high house prices benefit the majority over the minority, and with little social conscience, and the majority voting for parties to protect their property wealth, Australia has been uninterested in solving the inequality problem. It requires some drastic action.
We must separate the idea of house from home. A house is property, an investment increasing in value, a possible source of income. A home is shelter, a safe refuge from the world a domicile. It physically protects and promotes mental wellbeing. Sometimes it is referred to as the third skin.
Every household, family or single, is entitled to a safe secure home. We need shelter before property. A home before an income generating investment. We should ensure that everyone has a home (to buy or rent) before anyone has a second house.
The aim should be to lift home ownership rates from below 65% to above 80%, and to ensure that the remaining 20% can rent equitably within the market, and that those who can’t, say the poorest 10%, are protected in properly resourced social housing.
But how to go about that revolutionary idea? To change us from an investment-property-owning gerontocracy to a home-for-all loving nation. We need a ‘Homes Policy’, not a housing one.
A Home Ownership Policy
We need to promote the viability of a household’s first home and discriminate against a second or third house as investments. That requires a change in banking and tax policy.
Banks must be encouraged (or forced) to have mortgage policies that lend at substantially lower rates for a first home buyers than for speculative investments. The requirements for a deposit can be met with innovative schemes by governments. If necessary, insurance policies can bolster the nervous bankers to guarantee the mortgages.
Housing tax policy should be the inverse of the present: negative gearing should be on the home only, and every second or more house should be treated as an income producing investment. Many OECD countries have tax breaks on the family home, we alone (now that NZ has cancelled negative gearing) seem to want them on investments.
The other tax policy we need is on un-earned capital gains. Profiting from rise in house prices, when no value has been added, is obscene when it puts one third of Australians further into housing stress. The only way to discourage this ‘speculation without value’ is to re-introduce a substantial capital gains tax. Never on a home, but the tax on profit gained, outside house improvements and the rate of the inflation, could be taxed at rates as high as 80% to immediately halt the rise in house prices.
A previous Tone on Tuesday explored the idea of encouraging every household to be able to own their own home. It’s not so far-fetched. Home ownership was a core tenet of the Liberal party under Robert Menzies. It created a tradition and industry, backed by banks and real estate. It needs to be their policy again, even if it means a change in how taxes are levied. Unfortunately, the recent Senate housing inquiry went in the opposite direction.
These simple steps could raise home ownership to 80% of all households. They are a complete anathema to all the major parties, but that is no reason not to lobby for them to overcome ‘home inequality’.
A Home Rental Policy
We need policies that encourage equitable rent. Again, a tax policy is the best way forward by separating out long term rentals from short term (holiday) lettings.
Significant tax breaks should be offered for houses that are long-term rented at a pre-determined market value. This could be achieved by requiring houses to be managed by a Community or Social Housing Providers (CHP, SHP), who fix the rentals at reasonable market rates (say up to 4% of land and house value) for fixed periods of not less than one year, but up to ten or twenty years as happens in Scandinavia.
The CHP or SHP would ensure that the owners of the houses would get a reasonable return, aided by the tax breaks (like negative gearing), whilst the renters get a more reliable rental market with safety protections.
On the other hand, should an owner wish to rent the extra house(s) as holiday lettings then significant taxes and insurances would apply – determined in comparison to the level of service provided by commercial renters such as hotels. This has long been a gripe of hoteliers, whose livelihood depends on substantial investments and ongoing costs that the ‘Air B&B’ lessees avoid.
The aim would be to regulate the market without prescribing how the owner uses the house. Houses could be rented in one of two ways: long term with rebates, or short term with taxes. The returns are similar in either scenario, which can be tweaked as supply and demand dictate.
Again, equity relies on taxes, which one party always promises lower, and the other is thus intimidated into saying nothing.
Homes not Housing
Shelter a basic right, along with food, clothing and safety. We don't have a bill of rights in Australia and our constitution is entirely silent on our built environment, but home ownership used to be a core Australian value.
Housing is the largest single part of our wealth, but it is unequally distributed, which is why we need to redress that inequality. We need to change our policies from encouraging property investment to encouraging home ownership.
We need a Homes Policy, not a Housing Policy.
Tone Wheeler is principal architect at Environa Studio, Adjunct Professor at UNSW and is President of the Australian Architecture Association. The views expressed here are solely those of the author and are not held or endorsed by A+D, the AAA or UNSW. Tone does not read Instagram, Facebook, Twitter or Linked In. Sanity is preserved by reading and replying only to comments addressed to [email protected].
