A door visits a psychiatrist, lies on the couch. The psychiatrist gives the door the good news: "You're not crazy, you're just unhinged." Doctors of economics watching the Coalition party-room brawl over the use of superannuation savings for home loans are concluding the door is unhinged and those inside are crazy. Yet rational responses to the housing affordability crisis are available to the hinged.
The government's incoherent, contradictory response to the crisis emanates from its schizophrenic approach to the problem. In the Treasurer's landmark housing policy speech of April 10, he mentioned affordability 47 times but also emphasised that reducing house prices "is not a good plan, and it is not the government's plan".
In truth, the Treasurer wants house prices to continue rising, pointing out in the same speech that more than two-thirds of Australians live in owner-occupied homes. He simply wants to give young people the appearance of doing something about soaring house prices while running a scare campaign that Labor's policies would cause a house-price crash.
The government's persistence with tax policies that are inflating the housing bubble is wilful. In early 2016, the Treasurer warned of the "excesses" of the negative gearing tax concession but refused to curb them. Instead, he saw a political opportunity to attack Labor's proposed restrictions on negative gearing in language straight out of the Tony Abbott playbook of three-word slogans, warning of "Labor's housing tax".
The irony is that by deliberately pursuing policies to inflate the house-price bubble, the Treasurer risks bursting it. Every week, an international institution or local economist warns that an international shock – such as rising bank wholesale funding costs – could cause a house-price collapse in Australia. The rest of the economy would be hit as debt-laden households confronted with the falling value of their housing assets pulled back on consumer spending, which accounts for more than half of the economy.
The Treasurer's housing package – until recently billed as the centrepiece of the May budget – won't work because it is not intended to work. Rather, it's yet another cynical attempt at playing political games in the hope of attracting votes from both owners of houses and young people who are shut out of them.
A proper diagnosis of the housing crisis would observe that Australia hasn't always had a housing affordability problem. It would then ask what has changed.
The answer is two-fold. First, Australian interest rates are at all-time lows. Australians looking for reasonable returns on their savings cannot get them from putting their money in a bank. They are being enticed up the risk curve into tax-preferred property investment, assuming house prices will remain high and go even higher.
Second, China has re-emerged as the world's largest economy with an enormous middle class. Fearful that they might not always be able to get their money out of the country, well-heeled Chinese investors are buying Australian bricks and mortar in the two most popular capitals – Sydney and Melbourne – where property prices are cheap by Chinese city standards. While Australia has legal restrictions on the ownership of existing dwellings by non-nationals, they do not appear to be effective.
Morrison is demanding the states release more land. As a local resident, he knows Sydney does not have a lot of idle land lying around, unless, of course, people want to live around Badgery's Creek or south of Campbelltown. States and local councils are already rezoning existing housing and commercial areas for apartment building.
Three policies can have a positive effect on housing affordability: limitations on negative gearing and the capital gains tax concession; phasing out stamp duties on property purchases; and a tax on foreign purchases of Australian residential properties. No housing affordability policy will be effective if the 50 per cent capital gains tax discount and the negative gearing concession remain unaltered. Just about every business organisation now agrees.
State stamp duties on property transfers are a disincentive to turning over property and to downsizing by older couples. Phasing them out and replacing them with a land tax would be both efficient and equitable.
A tax on foreign purchases would suffer from the same enforcement problems as the current prohibition on foreign purchases of residential properties. A tax on vacant properties would be a reasonable proxy, deterring those investors – foreign and local – whose main motivation is property speculation.
Labor announced some of these measures and several others last week. The Treasurer will hope they are unpopular. First-home buyers will hope they work. At least they represent an honest attempt to deal with the housing affordability crisis.