My Daily Advertiser Op Ed column for Tuesday 30 May 2024

by ray goodlass

Howard started our housing and rental crisis

After last week’s report from Anglicare that rents are now at their most unaffordable ever, I was reminded of a recent column by Mike Seccombe in The Saturday Paper.

“The housing crisis in Australia can be traced back to a handful of catastrophic policy choices made by John Howard and recommended by his friends” he wrote.

Can this be correct? I did my research and found it to be true. I would though add that it was in the context of the ‘neo-liberal’ economic theory ruling the roost then and now. 

We must also remember that back then in 2003 more than 70 per cent of people owned their own home. However, the idea of what it meant to “own” a home also changed substantially during the Howard years.

When he came to power, about 42 per cent of people truly owned their homes – free and clear with no mortgage. Just over 28 per cent had mortgages.

None of the above should be read as letting Howard off the hook. Indeed, by the time he was leaving office there were more home owners with mortgages than without.

When Howard came to power, house prices and average wages had been roughly in parallel for decades. Then, quite suddenly, prices zoomed far ahead of incomes. They have kept zooming ahead, with only a couple of minor interruptions, ever since.

Between 2001 and 2022 house prices grew more than 400 per cent, more than twice the pace of wages. A pandemic could not stop them; falling real wages and increased interest rates could not stop them. A report out this week from Oxford Economics predicted the national average house price would be more than $1.3 million by 2027.

As Alan Kohler noted in his recent Quarterly Essay on the housing crisis, the shift that occurred around the turn of the millennium “has altered everything about the way Australia operates and the way Australians live”.

He’s not wrong. Back then, less than 20 per cent of households were in the private rental market. Now it’s close to a third, and to an ever-increasing extent they are under financial stress. At the last census, in 2021, a record 122,000 Australians were homeless. That number has likely increased as rents have escalated and housing supply has fallen even further below population growth.

In 2002 only 4 per cent of home owners aged over 65 carried mortgage debt. By 2020  more than 50 per cent of home owners aged 55-64 still had mortgage debt.

Older people can’t afford to retire and younger people can’t afford to leave their parents’ homes. The cost of housing has been blamed for couples putting off having children and having fewer of them.

In a 2003 interview, Howard was asked about one of them: negative gearing.

He said he would not countenance winding back that tax break for property investors because that would result in rents going “through the roof”.

This claim, still made today by some defenders of the tax breaks that benefit property owners, infuriates Saul Eslake. “It’s a lie,” says the veteran economist. “And it’s a big lie.”

The basis of the lie is a decision made by the Hawke government in 1985. Bob Hawke and then treasurer Paul Keating did briefly abolish negative gearing on rental properties, only to reinstate it in 1987, following sharp rises in rents in Sydney and Perth.

The restoration of negative gearing, which allows rental property owners to claim a tax deduction against their other income if they receive less in rent than they pay out in interest and other associated costs, was not the worst of it.

In 1999, acting on advice from the businessman John Ralph, the Howard government halved the rate of capital gains tax (CGT) payable when properties were sold.

Until the Howard government did that, says Eslake, “what negative gearing essentially did was allow you to defer tax on part of your wages and salary income, because when you ultimately sold the property, you paid tax on the real capital gain”.

So there we have it: negative gearing and capital gains tax turn housing into a commodity for personal profit, when in truth it is a human right and so should not be a way to ammas personal wealth.