What Housing Crisis?
There is no housing crisis.
Most of the recent increases in rents simply reflect that the prices of all things are going up. General prices have gone up by 5.4 per cent over the past year and rents have gone up by 7.6 per cent. If monetary policy had been implemented properly, general prices would have risen by around 2.5 per cent and rents would have risen by around 4.6 per cent.
Over the past decade the average annual rise in rents has been a measly 1.5 per cent.
Housing in Australia is becoming less crowded, not more. Over recent years the average number of people per residence has fallen slightly, and there has been little change in the average number of square metres per residence.
It may well be that we are in a homelessness crisis, given reports of increased demand for homelessness services throughout 2023. But this does not mean there is a housing crisis more broadly, or that we should be attempting to lower rents for everyone. Homelessness warrants policy tailored to those at risk.
Government should do nothing about housing.
Stamp duties, land taxes and local government rates should be abolished.
Current negative gearing rules and CGT exemptions should remain.
Doing nothing means not adopting a pro-development policy stance.
Government’s slow release of residential land, and its restraint on urban infill, may be optimal.
Land holders do not currently own the right to build as high as they wish, or to build residential properties on land not zoned as residential. Effectively, these rights are owned by the general citizenry. It could be that the general citizenry wants agricultural land on the outskirts of cities to remain agricultural, and low-rise suburbs to remain low-rise. We could find out if development restrictions reflect the wishes of the general citizenry by introducing trading into our planning systems.
It is reasonable for local government to charge developers the full cost of infrastructure for a new suburb. After all, the alternative is for local government to go into debt and recoup these costs through taxation of future residents.
Governments should not provide public housing, as government has no inherent advantages in constructing housing or being a landlord.
Government should not subsidise housing, either through public housing or subsidies to private operators providing ‘affordable’ housing. Such subsidy arrangements inevitably deliver different degrees of assistance to people who are equally deserving, depending on the vagaries of waiting lists and where the public or affordable housing is offered.
Government welfare should not be delivered as rent assistance. Under current arrangements, if an individual moves from one rental property to a cheaper rental property, or to a property where no rent is charged, the individual receives less from government. Government should not discourage such economising.
When determining its policy on migration, government should not account for the impact of migrants on rents and house prices. These are impacts on private, voluntary transactions. We should remember that, when a migrant bids up a rent or a house price, more often than not this involves a benefit to an Australian landlord or home-owner. What migration policy should take into account is its impacts in the public realm, like the congestion on public assets like roads.
Housing in Australia is becoming less crowded, not more.
Finally, tax policy should be blind as to whether an asset is a housing asset or not.
Stamp duties on housing should be abolished, as should all stamp duties, because any taxation of transactions discourages the mutual benefits of voluntary trade.
Land taxes and local government rates should be abolished. Such taxes discourage improvements to the land itself, such as efforts to improve soil quality. These taxes also discourage housing improvements, as they inevitably stray into taxing what lies on the land. And like all wealth and income taxes, these taxes discourage working and saving more than broad-based consumption taxation.
Deductions should continue to be available when losses are made, whether these losses are from investing in rental property or from other investments. In other words, current negative gearing rules should be maintained.
Capital gains tax is a bad tax, so anything that reduces its application, including the capital gains tax exemption for owner-occupied housing and the 50 per cent capital gains tax discount for individuals, should remain.
The rise and fall of prices goes hand in hand with the allocation of scarce resources to those most willing to pay for them. This phenomenon is something to be appreciated rather than lamented.
In essence, the rents we see are the right rents. If governments were to adopt a ‘do nothing’ attitude to housing, we would be better off.
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