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.
Thank you for your support. To help us in our battle to protect liberty and freedom please click here
Duncan Spender is CEO of Oysters Tasmania, having previously served as CEO of the Multicultural Council of Tasmania. He advised Senator David Leyonhjelm from 2014 and briefly served as Senator in 2019. Duncan’s early career was in local government and the Australian and New Zealand Treasury Departments.
“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.”
Is it reasonable for local govt to charge developers (aka new home buyers) for infrastructure?
I don’t think it is reasonable, for two reasons:
1. As infrastructure is for the benefit of the residents, there’s no argument that it is the residents who should pay for it.
The question is, ‘when should they pay for it?’
– Before they use it ie upfront (included in the cost of the block of land via developer contributions) or
– ‘as they use it’ (local government borrows the money to build the infrastructure and then charges the residents for it in their ongoing rates)?
Given all existing home owners in a particular local govt area – who pay the same rates as the new arrivals – didn’t have to pay upfront when they bought in decades ago, how is it fair to now start charging new arrivals who, by definition, are less able to afford the additional upfront cost?
and
2. When local government has to repair ageing infrastructure (underground pipes, road surfaces etc), local government doesn’t go door to door down these older streets asking the residents for a contribution.
No, they borrow the money and recoup it through the rates system – including in new arrivals’ rates, a portion of which goes to paying for the repairs to the older infrastructure.
“Is there a housing crisis?”, I agree, there isn’t a ‘housing’ crisis per se, but there most certainly is a ‘land’ crisis brought about by local and state government interference.
Some development ideas will proceed regardless of the timing of recouping infrastructure costs.
Other development ideas will never proceed, regardless of the timing of recouping infrastructure costs.
So we should focus on those potential developments where the decision about when to recoup infrastructure costs influences whether or not the development proceeds.
For such a potential development, suppose that the council has a policy of fully recouping infrastructure costs up front, and that because of this the development does not proceed.
That is a good thing.
Under such a scenario, the potential developer would have come to the view that the price they would need to charge to make a profit, after paying for the development and the infrastructure costs, would exceed what the market is willing to pay.
Scenarios where the costs of production exceed willingness to pay are bad business ideas that should not proceed.
Now what if the council changes its policy, and decides to not seek to immediately recoup the infrastructure costs. The developer’s costs would go down, but so too would the price home buyers are willing to pay.
Would they both go down by the same amount?
Yes, if the home buyers would alone be the ones who end up paying for the infrastructure costs through their rates.
But no, if other parties end up paying some of the infrastructure costs, such as incumbent residents in the local government area. In this scenario, the development might flip from being unprofitable for the developer to being profitable. The development might go ahead, simply because a non-beneficiary gets hit with some of the costs through coercive taxation.
So the issue comes down to risk. Should the risk that a development is a bad idea be borne by developers, or by the incumbent residents of a local government area.
When local government funds infrastructure there is no risk to ratepayers at all. Every allotment that is produced attracts rates, whether the developer sells it or not. Unpaid rates accrue against the value of the property. If, as you suggest, upfront developer contributions make a project unviable, that is not, as you state, “a good thing” at all. It simply reduces the supply of housing. Which takes us back to where we started – a (low) housing (supply) crisis.