1. GOVERNMENT AND HOUSING
Like most developed countries, Australia has a long history of government intervention in housing at local, State and Federal levels. Commonwealth governments seem to have had three objectives for their housing policies:
- assist the poor;
- assist home buyers; and
- stimulate the economy by stimulating the building industry.
Tools used have included grants to the States via the Commonwealth-State Housing agreements and otherwise, direct grants to home-buyers (First Home Owners Scheme etc.), and manipulation of the tax system and financial system (especially by interest rate controls).
For reasons discussed in section 2 below, the second two objectives tend to conflict with the first. There are also better ways of helping the poor (cash transfers through the welfare system -- see the Welfare chapter) and of stimulating the economy. The actual business of building houses, town planning, by-laws, and so on is a matter for the private sector and State and local government.
In short, the Commonwealth does not need a housing policy as such, or a Department to develop and implement it.
The other functions of the Department of Housing and Construction relate to the provision and maintenance of buildings and other constructions for other Commonwealth departments. There are plenty of private sector organisations able to perform all these functions, and there is no evidence that the Department is particularly efficient by private sector standards. It is a bureaucracy, with the inefficiency-inducing internal incentives characteristic of government bureaucracies, and little incentive to provide good service for either the taxpayer or its clients the other departments. It should go, and departments should be allowed to make their own arrangements with private-sector firms for accommodation and construction (within the limits of the Budget process).
Abolish the Department of Housing and Construction. Abolish the |
Some of the defunct Department's staff should be transferred to CES and the Department of Social Security, where other policy recommendations will temporarily increase workload. A few will be needed to run property divisions in other departments. The rest should be made redundant. Their severance pay should be structured in a way that encourages them to start businesses that can tender for contracts for building design, project management, maintenance, etc.
The functions of IPCHI should be consolidated into the reformed and independent EPAC proposed in the Government and Administration chapter. FHOS is dealt with below.
2. HOME-OWNERS AND TENANTS:
GOVERNMENT DISCRIMINATION
There are several ways in which governments discriminate in favour of home-owners and against tenants. These encourage investment in owner-occupied housing over other investments, and have brought about a much greater demand for housing services than would be the case under a neutral regime. This means higher housing and land prices, (1) less money available for other productive investments, and consequently less growth and wealth all round in the long run.
Government has provided direct financial assistance to home-buyers with the First Home Owners Scheme and its predecessors. These have been used primarily to attract votes and for Keynesian demand stimulation via the building industry. The former purpose is deplorable, if only to be expected; the latter causes more trouble than it avoids.
A second form of deliberate discrimination in favour of home-buyers is controls on interest rates for home loans. As is now well known, these have the effect of providing loans at artificially low rates to a limited number of people, and the lenders naturally prefer to choose the best risks. The result is that well-off people get cheap controlled loans and others are either shut out or have to borrow at the uncontrolled rate anyway. Low interest rates to borrowers mean low interest rates to depositors, and since low-income people (who cannot afford to buy homes) tend to be net savers, especially in savings banks, while home-buyers are net borrowers, another result of interest controls on housing loans is a transfer of income from poorer to richer. The Hawke Government's partial abolition of housing interest controls was a step in the right direction, although the retention of controls on existing loans meant that (on average) older people with higher incomes and smaller loans were gaining at the expense of younger, poorer people needing larger loans.
Transfer the First Home Owners Scheme to the Department of Finance Remove all remaining interest rate controls. |
Because home ownership has been boosted by governments for so long, each of these recommendations is a political hot potato. Interest rate controls should be removed the instant the market rate falls to the 13.5 per cent controlled ceiling and seems likely to stay there for a few months. Lower interest rates will also make it easier to end FHOS, as will careful timing (probably so that the last grants are paid early in a cyclical upswing in building activity).
The welfare system, income tax, and capital gains tax also discriminate in favour of owner-occupiers and against tenants, especially people who rent in the private sector.
The weight of numbers in a democracy in which most voters own or are buying their homes (or have spouse, children or parents doing so) makes it very hard for a government to reduce this discrimination. The social security rent allowance goes some way to help welfare recipients with low private incomes who rent their homes in the private sector, but does nothing to reduce inequity for others. Taxation of imputed income from owner-occupied homes -- which would redress the balance -- is easily attacked as unfair taxation of nonexistent income, a denial of private property rights, and an undermining of "an Australian's home is his castle". There is little prospect of anything being achieved except through a radical reform of the tax system such as that proposed in the Tax Reform chapter. If substantial cuts in government spending were made, permitting substantial tax cuts and large reductions in marginal income tax rates, a tax reform package might approach neutrality as between home-ownership and other investment. (2)
3. DISCRIMINATION BETWEEN PUBLIC AND PRIVATE TENANTS
Governments (both State and Commonwealth) have also discriminated between tenants in publicly-owned and in private accommodation. Subsidies to the former have been large; on balance the latter have been taxed rather than subsidised.
These subsidies have traditionally taken the form of below-market rentals for State Housing Commission accommodation. Not surprisingly, this has led to strong demand for such housing, and long waiting lists, while the construction of new SHC dwellings has been determined not by demand but by budgetary and loan-raising constraints on governments. The vast majority of such dwellings are owned by the States. They are financed largely by cheap loans and cash grants from the Commonwealth under the Commonwealth-State Housing Agreements.
Another disadvantage of subsidised dwellings is that once tenants have made their way up the waiting list and taken up residence, they are inclined to stay put: any move is likely to involve another waiting list and/or paying private-sector rents at least for a while. All this makes people less willing to move to a new town or state to find work.
Rather than subsidise dwellings for poor people, government should subsidise poor tenants regardless of who is their landlord. This can be done by cash transfers (preferably integrated into the social security and tax systems), by means of vouchers, or in any number of less effective and more complicated ways.
Commonwealth-State Housing Agreements since 1978 have recognised the principle of subsidising the tenant and not the dwelling, and have required SHCs to move to market rents, although the move has not been completed and effective subsidies, mainly through State government programmes, to low-income SHC tenants remain much greater than those to low-income private tenants.
The current Commonwealth-State Housing Agreement should be the |
Implementation of the above proposal will strengthen the position of poor people in the private rental market. The States will be free to continue other forms of housing assistance, including the construction of new SHC dwellings, from their own resources for people who have especial difficulty in finding affordable accommodation, but with no direct Commonwealth assistance they will feel more pressure to run their housing commissions efficiently.
4. BY-LAWS: FORCED CONSUMPTION OF HOUSING SERVICES
Much state and local government intervention in housing has harmed poor people and first home buyers by setting standards for what is in effect a minimum per capita consumption of housing services. Examples are by-laws and planning requirements relating to dimensions of rooms, window sizes, construction materials, block areas, height/plot ratios, and so on. Some of these are clearly justifiable on grounds of public safety or convenience (effective sewerage and isolation of the water supply from the drains, and a fuse at the switchboard so that a fault in one house does not black out the neighbours, for example). Some -- such as delays in approving the use of plastic drains, or Western Australia's effective prohibition of the brick veneer construction used everywhere else -- seem unjustifiable. All of the restrictions increase the cost of housing and reduce the housing options of the poor. Much the same can be said of some town planning (zoning) laws.
There is little the Commonwealth can do about these things directly.
The Government should encourage the States through the Advisory |
It should set an example in the ACT. Any progress in this matter will reduce the cost of housing. This will especially help first-home buyers and so ease the abolition of the First Home Owners Scheme.
ENDNOTES
1. These are also affected by constraints on the supply of land for housing. These can be natural (Manhattan, Hongkong, perhaps Sydney) or artificial (caused by town planning laws almost everywhere).
2. See also the Welfare chapter.
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