Major Parties Peddling Short Term Solutions on Housing Affordability: Economist

(L-R) Australian Prime Minister Scott Morrison, federal opposition leader Anthony Albanese. Martin Ollman/Getty Images, AAP Image/Lukas Coch

Both major parties are dealing with Australia’s housing affordability issues with short term responses that will only drive up the cost of homes, according to the chief economist at the Centre for Independent Studies, Peter Tulip.

Tulip’s comments come after the federal opposition Labor Party announced its housing affordability strategy on May 1.

The centre-left Labor Party will assist 10,000 eligible Australians with buying newly built homes by bankrolling 40 percent of the cost in exchange for an equity stake; for existing homes, the government will pay 30 percent. Once the mortgage is paid off, the homeowner will choose to either sell off the property or acquire the stake from the government.

Homebuyers will need to have a two percent deposit, qualify for a home loan, and will not need to pay Lenders’ Mortgage Insurance (potentially saving over $30,000).

The “Help to Buy” program is not limited to first home buyers and will cost the government $329 million (US$232 million) over the three-year forward estimates period.

The Labor Party has placed a cap on the amount it will help fund, depending on location. For example, in Sydney or other major population centres in New South Wales, the program will only be eligible for homes costing under $950,000, with the government funding a maximum of $380,000.

Table of the Australian Labor Party's "Help to Buy" housing affordability program that will see the government pay for a portion of a property (in exchange for equity) for 10,000 Australians.
Note - Regional centres include Newcastle and Lake Macquarie, Illawarra, Central Coast, North Coast of NSW, Geelong, Gold Coast and Sunshine Coast. (Supplied/Australian Labor Party).

“After nine long years in government, housing affordability has only got worse under the Liberal-National Government,” federal opposition leader Anthony Albanese said in a statement. “Help to Buy is part of Labor’s plan to tackle the housing crisis.”

Jim Chalmers, the shadow treasurer of the Labor Party, said there was a “housing crisis in Australia.”

“Many people on modest incomes have been forced to give up the Australian dream. Help to Buy will address this,” he said.

Yet, Tulip called the policy a “subsidised loan for new home buyers” and will have little impact on the millions of other Australians entering the housing market each year.

“They are symbolic gestures to give an impression that the politicians care,” Tulip said in a statement to The Epoch Times.

“Demand-side subsidies like this help the lucky 10,000 recipients. But they will use this money to bid up the price of houses,” he added.

Tulip said the incumbent centre-right Coalition government’s policy had similar problems.

In late April, the federal government announced its Home Guarantee Scheme—with bipartisan support—that will see the government pay 15 percent of a deposit of a home for 50,000 Australians, with only five percent needing to be paid by the prospective homeowner. The 50,000 slots have already been filled.

“Again, this adds heat to the market, making housing less affordable for everyone else. It also encourages risky lending, amplifying future housing bubbles,” Tulip said.

The economist called for longer-term solutions, including boosting supply and increasing density limits in parts of the capital cities.

“Expert report after expert report finds that planning restrictions are limiting supply, which forces up prices,” he said, which according to a 2020 paper authored by Tulip, has driven up average house prices in Sydney by 73 percent, Melbourne by 69 percent, Brisbane by 42 percent, and Perth by 54 percent.

The Labor announcement also did include re-establishing the National Housing Supply and Affordability Council, a body of experts in urban planning, finance, and construction, to set targets for land supply and collect data on housing supply. Labor will also double fees for foreign investors, which it estimates will raise around $445 million over the forward estimates.

While Master Builders Australia said the initiatives did lay the groundwork for tackling housing affordability, more work was needed to be done in coordinating between state and federal governments.

“Our members tell us that supply issues, that are a state and territory government responsibility, need federal government leadership to facilitate and incentivise the resolution of this long-standing problem,” Denita Wawn, CEO of Master Builders Australia, said in a statement. “Putting housing into the federal infrastructure department brings together key infrastructure levers into the one Department, will support a better implementation effort.”