1 May 2015

Address to the Melbourne University Transforming Housing Affordable Housing Summit


Check against delivery

The 1997 hit movie The Castle was a great success because it tapped deep into the Australian psyche. A story about a man and his love for his home. To Darryl Kerrigan, his house was not just ‘a structure of bricks and mortar’, but a physical manifestation of a secure loving family.

Some eighteen years later what remains constant is that home ownership, and the related issues of housing supply, investment and ultimately affordability remains integral to the Australian dream.

The availability of housing in Australia is spectrum, with the ability to find stable, affordable shelter is at one end, right through to those that are in market to purchase luxury accommodation.

While housing fulfils our basic need for shelter, it is ideally, so much more than that. It underscores our personal security and health, informs our sense of self through connection to family, friends and community and underpins our financial security through access to services and work. For the majority of Australians who own their own home – it is their largest single asset and the foundation from which they provide for their own families.

What happens at one point will have an impact on other points of the housing spectrum. For example, changes in the private rental market will impact the first home buyers’ market and those that are seeking publicly supported accommodation.

As the Parliamentary Secretary to the Treasurer I take special interest in housing affordability as there can be little doubt that it underpins the wellbeing and capacity of every individual and family.

Today the total estimated value of residential dwellings in Australia is $5.4 billion.1 Australians are opting towards a reduced block size2 and a preference for larger, higher quality dwellings, despite relatively smaller household sizes.3

In the days of The Castle, twenty years ago, 85% of first time buyers with mortgages purchased detached homes. While the overwhelming majority still do at 78%, there has been a clear drift from detached to medium and high density living.4 Furthermore it would appear that over the last decade, based on a falling share of approved home loans, first home owners are declining as a proportion of the total property market, while the average loan size for this group has increased over the same period by 58% to $332,000.5

From the mid 1990s and early 2000s, house prices were between three and a half to four and a half times average annual earnings, but by 2003 this had risen to a ratio or five times or more.6

In April 2015, the median national asking rent per week for all houses was $412 and $341 for all units. The number of vacant rental dwellings was around 64,000 in March 2015.7

Undoubtedly the factors affecting housing supply and affordability are complex. Employment and the economy, the cost of finance, land supply, population growth and demand, associated infrastructure, state planning and local government regulations, stamp duty, and even building costs and other tax arrangements all play a role.

There is strong evidence to suggest that housing supply has not kept pace with population growth in recent years. Between 2005 and 2013 Australia’s population grew at an average annual rate of 1.7%, one of the highest in the OECD. However housing stock grew at only 1.5% over the same period. The cumulative gap, between underlying demand for dwellings compared to the supply of dwellings, was approximately 228,000 by June 20118 and this does not take into account investor demand.

However statistics only take us so far in this debate as census data shows that over the past 15 years that number of persons to dwelling has not increased9, which is contrary to what one might expect in a housing shortage.

This underlines the complicated and multi-faceted story of Australian housing. In addition, the situations in Melbourne and Sydney are also different to the other capitals and regional areas, and within specific areas of each market there are also unique characteristics and trends.

A Moody report released this week found that based on the percentage of household income spent on mortgage repayments, Sydney households spend 35.1% of their incomes on housing - up from 32.8% in 2014 (and higher than the 10 year average). Similarly, based on this measure affordability, Melbourne is also deteriorating. But elsewhere, in cities like Perth, Brisbane, Adelaide, or Darwin affordability is steady or improving with vacancy rates in Darwin almost double that of Sydney (ie. 3.5% in Darwin compared to 1.6% in Sydney).10

Generally speaking the Commonwealth has few direct policy levers with which to affect supply.

The Government considers that the key to addressing the root problem with home purchase and rental affordability across Australia is to ensure that housing supply is better able to respond to demand.

In this the Government has been encouraged by the improvement in new housing supply across a number of states and territories, with a significant increase in dwelling approvals in 2014 to around 200,000.11

While this is encouraging, there remains more to be done to ensure that this new level of development is maintained to both reduce the current shortage of housing supply and ensure that, over the longer-term, Australia is able to provide sufficient new dwellings to accommodate its growing population.

While the Commonwealth is not primarily responsible for housing, it does provides significant funding to the states and territories for affordable housing, with approximately $1.3 billion per annum under the National Affordable Housing Agreement (NAHA).

Commonwealth Rent Assistance also supports around 1.3 million singles, couples and families with children who receive an average $111.00 a fortnight to assist with their rental costs. The Australian Government spent an estimated $3.95 billion on Rent Assistance in 2013-14, and will spend an estimated $4.35 billion in 2014-15.

Reinforcing the Commonwealth’s commitment to housing and homelessness, we recently announced a further $230 million over two years from 1 July 2015 to ensure that the National Partnership Agreement on Homelessness (NPAH) continues.

The Government remains committed to delivering up to 38,000 affordable rental dwellings within the National Rental Affordability Scheme by 30 June 2016.  The Government also remains committed to improving the administration for existing dwellings in the scheme and is looking at improved models to deliver affordable housing to those who most need it.

Many people who cannot access affordable accommodation face very real and particular challenges. For instance, mental health and disability. In order to better support people with a disability, through the National Disability Insurance Scheme, eligible participants will receive individualised planning to identify the supports needed to meet their goals.

In terms of housing, this support is expected to focus on helping people to live as independently as possible and to maintain their tenancies.

Additionally, as announced by the Disability Reform Council on 24 April 2015, the NDIA will develop and test innovative accommodation pilots in trial sites that will help to expand the supply of appropriate and sustainable integrated housing and support models for people with disability. This effort will be in addition to the ongoing mainstream housing effort of States and Territories.

In the federal sphere concerns are occasionally raised around negative gearing and capital gains tax having an impact on housing affordability and housing supply.

Some in this debate highlight that negative gearing is used by middle income Australians particularly younger Australians, to try and get ahead and build a financial future for themselves and their families, while providing a much needed capital injection for new stock into the housing market. Nevertheless, the Government has recently commenced a tax discussion, as part of the White Paper on Australia’s Tax System process, with the release of the tax discussion paper. This process will include an extensive inquiry into all major elements of the tax system that relate to housing, including negative gearing, capital gains and state taxes, for which the Treasurer has portfolio responsibilities. The Government is encouraging all interested parties to make submissions as part of this process. Submissions on the discussion paper can be made until 1 June 2015.

I am also aware that Anglicare this week has highlighted that there is a need for leadership on housing and homelessness from all levels of government. The Government has initiated a number of review processes that have, or will touch upon, the issues and policy settings affecting housing affordability.  These processes include the Forrest Review of Indigenous Jobs and Training, the McClure Welfare Review, and the Financial System Inquiry.

The Senate is also conducting an Inquiry into Affordable Housing, which will provide its report by 8 May 2015.

Longer-term arrangements for housing assistance and homelessness services will be considered in the context of the White Paper on the Reform of the Federation, which will examine the roles and responsibilities of the Commonwealth and state and territory governments in delivering affordable housing and addressing homelessness throughout Australia. The Government will take into account the findings and recommendations of all of the review processes it has initiated to determine what actions are required to implement a realistic, pragmatic and long-term solution to the issues Australia is currently experiencing around housing affordability. In addition, forums, such as the forum you have been conducting over the past two days, will help deepen our understanding and feed into the potential solutions.

Another aspect over which the Federal Government has jurisdiction is foreign investment in the housing market.

To this end, in March of last year, the Treasurer tasked the House Standing Committee on Economics to inquire into foreign investment in residential real estate and to advise as to whether the framework, as administered by the Foreign Investment Review Board (FIRB), could be enhanced.

Since the 1970s we have had rules in place to manage foreign investment. These rules enable increased scrutiny in areas of greater sensitivity for example the telecommunications or media industries or where the investor is owned by a foreign government.

In the case of residential real estate, it is the intention, that foreign capital increases overall supply of housing with the obviously corollary - all else being equal – to increase supply and affordability of housing for all Australians, with ancillary benefits of stimulating our housing sector and the economy.

Foreign investment is encouraged in new dwellings whether they be apartments, units or homes because in addition to creating more supply, it also creates more jobs for the building and construction sector.

Non-resident foreign investors, while they can purchase new dwellings cannot generally purchase existing dwellings. Applications to purchase new dwellings are therefore generally granted, while applications to purchase existing homes are only granted if the purchaser is a temporary resident. Temporary residents in Australia, that is those people who have a visa to reside in Australia for over 12 months, are allowed to purchase an existing dwelling as a home but they must divest that home within 3 months of leaving the country at the expiry of their visa.

All foreign investors in residential real estate must apply for approval from the Foreign Investment Review Board (FIRB) prior to purchase.

With increasingly mobile capital, and anticipated growth of the middle class in Asia, from 500 million people to 2.5 billion people over the next 15 years, it is not unreasonable to expect that foreign capital will continue to be in search of stable property investments into the future.

While not necessarily having a direct effect on overall aggregate prices, the RBA confirmed last year that foreign investors, in a competitive residential purchasing environment, has the potential to impact property prices in the established market in certain suburbs.12

Indeed the ANZ Chief Economist recently noted that the property sector was a bright spot in the broader Australia economic outlook and that this was particularly the case in those cities attracting foreign capital such as Sydney, Melbourne and Brisbane.13

According to the most recent FIRB statistics, last financial year, FIRB approved foreign investment into residential property of around $34 billion, double the $17 billion approved during 2012-13. Much of this investment is concentrated in the Melbourne and Sydney markets. Approximately 80% of total investment is attributable to new property, which at over $27 billion 2013-14 is 170% higher than 2012-13. The total number of established property approvals for 2013-14 is nearly 8,000 as compared to just over 5,000 for 2012-13.14

Over six public hearings, and after considering more than 92 submissions, the Economics Committee had four key findings that translated into 12 practical recommendations.

In short the Committee endorsed the existing framework for foreign investment in real estate but found that data capture, enforcement and compliance all needed to be markedly improved to enable increased public confidence and improve future public policy development.

The Government has accepted each of the recommendations and has recently closed submissions on an options paper where we received over 180 submissions.

Very soon the Government will announce action that we will take to strengthen Australia’s enforcement of it foreign investment regime in order to ensure that its intended aim of increasing supply is realised.

It is our belief that strengthening the existing regime will reinforce its intended aims of encouraging foreign investment into building new dwelling stock – which has the impact of containing housing prices.

I would like to thank you for inviting me to speak to your Summit on housing affordability and supply. I commend all participants of their active consideration of the options paper in order to progress the fundamental yet complicated issue of how as a society we house our people. I note that the options paper considers a number of areas where the three levels of government have roles including regulation and policy; investment and finance, partnerships with philanthropic and social investments as well and the important question of land availability. I look forward to conveying the Summit’s findings and the paper to the Hon Scott Morrison, Minster for Social Services for his active consideration, along with the Assistant Minister for Infrastructure and Regional Development, the Hon. Jamie Briggs.

1 ABS Residential Property Price Indexes: Eight Capital Cities, Dec 2014 (ABS Cat. No. 6416.0).

2 Urban Development Institute of Australia, The State of the Land Report, March 2014.

3 Australian Housing and Urban Research Institute, AHURI submission to the Senate Economics References Committee’s Inquiry into Affordable Housing in Australia, March 2014.

4 ABS Housing Occupancy and Costs, 2011-12 (ABS Cat. No. 4130.0).

5 ABS Housing Finance, Australia, Dec 2014 (ABS Cat. No. 5609.0).

6 Before of the Federation White Paper, Roles and Responsibilities in Housing and Homelessness, Issues Paper 2, p 28, March 2014.

7 SQM Research Rental Residential Dwellings (March/April 2015)

8 National Housing Supply Council, Housing Supply Affordability – Key Indicators, 2012.

9 Australian Bankers’ Association, Key truths on housing in Australia, March 2015

10 Moody’s Investor Services, Global Credit Research, 27 April 2015

11 Source ABS

12 House of Representatives Standing Committee on Economics Hansard, 27 June 2014, p8.

13 ANZ Property Council Survey, April 2015.

14 Foreign Investment Review Board, Annual Report 2013/2014.