TREASURER:
I welcome the release today of the Productivity Commission's Draft Discussion on Home Ownership. It is a very welcome and useful contribution to understanding this issue and what is the drivers behind the housing market.
Home ownership in Australia remains one of the highest levels in the world, and the overall trend in the number of first homebuyers has been broadly consistent over the last decade, and since the mid 1990s has actually trended upwards. That is, on trend terms, home ownership has been a little higher for first homebuyers since the mid 1990s.
There has obviously been a very large rise in prices in Australia since the mid 1990s and the Productivity Commission finds that the factors behind that are low interest rates, availability of credit, strong job creation, which has led to more people having the incomes which can support mortgages and support higher mortgages. And many people during that period have taken the opportunity to actually increase the standard of their housing.
Notwithstanding that, the Productivity Commission believes that in the last couple of years, prices could have risen more than expected and it actually sees some sign of cooling off now coming into the market. That is, that supply might be now in some sections of the market greater than demand and that in the investor area of the market, very low yields may now be indicative of a price correction.
I welcome the fact that the Productivity Commission has also looked at the supply side of this market. It believes that the supply responses are quite slow. That is, when demand picks up, it's quite slow in getting additional supply into the market with land release policies and it has made some recommendations in that area as well, as to how land could be released quicker, how some of the disincentives that apply when people are buying or selling, mainly stamp duties, operate in this area to get supply and demand out of whack. And it has raised a couple of issues there which I think State Governments could look at and very seriously examine.
This is a draft discussion paper, the Productivity Commission will take additional representations before it brings down its final report. But it is a good report. It sheds a lot of light and I think it explodes a lot of misconceptions about what has been happening in the housing cycle and the Government will very carefully consider it.
JOURNALIST:
Would you be prepared to consider means testing First Home Ownership Grant?
TREASURER:
Well, the First Home Ownership Grant was not introduced as a grant to get people into the market. It was introduced as an offset for GST. That is why it was made available to everybody, because everybody does pay GST. That is why it has been operating in that particular way. It wasn't introduced as a low income assistance measure. It was introduced as a cash compensation measure. But, everything that the Productivity Commission has put on the table the Government will consider. I am not ruling any options in, I am not ruling any options out, at the moment.
JOURNALIST:
What about negative gearing? Doesn't that encourage investment by restricting supply for first homebuyers?
TREASURER:
I think as the Productivity Commission found, and it is very interesting on that point. There's a lot of people think that negative gearing is unique to the property market. It is not. Negative gearing applies to equity markets and other investments. All negative gearing means, is, if you are making a loss on one investment, you can set it off against income in other areas. And the Productivity Commission says, if you want to look at negative gearing, you have got to look at a lot more than housing and the property market. You will have to look at business generally. And I think it is a very astute comment. The Productivity Commission does find, and I think there is something in this, that one of the reasons why a lot of investment went into property in the last couple of years, is that equity markets were weak. That is, just as Australia's economy was strengthening, more people had more income and interest rates were low, and they had the capacity for investment, equity markets were weak. That is one of the reasons why people invested more in property markets than equity markets. But having said that, I would urge you to look at the yields that now apply on investor housing. They are very low. And what that is telling you, I think, is that if you want to be an investor in housing and you are looking for rental yields, it is not a very good return at the moment. Because as the Productivity Commission says in this report, no quick fixes here, no magic bullets. The housing market is very much tied to the overall state of the economy and that when supply and demand get out of whack, it starts to correct itself like in other areas of the economy and there may be signs that that is now happening.
JOURNALIST:
Mr Costello, on a separate issue, Mark Latham has flagged possible changes to MPs superannuation. Do you think politicians can justify their current super arrangements given that they are slightly out of step with the community standard?
TREASURER:
Well, this Government put in place preservation, the same preservation rules for MPs that were elected at the last election, as apply in the community generally. And that has been the traditional complaint. If Mr Latham has any specific proposal other than that he should put it up and we will carefully have a look at it.
JOURNALIST:
Would the Government consider changing the structure if they were, if the Opposition were to put up something similar?
TREASURER:
Well, the Opposition hasn't put up anything. It is just another example of thinking aloud. But if they put up something, of course we will carefully analyse their policy. But the Government has already introduced the same preservation requirements for MPs that were elected at the last election. And that has been the major complaint.
JOURNALIST:
Housing affordability has fallen to I think to a level of the middle of `90s. Do you have any encouragement for those who are looking to buy a home?
TREASURER:
Well this is where I think, I think this is a very interesting report, the Productivity Commission Report. What does it find? First of all it finds that the number of first homebuyers is not declining. It has been pretty stable over the last decade and it has actually trended slightly upwards since the mid 1990s. Secondly, what does it say, it says, as interest rates came down, people started borrowing more. You would expect that. That is one of the reasons, by the way, why you reduce interest rates, so people can borrow more. They took the opportunity to either buy bigger homes or more desirable homes. So, the low interest rate environment actually led to a better standard of housing. You had to pay more for a better standard of housing, but it enabled more people to get a better standard of housing. Thirdly what does it then say? Well it says that, obviously, as your prices start rising, if they become unsustainable, you get corrections in the market. And we are beginning to see corrections in the market. So, I think it has brought forward a whole lot of rationality to this whole debate, that this is a market like other markets, it is influenced like other markets, it corrects like other markets and it responds to both supply and demand like other markets. And if you are asking me about the price question, I would agree with what the Productivity Commission has found. I believe that there is a cooling-off going in the market at the moment.
JOURNALIST:
Mr Costello would you see a further need for interest rate rises?
TREASURER:
Well I am not going to comment on the future direction of interest rates. But I will say this, that the interest rates that are slightly over 7 per cent for a standard variable mortgage rates, are still very low by historical standards. And you can see here in one of these graphs, I think figure 3, as mortgage rates came down, because people were paying less, they were able to borrow more. And many people took that as an opportunity to move, to get a better standard of housing, maybe to do a renovation. And it actually led to increasing living standards, and one of the main reasons for house prices going up, is that living standards in Australia have been supported by good strong jobs growth.
JOURNALIST:
Mr Costello the dollar is heading towards US 75 cents (inaudible) do you see any problems next year if the currency continues to go up?
TREASURER:
Look, it would help our exporters if the dollar were lower. And during the period of 2000-2001 when the dollar was, at some stages, as low as 50 cents against the US dollar, that was a great thing for our exporters. And a lot of Australians say to themselves well the dollar has risen, it has risen 30 per cent this year, that is good if we are going on an overseas holiday. But we don't particularly want people to go on overseas holidays we would like them to stay and holiday in Australia, keep the Australian tourism industry strong and we would like to see our exporters have help commensurately. So I acknowledge that this currency has risen markedly over the course of this year, 30 per cent, and that has been pretty tough for our exporters.
JOURNALIST:
Do you agree with the Commission that stamp duty should be abolished and if so, how should the States be compensated?
TREASURER:
Well, the Commission says that stamp duty is producing an enormous windfall for State Governments, and it has. Low interest rate environment, strong job creation, house prices have gone up, States have produced a windfall. And I do agree that if stamp duty were lower, people would have the opportunity to take advantages in the market, it would be easier to trade up or down and of course State Governments, of course, have got to manage their own budgets. This idea that State Governments have got to be compensated for cutting its taxes. State Governments can actually cut taxes you know. They can actually as sovereign governments control both revenues and expenditures. And I wouldn't fall for the proposition for a moment that a State Government can't cut its taxes, or it has to be compensated by somebody to do so. This is all part of economic management.
JOURNALIST:
What about Federal Governments? Can they cut taxes?
TREASURER:
Yes. The Federal Government cut taxes in the May Budget by $2.4 billion this year and by $10 billion over the forward estimates, that was income tax cuts. And we always keep an eye on the tax levels, believe me.
JOURNALIST:
Are there any plans at all to wind up the First Home Owners Scheme?
TREASURER:
No.
JOURNALIST:
Do you agree with the Commission's view that a lot of the grants are going to people that either don't need the money or would have bought a house anyway, in the not too distant future?
TREASURER:
Well, it was introduced as a compensation measure for GST. That is, that purchasers would pay GST on housing, all purchasers who purchase new housing, and all purchasers who purchased established housing would be purchasing in a market where prices have risen. And it was introduced as a compensation measure. It was not introduced as a targetted assistance. It was introduced as a compensation measure. Now I have said before, we will keep all of these options on the table. But that is how the First Home Owners Scheme got there.
JOURNALIST:
Treasurer, can I just ask you about Point Nepean? The National Parks Association is questioning why the Federal Government couldn't have come up with the $10 million to set the area into a park rather than relying on a anonymous benefactor that has come along. Why couldn't the Government come up with the money (inaudible)?
TREASURER:
I think a benefactor came along because a benefactor wanted to see a particular need met. And as I understand it, it is for families that are suffering. And I think people like that, are wonderful people. I don't think anybody should disparage them for doing that. I think we ought to welcome their contribution, we ought to acknowledge the wonderful thing that they have done. And not only will it help kids that are suffering and their families, but it will find a use for these buildings. Now we can find a use for the buildings that are there. They can't be pulled down. They have to be maintained and if one of the uses can be to support children and families in distress that is a wonderful use. Thanks very much.