Thank you for that introduction, I am very pleased to be here to discuss issues and solutions. Today I want to talk about Housing. It’s an important social and economic issue. When you don’t have a roof over your head, everything gets harder. This is my third address in a series on Housing where I have sought to peel back the layers of Australia’s housing markets, defining what our challenges are, and plotting a course to successful outcomes.
And our challenges are many and varied, but let me summarise. There is no single national housing market. Housing needs exist across a spectrum.
Just over two thirds of households are owner occupiers, and almost a third rent - a quarter rent in the private market, and just under five per cent rent through community housing providers at sub-market rates or in public housing. For those who have already purchased a home, mortgage serviceability remains better than its 20-year average. That said, the share of median household income spent on mortgage payments has increased by more than half for 25-34 year olds between 1981 and 2011 and more than doubled for 35-44 year olds, with each paying around 25 per cent or more of median household income on their mortgages.
For those trying to buy, home ownership is becoming much harder. While the proportion of Australian households that own their home has fallen from 71 per cent to 67 per cent over the last two decades, more alarmingly, home ownership rates are falling across all age cohorts, but particularly for young Australians. Between 2002 and 2014, Australian home ownership among 25-34 year olds declined from 38.7 per cent to 29.2 per cent. That is more than 160,000 young people that would otherwise be home owners. For 35 to 44 year olds it fell from 63.2 percent to 52.4 per cent.
And the proportion of home loans provided to first home buyers dropped to 13.3 per cent in February, well below the long-term average of 19.4 per cent. Between June 2010 and June 2015, the time taken for a dual income couple to save for a 20 per cent deposit in Sydney increased from 5.8 years to 7.9 years. In Melbourne it increased from 5.3 years to 5.8 years. The Productivity Commission noted in 2015 that the most frequent use of superannuation lump sums was to fund housing, including paying down mortgages and renovations.
Around a third of Australian households are renting. Despite high price growth in Sydney and Melbourne, rental growth has been far more modest at just 1.5 per cent and 2.2 per cent respectively. However, just because rental growth has not mirrored house price increases, does not mean the rental sector has avoided affordability challenges. Around 47 per cent of low-income rental households in our capital cities spend more than 30 per cent of their household income on housing costs. Renters with higher incomes, often first home buyers between 2006 and 2011, are increasingly staying in the private rental market for longer. The shortage of affordable and available dwellings for households on the lowest 20 per cent of incomes, which deducts affordable dwellings occupied by those on higher incomes - the crowd out factor - was 271,000 dwellings in 2011, up from 211,000 in 2006. For the next highest household income quintile, there was a shortage of 122,000 affordable and available dwellings in 2011, up from 87,000 in 2006.
Couple families with dependent children represent more than one in five rental households. Between 1981 and 2011, the proportion of lone person households who are renting fell from over 40 per cent to 25 per cent. Over 85 per cent of private renters move within five years and almost one third of moves are forced. This is three times the rate of other tenures. Furthermore, since around 2007 private market rents have increased more than Commonwealth Rent Assistance. So despite 80 per cent of recipients receiving the maximum payment, 40 per cent still suffer rental stress.
To top it off, community or public housing wait lists are approaching 200,000, while the supply of social housing dwellings, inclusive of community housing stock, has risen by just 13,672 over this period. A quarter of a million people were accessing specialist homelessness services. 27 per cent of Australia's housing stock is owned by investors, with just five percent owned by public housing and community housing agencies. The balance is owner occupied. By contrast, in the UK just 18 per cent of stock is owned by investors. And unlike in Australia there is greater institutional ownership of residential real estate in the UK and even more so in Europe and the US. The UK also has a far greater social and affordable housing sector. Again 18 per cent of stock in the UK is owned by social housing providers, more than three times Australia's proportion.
UK stock transfers have contributed significantly to a new housing sector that has been innovatively and creatively meeting new housing policy goals in a post grant environment. Our public housing stock remains overwhelmingly tied up on State and Territory Government balance sheets, where it is neither leveraged nor recycled, except in a small number of cases, such as in NSW. Instead we have ageing stock becoming more obsolete by the day, propping up State Government books rather than providing sustainable affordable housing.
So, it's getting harder to buy a home, impacting even retirement incomes. Australians are taking longer to save for a deposit, using more of their income to pay down their mortgage, and therefore taking longer to own their home. Second, If you think housing affordability is just about buying homes, then you have ignored 30 per cent of Australian households. Third, because Australians are staying in rental accommodation longer, those on low incomes are being crowded out of the rental market and forced into social housing. And of course, when those waiting lists surge, the pressure increases on homelessness services. Fourth, there is no single housing market, if you make sweeping adjustments to policy settings in housing, you risk cooling some red-hot markets while at the same time, causing a collapse in markets that are weak. Fifth, we are not building enough homes, including affordable rental accommodation, where our housing market is one dimensional. These are the challenges, now here are the solutions.
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Providing people with security, opportunity and fairness is the first and fundamental role of government. Fairness does not merely view housing affordability through the narrow lens of first home buyers and those facing the monumental task of saving for a home in Sydney and Melbourne, where prices have galloped off into the distance. Fairness must have a broader view. Fairness is having a depth of understanding that Australians all the way along the housing spectrum can face affordability pressures. And all need to be offered credible solutions that fit their need, whether that be a domestic violence victim sleeping in their car or an elderly couple looking to downsize their home to more appropriate accommodation so they can age in place.
It’s true that there are no silver bullet solutions to making housing more affordable or reducing homelessness. Anyone who holds out such hope is not being honest with you. But it’s also true that by adopting a comprehensive approach with national leadership, by working together, by looking across the whole spectrum of housing needs, we can make a difference.
Addressing Homelessness needs a heart and mind approach from governments
We are not providing holistic answers to housing affordability if our focus is only on those lucky enough to have a roof over their heads. On Budget night, I announced our plan to establish a new set of National Housing and Homelessness Agreements with the State and Territory governments. The current National Affordable Housing Agreement to be frank, is not achieving its objectives. It’s a one-way ATM providing important resources, but without the accountability or transparency. The new national agreement will retain current funding and indexation arrangements, but will require concrete outcomes and benchmarks to be met. I also announced homelessness services will receive an additional $375 million over the three years from 2018-19. This funding continues the Government’s commitment to front line services that help Australians who are homeless — many of whom are women and children affected by domestic violence. To complement this, we will also invest $10 million in social impact projects targeted at improving housing and welfare outcomes for young people at risk of homelessness. And the Government will also promote rent-to-buy and shared equity schemes to support low income Australians own a home.
We are inspired by the incredible work this sector does in caring for the homeless and getting vulnerable Australians into homes. And we want to continue to back you in, encourage you, and ensure you have the resources to beat homelessness across this nation. One of the hundreds of organisations kicking goals in this area is the Big Issue. This organisation is front and centre in fighting for the plight of homeless Australians, helping them regain confidence and a few dollars in their back pocket. So I am pleased to announce the Government is providing $6 million to the Big Issues’ ‘Homes for Homes’ initiative. This is wonderful initiative which encourages homeowners and developers to donate 0.1 per cent of a property’s sale price to fund new affordable housing.
Such causes help people like Sarah. Sarah was born into struggle, growing up in a disadvantaged family on the dust plains of remote Queensland, where violence and poverty were brutal daily realities. Drained from an abusive relationship in her 20s, Sarah decided to escape, taking her three children to Melbourne to live with her aunty. But life in cramped accommodation was far from ideal, and it wasn’t too long before Sarah was living on the streets, bunkering down in the cold and the dark with her three children by her side, the only help coming from kindness of strangers. Life doesn’t get much more desperate, made all the more harrowing with three children in tow, themselves born into the same reality of struggle as their mother endured as a child. This is where the Big Issue shines. Sarah was able to secure work with the Big Issue and before too long, was given the dream she longed for _ a roof over the heads of her children, something we all too often take for granted.
Sarah says: “The best thing about having a place to call home is being able to lock the door at night and know my kids are safe.’’ “Having secure housing means I can focus on going to work, earning an income and being independent. I don’t owe anyone anything. But more importantly, I am being an inspiration and role model for my children.’’ That is why we need to act. For Sarah. We cannot look the other way.
To ease housing affordability, we need to build more homes
I have long proclaimed that housing affordability is predominantly an issue of supply. The reason why homes in our capital cities have skyrocketed in recent years is because we simply aren’t building enough homes to keep up with the insatiable demand. With this in mind, we have announced several practical measures and partnerships to accelerate the delivery of new housing. First, we’ve established a $1 billion National Housing Infrastructure Facility to provide a range of financing options to local governments. We appreciate that the high costs of building critical infrastructure can delay housing developments and slow the supply of new homes. The Infrastructure Facility will allow councils to unclog infrastructure bottlenecks and bring forward the supply of new housing.
Second, we’re doing our bit in unlocking land. Yesterday, I had the pleasure of visiting the Department of Defence land in Maribyrnong, just 10km outside of Melbourne’s CBD. Here, we have given a commitment to release the 127 hectares of surplus land for the creation of a new suburb, where up to 6000 news homes will be built and employment hubs established. We’re also moving to develop an online Commonwealth Land Bank to allow other levels of government, private businesses and community groups to join us and bring forward proposals to turn vacant land into suburbs. Consider the Commonwealth Land Bank officially open for business, starting with Maribyrnong.
Third, as mentioned earlier, we’re reforming state payments as part of the new National Housing and Homelessness Agreement. Here, we’re aiming to increase the supply of new homes by rewarding state and local government planning reforms that speed up the development application process, and allow for increased density in appropriate areas. From 1 July 2018, people aged 65 and older will have a new cap of $300,000 to which they can make a non-concessional contribution to their superannuation after selling their home. This allows a couple who sell their $1.2 million home to make a combined $600,000 non-concessional contribution into superannuation, regardless of how much they already have in their super.
To build more homes, we need to unleash the supply of affordable housing and pave the way for more institutional and private investment.
Easing housing affordability should not just be our job, but a sound investment of corporate and private investors. We just need to ensure there are enough incentives and the return on investment for institutions to be encouraged to invest. It has been a great disappointment to us that there has been virtually no increase in affordable housing over the last decade in Australia. But clearly there hasn’t been enough incentives to attract private capital, institutional capital, and superannuation funds into the market. Devoid of options here in Australia, our own super funds are investing in affordable housing in the United Kingdom. We need them to invest in such projects here.
Therefore we will establish a new National Housing Finance and Investment Corporation by 1 July next year. NHFIC will operate an affordable housing bond aggregator to provide long term low-cost finance for affordable housing providers, giving investors the confidence to invest in the sector. These measures build on our commitment to establish direct rent deduction for social housing tenants, which will improve rental income streams for community housing providers. To increase supply, we’ve also introduced tax incentives to boost investment in affordable rental housing, increasing the capital gains tax discount on such projects, taking the discount from 50 per cent to 60 per cent for investors.
From 1 July 2017, Managed Investment Trusts will be able to acquire, construct, or redevelop affordable housing to hold for rent. These reforms will provide foreign and domestic investors, including superannuation funds, with a new way of accessing long-term, stable investments in the property sector and lead to more affordable housing.
To ease housing affordability, we need to help both young Australians save for a deposit, and support retirees who wish to downsize
One of the biggest gifts we can give to the current generation of young people, is the ability to afford a new home. The mountain that faces young prospective home buyers seems insurmountable at times. And I know some Australians have given up on the idea altogether as they helplessly watch house prices zoom off into the distance, and conversely, watch their wages barely trickle along. We want to make it that little bit easier, giving some relief that may be the difference in building a deposit months, if not years earlier. To ensure the dream of homeownership isn’t something that only their parents or grandparents could grasp hold of.
Our First Home Super Savers Scheme seeks to do that, by providing young Australians with a tax cut on their savings, allowing them to build a deposit in their superannuation account that would attract generous tax concessions and potentially double-digit earnings. If you are on $70,000 and you salary sacrifice $7000 of your pre-tax income every year through this scheme, it means you will $7000 better off over three years. Talk about turbo charging your house deposit! Through this initiative_ which Labor is refusing to support, denying young Australians a vital tax cut _ Australians can make up to $15,000 per year in voluntary contributions to their superannuation account towards a first home purchase, up to a maximum amount of $30,000.
If we are working across the entire housing spectrum, we cannot forget about older Australians, many of whom would love to downsize their home to something a touch smaller, but are faced with significant tax disincentives. Well, we are removing some of those barriers, because we understand that keeping older Australians in larger homes longer than they would hope, actually inhibits young growing families from getting into more suitable homes.
To ease housing affordability, we need to tighten the rules for foreign investors
As with immigration, foreign investment is integral to building our economy and securing our growth continues. But it must be done in a measured way to guarantee Australian citizens are not adversely impacted. As you would have seen, we’ve taken steps to ensure that foreign investment in residential housing increases housing supply, consistent with Government policy. A new annual charge of at least $5000 will apply to new foreign-owned properties left vacant for six months or more a year, which will free up more housing stock. The Government will also limit foreign ownership in new developments by introducing a 50 per cent cap on the number of properties that can be sold to foreign investors.
This is a cap that the Labor Party removed in 2013, a complete disservice to those Australians looking for affordable apartments. And we have abolished all capital gains tax concessions for foreign investors. All of them. We need to ensure Australian citizens can bid on properties without being at a disadvantage to wealthy foreign investors.
Tinkering with the housing market requires a measured response
Around eighty per cent of Australia’s $2.1 trillion household debt is tied-up in mortgages. That leaves Australian households as the fourth most indebted in the OECD as a share of income. However, we should also bear in mind that low interest rates, increasing household assets, and our debt concentration in higher income households, provide some comfort about the serviceability of this debt. But we are not complacent and together with the regulators, we are closely monitoring developments to make sure we are managing the risks. APRA has already announced measures to improve the quality of residential mortgage lending, in particular for interest only loans.
These measures were accompanied by further actions by ASIC on responsible lending and follow earlier APRA measures in December 2014 in response to concerns about declining lending standards and growth in lending to housing investors. As part of the Budget, I announced the Government is making sure APRA is able to respond flexibly to financial and housing market developments that pose a risk to financial stability. This includes giving APRA new powers over the provision of credit by lenders that are outside the traditional banking sector.
Based on the notion that there is no one housing market, APRA has also been granted the ability to use geographically-based restrictions on the provision of credit. This “small-step” approach is consistent with the Turnbull Government’s belief that we need to use a scalpel rather than Labor’s chainsaw when it comes to dealing with investor pressures in the housing market. Labor have proposed dangerous and dramatic changes on negative gearing with no thought or appreciation of the consequences.
Unlike regulatory measures which can be quickly recalibrated to suit changing conditions, once Labor’s changes are made they are a very difficult to alter, and you are strapped into the consequences that follow. Those consequences are clear _ rents will soar, and the value of your home will fall.
Closing remarks
Thank you to ACOSS for having me as your guest this morning. The Turnbull Government understands that housing is not just an important social issue but a critical economic one. We understand the challenges before us in terms of the need for more new homes, more rentals, more affordable housing and continued support for the homeless. We’re not looking at these challenges in isolation, we’re approaching them in a comprehensive and practical manner. We’re keen to work together with states and territories, not for profits, developers and investors to make the right choices to deliver better outcomes across the housing spectrum — to make the right choices for all Australians.
Thank you.