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The Housing Affordability Crisis

Harry Triguboff doesn’t believe there is one.

Quite the opposite: he thinks that recent action by the regulators, the Australian Securities Investment Commission (ASIC) and the Australian Prudential Regulation Authority (APRA), could lead to a burst of the property bubble in Sydney and Melbourne.

These organisations have lent on the banks to curb their lending to investors wanting to buy property.

This action is ostensibly because the Reserve Bank believes that many households, and particularly those with investment properties, are over geared and will suffer if there is an increase in interest rates.

To some extent the heated demand for entry level properties has been caused by Treasurer Scott Morrison and Shadow Treasurer Chris Bowen.

Prior to the last election the Treasurer changed superannuation rules at the expense of baby-boomers who were looking to pump up their super accounts in order to have a comfortable retirement.

At the same time Mr Bowen announced that, if Labor won the election, it would introduce cuts to negative gearing concessions but with existing property investments grandfathered.

The incentive for the superannuation losers to get into the property market was irresistible.

Having created a mess, both sides of politics are struggling to deal with it.

In a speech to the Australian Housing and Urban Research Institute on Monday Scott Morrison announced a suite of policy options to deal with housing affordability although none of them had been approved by cabinet.

These covered first home buyers, overall housing supply and rental accommodation.

He proposed that young home-buyers should be able to access their superannuation savings in order to fund a home deposit; argued for public-private partnerships involving securitised debt to fund accommodation for low income households; and proposed increased land release including Commonwealth defence land.

However there is an obvious tension between the policies of the regulators, who are choking off funds for investors, and the Treasurer’s argument against changes to negative gearing, that mum and dad investors are an essential component of the rental supply stream.

Scott Morrison wants to increase the supply of rental accommodation but the financial regulators appear to want to do the opposite.

None of this helps.

Chris Bowen’s negative gearing policy is popular. It constitutes a risk to the middle income public sector workers who would like to invest in housing to increase their wealth and reduce their tax.

These people usually vote Labor. At the same time it will do nothing for housing affordability: the Grattan Institute estimates that, if all negative gearing were abolished, there would be a 2% fall in property prices.

Since property prices in Sydney are rising by 20% a year the impact on affordability would be insignificant.

However Chris Bowen wants to grandfather existing property investments which means that the impact of his policy on affordability would be negligible.

It’s impossible to see how anything can be done to fix housing affordability without a raft of unintended consequences.

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