Housing affordability divides Turnbull and Morrison
Prime Minister Malcolm Turnbull landed back in Sydney from Mumbai on Thursday morning, straight into a pre-budget expenditure review committee meeting and a gathering storm.
In his absence, his colleagues argued publicly over what the government would, could and should do about the housing affordability problem in next month’s federal budget.
Treasurer Scott Morrison had been talking up the need to address affordability, this week hinting not at measures to discourage investment – as he says Labor’s plan to curb negative gearing would do – but at changes to make more investors’ properties available for rent.
He is among those, including former prime minister Tony Abbott, who have favoured allowing young people to use some of their superannuation on a first-home deposit.
But before Turnbull boarded his homeward flight on Wednesday, he indirectly rebuked his treasurer on that point, noting the issue kept going “round and round”.
“On that matter I have expressed strong views about it in the past,” Turnbull said.
Those views were that it was “a thoroughly bad” idea.
The housing issue has become a proxy for the battle between a prime minister and his treasurer – and more broadly between a prime minister and his predecessor.
With the budget just a month away, the private vitriol about Turnbull and Morrison would make your hair curl.
Some accuse Morrison of freelancing on the housing issue. Colleagues critical of his modus operandi suggest he is seeking the limelight on an issue that rightfully belongs to the states, largely involves a lack of supply, and on which there are few effective measures a federal government can actually offer.
“Morrison is desperately trying to find some relevance,” one colleague told The Saturday Paper. “He’s just doing us a lot of damage.”
But others say Turnbull actively encouraged his treasurer to start a debate and has now left a frustrated and annoyed Morrison bearing the brunt of public criticism.
“He’s not freelancing,” one of Turnbull’s critics says. “Malcolm is.”
Under the proposal, young Australians would be able to divert some of their superannuation into a special account to be matched by their own contributions and used as a deposit on a first home.
But the proposal has divided the Coalition, with MPs and senators openly disagreeing on its merits. Abbott endorsed the idea publicly. Morrison made his support known in private.
On Thursday, leader of the house and one of Turnbull’s chief lieutenants Christopher Pyne had an on-air spray.
“It’s a great pity that colleagues run these debates publicly, whether they attach their name to them – which is much more respectable – or do so anonymously,” Pyne told ABC Radio. “The budget process should be managed behind closed doors and on budget night it should be revealed to the people. That is the process.”
Pyne made clear where his own support lay. “The prime minister has restated our policy – that is, we have no policy to allow superannuation to be used for housing. Superannuation has a particular role. It is a retirement income. Our superannuation system is the envy of the world and those people who seek to fiddle with it are putting that at risk.”
Supporters of the super-for-housing plan included Assistant Treasurer Michael Sukkar, Resources Minister Matt Canavan and Assistant Health Minister David Gillespie.
“I tend to think it’s a good idea,” Gillespie told ABC Radio on Thursday. “A lot of the physical barrier to home ownership is getting the initial deposit together, and if one’s super fund could for a period of time contribute capital into that and then return it to the super fund later on once you’re established, I can’t see any problem with it.”
But alongside the prime minister, there are some hefty opponents, including fellow ERC members Immigration Minister Peter Dutton and Finance Minister Mathias Cormann.
This week, Cormann fired a shot across Morrison’s bow lest he advocate other kinds of changes, which initially he considered.
“In the lead-up to the last election, we were very clear,” Cormann told Sky News on Monday. “We were not proposing to reduce the capital gains tax discount. We were not proposing to abolish negative gearing. Our position hasn’t changed.”
Debating the superannuation-for-housing issue on Adelaide radio, Assistant Minister for Agriculture Anne Ruston said house prices could just rise further.
“We need to be very careful that you don’t pour a bucket of kerosene on a fire,” Ruston said.
Others took to social media, with Nationals MP Andrew Broad calling it a “lazy response to the problem” and rurally based former health minister Sussan Ley saying it was “better solved by decentralisation”.
Deputy Prime Minister Barnaby Joyce also advocated people moving to the country instead.
“There are great opportunities in regional areas and you will be able to buy a house that you can pay off,” Joyce said on Wednesday. “Just go for a drive and go and have a look at some of these towns.”
Opposition Leader Bill Shorten accused the government of “incompetence, division and undermining of each other”.
The public disagreement and lack of clear direction ahead of the budget is symptomatic of the panic inside the federal Liberal Party.
The election review handed up a week ago by former director Andrew Robb has left the party’s leadership focused on not upsetting “the base”.
Many put any change to the concessions for residential real estate investment firmly in that category. Others believe redirecting assistance from top earners to those nearer the bottom would be welcome.
Separate research conducted to assist Morrison’s budget preparation is understood to have found that while Australians see housing affordability as a big issue, they are realistic about the capacity to fix the problem. In economic terms, they care most about finding and keeping a job that pays properly, having a tax system that encourages endeavour and having access to cheaper electricity.
Economist Saul Eslake called the super-for-housing idea “thoroughly stupid” and Deloitte Access Economics economist Chris Richardson noted it could inflate the market and “young people don’t have a heap of super anyway”.
Richardson is also opposed to changing negative gearing. But he supports reducing the concessions available on capital gains tax.
The Australian Institute of Company Directors favours trimming the capital gains tax concession too. Its blueprint for growth, issued a year ago, argued a reduction from 50 per cent to 40 per cent would be fairer overall and would reap $9.1 billion for the government.
Scott Morrison said this week that he is concerned about the number of investment properties sitting empty, especially those owned by foreign buyers.
“Foreign investors coming in, buying units basically as a form of passive investment, not tenanting them and taking stock out of the market – now I can tell you, that is something that has got my attention,” he told ABC Radio.
Three Australian states – Queensland, New South Wales and Victoria – already place an extra tariff on foreign buyers.
Victoria recently applied a vacant-house tax of 1 per cent on properties left empty for more than six months in a calendar year.
It has also scrapped stamp duty for first-home buyers purchasing properties worth up to $600,000, to boost their access to the lower end of the market.
Morrison says the housing affordability challenge requires “a scalpel not a chainsaw”. He suggests that curtailing negative gearing would represent the latter.
The treasurer noted the Canadian government had warned of “unintended consequences” of policy shifts when faced with similar affordability pressure in some of its cities. The provincial government of British Columbia introduced a 15 per cent foreign buyers’ tax in August last year and the city of Vancouver imposed a tax on vacant homes.
In a report last month, Sotheby’s International Realty Canada said the changes had hit the upper end of the Vancouver market, with the number of homes sold for more than $C1 million falling 27 per cent on a year ago and those above $C4 million falling 46 per cent.
Buyers’ attention had instead shifted to the other side of the country: the sale of homes worth more than $C1 million in Toronto and its surrounds increased 87 per cent in the first two months of this year, compared with the same period in 2016. In Toronto city itself, sales of million-dollar homes rose 44 per cent over the year, and among those priced above $C4 million, the increase was 147 per cent.
The Ontario provincial government is now preparing to unveil its own measures to address the issue.
Australia’s shadow treasurer, Chris Bowen, was also reaching for Canadian examples as the ERC began its meeting on Thursday.
“Canada allowed access to pension incomes some time ago and we’ve seen the data that this has cost the budget of Canada $31 billion over 35 years because it actually puts more pressure on aged pensions,” Bowen said.
Morrison has indicated the government’s housing affordability plans are likely to include a government-backed bond scheme to set up a fund to encourage investment in social housing, often less attractive because of lower returns.
But at the same time as canvassing possible solutions to the housing problem, Morrison warns they are not simple.
“Our response must be comprehensive – there is no silver bullet,” Morrison told the Australian Housing and Urban Research Institute on Monday. “We don’t claim instantly affordable housing. Anyone making such claims would soon be found out and rightly punished for it.”
Despite all the rhetoric around housing, the one point of general agreement is that there isn’t much a federal government can do. The greatest challenge is in limiting expectations. And it may already be too late for that.
This article was first published in the print edition of The Saturday Paper on Apr 15, 2017 as "Flaw plans".
A free press is one you pay for. In the short term, the economic fallout from coronavirus has taken about a third of our revenue. We will survive this crisis, but we need the support of readers. Now is the time to subscribe.