The details differ, but the policies are essentially the same. Rudd’s plan has higher front-loaded tax offsets, while Howard’s plan is tax free on interest. Rudd’s piggy bank is slightly easier to break into, while in Howard’s savings accounts your money is locked up until you buy a house, turn 60 or contract terminal cancer. Rudd’s plan is loosely means tested, whilst Howard’s CGT write-off provides a tax haven for families of first-home buyers.
But will these savings accounts actually help home affordability? The answer is very likely no.
This is because neither plan addresses the issue of housing supply, which most analysts and even the major parties themselves admit is a major cause of the current crisis. Instead, both Labor and Liberal have issued a series of bite-sized and surprisingly small-scale plans to free up government land, encourage social housing and ease the burden of tax and regulation for new development. Even put together, none of the major party’s current policies will be enough to seriously improve housing supply.
The reason is straightforward: the “levers” of housing affordability are largely outside the Commonwealth’s grasp. Housing supply is a complex thing, determined by a multitude of factors: state and local government taxes and red tape, skills shortages in the trades, the aging of our population and Australia’s very high level of urbanisation.
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Because state and local governments set planning laws and depend on property taxes, these are tough inter-governmental issues that cut to the heart of the problem of Australian federalism. Set against these factors, tax-free savings accounts and a Commonwealth land audit will make little impact.
They may even make matters worse. Australians for Affordable Housing – a joint lobby group set up by a diverse group of community organisations – slammed the Howard savings accounts yesterday, arguing it did nothing for renters, community housing or tax distortions which reward property speculation.
In fact, neither party has moved to substantially address the more entrenched problems of housing supply identified by AAH and others at the 2006 National Housing Affordability Summit. And, as Steve Burrell observes today in the Sydney Morning Herald, the home savings accounts are really demand-side measures that not only won’t address housing supply but may adversely affect affordability.
The home savers accounts may have other unforeseen consequences. A guaranteed 4-5 year horizon for a massive injection of new demand into the housing system is an excellent speculative opportunity for the housing industry. The housing industry has seen the power of Commonwealth demand priming before: in 2001 demand bounced like a yo-yo before and after the introduction of the GST and the $14,000 first-home owner’s grant. No wonder the HIA has been advocating salary-sacrificable first-home savings accounts since at least August.
As Nassim Khadem argues in today’s Age, both parties have taken the HIA’s lead: “Could this be another first home owners grant-style item, that eventually pushes up the price of housing?”
There is a further assumption in both policies. This is that the savings goal of young Australians should be to buy housing.
There are many reasons to save, and things to save for, including retirement, health care, starting a family or simply a rainy day. But these policies single out one life goal, and one industry, and ask taxpayers to subsidise it. The result is expensive, and will only compound existing distortions in the housing market.
There is another unrecognised aspect to how we address the housing supply issue. Although a challenge, the construction of housing on such a scale will affect the future social and environmental sustainability of Australian cities. Getting it right therefore represents an unrecognised opportunity to improve the ability of Australian cities to attract business investment and skilled labour in years to come.
Anna Tweeddale is an architect and urban designer. Ben Eltham is a Fellow of the Centre for Policy Development.