Committee Report: Economics Inquiry into Home Ownership

08 February 2017

I rise to speak on the report of the Standing Committee on Economics on the inquiry into home ownership. I note that the dissenting report from Labor MPs describes this report as a remarkable document in that it offers no recommendations to government—none, zip, zero. There has been an inquiry and a 55-page report, and the committee has no recommendations, no suggestions on how this government can improve home ownership and make it easier for young people, particularly, to own their own home.

I note with interest the contribution of the member for Bennelong, who was formerly the chair of this committee before being removed from that position. He made some good points. But he said that he wanted a sophisticated and nuanced debate and a suite of policies. I am here to say that Labor has those policies. We have thought about the nuances revolving around homeownership.

As noted in the Labor MPs' dissenting report, the difficulty for first home buyers entering the market is of prime concern to the Labor members of the committee. As Labor has publicly stated time and time again, home ownership rates for young people aged between 25 and 34 have fallen from 60 to 48 per cent. These are big numbers in anyone's terms. Young people are being forced to take on levels of debt unimaginable just a few decades ago.

With all respect to the member for Petrie's father, who taught him to save and to be sensible with money, that is a thing that all parents hope to hand on to their children. But I have to say to you, sir, that, while we are having this debate, most of us are here in this parliament have clearly no clue what some people are going through and the angst that they are having in that desperate plight to scrape together a huge deposit for even a modest home. We have seen the increases, and it is no longer just a case of, 'Work hard and save your money and you'll be okay.' That is clearly not the reality anymore.

Herein lies the important policy recommendations made to the government by Labor. Negative gearing has increased the number of investors and levels of investment in housing, and this has meant housing has become more expensive. I note there is talk about us wanting to scrap negative gearing carte blanche. That is just not the case. We are grandfathering. We are saying to investors: if you currently have a property that is negatively geared, it will not change. We are not silly. We realise that there are people out there who have made investments. We respect those investment choices, and that needs to be more clearly stated. If you have a property that is currently negatively geared, it will remain negatively geared. So, contrary to what the government is pedalling, we are not talking about scrapping all negative gearing. Of course we are not.

Negative gearing and the capital gains tax discount have driven record numbers of investors into the property market. As my colleague the member for Shortland mentioned just a few moments ago, it is the interaction between these two taxes that is driving people to invest in residential property in record numbers. Loans for rental properties have been rapidly increasing. They have grown from 16 per cent of loans to 40 per cent of loans in the last 23 years. It is that direct interplay between capital gains tax discounts and negative gearing that has caused that increase—it is basic economics, really—and the influx of investors into the market has increased demand for and put upward pressure on house prices. There is no mention made of this in the report and there is no mention made of homelessness. I just want to touch on that because that is also a direct impact of this.

Homelessness still remains unacceptably high in our developed Australia. According to the 2011 census—and who would know, based on the current one—105,000 people, or one in 200 Australians, are experiencing homelessness on any given night, and this is a direct reason for it. Little is made in this report of housing stress, as well, and that is a disgrace. ABS data reports that there were 657,000 low-income households across Australia living in rental stress, and 318,000 low-income households in mortgage stress in 2013-14. That stress is unbearable and the amount of pressure it places on families is—until you have lived in that stress you do not know. For young families in Australia, the dream of purchasing and owning their own home is almost completely out of reach.

Our plan—that is, Labor's plan—will ensure first home buyers are not forced to compete with property speculators, who may be buying their seventh, eighth or ninth property to negatively gear it. The Labor members from the committee recommended reforming negative gearing and capital gains tax discounts to ensure that our tax system is fair, sustainable and that it targets jobs and growth. The government should limit negative gearing to new housing from 1 July this year. All investments made before this date, as I mentioned earlier, will not be affected and the change will be grandfathered, and that is such an important point. This will mean that taxpayers will continue to be able to deduct net rental losses against their income, providing the losses come from newly constructed housing. This policy will see a boost in new housing and will provide young families with the chance to find a home, and that is what most young families want to do. Not every young family; some young families are happy to rent, but everyone wants a home. It will take pressure off inner-city housing markets that are predominantly made up of existing dwellings. This will also lead to new jobs for construction industry people, with independent analysis from the McKell Institute estimating that these policy settings would result in an additional 25,000 jobs. The independent Parliamentary Budget Office has indicated Labor's policy will also raise an additional $565 million over the forward estimates and $32.1 billion over the decade.

What the government needs to do is listen to Labor's recommendations. Recommendation 1: the government limit negative gearing to new housing from 1 July this year. All investments made before this date will not be affected by this change and will be fully grandfathered. Recommendation 2: the government halve the capital gains discount for all assets purchased after 1 July this year. This will reduce the capital gains discount for assets that are held for longer than 12 months from the current 50 per cent to 25 per cent. All investments made before this date will not be affected by this change and will be fully grandfathered. We have the nuance. This is a sophisticated recommendation. The committee supports the maintenance of existing negative gearing arrangements, incidentally, but if this inquiry is really about uncovering policy settings that will give Australians a fair chance of becoming home owners, the government must listen. Home ownership rates in Australia are amongst the highest in developed nations. They have been declining, though, across age groups other than the oldest cohort for over a decade.

With regard to home ownership rates, the Australian Bureau of Statistics informed the committee that their survey of income and housing has indicated a decline from 71 per cent to 67 per cent between 1994 and the 2011-12 survey. The Reserve Bank has said that, although the tax system does not discriminate against asset classes in terms of the ability of an investor to negatively gear them, there is a far higher capacity to leverage property than any other type of asset. The Reserve Bank has also said that negative gearing has increased the number of investors and levels of investment in housing, and thereby made house prices higher than they would otherwise have been. And it has said that negative gearing and capital gains tax discounts have driven record numbers of investors into the property markets.

The interaction between these two treatments is driving people to invest in residential property in record numbers. This has put upward pressure on housing prices, making it unaffordable for an increasing number of Australians. That is the Reserve Bank saying that; that is not anyone with a political bias. Although negative gearing is more commonly used by modest-income earners than other mechanisms to reduce tax, such as superannuation tax concessions or family trusts, the claims for benefits of negative gearing are five times as prevalent among people in the top tax bracket. As my fellow colleagues have said, with capital gains, 75 per cent of the benefits are going to the top 10 per cent. The greatest housing stress is currently faced by the very low income renters. Particularly vulnerable are older people, those relying on government benefits and others with a fixed income.

The member for Petrie said before that we cannot stand here and make a simple change. I think that we must make these changes. Some of our fellow Australians do not have a place to call home at all and others, desperate to own their own home, are being priced out of the market. How dare any of us be in this place and take up a seat without doing something about it? It is a great shame.