Mark Butler (Port Adelaide, Australian Labor Party) Share this | Hansard source

I thank the member for Mitchell for that short course in market economics. The First Home Saver Accounts Bill 2008 and related will begin to rescue the Australian dream of homeownership from the wreckage of the Howard government. Housing affordability, whether in the form of homeownership or rental accommodation, plummeted under the previous government. It is a simple matter of record. True to form, that one-trick pony of a government could think of little more by way of a response than a lump sum cash handout without paying any regard to the complex factors at play in this question and without paying any regard whatsoever to the challenges faced by renters.

Australia is by no means alone over recent years in having to grapple with a housing bubble. After the dotcom bubble burst and share market investment became temporarily less attractive, low interest rates around the world drew money into the residential property market. The Economist magazine tells us that residential property prices in the developed world rose by over US$30 trillion from 2000 to 2005. That increase was equivalent to about 100 per cent of the combined GDP of those countries and represents in percentage terms the biggest asset bubble in history. We know that Australia’s price increases were right at the top of that table when measured in percentage terms.

By any measure, this period caused housing in Australia to become overvalued, a great benefit no doubt to those who managed to get over the rope bridge before it burned through but the core of the challenge that we now face for so many other Australians, particularly in younger generations. The standard method of measuring whether housing stock is over- or under-valued is using the price-rent ratio, the property market’s equivalent of the price-earnings ratio used in the share market. By 2005 the price-rent ratio for Australian residential property was 70 per cent higher than the 25-year average to 2000, an increase in the ratio that far outstripped other overheated property markets such as in the US or in the UK. Logic and experience tell us what happens when the price-rent ratio is so far from the average. Prices stagnate or even fall, or rents rise, or perhaps there is a combination of those.

While some overseas markets have seen prices begin to fall, in some cases quite dramatically, by and large in aggregate terms the effect in Australia has been more on rents. Unfortunately for aspiring homeowners, though, the moderation in the housing market that started a few years ago came just at the time that the Howard government’s run of 11 interest rate rises on the trot was beginning. As a result the housing affordability index continued to fall under the previous government’s housing policy. The most recent index published by the Housing Industry Association and the Commonwealth Bank saw a record low result. The HIA reports that the average home loan repayment across Australia is now $2,799 per month or $33,588 of post-tax income every year. While repayments at that rate are simply out of the question for many working families, the deposit now needed for an average house has also become a major barrier to entering the market. Using the traditional deposit rate of 15 per cent, the average Sydney house now needs a deposit of $83,000, the average house in Melbourne requires a potential buyer to find a deposit of $69,000 and in my own home town of Adelaide you will need $54,000.

As one would have predicted looking at the price-rent ratio in 2005, we have also started to see very significant rises in rents. This impacts negatively on two groups: firstly, those Australians who are long-term renters; and, secondly, those who would follow the traditional path in this country of renting while you save a deposit to buy. Higher rents, combined with higher prices for consumer goods, generally make it harder again to young Australians to save a deposit to get into the market.

This budget and these bills in particular provide new hope to those Australians who are struggling to find affordable rental accommodation and struggling to save a deposit to buy. These bills constitute an important element of a $2.2 billion package contained in the budget targeting housing affordability. The centrepiece of the package reflected in these bills is the enhanced first home saver accounts. This policy will help Australians saving to buy to build their deposit in a tax effective way. The first $5,000 of individual contributions to these accounts will be matched by a government contribution of 17 per cent or $850, or $1,700 for a couple who are both making that level of contribution. Earnings from the account will be taxed at the discounted rate of 15 per cent and withdrawals will be tax free when used to buy a home or to build one. A young couple both making such a contribution would over five years or so be able to benefit by well over $10,000 towards their deposit.

The second element to the package is the National Rental Affordability Scheme. That scheme commits $623 million over four years to encouraging the construction of rental housing priced at least 20 per cent below the market rate. It is clear, in spite of the member for Mitchell’s lecture on market economics, that government intervention or at least support is needed to stimulate growth in affordable housing. In my own state of South Australia, the Rann government has legislated a quota of 15 per cent affordable housing in new large housing developments. This scheme will build on schemes like South Australia’s to ease the pressure on renters.

Finally, the housing package outlined in the budget contains a number of measures to boost supply. We know that supply has been running well below demand in recent years under the leadership of the Howard government. We also know that the previous government paid no real attention to supply-side measures. True to form, they preferred to sit on their hands, point the finger at state governments and avoid any real leadership. But, given the shadow minister’s exposition on supply-side economics earlier on in this debate, that might actually have been a blessing. I was not sure that I had heard the member for Farrer correctly, so I checked the Hansard. Indeed, it does appear that the shadow minister thinks we should draw a lesson on housing supply from the plasma TV market: everyone wants one, demand has been skyrocketing, but prices have come right down on plasma TVs, so why doesn’t it happen in housing?

On this side of the chamber we suspect the question of housing supply might be a little more complex. Some time ago, the new government announced a review of its land holdings to identify new housing opportunities and assist the member for Mitchell on the question he asked the Parliamentary Library. The budget also delivers $500 million over five years to cutting a range of supply-side costs. These are meaningful supply-side policies. Australians will look back on the Rudd government’s housing affordability package as the first step in bringing the dream of homeownership back from the brink. These bills constitute the centrepiece of that package, and I commend them to the House.

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