Pat Conroy (Shortland, Australian Labor Party) Share this | Hansard source

I want to compliment the member for Bennelong for his passion on this issue. The member for Bennelong was the chair of the House of Representatives Standing Committee on Economics while this committee was being undertaken, and I was a member, and I thought that it was a great pity that the government chose not to continue with the member for Bennelong's chairmanship of that committee. He did a great job and, while I do not agree with all his solutions, I admire his passion and his commitment to solving what is one of the greatest challenges in our society. Thank you, Member for Bennelong.

There can be no doubt that there is a massively increasing level of unaffordability in our housing market. The ratio of housing prices to average household disposable income has moved from around three in the 1990s to over five. This shift has coincided with a very significant change to our taxation system that I will canvass a bit later in the speech.

The increase in unaffordability of housing has been much higher in the large capital cities. I regret to say that Sydney, Melbourne, Adelaide, Brisbane and Perth are now in the top 20 most unaffordable housing markets in the world, with Sydney the second most unaffordable and Melbourne the fifth. We have seen in the same period a big shift to an investor share in the housing market. In 1985, just nine per cent of home loans by total value were held by investors. It is now 43 per cent. At the same time, we have seen a big decline in first home ownership. In the second half of the 1990s, the average share of first home buyers in the share of total home buyers was 22 per cent. Now it is under 14 per cent. And we have seen a significant fall in those aged under 34 being able to buy a home. So we have seen declining first home ownership and younger people being shut out of the market.

At the same time, we have seen low- and middle-income earners also being shut out. Between 2002 and 2012, we saw the share of middle-income earners able to buy their home decline by 19 per cent, and for low-income earners there has been a 15 per cent fall. This has been associated with increasing inequality in our society and the rise of insecure work making it much harder for low- and middle-income Australians to buy their first home. At the same time, we have seen a very significant fall in the share of housing loans going to new housing stock. In 1992, 18 per cent of home loans were for new housing. It is now around six per cent. This is despite a very big increase in the investor share of home loans, as I alluded to before.

So we have seen increasing housing unaffordability and young people, poor people and first home buyers being shut out of the market at the same time as we have seen a very big increase in investor home loans. These trends, which are very worrying, principally have been driven by two factors. The first is the normalisation of low inflation and hence low interest rates and the decision of Peter Costello and John Howard, some of the laziest economic managers we have ever seen in this country, to introduce a massive 50 per cent discount on the capital gains tax.

The interaction of negative gearing and the 1999 capital gains tax discount has driven the rise in housing unaffordability and has shut generations out of the housing market. Before 1999, on average rental income in this country was positive—that is, housing investors paid tax because they made a profit on their rental properties. In 1999-2000, there was about $150 million of rental income that was positive and paid tax.

Since that change in capital gains tax, we have seen a massive collapse in net rental income. Each year recently, rental losses have run between $5 billion and $8 billion—that is, landlords in this country have claimed, in net terms, between $5 billion and $8 billion of rental losses that then reduce their taxable income against other income. Expenses claimed as a percentage of gross rental yield have increased from 98 per cent in 1999 to 123 per cent. Each landlord, on average, is claiming $5 in expenses for every $4 of gross rental income they are receiving, and that is a very worrying trend.

And why is this occurring? It is because of the negative gearing for taxation treatment interacting with the capital gains. So what we see now is a very large number of landlords happy to lose money on their annual returns from their rental property; they are speculating that they will get a significant capital gain that they will then receive a 50 per cent discount on when they sell that property. The Reserve Bank, in its testimony at our hearings in Sydney, has said that there is no doubt this is a factor in the massive price explosion post-1999 and that there was a case for reviewing the treatment of negative gearing and interaction with capital gains tax. Most experts in this sector not in the pay of the property sector agree with this analysis. You just have to look at the fact that rental yields, on average, are well below share yields. If a rational investor saw a gap between how much they would make off their rental property and how much off investing in shares, they would flow to shares as the better asset class. They are not doing that because of the capital gains tax discount and their long-term speculation.

There is no economic justification to privilege capital gains over other income streams. There is no economic justification. They are all forms of income. They should all be treated equally. It demonstrates the in-built class bias of the conservatives in this country. This is the real class war, where they reward the owners of capital over workers who receive income, in general, for their labour, rather than as a capital gain. And who benefits from this? The discount on capital gains tax costs taxpayers $4 billion a year, and 75 per cent of that benefit goes to the top 10 per cent of income earners—75 per cent to the top 10 per cent of income earners. Negative gearing costs $3.7 billion a year, and 50 per cent of that goes to the top 20 per cent of income earners. This is clearly unaffordable and massively inequitable.

By contrast, Labor has developed a sensible policy to tackle housing unaffordability, principally by limiting negative gearing to new housing stock. Investors should be welcome to negatively gear if it increases the housing supply by investing in new housing. And we will reduce the capital gains tax discount to 25 per cent, which effectively deals with real capital gains, rather than nominal capital gains through inflation. Importantly, we will grandfather existing investments so we do not change the tax treatment for people who have made decisions already. This is a sensible policy directed at tackling housing unaffordability, unlike the view of the Liberal coalition government.

I would like to deal with a few myths that have been perpetuated in this debate—firstly, that the negative gearing and capital gains tax concessions are driving new housing supply. This is patently wrong. As we have seen, new housing has fallen from 18 per cent of home loans to six per cent. Secondly, the myth that the experience of the mid-1980s, when negative gearing was abolished, somehow lead to massive rent rises is absolutely wrong. Treasury, in their evidence to our committee, confirmed that there was no case for someone to make that conclusion. Rents went up in Sydney and Perth because of the finance and mining boom; rents fell in Brisbane, Melbourne and Adelaide. Rental price increases roughly tracked the general price increase. Thirdly, the myth that the benefits of negatively gearing disproportionately go to low-income earners is patently wrong. I have already outlined the distributional benefit, and the RBA testified in our hearings that most of the people, if not all of the people, with very low taxable income who claim negative gearing and capital gains tax discounts are actually wealthy retirees who have most of their income exempt due to another decision from Peter Costello.

The Liberals' response to housing unaffordability has been a joke. Except for some voices in the wilderness, like the member for Bennelong, they have been silent or have come up with ridiculous propositions. We saw the Treasurer highlight excesses in negative gearing but then get rolled in cabinet by the Prime Minister, in a vain attempt to gain a petty political advantage from this. Their solutions have ranged from telling workers to get a good job to having wealthy parents, or the most ridiculous of all, the Deputy Prime Minister saying people should move to Tamworth to own a new home. This is wrong. It demonstrates how economically illiterate the coalition is on this matter. Just imagine saying to a nurse or a police person in the outer suburbs of our capital cities, 'The only way you can own a new home is either by a stroke of luck of having rich parents, by giving up your job providing a vital service to our community or by moving to Tamworth.' I am sure Tamworth deserves a few more policemen and nurses but not at the expense of Sydney or Brisbane.

This is a deeply important issue. It goes to what sort of society we have: whether it is a just society that is equitable that gives average workers a chance of having the economic security of owning their own homes. It is a serious debate. Labor is taking it seriously by putting forward concrete solutions that have strong support in the general community. I only wish the government would come on board, take the politics out of this and try and help achieve a solution to this vital economic issue.

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