0:00

This is The Guardian. I'm

0:10

Noor Haidar, coming to you from

0:12

Gadigal Land, and this is

0:14

The Full Story. For

0:19

so many Australians, home ownership is

0:21

a dream that keeps getting

0:23

further and further away. Over

0:25

the weekend, Labor and the

0:27

Coalition finally announced policies they said

0:30

would help people buy their

0:32

first home. Today I announced that under

0:34

a Labor government, you'll be able

0:36

to buy your first home with just

0:38

a 5 % deposit. I say to

0:40

the Australian people today that the

0:42

Coalition has a much better plan. We

0:45

will allow Australians to access up

0:47

to $50 ,000 of their super. And

0:51

while on the face of

0:53

it, you may think that

0:55

what they're proposing sounds like

0:57

a good idea, experts and

0:59

economists were very quick to

1:02

point out that their policies

1:04

won't solve the problem and

1:06

could make matters worse. Einstein's

1:08

definition of insanity is doing the same

1:10

thing over and over again and expecting the

1:12

result to be different next time. In

1:14

a sense, that's what both sides of politics

1:16

have been doing for more than four

1:18

decades. Today, independent

1:20

economist Saul Esslake bursts

1:23

the housing policy

1:25

bubble. It's

1:27

Thursday the 17th of April. Hi

1:35

there, Saul. Hello, Nora. It's nice to

1:37

be with you on this podcast. So

1:40

the housing crisis is a daunting

1:42

and existential problem for many

1:44

young Australians. Earlier this week, we

1:46

all woke to headlines that

1:48

the two major political parties would

1:51

be unveiling policies that they

1:53

claimed would help solve the housing

1:55

crisis. What were your initial

1:57

thoughts when you heard what was

1:59

being proposed? Well, I guess

2:02

my initial thought was there

2:04

must be an election

2:06

coming up. Because both sides

2:08

of politics are promising

2:10

either to spend or to

2:12

give away through tax

2:14

breaks money that we don't

2:16

have. And the policies

2:18

that are being proposed will,

2:20

in some important respect,

2:22

make the problem that they're

2:24

purporting to solve worse.

2:26

And in that sense, they

2:28

continue a sorry tradition

2:30

that I argue goes back

2:32

more than 60 years.

2:34

making housing less affordable in

2:36

the name of supposedly

2:38

promoting home ownership. Saul, you

2:40

wrote for The Guardian

2:42

that this was a bad

2:44

day for aspiring homebuyers.

2:46

Why? Because both sides of

2:48

politics are proposing policies

2:50

that will push house prices

2:52

up. We have the

2:54

housing crisis, which we have,

2:56

which has been building

2:58

for the best part of

3:00

30 years because house

3:02

prices have... almost continuously risen,

3:04

that's the heart of

3:06

the problem. And both parties

3:08

have, over a long

3:10

period of time, pursued policies

3:12

that have made housing even more

3:15

unaffordable than it would have been

3:17

otherwise. And this election is seeing

3:19

a continuation of that. You remember

3:21

Einstein's definition of insanity, he's doing

3:23

the same thing over and over

3:25

again and expecting the result to

3:28

be different next time. In a

3:30

sense, that's what both sides of

3:32

politics have been doing for more

3:34

than four decades. Okay, there is

3:36

a lot to unpack there. I

3:39

want to begin by unpicking the

3:41

policies that have been put forward

3:43

by the two major parties. Let's

3:45

begin with the coalition. The opposition

3:47

leader, Peter Dutton, wants to allow

3:49

first home buyers who are purchasing

3:52

a new home to claim mortgage

3:54

repayments as tax deductions. How would

3:56

this work, Saul? Well, the theory

3:58

is that if people can write

4:00

off their interest payments, on the

4:02

mortgage they take out to buy

4:05

a new home, that they will

4:07

be more able to afford to

4:09

buy a new home, and that

4:11

because more people will seek to

4:13

buy new homes, more new homes

4:16

will be built by builders because

4:18

they will have more confidence that

4:20

they will be able to sell

4:22

them. Now, the problems with it

4:24

include the fact that making interest

4:26

payments on mortgages tax deductible amounts

4:29

to a significant reduction in interest

4:31

rates after tax. There's not much

4:33

difference between saying you can deduct

4:35

your interest payments against your tax

4:37

and actually the Reserve Bank reducing

4:39

interest rates by, say, a couple

4:42

of percentage points. And what we

4:44

know from history, the result is

4:46

that people borrow more money. In

4:48

other words, they don't say, look,

4:50

I'm going to save $11 ,000

4:53

a year in mortgage payments, as

4:55

the coalition says. They say, well,

4:57

I was prepared to spend this

4:59

amount before this policy came along.

5:01

Now, as a result of this

5:03

policy, I can spend more. And

5:06

that means prices are going to

5:08

go up. There will be an

5:10

increase in prices. And it's important

5:12

to remember, of course, that this

5:14

is not the coalition's only policy

5:16

that boosts demand. They also have

5:19

what they call a super for

5:21

housing policy, which will allow people

5:23

to take out up to 40 %

5:25

of their accumulated superannuation savings, subject

5:27

to a cap of $50 ,000,

5:29

and spend that on housing as

5:32

well. So this will also supercharge

5:34

demand. And so we'll get to

5:36

the supply side of the equation

5:38

in a moment. Just to clarify,

5:40

both of these ideas that have

5:43

been put forward by the coalition

5:45

will give people more money to

5:47

work with when looking to buy

5:49

a home, therefore increasing demand. But

5:51

neither of these ideas necessarily address

5:53

the supply issue that is currently

5:56

confronting young Australians looking to enter

5:58

the market. I want to turn

6:00

now to Labor. wants

6:02

to allow all first home buyers

6:04

to buy a home with a

6:06

deposit of 5%. That's an expansion

6:08

of an existing policy. How does

6:10

that compare to what the coalition

6:13

has on offer? Well, it's a

6:15

different pulse. Traditionally, lenders require borrowers

6:17

to have a deposit of 20

6:19

% to protect both the lender

6:21

and the borrower from the possibility

6:23

of loss. in the event that

6:25

there's a fall in house prices.

6:27

And they also stipulate that if

6:29

you don't have a deposit, you

6:32

have to take out lender's mortgage

6:34

insurance, which in effect transfers the

6:36

risk that you might default in

6:38

the event of negative equity to

6:40

an insurance company. Now, that doesn't

6:42

come for free. On a typical

6:44

mortgage is something in excess of

6:46

$20 ,000 on top of the mortgage.

6:48

Now, in effect, therefore, the government

6:50

is saying that if you don't

6:53

have a deposit, we will guarantee

6:55

the difference between 5 % or

6:57

whatever you have and 20 % so

6:59

that you don't need to take

7:01

out lender's mortgage insurance. Again, that's

7:03

a bit like a small reduction

7:05

in interest rates for those without

7:07

20 % deposits. So yes, this

7:09

will put upward pressure on prices.

7:11

To be fair, the Labor Party

7:14

admits and acknowledges it will put

7:16

upward pressure on prices, unlike the

7:18

coalition, which pretends their policies won't.

7:20

They just simply argue that it

7:22

won't be as substantial. upward impact

7:24

on prices, and then they don't

7:26

define what they mean by substantial,

7:28

and they won't tell you what

7:30

the Treasury advice on which they're

7:32

relying to make those assertions has

7:35

actually told them. That's a

7:37

problem. But as a matter of

7:39

logic, I think it is reasonable to

7:41

say that although it will put

7:43

upward pressure on house prices, the extent

7:45

of it won't be as big.

7:47

as would occur under the coalition's policies.

7:50

So I want to turn now

7:52

to the big question of supply. The

7:54

Prime Minister, Anthony Albanese, has been

7:56

at pains to stress that Labor also

7:58

has a suite of policies to

8:00

speed up construction and to increase supply.

8:03

The coalition, as you noted earlier,

8:05

also says that it's going to try

8:07

and do the same. It's also

8:09

going to try and reduce migration to

8:11

address this very issue. So when

8:13

it comes to increasing supply, is either

8:15

party... enough to have

8:18

a material impact on prices? I

8:20

think the answer to that's no,

8:22

but I think I should immediately

8:24

add that the government is proposing

8:26

to do more to boost supply

8:28

than the coalition is proposing. So

8:30

the government has proposed $10 billion

8:32

to fund, in some cases directly,

8:34

the construction of 100 ,000 new homes

8:36

over... I think a period of

8:38

eight years, for sale directly to

8:40

first -home buyers. Of course, the

8:42

government has put together this Housing

8:44

Australia Future Fund, you know, $10

8:46

billion to be managed by the

8:48

Future Fund originally set up by

8:50

Peter Costello, and the income generated

8:52

by that, which might be, say,

8:54

$600 million to $800 million a

8:57

year, being given to the states

8:59

to spend more on social and

9:01

affordable housing. The coalition was opposed

9:03

to that. One of the reasons

9:05

why the coalition says this Housing

9:07

Australia Future Fund hasn't resulted in

9:09

any new houses being built is

9:11

because they, together with the Greens,

9:13

held it up for two years

9:15

in the Senate before the Greens

9:17

did a deal that ultimately allowed

9:19

it to pass through. But it

9:21

is doing more to boost the

9:23

supply of housing. Cutting migration will

9:25

reduce the demand for housing. It

9:28

will have other consequences as well,

9:30

which I would argue are not necessarily

9:32

good. Won't do anything

9:34

to boost the supply of housing because

9:36

you'd like to think some of those

9:38

migrants will be people who have skills

9:40

that can be used to build more

9:42

housing. Incidentally, while we're talking about migration,

9:44

though, both parties have agreed

9:46

that it would help first -time buyers

9:48

by banning foreign investors from buying

9:50

established houses for two years. Now,

9:52

that sounds fine in theory because,

9:54

obviously, if foreign investors are able

9:56

to outbid... would -be homebuyers for

9:59

established dwellings, then that's not going

10:01

to help homeownership. But the fact

10:03

is that there are fewer than

10:05

2 ,000 of those transactions a year.

10:07

So it's not going to help

10:09

very much. If people really thought

10:11

that stopping investors from buying established

10:13

houses would help... first -home buyers

10:15

get into the property market, then

10:17

what they ought to be doing

10:19

is stopping the 180 ,000 or so

10:21

Australian investors who purchase an established

10:23

property from buying established properties in

10:25

competition with first -home buyers. So,

10:28

Saul, you are not alone in

10:30

criticising what the major parties have

10:32

put on offer. Chris Richardson has

10:34

described the policies as a, quote,

10:36

dumpster fire of dumb stuff that

10:38

will push up inflation and house

10:40

prices. That begs the question, why?

10:42

Why exacerbate the problem? Well, at

10:44

the risk of sounding cynical... Although

10:46

in 45 years of trying to

10:48

understand and predict what politicians do,

10:50

I've never found that cynicism about

10:52

their motives has led me into

10:55

error. You know, I've been wrong,

10:57

but not because I've been cynical

10:59

about why politicians do what they

11:01

do. I think the reality is

11:03

that for all the crocodile tears

11:05

they shed, they know that in

11:07

any given year, there are about

11:09

110 ,000 people who succeed in becoming

11:11

first home buyers. Whereas the politicians

11:13

also know that at any point

11:15

in time, there are 11 million

11:17

Australians voters who own their own

11:19

home. There are two and a

11:21

quarter million Australians who own at

11:24

least one investment property. And the

11:26

last thing, those maybe 12 million

11:28

plus voters is governments or oppositions

11:30

to promise or do anything that

11:32

would slow the rate of house

11:34

price inflation. You know, John Howard

11:36

wasn't wrong when he said. As

11:38

he used to when he was

11:40

Prime Minister, no one ever came

11:42

up to him on his morning

11:44

walks and say, please, Prime Minister,

11:46

will you do something that makes

11:48

my house cheaper so that someone

11:51

else can afford to buy it

11:53

off me more readily? Even the

11:55

dumbest of our politicians can do

11:57

that math, and they do, even

11:59

if they don't acknowledge it publicly.

12:01

Or to put it differently, and

12:03

to be as kind to politicians

12:05

as I can, they know that

12:07

a majority of Australians actually don't

12:09

want the problem to be solved.

12:11

And, you know, that's reflected in,

12:13

say, Peter Dutton saying this week

12:15

that he wants house prices to

12:18

keep going up. Well, I mean,

12:20

he's probably reflecting a majority of

12:22

public opinion, but he's effectively saying,

12:24

I don't want to solve the

12:26

problem. And his policies aren't going

12:28

to solve the problem. We'll

12:33

be right back. The

12:50

election is right around the corner and

12:52

the politicians are hitting the campaign trail,

12:54

preaching policy and promises. But what are

12:56

they really up to? What are they

12:59

doing to get your vote? I'm Barry

13:01

Cassidy, journalist, broadcaster and former Hawke advisor.

13:03

And I'm Tony Barry, the political commentator

13:05

and former Liberal strategist. In a

13:07

new podcast from Guardian Australia, Back

13:09

to Back Barrys, we unpick political strategy

13:11

and campaign spin each week to expose the

13:13

methods behind the madness. We'll

13:15

be with you every Saturday until the election.

13:17

So look out for it every week in

13:20

your full story feed. I

13:26

want to talk about the Greens

13:28

for a minute. Their housing spokesperson,

13:30

Max Chandler -Mather, said on Tuesday

13:32

morning that house prices should stop

13:34

increasing completely. That's something that other

13:36

politicians have been reluctant to say,

13:39

as you've just noted. Now,

13:41

the Greens, amongst other things, they

13:43

want to phase out negative gearing

13:45

and the capital gains tax discount.

13:47

Will that help solve the crisis?

13:49

Well, I would argue yes. And

13:52

I'd point out that I've been

13:54

advocating the abolition of negative gearing

13:56

for longer than Max Chandler has

13:58

been alive. And I've been advocating

14:00

for abolishing or substantially reducing the

14:02

capital gains tax discount since it

14:05

was introduced in 1999 when Mr

14:07

Chandler Mather was probably in kindergarten.

14:09

And, you know, I seriously believe.

14:11

that one of the reasons why

14:13

housing affordability has deteriorated so much

14:16

since 1999 is because that changed

14:18

to the capital gains tax regime,

14:20

turbocharged negative gearing, which had been

14:22

around since at least 1936, from

14:24

a strategy that enabled people who

14:26

used it simply to defer their

14:29

tax to one which allowed them

14:31

both to defer and permanently reduce

14:33

their tax. So the Greens are

14:35

right about this. I don't agree

14:37

with their policy of rent controls.

14:39

And there are a lot of

14:42

other policies they advocate that I

14:44

don't agree with, such as directing

14:46

the Reserve Bank to cut interest

14:48

rates, as their Treasury spokesperson advocated

14:50

last year. But on those two

14:53

areas, at least, I agree with

14:55

them. Saul, I'm glad you brought

14:57

up... properties? Because missing from this

14:59

conversation are renters, usually. There are

15:01

many Australians who will be looking

15:03

at a future of renting indefinitely.

15:06

What do you think can be

15:08

done to make renting more affordable

15:10

and sustainable for those Australians? Well,

15:12

I don't support rent controls. I

15:14

don't believe they work. Although I

15:16

understand why people advocate them, particularly

15:19

in a very tight rental market

15:21

where rents go up more than

15:23

the CPI. I'm certainly a supporter

15:25

of policies that allow tenants more

15:27

security of tenure and allow them

15:30

to keep pets and put pictures

15:32

on the wall. But one of

15:34

the respects in which Australia is

15:36

unusual is that the overwhelming majority

15:38

of our rental housing stock is

15:40

owned by so -called bums and

15:43

debts. Whereas in almost every other

15:45

advanced economy, the rental housing stock

15:47

is owned by some combination of

15:49

government authorities, not -for -profits

15:51

and charities. And particularly

15:53

in the US and Canada, companies

15:55

that are set up for the

15:57

business of building and owning and

15:59

managing rental housing. And two things

16:01

about that. One is that none

16:03

of them vote. And two, they're

16:06

mainly in it for income rather

16:08

than for capital gain. So they

16:10

tend to hold on to their

16:12

properties for much longer periods. rather

16:14

than flipping them every eight years,

16:16

as investors in Australia do. But in

16:19

particular, because the owners and managers

16:21

of rental property in most other countries

16:23

don't vote, there isn't the constituency

16:25

for limiting tenants' rights that there is

16:27

in Australia from all those mum

16:29

and dad investors that supposedly are, quote,

16:32

trying to get ahead. But beyond

16:34

that, the answer ultimately is to increase

16:36

the supply of rental housing. just

16:38

as the problem for would -be home

16:40

buyers is we need to increase the

16:42

supply of affordable housing to buy

16:44

relative to the demand for it. And

16:47

that's why I'm an advocate of

16:49

skewing whatever incentives the tax system provides

16:51

to people who invest in new

16:53

housing rather than rewarding, as our tax

16:55

system does, people who simply are

16:57

speculating on the price of the housing

17:00

we've already got going up. You

17:02

know, I wouldn't normally quote a communist

17:04

dictator in support of anything, but

17:06

Xi Jinping has a point. when he

17:08

says that houses should be living

17:10

in, not for speculation. And, you know,

17:13

somehow I think that the founder

17:15

of the Liberal Party, Sir Robert Menzies,

17:17

would have agreed with Xi Jinping

17:19

on that, if nothing else, if he'd

17:21

still been alive. So

17:24

we've canvassed a lot of the

17:26

issues that currently exist. I wanted

17:28

to ask you if you were told

17:30

to design a policy that would address

17:32

the root cause of the housing crisis

17:34

in Australia and get more Australians into

17:36

home ownership, what would that look like?

17:38

Where would you start? Well, where I

17:41

start is by acknowledging that we're in

17:43

a hole when it comes to housing

17:45

for both would -be buyers and renters.

17:47

And, you know, as the sage advice

17:49

goes, when you're in a hole, the

17:51

first thing you've got to do is

17:53

stop digging. So I would say what

17:56

we've got to stop doing is all

17:58

the stupid things we've been doing since

18:00

the first First Home Owners Grant scheme

18:02

in 1964, which is to stop giving

18:04

people money that they spend on housing,

18:06

which they otherwise wouldn't be able to,

18:08

which inflates the cost of housing. So

18:11

we need to scrap. First -time owners' grants,

18:13

stamp duty concessions, tax breaks for property

18:15

investors. We need to step away from

18:17

other schemes that allow people to spend

18:19

more on housing than they otherwise would,

18:21

which would save public money, which we

18:23

should then spend doing things that increase

18:26

the supply of housing, which could include

18:28

building more houses directly, as governments used

18:30

to do in the 50s and 60s.

18:32

It could include bribing the states to

18:34

get their local governments to ease up

18:36

on zoning and planning laws. So you

18:38

don't need a PhD in economics, and

18:41

I don't have one, to know that

18:43

what you need to do is to

18:45

do less to inflate demand and more

18:47

to boost supply. But you need to

18:49

do both. I mean, saying that the

18:51

only thing you need to do is

18:53

to boost supply is like, you know,

18:56

having one hand tied behind your back.

18:58

We need to be doing both. Well,

19:00

Saul, I hope that this conversation will

19:03

go some way to helping listeners understand

19:05

what is quite complicated policy, but also

19:07

tricky politics that is playing out. Thank

19:09

you so much. It's been a pleasure,

19:11

Noah. That

19:16

was independent economist Saul Eslake. We've

19:18

linked to his opinion piece on

19:20

the housing policies on offer this

19:23

election on the Full Story page.

19:25

That's it for today. This episode

19:27

was produced by Miles Herbert. Sound

19:29

design and mixing by Camilla Hannan.

19:31

The executive producer of Full Story

19:34

is Hannah Parks. If you like

19:36

this episode, don't forget to subscribe

19:38

or follow Full Story wherever you

19:40

listen to your podcasts. You can

19:42

also leave us a review. I'm

19:44

Noor Haydar. Thanks for listening.