Is it time we stopped pretending to care?
I made a submission (pdf here) to the inquiry, not because I think things will change, but to highlight the 'big picture' considerations in any housing policy. You know, the ones we don't talk about because the Overton window has been slammed shut by decades of well-funded propaganda by wealthy interest groups. Just look at the content of other submissions to see how they miss the big picture, either simply promoting their own financial interests or preserving their reputation by reiterating arguments deemed acceptable in polite company.
My main point is this - any policy that successfully reduces housing rents, and subsequently home prices, entails a massive redistribution of wealth from the richest to the poorest. I wrote the following in my submission.
At current prices Australia’s total housing stock is valued at around $5 trillion. If a policy successfully reduced rents and prices by 20% it would wipe $1 trillion of value from this market. Purchasing power of around $40 billion per year would be redistributed from the almost 6 million current home owning households and 1.8 million residential property investors, to the 2.8 million renters, along with future home buyers and owners of other non-residential domestic assets.
There is no win-win scenario. Housing affordability is almost completely a question about the distribution of wealth in society.
To understand the magnitude of potential redistribution from successful policy to improve housing affordability, a reduction in housing rents by even as little as 10%, would lead to possibly the largest redistribution of wealth from the richest to the poorest in Australia's recent history.
Politically it makes sense to pander to the majority. And while the majority of households still own their own home, absolutely nothing will be done to reduce rents and home prices. Even the ridiculous fig leaf of the First Home Owners Grant is actually a subsidy to existing home owners. It's the most fantastical piece of doublespeak to not call it what it really is - the Current Home Owners Grant.
This is the elephant in the room on housing policy. Here. Right here. I'm pointing at it.
Watch me be ignored.
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You'd have done better to calculate the massive transfer of wealth from poor to rich that HAS occurred over the past decade of housing hyperinflation.
ReplyDeleteAs for the majority of home-owners making real action politically impossible, home-owners have nothing to lose by a drop in value of the home that they live in. Its resale value is about the same in terms of which other houses it might be swapped for. But the steady increase in value of their home, which they can't liquidate as long as they need a roof, increases their cost of living through rates, retail mark-ups having to cover commercial real-estate rents, insurance premiums etc.
Did you write this one before reading Henry George?
Good comment.
ReplyDelete"You'd have done better to calculate the massive transfer of wealth from poor to rich that HAS occurred over the past decade of housing hyperinflation."
Sure. I avoided this because it brings in a lot of other factors that occurred at the same time, including monetary policy etc. And it requires a fairly reasonable counterfactual to point to.
"home-owners have nothing to lose by a drop in value of the home that they live in. Its resale value is about the same in terms of which other houses it might be swapped for."
Yep. Agree. I'll be honest, I've tried explaining this many times to intelligent people but they don't get it. I didn't want to confuse a bunch of senators. Also, regardless of this technical fact, people do care (irrationally, emotionally etc) about the value of their home. For example, baby boomers planning on downsizing or selling the house to fund retirement etc. Then capital values matter in a real sense to home owners. There are also debts in nominal terms to consider.