Was the housing crisis caused by the Howard government’s policies?   

Sep 16, 2024.
New Daily



The housing crisis plaguing Australia is the direct result of Coalition taxation policies that favour individuals with capital and assets, and disadvantages individuals on wage incomes.

In 1999, John Howard reduced Capital Gains Tax (CGT) liabilities by 50 per cent for individuals, after Labor had introduced the CGT in 1985.


The reduction resulted in a boom in investment in existing housing (an instant earning asset), and it prompted richer individuals to transfer income into capital gains to reduce personal tax liabilities.

Howard’s reduction of CGT, rather than bringing an “expected increase the number of capital gains transactions”, instead saw a 10 per cent fall in reported CGT transactions in the three years from 1999 to 2002, which led to a fall in government tax revenues.

Hello GST
Having engineered a windfall gain for Liberal voters, the next year (2000) the Coalition introduced the Good and Services Tax to bolster lagging tax receipts.

The GST replaced regional and state taxes with a single unified tax, restoring federal and state incomes, but it inadvertently taxes a higher proportion of income from the poor than from the rich.

Of course, with virtually a decade of flatline wages and rising price inflation, the GST now tracks inflation rather than disposable income of households, with disproportionately greater pain to low-income households.

After 25 years of Howard’s CGT relief, the unstoppable boom in house sales continues apace, yet it occurs without a concomitant boom in house construction sufficient for this gangbuster demand for housing.

The rate of annual construction has fallen from a high of almost 10 houses per 1000 population in 1970 to just over 6 per 1000 today.


Many economists decried Howard’s CGT discount as “terrible”, noting similar policies introduced by several earlier Republican US presidents had disastrous effects on US interest rates and housing markets, and subsequently caused crises in the global economy.

How does the ‘manufactured housing market‘ work?
When Howard discounted the CGT, house prices in the luxury end of the market immediately began to rise.

Expensive house sales were widely reported, and estate agents soon suggested every client set ever-higher prices for their properties.

Banks are also prime players in higher house prices. They favour mortgage loans to low risk and wealthier borrowers, and covet ever-larger mortgages regardless of interest repayment rates.

Soon every home owner in the early 2000s was agog with rising house prices, and, of course, felt much richer thanks to the Coalition.

Gentrification boom
The gentrification of working-class neighbourhoods continues apace as fortunate home buyers move into older inner-city suburbs, and prices become unaffordable for children of working families who had lived there for generations.

Despite less than 7 per cent of houses being sold in any one year, all houses are potentially beneficiaries of the increasing prices when eventually marketed.

Layered on top is the attraction of Australian housing for overseas investors, and for illicit money laundering by locals and others.

Because Australian house prices grow at inexplicable rates, divorced from the wellbeing of the economy, investors and speculators across the world see property here as a safe haven for growing the value of assets, particularly more expensive assets.

Crowding out

Many economists have observed that those wishing to purchase a home are now often outcompeted (crowding out) by bidders backed with significant capital.

“Crowding out” has also contributed to the sustained increase in house prices, and is now expected by the real estate industry.


Another of Howard’s last measures (in 2007) allowing holders of Self-Managed Superannuation Funds to invest their portfolios in housing, means that some bidders come to auctions backed by $1.5 million or more in funds.

In 2023, some $60 billion for house purchases came from this source alone.

The housing crisis is thus one where investors realised that housing/property gave significantly higher returns than any other form of investment.

Naturally they moved their portfolios, and are now reinforcing an unstoppable increase in their wealth.

Yet, as Harry Chemay noted, “speculating in existing residential property … doesn’t meaningly add to the nation’s ability to create, build and trade … or grow the national economy sustainably”. It just increases inflation.

Role of the RBA
The RBA is tasked with controlling inflation in the economy, but has high interest rates only to curb popular spending, hopefully inducing cabals to moderate their prices.

Unfortunately high interest rates are also inflationary, making it a very painful medicine.

Quote:


Yes. The number one cause of the problem.

Greedy real estate agents encouraging greedy people to get higher and higher prices for selling their properties.

It's still going on today and encouraged by governments and banks, etc.

I remember some 'mouthpiece' from the Real Estate Institute of WA saying many years ago that real estate agents were not responsible for increasing house prices because their commissions (worked out as a percentage of the selling price) hadn't increased for many years.

I don't recall anyone in the media (or anywhere else) calling him out on the fact that a 2 or 3 percent commission on a $500,000 house sale is twice as much as a 2 or 3 percent commission on a $250,000 sale (as an example).

Greedy (and deceitful) scumbags.

whiteknight wrote on Sep 17^th, 2024 at 8:11am:


Yes; but the post-Thatcher neoliberal "small government"  ideology (read: low taxation) was the reason why the Federal government abandoned its public-housing portfolio, resulting in the current massive, private-sector housing-market failure.

Lower taxation is sacrosanct now; and Albo is crowing about the lower taxes of his stage-3 tax cuts (cf the Coalition's),  hiding the fact he gets a $4K  tax cut annually  while median wage earners  get a 1K tax cut.   

Posted on 22 July 2021 by David Evans      


https://wentworthreport.com/2021/07/22/australian-immigration-policy/










    Back in 1994, launching a book of essays, former prime minister Bob Hawke made the remarkably frank admission that immigration policy had effectively been a conspiracy by the political establishment against the Australian public.


Hawke agreed with one author’s observation that most voters wanted immigration reduced and that the parties had deliberately kept it out of public debate, saying there had indeed been “an implicit pact between the major parties to implement broad policies on immigration that they know are not generally endorsed by the electorate” and that “they have done this by keeping the subject off the political agenda”

Frank wrote on Sep 17^th, 2024 at 1:31pm:



Supply constraints isn't only about the amount of land available. It's also about the number of houses available. One person does not need 50 houses.

John Smith wrote on Sep 17^th, 2024 at 1:41pm:

 

Good point: we have massive market failure - a neoliberal 'free market' speciality.

Howard can be legitimately blamed for much of Australia's problems but I doubt this one a bit. Certainly didn't do housing any good but this far away in the timeline I doubt there is any lingering direct impact.

He certainly stuffed our economy by locking in unaffordable spending and structuring the economy to be dependant on the unsustainable economic one in a 100 year climate of the 2000's. Following the GFC when the economy returned to normal our locked in Howard spending was higher than our income.

I guess the question is how much did Howard stuffing the economy screwed up the housing market and how or if that has extended over time.

Dnarever wrote on Sep 18^th, 2024 at 8:19pm:




really?

wasnt it gillard who locked in the unsustainable NDIS which now costs more then medicare ?