The ABC’s finance expert Alan Kohler has blamed surging immigration and tax breaks for investor landlords for housing being so unaffordable in Australia.
As recently as the early 1980s a median-priced house in Sydney or Melbourne cost less than four times an average salary, with a 20 per cent mortgage deposit factored in.
But home mortgage debt levels – compared with what Australians typically earn – have more than doubled, depriving Millennials and future generations of the chance of owning a house.
The big changes began in 2000 when the annual pace of net immigration climbed into six figures, and then tripled within a decade.
This occurred as John Howard’s Coalition government simultaneously introduced a 50 per cent capital gains tax discount for investor landlords selling property.
‘The problem started with the new millennium. It is impossible to overstate the significance to Australian society of what happened then,’ Kohler said in an 86-page Quarterly essay.
‘The shift that began around 2000 in the relationship between the cost of housing and both average incomes and the rest of the economy has altered everything about the way Australia operates and Australians live.’
The ABC’s finance expert Alan Kohler has blamed surging immigration and tax breaks for investor landlords for housing being so unaffordable in Australia
In his piece, Kohler argued the Liberal Party’s kowtowing to big business interests led to a doubling of debt-to-income ratios in less than two decades, putting capital city houses beyond the reach of average-income earners buying on their own.
Dual-income couples are now also struggling to service a mortgage in more affordable cities like Brisbane and Adelaide.
His in-depth analysis – The Great Divide: Australia’s Housing Mess and How to Fix It – focuses on flawed government policies and Australia’s long history of land speculation instead of blaming baby boomers investors like himself for the crisis, while offering some solutions to the crisis.
Kohler wants the government to explicitly aim for houses to cost four times an average salary, following decades of price increases vastly outpacing wages growth.
That was the typical debt-to-income ratio from the aftermath of World War II up to the 1990s, but he admits that would require property prices to stagnate for two decades – something that hasn’t occurred since 1930 to 1949 covering the Great Depression and wartime price controls.
‘So the bottom line is that Australian capital-city housing is too expensive compared to incomes for a healthy society, and that needs to change,’ he said.
‘The high price of housing is undermining social cohesion and the proper functioning of the economy and the nation.
‘If the government were serious about housing affordability, it would announce an affordability target like the one that I am suggesting of something like three to four times average incomes, and would say: “We’re going to achieve that target by doing everything we can to ensure that house prices stay where they are for 18 years to allow incomes to catch up”.’
When Kohler and his wife Deborah Forster bought their first home in Melbourne for $40,000 in 1980, he was earning $11,500 as a journalist.
This meant his home cost just 3.5 times his income before a mortgage deposit.
In 2023, Melbourne’s median house price of $943,725 is so dear someone earning about average, full-time salary of $95,581 would have a dangerous debt-to-income ratio of 7.9, even with a hefty 20 per cent deposit of $188,745 factored in.
This is well above the banking regulator’s ‘six’ threshold for risk, which means this individual would be unlikely to qualify for a loan.
Sydney’s median house price of $1.397million is so expensive someone with an equivalent mortgage deposit of $279,500 would have a dangerous debt-to-income ratio of 11.7 servicing a $1.118million loan.
He wants the government to explicitly aim for houses to cost four times an average salary, following decades of price increases vastly outpacing wages growth.
A couple would need to earn $186,000 between them to afford a middle market home, while a single borrower would have to be among the top four per cent of taxable income earners.
Sydney house prices since January have surged by 12.5 per cent even though the Reserve Bank has now raised interest rates 13 times in 18 months, CoreLogic data showed.
Wages by comparison grew by 4 per cent in the year to September, and that was the fastest pace since 2009 even though it lagged behind the 5.4 per cent inflation rate at the time.
Australia’s biggest city is also the biggest recipient of overseas migration.
In the year to September, 429,580 migrants on a net basis moved to Australia.
This figure covers the permanent intake of 190,000, including skilled migrants, plus the big influx of international students classified as long-term arrivals.
Before 1999, Australia’s annual net migration levels were mainly in the five figures but the levels tripled in less than a decade.
From this time onwards, they moved into the six-figure range and kept on climbing, reaching 315,700 by 2008, before moderating slightly.
Kohler noted that average net immigration between 2005 and the start of the pandemic in 2020 was more than double the 90,890 average between 1948 and 2003.
The 200,000 average over two decades saw Australia’s population grow by 7.2million – to 26.7million – but the total number of new homes only rose by 3milion to 10.2million.
With 2.5 people per home, that leaves a shortfall of 1.2million homes.
He argued the Howard government’s turbocharging of immigration was designed to boost the pool of labour in a bid to weaken the union movement, leading to unaffordable housing.
Kohler said surging immigration to satisfy big business interests have led to unaffordable housing (pictured is Sydney’s Wynyard train station)
‘The increase in immigration under Howard was part of his industrial relations strategy to crush unions and suppress wage growth, and the crackdown on refugees was deliberately designed to cover it – to make it look like the opposite was occurring,’ he said.
‘The other consequence of Howard’s surge in immigration was a shortage of housing, because no thought was given at all to where the new arrivals might live.’
His analysis comes as a poll showed almost two-thirds of Australians want Anthony Albanese’s government to cut migration after numbers surged since the pandemic ended.
Labor is due to announce it its long-awaited migration strategy on Monday, with plans to cut the migrant intake by 185,000 over four years.
Kohler argued future immigration should be tied to the capacity of the construction sector to build more homes.
‘Decisions about the level of immigration have been driven by the needs of business, with little thought to housing the new arrivals or to the impact on house prices,’ he said.
Kohler wants immigration levels pegged to 2.5 times the level of home approvals, using the 2021 Census average for households as the benchmark.
‘The second action on demand should be to link immigration to the capacity of the Australian construction industry – specifically, net overseas migration should be kept at roughly two to two-and-a-half times the number of housing approvals, forever,’ he said.
‘Immigration policy should not simply be driven by the demand for labour.’
In the year to October, 166,236 dwelling units were approved, Australian Bureau of Statistics data showed.
Based on Kohler’s calculation, annual net overseas migration would climb by 332,472 to 415,590 – barely changed from current levels.
But if his formula was just applied to the annual tally of 100,678 house approvals, Australia’s net immigration level would range from 201,356 to 251,695 – a level still much higher than the post-war average.
AMP chief economist Shane Oliver has called for net immigration levels to be slashed to the pre-mining boom level of 200,000 while entrepreneur Dick Smith wants a return to the 20th century average of 70,000 that was still in place during the late 1990s.
During the last financial year, only 168,231 private homes were built.
With an average of 2.5 people per home in Australia, the 420,578 people they would theoretically house was well below the annual population increase of 563,200 in March, covering both net overseas migration and births minus deaths.
Labor’s plan to build 1.2million homes over five years is also a goal that hasn’t previously been achieved.
Kohler argued the introduction of a 50 per cent capital gains tax in September 1999 made property more attractive than shares, leading to a prolonged period of real estate values growing at much faster pace than wages (former prime minister John Howard is pictured, far left in the House of Representatives with then treasurer Peter Costello)
Australia built 1.05million homes between 2015 and 2020 when interest rates were lower and Chinese capital was more plentiful.
Treasury is also forecasting 1.5million new migrants in the five years to June 2027 with the government only having an aspiration but no plan to build more homes, with the states and local councils in charge of approvals.
Kohler argued the introduction of a 50 per cent capital gains tax in September 1999 made property more attractive than shares, leading to a prolonged period of real estate values growing at much faster pace than wages.
This policy debuted two decades after Australia abolished inheritance taxes.
Since the capital gains tax was introduced by Bob Hawke’s Labor government in 1985, the family home or someone’s principal place of residence has been exempt.
But under the Howard government changes, those who sold an investment property only had to declare 50 per cent of the capital gain as part of their taxable income.
That means someone who made a $100,000 capital gain selling a rental unit only had to add $50,000 to their taxable income for that financial year.
The policy became law after then treasurer Peter Costello set up a business tax review chaired by former mining boss John Ralph, with input from former Westpac chief executive Bob Joss and Rick Allert, who was chairman of the old Coles Myer retailer.
Kohler said this policy led to a surge in landlords claiming rental losses on negative gearing so they could benefit from the capital gain.
‘Whereas in the rest of the world investing in real estate is all about getting rental income from tenants, in Australia it’s about getting an income tax deduction and then a capital gain,’ he said.
This also meant property developers relied on individual investors, out to make a capital gain and minimise their tax, with no tax incentives available for companies wanting to specialise in build-to-rent homes.
Despite that policy, Australia has a rental vacancy rate of just one per cent, which he argued highlighted the failure of both negative gearing and the 50 per cent capital gains tax.
‘Apart from anything else, there is currently a dire shortage of rental accommodation with negative gearing in place – hardly an advertisement for its benefits,’ Kohler said.
Labor lost the 2019 election promising to scrap negative gearing for future purchases of property and halve the capital gains tax discount to 25 per cent.
Prime Minister Anthony Albanese dumped those policies soon after replacing Bill Shorten as Opposition Leader.
Kohler said a new capital gains tax policy led to a surge in landlords claiming rental losses on negative gearing so they could benefit from the capital gain (pictured is a Sydney auction)
Kohler’s essay didn’t explore the idea of work-from-home arrangements enabling professionals on middle and average incomes to live in a more affordable capital city or regional area, without the long commute.
He instead criticised councils for using restrictive zoning rules to restrict the supply of housing, slammed first home buyer grants for pushing up prices, and called for high-speed rail connections between major capital cities and regional centres.
He concluded that unaffordable housing was the wrong sort of wealth creation that benefited established home owners and the banks, and worsened inequality.
‘It’s destructive because of the inequality that results: with so much wealth concentrated in the home, it stays with those who already own a house and within their families,’ he said.
‘For someone with little or no family housing equity behind them, it’s virtually impossible to break out of the cycle and build new wealth.’