By MILLIE MUROI, Economics Writer
The good thing about century-old share houses is that they tend to be (relatively) affordable to rent. The bad thing about them? At any given time, they’re probably falling apart in one way or another – which, I’ve come to realise, is probably why their owners choose not to live in them.
Why live in these shacks yourself when you can sit on them as an investment – and extract income from the tenants for effectively house-sitting for you?
These were the thoughts I fell asleep to this week as the power to our Canberra share house was switched off on a freezing Monday evening after what was supposed to be a look into why our hot water supply had dwindled to zero.
This same week, Treasurer Jim Chalmers herded about 40 experts and leaders – including from business, unions and the public service – into the cosy cabinet room at Parliament House to talk about economic reform.
But as Sally McManus, secretary of the Australian Council of Trade Unions, noted on the final day of the roundtable, many people who are facing the brunt of the housing crisis weren’t actually in the room.
“We wouldn’t want to be in a situation where we ask people [in the room] to declare how many investment properties they might have,” she said. “[But] I think people have to check all of that at the door, and they’ve got to think, what’s the most important thing?”
Some – including McManus, Australian Council of Social Service chief executive Cassandra Goldie, and former treasury secretary Ken Henry – have been outspoken about intergenerational fairness and the need for urgent action on housing.
But it’s difficult to trust that the interests of renters and aspiring first home buyers – who make up more than one-third of the population – would have been adequately represented at the closed-door meeting where most were on six or seven salary figures and probably own their own home, if not also one or more investment properties.
As I arrived home on Monday, the electrician (our third in two weeks) was leaving. “Hi. How are you going?” I asked. “Better than you will be!” he exclaimed, explaining it would be negligent for him to turn our power back on given our wiring was effectively fried: “I’m surprised you guys haven’t been electrocuted through your water.”
As the temperature crept towards freezing, my housemates and I lit some candles, laughed at the absurdity of our predicament while nibbling cold food in the dark and dialled our landlord with dwindling phone battery. “You’ve got to laugh, or you’ll cry, hey,” he offered. Helpful.
It was a return to the Victorian era for us, huddled up in our ancient abode. “It’s how the house was built to be lived in,” one of my housemates joked.
There are about 11 million dwellings in Australia. At any given time, some are under renovation, some are changing hands, and others are left uninhabited for most of the year as holiday homes.
I’m convinced a large additional chunk also fail to meet minimum standards, but are rented by pensioners, low-income families and younger Australians squeezed by cost pressures and left with little choice but to accept the cards they have been dealt.
There are minimum standards for rental properties, but renters have very little power to push landlords to meet them. Why? Because renters lack bargaining power. Push too hard over cold showers, flooding drains or a broken back door, and you’ll often be met with an unfortunate rent hike at the end of your (usually 12-month) contract.
In a housing market with greater supply, landlords would have to comply to avoid their tenants walking out – or worse, being reported by those tenants.
But with the vacancy rate – the share of empty rental properties – falling to 1.2 per cent in July (lower than the same time last year), renters have very little wriggle room when it comes to finding a better home or negotiating their rent. Rental markets with a vacancy rate of 1 per cent are considered “extremely tight”.
Longer-term contracts between renters and landlords (say, for three or more years) would help. Not only would they reduce the constant anxiety of rent rises and being evicted at the end of a one-year contract, but they would also make it easier for renters to raise issues without fearing an imminent jump in their rent.
We also need to boost supply and wind back the unnecessary rewards we’re giving to landlords investing in existing property.
Investing in homes that have already been built is an extremely unproductive use of money because it doesn’t contribute to our economic growth.
Since 1993 when our Canberra share house sold for $268,000, its estimated value has soared to nearly $1.7 million. And for most – if not all – of that time, our landlord has also been raking in hundreds of dollars in rent a week.
That he has spent very little on maintenance or improvements is clear from the growing cracks in the wall, lack of heating and dangerous electrical wiring. Getting our hot water fixed took the admirable persistence of one of my housemates who insisted to our landlord that he pay for an electrician who wasn’t just a mate down the road.
Investing in homes that have already been built is an extremely unproductive use of money because it doesn’t contribute to our economic growth. Buying your own home is, of course, sensible. But if you have some money left over to invest, that money should be funnelled into business, upskilling, or even new housing, which help generate growth and make us better at what we do.
Of course, there is justification for incentives that apply only to new housing because that adds to supply, helping to dampen house price and rent growth.
But by providing a far-too-generous capital gains tax discount (a 50 per cent reduction in the tax on any profit pocketed from selling an asset, such as property, after 12 months) for existing homes, we’re doing at least three rather silly things.
First, we’re encouraging more investment into something we don’t need (buying up existing properties as an investment) at the expense of things we do need, such as investment into businesses and spending on new housing.
Second, we’re making it harder for people to buy their first home because they have to compete with investors who might otherwise have decided housing wasn’t as attractive a place to park their money.
Third, we’re missing out on tax money from people who have, for the most part, simply been lucky and will still – even if the capital gains tax discount is reduced – pocket big profits.
We should also go a step further. The family home – or primary place of residence – is currently spared from capital gains tax. That is, people can buy multimillion-dollar homes and sell them for a huge (untaxed) profit.
That’s about $50 billion of revenue every year that the government misses out on according to Treasury. If we scrapped the capital gains tax discount on all property, that would amount to a further $19 billion.
That tax revenue could dramatically expand the government’s $10 billion Housing Australia Future Fund, but it could also simply reduce the tax burden on disproportionately younger and less wealthy workers.
Not only would this reduce inequality and give everyone a fairer go, but it would encourage more work and business investment, helping to kickstart our stagnant productivity.
While the lights were back on in our old house on Tuesday evening, my housemates were too scared to ask for a rent discount this week. Better to let this one through to the keeper, they said, in the hope we are spared a rent hike in a few months’ time.
The people hardest hit by the housing crisis are generally those without the power to speak up – either in the rooms of Parliament House or in the cold rooms of their share house – but we shouldn’t leave them in the dark.
