The current housing crisis in Australia is the product of contradictions in the economy rather than some agglomeration of accidents. The Australian economy is dominated by housing bubbles because “investors” have found few other ways of making reliable profits.
Investor activity has been trending up since the late 1980s. In 1985 investors accounted for only 13 per cent of total housing finance in Australia. By November 2013 the figure was 38.5 per cent. Prior to the late 1980s, housing demand was largely accounted for by owner-occupiers. However, the rapid escalation of prices in the early 1990s, combined with structural tax changes and improved access to credit, saw residential real estate become a highly desirable form of investment. First home buyers and owner-occupiers now compete not only with domestic investors, but also with foreign investors.
The Grattan Institute’s report of 2013, Renovating Housing Policy, found that home owners received an annual $36 billion a year in subsidies from the government, landlords around $7 billion, and renters less than $3 billion. The report identified that high-income Australians are the overwhelming beneficiaries, turning on its head the popular perception that it is low-income Australians who get the greatest subsidies through rent assistance.
“Only 25 per cent of renters get any support from the government,” said Jane-Frances Kelly, the Cities Program Director at the Grattan Institute. “They get none of the support that home owners get. Even landlords get more.” Home owners enjoy an exemption from capital gains tax, an exemption from the land tax faced by landlords, special treatment in applying the pension assets test and an exemption from tax for what is known as imputed rent. Moreover, “support for owner-occupied housing used to be roughly even across all income groups. Now the highest-income owners get government support of roughly $8,000 per year whereas the lowest income owners get a little over $2,000,” said Ms Kelly.
The Grattan Institute report also found the scale of the support for owners pushes up house prices, making it harder for younger and poorer Australians to get into the market.
There are broader wealth implications from lack of affordable access to home ownership. Owner-occupiers also own most of the wealth in investment housing and most non-housing wealth. Baby boomer households (born from 1945 to 1960) who were able to become home owners have the greatest holdings of all forms of wealth. Households who have not been able to gain access to home ownership have relatively little wealth of any sort.
It’s not difficult to work out exactly whose interests the housing crisis serves – the finance sector and high-income earners. Renters on the other hand are displaced, by being forced to move from potentially lucrative housing. The crisis also buys consent from a large proportion of the “petit bourgeoisie” who have an interest in the value of their only asset – their house – getting higher and higher, however much that might be against their interest in other respects.
In Engel’s 1872 paper “The Housing Question” he noted how slum clearance programs in Paris and the rebuilding programs of Britain meant that “the infamous holes and cellars in which the capitalist mode of production confines our workers night after night are not abolished – they are merely shifted elsewhere”, and “projects for encouraging workers to become homeowners are a cover for repressing wages”. Engels insisted that capitalism could never solve the housing crisis. This is echoed by political economist John Maynard Keynes (1883-1946), who made the now famous statement that “capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all”.
The post-war boom, with its massive public housing programs, may have appeared to prove otherwise, but today, the housing shortage and extortionate prices and rents are so intrinsic to capitalism’s workings in Australia that it is hard to imagine any solution that wouldn’t involve seismic social and political change. Or, as Engels put it in 1872, “it is not that the solution of the housing question simultaneously solves the social question, but that only by the solution of the social question is the solution of the housing question made possible”.
