Treasury tells all: how the housing market is so stuffed up

Would you believe that our ever-rising house prices are a sign there’s something badly wrong with our housing market? Would you believe our housing arrangements are worse than in the other rich countries?

Well, I would when that’s what Treasury is admitting in the annual sermon it tacks onto the budget papers. This year it’s about meeting our housing “challenge”.

In a well-functioning economy, its industries can respond to the increase in demand for their good or service by increasing their supply without much delay. Of course, it takes a lot longer to build a new house or apartment than it does to churn out more ice-creams or haircuts.

But, even so, our housing industry has been too slow to respond to the increased demand for housing. This comes from our rising population which, thanks to continuing high levels of immigration, has grown faster than most of the other rich countries.

Figures from the Organisation for Economic Co-operation and Development, a group of mainly advanced economies, show that our number of dwellings per 1000 people increased only from 403 to 420 between 2011 and 2022. This compared poorly with most other countries.

In 2011, our level of housing supply was just 92 per cent of the OECD average. And by 2022 it had fallen to 90 per cent. This was behind countries such as Canada, the United States and England.

Our completions of new private dwellings reached a peak of more than 200,000 a year in 2018-19 but have since fallen to about 160,000 a year. This has left us with an acute shortage of properties available to buy or rent.

Nationwide, the number of homes being offered for sale has fallen since 2015, while the number offered for rent has been falling since early 2020.

Speaking of renting, Treasury says the rental market is considered to be in balance – meaning renters have little trouble finding a place and landlords have little trouble finding a tenant – when the vacancy rate is about 3 per cent. In cities such as Sydney and Melbourne it’s now down to about 0.5 per cent. Ouch.

Not surprisingly, when demand grows faster than supply can keep up with, prices rise. The rise in the cost of newly built homes, and the cost of renting, have contributed significantly to the general cost-of-living crisis.

So, why has our housing industry become so slow to respond to increased demand? Treasury says the causes are “multifaceted, complex and affect all stages of the housing construction process, including all levels of government and industry”.

One way to improve the market’s response to greater demand is to accelerate the construction process. But Treasury says that completion times for apartments, townhouses and detached houses actually worsened by 39 per cent, 34 per cent and 42 per cent respectively over the 10 years to June 2023.

Calculations (or, if you want to sound more scientific, “modelling”) by a federal government agency says that, over the next six years, the nation’s existing unmet demand will never be satisfied unless completion times are speeded up. In six years’ time, we’ll still have a backlog of about 39,000 dwellings.

Treasury says the expectation that churning out homes faster will help to lower house prices is supported by empirical research. One study found that those OECD countries that built more housing over the 15 years to 2015 experienced lower real growth in house prices.

Another study showed that adding an extra 50,000 homes a year for a decade could reduce house prices by up to 20 per cent.

So, what can be done to increase the housing industry’s annual output? Treasury says planning and zoning restrictions can limit the speed at which land is made available.

Delays in approving development applications by local councils can be excessive. I think councils and government departments are monopolists and, like all monopolists, they take advantage of the lack of competition.

Private sector monopolists whack up their prices and don’t worry about the quality of the service they provide. Public monopolists make you jump through hoops that aren’t strictly necessary, and they fix your problem in their own good time.

I wonder whether, over all these years, those outfits have ever had much pressure on them to lift their game. If that changed, I’m sure we could get more homes built per year.

Treasury says average times for the approval of development applications vary by state, with Victoria and NSW experiencing the longest waiting times early this month of 144 and 114 days, respectively.

It shouldn’t surprise you that Treasury wants housing to be delivered in well-located areas where the demand is greatest.

Dense development in the “missing middle” of major cities, where households can reside closer to jobs in areas with higher quality amenities and infrastructure, has been limited by planning and zoning restrictions and slow release of infill land, Treasury says.

Global supply constraints and price shocks on imported building materials associated with the pandemic have added to the cost of construction, driving up the price of newly built homes. Although prices aren’t rising as fast as they were, they haven’t fallen back.

Shortages of building labour have also increased the prices of newly built homes and slowed the pace of construction. The growth in non-dwelling construction activity has drawn labour away from home building. The productivity of labour in construction has not improved since the early 2000s.

The industry blames these shortages on the drop-off in rates of skilled migration during the pandemic. But I wonder if the deeper problem is that the former ready availability of imported labour tempted the industry to save money by failing to train as many apprentices as they should have.

So, what’s the Albanese government doing about this mess? It’s finally grasped the nettle and is spending big – $32 billion, including $6 billion in this month’s budget – to “address historical underinvest in the housing system” and build 1.2 million new, well-located homes. We’ll see how they go.

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Budget is a guide to who's a Morrison mate and who's not

Despite all the accusations being hurled at Scott Morrison, to my knowledge he’s never done what so many election-winning leaders do and promised to “govern for all Australians”. A promise not made, and thus not broken. All governments tend to look after their party’s friends and supporters, but Morrison has made this a defining feature of his reign.

There was a brief period early in the pandemic when he was in all-in-this-together mode. That was when, utterly uncharacteristically, he doubled the level of unemployment benefits – JobSeeker, to use its latest label – for a few months.

But it wasn’t long before it became clear he was playing favourites. The lockdown left many overseas students without part-time work and eligible for no government support. They were told to find their own way home, which many did.

Suddenly, the universities became public enemy No. 1. The same party that had gone for years urging the unis to find new sources of income and be less reliant on the federal taxpayer were attacked for becoming too reliant on revenue from overseas students.

While businesses large and small lined up for the JobKeeper wage subsidy scheme, our publicly owned universities were declared ineligible. Thousands of jobs were lost and, unlike with most other industries, are unlikely to return any time soon.

Our few privately owned universities were eligible, however. Similarly, public schools weren’t eligible, but independent schools were.

The government’s disdain for universities continued in last week’s budget. While Treasurer Josh Frydenberg was handing out prizes as though at a Sunday school anniversary, the universities got next to nothing.

True, the new “investing in Australia’s university research commercialisation payments” program will cost $1 billion over five years. But almost all of that will involve transferring money from existing programs.

The funny thing about the budget’s centrepiece, the cost-of-living package, is that though it doesn’t seem all that generous – a one-off $250 cash payment to pensioners and other welfare recipients, an extra $420 to those eligible for the low and middle income tax offset, and a 22c a litre cut in petrol excise for six months – at an overall cost of $8.3 billion it’s the most expensive new measure in the budget.

Because its intention is to mollify all those feeling pain from the recent jump in living costs, this is the most inclusive of the budget’s measures, with most families standing to benefit.

But though the $250 payment is aimed at those at the bottom of the income ladder, and the extra tax offset will help more than 10 million taxpayers, the cut in petrol excise will be of greater benefit to businesses and higher income-earners, simply because they use more petrol.

One group of big winners favoured in the budget are the tiny minority of people and businesses in the regions. Frydenberg announced “an unprecedented regional investment that includes transformational investments in agriculture, infrastructure and energy in the Hunter, the Pilbara, the Northern Territory and North and Central Queensland”.

Do you remember Barnaby Joyce’s Nationals demanding rural assistance in return for allowing Morrison to sign up to net zero emissions by 2050? At the time, the assistance wasn’t disclosed. Now it is.

They’re getting $7.4 billion for dams, a $2 billion “regional accelerator program” to accelerate growth in the regions, and a $1.3 billion regional telecommunications package to expand mobile coverage across 8000 kilometres of regional transport routes. Thanks a billion.

No budget would be a pre-election budget without further tax breaks to that huge voting bloc, small business. This time they’ll be getting a $120 tax deduction for every $100 they spend on training their employees, and on investment in digital technologies. That’s $1.7 billion over three years.

No doubt many small businesses will benefit from another measure to encourage more apprenticeships. The new apprentice gets $5000 and the employer who takes them on gets a wage subsidy of up to $15,000. I’ve read that tradies are the new key political demographic.

Sometimes, groups get special treatment not because they’re mates, but because governments fear offending them. A prime example are West Australians and their government. Under a deal done by Morrison when he was treasurer, because they’d convinced themselves they weren’t getting a fair share of the annual carve-up of GST revenue between the states, federal taxpayers will be paying the West Australians an extra $18.6 billion over the six years to 2025-26.

This despite the surge in iron ore royalties making Western Australia the only government in the land running a budget surplus. Tough times.

So, who wasn’t on the budget’s receiving end? The help for first-home buyers was token, and for renters, non-existent. There was a bit more to ease the continuing problems in aged care, but Frydenberg was easily outbid by Anthony Albanese.

Frydenberg has greatly reduced childcare costs for second and subsequent children, but Albanese is promising to make it free for virtually all families.

As voter loyalty to particular parties declines, politicians encourage a what’s-in-it-for-me approach to elections and pre-election budgets. If so, it’s important to know whether you’re a mate or a non-mate.

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In truth there's no apprenticeship 'crisis'

If we're to believe what we're told, Australia's apprenticeship system is in crisis, with plunging numbers following cuts in government support.

In last year's federal election campaign, Bill Shorten claimed the number of people "in training for an apprenticeship" – note that tricky wording – was "now at its lowest level since 2001".

Spending cuts by the Abbott-Turnbull government had "seen apprentice numbers fall by more than 120,000 since the 2013 election".

In May this year, Karen Andrews, Assistant Minister for Vocational Education and Skills in the Turnbull government, said the objective of a new government fund was to "restore the number [of apprenticeships] to 2012 levels, when Labor's withdrawal of employer incentives contributed to a massive decline".

Earlier this year, a joint statement by the three biggest business lobby groups claimed that apprenticeships had declined by 45 per cent since June 2012 and urged the Turnbull government to "take urgent action to avert an imminent crisis in our apprenticeship system".

Not to be outdone, the ACTU claimed in last year's election campaign that the Coalition had "ripped funding out of apprenticeship programs", resulting in a "catastrophic drop in the number of apprentices learning their trade".

When you remember the almighty hash that federal and state governments of both colours have made of their efforts to smarten up TAFE colleges by making vocational education and training "contestable" by for-profit training providers, it's not hard to believe that, between them, the former Labor and present Coalition federal governments have stuffed up apprenticeships.

Fortunately, however, you don't have to believe it. It isn't true. For their own reasons, the people I've quoted – Labor and Liberal, employers and unions – are seeking to mislead us about the state of the apprenticeship system.

This is clear from a report published this week by the highly regarded higher education expert Professor Peter Noonan, and Sarah Pilcher, of the Mitchell Institute at Victoria University.

Let me ask: What do you understand the word "apprenticeship" to mean? Do you take it to mean the system that's existed for decades where young people work in trades such as carpentry, plumbing, electrical, commercial cooking and hairdressing, and undertake about four years of training before becoming qualified tradespeople?

Now try this: Have you heard of the "traineeships" that the Hawke government invented in 1985 to reduce youth unemployment by providing job and training opportunities for young people in service sector occupations not covered by traditional apprenticeships?

They typically last for only a year or less, and are common in retail and hospitality, admin, childcare and aged care.

Get this: when all those people I quoted spoke of the "apprenticeship system", what they were actually referring to was those short-term traineeships.

There's been a huge fall in the number of traineeships since 2012, because the Gillard government decided to crack down on massive rorting by employers and training providers of changes in the traineeship system made by the Howard government.

There has been a modest fall in the number of traditional apprenticeships since 2012, but this is despite the absence of any change in the full funding of traditional apprenticeships.

No one would understand the distinction between apprenticeships and traineeships better that Shorten, the minister responsible, the employer groups and the ACTU.

None of them would fail to realise that the public worries a lot more about trade apprenticeships than about short-term service sector traineeships.

So when they chose to depict a crackdown on employer rorting of traineeships as a crisis in the apprenticeship system, they knew full well they were misleading us.

But how did they think they could get away with such deceit? That no Peter Noonan would blow the whistle on them?

Here's the bit you'll have trouble believing. It sounds like it's straight out of Utopia.

They thought they'd get away with it because, some years ago, some genius in the federal government decided to add the traineeship figures to the apprenticeship figures and call them all apprenticeships.

You know, add oranges to apples and call them all apples. Good one.

So far has that bureaucratic obfuscation gone, that actual figures for apprenticeships and traineeships have disappeared.

You can, however, divide the so-called apprenticeships between trade apprenticeships (the real ones) and non-trade "apprenticeships" (actually traineeships).

The number of traineeships has long been a lot greater than the number of apprenticeships, which tend to vary with the strength of the economy. Even so, commencements have increased in some categories: carpenters, plumbers and electricians.

But the number of traineeship commencements ballooned after 1998, when the Howard government took a scheme aimed at encouraging employers to hire more young people, and made subsidies available for training of existing employees, of any age.

The report says registered training organisations, apprenticeship centres and brokers "aggressively marketed" these existing-worker traineeships.

"A business model emerged whereby employers would share the incentives with registered training organisations, who then delivered training, too often of questionable duration and quality," the report finds.

By 2012, the peak year before the Gillard government's restrictions took effect, 44 per cent of all traineeship commencements were for existing workers. About 18 per cent of all "trainees" were aged 45 or older.

The Howard government also decided in 1998 to make employer incentives available for part-time traineeships and apprenticeships.

"This decision . . . also created a market in Commonwealth employer subsidies, through which firms could shift their part-time and casual youth workforces (including full-time school and university students) into part-time traineeships," the report says.

"This had a dual benefit for employers – they were able to pay trainees the national training wage (below the relevant award) while also claiming employer subsidies, with training provided fully on the job.

"Major retail firms and franchises, in particular in the fast food industries, took full advantage of these incentives."

Now why do I find that easy to believe?

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