The Yarn with Senator Andrew Bragg
Unraveling the Housing Crisis - Peter Tulip's Take on Zoning, Superannuation, and Government Action
In this explosive episode of The Yarn, we take a deep dive into the complexities of the Australian housing crisis. From zoning, superannuation, and government action, join us as we engage with Peter Tulip, the Chief Economist at the Center for Independent Studies.
In this explosive episode of The Yarn, we take a deep dive into the complexities of the Australian housing crisis. From zoning, superannuation, and government action, join us as we engage with Peter Tulip, the Chief Economist at the Center for Independent Studies.
This time on the yarn we've got Peter Tulip from the Centre for Independent Studies, which is a think tank that does a lot of work on a lot of issues, but at the moment Peter is taking a real focus on housing policies, part of his economic brief. So good day to you, peter, good day Andrew. How are you? You're not too bad, not too bad. So, look, I might just get you to start out with what sort of agenda you've got there at the CIS, because for some of our listeners they'll know about the CIS's work, maybe on some of the social policy and some of the cultural issues, yeah, and I'll be familiar on the economic stuff. So maybe you could give us a bit of an overview of what you're doing there.
Speaker 2:Yeah, that's good, because actually the economic stuff is all I know so. So the CIS calls itself a classical liberal organisation. Other people often think of that as libertarian. We have a strong support of free markets and limited government, and in the government area and in the economic area, which is where I work, we do a lot of work on government regulation, fiscal policy, monetary policy. But the big issue at the moment for me in particular is housing policy and our agenda there is. We see government regulation and, in particular, planning policy as the reason that housing is so unaffordable, which has all sorts of social problems, and we would really like to wind back a lot of the zoning regulations that restricting housing supply.
Speaker 1:OK, and so what sort of work are you doing? I mean, is it economic modelling? Is it report writing? What is it?
Speaker 2:No, so I spent before I came to the CIS. I spent quite a bit of time at the Reserve Bank of Australia in the research department where I wrote long technical papers filled with statistics and econometrics and no one read them. The CIS sees itself more as a bridge between academic research and the general public, so part of our job is to take interesting research, useful research, and translate that for a wider audience. So we're still more technical than the mass media. We write a lot of long, you know 10 to 20 page papers, but hopefully they're readable by informed, by the informed lay public and by people interested in policy can read our papers, whereas they may often be confused by the research published in the journals. So we see ourselves as in between.
Speaker 1:OK, and at the moment, your singular focus is on housing. Is that right?
Speaker 2:I've also been doing a lot of work on monetary policy and in particular at the review of the RBA. We were one of the voices calling for that review and put in substantial submissions for it. There we've been arguing that the Reserve Bank needs to be more accountable and transparent, with less scope for bureaucratic discretion. But, as you know, sometimes that's a very hot issue, like when the review comes out. It's been a bit quiet for the last few months, but I think it'll hot up again in the next week or two, as when the legislation comes before Parliament.
Speaker 1:That's right, and the RBA is a very opaque institution and it is a very important institution to Australians, particularly those that have mortgages, and one of the recent podcasters we had on was Stephen Helmerich from the CBA, and he talked about these three thirds of Australians and one third being the mortgage holders. They're obviously, you know, hoping the RBA doesn't deliver any more bad news. But look, I wanted to hone in on the nub of the issue here, which is around what governments can do to help on this housing issue. So you just run us through. What exactly do you think the? I'm going to ask you this question in a few parts, so I'm going to, strangely enough, I'm going to start from the bottom, which is the closest to where people are living, which is local government. So what can local government do to solve the housing issue that we're seeing in Australia?
Speaker 2:Well, in fact, local government, a lot of people think, is the main culprit. It's the reason housing is so unaffordable that we have zoning restrictions that are administered by local governments. It varies a little bit from state to state, but local councils will typically tell you how much you can build, where you can build it, what use your housing can serve and all sorts of regulations about setbacks, height, floor area ratios and so on. The effect of all of that is to really restrict the supply of housing, and when you restrict the supply of anything, the price goes up.
Speaker 1:Okay, so we're talking about zoning or planning zoning.
Speaker 2:So the general public, I think, uses the terms interchangeably that when you talk to planners they think that zoning as strictly defined means the separation of incompatible uses. But the effect is much the same. About three quarters of residential land in Sydney and similar in other capital cities is zoned for detached housing. So you can't put apartments there, you can't put terrace houses there, you can't put townhouses there. So it's. The zoning is, strictly speaking, is one subset of the broader planning system.
Speaker 1:Okay, so local governments could overhaul their zoning policies. Now let's go to the state governments. What could they do?
Speaker 2:The local councils are not going to do that, and it's the responsibility of the state governments to get them to do it. So the state governments set the broad framework and the legal system within which the councils operate. So these are state government regulations that councils administer. The main thing I think state governments need to do is to set targets for local councils that we're not building enough, and we're not building enough in the right places, and state governments should be telling councils to build more. And the reason it's a state responsibility is there are several reasons. One is which is that an individual council by itself, even if they wanted to solve the problem of housing affordability, can't do much. They could build a whole stack of apartments, but people would move in from elsewhere in the city, and so it wouldn't do much to change affordability unless all councils build, and so state governments need to coordinate that, and they can do that by setting high targets.
Speaker 1:Okay, so they set targets, the state sets targets, and then is there any coercion, or is there any enforcement or any big sticks that are?
Speaker 2:applied here. There has to be or it's useless, and that has been a big problem that councils have been ignoring their targets without any consequence. I can talk about the carrots and sticks that should be used if you want. Yes, please. So under NSW legislation, at least the NSW government can appointed administrator if a council is failing to meet its targets, and in 2020, rob Stokes, who was then the planning minister, threatened to do that to Keringi Council when Keringi basically said it wasn't interested in meeting its targets. There was a bit of RG bar G behind back doors and we don't. What exactly happened isn't public, but they came up with a compromise whereby Keringi said it'll meet its targets.
Speaker 2:Not everyone believes them, but they got out of appointing administrator. That process is not a good one, partly because it encourages councils to look for a fight. They want to be seen as defenders of their community, taking on the state government, and the state government doesn't want to fight back. I mean, as I'm sure you know from observing your colleagues politicians, some politicians have a limited appetite for a fight and courage is selectively applied. So asking the minister for planning to overrule a council and appointed administrator, I think is a bit drastic and needed. I mean the remedies should be more automatic.
Speaker 1:Okay, so you could have a graduated penalty scheme.
Speaker 2:Yep. Well, I don't like calling it a penalty, I mean because more housing doesn't really hurt the local area. I'd call it more a rescue scheme. But go on yeah.
Speaker 1:Okay, and then what can the Commonwealth do? The big cheese here, the Commonwealth, the guy with all the money.
Speaker 2:Well, money would be great. So the state government has a stick that it can use. The Commonwealth government has the carrots. So, and that's part of current policy, the national cabinet I think it was back in August agreed to raise the national target from 1 million to 1.2 million houses, yeah, and that's accompanied with $3 billion of incentive payments, so about $15,000 of dwelling for states and local councils that do build it. And I some people say that that's not enough and the Commonwealth government needs to increase those incentives. Obviously, there are other priorities at stake.
Speaker 1:Okay. So to tie it all together, what you're saying is that the local governments need to have zoning arrangements which are favourable to having more development. These states need to have a regime where they are having targets which are enforceable, and then the Commonwealth should be opening up its checkbook to support that overall agenda.
Speaker 2:That's exactly right.
Speaker 1:Okay, so that doesn't sound that hard. To be honest with you, yeah, that's hard.
Speaker 2:Okay. So let me add one more thing that needs to be doing. Most experts and researchers and bureaucrats and many politicians. I think there's a lot of agreement about the problem, but I don't think, and that is we need more supply if we're going to make housing affordable. I'm not sure that the general public is convinced of that and, in particular, they don't understand when new developments are proposed in their suburb. They and they worry that it's going to change their neighbourhood in a way that they don't like, and that fear drives a lot of opposition to new housing and is one of the biggest reasons that extra supply is so difficult. So until we get more community buy-in, more community understanding of the nature of the planning problem, it's going to be difficult to achieve these targets, and that's where federal, state and local councils all should be playing a role in terms of public education. People like you have a big megaphone. You guys need to use it.
Speaker 1:Well, I see that my colleague from the State Parliament, chris Roth, has been pointing out that there are particular quirks, where I think it's a substation somewhere in Burwood that has been identified as being a heritage building and therefore must be preserved for all time.
Speaker 2:It's crazy. It's the ugliest looking. It's one of those red brick. It looks like an outhouse. It has no aesthetic charm or attractiveness. Heritage law is another set of problems that really needs overhaul also, in particular in the inner cities. I mean the inner suburbs. It gets in the way of a lot of development.
Speaker 1:Okay, but the issue here around zoning how does that link back to councils not approving developments? Can you just explain that to me?
Speaker 2:So on my street it's a single family detached housing. You're not allowed to put in the terrace houses or townhouses or apartments. There's what's called a LEP Local Environment Plan. I keep forgetting what it stands for, but the local council has maps of what kind of buildings are allowed where and where I live and in fact within a kilometer in every direction of where I live, all you can put are detached houses.
Speaker 1:So do you think that there are a lot of developers and there is a lot of capital ready to deploy and to build?
Speaker 2:Oh yeah, I mean, it's yes. So you just need to go to a few of these council meetings. All the time councils are rejecting approvals going in. And then there are a lot of developers that don't even bother putting in applications because they know they'll be rejected. But you can see it in the prices that developers pay for land that can be built on that. They'll pay millions and millions of dollars for vacant land that can support a block of flats, and they do that because they want to build.
Speaker 1:Okay, so the zoning piece, though, is not within the preserve of the councils, or is it completely? Is it something that the councils can fix themselves, or they need the states to incentivize more reasonable zoning arrangements?
Speaker 2:States can approve more housing if they want, so they can step into the shoes.
Speaker 1:Right, they can step into the shoes if they want to.
Speaker 2:They can just stop saying no and start saying yes. It's not that much more complicated than that, I mean, and they won't do that because there's the local opposition. Okay, and so what I'm saying? Maybe that applies to 80, 90% of councils. There are some very good councils that are very supportive of development, particularly when you go out into the bush and Campbelltown, liverpool. There are some good councils that try to increase development and are good with approvals. Most are not Okay.
Speaker 1:So, if we go back to the role of Commonwealth can play, the Commonwealth is proposing to pay some money to the states and through the council, ultimately. But what about some of the other ideas about linking future funding arrangements to changing the zoning arrangements? I mean, is that something that is really important?
Speaker 2:So that's an approach that other countries have used and in particular in the United States, People I respect think that that hasn't worked well. Right, so you pay a lot for promises on paper that just don't translate into actual houses. They say you know, we're allowing all of these apartments here and these townhouses there and for various reasons it doesn't turn into actual housing. My sense is that a lot of what the research in America is saying is that that approach to encouraging inputs is less successful than paying on delivery, so that once you see the bulldozers actually building, the housing is when you put give them the money Okay.
Speaker 1:Thank you. You could find a way to link it directly to the development of actual houses. You're skeptical about the upstanding.
Speaker 2:Yeah, well, I mean, maybe I think I maybe I overstated things there. I mean, opinion on this is divided, and other people think that it does make sense to pay for new plans and, in particular, there's a common view that many councils are short on planning resources, that they don't have the staff and so, and so helping them just have more feet on the ground People say that can have big payoffs too.
Speaker 1:Okay. So there is more for the Commonwealth to do here, though, beyond just being a checkbook. So that gives us food for thought. Now we've touched on the supply issues today, because I think everyone who is sensible understands that it's supply that is the key issue. But I want to talk about the demand side as well, because there's been debate about superannuation, which for younger Australians might be a bigger pool of capital than it is for older Australians. So I mean, what do you make of the various proposals to use super in different ways for housing, noting that no one is suggesting that it's a silver bullet?
Speaker 2:There's a very strong argument for using superannuation for housing that the objective of our superannuation scheme is security in retirement and you don't need superannuation for that. If people can save by paying off a house, that wealth gives in fact even more security in retirement than a superannuation scheme, and so the government shouldn't be forcing people to save in one way when there's another way that they can achieve the same objective that actually better suits their own circumstances. But that's the general principle. I think that superannuation should be usable for housing, and all I'm doing there, I think, is parroting Tim Wilson, who's been making this argument fairly forcefully. The difficulty with Tim's arguments, where he wants people to be able to withdraw money from their super to buy their house, is that that will. The argument is that will undermine the superannuation system, and for many people I think that's its main advantage.
Speaker 2:My own point of view is a pragmatic one that compulsory superannuation, whether you like it or not, has bipartisan support. Both sides of politics and will all three major parties committed to compulsory superannuation system. So a proposal like Tim's, which is withdrawing superannuation money, has a big problem. I think you can achieve the objectives of using superannuation for housing without undermining the compulsory, the super system by using it as collateral, so that if people can go to the bank and say, look, I've got $100,000 accumulated super balance, you can use that in lieu of a deposit as your collateral, as your security. You can tap that Deposit should fall by the same amount and that gets you over the deposit hurdle, which until recently was by far the biggest obstacle to home ownership. So there's a lot more I can talk about with these things.
Speaker 1:So what do you think about the idea of using it as a mortgage offset?
Speaker 2:Yes. So I think that's similar to Tim Wilson's proposals and it has similar advantages and similar disadvantages. I mean, if you want to undermine compulsory superannuation, then I think it will tend to weaken the compulsory superannuation system. I know some people will see that as a benefit, some people will see that as a weakness. My personal view is that that just makes it politically very difficult sell.
Speaker 1:Yeah, but the idea that using it as a offset would add to inflation has been put around as a reason not to do it. I mean, what do you think about that idea?
Speaker 2:Oh there's. I think any proposal that improves access to finance will, or in fact improves housing affordability will, boost the demand for housing and that will boost prices. That unless you do something, you need to do something to also boost supply at the same time. Otherwise, if you've got a fixed supply and you make it easier for one group to afford housing, they're just going to outbid other people.
Speaker 1:Yeah, but it's not a reason not to do it or not to consider it.
Speaker 2:No, no, no, it's just. It would be as part of a package, you need to accompany it with something that boosts supply.
Speaker 1:Yes, yeah, okay, peter, there's been a debate about this issue in the last little while. One of the things has been is that there's not a lot of data for evidence around how these kind of proposals would work. Yeah, just for the record given, I think you've been quite upfront with how you see this issue, which I respect. I mean, I for one, I'm not terribly keen to destroy the whole system, but I do think that it is very rigid and it does deserve some deregulation to suit individual needs. Yeah, so I guess what I'm asking you is what are the prospects of there being a better informed debate here, with some data and evidence around how, for example, supercould work as part of a bigger package?
Speaker 2:Yes, I mean so. In fact, this is something that CIS is working on. I mean partly your suggestion, but I mean with who we're going to end up going in your direction or some other direction well, remains to be seen. But I mean and what I just said is sort of reflects the preliminary thoughts as to where we think the project may go we do need more work. One difficulty whenever you do so superannuation is very consistently taxed, and one of the big issues in all the super for housing schemes is how do you stop people putting their money into super, getting a big tax concession and then, having got the tax concession, they then switched into housing and then they sell the house and so you've achieved nothing, while they pocketed a big tax cut. Modelling that is difficult, because people are going to be doing the opposite of what the law intends them to do. I mean, it is something we do need to do. The numbers on, You're right.
Speaker 1:Yeah, okay. So I mean, I know this has been a very focused discussion today, but for the listeners, this has been a real treat to be able to hear from someone that is right in the detail of what the government needs to do at its various levels to arrest the major and acute issue of supply, which, unless we solve this matter, then we are going to be disenfranchising younger Australians. And that's why I really wanted to talk to you, peter, because I think you have given us a very good way for us to think about it, and it's not so much about passing the buck between different tiers of government. It's really just about recognising that there are things that can be done and that we need to work together on those things, but we need to be clear about what it is that each tier is supposed to be doing.
Speaker 2:Yep, I strongly agree.
Speaker 1:Yeah, so look. Thanks very much for being on board today, peter, and if people are interested in following up on any of your work, they can go on to the CIS website and look it up, and that's that's all we have time for today, so thanks very much.
Speaker 2:Great, great to chat. Thanks a lot Thanks.