Areport by the parliamentary budget office (PBO) has revealed that the tax cuts legislated by the government overwhelmingly benefit higher income earners. It opens the budget to risks of an economic downturn given a narrowing of the tax base and projections within the budget that are very much based on an optimistic outlook for the economy over the next decade.
One of the best aspects of the minority parliament during Julia Gillard’s prime ministership was the creation of the parliamentary budget office. It provides an independent view of the budget because, unlike the Treasury, it does not report to a government minister; it reports to the Speaker of the House of Representatives and the president of the Senate.
Last week the PBO produced its annual “median budget projections” report, which provides some pretty forthright commentary on what the Treasury suggests the future will look like.
The PBO is unable to make its own projections – it has to use the economic parameters Treasury estimates – but it is allowed to assess those parameters.
The clear issue with the budget – as I noted at the time – is that its economic projections are very optimistic.
As the PBO notes, “the projections over the medium term are predicated on above-trend economic growth for much of the period and return-to-trend wages growth by the end of the forward estimates period”.
The forecasts for GDP growth are rather instructive:Advertisement
Over the next 11 years, the Treasury estimates that our economy will grow on average by 2.9% each year – a level that has been reached just twice in the past 10 years.
And let us acknowledge that the Treasury has not been wonderfully prescient on GDP growth of late.
Its first prediction for GDP growth in 2018-19, made in the 2015 budget, was for 3.5% growth. Over time this was revised down. But even in the 2018-19 budget the Treasury was still predicting 3% growth for 2018-19.
It ended up being 1.9%:
So predicting a five-year run of 3% growth from 2021-22 to 2025-26 is pretty ambitious.
But where the PBO really comes to the fore is its analysis of the tax cuts over the next decade.
Firstly, it notes that the government’s decision to cap tax revenue at 23.9% of GDP has placed greater risks on the budget.
Remember, the tax cap is a purely political measure with zero basis in economics. There is no economic theory that suggests if the government’s tax revenue rises above a certain percentage of GDP then economic growth falls – and 23.9% of GDP is extremely low compared with other advanced nations.Advertisement
It is a political measure designed to be able to suggest the ALP are doing something bad if their policies would see tax rise above that.
The biggest problem with the tax cap is that the government’s income tax cuts are designed to keep tax revenue below that level over the next decade. But at the same time it projects better growth than we have seen for more than 10 years.
Now, had the government allowed tax to rise above that “cap” it would, as the PBO notes, “partly shield” the budget projections from “the risk of adverse economic shocks.”
But when you set a cap and project to reach that cap only with the most optimistic predictions, it “removes this buffer”. As the PBO notes, “any weakness in tax receipts before 2029–30 would directly affect the budget balance”.
As it is the budget figures have income tax revenue rising to a post-GST high of 12% of GDP:
This might seem odd, given the tax cuts that have been legislated – surely income tax should fall? But here we discover the big lie of the tax cuts.Advertisement
They were sold as counters to bracket creep. The prime minister, for example, told parliament in November last year that the tax cuts would mean “Australians going to work today on a middle income over the next 10 years will not see bracket creep, the vast majority of them, for their entire working lives”.
The PBO report shows that the prime minister’s statement was completely wrong.
Bracket creep is not just going into a higher marginal tax bracket because of a wage rise, but also includes the increase in average tax rates within a tax bracket – because more of your income is taxed at your highest marginal tax rate.
And, as has long been known, bracket creep always affects those on lower incomes the most because their wage increases cause a higher percentage of the income to be taxed at a higher marginal rate than is the case with high income earners.
The government has removed the 37% tax bracket on incomes of $90,000-$180,000 to be replaced with a 30% bracket on $45,000 to $200,000 in July 2024.
But median income taxpayers were not likely to reach $90,000 until at least 2034-35, and those currently earning $90,000 were not in danger of reaching $180,000 until 2042-43:Advertisement
So the tax cuts were not really about removing bracket creep – even using the prime minister’s narrow definition of preventing people going into a higher tax bracket. They were about delivering tax cuts to wealthy people.
The PBO’s analysis found that “individuals in the second and third quintiles (together spanning the taxable income range $20,001 to $58,000), are expected to face the largest effects of bracket creep, while the benefits of the tax cuts are greater at higher quintiles”:
For those earning over $90,000, bracket creep is expected to cause individuals’ average tax rate to rise by 3.3% over the next 10 years, while for median income earners it will see a 6.3% rise.
And yet the impact of the tax cuts only outweighs the effect of bracket creep for those earning above $90,000 – i.e. in the top 20% of income earners:Advertisement
For everyone else, the average tax rate will rise.
For those in the second-lowest quintile, the average tax rate is set to nearly double from 5.3% to 9.9%.
It all adds up to a run of budget surpluses based on optimistic economic projections and poor-to-median income earners paying higher rates of tax, with increased risks should we have an economic downturn in the next 10 years.
The Labor Party accused the Morrison government of offering tax cuts on the never-never at the last election because the second and third stages don’t kick in until 2022 and 2024 respectively.
That means when voters go to the polls for the 2022 election they still won’t have seen much tax relief from the second stage of the tax cuts because they don’t apply until July of that year.
Right now, only the first stage of that cut has come into effect, delivering tax relief for workers earning under $120,000.
The second stage lifts the threshold for the 32.5 per cent tax rate from $90,000 to $120,000, effectively delivering a tax cut to everyone earning over $90,000.
The tax threshold for the 19 per cent rate also goes up over time from $37,000 to $45,000 from July 1, 2022.
The 2022 election will be a referendum on the final stages of those tax cuts, however, not least because the Labor Party will need to declare its hand on whether it plans to repeal massive tax cuts for the wealthy that flow from 2024.
An entire tax threshold will be removed, leaving just four thresholds, and the tax rate for the 32.5 cent threshold will be cut to just 30 per cent.
That means there’s one giant 30 per cent tax bracket for everyone earning over $45,000 to $200,000.
The idea is 94 per cent of workers will have a 30 per cent tax rate.
Sounds great in theory, particularly for a high-income earner on $180,000, who will will secure a whopping $8640-a-year tax cut.
The logical argument for the Labor Party to run is that it will repeal some of those tax cuts, or at the very least offer a more generous tax cut to low-income earners who may feel mightily ripped off when they see how large the tax cuts are for the wealthy.
But what if there was a way that Mr Morrison could dramatically outbid whatever the Labor Party could offer these low-income workers through tax cuts?
Enter voluntary super.
When the idea was floated to Mr Morrison in the lead up to the 2016 budget, the idea was pushed as a way to deliver low-income workers a pay rise of up to $63 a week.
The genius of the plan is that this doesn’t cost the government a cent because they are just letting low-income workers take their own money as cash rather than super.
In fact, the government stands to make money, because wages are taxed at a higher rate than superannuation.
The proposal would actually increase tax revenues in the short term, whatever extra cost it adds to the pension bill for future generations.
Of course, given the Liberal Party’s historical opposition to compulsory super, it would fit neatly with riling the unions too.
Mr Morrison could sing the freedom-of-choice song because the option of taking your super now would be voluntary, not compulsory.
The PM could also accuse critics of being patronising by adopting a we-know-best approach to workers’ money if they refuse to give them the option.
Employers would still be required to pay a 9.5 per cent super guarantee but some workers could take it – or a proportion of it – as a pay rise rather than compulsory savings.
For a part-time worker earning $35,000 a year, opting out of super would deliver for arguments sake a $63-a-week increase to their pay – or a $3324 annual bonus before tax.
Naturally, super funds say voluntary super is a bad idea because what happens when those low-income workers retire with no super?
Super funds maintain workers have to put as much away as possible to get the advantages of compound interest.
Critics say many of these workers will end up on the pension anyway so why force them to put money in super now, when taking it as cash would help with day-to-day living expenses?
But let’s put the policy merits to one side however and look at the raw politics.
If the Liberal Party embraces this option it can go to the next election promising low-income workers a pay rise – if they choose – of up to $60 a week.
The Labor Party simply cannot match that in terms of a tax cut.
So the ALP may have to make some tough decisions about whether or not this idea does have some merit and if not, how to argue against it.
‘Growing and Changing Communities’ … where you live … for Higher
Density and for ever more ‘Permanent Resident Visa Holders’
from our Big Neighbour to the North …
Did you know the Real Estate Gatekeepers were made exempt from the Second Tranche of the ANTI-MONEY LAUNDERING LEGISLATION by the Scomo Government in October 2018?
IT had been shelved for more than 12 years prior …
IS that why Two new Global City Casinos are being brought to Sydney … Crown and Star … to promote this? … And there are Onshore Proxies to help launder Black Money in Australian Real Estate …
With ‘Destination Living Centres’ too where they can gather together … throughout these large shopping/residential centres all day long … occupying lounges, libraries, eateries, boutiques, food halls, markets, theatres, games rooms, ice rink, parking … the latest deve-loper move …
ENGAGING GROWING AND ‘CHANGING COMMUNITIES’ … LANDCOM AND LENDLEASE
Did you see this Sydney event? Join us to explore engaging growing and changing communities
‘Did you see this Sydney event? Register today for an up-coming event in Sydney hosted by LANDCOM and LENDLEASE.
Members and non-members are welcome.
ENGAGING GROWING AND CHANGING COMMUNITIES
Wednesday, 16 October 2019 6:00pm – 8:00pm
Level 2, 88 Phillip St, Parramatta NSW 2150 Australia
Members: $10 Non members: $25
Spaces are limited, bookings are essentials
Western Sydney is one of Australia’s biggest growth centres. It’s the engine room of the NSW economy and is key to providing the homes, services and recreational spaces for Sydney’s growing population.
Over the next 15 years more than 1 million new homes will be built in Western Sydney and the region will house more than half of Greater Sydney’s population.
Residents across the region are increasingly anxious about the unprecedented rate of development altering the face of their suburbs and straining local infrastructure.
DISTRUST IN PLANNERS AND DEVELOPERS is just one of many challenges associated with engaging communities experiencing growth and change.
As public engagement specialists we must help maintain and rebuild trust in our planning system and development industry.
*Our work is not easy, but it’s critical because the homes and neighbourhoods of tomorrow can’t get built without community support.
Yet, how do we give communities that don’t yet exist a voice? How do we know when we’ve engaged enough? How can we encourage communities to reflect on emerging challenges and their own changing needs?
Join us to explore the opportunities and challenges of engaging communities on the frontline of Sydney’s rapid growth. A panel of speakers will set the scene followed by interactive World Café style discussion and networking with drinks and nibbles.
Anna Petersen Executive General Manager Communication & Policy, Landcom
Anna is passionate about giving communities a voice in city making. She has 25 years’ professional experience in the urban planning and development industry. Anna is championing Landcom’s commitment to stakeholder engagement and to continued learning and improvement in its engagement practice to help build the trust needed to deliver exemplary development projects that support the NSW Government’s urban management agenda.
Clare Baker Strategic Engagement Manager, Australia, Lendlease Property and Building
Clare has over 12 years’ stakeholder engagement and community relations experience in the property development, asset management and construction industries and has recently moved into a national role with Lendlease as Strategic Stakeholder Engagement Manager, Property & Building.
Carlie Ryan City Deal Manager, Penrith City Council
Penrith is working to deliver major infrastructure with Government including a new rail line from the Western Sydney Airport to St Marys. Carlie Ryan is leading the development of Council strategy to support the delivery of this catalytic infrastructure. With an extensive career in strategic planning and policy development, Carlie is well placed to lead Penrith through this exciting period of growth.
Find out more here, or, to register email: email@example.com
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Figure there is a lot of truth in this from ‘Houses and Holes’ … if one were to follow some Queensland based Facebook Pages … it is all borne out there …
The difficulty is that the ‘Facts’ might be light on the ground and hence the terrible choices made!
AT CAAN we do research and find where the truth lies … the LNP Policies, the sell-off of Our Nation … Black Money awash in Our Real Estate with no legislation to prevent it … Visa Manipulation … the backdoor to Migration with 2.2 Million Visa Holders in Australia at any point in time … Visa Workers and the consequence being high youth Unemployment and Underemployment …
IT would seem that Labor needs to tell it more as it is … and heed the advice herein!
From Labor rising star and shadow Treasurer, Jim Chalmers, at the annual Light on the Hill address:
“We need to listen to the message we were sent, and learn from the result.
Clearly, we won’t take an identical set of policies to the next election as we took to the last. We need to look ahead.
We took an ambitious program to the last election and we fought hard for it. But we weren’t able to build a big enough constituency behind that agenda to win. We mostly lost among middle-ground voters, not middle-income voters. People in outer suburban communities like mine, around Australia.
To win (voters) back, we need to acknowledge that we won’t beat populism of the right with populism of the left, especially not with warmed-up nostalgia for the 1970s, or even for the 90s for that matter, but with something new and different.”
In the speech, Dr Chalmers says that decay in the established “global economic order” has undermined prosperity and stability, and accelerated inequality.
The “reactionary right” has benefited by appealing to populism, nationalism and isolationism while the “progressive left” has struggled.
Labor’s mission must be to “find a place for people” during an “inflection point” in politics, economics and society.
“Big transitions are always accompanied by big, defining anxieties,” he says. “Perhaps the overarching anxiety is declining faith that our politics and economics work for middle Australia.”
Re-establishing our growth credentials is part of reclaiming Labor’s rightful place as the party of aspiration and opportunity,” Dr Chalmers says.
And the answer is a more fulsome embrace of the very policies that are creating that anxiety as living standards fall? ….. ???
This is the key point. The anxiety is real because the underlying problem is real. It’s not a messaging problem. It’s a problem.*
Labor had a pretty good platform for the times at the last election.
A push back against the class wars of globalisation was appropriate and consistent with Labor values.*
Some of the policies needed nipping and tucking, especially the franking credits and climate, but they weren’t fundamentally flawed. Nor did they lose “middle Australia”.
Labor lost the election in QLD. *
It did not lose it to the LNP.
*Itlost it to One Nation and Clive Palmer, both nationalist parties that offered solutions, good or bad, to the very real anxieties of globalisation. *
SEARCH CAAN Website to find more on Clive Palmer
So, is the answer to get more globalist then? Only if you want to lose even more QLD seats next time around and guarantee LNP Government.
The answer is to nudge your platform towards the nationalists.
*The ALP should persist with its push from the left as a redress to globalisation issues but add another string to its bow in the form of tighter border controls, halved immigration and even greater focus on wages growth and productivity reform.*
There is one problem with doing this in conjunction with the existing policies.
Cutting immigration on top of negative gearing reform will terrify the horses about a house price crash.
So dump the latter and go with the former. It’s a judgement call on whether or not to cut the capital gains reform as well. Probably keep it.
The main point is, making yourself into a ScoMo lite isn’t going to work.
There’s already a ScoMo heavy. Labor needs to be Labor. It just needs to rediscover workers a little.
The latest Perceptions of Housing Affordability report by CoreLogic has revealed that 83% of would-be first home buyers (FHBs) are worried about being able to afford their first homes, with 63% still living with their parents claiming they cannot afford to move out:
The household income to dwelling value ratio today is 6.5 times. So, the typical Australian household is spending, on average, 6.5 times their gross annual income to buy a medianpriced dwelling of $524,000. Less than 20 years ago it was 4.5 times.
The market is hard to get into. It takes an average of 8.7 years to save for a 20% deposit. That’s a long time; an eighth to tenth of a life.
And once you overcome that steep hurdle and get your foot in the door, you spend 35% of gross annual income to service your mortgage. That is a serious amount of disposable income you need to be able to service your loan.
Meanwhile wages growth remains insipid. Australians just haven’t been getting the pay rises required to help them save and pay for more expensive housing…
It’s not surprising, therefore, that while half of Australians thought affordability had improved in the past two years, more than 80% of Australians are still concerned about being able to afford their first or next home.
Affordability continues to have a significant impact on society and generations. The ‘cubby house’ syndrome where young people decide to stay at home with mum and dad – something we identified in our 2017 report – is alive and well. Some 63% of Australians who are still living with their parents say they can’t afford to move out of home (up from 62% in 2017)…
Nothing will change. Labor’s negative gearing and capital gains tax reforms are dead. There is minimal appetite to address land-use and planning restrictions. And immigration continues at insane levels, especially across our biggest and most unaffordable cities, which are projected to roughly double in size over the next 50-years:
Australia’s mass immigration program is particularly pernicious, since it adds hugely to structural demand, forces families to live in smaller housing (e.g. apartments), and also crushes the wages of younger prospective home buyers in particular, as noted recently by the Grattan Institute:
About three quarters of net migrants to Australia today are not high-skill, at least when they arrive… The stock of temporary students remains relatively low-skill…
Low-skill migrants might also put downward pressure on wages (if accurately measured). The measured wages of those aged 20 to 34 have not risen as fast as the wages of older workers for some time (Figure 7)…
Australia is now running a predominantly low-skill migration system. People from this system form a material proportion of the younger workforce.
Ironically, younger Australians are also the strongest supporters of ‘open borders’ and are usually the first to howl ‘racism’ or ‘xenophobia’ whenever there are calls to cut immigration.
They must be happy to work in low-paid ‘gig economy’ services jobs and to be confined to renting shoebox apartments for the rest of their lives.
There might be something to Millennial whinging after all (Photo by Julian Finney, Getty Images)
Millenials, more than any other generation, want to get into the property market but increasingly they’re unable, according to the latest CoreLogic survey, as national house prices have rocketed up.
In fact, the proportion of millennials that say they won’t be able to buy a home until they’re into their 30s has almost doubled in just two years, from 20% in 2017 to 34% today.
That’s put Australia in a position where “we risk entrenching a generation who become disenfranchised from society,” CoreLogic CEO Lis Claes warned, urging policymakers to implement serious reforms to arrest the trend.
Despite still desperately wanting to own a house, millennials have all but given up on the prospect until they’re in their 30s.
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MILLENNIALS ARE WILLING TO SPEND $5000 OR MORE ON VACATION, MAKING THEM THE AGE GROUP THAT SPENDS THE MOST ON TRAVEL — BUT GEN Z ISN’T FAR BEHIND
That’s the takeaway from the most recent survey by property researcher CoreLogic which found that the proportion of millennials priced out in their 20s had risen from 20% to 34% in the last two years – that’s despite orderly declines in the most expensive markets Sydney and Melbourne.
“Of all the generations, millennials were the most likely to rate homeownership as important– 86% rated homeownership as important.
That’s despite millennials confronting the biggest challenges of affordability,” CEO Lisa Claes said at an event in Sydney unveiling the report.
“If millennials’ affordability disillusionment continues, we risk entrenching a generation who become disenfranchised from society. It raises serious issues around intergenerational equity and should be a catalyst for policymakers to address affordability at a foundational level,” Claes said.
Nationwide, less than four in ten millennials reckon they’ll be able to afford to buy before their 30s. While that number is lower in capital cities like Sydney and Melbourne, affordability has taken the most serious battering in smaller markets in the last 12 months.Tasmania was the only state where affordability has gotten worse over the last year, while the ACT also worsened.
But while being priced out, millennials significantly haven’t lost their desire to do so.
“Millennials haven’t given up on the great Australian dream – they want to own homes. In fact, by being denied it, they want it even more but they are losing hope that they will ever be able to realise that dream,” head of research Tim Lawless said.
With the Reserve Bank of Australia (RBA) having already cut interest rates twice, and adjustments made to free up the flow of credit into the market, those prices are again rising.
Millennials may be unable to control those forces but they are exploring alternatives to find their way into the market.
Of those surveyed, 11% of non-homeowners indicating they would definitely use ‘rent-vesting’ -– a practice where they buy an investment property they can affordfirst while they themselves continue renting – to get into the market. Another quarter stated they would consider it.
Notably, despite enthusiasm for rent-vesting, only 4% said they actually owned a property.
*Assessing the situation, CoreLogic urged the government to actually address the affordability problem.
“We need to see much more strategy to address housing affordability and not just band-aid solutions. That means not grants or concessions, but real long-term fixes for affordability. I think that’s the key message to come out of our research,” Lawless said.
Global consulting firm EY is warning the Australian economy is in urgent need of more stimulus, and is encouraging the Federal Government to green-light more “shovel-ready” infrastructure projects.
EY chief economist Jo Masters says small projects could create 5,000 jobs
She says regional areas would benefit from much of the economic boost
Treasurer Josh Frydenberg says nearly half the $100 billion infrastructure package would be spent over the next four years
With Australia’s economic growth at its lowest level in a decade, economists are urging politicians to move quickly.
“The economy is losing momentum quite quickly. The growth base is narrowing, the headwinds from offshore are rising,” EY chief economist Jo Masters warned.
Even if the Reserve Bank cuts official interest rates again tomorrow, she doesn’t think it will be enough to stimulate the sluggish economy.
And while the RBA and Federal Government agree infrastructure spending will be an important stimulus, Ms Masters believes it is small, so-called “shovel-ready” projects that will be most effective.
*”Large infrastructure has quite a long lead time, and we’re already facing capacity constraints, so we’re looking at what else we can do,” she said.
EY’s modelling shows a billion dollars’ worth of maintenance and repair work, like a fresh coat of paint on a hospital, would create more than 5,000 jobs and inject an extra $800 million into the economy.
*”And I think one of the advantages of small-scale infrastructure — maintenance and safety-type infrastructure — is not just that it’s relatively easy to roll out, but also importantly you can roll it out in regional areas, and also it’s quite labour intensive and of course creating jobs is very important in a slowdown,” she told the ABC.
Government to spend billions in four years
In a statement to the ABC, Treasurer Josh Frydenberg pointed out that nearly half the Government’s $100 billion infrastructure package would be spent over the next four years.
And he also said Prime Minister Scott Morrison had written to state and territory leaders to work together to look at projects that could be delivered ahead of time.
Infrastructure Australia advises all levels of government on how and where to invest.
*Its executive director of policy and research Peter Colacino has identified one major hurdle for getting the green light for some projects.
*“NSW councils have identified a $2.2 billion local road maintenance backlog, so clearly there’s a challenge in NSW,” he said.
A Transport for NSW spokesperson told AM the NSW Government was committing $1 billion to fixing local roads and country bridges over the next five years to support councils, and would continue to work with them to review how assets were managed.
And with uncertainty over potential economic shocks from Brexit and the US-China trade war, Ms Masters said EY’s modelling also showed that bigger tax cuts for low-income earners would give the Australian economy more support.
*”The expansion of the low- and middle-income tax offset is one example of that where it’s focused on low- and middle-income earners who tend to spend more than they save,” she said.
“They have a higher marginal propensity to consume.
“You can also stimulate through lump sum payments, but also obviously through income tax and changing weekly or fortnightly pay packets.”
IT’s not difficult to pull this Opinion Piece apart … ‘How to address Australia’s medium-density housing shortage’ …
STOP selling Australian ‘new homes’ overseas … the community are questioning the benefits of more diverse housing types when our Families are locked out by ‘BLACK MONEY’ from overseas! And with higher density we lose our amenity!
–Scomo Govt exempted the Real Estate Gatekeepers from the second tranche of the Anti-Money Laundering Legislation in October 2018
–China has now eased its ‘Capital Controls’ allowing the passage of ‘black money’ into our Real Estate …
AND … with the May 2017 Budget Regulation Medium-Density Housing developers will be able to sell 100% of these projects of 49 dwellings or less to foreign buyers!
–a process to eliminate the Australian Middle Class is underway; for Our Australian Families to be subject to long term/lifelong leases in Build-to-Rent and/or boarding houses; recycling the wealth for the Harbourside Housing Class
-with fewer able to pay off their home before retirement
Why should we Australian Taxpayers, and Ratepayershave to pay for more infrastructure of parks, schools, and public transport to facilitate the ‘foreign buyers’ growing our population?
WHAT about the huge growth in overdevelopment since 2016? … How convenient for the author to reference out of date stats of 2016?
QUESTION that Medium-Density homes are cheaper … in 2017/18 each dwelling in a Duplex development in the Middle Ring suburbs of Sydney were selling for $2M each! On tiny lots of 300M2 or less … Whilst neighbouring detached established cottages were selling from $1.2 – $1.4M …. on 550,000 – 600,000M2 lots … hm …
ISN’t using ‘land more efficiently than detached housing’ about developer profits?
-with common walls; set forward of its neighbours blocking their amenity; sharing driveways
Are all medium-density dwellings smaller? In Sydney’s Middle Ring since 2017/19 the majority of Duplex have 4 bedrooms each!
Medium-Density developers have had to compete with the ‘Big Boys’ in High-rise because storey upon storey they make a motza!
Did ‘Town Planning’ come about to ensure the rights and well-being of ‘the community’? Was it around 1900 that urban planning developed to mitigate the consequences of the industrial age followed by ‘Garden Cities’?
However, now we are moving towards the Chinese high-rise, and higher density model to accommodate millions …
SYDNEY SUBURBS already have walkability, local shopping and entertainment … however with the huge influx of those from our big neighbour to the North our large shopping centres are being turned into ‘Destination LivingCentres’ for them!
Where they can gather all day long, shop, eat, play, read, gaze, chat … occupy all eateries, lounges, theatres, icerinks, libraries, parking … for example, Macquarie Park Shopping Centre, Chatswood, Epping, Top Ryde ….
Medium-density housing is undersupplied in the suburbs of Australia’s capital cities. A building boom has helped erode this shortage somewhat, but demand for this type of housing is rising and will continue to grow.
To meet the demand for more medium-density housing, state and local governments need to change planning rules that constrain the building of medium-density housing in Australia’s capital cities, particularly in areas close to public transport.
But governments also need to consult communities about any changes and also communicate the benefits of more diverse housing types. They also need to invest in infrastructure, such as parks, schools and public transport, to meet extra demands from a growing population.
What is “medium-density” housing?
Typically,medium-density dwelling types include townhouses, terrace houses, semi-detached houses, duplexes and manor houses are (this is the definition used in this article, which is in line with the ABS definition) (see diagram below).
Medium-density housing is also referred to as the “missing middle”, as this type of housing is considered to be “missing” from cities. The missing middle is an apt description of Australian cities, which are dominated by detached houses.
According to the 2016 Census, 12.8 per cent of the Australian housing stock (1.27 million dwellings) was medium-density (see table below). The share of medium-density housing is highest in capital cities and the ACT, and lowest in Tasmania. Melbourne contained the most medium-density homes in 2016, at just under 310,000.
Most medium-density dwellings are in Australia’s capital cities
Medium-density dwellings, number, 2016
Medium-density dwellings, % of total dwellings, 2016
Rest of NSW
Rest of Vic
Rest of Qld
Rest of SA
Rest of WA
Rest of Tas
Rest of NT
Source: ABS Census 2016
*Medium-density homes are considerably cheaper than detached dwellings. According to Domain data, the median price for a medium-density dwelling is approximately 10-30 per cent lower than the median house price house (see table). Other sources also find that medium-density dwellings are typically about 25 per cent cheaper than detached houses.
Medium density housing is considerably cheaper than detached housing in Australia’s major capital cities.
Medium-density dwellings, median price, June quarter 2019
Medium density v houses, % difference in median price, June quarter 2019
Note: This table is illustrative only. The median house price is the stratified median published quarterly by Domain Group. This house median also includes some medium-density housing types, so the true detached house median is higher than what is shown in this table. Medium-density housing includes the following dwelling types: duplex, semi-detached, terrace, townhouse. The medium-density dwelling price should be considered an estimate due to the difficulty of classifying some dwelling types. Source: Domain Group.
The main reason for the cheaper price tag is that medium-density homes are on smaller block sizes than detached houses. Medium-density housing uses land more efficiently than detached housing by utilising common walls, smaller set-backs and common driveways. As land generally accounts for most of the cost of a dwelling, particularly in inner and middle-ring capital city suburbs, smaller block sizes significantly reduces the cost of a dwelling.
Medium-density dwellings are also smaller. In 2016, 45 per cent of medium-density homes had 3 or 4 bedrooms, compared to 69 per cent of detached houses.
There is strong demand for medium-density housing, but there’s a shortage in our capital cities
There is substantial unmet demand for medium-density housing within Australia’s major capital cities. The Grattan Institute conducted a survey in 2011 that asked people to consider the trade-off between price, size and location when deciding on what home they would like to live in, while also taking into account their income.
This research found that when the actual housing stock in 2016 was compared to people’s preferred housing stock (once people had considered the trade-offs), there was an undersupply of medium-density housing (and apartments) in Sydney and Melbourne, particularly in middle and outer suburbs (see table).
In Sydney, medium-density housing made up 14 per cent of housing in 2016, but the preference was for 25 per cent of the housing stock to be medium density (a shortage, or undersupply, of 11 percentage points). In Melbourne, the shortage was nine percentage points (a preference of 26 per cent medium-density compared to the actual 17 per cent).
Sydney, Melbourne and Perth have an undersupply of medium-density housing
Actual dwelling stock in 2016 compared to preferred housing stock derived from 2011 survey (negative number indicates a shortage)
North-west and north-west coastal
South-east and south-west
Notes: Totals do not sum due to rounding. Sources: Grattan Institute (2018); Grattan Institute (2011); WA Department of Housing (2013).
The above research, which uses a survey conducted in 2011 and compares this to the dwelling stock in 2016, likely understates the current shortage of medium-density housing.
On the supply side, the share of Australia’s housing stock that is medium-density hasn’t increased by much. This is because the proportion of new medium-density housing built in recent years has only been slightly above the existing dwelling stock. In Australia, 16 per cent of all building approvals over the past three years were for medium-density housing, which is only slightly higher than the existing proportion of Australia’s housing that is medium density (12.8 per cent; see table).
It will take several years of a higher share of new medium-density dwelling construction to make a significant inroad into the shortage identified in the above studies.
Medium-density housing is barely growing as a proportion of the housing stock
Medium density, % of dwelling stock, 2016
Medium density approvals, % of all approvals, August 2016 to July 2019
Gap (percentage points)
Source: ABS 8731.0; ABS Census 2016.
Demand for medium-density housing is likely to have grown in the eight years since the Grattan Institute survey was conducted. Ascongestion has worsened and commuting times have increased, particularly in Sydney and Melbourne, it’s likely that people would place a higher premium on location than they did in 2011. Jobs have concentrated in and around city centres, making proximity to the city and public transport more valuable. Housing preferences have also shifted, with walkability, a key attraction of medium-density living, highlyvalued.
More recentsurveys have also found strong demand for medium-density housing, particularly when survey respondents are asked to consider the trade-offs between location/travel time and dwelling size/price. It’s not just young families looking to break into the housing market who are willing to sacrifice a large backyard for a better-located house. Many retirees also express a preference for this type of housing when looking to downsize in their local area.
There’s been minimal progress in addressing the shortage of medium-density homes
There has been a medium-density construction boom in recent years. Between 2011 and 2017, approvals for medium-density homes approximately doubled in Australia, mostly driven by a significant jump in approvals in NSW, Victoria and the ACT (see graph below). The increase in medium-density construction is most apparent in Victoria.
As a result, the proportion of all building approvals that were for medium-density homes is only slightly higher than 10 or 15 years ago in most states (see graph below and description above). So the medium-density housing shortage (as a share of the housing stock) identified above has not been eroded.
The building industry is cyclical, so as property prices have fallen in the past couple of years, medium-density approvals have declined. As medium-density construction typically takes about one year, plus any delays following a building approval, it’s likely that medium-density construction is past the 2017-2018 peak in NSW and Victoria and the 2016 peak in Queensland. But even with the drop-off over the past couple of years, medium-density approvals are still elevated compared to historical data, particularly in Victoria.
What’s holding back the construction of more medium-density housing?
The evidence suggests that there is still a substantial undersupply of medium-density housing, particularly in the middle and outer suburbs of Sydney and Melbourne.
So what’s holding back more medium-density development?
In Brisbane, minimum lot sizes and heritage protection of “Queenslander” houses limits subdivisions and medium-density housing.
Resident opposition has also held back the construction of medium-density housing (and this “NIMBYism” also influences planning rules). For example, a survey conducted for the Committee for Sydney found that people were less supportive of medium-density developments in the suburb where they live, compared to Sydney more broadly.
The structure of Australia’s building industry may also be a factor holding back medium-density development. Foreign investors and big Australian developers have tended to build high-rise apartments rather than smaller-scale medium-density projects. This is in part due to planning rules making it easier to build high-rise apartments in city centres rather than medium-density dwellings in the suburbs. The uncertainties and delays involved in building medium-density dwellings eats into developer margins.Overseas developers have also had more experience building high-rise apartments.
These constraints have meant that most new projects in recent years have been high-rise apartment blocks and detached housing in greenfield developments.
Governments should encourage the construction of more medium-density housing
Demand formedium-density housing is likely to keep growing, underpinned by high land prices, strong population growth, longer commutes and changing housing preferences.
State and local governments need to adjust planning rules to enable the construction of more medium-density housing so that the housing stock shifts closer to what residents of our cities say they want.
But first, governments need to undertake community consultation to hear resident concerns and deliver better public infrastructure such as parks and public transport (and use existing infrastructure more efficiently). Governments also need to communicate the benefits of medium-density housing, such as walkability, better local shopping and entertainment, improved housing affordability, and diversity of housing choice.
The federal government can also play a role by providing infrastructure funding and other incentives to state and local governments that allow more medium-density housing to be built.
Trent Wiltshire is an economist at Domain, focusing on the property market, housing policy and the broader macro-economy. Prior to Domain, Trent spent four years working as an economist at the Reserve Bank of Australia and then three years at the Grattan Institute.
CAAN Photo: 2 storey Townhouse and Villa development in Sydney’s northern suburbs X 5 large dwellings
Strong exports have been one of the key pillars of Australia’s economic growth in the past decade. In sheer volume, the amount of stuff we sell the world has grown in that time by close to 60 per cent, and average export prices are now at an all-time high.
Butthat pillar of our growthstands on one country, and virtually one country alone.
Between 2008 and 2018, Australia’s annual export revenue grew by $156 billion. But $99 billion of that came from a boom in exports to that country, and a further $9 billion from exports to its gateway.
The country was China, its gateway Hong Kong. Together they have generated an incredible 70 per cent of all Australia’s export growth in the past decade — more than twice as much as the rest of the world put together.
Never in the postwar era has any country been so important to our economy. In the past decade, exports to China and Hong Kong shot up by $108 billion. Exports to the United States grew by just $5 billion (what a fizzer that free-trade agreement was!). We’re often told that India could be our alternative to China, yet exports to India in the same decade grew by just $6 billion.
China’s demand and our massive immigration program are what has kept the Australian economy growing. The reason the conventional wisdom can claim Australia escaped a recession in 2008–09 is that China responded to the global financial crisis with a massive construction program, using Australian iron ore and coal.
In the two years to 2009–10, our exports of goods to China shot up by $19.5 billion, or 72 per cent. Our exports to the rest of the world rose by $0.4 billion, or 0.2 per cent.
There are echoes of that in 2019. To prevent the Trump tariffs dragging China’s economy down, president Xi Jinping has revved up China’s construction activity even higher, and once again it’s Australian iron ore and metallurgical coal that have been the big winners. Their prices have soared and our terms of trade have jumped to a six-year high, and these results have helped keep the economy growing and put the budget almost back in the black.
Yesterday treasurer Josh Frydenberg declared, “As a result of the Morrison government’s economic plan and responsible budget management the budget has returned to balance for the first time in eleven years.”
*Well, no, treasurer. In fact, the budget is still in deficit by $690 million. And while that is nearly in balance, it’s due to a massive $6.1 billion underspend in 2018–19 on the National Disability Insurance Scheme, higher than expected income tax receipts — and a $4.6 billion windfall in company tax revenue, thanks to China.
Australia has experienced export dependency before, but it’s a long time since Britain ruled the waves and bought half our exports. Even our dependence on exports to Japan in the seventies and eighties was nothing like this. When two-thirds of our export growth relies on one country, we are seriously dependent on it to provide for our future. And that matters for three reasons.
• First, it makes us highly vulnerable to the Chinese applying economic pressure to secure political/diplomatic goals. An example we rarely discuss: we support the US freedom of navigation patrols in the South China Sea, and no doubt the PM will repeat this at the weekend in Washington, but we refuse to join them, for fear of Chinese retaliation. And when even Australia won’t join the United States in these patrols, no Asian country dares do so.
• Second, when China’s economy falters — as one day it will, and possibly quite soon — it will take Australia down with it. China has chosen to keep pursuing a pattern of growth that is very favourable to Australia’s export mix. But it is unsustainable, and when it collapses, it is likely to be succeeded by a long drought in those same exports.
• Third, when the United States and China eventually end their trade war — as one day they will — part of the settlement will almost certainly see China ordering its importers to buy American goods, in areas now dominated by Australian exports.
Some of our key exports have a frightening dependence on China.
Last year China provided 81 per cent of export revenues for iron ore — now our biggest export earner. Together with Hong Kong, it bought 68 per cent of our gold, and by itself it provided 59 per cent of export revenues from confidential trade (usually alumina) and 79 per cent from miscellaneous minerals.
Okay, if demand drops, minerals can be stockpiled indefinitely: but their prices will fall, and if demand drops steeply, Australian miners could suffer big falls in export volumes and prices alike. The very forces that have inflated our growth will work to deflate it, and that will hurt.
China has not only been buying minerals. It’s also become the biggest buyer of our farm produce. China comprises the vast bulk of Australia’s export market for wool, barley, prawns and other crustaceans, woodchips, cotton, and miscellaneous foods (mostly fast-growing new exports). Of Australia’s key exports that have seen rapid growth in the past decade, all but one owe that growth to China. (The exception is beef, where Japan remains the biggest market, but China is making up ground fast.)
Until recently, on its own figures at least, China was the world’s fastest-growing economy. Australia has been fortunate to be able to swim alongside it, in a relationship that has worked for both countries.
Indeed, it has created dependence at both ends. As Angus Grigg and Angela Macdonald-Smith documented recently in the Financial Review, China now relies on Australia to supply three-quarters of its iron ore imports and almost half of its LNG.
*Security analyst Ross Babbage told the Fin: “China is in some respects more dependent on us than we are on them. This is one of the reasons why the leadership in Beijing is cautious about pushing Australia too hard.”
To date, Australia has been perhaps the biggest beneficiary of the China–US trade war. Other Asian countries normally export lots of components to China to be assembled there for export to the United States and elsewhere.
That trade has been severely hit, whereas Australia’s China-bound exports over the year to June soared by $28 billion, or 27 per cent.That rise is likely to be undone, one way or another, as the trade war comes to a crisis.
It certainly hasn’t happened yet. The stimulus measures the Chinese government has taken — such as ordering developers to build more new apartments on top of the fifty million empty ones already in China’s cities — require plenty of steel, which in turn requires even higher imports of Australian iron ore and metallurgical coal. And its diversion of import demand from the United States — which had been its main source of LNG — has only made Australia more important.
But it won’t last. Our gains will unwind when the trade war ends and Chinese demand is diverted from Australia to the United States.
Demand for our iron ore and metallurgical coal will shrivel when China decides there’s a limit to how many empty apartments it can build. And there are good reasons why China itself might want to stop producing more than half the world’s steel and aluminium.
*There are also good reasons why Australia should want to reduce its economic dependency on a superpower that in other ways has shown itself far from friendly to us.
The economic pain we are feeling is coming from the domestic economy.
On the global front, our trade surpluses have grown very large — partly because China is buying up big, and partly because we are not. The June quarter saw Australia record its first quarterly current account surplus since 1973.
But another view is that, in net terms, it means we’re investing more in the rest of the world than it is investing in us. About time, you might say, but it’s happened partly because business investment is now exploring its lowest levels in decades as a share of GDP.
The domestic economy is on the ropes. The Bureau of Statistics estimates that unemployment this year has grown by 45,000 — only from 5 per cent to 5.25 per cent, but the National Australia Bank’s monthly business survey confirms that business confidence is low and heading lower. Almost half the jobs created this year have been part-time, and half of them have gone to people who want more work — usually full-time.
The youngest generation of workers — those aged fifteen to twenty-four — are getting it in the neck. On the Bureau’s preferred trend measure, there are 2.225 million of them in the workforce, up 30,000 this year, but the number in full-time work has grown by just one hundred. The number unemployed has grown by 13,000, while the number underemployed — mostly people who want full-time work but can only find part-time jobs — has swollen by 28,000.
The Bureau estimates that 30 per cent of all workers in this age group are now “underutilised.”
What will happen to the rest of them if the pillar of China’s support to our economy crumbles, and falls?
AND what of the mixed messages that the Liberal Government has been sending? Since 2013 …
The overseas sell off of Australia’s Real Estate (Property) appears to fall into place for the PRC’s Belt and Road Initiative … and World domination … with $BILLIONS of residential, agricultural and commercial property including mines, power, transport, healthcare, airports, Our Title Deeds now in the ownership of the PRC!
Buyers from the PRC can fly in and buy our real estate esp. ‘new homes’ to gain a ‘Permanent Resident Visa’ … and live here for years … with the benefit of our Medicare! Gain employment in Government, Universities … in research …
The Australian National University has been hit by a massive data hack, with unauthorised access to significant amounts of personal staff, student and visitor data extending back 19 years …
IT would appear Australia’s trade is being jeopardised by not only ‘Megaphone Diplomacy’ but by the sell out of Our Property … why not simply export our products at top price and maintain what Sovereignty we have left? China needs our produce!
Labor says Scott Morrison’s ‘megaphone diplomacy’ is making Australia’s China relationship ‘terrible’
Labor deputy leader Richard Marles says Australia’s relationship with China is “terrible”, accusing Prime Minister Scott Morrison of using “megaphone diplomacy” against the nation’s largest trading partner.
Richard Marles says there is a sense in China that Australia is losing relevance
He says the trade tensions between the United States and China are causing anxiety inside Australia
Mr Marles says Australia should be focused on building trust with China
Mr Marles, Labor’s defence spokesman, has just returned from a three-day study tour of Beijing.
“The state of the relationship as it exists between Australia and China right now is terrible,” Mr Marles told ABC’s Insiders.
“I think there is a sense in which we are falling down their ladder of relevance.
“China is not seeing us in the serious way in which it has seen us in the past.”
Mr Marles was joined by other MPs for the three-day tour, hosted by the Australian policy institute China Matters, aimed to help Australian officials better understand the country and the “complexities” of the relationship between the two nations.
Mr Marles said the focus should now be on building trust with the superpower, using the countries’ “military-to-military” relationship as leverage to build on that.