The governor of the Reserve Bank, Philip Lowe, has admitted he is worried about housing affordability in Australia, saying “many people” are spending too much of their income on housing.
Some housing markets in the country had become so out of reach that they were entrenching the unequal distribution of wealth, he said.
And while acknowledging that many first-time buyers might not be able to call on “the bank of Mum and Dad” for help, Lowe candidly conceded that he would be able to support his three children.
“My kids are going to be OK because I’m paid a lot of money so I’ll be able to help them,” he told a parliamentary committee on Friday.
“But a lot of kids won’t be able to be helped by their parents.
“It’s really entrenching the current distribution of wealth within society, which I think is problematic.
“It makes mobility in a society more difficult ... from social perspectives it’s a problem. Many people are spending too much of their income on housing.”
His comments echoed warnings from treasury secretary John Fraser last year, who said young Australians were increasingly having to rely on the “bank of Mum and Dad” to get into the property market.
Fraser told a Senate estimates hearing in October that intergenerational inequality had become a “huge issue” in Australia, and a big factor was the amount of wealth in housing.
He said the problem had become so prevalent it was affecting parents’ superannuation decisions, saying they’re now saving later in life to help their children afford their own property.
On Friday, Lowe was asked to clarify what was meant by an internal RBA memo from 2014 that listed concerns about the effect that negative gearing and the 50% capital gains tax discount were having on Australia’s financial stability.
He said it was hard to know exactly what would happen to the housing market if negative gearing and the CGT discount were reduced, but he suspected prices would decrease.
“I think it’s likely it would reduce investor demand for a while, because that combination is one of the things that encourages people to buy investment properties, and if you’ve got less demand, for a while you’ll have lower prices,” he said.
“It would take some of the current heat out of the housing market, and there’d be other effects as well.
“That’s not a piece of advocacy for that policy because there are other considerations you’d need to take into account, the longer-term supply and demand dynamics in the market, but that’s what that [memo] would have been referring to.”
He also rejected suggestions by Tony Abbott that reducing immigration would solve the problem, describing new arrivals instesd as a “source of strength”.
“To give that advantage up just so we can take some pressure off housing prices, I find that problematic.”
Lowe said the best way to make houses more affordable was to increase supply, particularly the supply of well-located land.
“There’s three things you can do: transport … zoning and jobs,” he said.
“Because there’s nothing like making land well-located by having jobs in that location.
“[But] our policies in this are perhaps beyond our federal parliament, it’s more the issue for state governments. How do they build the transportation infrastructure that disperse jobs throughout our cities, and tackle the zoning issues?” he said.
Lowe also weighed into the debate about business tax cuts, saying he was not advocating for tax cuts in a speech two weeks ago.
He said he was merely pointing out that it was up to federal parliament to decide if it wanted Australia to compete on taxes internationally or promote other advantages about the country that made it an attractive place to invest for foreigners.
“There is a form of international tax competition going on at the moment,” he said.
“For some years corporate tax rates have been edging down around the world.
“In the post-crisis environment, countries have seen lowering corporate tax rate as a potential strategic advantage to attract business from elsewhere ... so we hear governments talking about 15% and 20% corporate tax rates.
“But you could argue, and people do argue this, that from a global perspective it’s not actually that useful because lowering the corporate tax rate from one country to another just changes the location of investment – it doesn’t increase aggregate investment.
“The analytical choice that the parliament faces is to respond to this international tax competition or to stand there and say no, we’re not going to respond to that because we’ve got other advantages that [make] people want to invest in Australia.
“That’s really a judgement the parliament has to make,” he said.
Lowe was referring to a speech he made earlier this month to the A50 Australian Economic Forum, where he talked about the state of the country’s public finances.
He said in that speech that Australia had a good historical record with its public finances, giving it a buffer to absorb economic shocks, but it had to spend time rebuilding those buffers.
He said the goal was challenging in the current environment because extra demands were being placed on government and the government was simultaneously having to ensure that the tax system was internationally competitive.
Those conflicting demands were creating policy tension, he pointed out.
“One example of this complication is in the area of corporate tax, where there is a form of international tax competition going on in an effort to attract foreign investment,” he said in the speech.
“Like other countries, we face the challenge of responding to this while achieving a balance between recurrent spending and fiscal revenue.”
His speech was interpreted, in some quarters, as his showing support for business tax cuts.
But Lowe said on Friday that was not the case.
“All I was trying to do was not to advocate one position or another but just to kind of lay out analytically the issue,” he said.
