Podcast episode

How to improve housing affordability and why the Greedflation thesis is wrong w/ Simon Cowan, CIS – EP203

Host Gene Tunny and Simon Cowan from the Centre for Independent Studies discuss housing affordability and greedflation in the CIS’s Sydney HQ. They delve into recent articles written by Simon on these topics and explore the factors contributing to unaffordable housing (e.g. zoning and other supply restrictions) and why the greedflation thesis is wrong. 

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About this episode’s guest: Simon Cowan

Simon Cowan is Research Director at the CIS. He is a leading commentator on policy and politics, with a regular column in the Canberra Times newspaper, frequent interviews on Sky and the ABC, and multiple appearances before parliamentary committees discussing the budget, citizenship, taxation and health policy. He has written extensively on government spending and fiscal policy, with a specific focus on welfare and superannuation policy. He earlier work focused on government industry policy, defence and regulation.

His latest work includes Attitudes to a post-Covid Australia and Millennials and Super: the case for voluntary superannuation. Some of his other works include a co-authored report on pensions, a deep dive into the Universal Basic Income, and a 2012 piece arguing that Australia should acquire nuclear submarines from the Americans.

What’s covered in EP203

  • The problem with housing affordability. (4:56)
  • High property prices and housing affordability. (10:02)
  • Should we cap migration to improve housing affordability? (14:24)
  • The role of public/social housing. (19:12)
  • Shared equity schemes. (24:15)
  • Home ownership as a key milestone on the way to retirement. (29:09)
  • Local government regulations and housing affordability. (35:06)
  • The Greedflation hypothesis and why it’s wrong. (39:04)

Links relevant to the conversation

Simon’s Canberra Times articles on housing affordability and greedflation:

The Coalition can create generational voting change by tackling housing affordability – The Centre for Independent Studies 

‘Greedflation’ myth hides real causes of inflation – The Centre for Independent Studies 

Images from the Bill Leak room including a poem from Sir Les Patterson (i.e. Barry Humphries):

Sir Les with Bill Leak.jpg 

Sir Les’s poem about Bill Leak part 1.jpg 

Sir Les’s poem about Bill Leak part 2.jpg 

Past Economics Explored episode discussing wage-price spiral mentioned by Gene:

Transcript of Q&A session following Phil Lowe’s speech in Brisbane in July 2023 during which Gene asked the RBA Governor about Greedflation:

Transcript: How to improve housing affordability and why the Greedflation thesis is wrong w/ Simon Cowan, CIS – EP203

N.B. This is a lightly edited version of a transcript originally created using the AI application This was then looked at by a human, Tim Hughes from Adept Economics, to pick up the bits otters might have misheard. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory, evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show.

Thanks for tuning into the show. Today, I have the pleasure of catching up with my colleague at the Centre for Independent Studies, Simon Cowan. We’re in the CIS offices on Macquarie Street in Sydney. And we’re going to be chatting about some recent work that Simon’s done on housing affordability and greedflation, Simon, so good to catch up with you.

Simon Cowan  01:06

Yeah. Welcome to the Bill Leak Room here at the CIS, our little office here in Macquarie Street. It’s fantastic to have you here in our facilities with our totally real plants and our wall of photos.

Gene Tunny  01:19

Yeah, well, it’s great this room. So Bill Leak was a famous Australian cartoonist, and there’s a there’s actually a poem about Bill Leak from Les Patterson, one of Barry Humphries characters. Yeah, just it’s terrific. So I might put a link in the show notes. I’ll make sure I take a photo of that before I go. But yes, Simon, you’ve written some great pieces recently, they were both published in Canberra Times on housing affordability and greedflation both topical issues and I thought I’d be good if we could chat about those.

Simon Cowan 01:40

Yeah, for sure.

Gene Tunny 01:43

Your piece on housing affordability was in the Canberra Times on third of July 2023. “The Coalition can create generational voting change by tackling housing affordability.” I’d like to start off by asking you about the context of that piece because CIS Centre for Independent Studies, it’s a non-partisan Think Tank. The way it’s pitched, it’s pitched as how the Coalition can create generational voting change. Now I know this is this relates to some recent research. Could you tell us a bit about the context of that piece, please?

Simon Cowan  02:29

Yeah, sure. So one of my other colleagues, a man by the name of Matt Taylor who’s actually working out of our Canberra facilities, we’re stretching our tentacles across the country with Brisbane and Canberra and Sydney. He did some work that looked at the prevalence of centre right voting patterns amongst younger people, in particular, millennials and Gen Z. And right. And now in Australian politics, the Coalition vote is a proxy for for the centre right. And, you know, to the extent that the Coalition embodies what you might describe as classical Liberal values and policies, then they’re, you know a proxy of some sorts for classical Liberal voting patterns amongst younger people. And the concern that we had as an organisation and I think it’s been heightened by Matt’s research, is that it’s not just that we’re seeing, you know, that traditional voting pattern of younger voters voting left and older voters voting, right, but that each generation that comes into the electorate is more likely to vote for left wing parties, so not just Labour, but increasingly, the Greens. And for Gen Z, in particular, what we’re seeing is, they’re actually moving further left, compared to the average voter as they get older, which is an unusual pattern, both in Australia and globally. So millennials are moving to the right, they’re doing so at a much slower rate than previous generations. They’re starting from further left, Gen Z started from way further left than the millennials and are becoming more left wing. So the end result of this is that we’re seeing a roughly 65% of that younger cohort is voting for left wing parties, roughly equally Labour and the Greens and that the centre right is attracting for Gen Z in particular, as little as sort of 10% of the vote. Now, our issue isn’t so much for the Coalition’s political fortunes, I’m sure that that’s a concern for them. But for us, it’s to the extent that the Coalition is more likely to implement classical Liberal reforms than the Labour Party, which I think is a reasonable deduction. To the extent that’s true. The fact that young people have no interest in centre right politics and therefore classical Liberal ideas is a real concern of ours.

Gene Tunny  04:56

Okay. So is part of the reason that Gen Z has these left wing views to the extent they do, is that related in part to this issue of housing affordability, the fact that younger people aren’t able to purchase their own homes, to the same extent that previous generations, particularly baby boomers, and to a lesser extent, Gen. Gen X, were able to, is that part of the story?

Simon Cowan  05:24

I think that’s a very big part of the story and Matt’s now working on some more research that will look into that issue more, more specifically around what the actual triggers of that, that are. But I think there’s definitely a problem with millennials and Gen Z, in particular, around housing affordability. The issue isn’t just, and this is, it’s a very important issue. It’s not just that they can’t afford to buy a home, it’s that the prospects of them ever being able to afford to buy a home, and ever being able to move out of that cycle that that sort of rental cycles seems very remote to them. So, you know, they’re not just moving into the market later than their parents, for example, there’s a real fear amongst Gen Z in particular, that they won’t ever get into that point, that they’ll be basically trapped as renters for the rest of their lives. And a number of people have sort of made this observation in the past. If you’ve got nothing to conserve, there’s no reason to vote conservative.

Gene Tunny  06:19

Yeah. And what do you think of that concern Simon, do you think that’s a legitimate concern on their part?

Simon Cowan  06:23

I think in part, it certainly is. There are some people who will be rentals forever, probably more so than was true in previous generations. I mean, if you look at the sort of Baby Boomer and then the previous generation to them as well, almost 95% of that generation ended up buying home at some point during their their lifecycle, once you get into retirement, you see that almost everyone, there’s sort of a core of 10 to 15% of people who who don’t own a home, in retirement, most of the current cycle of retirees own their home, the vast majority of them own it without a mortgage. So far the trend is increasingly people coming into retirement with mortgages, rather than having paid off that during their working life, I think we’ll also see, though, a generation of people, a larger percentage of them will be renting for far longer. And the issue there is, at least in part around the enormous difficulty of saving enough money to get into that first rung of the housing market. And also, you know, those affordable entry level houses are now, so much further away from the CBD of the city, that if you’re someone who works in, you know, if you’re working in the city, it’s very difficult for you to have a young family and commute from two and a half hours away each day. And that option, like if you’re gonna buy a home, you have to, you know, you’re now looking at that two hour commute each way, that becomes a very difficult prospect for a lot of people.

Gene Tunny  07:53

So you’re talking about in Sydney, there’ll be people who are doing that in Sydney.

Simon Cowan  07:57

Yeah, absolutely, so if you go back a couple generations a long commute was was sort of from what is now the sort of almost not necessarily the inner ring of suburbs, but there was a sort of middle density ring of suburbs around, you know, the Canterburys, the Bankstowns, etc, that were all, you know, still 30 or 40 minutes commute from the city, but the prices in those suburbs are now well beyond the entry level, you’ve got to go another 20 kilometres from the CBD before you start to get to places where people can afford to buy houses in that entry level of, you know, even as far as sort of Blacktown and places like that you’re seeing median house price is well over a million dollars. So that becomes very difficult and you end up with a situation like we’ve seen in London, for example and other places, too, as far as I’m aware, people who do essential jobs that are not particularly well paid, you know, your teachers and your nurses in inner city areas can’t afford to live within commuting distance of the places where they work. And that then becomes a real problem for society. If you can’t get teachers for your school, because they can’t live within two hours of your school, you’ve got no teachers.

Gene Tunny  09:10

Yeah, this is the key worker problem isn’t it that they talk about, you know, the key workers can’t find affordable places to live…

Simon Cowan  09:18

There’s always a slight risk that some of this is overstated, right? It’s not it’s not an absolute catastrophe. But things have changed enough that it’s having a significant impact on voting patterns and that’s probably where we’re at now. If things continue to get worse, if the trends that we’re seeing of you know, systemic underdevelopment, particularly in the parts of Sydney where people want to live. If those trends continue, then things will definitely get far worse. Right now we’ve got a problem, not a catastrophe. But there’s a real problem and it’s not yet clear to me that particularly the centre right, there’s been a sufficient level of engagement with this problem, that they’re willing to look at solutions that might actually work.

Gene Tunny  10:02

Okay, okay. Australia does have high property prices relative to median income, we must be one of the highest in the world are we are, you know, particularly for Sydney and Melbourne that I’ve seen some of those ratios, I might dig them up and put them in the show notes. But yeah…

Simon Cowan  10:19

Yeah we’re top, so regularly, so Sydney, Melbourne in particular have been regularly in the top 10 least affordable cities in the world, at various points other Australian cities have snuck in there. So I think at one point, Perth managed to make its way in at the height of the mining boom that it was, you know, one of the most unaffordable cities, so New Zealand has a similar problem, as well, around that, that issue of affordability comparable to us. And then I mean, you’ve got a lot of American cities, and then your Tokyos and Londons as well.

Gene Tunny  10:49

Yeah. But what’s extraordinary is like, based on what you were just saying then, it’s not just, you know, there are some exclusive suburbs in Sydney here say out at Double Bay or out in the Eastern suburbs, and you’ve got places worth 10s of millions of dollars, but this is, you’re paying a lot of money just for property in, in what was traditionally a working class area. I mean, over a million dollars, whatever your…

Simon Cowan  11:12

Yeah, absolutely and places like you know, the Northern Beaches, suburbs, which are a fair way from Sydney. And, and we’re never I mean, they’re not they weren’t poor areas, by any means, right. But they weren’t, they weren’t the areas that the elite and rich of Sydney lived in. But now, many of the homes in that area are way outside the price range for a young family, particularly if you’re in a situation where one of your partners isn’t able to work full time. Or if someone’s in a job where you know, they’re not in a professional capacity and being paid six figure salary, it’s really hard for them. And the thing that becomes even harder, it’s largely about getting over that that initial hurdle of having to save, you know, you need 20% deposit for a million dollar home, you got to save $200,000 of after tax income. When you know we’ve got cost of living spiralling out of control at the moment, we’ve got, you know, 11% of your income’s being diverted into retirement savings. And you’ve got to somehow find $200,000 plus of post tax income. It’s yeah, I mean, it’s a real challenge.

Gene Tunny  12:13

Yeah, yeah. And what do you think’s caused this housing affordability problem we have in Australia Simon?

Simon Cowan  12:19

So the evidence on this is actually really clear, despite the fact that a lot of people really didn’t want to accept that this was true. It is abundantly clear from the work that my colleague Peter Tulip, and others have done that the issue is overwhelmingly restrictions on supply. So people want to say that it’s about demand, it’s about immigrants, it’s about negative gearing, capital gains, they have very minor impacts on price what’s having by far the biggest impact on price is the restrictions on bringing new properties to market, on redeveloping existing properties, it’s zoning and taxes and government restrictions that are aimed to stop people developing, and in Sydney, in particular, and a number of suburbs around the city. But also on the major arterial train lines, you’ve got councils that are simply refusing to allow development. And my colleague has highlighted some of them have massively undershot housing targets. But we see time and time again, things like heritage restrictions and zoning restrictions. And, and you know, even you can’t build high density housing around train lines. If you can’t build high density train on train lines, where are you going to build it? And the answer is, well, for them, at least build it way out in Western Sydney, don’t put it anywhere near where I live. And that attitude is pervasive in the eastern suburbs, in inner West and where I’m currently based in the North Shore, some of the councils out there are actively and very hostile to development of any kind.

Gene Tunny  13:52

Right. Okay. On immigration, do you think that what doesn’t have a major impact on housing affordability? Because that’s one of the things that people are concerned about, because we’ve had a record level of net overseas migration in Australia of 400,000. And there are concerns that, like, it’s just, we should be slowing that down while we let the housing stock catch up, on infrastructure catch up. Do you have any thoughts on that level of immigration we have at the moment?

Simon Cowan  14:24

Yes so my take on this, and I’ll be the first to admit there is, there are differing views on classical liberal amounts of immigration, but for me, personally, I would have almost uncapped skilled migration, I would be happy to take as many skilled migrants as we can get, because I think the economic benefits of skilled migration outweigh the costs. Now, the flip side of that is that we have to provide sufficient infrastructure and build sufficient houses to have those people, give those people somewhere to live. But I think you go, you’ve got it completely backwards if your approach is we’re going to stop migration because we can’t build fast enough when we could build faster, the roadblock, the handbrake on house prices is coming from that refusal to allow development, trying to take some of the pressure off so that councils don’t have to fix their obvious contribution to this seems like just the wrong way to go about it to me, I’d rather have more great migrants and way more housing, and I think you can do it that way. And the economic benefits of doing that way outweigh the costs of it. One of my other colleagues a few years ago, did some work around the sort of, what are the outcomes for skilled migrants in Australia? On average skilled migrants are they earn a slightly higher income, they pay higher taxes, they’re more likely to own a home, they’re more likely to be married, they’re more likely to have kids than the average person. So there’s a there’s a benefit to society beyond just the economic benefit of having more skilled migrants. There’s an issue around housing supply, I would fix the issue around housing supply rather than trying to create alternatives to remove some of that pressure.

Gene Tunny  16:02

Yeah, gotcha. Okay. In your article in the Canberra Times, you wrote that Labour’s signature housing affordability policies have huge problems. So Labour being the federal Labour government led by Anthony Albanese, the Prime Minister, first locking future generations into renting their homes from union-controlled super funds. What’s going on there, Simon? What’s, how to, how would the labour government’s policies lead to that outcome? And what’s the, what’s your concern there?

Simon Cowan  16:40

Yeah, so for long time, Labour was convinced that the issue was, was greedy landlords and negative gearing and capital gains. And Gene, you did some fantastic work for us on that issue, in fact, I think you did a an analysis, not necessarily for CIS, but previously that looked at the impact that those capital gains and negative gearing policies had on housing affordability and found it was what like 4%, almost nothing. Yeah. So for a long time, Labour believed that that was the issue, and then started to come around to thinking about this as a supply side problem. But the solutions that they have, they have two main supply side initiatives. And there’s been some more movement more recently. So this is at least as positive, but their main initiatives were: one they were going to encourage institutional superannuation investors to build residential properties for rent. So that meant in practice, I think it meant that they would incentivize the large super funds, which are overwhelmingly controlled, they’re overwhelmingly industry super funds, which have a 50% union 50% Business control. But overwhelmingly, those funds would be then encouraged, incentivized, to invest in and build rental properties for lease. And the other policy was around building a whole bunch more public and social housing. So rather than allowing, having, they’ve identified the right market block, but instead of removing that block and allowing the market to function, their solution is how do we use government incentives and government money to build additional supply? It just seems extraordinary to me that you would create a situation where individuals couldn’t use their own superannuation money to build their own home, but their super fund could use their super money to build a home for them to rent. And that just I mean, one of the reasons why this policy, I think, has been dis-emphasised by Labour is that there’s almost no one who actually wants that outcome. Super funds don’t want to do it, because they’re seeing the the noises around rent controls and increasing tenant rights and think this is a bad investment for my Super fund. And people are like, well why would I want to rent from my super fund with my money? Why can’t I just use my money to buy my own home? So I think that that policy has just got so many flaws to it, that even Labour’s now started to sort of move away from that.

Gene Tunny  19:07

Ok so they’ve moved away from that, but they’ve, they’re investing more in social housing and it sounds like well, reading your article, you’ve got concerns about social housing as the solution, would you be able to go into that please?

Simon Cowan  19:21

Yeah, you’re gonna get me started on talking about social housing. So look, there is a role for public and social housing, but it’s not the role that the government keeps pushing for it, right. So social housing is very important for people who are temporarily homeless, particularly people say who are fleeing domestic violence, they need emergency accommodation in the short term, and they don’t necessarily have access to funds that would allow them to rent a property go through, you know, the hoops that you need to go through to get a rental property. So you’ve got, you know, people who are in, fleeing violence you’ve got people say, who have, you know, sort of sickness or mental illness issues that need accommodation, you’ve got disability support accommodation, those, those are completely appropriate uses of social and public housing. Now, the difference between social and public housing, public housing is government funded social housing is funded by not for profits. What the government is talking about, though, is providing long term government funded accommodation to people. Basically, along the sort of a line you’re seeing in Britain, where you have a council house for decades, and that’s your home and you don’t own it, you are given it by the government. The problem with that is that it’s a terribly inefficient way of providing support for people who need rental accommodation and are on low income. So when you compare, providing a government house to providing, say, rent assistance through Social Security, it’s way more efficient to provide social security. And it’s way more equitable. Because what you have with government housing, as we have here, there’s a 10 year waiting list. And often, people don’t move on that waiting list at all. So you have people who get they spend years on a waiting list, waiting for free housing, they’re disincentivized to take actions that would get them off that list, especially if they’ve got to the top because if they go back on the list, they go at the bottom, you have people who are living in these public houses who are disincentivized, from getting out of public housing, because if they again, if they you know, they take a job that makes them eligible for public housing, and they lose that job in six months, they go to the bottom of the 10 year waiting list. So and then you also have the the way that rent is structured in public housing, where it’s a percentage of income rather than a fixed amount. So the more money you earn, it’s an effective marginal tax rate of 25%, you lose 25 cents of each dollar extra dollar you earn to your public house rent, rather than the rent being a certain fixed amount a month.

Gene Tunny  21:59

I did not know that. Is that how they do it in New South Wales?

Simon Cowan 22:02

Yeah, yeah, well look I…

Gene Tunny 22:03

I’ll have to check what they do in Queensland, other states…

Simon Cowan  22:06

Social housing again I mean it’s all different, but one of our recommendations, we looked at this when they were putting up the last sort of big round of public housing. And one of the things is that, and it’s designed to make it more affordable, it’s 20% of whatever 25% of whatever your income is. So if you’re on, you know, if you’re on Newstart, then 25% of that’s very low. But the problem is when you then start working and earning money, you’ve got an another marginal tax rate from your accommodation.

Gene Tunny  22:32

Yeah. And without, I don’t want to stig, stigmatise or be critical of anyone who’s who’s living in social housing, but because, you know, obviously, there are people are doing it tough and they’re trying to do the best they can. There are a lot of social problems with social housing is that right?

Simon Cowan  22:49

Yeah especially in the, and again, this has experienced the United Kingdom in particular, that social housing estates, particularly where a lot of public housing is clustered together, you tend to find a lot of antisocial behaviour, you find a lot of other problems, there’s a higher rate of crime. And so what you have is a situation where it’s not particularly pleasant for, for people living in social housing but it’s also, you know, a big disincentive for people to live near social housing. And then you have the effect where if there is a cluster of public housing in a particular place that affects property values that people who live around that by so no one wants, public housing, especially not clusters of public housing, anywhere in their suburb. Yet again, you know, we have this disincentive for development, people want the public housing somewhere else. And then in Sydney, we had a particular issue where, and this is largely a legacy issue, we had public housing that was worth just an extraordinary amount of money by virtue of where it was, you know, in The Rocks, which it’s in the, right in the centre of Sydney with views of the harbour. There’s public housing that had been there for 100 and something years, and each of those houses was worth millions of dollars. So you know, you had this this issue of well, do we, we’re giving away this public housing to someone for basically no money, why don’t we sell their public housing and build, you know, a lot more with with the money that it came from? So you’ve got a whole bunch of problems. I mean, fundamentally, I think the issue with this is if, if the issue that you’re looking at is housing affordability, rather than the need for temporary accommodation or something else, if the issue is housing affordability, you’re always going to be better off allowing the market to develop property than trying to do it by government. And there’s, and there’s a filtering effect of adding supply at any point in the market reduces prices of at every point in the market. Because if you think about this logically, even if you put the supply right at the very top end, the people who are buying those $10 million apartments are selling their $8 million apartments and the the effect of that sort of filters down all the way through the market, so adding supply anywhere, increases supply everywhere.

Gene Tunny  25:06

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  25:11

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Gene Tunny  25:41

Now back to the show.

And what about this this idea of Shared Equity? Labour or the government has a scheme a Shared Equity scheme, there’s concerns about how wide a coverage it is? I mean, it seems like small numbers relative to the total, total need out there. But what do you think of these Shared Equity schemes where the government effectively owns part of your property don’t they? Would you be able to take us through that, please?

Simon Cowan  26:09

Yeah so, there’s a I mean, so part of the problem with a lot of these schemes is that they’re designed to be so small, they can’t have an impact in the sort of aggregate level, because the number of caps are limited. And whenever you see a government policy like this, and it’s, it’s limited to a small number of people, you know, that it’s not a good deal for the taxpayers as a general rule. But so you do have that situation where the government would, in some instances, it’d be providing a portion of the deposit. So that the individual who meets a certain criteria jumps through the right hoops in order to be eligible for the scheme can can apply for a loan and basically buy a property with as little as sort of 5% equity. Shared Equity schemes don’t have a fantastic hit track record in Australia. And it’s not so much around the issue of the deposits. But one of the things that we looked at at the other end of the market was was how you could get into equity release schemes for pensioners. So you’ve got an issue with a percentage about sort of one in five people in the age pension are very, very cash poor and very, very asset rich, and most of them, the main asset they have is property. So when we looked at this 5% or so of people who were on the full rate of the aged pension had more than one and a half million dollars in home equity. But what they didn’t have was an ability to release any of that equity in order to fund their lifestyle. So my interest in in Shared Equity comes much more. And again, there’s, there’s a much bigger tradition of this in the UK, where banks and financial institutions will take over a portion of equity for your home and use that to provide an income or a lump sum to people. So it’s not that Shared Equity itself is a bad idea, where it becomes a bad idea where you’ve got government effectively taking the risk for marginal borrowers. And, you know, people who can’t actually afford to borrow the loans that they’re taking, not just they can’t afford the deposit, but they can’t actually afford the loan. And what we saw in America in the lead up to the financial crisis was exactly these sorts of schemes, schemes where the government tried to manipulate the criteria for eligibility for home loans to effectively give a certain group of people a greater chance of buying a home. And the end result of any of that sort of manipulation around loans was the potential for government to bear, the government to bear losses in relation to home equity. So, you know, it’s a small scheme, it won’t have a big impact for that reason, but it does expose the government to risk of default, which seems like a bad way of doing things.

Gene Tunny  28:52

One thing I should ask Simon is, we’re presuming that the ideal is that people end up in their own home by the time that they’ve retired, would you be able to expand on why that is such an important thing? Or why that’s such a desirable policy goal, please?

Simon Cowan  29:09

Yeah, sure. I’d bring it forward in time. I actually think that, you know, there’s some sort of key milestones in people’s lives, you get married, and then you have kids and buying a home’s one of those milestones and ideally, you know, the ideal situation, I think, is you want to be having that in the middle of those two things. So you know, you you get married and you buy a home together and you have kids and you raise kids in your own home. And that’s sort of the sort of model of of family life that was exceptionally prevalent in Australia and I think it’s, it’s one of those sort of, again, you know, talk about conservatives and for a second, but you know, when you’re, you’re married with kids in your own home, you’ve got something to conserve, you’ve got a stake in society, you’ve got, you know, roots and values there. From a retirement perspective, though, it’s, it’s even more important because Australia’s retirements system was built around a couple of specific ideas. And so one of those is voluntary savings, which is or involuntary savings, superannuation, but another, another one is the age pension, obviously government funded income. But the biggest one in Australia in particular was around the idea that you would own your own home. So the Australian retirement system is actually modelled around people owning a home in retirement without a mortgage. And that takes care of a lot of their basic needs. And what we’ve seen consistently and you know, what we see now in particular, the group of people who are struggling the most in retirement, are overwhelmingly people who don’t have voluntary savings, they don’t have any superannuation left, but they also don’t own their home. And they’re the people who are most risk of genuine poverty in retirement, it’s if you don’t own your home, and you’re dependent on the age pension, and you’re renting in old age, overwhelmingly, that’s a group of people who are right at the bottom in terms of income and living standards. And so, you know, whatever our retirement system is built around this idea that you’re going to own your own home in retirement and own it without a mortgage, then the system has to actually facilitate people being able to do that. And right now we’re starting to see that disconnect happening. More and more people are entering retirement with mortgages. Over time, you’ll see more and more people entering retirement who don’t have a home at all.

Gene Tunny  31:22

Yeah. And what’s really worrying is you’ve got all of these people who are then at risk of homelessness. And you know, people living living in cars or worst case…

Simon Cowan  31:34

Yeah, so one of the biggest, one of the biggest demographics of homelessness, and aside from, and this is sort of the broader definition of homelessness, right like because the the you think traditionally people who live on the streets, are far more likely to be sort of middle aged men, but one of the biggest groups of the biggest demographics of homelessness is actually older single women. And overwhelmingly, that’s the issue. It’s really, you know, they’re dependent on unemployment benefits or pensions, but they don’t own a home. They may have been married, their husbands died, they don’t own their home, they’ve got no income. That’s the group that’s most at risk of poverty and homelessness, was one of them at least. And it’s a big issue.

Gene Tunny  32:12

Yeah, yeah. Okay. What about tapping into your own Super? I think you were alluding to this before. What are your thoughts on that, Simon?

Simon Cowan  32:21

So one of my colleagues that sort of looks at that issue, and his view is that what you should use super for is guaranteeing a loan, rather than necessarily being able to tap into it. One of the issues with allowing people to take money from Super is that it is effectively just increasing demand. So you do have a, you do have a slight demographic shift, in terms of who is able to buy properties, if you can, you know, you can withdraw from Super to buy your own home, but you can’t withdraw from Super for an investment property, you do slightly shift who owns property at that point, just in terms of the simple should you be able to take money on your super to buy own home? Yes, because it’s your money. It’s your money, it’s your savings, you’d be better off in retirement, if you could do it, will it solve the problem that it’s trying to solve? Probably not without something else attached to it. And that really has to be around sort of that supply side reform. And, and it doesn’t have to be, I mean talk about supply side reform, it doesn’t have to be the cratering of house prices, what it needs to be is more flexibility in what people can do with their own property. And when you increase flexibility for owners, and you increase flexibility for people who want to buy, you have a more dynamic and more effective and more efficient market, and that’s better for everyone. It’s not just the case that one group has to win and one group has to lose.

Gene Tunny  33:43

Yeah. Now with, with what the federal government is proposing to do is one positive thing that they’re proposing around targets for, or they’re trying to incentivize the states to encourage development, is that, am I geting that right?

Simon Cowan  33:59

Yes, so this is one of our recommendations, it’s been picked up. And it’s it’s got a, you know, it’s a policy tradition that’s been around for a long time, which is the federal government has all the money, but not necessarily all the levers. So they incentivize states to make good policy by, you know, giving them either withholding grants from them, if they don’t do the right thing, or giving them extra money, if they do, and in this instance, they’re talking about, you know, states that meet housing targets should be able to access additional government money. And that makes sense, right? If you’re building more houses, more money for infrastructure is probably right. But if there’s a challenge, it’s that a lot of the levers and the need for incentive isn’t even necessarily at the state government level. It’s actually the local government level. And so, you know, we’ve seen a number of states, I think, both in Victoria and New South Wales that appreciate the issue around supply and housing affordability, but they’ve been unwilling to impose the requirements on local government level, where all the incentives work the other way. So, we think it’s a good policy. We think it’s something that we’ve recommended, but it won’t be as straightforward perhaps as it seems.

Gene Tunny  35:06

Yeah, you’re right about that. I mean, a lot of the problems are at that local government level. So in Queensland where I’m from, some of the places where we’ve been able to get the high density, where we’ve been able to get more people in, it’s, it’s areas that the state government zone priority development areas, so formerly light industrial areas around West End or, or Newstead so the state government’s been trying to do its best but the Brisbane City Council goes and bans town, townhouses in you know, a lot of suburbs, there’s all these character, all these character protection, and anytime someone…

Simon Cowan  35:39

Yeah, well heritage is increasingly become, basically an anti development scam, unfortunately. And you can look on Twitter and you can find fantastic examples of things that are heritage listed. Like there was a, there’s a heritage listed electrical substations and heritage listed broken fences, and it’s like, rusting machinery, heritage listed car parks, I mean, there’s not actually any historical value in a lot of this stuff. What it is, though, it’s a valuable as a foil or as a stop to development.

Gene Tunny  36:11

And it seems to be a lot of grounds for people to oppose developments, whether it’s, ah there’s, there won’t be enough car parking, there won’t, you know, it’ll affect local traffic and there’s all sorts of grounds for objection. So yeah, absolutely. agree there.

Simon Cowan  36:24

I tell you what’s interesting, just to leave this point, I think is in New Zealand, what we saw was that they basically changed the zoning rules that allowed you to have medium density as a right, so that you didn’t actually need Council permission to go up to sort of three or four storeys from, from a freestanding dwelling. And that resulted in a massive increase in, in the sort of developments that would be allowed that council used to say no to, and a reduction in relative prices in Auckland compared to Christchurch and elsewhere. I am reliably informed, however, that, that initiatives towards housing affordability in New Zealand are now trending in the other way, in the same way they are here, unfortunately. But it was a really good example of a sort of natural experiment. What happens if you change the zoning rules? So it turns out more supply, lower prices.

Gene Tunny  37:11

Okay, yeah. But I’d be mean to have a closer look at that. Because I know there are some, there’s a bit of debate about those data, but I’m just not familiar with them enough. But I want to come back to that. I’ve read about that in the past and mentioned it. I just know that the like everything there ends up being a debate on it. But I agree. I think that would be what I expected. If they did that. I would expect to see that. And if it didn’t happen, then something else must have happened to have stopped that. I guess Simon I think we’ve had a great chat about your article on housing affordability. Was there anything else in that article or any other thoughts you had on housing affordable?

Simon Cowan  37:49

I’ve got a lot of thoughts on housing affordability, but, but I have a lot of thoughts on a lot of things.

Gene Tunny  37:54

Okay, well, maybe I’ll ask you, in the last 10 minutes or so about greedflation.

Simon Cowan

Yes greedflation!

Gene Tunny

So yeah, this became, you know, this has been topical because of our friends at The Australia Institute have been very prominent promoting this view that inflation is due to greedy corporations. And I ended up asking Phil Lowe, about this, I asked our Reserve Bank governor about this at the lunch he he spoke at in Brisbane, and I asked, well, what’s your, what are your thoughts on this? And, and Phil Lowe said, well we looked at it and we don’t really think it’s a it’s really a reasonable hypothesis. And you’ve written something similar, or two, on greedflation, you’ve, you’ve said if, well, this is in an article in Canberra Times 12th of August 2023, “Greedflation myth hides real causes of inflation.” So Simon, could I ask you, what are those real causes and why do you think this greedflation hypothesis, it’s a myth?

Simon Cowan  39:00

Yeah sure, so let’s, let’s start with what greedflation is. Greedflation is the idea that the cause of our current cost of living crisis across the western world, is that corporations, collectively, and spontaneously decided to increase profit margins, and take additional money from, from consumers somehow. You know, the best explanation that I’ve seen for this, the best explanation, the only actual causality that I’ve ever seen someone try and say is, oh, there was supply side shocks as a result of the pandemic and that gave companies the ability to change the prices and so they push the prices up massively. Now, internally, I don’t think that’s actually consistent as an argument because if, support, if the cost of supply went up, then profit margins would go down, not up. But I don’t think any of this is actually about what causes inflation because what caused the bout of inflation is actually really clear. During the pandemic, particularly during 2021, across the western world, governments and central banks massively over stimulated the economy. In Australia, we saw an enormous increase in government spending in the tune of hundreds of billions of dollars, we saw a massive stimulus from the RBI in terms of basically creating money, we saw that across the western world, huge deficits, massive stimulus. Now, in 2020, you could argue that that stimulus was needed. And there was this significant shock as a result of the pandemic and significant uncertainty. By the second half of 2021, though, we had most of those variables under control, and governments kept spending and Reserve Banks kept printing money. And the result of that, as it has been, every time this has happened across history, was a massive surge in demand and as a result of that a surge in inflation. Now, the idea of greedflation, greedflation is actually measuring a real thing, there was an uptick in corporate profits, that came from, it wasn’t the cause of, it came from that stimulus, that massive increase in demand. It’s a simple supply and demand issue. There was a massive stimulus in demand, supply is limited to a certain extent, maximum capacity of the economy is certain amount once you go past that, it’s inflation, and that’s what happened. That’s what happened in Australia and Britain and America and Europe, over that period of time, massive increase in demand. And the reason why, you know it’s an increase in demand, and not an increase in costs of supply, is the corporate profits went up. And what we’ve seen in recent times is corporate profits have gone down, as inflation has come down. Why? Because across the western world, governments have been tightening budgets and reserve banks have been increasing interest rates, in other words, reducing demand.

Gene Tunny  41:58

Yeah, yeah. I think that’s, that’s, yeah that’s good. Simon. I mean, I, I largely agree. And I think when I looked at this in a previous episode, I, I talked about a study from Chris Murphy. So Chris, has done modelling of this and he came to that view that it’s because of the huge stimulus…

Simon Cowan  42:18

Yeah I think he predicted it was sort of six or 7% inflation and got pretty close to where it actually landed in Australia for that survey looked pretty good. But I mean, the bigger picture issue here, there’s two really important points coming from this greedflation thing. One of the reasons why the greedflation hypothesis is is so popular or being pushed so hard, is connected to this idea of of wages, and who should be responsible for paying for the cost of bringing inflation under control. So if you can argue truthfully, or realistically or correctly or not, that it’s not workers, and it’s not, you know, ordinary people who are responsible for inflation, therefore, you can’t restrict wages, and your government should be providing cost of living support through their budgets, what you’re trying to do is actually shift the incidence of who has to pay for the cost of getting inflation under control. But it’s such a dangerous thing to do. Because what we know is that the thing that will make inflation enduring, and the thing that will cause the biggest problems if inflation is translated into wage expectations, it creates a cycle that makes it exceptionally hard to break. And the unions and to an extent the government are trying as hard as they can to put in put forward this idea that wages should at a minimum keep pace with inflation. And ultimately, that’s a very dangerous sentiment, in my view.

Gene Tunny  43:49

This is the concern about the wage price spiral. So yeah, yeah, I’ve looked at that in a previous episode. So I might, I might link to that. Yes. So you’ve written in your article on greedflation. “The dissidents seek to de emphasise monetary policy, especially the role of monetary of managing inflation in favour of a greater role for fiscal policy and an equal focus on maintaining full employment.” So you, you see this, this greedflation view, you’re, you’re worried about it because it could lead to really bad policy outcomes in your view?

Simon Cowan  44:31

Yeah I think we’re seeing a shift already. And it’s been coming for a little while, I think, you know, we had a period of time where there was a fairly clear settlement, particularly Australia and macro economic management stability issues were almost exclusively a domain of of monetary policy, and then micro-economic efficiency issues and supply side concerns were the domain of fiscal policy. And the problem with that is that that doesn’t really allow a progressive government that wants to, to, you know, put its finger on the scales in various places to use macro economic measures as a rationale for changing government spending priorities. And so there’s this shift. You can see in America, it’s not just, just here, but away from monetary policy being mechanism for micro, macro economic stability towards fiscal policy being responsible for for huge components of economic well being. And it fits very clearly, I think into what the treasurer has been saying about the role or the return of government to more central position in in determining the direction of economic forces and so greedflation, if you take it away from that over stimulus point and bring it back towards a discussion about employment and wages. It allows you to centralise government in that decision making process again. And it was so hard for us to get past that first time.

Gene Tunny  45:58

Yeah. What are the greedflation, people arguing for greedflation, what are they actually, what would they be suggesting price controls or something? Who really…

Simon Cowan  46:07

Yeah, price controls and tax increases and ,there’s a was a retribution component in some respects. But it’s also this idea that, you know, workers weren’t responsible for this. Therefore, they shouldn’t have to bear the costs of it. And I mean, from a, from a moral perspective, that that sounds right. I mean, it’s not it’s not instinctively wrong, the problem is from an economic perspective, the argument they’re basing that on doesn’t make any sense.

Gene Tunny  46:37

Yeah. Yeah. And particularly, and this is the point Phil Lowe made in response to my question, I might, I’ll put a link in the show notes regarding that, because I had a look at some of the data he was talking about. You don’t see this big spike in the profit share of national income other than in mining, you see it in mining because they’ve had a big terms of trade boom. But you don’t really see it elsewhere in the economy. There’s a little bit but it’s not huge. So it’s hard to see how it supports his greedflation hypothesis. I think that’s a fair point. And I like your point about the lack of a causal mechanism, because, you know, people like the Australian Institute people, what they’ve done is that they’ve shown or they can demonstrate they do some decomposition of the GDP deflator. And they argue that it’s largely associated with, with profits rather than wages. Now, that’s a nice statistical calculation, but it’s just they’re showing a correlation. They’re not necessarily proving any causation, which I think’s your point. Yeah,

Simon Cowan  47:40

Yeah, cool, but far more fundamentally, right? What is inflation? Inflation is an increase in prices. If, and it can only come from from two places, right? It either comes from an increase in costs, or it comes from an increase in in profit share. Now, either it’s come from an increase in costs. That’s a supply side driven inflation. And we’ve seen some of that during the pandemic, particularly around the energy costs. But what they’ve effectively triumphantly discovered is that inflation is an increase in prices, doesn’t say anything about what causes that increase in prices. And you often see, I mean, because unions, I think, unions think this way, because this is how unions work in the sense that everyone gets together and they make a sort of centralised decision. And that then flows outwards, they assume that their opposition works the same way. There is no business or collective sort of companies that can decide what the profit level is like they can’t, there is no mechanism by which you can actually do that. So what we’re seeing is that that sort of accumulation of literally 10s of 1000s of individual decisions in individual markets by individual companies, there’s no, there’s no overarching sort of business sector that makes decisions. It’s just a reflection of what’s happening in the market. And that’s why I mean, it’s the biggest reason why this doesn’t work. Like if, if you wanted companies to reduce profits to cut inflation. How would you actually go about doing that?

Gene Tunny  49:15

Yeah, I largely agree. Now, you’re not saying that, I mean, would you recognise that there are some areas of the economy where there may be excessive concentration or or we do need to be conscious of abuses of market power. Do you have any thoughts on that? Like so…

Simon Cowan  49:31

Yeah, I mean, I have some thoughts on that. I do have a lot of fairly uncharitable thoughts about competition policy for what that’s worth. I do think there are issues around efficiency within markets, and that is a problem. But it’s not at all clear to me that any of the people who are pushing the greedflation agenda, have any idea how to make markets more efficient. And none of their solutions would make markets more efficient or resolve any of those issues. So I I’m less convinced that that’s a solution to this problem. But what we have seen, I think, is over the last sort of 30 or 40 years, as you know, international trade has increased enormously as the sort of tyranny of distance, you know, internet, the ability of markets to sort of reflect international trends, competition has become enormously increased in a number of different markets. So the fact that it’s not immediately visible in Australia, because you can only see the Australian companies doesn’t mean that there’s not a whole bunch of potential competition that could arise there. So, but I mean, I think competition is important, and it’s not as efficient as it could be. But and I’d be very much in favour of making it more efficient. But I don’t know you make competition better or more efficient with more government?

Gene Tunny  50:47

Yeah. Oh, yeah. Yeah, we might have to come back to that in a future episode. I just thought of it because I know there’s a lot of talk lately about Qantas. And how close Qantas is to the government. And the government is making decisions in favour of Qantas like not letting Qatar Airways take a route into Australia. And at the same time, we’ve got Qantas coming out in favour of a policy position advanced by the government on the Voice, and it’s given Anthony Albanese, some chairmanship lounge membership.

Simon Cowan  51:17

Yeah well so I actually looked at this issue in the past too, and this is a really important thing, it’s what it comes down to is what the future direction of the economy is. So there’s, there’s a view where you say, you know, it’s big business and big union and big government, they all get together, and they do what they think is in the best interest of the country. Or there’s a model where you say, consumers should be sovereign, and they should make choices and the market reflects whatever people decide to buy with their money. And what we’re seeing is so many more people coming out in favour of that first view, the idea that, you know, the benevolent elites will come and decide what’s best for everyone and that Qantas and, you know, the ACTU and Jim Chalmers can get together in a room and decide what the priorities for the economy should be. And I mean, I fundamentally reject that view. But I think more importantly, my vision is not a business-centric one, it’s a consumer-centric one. Markets are consumer democracy. It’s not about what’s best for business. It’s what about what’s best for people and consumers?

Gene Tunny  52:17

Absolutely. I fully agree. Simon Cowan it’s been terrific. I’m so glad to have caught up with you here in Sydney at CIS’s offices. So thanks again for your thoughts and for your hospitality today.

Simon Cowan  52:30

Appreciate it. Thanks for your time.

Gene Tunny  52:33

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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Podcast episode

Immigration & Australia’s housing crisis w/ Alan Kohler – EP191

This episode delves into the pressing issues of housing and immigration in Australia, featuring a conversation with renowned financial journalist, Alan Kohler. The discussion revolves around the impact of high immigration rates on housing demand and affordability, emphasizing the need for coordination between immigration and housing policies. The episode also highlights the supply-side factors contributing to the housing crisis, such as restrictions on housing development and protections for character housing and heritage. The host Gene Tunny suggests the need for a national debate and parliamentary inquiry into Australia’s immigration rate and population growth to weigh the benefits of immigration against the challenges of housing and infrastructure. 

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

What’s covered in EP191

  • [00:01:58] Australia’s housing crisis. 
  • [00:06:47] The need to coordinate immigration and housing. 
  • [00:08:00] Short-term vs long-term rental – the impact of AirBnB, etc. 
  • [00:13:05] Local governments and the housing shortage. 
  • [00:18:30] Drop in average housing size. 
  • [00:22:32] Increasing housing supply as a solution. 
  • [00:24:17] Immigration and housing affordability. 
  • [00:28:07] The pandemic response and the housing crisis.

Links relevant to the conversation

Alan Kohler’s articles:

Labor immigration and housing policies are an explosive mix

Alan Kohler: Population growth equals economic growth, but for whom? 

RBA research on average household size:

A New Measure of Average Household Size | Bulletin – March 2023 | RBA

Previous Economics Explored episodes on housing:

Odd way to fix housing crisis proposed by Aus. Gov’t: invest in stocks first w/ Dr Cameron Murray, Sydney Uni. – Economics Explored

The high cost of housing and what to do about it w/ Peter Tulip, CIS – EP134 – Economics Explored

Missing Middle Housing podcast chat with Natalie Rayment of Wolter Consulting | Queensland Economy Watch    

Australian Financial Review articles on housing:

Housing supply crisis: How Auckland took on the NIMBYs and won 

1.3 million missing homes blamed on councils and NIMBYs 

Immigration & Australia’s housing crisis w/ Alan Kohler – EP191

N.B. This is a lightly edited version of a transcript originally created using the AI application It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning into the show. In this episode, I chat with renowned Australian financial journalist Alan Koehler about housing immigration in Australia. These are related highly topical issues in this country at the moment. You’re in Australia, you’ll probably know Alan from his nightly finance report on ABC News. Alan was usually popular in Treasury when I was there, because he’d always feature an interesting chart and his finance report, and would often talk about it the next day. In addition to being a finance reporter, and presenter at the ABC, Alan was the founder of the Eureka report and business spectator now owned by News Corp. Many thanks to Darren Brady Nelson for connecting me with Alan, please make sure you stick around after the end of the interview, because I’ll have a few words to say to wrap up. Okay, let’s get into the episode. I hope you enjoy my conversation with Alan cola. Alan cola. Thanks for joining me.

Alan Kohler  01:43

Not at all.

Gene Tunny  01:45

Alan, you’ve written some really great commentary on what’s been happening with housing and immigration here in Australia really frank and fearless commentary. And I’m glad to have you on the show to chat about that. In October last year, you wrote, If the Labour government doesn’t start coordinating immigration and housing, the mixture will be explosive, because Australia’s housing crisis is going to be horrific next year. I’d like to ask to start with Have there been any developments since you wrote that article that makes you more or less optimistic,

Alan Kohler  02:20

I suppose less optimistic in the sense that the increase in immigration this year has confirmed it’s 400,000. It’s it’s mainly catch up. But it’s clear that we’re back into higher levels of immigration. And the rental vacancy rate has not really moved. It’s gone from 1.1%, nationally to 1.2%. So that column II referred to was really just investigating job vacancies, and rental vacancies in various places around the country as well as nationally. So what I did was I went around to various places in the country, both cities and country towns, and looked at the number of jobs that were advertised on seek and compare that with the number of rental properties available on RPA. And just found that the number of job applications of job heads were vastly in excess of the number of places to live, if it was available. So you know, you’re wondering what’s going to happen. And when all these businesses needing staff advertising for staff in places like Warren ball or the Sydney Hills district or Cannes or Calgary? I mean, I looked at all these places, and there was a vast difference in the number of job vacancies and job ads and the number of places to rent.

Gene Tunny  03:50

Yeah, yeah, absolutely. And you, you suggested that it could be horrific next year. Do you think it’s horrific at the moment?

Alan Kohler  03:57

Well, it’s certainly not getting any better. For sure. I mean, the government’s plan is to is to have a housing. Future Fund, as it’s called, was $10 billion in which and the earnings from that fund will be used to build houses, and they’re proposing to build 30,000 over five years. But really, that’ll scratch the surface. I mean, the number of places that are needed is vastly in excess of that.

Gene Tunny  04:23

Do you have any thoughts on the structure of that Future Fund? There’s been some criticism of it by various commentators such as John Corrigan, and Cameron, Mary and the greens are that they think it’s a bit futile. Do you have any thoughts on that yourself? I mean, I know you just said that. You think it’s just scratches the surface, but any thoughts on the structure of it what they’re trying to do there?

Alan Kohler  04:44

Well, the only thought I have is that it’s better than nothing. It seems to be quite complicated. The way they’ve got the money is going to be given to the the actual Future Fund Manager and then there’s kind of various places that the earnings go to some some of the states Some of the Commonwealth I mean, I look at this kind of bureaucratic structure and feel like the money will disappear before it gets anywhere. Because, you know, bureaucracies tend to make money disappear.

Gene Tunny  05:15

Yes. And the fund managers or, you know, they’ll they’ll earn some fees off it, too. Of course, I think that’s one of the points that that Cameron mentioned. Can I ask, what do you have in mind by starting to coordinate immigration and housing? What what sort of things do you have in mind there? Alan, have you thought about how they could do that?

Alan Kohler  05:37

Well, I think the main thing they need to do is actually have a hard look at how many houses are required, given the immigration policy that they have initiated. So they, they make a decision about immigration, they decide how many people are going to come to the country, right. And then they, they also have data on how many houses are available. And therefore they can know what housing is required to house, the people who are being invited to come to Australia, and also the people who are here and what the sort of current demand is. And then I need to find a way to create to make that housing available. Because otherwise, what you end up with is a soaring in rent, which is what’s occurred, there’s been huge increases in rent over the last couple of years. And also you get huge increases in house prices, because of the demand. And there’s just simply a lack of supply. So what I suppose what I’m talking about is, you know, actually doing something at the government level to create the housing. Now the question is, what will it be because, you know, there’s not enough, it takes too long to build houses, even if they even if the housing Future Fund had enough money in it to build enough housing, it will take you know, a couple of years to build the houses. So it’s not as if that’s going to be a quick solution. But one of the things I’ve been I’ve also been investigating is the question of short term rentals and Airbnb. And I did another column in which I kind of observed that the number of rental properties available in Australia, at the time, I think was a month or two ago, the number of rental properties on raa that were available in Australia was 51,000. And the number of properties on Airbnb and other short term rental sites was 300,000. Right? So there’s a huge difference. And also, I looked into the difference in rent that you get, for the same property as a as a lease on our a and on Airbnb and the differences about three times I think that there needs to be a difference because putting it on Airbnb is risky, because you might get a party or you might rent it at all. So there is a need for a risk premium. But the question is how much of a risk premium and I think it’s self evident that the risk premium currently, that’s available on Airbnb is too high, because not too many people are putting their properties on Airbnb rather than putting it on REO for lease, which is leading to a bit of a shortfall. The question is, how do you how do you redress that imbalance? How do you get, say 100,000 properties off Airbnb? And onto the long term lease rental market? I think there’s some way that the government needs to find to to achieve that. What I suggested was some some use of the Kevin Rudd rental subsidy scheme for the introduced I can’t remember the name of it now. But there was a rental subsidy scheme that was abolished by the coalition that was introduced by Kevin Rudd that was aimed at low income earners. And maybe there’s a way of modifying that in some way that could, in a sense, redress the imbalance in rent between short term and long term rental. But look, you know, I don’t have all the answers. I’m just saying that there needs to be some thought put into, not just into, into getting people into the country, which we clearly need. I mean, we need the immigration, it’s not I think the answer is to not have the immigration because the staff shortage is everywhere. Businesses are screaming for staff. And, you know, and also the care, the care industry, the care sector, healthcare, aged care, childcare, you know, we’re all struggling for staff so we need the immigration and also baby boomers and they’re retiring so there’s needs to at a higher level in general of immigration, to deal with baby boomer retirement, what I’m saying is that they need to combine some sort of housing policy with immigration policy and think about what they’re doing.

Gene Tunny  10:16

Yeah, yeah. I’m just trying to remember it was the Kevin Rudd policy, it may have been the National Rental Affordability Scheme. Was it N RAS? I can correct? Yeah. Yeah, it might put a link in the show notes or a few N RAS properties. out near Bowen Hills, I’m in Brisbane. So I think I think there are n RAS on with immigration and housing. So you mentioned I mean, we do need immigration. But we’ve suddenly got this 400,000 per year of immigration. Would there be scope for adjusting that from year to year, depending on labour market conditions of housing? Is that something that they should be actively considering? And more broadly, do we need a national? Would you say we need a national housing and population policy? And we need to have that debate about what’s the optimal rate of immigration given these other circumstances? Well,

Alan Kohler  11:13

it’s not 400,000 per year, it’s just 400,000. This year as a catch up for the pandemic when there was no immigration. So, you know, I think the what we’re heading back towards, as a long term rate of immigration is somewhere between 202 130,000, demographers are struggling to say there’s more likely to be 200,000, the Treasury forecast in the budget was 230,000. Long term. You know, I don’t know what it is. But it’ll be something around about 200,000, I guess. And that seems to be what’s needed, you know, to replace the baby boomers and to, you know, just to keep the place ticking over. So I think if what you’re talking about is some sort of adjustment separately to immigration to, you know, meet the housing that’s available. I think that to be the other way around that, really, the immigration needs to be the starting point. And they need to do something about the housing, short term in a hurry, and not just muck around with long term solutions.

Gene Tunny  12:21

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  12:27

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Gene Tunny  12:56

Now back to the show. To what extent you see the housing shortage as a result of restrictions at the local government level. Is it due to zoning? Is it due to character protection of character housing of heritage?

Alan Kohler  13:14

Oh, yeah, no doubt about it. I mean, I had a coffee the other day with a bloke who’s running a campaign in Melbourne, called EMB. Yes, in my backyard it stands for and it was started in San Francisco, which is got to Herrera to horrendous NIMBY problem in San Francisco. There’s there’s also a chapter in Canberra and one in Sydney, one in Brisbane. So there’s, they’re starting up here. They’re all young people, and they’re trying to get medium density housing built in the suburbs. You know, I really admire them going on, I think that that’s what’s required. That’s one of the problems in Australia is that we have a high density housing in and near the city with high rise. And then we have large blocks. We don’t have anything much in between we don’t have we don’t have the sort of four storey buildings that other countries do through the suburbs to allow people to allow a lot more people to live close to the CBD. I mean, one of the problems we have in Australia is that we have each city has one CBD. And so the further out you get, the more inconvenient it is, and so that that really puts a premium on housing, that’s, you know, within half an hour or an hour of the CBD. And because of councils zoning, there’s a limit on the amount of housing that’s, that’s being built in those, you know, within the hour commute from the CBD. And so, you know, that’s, that’s what’s required really, I mean, the characters the these people in in the MB movement going on and what they’re doing is they Going to the council meetings. So they’re not just putting out press releases, they’re going to the council meetings and speaking in favour of in favour of developments, housing, you know, apartment developments in those suburbs, because the one of the points they make is that when councils consider these proposal development proposals for, say, a five to 10 Storey, housing apartment block, the only people who bother turning up at the council to talk about it are those who are against it. And there’s never anybody who’s speaking in favour of it apart from the developer, which I think is an interesting point. You know, so the council’s really aren’t a hiding to nothing. I mean, they’re elected by the local constituents in, in their wards. And, you know, the constituents are all against anything being built. So, you know, they’re more or less on a hiding to nothing, you know, and I think so, there’s a bloke called Simon Kirsten maca, who’s a demographer in Melbourne, who I talked to a bit than his solution is for the federal government to give councils a quota of dwellings that they need to approve each year. And if they fail to meet the quota, they lose funding. And if they fail to meet the quota for the second year running, the administer administrators put in they they sacked, which is a pretty tough kind of solution. But he you know, he makes the valid point that this is a real crisis. Yes, we’re just not building enough housing. And we’re not building enough medium density housing, in places where it’s convenient to live. I mean, speaking in Melbourne, I’m not sure where love the place to be speaking about Melbourne, there’s a lot of fear a bit of housing being built in places like where are we in tan Eaton, you know, far our suburbs. But they’re incredibly inconvenient. I mean, the infrastructure is no good, you can’t get out of the place. People are spending an hour in the car, just to get their kids to school. You know, I just think that, you know, there’s there’s a real mismatch, there’s a real problem with where the housing is being built, and the amount of housing that’s being built in places that are convenient.

Gene Tunny  17:29

Yeah, I agree regarding the mismatch. So in Brisbane, here, the only places in the inner city where we’ve really seen an expansion of suppliers in former light industrial commercial areas where they’ve been able to redevelop such as at West End, or Milton and a new state, and we’ve got a lot of high density there. But yeah, we’re missing that, that more medium density, which I think would be really desirable. And I liked that idea of the financial penalties for council. I think that’s, that’s terrific. Another thing I’d like to ask Alan is about the there was a huge drop in the average housing size, and that’s associated Well, there are various factors. But during the pandemic we had, we had cheap money, we had people moving out of home earlier or leaving group houses. And we’ve got also a greater desire for space due to people working from home. And this has been people argued, some commentators or analysts are arguing that this is the big problem. Now it was this unexpected drop in that average housing size. And that’s what’s causing all the problems we’re seeing now. What I’d like to ask is, do you think that was, was that something that should have? I mean, is that something that’s unforeseeable and therefore, well, this is a, you know, this is a problem, obviously, but it was something that you really couldn’t do much about, and therefore, we just have to let it sort of play itself out. I mean, there’s, there’s not time for panic. I’m trying to think of the best way to ask this well, where I’m going with that. But that’s that’s one of the first things we’ve seen, is this drop in the average housing size? Do you have any thoughts on what’s happened there?

Alan Kohler  19:02

Well, the average house size, the average, the average number of people per house has definitely declined. It’s, I think it’s down to two and a half. I can’t remember what it is. But it’s certainly down from four to two and a half, something like that over over a decade. And I certainly when I was a kid, all the children that shared bedrooms, I mean, our I’ve got three sisters, there’s four of us. And it was a three bedroom house. But these days, all kids have to have their own bedroom, right? I mean, start the houses have to be bigger, to have the children, but also there are a lot of shared housing, that no longer exists. Look, you know, the number of people per house has definitely declined, but it’s not an act of God, but it’s certainly something has to be taken as a given. It’s not something the government can do anything about. You know, it’s not going to be able to say to we need to have more people that are housing, you know, let’s sort of cram in more on it’s not going to that’s not something government can do so it needs to happen. needs to be taken as a given that that’s the way it is. I mean, I think it’s starting to rise again now is because of the cost of rent, which is driving, particularly young people back into more shared housing. So I think I think the number of people who are house metric is on the rise again. But I don’t think it’s gonna get back to the where to where it was.

Gene Tunny  20:21

Right. Yeah. I think there was some RBI analysis that showed that prior to the pandemic, it was was over 2.55 or something like that. And then it dropped down to 2.4. A, and they’re saying that this meant that there was demand for an additional 120,000 houses or something. So that’s part of the problem. We’ve got it. At the moment. It was this. That’s one of the shocks that’s been experienced. And but I mean, so there’s this debate currently between or is it just that due to that shock, or is it due to the long term problem with building enough housing? I mean, I tend to lean toward the the fact that, you know, we haven’t built enough to because of restrictions in the past, or the restrictions, we’re still got. But yet, we’ve also got this shock that’s occurred. So it’s a combination of factors, what we’re seeing now,

Alan Kohler  21:11

certainly not one factor. I mean, there’s a number of factors. Yeah. Supply being restricted, declining household size, immigration increased in 2006, from 170 to 260,000. And kind of more or less stayed there. So, so that was a huge increase in the number of people coming into the country. And that’s kind of has continued and will continue. So there’s so there’s been a step up in immigration at the same time as house, household size falls and suppliers restricted. And also, don’t forget negative gearing and the capital gains tax discount, which is encouraging demand from investors. And also, the other thing that’s been driving prices up is all of the first homebuyer grants, which tend to just go on to the price.

Gene Tunny  22:03

Okay, Alan, Carl, or any final remarks on immigration and housing. I’ve really enjoyed this conversation. Just anything you’d like to add before we finish up?

Alan Kohler  22:13

No, I think we’ve pretty well covered it and I’ve enjoyed the conversation. Two.

Gene Tunny  22:17

Very good. Thank you, Alan. Really enjoyed it. Thank you. Okay, I hope you found that informative and enjoyable. The main takeaway that I took from my conversation with Alan is that he sees the way to tackle the housing affordability problem is by increasing housing supply. He’s highly conscious of the demand for foreign workers by Australian industry, so he wouldn’t want to tighten up visa requirements to reduce the rate of immigration. Alan is absolutely right about the need to increase housing supply. I must say, however, that I’d be more willing than Alan to adjust immigration policy settings, given how difficult it is to increase housing supply in the short run. Certainly the Australian government’s proposed housing Australia Future Fund wouldn’t do much as I discussed with Cameron Murray in a bonus episode in late March. In my view, we need to have a national debate, possibly even a parliamentary inquiry into Australia’s rate of immigration. And we need to work out an optimal rate of immigration and indeed, of population growth. There are many benefits from immigration, of course, but they need to be weighed up against the short run challenge of housing so many new people and ensuring that we have sufficient infrastructure. In my view, we should possibly consider population decentralisation strategies. For example, we could relocate some administrative functions of governments to regional areas and hence we’d relocate the public servants. There are several regional cities out there will many regional cities out there that could could be good destinations such as Townsville, for example in North Queensland. We should also ask, why do we need to rely so heavily on immigration to boost our workforce? In the case of skilled labour? Why aren’t we training enough Australians to meet the needs of business? Furthermore, I’d note that students are a big part of the Margaret intake into Australia. And it’s difficult to argue that they’re mostly filling skilled jobs. The impact of our high rated immigration on housing demand and hence rents and house prices is probably large enough that we should ask whether the benefits to industry are sufficient to offset any adverse impacts on the broader community. Of course, as I discussed with Alan, housing affordability is a multi dimensional challenge. There are demand side factors such as immigration and the reduction in average household size, but there are also supply side factors. One of the supply side issues is definitely the restrictions on housing developments in our Cities, there are too many rules which are constraining the supply of housing and making it more expensive. We have various protections of character housing of heritage, and it makes it much more difficult to develop the housing stock that we need. If you’re a regular listener, you may recall that I spoke with Natalie Raymond from the Brisbane yimby group a couple of years ago. As Alan mentioned, yimby stands for yes, in my backyard. It’s a fantastic movement. I’ll put a link in the show notes to my conversation with Natalie, so you can listen to that episode if you haven’t yet. Again, if you’re a regular listener, you may recall that I also chatted with Peter tulip last year about the high cost of housing. Peter is a former Reserve Bank of Australia economist. He’s now chief economist at the Centre for independent studies where I’m an adjunct fellow. Peters estimated that for detached houses, planning restrictions are estimated to raise house prices 73% in Sydney, 69% in Melbourne, 42% in Brisbane and 54% in Perth. I’ll link to my conversation with Peter in the show notes too. I think it’s a great one. And Pete has done some really rigorous research on how these planning restrictions impact housing, so I recommend checking that out. Another former RBA economist Tony Richards, he’s just published some analysis of the impact of planning restrictions on housing supply, and it’s received some great coverage from my old Treasury colleague, John Keogh, who’s now at the Financial Review. John has summarised this research by Tony Richards as follows. Australia could have built an extra 1.3 million homes over the past 20 years. But costly zoning planning and building red tape imposed by local councils is chiefly to blame for a huge housing under supply. That sounds plausible to me. Indeed, I’ve been on the news here locally because I’ve gone up to the site of a of a redevelopment or proposed redevelopment up in Paddington on the corner of Latrobe and given terrorists with a page of workers club is and they wanted to redevelop that as a mixed use development with residential and commercial. But it was opposed by local residents. And yep, there’s no development there. And I mean, we really need to develop prime sites like that that are well located and think about the interest the greater community interest rather than just the the interest of people within the neighbourhood. We need to think about the greater good. Okay. I should note that there’s some evidence out of Auckland in New Zealand regarding the impact of up zoning on housing affordability, so up zoning is allowing redevelopment or high density uses of land that’s zoned for low density residential use. After up zoning began in Auckland and 2016, there was a building boom. And since 2016, rents in Auckland have only increased 10 to 20%. Compared with 40% in Wellington, it looks like there’s an even starker difference for house prices. So they’ve gone up only 20% in Auckland compared with 70% outside Auckland. So I took those figures from a recent financial review article, which I’ll link to in the show notes. So check out the show notes for any links to any studies or reports I mentioned also for any clarifications in case I miss remembered something or I’ve got something wrong. Okay, I might come back to the Auckland experiment in a future episode to have a closer look at the evidence. As always, we need to make sure we understand all the facts, we need to be conscious that correlation doesn’t necessarily mean causation. And just because something follows something else. That doesn’t mean that they’re related, or there’s a causal relationship. That said the evidence from Auckland does look promising, and it makes sense from a theoretical perspective. Finally, I should note that the housing crisis we’re having in Australia is probably partly due to the pandemic policy response, including Ultra loose monetary policy, cheap money, and the lock downs. These policies stimulated demand for larger houses for those who could afford them. People demanded more space. They demanded studies so they could work from home and the international border closure for nearly two years, followed by its reopening in late 2021. That’s led to a huge amount of catch up immigration. As Alan noted in our conversation, all these new people need places to live in a rental market that is already extremely tight. So in different parts of the country. We’ve had vacancy rates for rental properties of around 1% In some cases under 1% Good paid with around three to 4% Normally, increasingly, we’re learning about the adverse unintended consequences of our pandemic response. Next time, our political leaders should think much more carefully about adopting such extreme policies, given the negative After Effects we’re now seeing, not to mention the adverse impacts including the restrictions on civil liberties that we saw at the time. We need to do much better next time if there’s another pandemic in the future. Okay, that’s about it for me, please let me know what you think about either Alan or I had to say about housing and immigration in this episode, you can email me via contact at economics I’d love to hear from you. Thanks for listening. rato thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if you’re podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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Podcast episode

Odd way to fix housing crisis proposed by Aus. Gov’t: invest in stocks first w/ Dr Cameron Murray, Sydney Uni.

The Australian Government has been having trouble getting its proposed Housing Australia Future Fund (HAFF) passed by the Senate. The policy looks odd. With some justification, the Australian Greens have commented: “In its current form the Housing Australia Future Fund (HAFF) legislation will see the housing crisis get worse. We can’t fix the housing crisis by gambling money on the stock market and not guaranteeing a single cent will be spent on housing.” In their dissenting report on the bill, the Greens’ cited the views of this episode’s guest, Dr Cameron Murray. Cameron is a Post-Doctoral Researcher at the Henry Halloran Trust at the University of Sydney. 

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

About Dr Cameron Murray

Dr Cameron Murray is Post-Doctoral Researcher at Henry Halloran Trust, The University of Sydney. He is an economist specialising in property and urban development, environmental economics, rent-seeking and corruption.

Book: Rigged: How networks of powerful mates rip off everyday Australians


Twitter: @drcameronmurray 

What’s covered in this bonus episode

  • Cameron’s submission to the Senate Inquiry into the Housing Australia Future Fund Bill [2:39]
  • What’s going on with the Housing Australia Future Fund [5:02]
  • The only reason you can make a premium is if you take risk [8:57]
  • Why you need to separate the funding and the spending [10:36]
  • Why doesn’t the Future Fund just directly invest in new houses? [14:21]
  • How governments are increasingly doing financially tricky things that don’t make sense [19:23]
  • Cameron’s thoughts on the impact of the bill on the level of investment in housing [23:14]
  • What’s going on behind the scenes at Parliament House [26:18]

Links relevant to the conversation

Cameron’s submission to the inquiry into the Housing Australia Future Fund:

Direct link to Senate Committee inquiry report:

HAFF inquiry home page:

Transcript: Odd way to fix housing crisis proposed by Aus. Gov’t: invest in stocks first w/ Dr Cameron Murray, Sydney Uni.

N.B. This is a lightly edited version of a transcript originally created using the AI application It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, welcome to this bonus episode on the housing Australia Future Fund. The H A double f or half. It’s Saturday the 25th of March here in Australia and throughout the week, the Australian government has been having trouble getting the half passed by the Senate. That’s probably unsurprising because the policy looks like a bad one. With some justification the Australian Greens have commented in its current form the housing Australia Future Fund legislation will see the housing prices get worse. We can’t fix the housing crisis by gambling money on the stock market and not guaranteed a single cent will be spent on housing. That paragraphs from the Greens dissenting report on the housing Australia Future Fund bill. In that dissenting report, the greens relied significantly on testimony to the inquiry from my guest this episode, my fellow Brisbane based economist Dr. Cameron Mary Cameron is a postdoctoral researcher at the Henry Halloran trust at the University of Sydney. I recorded this conversation with Ken Friday last week on the 17th of March 2023. I’ll link in the show notes to Cameron’s submission to the inquiry into the half cam submission as a great example of the application of economic logic to an important economic policy issue. Cam sees through the accounting trickery and the financial engineer at behind the fund. He shows how the Australian government has been too clever by half. It’s trying to get credit for doing something about the country’s housing crisis. But what it’s proposing could be next to useless. Right. Let’s get into the episode. Please let me know what you think about what either camera I have to say by emailing me at contact at economics I hope you enjoy my conversation with Cam Dr. Cameron Murray, welcome back to the show.

Cameron Murray  02:39

Thanks for having me again, Gene.

Gene Tunny  02:40

Oh, it’s a pleasure, Cameron, I read with much interest your latest post on fresh economic thinking. And it’s about your submission to the Senate inquiry into the housing Australia Future Fund Bill 2023 and other bills. Could you tell us a bit about what that involves? So you’ve written a submission to this inquiry? And you’ve also presented to the inquiry you gave testimony? Did you?

Cameron Murray  03:07

Yeah, that’s right. So this bill was passed their house, the lower house, and now the Senate is reviewing it. And what they’ve done is held this inquiry asked for public submissions, and had people who made submissions come in for a day of expert testimony so that their senators can ask specific people, you know, technical questions, what do you think about this? What about this design element? And so I was part of that on on Wednesday, this week. And yeah, so the bill itself is called the housing Australia future funding bill. And the basic idea is the government has decided to address Australia’s current housing problems. We’ve seen rents rise, we’ve seen rising homelessness, we’ve seen longer queues in public housing waiting lists, they’ve decided the best thing for them to do is take $10 billion from the Treasury and give it to the Future Fund, which is a sort of publicly managed investment fund, and cross their fingers and hope that that fund makes a return that’s higher than their opportunity cost, you know, the cost of the government’s dead and use that margin on the risk to fund something in the future, some unspecified, granting in relation to what in the text of the bill is called supporting housing need. So that’s what it was all about. And, and yeah, I gave some testimony on Wednesday.

Gene Tunny  04:35

So the federal government’s claiming that this is going to help them build I think 30,000 social housing dwellings over the next five years or so. So that’s their that’s the plan. But I think what I like about your submission is it essentially talks about how this is a rather roundabout way of going about it, which doesn’t actually guarantee you’re going to deliver it to you As in,

Cameron Murray  05:00

this is the mad thing. And this is. So let me start by saying, to be clear what they’re doing to build houses is taking $10 billion and buying all sorts of assets in the future funds that are not houses. Right? So that’s what they’re trying to do. And it’s really funny because there’s an actually an episode of Utopia, you know, the comedy show about the bureaucracy in Australia, where Rob switches character, who’s the sane one, amongst the insanity is explaining to a political staffer who says to him, What about an infrastructure? Future Fund? Yeah, don’t you get it, it’s about the future, he says. But spending the money on infrastructure today solves the future, we don’t need a fund. We don’t need a new office, we don’t need these fund managers. And you know, when we watch utopia, we all laugh and think we’re the same guy in the room. But what happened at the Senate inquiry is that I was the only guy and everybody else who laughed at Utopia when they watched it was the crazy guy who thinks that spending money on not houses is the best way to spend money on houses. And so there was this really perverse political slogan that kept creeping in, which was, this is going to secure funding for the future and insulated from future political decisions. And I just sat there going, I don’t, I’ve read this bill, because this funding is riskier, because you’re investing in a risky asset and the current Future Fund loss $2.4 billion last year, and spent half a billion dollars on fund managers to achieve that outcome. So we almost lost $3 billion last year. So it’s possible that we put 10 billion in this fund and have 9 billion next year. And then that’s the way we’re securing the future funding. The legislation is also written such that the future Minister has the discretion of how much from the fund to spend, and on what projects. And it also introduces a cap of 500 million per year that a future minister can withdraw from the fund. So what you’re actually doing is providing a great excuse for a future minister to spend less than 500 million. And in fact, zero if the fund is losing money. So there’s this weird disconnect between the political slogan of securing long term funding insulating it from politics and the reality, which is adding risk to a fund compared to just having 10 billion in the bank or at the Treasury where it is, and not insulating at all, and just still relying on future ministers discretion with no commitments. So that 30,000 dwellings you said, is not enough. There’s no, it’s not written in their rules. It’s written in the guideline as a hypothetical of how much, you know, if all went according to plan, and we would expect this, and I’m like, but there’s like, like many housing strategies and plans that the federal government and state governments have had in the past, there is nothing holding them to account on those promises. So yeah, it’s, it’s a really, really strange one. And I felt like there are about 20 or 30 witnesses or experts at the hearing. Now, only two or three of us actually calling this out the majority of the industry. And the researchers had really, I don’t know, bought the line that this is something that it’s not.

Gene Tunny  08:16

Yeah. So what’s going on, it appears to me is they’re essentially that borrowing, they’re going to be borrowing this money, or it’s going to increase the borrowing requirement by $10 billion, because we’re currently we have been running budget deficits. So it’s going to increase that, that borrowing requirement, we’re going to put that into this the future funds, so we’re essentially borrowing money to then invest in the share market or Enron’s Yeah, well,

Cameron Murray  08:45

if we’ve invested in bonds, we’re borrowing money to buy the bond back off ourselves. If this fund, if this fund is like eight or seven or 8%, government, Australian government treasury, that’s just pure accounting. Yeah, you know, trickery, you know, and that shows it but the whole thing is accounting trickery, right? Because, you know, you’re just recycling the money via the current shareholders of BHP into Telstra and Commonwealth Bank, right, by buying the shares off them and then later selling it back to them. And the only reason you can make a premium with this fund over the over not borrowing it, right, because you still gotta pay interest on the Treasury borrowing. The only reason you can make a premium is if you take risk. Yeah, if you’re taking risk, then it’s not a secure, long term funding thing. You’re just adding risk unnecessarily, and delaying spending money on building houses. And, you know, it took a little bit of explaining to get that through at the hearing. But ultimately, I had, for example, John Corrigan, you know, back me up on that argument, and I think Brendan Coates from the Grattan Institute who is a big supporter, the policy sort of had to concede that Yeah, at the end of the day, you’re adding risk in the hope of increasing the funding. But risk is real, right? We just can’t count on winning In the next few years,

Gene Tunny  10:02

right, so Brennan was buying the government’s line that this is about getting a secure funding source. He, I mean, I know you can’t speak for Brendan, I’m just wondering where he was coming from?

Cameron Murray  10:13

Well, actually, the idea is actually from one of our Grattan Institute report, and they proposed a $20 billion social housing fund. And, and, and, you know, I’m not averse to the government sort of diversifying the capital side, right on its balance sheet. Yeah. And and owning some high risk assets? I don’t, I’m not averse to that, in principle, right. But you’ve got to separate the funding and the spending idea. So the way I try to tell people, if the government’s saying we don’t have the money for it, it means we don’t want to do it. Because look at the submarines look at every other big look at the Olympics, right, no one’s has gotten the Olympic Future Fund, no one’s got a submarine future fun. We spend on what we want. And if someone’s saying where’s the budget, or where’s the funding, you sort of missing the idea, but but even more fundamentally, you know, if you go and raise money in the share market, from new investors for your business, each investor doesn’t say, I’ll give you this money, but you can only spend this money on, you know, cleaning your office and and the other shareholder says, no, no, but I only want you to earmark my money for doing this, right. What we do is we pool that money together and spend it the best way we can on the operations we need to do and it’s the same for the government, you need to separate Well, we’re gonna raise money, the best way we know how, whether that’s different types of taxes or borrowing, and we’re going to spend money the best way we know how and tying two things together is bad. Operationally, it’s just like, it’s bad for my business to promise one shareholder that their money goes to one type of spending, and another shareholder that I’ll only spend yours on new trucks. You know, it doesn’t really make sense it and it’s very hard to break through this kind of weird, I don’t know, budget illusion that we’ve all got that, you know, we must do this. For this, we must raise money in this way for this spending.

Gene Tunny  12:06

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  12:12

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Gene Tunny  12:41

Now back to the show. I liked how you wrote about this off balance sheet trick or the off balance sheet tricks, the basic idea of the half. So that’s the housing Australia Future Fund is to create an off balance sheet accounting trick whereby the debt associated with the fund and the assets in the fund are considered as a bundle and hence not counted in measures of public debt. So I mean, I haven’t seen exactly how they’ll what the accounting treatment of this will be in the budget, it seems to me what they’re doing is they’re setting this up as a, it’s an SPV, or some sort of public Financial Corporation so they can get it outside of the traditional balance sheet measures. They put in the budget, which is for they have it for general government, but then they also have public non financial corporations, but they don’t have public Financial Corporation. So I’m wondering if that’s what they’re going to categorise it as

Cameron Murray  13:34

I think, yeah, that’s part of the intention. And we actually see those types of budget tricks a lot, I think, New South Wales rail, you know, they tried to shift things off balance sheet, but at the end of the day, you know, we as economists should be looking through that, right. Oh, yeah. And saying, Look, you know, debts debt, but, you know, these are all assets, we can bundle them all together, you know, doesn’t matter where you’ve accounted for them. And the way we’re going to assess whether that debt was, you know, justified or efficient or productive is what, you know, what the investments made in general are, so whether it was on budget or off, you know, it should be the same, right, and you’re borrowing money to buy these assets. Doesn’t matter how you account for it. And that’s the that’s what sort of leads me to my other point is that houses are assets. Yeah. Australia’s property market is the hottest market every property every investor wants to own some. Yeah. So why doesn’t the Future Fund build new houses to expand this pool of property assets in the process, that equity can be on its balance sheet, but instead of, you know, bumping up the prices of BHP shares that you’re going to buy, you actually expand the housing stock in the process, and you can still have your off balance sheet tricks. I actually looked historically and since the Future Fund started in 2006, that’s the current investment fund Australia hands. They’ve made 7.8% average return annually, the average Australian dwelling increased in value by 7.7% per year since 2006. So just the capital value increase of owning a representative sample of Australian property would have got you the same returns as the Future Fund. So it’s not clear to me why we’re recycling this money via other assets, before we build housing assets, we can look at the balance sheets of state, public housing managers. Yeah. And when they value their land and their property portfolios every year, they got to bump it up, you know, 5 million billion. So here 10 billion here, because all this portfolio of properties they own, you know, it’s a valuable asset that rises in value. So So I’ve proposed quietly to a lot of people involved that if you want to have your financial trick and your Future Fund, get the border of the future find to only spend the money, building new dwellings, and then put the equity that you have, yeah, into the fund, you can keep your financial track, but at least you’re you know, keeping the housing construction going. And you’re immediately accumulating a pool of houses that you can allocate to the people who need it at a cheap price.

Gene Tunny  16:13

Yeah. And so is this been driven by the State of the Commonwealth budget, they, they want to make sure that they think they’re gonna get some earnings from this housing Australia Future Fund that can then offset the spending that they’ll have to make on public housing. So they want to get that they’re hoping they can get that. Because if they just go ahead and start building public housing, then they don’t have that revenue to offset that. Is that what they’re thinking?

Cameron Murray  16:39

I think you’re right, I think that’s what the thinking is. But at the end of the day, you know, having those houses supplied to people at a cheap price offsets are the spending on those people already. So the benefit is there, either in the form of the rental, or in the form of the income from the other assets. So, if I was to put on my cynical, political economist hat, I would say the reason this programme has gained so much traction and is probably going to be the law few months, is because it doesn’t change the housing market, it’s going to pass because it doesn’t achieve anything. And that’s what is truly desired. By, you know, the political parties involved is that they want to look like they’re doing something without actually doing it. I’ve had conversations with politicians who’ve told me what’s wrong with the housing market? You know, prices went up, because we dropped the interest rate, that’s good. And rents went up, because incomes went up. That’s good. There’s no market failure here. government shouldn’t do anything. So if that’s what they say to me, how is it then that they passed this bill that’s meant to do something, the only coherent story there is that this bill is to look like you’re doing something, but not doing something because you genuinely think the property market is doing what it’s doing? Well? Yeah, that’s my super cynical. Political Economy hat.

Gene Tunny  18:08

Yeah, you may well be right. I mean, it’s the Sir Humphrey Appleby type of approach where people actually don’t care about whether a problem solved, they just want it look as if something’s being done.

Cameron Murray  18:21

I’ve had a lot of people message me since my testimony to tell me their experiences of this. And I don’t know what I’m going to call this pattern, you know, does it have a name? I’ve tried to call it something like pre compromising. Where you take a good idea, you turn it into a bad idea, but it’s still got the same words in the bill. While so it looks like you’re still doing something. Yeah, you push that. And you’ve totally compromised the content, or the effectiveness, just so you can keep the name because the name is what people will talk about. And it looks like you’re doing something. It’s a what’s it called housing Australia Future Fund? Yeah. Sounds like something important is being done. Right. Yeah. And the more that gets in press headlines, the more we give credibility to the current government, who is trying to, of course tread this line of keeping prices up for people who own property, and pretending they want to keep prices down and rents down to people who don’t own property. And that’s a real interesting political tightrope. That happens a lot in this country.

Gene Tunny  19:23

Yeah, I really liked your submission, Cameron, because I thought it. I mean, it highlights our governments are increasingly doing these sorts of things. And they don’t really make a lot of sense when you think about it, because I remember when I was in Treasury, we had to set up these buildings Australia fund education investment fund, that’s I forget the name of the other one. And it didn’t really make a lot of sense because you’re just taking money and we ended up I think we ended up having to borrow money to put into them, because of the time you know, but the original idea was that there was Yeah, and they were gonna stick them in these funds, but then by the time On had to transfer the money, it was the financial crisis. So the timing wasn’t very good. And then they we see they constrain your ability to get cash. I mean, because you’re saying, Okay, we’re going to lock up all of this money in these funds, even though we don’t need it at the moment. So it can it can constrain your budget flexibility. So I don’t like them for that reason. And the other point that you’re making is your your, if you end up having to borrow to invest in it, well, you’re, you’re borrowing money just invested in the share market. And it’s not necessarily achieving the public policy objectives that you that you want to achieve. So yeah,

Cameron Murray  20:43

that’s exactly the way to put it, you’re gonna borrow 10 million to build houses for people and give it to them below market? Why do you need to recycle that money through the share market? Why don’t you put it through the pokies, there’s also a chance of making more money there, you know, it’s high risk. Why don’t you just take your half million, that half billion that you want to spend each year and spend it for the next 20 years, and just start a construction programme? Like, the really bizarre thing? To me, I read this bill. And in Part Seven H or whatever it is, it says, The Treasury will credit the housing Future Fund with $10 billion. It just doesn’t. And I just think to myself, How does where’s this 10 billion coming from? Aren’t we having this fund to get the money that we don’t have a now you’re saying we have 10 billion? If we have 10 billion? We don’t need the fund? Right? Yeah. And, you know, no one else seems to pick up on that, oh, we just credit with 10 billion. I’m like, why don’t you just build houses, credit them? Credit, the builders is 10 billion. Yeah.

Gene Tunny  21:45

So this is where they’re hoping that by doing it, you know, essentially gambling or well investing with borrowed money, they can get enough of a return on that, to then help fund this additional expenditure. And that’s going to lessen the budgetary impact. So that’s essentially what’s going on. And I just think it’s interesting, because it’s an interesting example of one of these. These things, these clever financial vehicles, the Polly’s and the advisors, I think, in particular, they love it, they think they’re geniuses, but it’s not really solving the problem.

Cameron Murray  22:20

Yeah. And let me just talk you through what I think is the best case scenario. They put money in this fund, sometime in the middle of this year, after we’ve had a big asset market correction, and they they’re near the bottom. In the next 12 months, there’s a real big boom. And in 12 months time, the ministers say, Oh, look, we’ve been making all this money. I’m gonna make this happen. Yeah, that’s the best case. The worst case is, you know, we’ve just seen a bank collapse in the United States, and you know, Swiss government bailout the Credit Suisse bank, the worst case scenario is they put $10 billion into the Future Fund, start accumulating assets in the next six months. And then come September, October, you know, popular time for financial market crashes, the fund loses 10% of its value. And next year, the minister says, oh, we can’t spend anything on public housing, because we just lost a billion dollars on the share market. Yeah, that’s, I don’t know which one’s more probable, but both are potential outcomes. And if the second one happens, you know, I hope the public and the press hold the government to account and say, Hey, this is what you wanted. You were told this is the risk you’re taking. And you still did it anyway. I really hope that opens people’s eyes. If that happens.

Gene Tunny  23:34

Yeah, that’s a good. That’s a good point. So you’re saying that the the level of investment in public housing could end up being dependent upon the returns on this fund

Cameron Murray  23:46

highly likely, implicitly, tells the minister only spend what you make, you know, for funds doing well spend money, if it’s not don’t spend money, the way it sort of described, and it’s got this cap in it as well. I would say there’s a sort of, you know, a built in excuse, yeah. Whereas you kind of want the opposite incentive. You want more public spending on housing during a downturn in the markets, right? You want to smooth out construction cycles. Yeah. Whereas I sort of feel this builds in the opposite political incentive. But the you know, the next 12 months are going to be very interesting if this bill is finally passed. And you know, the markets are very volatile at the moment. And the Future Fund, of course, lost a couple of percent last year, you went down the existing funds. So if that happens again, yeah. Who knows? Yeah.

Gene Tunny  24:40

Just before we wrap up, Cameron, can I ask you what was it like presenting to the committee? I mean, did anyone get it? Did any bells rang? Or what’s the expression? I mean, I imagined some of the Imagine that. There must have been, some of them must be sceptical, or I hope some of the people on this committee worse sceptical. But yeah. What was your impression?

Cameron Murray  25:05

My impression is that this process is a little bit of a charade. So that each political party in the crossbenches can get their sort of own experts on to provide excuses for the political bargain that they want out of this in the Senate. So I think most of the action is happening behind the scenes. And this is just each, each person in the Senate had a chance to call forth their own experts. And so that was done. My impression is that your committee is loaded based on the political party of the day, right. You know, I was cut off from my introduction, when I was saying, you get a few minutes to make introductory remarks. And I was explaining how I can’t believe you’re trying to describe this as a low risk secure, politically insulated funding stream when it seems the exact opposite. Yeah. And they’re like, oh, you know, we only allowed two minutes for these opening remarks get. And, of course, if you if you go and check the footage, everyone bloody rambled for five minutes. So you can sort of see that and, and, you know, I’ve spoken to a variety of Senators offices, as well. And they’ve obviously taken on board what I’ve said, but you don’t see minds being changed. Live during this process. That’s not where it happens. It’s all happening with phone calls and meetings and negotiations amongst each party and independents are

Gene Tunny  26:36

all behind the scenes. Okay. Because I was just wondering, I imagine that the, the greens would probably be pushing the for the government just to build public housing. Right. Yeah. Well, that must be in there. That’s right. So

Cameron Murray  26:50

I think it’s Nick McKim is the green senator from Tassie. And he was, you know, onboard when I started my opening remarks by saying, you realise there’s a scene in the comedy show utopia, right? We started today. That is exactly what you’re doing. But you all laughed with the other side of the joke. And now you’re you are the joke. And so he got a few chuckles But you know, the other the other people didn’t really like it. So yeah, the greens are definitely not keen on these off balance sheet financial tricks at all, which is really puzzling, right? It’s really puzzling to me. I don’t know what the Liberals should be sort of have a similar mind being a bit more honest financially and say, let’s focus on what’s a waste of money and what’s not. Let’s not focus on where you record it in the accounts. So I don’t I don’t know what their views are. But my impression is the Labour Party, you know, they’ve almost got this superannuation brain, or this Future Fund brain like this sort of, yeah, it’s inhibited their ability to go, you know, this is not magic. It’s not a Magic Pudding. It’s just buying different assets.

Gene Tunny  27:57

Yeah, yeah, exactly. So I’ll put a link to your submission in the show notes. I think it’s really good. And you make a good point about how, yeah, I didn’t realise the fees paid by the Future Fund for funds management was so high, but I guess it makes sense, given the amount of funds under

Cameron Murray  28:13

point 2% of the funds under management. That is still half a billion dollars a year, which is of course, again, the maximum that this Future Fund for housing can actually spend on housing subsidies or housing construction. Yeah. So the maximum they can spend is roughly what the average management fee is for the existing Future Fund. Yeah, just to get your orders of magnitude straight of what’s involved.

Gene Tunny  28:40

Okay. And, yes, it has been passed by the lower house, it’s going to it’s being considered by the Senate at the moment, and it’ll probably be passed, I imagine, based on what you were saying,

Cameron Murray  28:51

my understanding is the cross bench has a lot of power in the Senate here to get things changed. My suspicion is that if there are key crossbenchers that take my argument seriously and a couple of other of the submitters as well, they may, for example, put in the legislation a minimum amount of spending out of the fund instead of a maximum to sort of guarantee it. And they may, you know, and that might just be a way of diverting instead of buying bhp shares and Commonwealth Bank, you know, build houses with it and own the equity of those houses with your public housing developer or however you account for that. So that that that may be a realistic change. I don’t think it’s gonna get thrown out or go back to the drawing board.

Gene Tunny  29:38

Right. Okay. Well, again, well done, Cameron. Yeah, excellent submission, lots of very sound, economics and public finance in there. Any final words before we wrap up?

Cameron Murray  29:49

No, I just want to, you know, cross my fingers that the best case scenario turns out if this fun gets passed.

Gene Tunny  29:55

Very good. Okay. Cameron Murray, thanks so much for appearing on the show.

Cameron Murray  29:59

Thanks for having me, Gene.

Gene Tunny  30:02

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

Cameron Murray 30:49

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Podcast episode

The high cost of housing and what to do about it w/ Peter Tulip, CIS – EP134

Property prices have been surging across major cities in advanced economies. In Australia, a parliamentary inquiry has recently investigated housing affordability, and it handed down a report with some compelling policy recommendations in March 2022. Our guest in Economics Explored episode 134 provided an influential submission to that inquiry. His name is Peter Tulip, and he’s the Chief Economist at the Centre for Independent Studies, a leading Australian think tank. Peter explains how town planning and zoning rules can substantially increase the cost of housing.  

You can listen to the conversation using the embedded player below or via Google PodcastsApple PodcastsSpotify, and Stitcher, among other podcast apps.

About this episode’s guest – Peter Tulip

Peter Tulip is the Chief Economist at the Centre for Independent Studies, a leading Australian think tank. Peter has previously worked in the Research Department of the Reserve Bank of Australia and, before that, at the US Federal Reserve Board of Governors. He has a PhD from the University of Pennsylvania.

Links relevant to the conversation

Inquiry into housing affordability and supply in Australia

CIS Submission to the Inquiry into Housing Affordability and Supply in Australia

Gene’s article Untangling the Debate over Negative Gearing

Missing Middle Housing podcast chat with Natalie Rayment of Wolter Consulting

A Model of the Australian Housing Market by Trent Saunders and Peter Tulip

Transcript of EP134 – The high cost of housing and what to do about it w/ Peter Tulip, CIS

N.B. This is a lightly edited version of a transcript originally created using the AI application It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:01

Coming up on Economics Explored,

Peter Tulip  00:04

We know that zoning creates a huge barrier to supply. And it’s not clear that there are any other barriers that can account for distortions of this magnitude.

Gene Tunny  00:17

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist based in Brisbane, Australia and I’m a former Australian Treasury official. This is Episode 134 on the high cost of housing. Property prices have been surging across major cities in developed economies. In Australia, a parliamentary inquiry has recently investigated housing affordability, and had handed down a report with some interesting policy recommendations in March 2022. My guest this episode provided an influential submission to that inquiry. His name is Peter Tulip. And he’s the chief economist at the Centre for Independent Studies, a leading Australian think tank, which I’ve had a little bit to do with myself, over the years. Peter has previously worked in the research department of the Reserve Bank of Australia, and before that, at the US Federal Reserve Board of Governors. He has a PhD from the University of Pennsylvania.

Incidentally, here in Australia, we had a federal government budget handed down in late March 2022. But it didn’t take up any of the proposals in the housing inquiry report that Peter and I discuss this episode. The budget extended an existing housing guarantee scheme, which helps a limited number of first-time buyers avoid mortgage insurance. But the budget didn’t really do anything substantial to improve housing affordability. So we are still waiting for improved policy settings here in Australia, which would make housing more affordable. In my view, such policy settings would not include some more radical ideas that have been injected into the policy debate, such as the government itself becoming a large-scale property developer. That would be too interventionist and too costly policy for me to support. In contrast, what Peter is suggesting in this episode is a very sensible and well thought out set of measures that deserves serious consideration from decision makers.

Okay, please check out the show notes for links to materials mentioned in this episode, and for any clarifications. Also, check out our website, If you sign up as an email subscriber, you can download my e-book, Top 10 Insights from Economics, so please consider getting on the mailing list. If you have any thoughts on what Peter or I have to say about housing affordability in this episode, then please let me know. You can either record a voice message via SpeakPipe, see the link in the show notes, or you can email me via I’d love to hear from you. Righto, now for my conversation with Peter Tulip on the high cost of housing. Thanks to my audio engineer Josh Crotts for his assistance in producing this episode. I hope you enjoy it. Dr. Peter Tulip, chief economist at the Centre for Independent Studies, welcome to the programme.

Peter Tulip  03:10

Hi, Gene. Glad to be here.

Gene Tunny  03:12

Excellent, Peter. Peter, I’m pleased to have you on the programme. So earlier this month, an Australian parliamentary inquiry chaired by one of the MPs, one of the members of parliament, Jason Falinski, released a report on housing in Australia. And it quoted you among other economists, and I was very pleased that you actually referred to a paper that I wrote a few years ago on a housing issue here in Australia. And that was in your submission. And yes, you got quite a few mentions in this report, which was titled The Australian Dream: Inquiring into Housing Affordability and Supply in Australia. Now, Peter, would you be able to tell us why is this such an important inquiry, please, and what motivated you to make a submission to the inquiry, please?

Peter Tulip  04:20

Sure. So the report’s huge. It’s 200 pages long. They had hearings for several months. And I think about 200 people or more made submissions to the inquiry. So there’s an enormous amount of information. And it’s motivated by these huge increases in house prices, that the cost of housing has gone up 20% this year, on the back of similar increases in previous years. So you go back a decade or two and the price of housing has tripled. And that’s having all sorts of huge effects throughout Australian society. It’s making housing unaffordable. And that’s reflected in homeowners can’t get into the market, because deposits are incredibly high, renters suffering a lot of stress. There’s an increase in homelessness. Because housing is one of the largest components of spending, the huge increase in housing costs is having a huge effect on household budgets, changing the way we live. 30-year-olds are living with their parents. Tenants are living with flat mates they don’t like. People are having to suffer three-hour commutes to work. Housing affordability is a real problem in Australia.

Oh, sorry. The other huge issue is that inequality dimension is enormous. So society is increasingly divided up into wealthy homeowners who are having very comfortable lives, and renters and future homeowners who are really struggling. And that’s becoming hereditary, because it’s very difficult to get into homeownership without parental assistance. The Bank of Mum and Dad, it’s often called. And so it’s the children of the wealthy that get a ticket, these enormous capital gains. And people without and less privileged, they’re really suffering.

Gene Tunny  06:38

Yeah. Now, you mentioned the big increases in house prices we’ve had in Australia so over 20%, or whatever, since the recovery for the –

Peter Tulip  06:48

Just this year.

Gene Tunny  06:49

Yes, yes. But we’ve seen big increases around the world and in capital cities around the Western world, from what I’ve seen. The Financial Times had a good report on that last year. Was it the case that our house prices were high relative to benchmark? If you look at things like house prices relevant relative to median income, they were high prior to the pandemic. There’s been this big surge since the pandemic with all the monetary policy response. Is that the case that they were already high and they’ve got worse?

Peter Tulip  07:28

Yeah. And there are a lot of different benchmarks. And the benchmark partly depends on the question you’re asking. But Australian house prices are high in international standards. So for example, one think tank, Demographia, put out a league table of housing affordability. And they looked at, what is it, something like, it’s 100 or 200 big international cities around the world. And Australian capital cities have 5 of the top 25 cities in terms of expense, in terms of price-to-income ratios. So that’s one of many possible benchmarks you can use. And by that benchmark, Australian cities have very expensive housing.

Gene Tunny  08:24

Yeah, yeah, exactly. Okay. Now I just want to talk about the inquiry and how it went about its job. I found the preface to it or the foreword written by, I think it was must have been by Jason Falinski, quite fascinating. He talked about two different tribes of people in the housing policy arena in Australia. The first tribe consists mainly of planners and academics who believe that the problem is the tax system, which has turned housing into a speculative asset, thereby leading to price increases. Okay. And then he talks about how the second tribe believes that planning, the administration of the planning system, and government intervention have materially damaged homeownership in Australia. I think I know the answer to this, Peter, but it’d be good if you could tell us which tribe do you fall into? Do you feel fall neatly into one of those tribes?

Peter Tulip  09:30

Yes, I’m in the second tribe, and as in fact, are almost all economists. I mean, this is one of those issues where you get a real division of opinion between economists and non-economists. And a lot of the most vocal of those non-economists are probably town planners. So there have been a lot of economic studies of the effect of planning restrictions on housing prices. And they find very big effects using a whole lot of different approaches. And that’s a result that’s been replicated in city after city around the world there, and dozens and dozens of papers, economics papers showing planning restrictions are a very big factor, explaining why housing is so unaffordable. And town planners don’t like that and complain and they don’t believe that supply and demand is relevant for prices. They will say that in varying degrees of explicitness. The general public doesn’t like to admit that result. They don’t take part in the academic debates.

Gene Tunny  11:04

So we’re talking about restrictions on what you can build in particular areas. So in Brisbane, for example, where I am, we have restrictions on to what extent you can redevelop these old character houses. A lot of these old character houses, these old Queenslanders, the tin and timber houses, they’re protected in the inner-city neighbourhoods. In other state capitals, you have similar restrictions for different types of properties. And so it ends up distorting the development that you see. In Brisbane, we end up with these horrible, tall apartment towers in just small pockets of where there’s some activity allowed because it was formally allied industrial or commercial area. But yeah, it seems logical to me that we are restricting the supply, because if we had fewer restrictions, presumably we’d see more medium density development, or at least that’s what I think. It doesn’t seem controversial to me that supply restrictions would lead to an increase in prices.

Peter Tulip  12:17

Oh, well Gene, now you’re sounding like an economist.

Gene Tunny  12:20

Well, I mean, I read Ed Glaeser’s recent – I think it’s Ed Glaeser.

Peter Tulip  12:25

He’s done a lot of stuff on the issue. In fact, he may be the leading expert in the world on this topic.

Gene Tunny  12:31

Yeah, yeah. He’s very confident in this impact. Now, you’ve done research on this, haven’t you, Peter? You did research at the Reserve Bank.

Peter Tulip  12:43

Before we get to that, Gene, just a comment on what you just said. There are lots of planning restrictions. They come in dozens of different variations. But there are two of them that are especially important, one of which is zoning as it’s strictly and conventionally defined, which is separation of different uses. Most of Australia’s cities, as in fact is the case for a lot of cities around the world, most of our cities are reserved for low-density housing. That’s single-family detached houses. And in most of Australia’s cities, as cities around the world, apartments, townhouses, terraces are prohibited. Where medium or higher density housing is permitted, there are height limits. And so even if flats and apartments were permitted at your local train station, there’ll be a limit on how high that building can go. Brisbane actually, what you mentioned, is not a very bad offender in this, and so particularly around the river in Brisbane, there’s been a lot of tall apartment buildings, and partly reflecting that, apartment prices in Brisbane are pretty moderate. But in Sydney and Melbourne, the height restrictions are really severe. And so as a result, apartment prices are much, much higher.

Gene Tunny  14:28

Yeah, yeah, absolutely. Okay, so you did research a few years ago, didn’t you, when you were at the Reserve Bank, on the magnitude of the impacts? Now these impacts could be even larger now, given prices have increased so much, but do you recall what sort of magnitudes of impacts you were getting, Peter, from these types of restrictions?

Peter Tulip  14:49

Yes, so the effects are huge. The way we looked at it was to compare the price of housing relative to the cost of supply. And in a well-functioning market, the price will equal the cost of supply. But planning operates as a supply restriction, sort of just in the same way as a quota or a licence to supply will. A lot of cities have taxi licences, and it’s the same thing, that you have a restriction on output, so the price goes much higher than the cost of supply.

And we found when you look at detached houses, the effects are huge in Australia’s big capital cities, I think 70%. Around 70% in Sydney, about 60% in Melbourne, was also very large in Brisbane and Perth. I can get into the details of how we actually estimate that. The more important figure for policy is for apartments, because that’s where the real demand for extra housing is. That’s where the big policy debates are. If we do want more dense housing, it will have to come in the form of urban infill. And again, we find very big effects there, especially for Sydney. I think the effect was about 60%, or a bit higher, it raises the cost of housing. In Melbourne, it was moderate, about 20%. And in Brisbane, actually, we didn’t find much of an effect. It was fairly small, just a few percentage points. But as you say, prices have risen very substantially in the, what is it, four years since our data was put together. So those effects will presumably be bigger.

Gene Tunny  16:52

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  17:26

Now back to the show. Okay, so we’ve talked about the views of one of the tribes, the tribe that you’re a member of. There’s another tribe, which it’s arguing, oh, it’s all to do with tax policy settings. And, look, we’ve got some quirky tax rules here in Australia. Well, to an extent they’re logical, and which is one of the arguments I made, but they’re different from what happens in some other countries. We’ve got this thing called negative gearing whereby if you lose money on your rental property, taking into account your interest costs and depreciation and the whole range of expenses that are eligible, then you can use that to reduce your taxable income. That reduces the amount of tax you have to pay. And that’s outraged many people in the… There are a lot of people who don’t like that as a policy and think that’s a big problem and leading to higher prices. And there’s also rules around capital gains, concessional taxation of capital gains.

Peter Tulip  18:48

So the whole tax of housing is one of the more controversial parts of this. So can we talk about that?

Gene Tunny  18:55

Yeah, go ahead. Yeah. I’m interested in your thoughts. Yeah.

Peter Tulip  18:59

In fact, you’re the expert on this. In fact, as you mentioned earlier, a lot of what I’ve learned on this topic comes from a paper you wrote in 2018, which was published by the Centre for Independent Studies. It might be easier if you give a quick rundown on what the key issues are. Actually, before that your professional background is probably really relevant here. So in the interest of disclosure, do you want to tell the listeners where you learned about all of this and your experience?

Gene Tunny  19:35

I was in the Treasury, so tax was one of the issues we looked at, but the main research I did on this issue, on the issue of negative gearing and capital gains tax, came from a consulting project I did for a financial advisory firm here in Brisbane, Walshs. Walshs, they clients who are – they have investment properties. And so they were very interested in what the potential impacts of the federal opposition’s policies regarding negative gearing, so changes to that. So basically limiting it and not only allowing it on new houses, if I remember correctly, newly bought properties. And they were concerned about what that would mean for their clients and then what it would mean for the market.

So certainly, negative gearing does make investing in a rental property more attractive. It does two things. So it does lead to more rental properties, and it does push down rents. And it also increases the price of houses to an extent because it does increase that demand. So look, there’s no doubt that it is impacting on prices, but it doesn’t seem to be a huge effect. I got something like 4%. Grattan when they looked at it got 2%. Some other market commentators, I think SQM Research, Louis Christopher thinks it could be 10 to 15%. It’s hard to know, It’s not a huge impact. So you’re not going to solve housing affordability by getting rid of negative gearing. At the same time, there are logical reasons why you’d have it.

Peter Tulip  21:43

Can I just butt in there, Gene? You’re underselling your research. What you said is all right. Everything there is correct. But, in fact, since your study, there have been a whole bunch of further empirical studies and academic studies on the effect of negative gearing, and, and they essentially get the same result as you, that these effects are tiny. So there was a bunch of Melbourne University academics. There was a study by Deloitte and a few others. They use actually different approaches. So the Melbourne Uni study is the big structural model micro-founded in assumptions about preferences and technology. And so we now have a range of different studies, all using different approaches. And they’re all finding the results, the effect on housing prices comes in between about 1% and 4%. So I think we can be more confident than you were suggesting about this result. It’s a big important controversial issue. So we need to talk about it. Listeners need to be aware that it just doesn’t actually matter for anything.

Gene Tunny  23:15

Yeah. So I think one of the main points that’s important, I think, in that whole negative gearing debate is that it is quite a logical feature of the tax system, and as the Treasury explained in one of their white papers, on tax issues, it’s important for having the same treatment of debt and equity if you’re buying an investment property. So I thought that made sense. So there’s some logic to it, and it certainly does improve the rental market. Now, look, there was a huge debate. It was all very political. I thought, well, certainly it would impact house prices. And then that ended up becoming a big story. And there was a lot of discussion about that and just what could the impact on the market be.

Peter Tulip  24:15

Is the problem negative gearing or the discount for capital gains tax? Because they interact.

Gene Tunny  24:21

Yeah, I think that’s part of it. But I think there is a logical reason to have concessional treatment of capital gains, particularly if –

Peter Tulip  24:33

Concessional taxation of real capital gains?

Gene Tunny  24:37

We don’t adjust them for inflation.

Peter Tulip  24:41

We do it both ways. My sense is you can argue that there is distortion, that an investor can put, I don’t know, $10,000 into a property improvement and write that off against tax with depreciation. But then that will increase the value of the property, presumably by about $10,000. And though they get the full deduction, they only have to pay tax on half the benefit. So there is an incentive towards excessive investment in housing for that reason.

Gene Tunny  25:30

Look, potentially, I think you could argue about those capital gains tax settings. Yeah, certainly, I think that was one of the things I acknowledged in the report, if I remember correctly. So yeah, I guess the overall conclusion is that I didn’t think negative gearing was the villain that it was being portrayed as, and if you did make changes to it along the lines suggested you could end up having some adverse impacts. If you look at what estimate I made of the potential impact on house prices, and you look at how much house prices have increased in recent years, you think, well, who cares?

Peter Tulip  26:15

It’s one week’s increase. I think you’re exactly right. And while I say I think there is an argument that it creates distortions, if you fix that up, you then create distortions elsewhere, as you said, between debt and equity, and there are distortions between investors and owner occupiers. And given that so many different aspects of housing are taxed differently, it’s impossible to remove all the distortions. You remove them somewhere, then create them somewhere else. And the bottom line is that this doesn’t really matter, the housing affordability. The effects on prices are small and positive. And there are offsetting effects on renters, which I think are often neglected. Negative gearing promotes investment in housing and is good for landlords. And because it’s a competitive market, the free entry, that gets passed on in lower rents.

Gene Tunny  27:21

Yeah, yeah, exactly. So I’ll put a link to that paper in the show notes. So if you’re listening in the audience, and you’d like to check that out, you can read it. Bear in mind it’s now over. It’s four years since I wrote that, and probably six years since I did that report for Walshs. I think the logic is all correct. And I think the analysis still makes sense because it was a static model in a way. Yes. It was a static model. I was just looking at how much does a change in tax policy settings affect the rate of return for an investment property? So you could argue it’s still relevant in that regard. But the whole political sort of imperative, it’s not as big, it doesn’t figure as much in the political debate now, of course, because the opposition has dropped it as a policy, because I think they’ve recognised that, look, it is unpopular, because there are a lot of people – there have been in the past – fewer people now with low interest rates, but there have been a lot of people in the past who have been negative gearing. So I think they accept that it’s probably not a policy that is popular with the public.

Peter Tulip  28:35

But also, it’s just a non-issue. It wasn’t going to deliver benefits in terms of housing affordability. So I think one of the reasons I dropped it, or at least the reason I would have told them to drop it, was it was just a red herring.

Gene Tunny  28:50

Yeah, yeah, I think that’s correct. That’s how I would how I would see it. Okay, we might go back to the Falinski report. I know it does deal with this issue in the… It is part of the conversation for sure. Where did the Falinski report come down on deciding which of these two tribes is correct? Did it make a judgement on that or did it –

Peter Tulip  29:17

It’s strongly on the side of economists, of those who argue that planning restrictions have large effects on house prices. The commission discussed it in a lot of detail. It’s all of Chapter Three, I think of the report. It’s the first substantive policy-oriented chapter of the report. It’s some of their lead recommendations. And they note that there were… I think they described it as the most controversial issue they dealt with, with very lengthy submissions on both sides.

Their assessment was that the weight of evidence is not balanced. It’s overwhelmingly on the side of those who think planning restrictions have big effects on prices. In fact, they cited our submission, which said there have been a lot of literature surveys of this research. I think we cite six of them by different authors, a lot of them very big names in the policy world. And all of those surveys conclude that planning restrictions have big effects on prices. And the commission recognise that even though it’s hard to tell in the noise on social media, if you look at the serious research, the weight of evidence very clearly goes one way.

Gene Tunny  31:01

Okay. What does that evidence consist of, Peter? You’ve done your own study. Was your study similar to what others have done around the world? And broadly, what type of empirical technique do you use?

Peter Tulip  31:17

So in fact, there have been dozens and dozens or more years of studies on this question, both in Australia and in other countries. The approach we used is… The reason we used it was we thought it was the best and most prominent approach to answer these questions. And it’s been successfully used with essentially the same results in a lot of cities in the United States, some focusing particularly on coastal cities, some on California, some on Florida. There’s a big study for the United Kingdom and a lot of European cities, another study in Zurich in Switzerland, studies in New Zealand, all using essentially our approach of comparing prices with the cost of supply. And they all come up similar results.

Other people have looked at planning restrictions more directly. So for example, we know that planning restrictions are very tight in California and very loose in a lot of Southern and Midwestern cities in the United States. And there, you get a very strong correlation with prices. California is incredibly expensive. Houston, Atlanta, places with relaxed zoning are relatively inexpensive.

Gene Tunny  32:46

So is there a regression model, where you’re relating the price of housing to cost of supply, and then you’ve got some… Do you have an indicator variable or a dummy variable in for planning restrictions? Is that what you do?

Peter Tulip  33:05

So there are lots of different ways of doing it. Yes, people have constructed indexes of the severity of planning restrictions. That’s one way of doing it. The most famous of these is what’s called a Wharton Index, put together by researchers at the University of Pennsylvania, in fact, my old alma mater. Our approach doesn’t actually – and this is a criticism that some people make of it – it doesn’t actually use direct estimates of zoning restrictions, because they’re just very difficult to measure. But when you have prices substantially exceeding costs, you need to find some barrier to entry. And just as a process of elimination, we know that zoning creates a huge barrier to supply. And it’s not clear that there are any other barriers that can account for distortions of this magnitude.

Gene Tunny  34:10

Right, okay. I better have another look at your study, Peter, because I’m just trying to figure out how did you work out what’s the cost of supply? You looked at what an area of land would cost, where it is readily available, say on the outskirts of a city, and then you looked at what it would cost to build a unit on that or a house on that site?

Peter Tulip  34:38

So where it’s simplest is for apartments, because there you don’t need to worry about land costs, and which is a big, complicated issue. But you can supply apartments just by going up. And so we have estimates of construction costs from the Bureau statistics, to which we add on a return on investment, interest charges, a few tax charges, developer charges, marketing costs. There are various estimates of those other things around, and they tend not to be that important. And the difficult thing is getting an estimate of the cost of going up, because as you increase building height, average costs increase. You need stronger foundations, better materials, extra safety requirements, like sprinklers and so on. You need more lift space. So a lot of it involves a discussion of the engineering literature in housing, where we can get estimates of things like that. And they exist both in Australia and in other countries, where the other people that did that. And that’s how we get our estimate of the supply cost.

Gene Tunny  35:59

Okay. That makes sense now.

Peter Tulip  36:03

That’s one way of doing it. There are other ways of doing it. So you can assume that’s the cost of going up. We can also do the cost of apartments by going out. And there you just make an assumption that it’s the average cost of land in that suburb or on that street or in that city, is the land cost. And then you get a cost of going out, which in some cases is a bit higher, some cases a bit lower.

Gene Tunny  36:33

Yeah, yeah. Okay. That makes sense to me. Can I ask you about the recommendations of the Falinski report? It looks like it’s come down. It supports the view that, yep, supply is a big issue. And also, there’s this issue of now we’ve got this issue of young people having this deposit gap, haven’t we, that it’s difficult to save up for a deposit? So that’s another issue. And I think it’s made recommendations that may help with that. I don’t know. But would you be able to tell us what you think the most interesting and the most important recommendations are of that inquiry, please, Peter?

Peter Tulip  37:13

So I think the most important recommendations go to the issues we were just talking about, the planning restrictions. A difficulty with that is that this was a federal government inquiry. But responsibility for planning regulations rests in state and local governments. And so there’s not a lot that the Commonwealth government can do, other than shine a very big spotlight on the issue, which I think it has done. It’s helped clarify a lot of the issues. And it’s putting more pressure on state and local governments to liberalise their restrictions. But I think the most important recommendations is it wants to couple that with financial grants, and in particular, provide grants to state and local governments in proportion to their building activity, so that neighbourhoods that are building a lot of housing get more support from the Commonwealth Government than neighbourhoods that are refusing to build anything at all.

his should help allay some of the local opposition. We get to housing developments, that a lot of neighbours and local residents understandably complain if new housing is going in, in their neighbourhood, without extra infrastructure, without transport, parks, sewerage, and so on. And what the Falinski report says is we’ll help with that, that we don’t want local neighbourhoods to bear the burden of increased population growth, it’s a national responsibility, and so the Commonwealth will help. So I think that will be the most important recommendation, that should improve incentives to local and state governments to improve housing. Want to go to some of the other recommendations that I think are interesting?

Gene Tunny  39:34

Yeah, I was just thinking about that one. They obviously haven’t put a cost estimate in the inquiry report. So they’ve just said, oh, this could be a good idea. But then we’d have to think about what this ultimately would end up costing.

Peter Tulip  39:47

So our submission put dollar figures on it, even though Jason Falinsky didn’t want to sign on to actual numbers. These conditional grants in terms of housing, good housing policies, could be in place of current Commonwealth programmes that are of less value. And one that’s just been in the news a lot the last few weeks is, I think it’s called the Urban Congestion Fund, which is essentially something like a slush fund that the government uses to channel money towards marginal seats. That’s about $5 billion the Commonwealth uses at the moment.

We could remove that invitation to corruption, and at the same time, solve some of our housing problems by instead, by making that conditional on housing approvals. And if you use that $5 billion, divide that by the, what is it, 200,000 building dwellings that get built in Australia every year, that works out at something like $25,000 per new dwelling. A grant like that will provide a lot of local infrastructure. It’ll give you a new bus route, it’ll give you a new park, it’ll give you some new shops. It’ll fix up the local traffic roundabout, and so on. You could do even more than that, if you start looking at state grants and other grants that are currently on an unconditional basis.

Gene Tunny  41:38

Right. So was the origin of this recommendation, was it from your submission, was it, Peter, the CIS submission?

Peter Tulip  41:44

In fact, a lot of people have been recommending a policy, something like this. We talked about it maybe a bit more detail. But the Property Council of Australia actually wrote a paper on this a few years ago, sorry, commissioned a paper by Deloitte, which discusses some of these issues. But in fact, it’s been proposed in a lot of other countries around the world. And so the original Build Back Better proposal from the Biden administration had substantial grants from the US government to local governments along these lines, and that’s been cut back a little bit in their negotiations. They’re still talking about substantial grants from the federal government, to local counties that are improving their housing policies.

Gene Tunny  42:43

Right. Okay. That’s fascinating. Now, I have to have a closer look at that. Yeah. On its face, it sounds yep, that could be a good idea. As the ex-Treasury man, I’d be concerned about the cost of it to the federal government, but you’re saying we’ve wasted all this money on various pork barreling projects anyway, we could redirect that to something more valuable.

Peter Tulip  43:13

And if you want to talk about really big money, you could change grant commission procedures, so that if housing were regarded as a disability, in the formula for dividing up, the GST, the fiscal equalisation payments with the states, then states that are growing quickly and providing a lot of housing should be able to claim money for the extra infrastructure charges that requires. I think that’s consistent with the logic of the Grants Commission processes. And they currently already do this, but something like this to transport. So there is a precedent, and that would substantially improve incentives for state governments to encourage extra housing.

Gene Tunny  44:08

Yeah, yeah. Okay. Just with the supplier restrictions, am I right, did they make a recommendation along the lines that local councils and state governments, they should look at existing restrictions with a view to easing those restrictions? Did they say something along those lines?

Peter Tulip  44:26

It’s not a formal recommendation, but that’s emphasised in several places in the report, and I think it might be… I can’t remember the exact wording. Recommendation one certainly discusses that issue.

Gene Tunny  44:43

Right. Okay. I should be able to pull that up pretty quickly.

Peter Tulip  44:49

It’s not something the Commonwealth can do something directing it. So the wording is a bit vague. That’s clearly the thrust of the report. Yes.

Gene Tunny  45:03

Right. Yep. So the committee recommends that state and local governments should increase urban density in appropriate locations, using an empowered community framework as currently being trialled in Europe. I’m gonna have to look at what an empowered power community framework is sometimes. I haven’t heard that before. I had Natalie Raymond on. She’s a planner here in Brisbane. And she got an organisation called YIMB, Yes In My Backyard. So I’ve chatted with her about some of these issues before, but I can’t remember hearing about this empowered community framework. Have you come across that concept at all, Peter?

Peter Tulip  45:45

It’s something that the report is very vague about.

Gene Tunny  45:50


Peter Tulip  45:52

No, I’m not sure what that means either.

Gene Tunny  45:55

I’ll have to look it up.

Peter Tulip  45:57

Should we talk about some of the other recommendations?

Gene Tunny  45:59

Oh yes, please. Yeah, keen to chat, particularly about this idea of tapping into, well, they didn’t recommend allowing people to withdraw money for housing, for a deposit for a house. But they made some recommendation around superannuation. Would you be able to explain what that is, please, Peter?

Peter Tulip  46:19

This, I think, is one of the most interesting recommendations. And it wasn’t explicitly discussed in detail in any submissions they received. But it’s something that I and the CIS have been talking about in the past, so we were delighted to see it get up.

The argument is that people should be able to use their superannuation balances. But people outside Australia, that would be equivalent to something like a 401K or Social Security in the United States, or Social Security contributions in several European countries. People should be able to use those balances as security or collateral for the deposit for their house. And so lenders would reduce deposits, presumably by the amount of the collateral, by the amount of the superannuation balance.

The committee argued that the main obstacle towards homeownership in Australia is getting the deposit together. And this recommendation is directly aimed at making that easier, and it does it in a way that doesn’t cost the taxpayer anything. And it doesn’t jeopardise the retirement income objectives that superannuation is set up to solve.

So there have in the past been proposals that people should withdraw their money from their superannuation to pay their deposit. And the objection to that is that will just undermine retirement income objectives. And in particular, the compulsory superannuation system is set up on the assumption that people are short-sighted and will tend to fritter away their assets if they’re made too liquid. This objective, allowing withdrawals from superannuation is directly applicable to that argument.

But using superannuation as collateral doesn’t is not subject to that argument, that the superannuation balance will only be touched in the very rare and the unexpected event of foreclosure. Historically, that’s a fraction of a percent houses ever go into foreclosure. So it would be extremely unlikely to affect retirement incomes. But at the same time, people have saved this money, it’s their asset. So they should be allowed to use it in ways they want, that don’t jeopardise their retirement income. And using it as security helps in that.

Gene Tunny  49:35

Yeah. Do you have any sense of how the banks will react to this, how lenders will actually react to this? Is this something that will be attractive to them? Has anyone made any announcements along those lines?

Peter Tulip  49:51

Not that I’ve seen. You would hope and expect that if the policy is put together well, that deposits would be reduced by something like the order of the superannuation balance. And it could be a bit more or a bit less. It may be a bit less because the superannuation balances are risky. It may be a bit more because they’ll be growing over time with. We don’t know exactly how those things will factor in. You would hope and expect that deposits would be reduced by about the amount of the superannuation balance.

Gene Tunny  50:34

An interesting recommendation. I was wondering just how much of an impact it could have. But then the way you explained it, I think it makes it a bit clearer to me how this could potentially have some benefit. Yeah.

Peter Tulip  50:54

It’s not huge. The people that most want this are going to be young, first home buyers having difficulty. People having difficulty getting a deposit tend not to have huge superannuation balances. And there are a few numbers floating around. The average super balance of say, a 30-year-old tends to be, I think there was one estimate I saw, it’s about a quarter of the average deposit on a house for a first home buyer. So it doesn’t get you all the way there. It does get you a sizable bit of the way there so that instead of it taking eight years to save for a house, it’ll only take six years. And you use the super for those other two years. That doesn’t solve the problem. But I’m sure there are lots of first home buyers that will appreciate getting into their home two years earlier than would have otherwise been the case.

Maybe the other point to make in this is that I think superannuation is unpopular, particularly amongst young people, because it is an obstacle to homeownership, that people would like to be saving, but instead 10% of their income has gone off to this account that they wont see for 50 years.

Gene Tunny  52:22

Do we think they would be saving, Peter? I wonder. That was the reason we introduced the super system in the first place.

Peter Tulip  52:28

Exactly. Well, there are some people that would like to be saving for a house. Yeah, superannuation definitely makes that harder. And as a result, superannuation is unpopular. The effect of this policy is it changed it from being an obstacle to being a vehicle towards homeownership. And so I think it makes the superannuation policy more popular.

Gene Tunny  52:51

Yeah, yeah, absolutely. Okay, so I’ve got in my notes, and I must confess, I’ve forgotten what your paper… You wrote a paper with Trent Saunders in 2019. What was that about, Peter?

Peter Tulip  53:06

So that’s a big one in the housing area. We did a lot of empirical modelling of the Australian housing market, and trying to put together how the prices and interest rates affect housing construction, nd then how does housing construction feed back under prices and quantities. So there have been a lot of studies of individual relationships in the housing market. But there’s feedback between construction and other variables. So it was always difficult seeing what the full effect was, without allowing for that feedback. And the big result from that paper that got all the headlines was on the importance of interest rates. So partly interest rates are very important for construction. But even more surprisingly, they’re very important for housing prices. And in particular, the big decline in real mortgage rates that we’ve seen over the past 30 years or so, accounts for a very large part of the run-up in house prices over that period.

Gene Tunny  54:20

So with the cash rate, the RBA policy interest rate, it’s expected to go up, and then borrowing rates will go up. And there are some economists and market commentators speculating this could lead to falls in house prices, some double-digit falls, if I remember correctly, in some capital cities. So there’s that issue. I’m keen for your thoughts on that. Also immigration. If we reopen Australia as we are and we have net overseas migration running at 250 to 300,000 or whatever it was before we had COVID, what will that do for house prices?

Peter Tulip  55:09

Our paper tries to estimate. In fact, a big point of the paper is exactly to answer and quantify those questions. House prices are an interaction between supply and demand. And in the short run, the bigger effect on demand is interest rates. And that, for example, is why, we talked earlier, house prices have risen over 20% just in this past year. That was essentially a response to the record low interest rates that the RBA implemented just prior to the prices taking off. And you’re right, our model suggests that that’s going to go into reverse over the next few years as interest rates increase. Interest rates go up and down. And in the long run, you would expect them not to trend so they don’t explain trend changes in prices. The big trend increase in demand in Australia has been immigration. Our population doubles or so every generation or two. And so that creates an ever increasing demand for housing that we need to supply.

I don’t know if you’re about to ask this, but I’ll ask the question. How does this relate to our earlier stuff on zoning? Essentially, they’re asking different questions. Zoning is asking the question, how do we change process in future, how do we adjust policy? The previous paper is empirical. Policy is given, and asks, what explains changes in the past? And they’re slightly different questions. The effect of zoning is to make supply inelastic, like just a vertical supply curve. I’m sorry, I’m waving my arms around, and people listening on a podcast aren’t going to know what I’m doing. But the changes in interest rates and immigration increase the demand curve, shift the demand curve out to the right. And so it’s the interaction of supply and demand that drives house prices. So it’s a combination of rising demand and inelastic supply.

If we fixed up, if we had a better planning regime, that instead of being inelastic, the supply curve would be flatter, would be closer to horizontal. And then these big increases from immigration and low interest rates would result in extra construction instead of extra prices.

Gene Tunny  58:05

Yeah, yeah. Okay. So I’ll put a link to that paper in the show notes. I just realised Trent Saunders, he’s in Queensland now.

Peter Tulip 58:10

He’s at QTC.

Gene Tunny 58:11

Queensland Treasury Corporation, yep. He’s been doing some good stuff. So that’s terrific. Okay. Peter Tulip, chief economist at the Centre for Independent Studies. Thanks so much for the for your time today. That was great. I think we went over a lot of the economics. I’ll put plenty of links in the show notes for people because some of these studies, they’re fascinating studies and also, it’d be good to just… You may be interested in the empirical techniques and in more of the details. So Peter, again, really appreciate your time. Thanks so much.

Peter Tulip  58:56

Thanks, Gene. It was great to talk.

Gene Tunny  58:59

Okay, that’s the end of this episode of Economics Explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to and we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye.


Big thanks to EP134 guest Peter Tulip and to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Podcast episode

What is the Economy? And Why It Matters to You | EP121

What is the Economy? And Why It Matters to You is a new book from UK economics writers Beth Leslie and Joe Richards, who are interviewed in episode 121 of Economics Explored. Legendary music producer Brian Eno has endorsed the book, writing “This clear and comprehensible book is long overdue.”

About this episode’s guests – Beth Leslie and Joe Richards

Beth Leslie is a writer and editor. She became interested in economics when she realised it was a great way to better understand the world around her. Beth is currently the Editor for Economy, a charity that seeks to make economics more understandable for everyone.

Joe Richards is an author, educator and economist. After the financial crash of 2008, Joe’s family lost their business and the home they grew up in. Spotting a lack of public understanding in the economy, Joe’s journey in economics began. Joe campaigned to make economics more accessible for everyone, working with organizations from the Bank of England and BBC News, to local schools and the UK government.

Where you can purchase What is the Economy? And Why it Matters to You:




Thanks to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

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