Dr Elizabeth Farrelly, well known architectural writer and columnist, will speak at the Getting Housing Right. Why it Matters Forum on how Australia’s housing crisis has arisen from a culture that normalises windfall gains and ‘landlordism’.

When: Wednesday 7 August 2024

Where: NSW Parliament House Theatrette

Time: 6.30pm – 8.30pm

Book HERE

Program

Welcome: Alister Henskens SC MP, Member for Wahroonga and Host

MC: Joseph O’Donoghue – Author of The real winners of the new council league table, The Fifth Estate, 16 July, 2024

SPEAKERS:

Dr Elizabeth Farrelly – Architect, Writer and Columnist

Sharon Veale – CEO & Partner GML Heritage

Michael Pascoe – Author and Journalist

Saul Deane – Urban Sustainability Campaigner

Dr Peter Sheridan AM – Educator, Professional Photographer and Historian

The Hon. Scott Farow MLC – Shadow Minister for Planning and Public Spaces

Bio

Dr Elizabeth Farrelly is a well-known writer and columnist, a recovering architect, presenter of The Sydneyist radio show and founder and CEO of The Better Cities Initiative, empowering citizen-led design for healthy neighbourhoods.

She is currently cities columnist for The Saturday Paper and for Architecture AU and has published several books including Killing Sydney; the fight for a city’s soul (2012).

Article

Read Dr Farrelly’s article ‘Landlordism, not supply, is causing the housing crisis‘ published in The Saturday Paper on 13 July 2024

Australia’s housing crisis arises from a culture that normalises windfall gains, from the grants of stolen land more than two centuries ago, to the investors who flourish on rental income and tax breaks. By Elizabeth Farrelly.

Years ago, when I sat next to Donald Horne at lunch, he explained at some length – as he often had before – that the “lucky” in his 1964 book The Lucky Country was not a compliment. Indeed, Horne’s point was that Australia’s luck – in weather, land and resources – had allowed us to normalise a culture of greed, mediocrity and sloth.

“Australia,” he wrote, “is a lucky country run mainly by second rate people who share its luck. It lives on other people’s ideas, and, although its ordinary people are adaptable, most of its leaders (in all fields) so lack curiosity about the events that surround them that they are often taken by surprise.”

Most of us, never having read the book, took its title as a compliment anyway. This rather proves Horne’s point. Luck is a distinctly mixed blessing. In our case, it has entrenched a culture that rests almost entirely on the lazy expectation of the unearnt increment.

From the moment in 1770 when James Cook first remarked this new landscape of “woods, lawns and marshes”, its forests so sparsely wooded “that the whole country …might be cultivated without being obliged to cut down a single tree”, the temptation was sown. Again and again, through New South Wales and Tasmania, Gippsland and South Australia, the early settlers noted chains of what looked like English gentleman’s parks. These great swathes of lush and apparently natural grasslands must have made their mouths water at a single thought. Sheep!

This “luck” was illusory. As Bill Gammage notes in his wonderful 2011 book The Biggest Estate on Earth, “there was no wilderness”. Everything was in fact strategised, cared for, husbanded. The gorgeous grasslands had been fire-cultivated for millennia, with the result that “abundance was normal”. What it wasn’t was available.

Of course, this supposedly God-given right to exploit underpins all empire. Let’s be clear. It was never luck. It was theft. Nevertheless, this presumption of effortless windfall gain quickly became endemic to Australia, and especially to its first colony, NSW.

In 1790, the First Fleet convict James Ruse, now revered, received from governor Arthur Phillip one of the colony’s first discretionary land grants: an acre on the bank of Parramatta River. Three years later, after acquiring more land in the same manner, he sold 30 acres for £40 – considerably more than the average male wage in England at the time. And so it went on. All up, the governor gave Ruse the rough equivalent of 20 years’ wages. Now, he is considered one of our great founding heroes, revered not for any creativity but for his easy wins.

In 1806, John Macarthur, having already received significant land grants himself, persuaded governor Philip Gidley King to give him a 14-year lease over a large stretch of land governor Phillip had reserved to establish Sydney’s grand main street. In 1873, the overextended premier Henry Parkes, known as the “father of Federation” (and, along the way, of at least two illegitimate children), saw fit to reroute the new Illawarra rail line and locate stations specifically to benefit his clamouring creditors.Landlords don’t create rental property. They don’t make dwellings. Indeed they create nothing, other than a class system. Then, driven by their own maxed-out mortgages and incentivised by the aforementioned tax breaks, they gouge their largely unprotected tenants for whatever they can get.

These habits persist. As recently as 2018, then deputy prime minister Barnaby Joyce volubly insisted there was no conflict of interest in his failure to declare his own half-million-dollar landholding in Warrumbungle Shire and his participation in a 2016 cabinet decision to route the new inland rail line within 15 kilometres of the property.

Mining, land speculation, banking, hedge funds, currency investment and much of industrial-scale farming; Australia now has an economic culture founded on the belief that an unearnt increment is as honourable as the earnt sort – just a whole lot easier. The example that most dramatically impacts our lives right now is landlordism.

Landlordism, not supply, sits at the heart of the present housing crisis. An astonishing 2.3 million Australians are currently landlords – 9 per cent of the population. That’s huge. Property geeks routinely present this as a good thing. The Sydney Morning Herald’s Nigel Gladstone, for example, wrote last year that “property investors consistently borrow more than first-home buyers, creating more rental properties in the market than new homeowners”. It’s also widely applauded that this new landlord class extends itself beyond the ultra-wealthy to include hordes of “mums and dads”.

Why the applause? Landlords don’t create rental property. They don’t make dwellings. Indeed they create nothing, other than a class system. Then, driven by their own maxed-out mortgages and incentivised by the aforementioned tax breaks, they gouge their largely unprotected tenants for whatever they can get.

In such a situation, increasing supply can do nothing to enhance affordability. Take Britain, for example. Despite a near-adequate quantum of housing (468 per 1000 people, or almost one per two humans), rents continue to skyrocket. As barrister and author Nick Bano notes, “Landlords are entitled to ask for whatever rent they think they can get, and insecure contracts drive a coach and horses through the concept of tenants’ rights”. Although fewer than 5 per cent of British adults are landlords, Bano points out this is still four times the number of teachers. (Here, it’s more like seven times.)

In Australia, the Parliamentary Budget Office estimates the cost of tax breaks for the owners of multiple properties – including in particular negative gearing and capital gains tax rebates – will be more than $165 billion over the next decade. That’s almost half a million dollars for each of the 377,000 new dwellings the NSW government aims to build in the state under the National Housing Accord – deployable as a subsidy or used to build mass public housing outright with no net cost.

Ending these wealth-entrenching tax breaks would have other immense benefits as well. In particular, it would disincentivise housing-as-investment, thereby cooling the market and making purchase more possible for the young. At the same time, it would redirect massive investment funds towards industries that actually create goods.

Further, by reducing the incentive to land-bank, it would likely decrease vacancy rates. Of Australia’s roughly 10 million homes, 10 per cent were empty on the last census night. Prosper Australia estimates almost half of these vacant homes were “speculative vacancies”, deliberately kept empty or derelict. (That’s a 2019 figure, and Prosper estimates it rose during Covid.) Even on the more conservative estimate, that’s 410,000 dwellings right there. End of crisis.

Of course, no government will end these tax breaks, for two reasons. First, so many of our politicians own multiple properties – SBS reports that close to 70 per cent of Australian federal politicians own at least two properties and more than a third own at least three. Second, a scenario where home prices actually fall, sending those same mum-and-dad mortgagees to the wall, is political nightmare territory.

So we tinker around the edges, with measures such as the vacancy tax recently introduced in Victoria. As Macquarie law professor Cathy Sherry notes, “Property rights are not a naturally occurring phenomenon. They are created by law, for the benefit not just of individuals, but also the community… [so] if vacancy is starting to harm the community, it’s entirely legitimate for tax law to incentivise people to rent or sell their properties.”

A vacancy tax is difficult to police, however – mostly this is done by examining water usage. It’s also expensive to administer and fairly superficial. As urban property economist Dr Cameron Murray writes, “speculative vacancies are a symptom of a poorly regulated housing market that is attracting speculative buying (undesirable) rather than long-term investing (desirable)”.

Perhaps a better move would be, as advocated by both Thorstein Veblen and Henry George, to tax the unearnt increment – or our habitual economic laziness. It might simply be called the “sloth tax”.

This article was first published in the print edition of The Saturday Paper on July 13, 2024 as “Australia and the unearnt increment”.

RELATED READING:

Cities The housing crisis and nimbys v yimbys Elizabeth Farrelly Australia’s housing crisis will not be solved by the generational conflict between the ‘nimbys’ who reject development and the ‘yimbys’ calling for more.

https://www.thesaturdaypaper.com.au/life/cities/2023/05/18/the-housing-crisis-and-nimbys-v-yimbys