2004 Cabinet Papers: Increasing supply tops agenda for Howard government’s housing policy

The Howard government planned to combat unaffordable housing in 2004 after the number of first-home buyers fell to ‘historical lows’ in the first half of 2003.

John Howard and then treasurer Peter Costello during the Liberal Party meeting at Parliament House in October 2004. Picture: AAP

Record-low rates of first-home buyers, rising housing demand, and increasingly unaffordable homes led to a series of policy changes in the Howard government’s housing portfolio in 2004, recently released cabinet documents show.

After the number of first-home buyers fell to “historical lows” in the first half of 2003, the Howard government on August 2 tasked the Productivity Commission with an inquiry into the affordability of housing for families and individuals wishing to purchase their first home.

The commission’s final report was issued on April 5, 2004, following “extensive public consultation”, and listed 10 recommendations aimed at addressing structural factors that “either encourage excessive demand for housing or unnecessarily reduce the responsiveness of supply to increases in demand”.

Of the 10 recommendations put forward, seven were directed at state and territory governments to reform stamp duties and improve the responsiveness of the supply side of the housing market to changes in demand.

The other three recommendations addressed “concerns relating to excessive demand for housing or affordable housing outcomes for low-income families”.

Cabinet documents released by the National Archives of Australia show a submission by prime minister John Howard and treasurer Peter Costello in June 2004, in which they stated the rise in demand for housing through the 1990s was “underpinned by low interest rates, strong employment growth and financial liberalisation”.

Although Mr Howard and Mr Costello said “there is limited scope for governments to improve affordability for first- (and other) home buyers in the short term”, they proposed a response to the issue of home ownership on behalf of the government that focused on “improving the flexibility of the supply side of the market rather than attempting to stifle the key drivers of demand – which were identified as low interest rates, strong employment growth and financial deregulation”.

Mr Howard and Mr Costello acknowledged the commission’s notion that stamp duty “is a relatively inefficient tax”, saying “apart from their implications for affordability, stamp duties impose an impediment to first-home buyers because of their ‘lock-in’ effects”.

In response, they said the government should recommend that states and territories reduce their reliance on stamp duties on property conveyancing, but argued against the commission’s “recommended extension of the planned 2005 review of business stamp duties listed in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations to include stamp duty on housing”.

They also rejected the Commission’s recommendation to establish a public inquiry into the housing needs of low-income households, saying the government already provided “significant resources” to address these needs, including the Commonwealth State Housing Agreement that provided “$487m in the Aboriginal Rental Housing Program, for rural and remote areas”.

“The government also provides around $1.9bn per year in rent assistance to around 940,000 individual or family income support recipients who are not in public housing, to help with the cost of rent,” they wrote.

Mr Howard and Mr Costello argued that the government should not consider providing additional assistance to first-home buyers by increasing the amount payable under the First Home Owners Scheme.

“It is likely that an increase in the FHOS would provide an added boost to housing demand and house prices, thereby ending the benefits of an additional FHOS,” they said.

The submission by Mr Howard and Mr Costello said the government would not be conducting a review of the personal income tax system focusing on the capital gains tax provisions, noting the commission’s “conclusions on the neutrality of the tax system with regard to housing and alternative investment assets” and “the lack of compelling evidence attributing the housing price boom to the income tax regime”.

“The government will therefore not be considering specific changes to the tax system which may disadvantage home buyers or those renting,” they said.