Labor’s latest 5% house deposit scheme housing policy — expanding the Liberals’ Home Guarantee Scheme — is a policy for bank profit, not first home buyers. It will drive up house prices, push first home buyers into more debt and deny thousands of low-income renters the chance to buy a home.
The Home Guarantee Scheme allows first home buyers to get a mortgage with just a 5% deposit, without having to pay for mortgage lenders insurance.
The policy creates a new state-backed incentive for first home buyers to take out larger loans.
According to modelling from Lateral Economics, 146,446 first home buyers — people who would otherwise have waited to save a larger deposit or relied on their parents for a loan — will instead use the Home Guarantee Scheme and take out 95% bank loans. The current median dwelling price in Australia is $857,280 and so, assuming a standard mortgage rate of 5.74% and a 5% deposit (rather than a 20% deposit), a first home buyer will pay an extra $141,268 in interest.
In total, first home buyers will pay banks an extra $24 billion in interest off the back of the first five years of the policy alone.
As the big four banks control 68.6% of the first home buyer mortgage market, they will collect an extra $16.4 billion in interest thanks to this new government policy.
It will also make affordability worse. The same modelling suggests the scheme could increase house prices by 10% in the first year, by encouraging first home buyers to pay more than they otherwise would have by taking out larger loans, and redirecting the cost of lenders mortgage insurance towards a higher house price.
As a result, 9125 renters will actually miss out on buying a home due to house price increases that will be triggered by the policy.
It should not come as a surprise that Labor is spending public money to intensify the financialisation of housing — a system designed to enrich banks. After all, Labor helped create this profit-driven model in the first place.
A system for bank profit
From the 1990s onwards, housing has been a key element in the accumulation of capital in Australia. This was caused by three key changes:
1. Labor’s massive deregulation of the Australia financial and banking system in the 1980s and 1990s, allowing banks to lend more money to property investors
2. Labor’s decision to cut federal funding for public housing in 1995.
3. John Howard’s Coalition introducing the capital gains tax discount for property investors in 1999.
The best way to understand this fundamental transformation is through the banks and where they lend money.
In 1990, more than 60% of all bank lending went to businesses and just over 20% to housing, of which investor housing was a small fraction. By 1997, the total proportion of bank lending for housing loans doubled to more than 40%, driven by an explosion in lending to investors, while loans to businesses dropped below 50%.
Today, 62% of all bank lending goes to housing and just 30% to business.
That is the highest rate of any banking sector in the world, helping to make Australian banks the most profitable in the world. The consequence is that housing has become an incredibly lucrative financial asset, where the ultimate goal of the system becomes profit rather than providing affordable, well-designed homes as a right.
This economic shift was fuelled by encouraging households to take on massive mortgage debts, to offset stagnant wages. As a result, Australia has the second-highest rates of household debt in the world.
In fact, last year alone the big four banks earned $44 billion in profit. That’s $1619 each for all 27.2 million Australians.
All up, Australians owe the big four banks $1.8 trillion in mortgage debt. These same banks are the biggest and most profitable corporations in Australia and Labor’s housing policy will make them even more profitable, at first home buyers’ expense.
The big four banks are all owned by the same six multinational asset managers: BlackRock, Vanguard, HSBC, JP Morgan, State Street and Citigroup, controlling, on average, 69% of the shares of each of the four banks. This means Labor and the Liberals have created a housing system that forces millions of people to choose between crippling mortgage debt or insecure, expensive renting — just to line the pockets of mostly US-owned multinationals.
Tackling housing crisis isn’t complicated
Ultimately, if we want a housing system that prioritises people, not profit, we need to end the treatment of housing as a lucrative financial asset.
To achieve that, we could:
• Scrap the federal tax handouts for property investors, negative gearing and the capital gains tax discount, and re-regulate the financial system to make it harder for banks to lend to property investors. This would, in turn, significantly reduce investor demand for housing.
• Coordinate national caps on rents, not just to protect renters, but to further reduce investor demand for housing. Investors rarely build new homes. They mostly buy existing homes that otherwise could have been purchased by a renter. The more you reduce investor demand, the fewer renters there are in the rental market.
• Start building public housing at scale. In Vienna, 60% of all housing is some form of rent-controlled social housing. Almost anyone in Vienna, regardless of income, can access this housing, which allows for social diversity and a financially viable housing system. You also get a beautifully designed, well-built medium density apartments and a city with proper investment in public transport and public parks. Australia’s poorly designed and built apartments and urban sprawl ultimately come from a housing system designed for profit.
If you think something like the system in Vienna is not technically possible in Australia, it’s worth remembering that, at the height of the Commonwealth State Housing Agreement in 1971, Australia was building 136 public homes for every 100,000 people. Today, under Labor, that rate is just 9.8 homes.
Had Labor not cut federal public housing funding in 1995 and governments had instead built public housing at the same rate as was done in the 1970s, today we would have an extra 900,950 public homes. That would have increased the public housing stock by over 200%, eliminating the entire social housing wait list.
Indeed, before Labor’s cuts in the 1990s, the federal government once included a standalone Department of Housing that employed thousands of architects, town planners and builders.
Social and political power
Labor and the Liberals will never fix the housing crisis, because both parties exist to protect and expand a capitalist system that puts corporate profit over public needs. A key pillar of Australian capitalism is housing. Both parties ultimately function as the political wing of a set of industries — banking, property developers, construction and real estate — that profit enormously from this system.
Historically and globally, the sort of changes Australia needs have come from mass political and social movements based on the power of a conscious, organised working class.
The added challenge is that the leadership of many established trade unions are captured by those integrated into the Labor Party, that itself is creature of the capitalist state.
That does not mean all hope is lost. But it does mean we need to start building a movement capable of challenging the power of Labor, the Liberals, the capitalist state and the big corporations who profit off this system on the backs of our labour and our taxes.
[Max Chandler-Maher is a member of the Queensland Greens and a former MP for Griffith. This article was first published at Deepcut News and is reprinted with permission.]