Negative gearing changes aren’t bold or courageous

Why are we talking about negative gearing?

The simple answer is Bill Shorten released Labor’s negative gearing policy. (For better or worse, this is how you control the media cycle. Release policies.)

The more complicated, more worrying answer is that the economic debate is so empty – that the range of acceptable discussion is so narrow, that big picture ideas are so thin on the ground – that changing negative gearing is the boldest economic reform the political class can reckon with.

Removing negative gearing has been done before. Where in 2016 negative gearing changes counts as a courageous barbecue stopper, the Hawke government’s abolition of negative gearing barely rates a mention among the great regulatory upheavals of the era. It’s a sad illustration of how our vision of the range of possibilities has shrunk in three decades.

An even more depressing thought is how disconnected the negative gearing discussion is from the big economic challenges we face. There are two reasons one might consider negative gearing changes. We might want to gather more revenue for the Commonwealth budget. And we might want to ease pressure on the housing market.

That Labor has a more-tax-revenue approach to budget repair and favours negative gearing as an explanation for high house prices is well-known.

But it’s a worry that the Treasurer, Scott Morrison, while defending negative gearing in general,believes that the “excesses” of negative gearing need to be tackled.

First, this goes against Morrison’s apparently rock-solid belief that spending needs to be reduced, rather than revenue increased.

Second, it implicitly concedes the view that the house price boom is caused by demand – too many investors – rather than supply – restrictions on land release and NIMBYism.

Third, and most importantly, changes to negative gearing have nothing to do with economic growth. Nothing.

It’s true that you could make a creative, complicated, multi-stage argument that lower house prices might eventually lead to growth benefits. But all else being equal, it is hard to see why removing money from the economy – as any proposal that increases government revenue would – might help the economy, rather than hinder it.

The unfortunate conclusion is that both the Government and the Opposition are talking about negative gearing because they have so few ideas of what to do next.

Just look at Morrison’s speech to the National Press Club last week. As a generic political speech it was perfectly adequate – an outline of the economic climate and reiteration of previously announced policy positions. But as an attempt to articulate the economic direction of the Turnbull Government it was empty.

On the question of budget balance Morrison only managed to demonstrate that very little had been done to reduce the deficit – as his 7.30 interview made perfectly clear, the Coalition has spent $70 billion of the $80 billion it has saved.

Perhaps the problem is that the bank of reform ideas is empty. Property commentators have been hyperventilating about negative gearing for ages. Maybe it’s only being talked about because the political class has run out of other things to talk about.

Yet the Australian policy community is rich with ideas: big bang ideas and small marginal ideas. The Abbott government commissioned the production of many of them. We’ve had the Harper review into competition policy, the Murray inquiry into the financial system, and the encyclopaedic audit commission report. These reports offer hundreds and hundreds of pages of policy discussion, recommending everything from intellectual property law changes to returning some income tax powers to the states. So where is the shadow of that formidable ideas production in our federal parliament?

Morrison has given a partial answer. From a growth point of view, cutting the company tax rate could get the biggest bang for our reform buck. This would be hard politics, especially if the revenue loss was compensated with a GST rise. As the Treasurer explained, “the proposition that you tax mums and dads more so companies can have a tax cut has an obvious problem.” Yet that problem has been surmounted before. Company taxes were cut in 2000, and again in 2001, at the same time as the GST was introduced.

It seems clear that politicians feel more hemmed in than they were in the past. That’s either because they lack courage – or because they lack the stable foundations on which to be courageous. Australian politics has now experienced half a decade of leadership instability, brought about by the fractious decision to roll Kevin Rudd in 2010.

Our policy debate is more shallow, limited and parochial than it has been for decades. Yet at the same time the need for major changes – changes that would spark economic growth – is as pressing as it has been since the 1970s. That changing negative gearing is the best that Labor and the Coalition can come up with is a condemnation of their failure to lead.

McMansions A Sign Of Our Country’s Wealth, Not A Lack Of Taste

Is there any more snobbish word in the Australian vocabulary than “McMansion”? This nasty term describes the big, new houses out in suburbs with names like Caroline Springs and Kellyville. McMansions, their nickname suggests, are the McDonald’s of housing – they’re super-sized, American and mass produced.

Australians build the largest new houses in the world. The average size of a new freestanding home is 243 square metres. That’s 10 per cent larger than the average new American home. Naturally our big houses have critics. Sustainability advocates say McMansions are bad for the environment. Yet there’s more going on here. Because even the most high-brow academic critiques of McMansions seem to focus less on the houses and more on the people who live in them.

Terry Burke, a professor of urban studies at Swinburne University, wrote in The Conversation last year that McMansions breach the ”good principles” of environmental sustainability. Fair enough. But Burke doubled down: McMansions are very ugly, and their occupants, who also apparently own four-wheel-drives and send their children to private schools, are giving ”an ‘up yours’ message to the world”.

That sort of sneering contempt is not uncommon. The word ”McMansion” is usually deployed not to appraise a type of house, but an entire way of life. It is all about culture – the inner city world trying to understand their strange, alien suburban cousins.

Suburban living in general is more environmentally friendly than inner-city living. A study by the Australian Conservation Foundation (no fan of consumer capitalism) concluded that, even taking into account car use, “inner-city households outstrip the rest of Australia in every other category of consumption”.

Someone who lives in a big home can still train to work, conserve energy or water, and, if they choose, live a fashionably carbon-neutral life.

Why do we build our houses so big? Well, Australia has a lot of space. But more importantly: we can. Australia is probably the richest country in the world. We have the fastest growing income in the world. We have the highest median wealth. Our only real competition in the rich stakes comes from city-states such as Singapore and Hong Kong or oil plutocracies such as Qatar. And many Australians have decided to spend their riches on new homes.

Even if you don’t put much stock in income statistics, the size of our houses is – by itself – evidence that Australia is well off. Prosperity is about more than GDP data. Money isn’t everything. Anybody who has lived crammed into too few rooms knows living standards and adequate space are closely related. In rich Australia it’s understandable that many people desire extra living and storage space.

The people who best understand the relationship between housing size and living standards aren’t architectural academics or urban planners. They’re archaeologists.

Historians of the ancient world don’t have tables of wealth and income data. To estimate how rich societies were, they look at proxies. House are among the best and most accessible.

For instance, excavated homes are one way we know ancient Greece was far richer than other civilisations in the Mediterranean. According to the historian Ian Morris, between 800BC and 300BC the median Greek house size ballooned from 80 square metres to 360 square metres. And this wealth was shared among the free population, not concentrated among the ruling elite. Just as it is in 21st-century Australia. Large homes are now within the reach of moderate-income families. This is something worth celebrating, not deriding.

Antiquity had its share of sceptics about prosperity, too. Aristotle believed there was such a thing as too much wealth. The philosopher had determined what the ”good life” was, and he argued any excess property was unnatural.

It’s easy to imagine Aristotle tut-tutting about the big houses built by fellow Athenians. But it’s just as easy to imagine those Athenians ignoring his snobbery and enjoying the prosperity Greek society could afford.

Lost Property: Home In Deed But Not In Fact

Debates over public policy rarely pivot on philosophical questions. But here’s one: what does it actually mean to “own” your property?
NSW farmer Peter Spencer is coming up to the 50th day of his hunger strike. Spencer is arguing that he should be adequately compensated for native vegetation regulations that prevent his chopping down trees on his land.
Fair enough. Compensation for loss of property rights is part of the Commonwealth constitution.
But native vegetation laws are state laws, and state constitutions don’t require state governments to pay just compensation for property they take. Spencer claims these laws were enacted at the behest of the Federal Government, allowing Canberra to meet its Kyoto greenhouse emissions targets without the hassle of paying those who own the native vegetation carbon sinks. (Constitutional limitations on government power must be pretty annoying.)
Certainly, the nuances of regulations governing the clearing of native vegetation sound dull, but they’re actually very important. A mountain of regulation imposed by all three levels of government is eroding one of our basic human rights – the right to own property.
This might seem a bit counter-intuitive. The Government hasn’t literally taken Spencer’s property away. He hasn’t been kicked off: he’s still allowed to wander his land at his leisure. He still holds the title. But his right to use the land has definitely been taken. Put it this way: what if the Government told you that you could keep your house, but couldn’t live in it? Sure, you’d technically still own it, but you bought that house because you thought it would be a nice place to sleep. You don’t really “own” it in any useful sense.
It’s the same with farmland. Spencer may not have been physically deprived of his land, but what’s the point if he’s not allowed to farm it? And if Spencer is not compensated for this regulatory taking, how is it much different from legalised theft? Spencer’s is not an isolated problem. In urban areas, planning regulations and heritage restrictions are increasingly onerous as state and local governments try to micro-manage the “character” of suburbs.
Karl Marx called the right to property “the right of selfishness”, and property rights are believed by many to be a synonym for individualistic greed. Sounds like greed, looks like greed, sure – but it’s not greed. More than anything else, property rights are essential for prosperity and growth. Nowhere is this clearer than in the developing world. Influential Peruvian economist Hernando de Soto has found that where property rights are not respected or recognised by governments and bureaucracies, countries are poor. After all, if you can’t demonstrate you have assets to your name, it’s very hard to get a loan to start a business.
Property rights are the foundation of social mobility. Indeed, property is pretty much just another word for accumulated savings. Savings help us up the economic ladder. By contrast, a society that regularly violates property rights is an unstable society, and one where the road to personal advancement is blocked.
The right to property is so important it has long been recognised as one of our basic human rights, like free speech or the right to a fair trial. The 17th century philosopher John Locke said we had three fundamental rights: life, liberty, and “estate” – property.
But in the late 20th century, the right to property became the mistreated stepchild of human rights law. Related, but unloved.
In 1948, property rights got their own article in the United Nations’ Universal Declaration of Human Rights (“No one shall be arbitrarily deprived of his property”). But when they finally got around to turning the declaration into a legally binding commitment in 1966, property was thought to be passe, like Dean Martin and the patriarchy: neither the International Covenant on Civil and Political Rights nor the International Covenant on Economic, Social and Cultural Rights mention property rights.
The European Convention of Human Rights says “no one shall be deprived of his possessions except in the public interest”. The phrase “public interest” is meaningless. What government has ever thought it wasn’t acting in the public interest? The 2006 Victorian Charter of Rights says no one’s property can be taken “except in accordance with law” – not much of a defence from eager legislators.
Peter Spencer’s hunger strike in defence of his human right to property is drastic and dangerous. We can only hope it won’t be tragic. But his desperation must make us rethink our attitude towards this essential, but increasingly neglected, human right.

New Sheriff Needed To Ride Shotgun On Heritage Suburbs

It’s a bit of a rhetorical leap to compare Melbourne’s gentrified suburbs with the Wild West.

But after a Port Melbourne man knocked down his own home in order to build a double townhouse, that was apparently what came to mind for the mayor of Port Phillip.

“Saddle up your horse and ride out of town now if you think you can get away with it,” the mayor wrote in an official statement released last week, obviously confusing his role as the chief political representative of a wealthy inner-city suburb with a gun-slinging saloon manager in Deadwood.

When demolishing houses is outlawed, only outlaws will demolish their houses. The property’s owner, Hodo Zeqaj, was fined more than $52,000 for the demolition because his rather ordinary-looking brick duplex had been subject to a “heritage overlay” – that is, it’s located in an area of Port Melbourne the proud and self-satisfied local government has decided is historically significant.

A team of three men managed to demolish the house in less than 15minutes using a couple of chainsaws, which, no matter what you think of heritage laws, sounds like it would have been a lot of fun.

Certainly, Mr Zeqaj shouldn’t have demolished his house without getting a permit to do so. (And he definitely should have consulted his neighbour, with whom he shared a wall.) Even so, the council has publicly stated that had Mr Zeqaj applied for a demolition permit, it would have refused him one.

Once your home has been “heritaged”, well, you don’t really own it any more, no matter how much money you’ve paid off your mortgage. The council effectively does. Almost every petty little alteration has to be approved by local government functionaries.

Want to paint your door? In Port Phillip, there are 27 approved colours. But don’t get too excited – you can’t choose from the whole range. You will need to carefully maintain historic consistency.

Want to install an air-conditioner? There are planning permits to fill out, of course, and you need to make sure the unit is as hidden from the street as possible. After all, we wouldn’t want to ruin the seductive milieu of a suburban road by revealing that people actually live in those houses.

But don’t we as a society need to protect historically significant properties from the ravages of the marketplace? Perhaps. But what is historically significant? For the past half century, social history – the history of ordinary people, as opposed to the history of priests, politicians and warriors – has dominated the way we look at the past. That’s all great. But the rise of social history does make it a bit harder to assess what is uniquely important.

For a social historian, almost everything can be counted as “historically significant”. Everything reflects in some fashion the social circumstances of the past. So we get a barely interesting piece of trivia – the properties around Mr Zeqaj’s house are apparently early examples of low-cost homes built by the Housing Commission after World War II – transformed into a harsh legal edict. It isn’t quite Captain Cook’s cottage we’re talking about here. Does an entire neighbourhood need to be frozen in time so we can display cheaply and quickly built government housing in its full glory? For those people who care about the history of public housing, wouldn’t, perhaps, a few photographs suffice?

Anyway, if councils really want to protect important buildings, they should just buy them – or at minimum compensate the owners for their loss of control over their own property. If councils had to pay for the rights they steal, then they would perhaps be a little more cautious about doing so. Right now, it’s far too easy for local government to casually brand whole suburbs as critically important heritage areas while bearing none of the substantial costs.

It might seem glib to point out that we can’t stop all development. But it appears some councils are trying to do so. Vast swathes of Melbourne’s suburbs are being locked up by heritage regulation.

Unless we want Melbourne and its suburbs to become nothing but museum pieces, we’re going to have to accept that the flip-side of having a dynamic, modern city is having to occasionally watch that dynamism sweep aside physical remnants of the past.