Winning Back Young Voters: Housing Policy

The Liberal party has a young people problem. Just 21% of voters aged 18 to 34 voted Liberal at the last federal election. Perhaps more alarmingly, the conventional wisdom that the young vote left and move right as they get older no longer seems to apply. Voters are starting left and staying there.

It’s not hard to see why this is the case. Two of the biggest issues for most young people, climate action and housing affordability, have been neglected by Liberal governments for decades. These are not issues that are likely to dissipate with age, especially for those locked out of the housing market.

We need to win back the hearts and minds of young voters by presenting compelling solutions to the issues they care about: housing affordability and climate change.

This is not about becoming “Labor lite”. We don’t get to decide what issues the electorate care about, and we ignore and minimise their concerns at our peril. We need to listen, acknowledge, and come up with the best possible solutions based on our distinctive Liberal values. This is our product differentiation.

This paper outlines policy ideas, aligned with Liberal values, that I believe will demonstrate a real commitment to addressing the issue of housing affordability, because when young people believe that we are on their side, they will vote for us.

Housing Affordability

Young people aren’t greedy, envious, or resentful of their parent’s hard-earned wealth, but we are deeply disappointed that when we start families, we can’t afford to give our children a home comparable to the one we grew up in.

Record low interest rates, combined with policies that have increased housing demand and limited supply have caused massive house price growth, increasing the wealth of homeowners and putting home ownership further out of reach for young Australians.

There has been much debate about the causes of house price growth. As with any price, demand and supply both play a role. Government policies impact demand (immigration, tax incentives) and supply (planning laws), and some have suggested removing negative gearing, reducing capital gains tax and relaxing planning laws. The reality is that modelling shows none of the demand side measures are likely to shift the dial very much. Even if we could bring prices down for existing dwellings, this would cause all sorts of negative consequences, including pushing those with large mortgages into negative equity.  In many ways, the horse has bolted on prices for existing houses.

The focus must therefore be on helping young Australians save for a large deposit (for existing houses), and on increasing the supply of desirable new houses that are affordable.

We can start by scrapping Australia’s worst tax: Stamp Duty.

Policy Idea 1: Scrap Stamp Duty

Almost any economist will tell you that Stamp Duty is among the worst, most inefficient taxes in our country.

For a first home buyer in Melbourne, it adds $50k to the already enormous $200k total they need to save for a deposit on a median-priced house.

For a retiree, it is a huge disincentive to downsizing, reducing the supply of the larger homes which are needed by families.

As one of the few state-government taxes, abolishing Stamp Duty nationwide will not be easy, but it is absolutely worth pursuing. The state revenue from stamp duty will need to be replaced, which leads directly to the second policy idea for helping housing affordability.

Policy Idea 2: Increase the GST and cut personal income tax

It is a core idiom of the Liberal party that personal income and company tax should be reduced, because we understand that these taxes reduce incentives to work harder, take risks and increase productivity. Cutting taxes needs to be done in a responsible way though. As the Trussenomics debacle has demonstrated, cuts need to be matched with commensurate cuts to spending or increases to other taxes.

Consumption taxes like the GST are far less of a disincentive to hard work and entrepreneurship than income taxes, and they are more reliable than company taxes and personal income taxes which vary substantially based on economic conditions and the unemployment rate. There is a good reason John Howard has long advocated for raising the GST.

What may not be immediately obvious though, is that by reducing income tax and increasing GST, we can make it easier for young Australians to save for their deposit. This is because you only pay GST when you spend money, not when you save or use it to pay off a mortgage. Cutting income tax will give young Australians more of their own money to save if they choose.

Australia’s rate of GST is roughly half that of the OECD, and our rate of income tax is roughly double. If we were to bring GST and income tax in line with OECD averages, a two-income family on $150,000 would have more than $10,000 extra per year to save towards a deposit.

Of course, there are a range of variables to be considered, including the distribution of income tax cuts, the rate of GST, and whether the GST base is broadened, but it is the principle that matters: increasing the GST and cutting income tax will boost the economy and help families save for a deposit.

Policy Idea 3: Invest in fast transportation between capital cities and regional centres

Australia is fortunate to have vast amounts of land suitable for housing, but along with this blessing comes a curse: the tyranny of distance. Young Australians who want to buy where land is affordable face long commutes, isolation from family and friends, and lose all the lifestyle benefits of city living.

Investing in fast rail infrastructure between capital cities and nearby regional centres will mean that living regionally will become a much more viable option for young families.

If the trip from Melbourne to Bendigo, Ballarat, Geelong, or Warragul were done at bullet train speeds, each would be reachable in under 30 minutes. Visiting grandparents, heading into work for a meeting, or seeing a show in the city will become a viable option for people who choose to move to the regions.

All of this could be achieved for the east coast cities at a cost far less than the $200 to $300 billion of a Melbourne-Sydney-Brisbane line being pursued by the current government. Ask anyone whether they want the option to live in an affordable house 30 minutes from the city, on a big block of land, or if instead they’d rather have the option to travel to Melbourne/Sydney/Brisbane by train at a higher fare and longer travel time than flying, and the decision is a no-brainer.

Policy Idea 4: Reform planning laws to enable planning permit free development

There is a simple explanation for why house prices (and rents) have become so unaffordable in recent years: we are not building enough new dwellings to keep up with population growth. The only way to bring prices down is to increase the rate of housing construction. Currently, council planning restrictions substantially throttle the rate of both greenfield development and densification.

Most residential developments require a planning permit which is an arduous process that serves as a strong barrier to provision of new housing supply. It is perfectly reasonable for existing residents to expect that new developments are in keeping with the character of their suburb, however there are certain circumstances in which low-rise housing should be allowed permit-free. For example, land that is in close proximity to train stations, or adjacent to major roads should be able to be developed without a planning permit.

Currently, local councils are strongly biased against new development. After all, existing residents are the ones who vote them in, and they don’t generally like new development. It is a classic case of “not in my backyard”.

This situation is neither fair not equitable. The needs of aspiring homeowners must be balanced with the preferences of existing ones. The state and federal governments therefore need to take some power out of the hands of local councils. They should work together to create an Australia-wide standard for permit-free development that better balances the rights of existing homeowners and the need to increase the housing density in our cities.

A genuine commitment to housing affordability is key to winning back the hearts and minds of young Australians.