Once we talked about the great Australian dream. Now it's something meaner: "getting ahead".
The great Australian dream meant owning your own home. "Getting ahead" means getting ahead of someone else. It's how Treasurer Scott Morrison sees the Australian dream.
"I think it is great in this country that people want to aspire to do better and provide for their kids, so I don't judge people for actually wanting to get ahead," the treasurer told radio host Neil Mitchell a few weeks back. "That's what this country is about."
It's certainly what negative gearing is about. "The vast bulk of Australians who use negative gearing are just trying to get ahead and trying to get their family in a better position," Morrison says. But negative gearing only gets them ahead if prices climb. The more that people negatively gear in order to get ahead, the more prices climb. The further they climb, the harder houses become to buy. And the harder they become to buy, the more the Australian dream recedes.
This is what has happened. Back before the explosion of negative gearing around the turn of the century, 52 per cent of Australians aged in their mid-20s to mid-30s actually owned their home. At the most recent census in 2011 it was 47 per cent. Before the turn of the century, 70 per cent of Australians aged in their mid-30s to mid-40s owned their own home. It's now 64 per cent.
The negative gearing-driven explosion has made it harder for Australians to buy houses to live in. Here's how Luci Ellis, head of the Reserve Bank's financial stability department, puts it: "It's a truism that if an investor is buying a property an owner-occupier is not."
It gets better, for investors: "To the extent that person is not then buying their own home, they are therefore creating a market for rental and making it attractive to purchase investor properties."
Betting on prices going up becomes a self-perpetuating machine. The further they climb out of reach of owner-occupiers, the more the Australian dream recedes and the more renters there are to rent to, which allows investors to bet still more on prices rising.
The man who chaired the inquiry that Ellis spoke to was John Alexander, the Liberal member for Bennelong. He says the changes are turning Australia from a "commonwealth", with huge home ownership, into more of a "kingdom" in which landlords rent to involuntary tenants who pay through the tax system for their acquisitions...
"Some have said we are on track to becoming a kingdom where the Lords own all the land and the biggest Lord will be King and the enslaved serf tenant is paying rent to the Lord to become wealthier," he told the Financial Review. "Is that an over-dramatisation or is it very, very close to the truth?"
A landlord-heavy housing market is inherently unstable. Whereas owner-occupiers aren't that likely to sell if interest rates rise or prices threaten to stop climbing, landlords can run for the doors. The Property Council makes the point dramatically in an advertisement depicting housing as a house of cards.
One way to wind things back would be to gently limit negative gearing. It's an idea endorsed by the Murray Financial System Review and now the Business Council of Australia. It's Labor policy, and despite Morrison's talk about the need to support mum and dad investors (over mum and dad buyers), it might yet be adopted by the Coalition in some form.
Alexander's committee was considering limiting the amount of mortgage interest that could be deducted from wages. At the moment it's 100 per cent. That proportion could be adjusted by an authority such as the Reserve Bank to keep the market stable. And the committee was considering extending to owner-occupiers the concessions afforded to investors.
Right now investors get to deduct interest payments from their income for the purpose of determining tax. Under the proposal owner-occupiers could opt to have a portion of their interest payments treated the same way. If for example they chose to deduct 20 per cent of their interest payments from income they would be taxed on 20 per cent of the eventual gain when they sold.
Every time a negative gearer sold to an owner-occupier the government's tax position would improve, the housing market would become more stable, and more Australians would be protected from poverty in their old age.
The changes in politics at the end of last year saw Alexander removed as chairman of the committee and another chair appointed who has also since moved. The report was due at the end of last year, but it will now be finalised later this month as soon as another chair is appointed.
Public opinion backs Alexander, just. This week's Essential poll shows 34 per cent of Australians would prefer lower housing prices and 32 per cent would prefer higher prices. Landlords strongly favour higher prices.
For a while, before politics overtook things, it looked as if we would have a sane discussion about what our headlong rush into negative gearing was doing to us. I'm hoping it's not too late.In The Age and Sydney Morning Herald