Dare to Struggle, Dare to Win

For younger Australians, it can feel like the housing crisis has been going on in its current form forever. But it’s important to note that the government response to housing crises has changed over time, and to explore the reasons why.

In late-1930s Australia, roughly half of all households rented. Unlike today, the labor movement was well organized, communist agitation was rife, and working people were more willing to take part in industrial action. Fearful of social unrest, Robert Menzies’s conservative government legislated rent controls across the nation in 1939. In 1941 John Curtin’s Labor government strengthened those controls. Then in 1948 Labor PM Ben Chifley delegated responsibility for those rent controls to the states.

Nonetheless, following World War II, the Labor government was still feeling the heat as Australian workers faced a severe housing shortage. At the same time, discontent was fueled by propaganda from the communist bloc nations, which supplied their own workers with public housing. Organized workers began taking matters into their own hands by requisitioning unused housing for those who needed it. Similarly, in 1947, the majority-communist Kearsley Shire in New South Wales’s Hunter region forced the state government to build low-rent public housing for workers in the municipality.

Responding to this pressure from below, and in order to take advantage of the improved postwar economic situation, Labor gave the states funding to construct tens of thousands of public housing units. These were deliberately built close to jobs in burgeoning industrial hubs.

As the postwar boom neared its end in the late 1960s, however, things began to change. State governments began to scrap any residual forms of rent control while selling off their public housing stock. Instead of the more careful planning characteristic of the early postwar boom years, government policy forced poor people to relocate to high-rise public housing towers. Although these complexes were often the size of towns, they typically lacked provisions for jobs and public services.

This brutal period saw the last ever wide-scale expansion of public housing in Australia. By the 1970s and ’80s, governments essentially refused to build any more while continuing to sell off existing stock. Between 1945 and 1970, public housing averaged 16 percent of total housing. By the 1980s, that had dropped to nine percent. At the same time, by the ’80s the type of industrial militancy and organization that had scared governments into building public housing in the first place had gone into decline, in part the result of PM Bob Hawke’s bans on militant unionism.

Indeed, while restrictions on the right to strike introduced by the Hawke Labor government marked the end of the public housing era, they also signaled the beginning of the era of landlord strikes (or, more accurate, the threat of them).

Rise of the Landlords

The ascendancy of landlords in the neoliberal era in Australia involved a key scheme combining capital gains tax (CGT) and negative gearing. Capital gains refers to the profit a homeowner makes from selling a house at a higher price than they bought it for. Negative gearing is when rental income doesn’t cover a landlord’s expenses (taxes, rates, loan interest repayments, and so on), making it possible to claim a tax credit in compensation.

What this means is that if the CGT is low, and the landlord negatively gears, then the “losses” they accrue aren’t losses at all, because the property accrues value year on year. The landlord reduces their tax liability and boosts their profit — potentially quite handsomely — at the taxpayer’s expense.

Historically, Australia has left capital gains mostly untaxed. In 1985, however, the Hawke-Keating Government introduced a capital gains tax on new properties and abolished negative gearing.

If you think this sounds suspiciously progressive for a party that had just enfeebled the union movement, you’d be right. The reform was supposed to be offset by a regressive consumption tax that PM Paul Keating had planned to impose in the same budget. Hawke had already cajoled the Australian Council of Trade Unions (ACTU) to accept this new tax. But in a case of missing the forest for the trees, the business lobby refused to cooperate. The ACTU panicked, and only the more progressive tax measures were passed.

The Hawke-Keating government’s 1985 reforms had the effect of exposing the dilemma at the heart of the new system. If the government refuses to build public housing, then it’s left up to private investors to supply enough housing to meet demand. If these investors aren’t confident of easy profits, they’ll stay away. As a result, housing supply will fall. With no rent control regime in place, rents will rise.

The threat of such a landlord’s strike had the Labor government so spooked that by 1987 they reinstated negative gearing. Keating himself admitted at the time that rising rents couldn’t actually be attributed to any concrete “strike action” by landlords. But the specter was enough.

In 1999, John Howard’s Liberal government reduced the modest CGT introduced in 1985 while further entrenching negative gearing. The result is a nation permanently held to ransom by its landlords. Bankrolled by both their victims’ rents and the CGT–negative gearing scam, landlords unleashed a wave of speculative investment in real estate, driving up house prices even further. This new normal predominantly benefits high-income households and now costs the public somewhere in the vicinity of AU$7.7 billion per year.

After Labor’s disastrous results in the 2016 and 2019 federal elections, it’s become received wisdom in Australian politics that changes to the CGT or negative gearing will generate a public backlash. This can give the false impression that most “mum and dad investors” are capitalist property moguls.

But the vast majority of homeowners only own one home — and they live in it. Quite rationally, many also now rely on their homeowner status to help their low-wage children into housing security. “The bank of mum and dad” is now technically the ninth-largest lender in the country.

The Wheat From the HAFF

All this brings us to the current stalemate in Parliament over Labor’s proposed Housing Australia Future Fund (HAFF). Labor claims that the scheme will allocate $10 billion to build thirty thousand new affordable homes. But this is not what it does. This terrible proposal’s key features instead speak to the speculative logic of our times.

Rather than using $10 billion to actually build homes, Labor plans to borrow the money, invest it in a fund, and use the potential profits to subsidize the construction of new homes. None of the scheme’s targets are binding. The fund will need to make around 7 percent a year to meet these targets, which is far from guaranteed.

Greens MPs criticizing the scheme have pointed out that the draft legislation includes an unnecessarily restrictive $500-million cap on annual subsidies to housing providers. Given the stated aim is to build lots of houses, this is indeed a weird feature of the legislation. But it’s also a moot point. Commentators have noted that at best the fund is only likely to make around $300 million per year.

And besides, if everyone agrees the urgent aim is to increase housing stock now, why not just . . . build houses? As one bemused economist noted about an earlier draft of the proposal, “If we can’t find $20 billion to spend on new public housing, how are we finding $20 billion to spend buying a portfolio of shares and other assets? Do we need a fund to fund the fund?”

The HAFF also draws attention to the harsh reality of an economy steered for decades by a parliament of landlords. Low-income earners in retail or fast food have long been eligible for social housing schemes. But ten thousand of the HAFF houses — that most likely won’t even be built — are earmarked as affordable homes for “frontline workers” like teachers and nurses. It’s effectively an admission that thanks to dismal wage growth and obscene housing prices, even people working a full-time professional job now need public subsidies to afford housing.

Labor Not to Be Trusted

Despite insinuating that they are willing to confront the property lobby, Labor consistently accepts donations from it. The average federal Labor MP owns 2.3 properties and many own between four and seven. Labor has no intention of changing a system that directly benefits its leaders and organization, nor any real plan to directly build urgently needed public and affordable housing.

More speculation cannot save us from the housing mess created by Australian politicians over decades. But the mass rollout of quality public and publicly funded housing could — and probably at a fraction of the cost we’re currently paying to drive home prices up. As the history of public housing in Australia demonstrates, however, it’s almost certainly going to take mass pressure from below for any such plan to become reality.