CPI data prompts call for government action on housing taxes

The latest Consumer Price Index (CPI) figures have sparked a renewed call for government intervention to alleviate the financial burdens on new home construction, as reported by the Housing Industry Association (HIA). The CPI, which rose by 3.3 per cent (trimmed mean), highlighted housing costs as a significant contributor to inflation, underscoring the urgency for policy changes.

HIA Chief Economist, Tim Reardon, voiced concerns about the potential repercussions of unchecked housing costs. “The need for governments to remove imposts imposed on new home building became increasingly urgent, with the release today of the latest CPI data,” Reardon stated. With the housing market cycle just beginning to show signs of growth, Reardon warned that strong population growth and low unemployment could further accelerate home prices, subsequently impacting rental costs.

Reardon emphasised the risk of a housing supply shortage leading to increased interest rates, which would further hinder new home construction. “It would be counterproductive if the shortage of housing supply would in turn lead to a rise in interest rates, further impeding new home building,” he said. To address this issue, Reardon proposed government action to reduce the cost of delivering new homes, noting that government-imposed costs could constitute half of the total cost of a new house and land package.

The stability of building material prices was noted, with Reardon attributing this to factors such as energy costs, access to raw materials, and labour prices. However, he highlighted the rising labour costs driven by low unemployment and competition from other sectors. “The price of labour is also rising because of very low levels of unemployment and competition from other industry sectors,” he explained.

A significant concern raised by Reardon was the rapid increase in land supply costs, which he attributed to restrictions and costs imposed by local, state, and federal governments. “The price of land supply is rising rapidly due to restrictions imposed by three tiers of government and the direct and indirect costs they impose,” Reardon noted. He criticised government-imposed monopolies in infrastructure and service provision for further inflating land costs and called for a review of these practices to enhance competition.

Reardon argued that governments have the power to bring more affordable, shovel-ready land to market. “Bringing more shovel ready land to market, at an affordable price, is within the direct control of governments,” he asserted. This, he suggested, would require increased investment from both government and industry to deliver land without the burden of unnecessary delays, fees, and charges.

Furthermore, Reardon advocated for easing macroprudential restrictions, which have historically limited investment in new home construction and exacerbated housing shortages. “Further easing in macroprudential restrictions are also warranted in this market,” he said, pointing out that Australia’s lending restrictions have become increasingly stringent over the years. Despite this, mortgage default and arrears remain low, indicating that the risk has not decreased proportionately.

“Australia has extremely onerous restrictions on lending, that have increased substantially over recent decades, without indications of a reduction in risk,” Reardon observed. He cautioned that further restrictions on lending could stifle new home supply, ultimately driving up costs for buyers.

In conclusion, Reardon called for a reassessment of the government’s role in the housing supply chain. “The solution to the rising cost of homes is to remove government from the supply chain,” he concluded, urging for policy reforms that could alleviate the financial strain on new home construction and contribute to a more balanced housing market.

The HIA’s position reflects growing concerns within the industry about the impact of current government policies on housing affordability and supply. As the debate continues, stakeholders will be closely monitoring any government responses to these pressing issues.