A new study by Paul Egan, Philip Soos and Lindsay David reveals the 89 members of Queensland's legislative assembly have stake in a total of 195 properties, valued at around $91 million — so how does that affect their decision making?
Following our analysis of Federal and Victorian Parliamentarians’ real estate holdings, attention turns to Queensland, where Premier Campbell Newman has called a snap early election for 31st January, 2015.
Australia, including Queensland, is facing a chronic housing affordability crisis. Housing price inflation has outstripped both rents and household incomes since 1996, leading to a residential property market that is unaffordable by both historic and international comparison. Queensland’s elected representatives, like their federal, state and territory counterparts have failed to address the root causes of the crisis. Policies appear purposefully designed to encourage speculation and rapid price appreciation, in spite of the skyrocketing household debt burden and the harsh economic impacts of expensive land.
The public should critically consider whether state politicians’ property holdings are negatively influencing their decision-making processes and causing them to ignore impartial evidence when formulating housing and state taxation policies. The parliamentary register of members’ interests provides a detailed report of the real estate holdings of Queensland state politicians; a small window into the potential conflicts of interest bedevilling our honourable members.
Real estate assets are often jointly owned with a spouse instead of being in the sole ownership of the registered member. Properties can form part of a family or business trust, or private superannuation fund, with control over these entities exerted by either the beneficiary or beneficiaries directly, or via a third party. Similarly, a politician may have a minority, equal or majority share of the property asset within established entities.
Queensland parliamentarians are heavily invested in the property game. The 89 members of Australia’s only unicameral legislative assembly have stake in a total of 195 properties — an average of 2.2 properties per member, conservatively valued at around $91 million, calculated by multiplying the Brisbane median residential dwelling price of $466,500 (as at December 2014) by 195 properties.1
The actual value is probably significantly higher, for the Queensland register allows for fine-grained analysis of the total lot size (m2) for each politician, separated into the categories of residential, investment and farm/commercial/vacant/other properties (see Appendix B).
As hypothesised in previous reports, politicians:
- generally have a principal place of residence on a large lot relative to the public average (often exceeding 1,000m2 in size) — nine Queensland parliamentarians live on a property exceeding 10,000m2;
- have substantial commercial, retail and industrial property interests;
- purchase a greater number of properties in prestige or premium locations, such as desirable inner-city and coastal areas;
- have significant interests in vacant land (some already approved for large sub-divisions) and large grazing and cane farms — some individual farm holdings exceed 10,000 hectares (ha) in size (100,000,000m2);
- regularly embed property assets in family and business trusts, and less often, private superannuation funds; and
- possess a number of surplus and holiday homes, some in desirable international locations, such as Thailand.
Property investment has again proven to be popular right across the political spectrum.
Queensland’s political class possess a substantial property portfolio, with only 2 of the 89 members (2%) not owning any real estate. Only a minority of holdings appear incomplete or mistakenly undeclared in some register entries, usually for the lot size of investment properties.
The data demonstrates the majority of politicians have a vested interest in maintaining high housing and land prices, particularly the 76% of members with one or more mortgages over their own investments. It would be naïve to assume politicians will put the common good before their own self-interest, if it means the difference between a moderately comfortable or a highly secure future retirement, or there are significant family interests to consider. The risk of a sharp correction in real estate prices and negative equity are just as real for those three-quarters of parliamentarians in bondage to lenders, particularly if they have multiple investments or are highly leveraged.
Queenslanders should be very sceptical about the supposed good intentions of many of their elected members in addressing housing affordability. Cynicism is warranted, for nationwide, politicians regularly enact legislative and regulatory ‘reforms’ in direct contravention of objective evidence, accelerating price growth and enriching a multitude of land owners in the process.
Contrary to reason, parliamentarians assume heavy debt burdens and record-low first home buyers are the new market normal. The urgent entreaties from a series of Productivity Commission and Senate reports to reform broken tax systems at the state level have gone unheard, even though economic efficiencies and greater competitiveness would arise from a shift of the taxation base onto those appropriating geo-rent (the economic rent of land) and off labour and business.2
The property-rich Queensland Parliament cannot be trusted to act in good faith on matters concerning real estate. Aversion to guiding housing policy with firm evidence has a long history in many jurisdictions, notably influenced by the projected future value of a politician’s collective real estate holdings and corrosive lobbying by the FIRE (finance, insurance and real estate) sector. A voter backlash is also feared following any substantive reforms that reduce prices, with large pockets of the citizenry having also gone ‘all in’ on enormous property bets.
State and federal parliamentarians’ indifference to sound housing policy suggests an unrepresentative parliament is consciously ignoring the profound and negative outcomes of declining affordability upon social justice and economic efficiency. A two-decade long blind-spot is only possible if successive administrations have consistently disregarded empirical evidence and sound research in favour of lobby groups, populist measures and their own real estate portfolios.
Brisbane’s housing prices surged by 134% between the trough in 2000 and apparent peak in 2010. Prices softened after 2010, but rebounded slightly from 2013 onwards. As of 2014, prices are 6% below the peak set in 2010.3
Total Queensland land prices have similarly ballooned, with the prices to Gross State Product (GSP) ratio climbing from 141 to 304% between 2001 and 2010, a relative increase of 116%. While Queensland does not have the most inflated prices nationwide (which is Victoria), prices have still reached lofty heights, principally from a sharp rise in residential prices, rather than commercial, rural or other categories of land. The ratio has since fallen to 235% as of 2014, though still far above the long-run average.
Real housing prices have risen substantially in every Australian capital, though Brisbane is in the middle of the pack when considering the size of the increase.
Debt-financed speculation has divorced skyrocketing land prices from technical fundamentals, such as rents and household incomes. As a result, gross yields have been compacted to 4.4 and 5.5% for houses and units respectively as of December 2014.4 Net yields are around half of gross yields, reinforcing claims that Brisbane’s property investment model is strongly predicated on potential future capital gains instead of sound cash flows.
The long-term trend in the price to income ratio demonstrates a median-priced Brisbane dwelling could be purchased for around four times household income until the early 2000s, but has since risen by 50% to around six times in 2010.
A range of matters influencing housing affordability are outside the remit of Queensland parliamentarians, for instance, population growth, broad economic settings and the provision of finance. Nevertheless, state and territory governments are not powerless, wielding control over an array of policy areas that can help prevent rapid price inflation and reduce land prices.
What practical measures can Queensland politicians take to improve housing affordability?
Recommendation #1: More efficient use of the State Land Tax (SLT)
The SLT is an ideal tool to moderate both land price bubbles and their subsequent devastating busts, and is already in the toolkit of state and territory governments. Unfortunately, this tax has been rendered comatose by a host of exemptions and concessional treatments. The SLT requires broadening to include owner-occupied housing and agricultural land, calculated on a per-square-metre value basis. The narrow existing base and progressivity of the SLT incurs only a small deadweight loss; the complete removal of exemptions and concessions would reduce this deadweight loss to zero. The SLT should apply per land holding, but not on an entity’s total holdings to encourage development.
Recommendation #2: Changes to municipal rates calculations
Queensland local government rates correctly using site value (SV) rating, which taxes the underlying land only. However, they are to be condemned for the widespread use of minimum rates which provides a direct subsidy to those owning more valuable sites. Ratepayers should be outraged by this wealth transfer — an impost on their capital values as well as annual charges.
Recommendation #3: Abolition of Stamp Duty tax
Conveyencing stamp duties should be removed, with the revenue shortfall met from an improved SLT.
Recommendation #4: Removal of the first home owners grant and boost
All housing grants act as a demand-side stimulus that further erodes affordability. When combined with highly-leveraged mortgage loans, the result is rapid price inflation that substantially outstrips the size of the grant. These grants are a gift to vendors, not FHBs.
Recommendation #5: Greater investment in public housing
A substantial increase in funding for public housing would assist long-term, low-income individuals and families reliant on social welfare to exit the private rental market, ameliorating their financial stress. We have an obligation to look after those who have difficulty managing their affairs.
Recommendation #6: Tenancy law reform
Australian tenancy laws should adopt the higher standards enjoyed by other Western nations. Queensland tenants’ limited rights include less stability and security in tenure due to shorter lease terms (6 to 12 months on average), lower rental vacancy rates favouring landlords during contractual negotiations, termination of leases for no reason, and requisite landlord permission for minor alterations and pet ownership.6
Recommendation #7: The adoption of ‘right to build’ laws
This policy encourages timely development of residential and commercial property. Planning delays and uncertainties may raise land costs, thus, this effect is negated by a right (positive presumption) for developers and home builders to undertake activity, within specified local and state government guidelines. If a development is opposed, then the onus is upon the aggrieved party to take the developer to the civil tribunal to prevent construction.
Recommendation #8: Elimination of state/local government infrastructure charges and levies
Government should reverse their preference for imposing direct charges on developers to finance local infrastructure, resulting in lower land costs. Governments can either adopt the Texan Municipal Utility District (MUD) model or return to the original system of issuing municipal bonds to finance local infrastructure and paying down debts through council rates.
Recommendation #9: Streamlining of zoning processes
Land subdivision and zoning vacant land for residential use in capital cities takes too long, generating considerable costs, uncertainty and reducing developer competition. Comprehensive betterment taxes should be applied to agricultural land that is rezoned for commercial and residential purposes.
Recommendation #10: Removal of most urban growth boundaries (UGBs)
Except for ecologically or culturally sensitive regions of land, there is no sound rationale for UGBs, as only a tiny fraction of Queensland’s land mass is urbanised. Building further out on the fringe may lower housing costs, but this may be more than offset by the rise in transport costs.
No longer can we judge a person without looking at the resources a person has to work with. RiSE QLD concurs with... http://t.co/IokhgtUnco— BreezeRJ (@RiSEQld) January 29, 2015
A wide range of practical policies are available to policymakers to lower housing and land costs, improving the lives of all Queenslanders. Sadly, the aforementioned recommendations are not in the financial interests of the political class and their ultimate constituents: concentrations of capital, especially the FIRE sector. The sizeable percentage of Queenslanders living as public (3%) and private tenants (33%) are generally treated with contempt.7
State governments have squandered the opportunity to independently pursue constructive, competitive federalism by simultaneously increasing land value taxes and reducing inefficient, damaging payroll, insurance, motor vehicle and stamp duty taxes. Similarly, councils were able to lower construction costs by financing infrastructure through municipal rates rather than developer charges, but chose not to do so.
Poor government decisions are attributable to the FIRE sector’s deleterious effect on democratic processes, a stacked parliamentary deck, and extensive lobbying and soft corruption that undermines the public good. The political parties and rentier class have an unspoken accord to preserve privilege for the rich and to further redistribute wealth and income upwards in a ‘flood up’ effect. The degenerate state of contemporary politics means voters generally do not understand the rampant inefficiencies wrought by the FIRE sector.
Substantive reforms are not certain even if politicians were aware of the economic harm unfolding, because they lack courage to confront the powerful FIRE sector. The stranglehold over democratic processes virtually guarantees maintenance of the status quo, unless a fresh reform movement challenges unjustified privilege. Honest public discourse, genuine taxation reform, decentralisation of political power and a complete reconstruction of the FIRE sector is essential to Queensland moving to a more efficient, productive and meaningful economy that serves the common interest.
This is the complete version of an abridged article by the authors published by Fairfax Media earlier today.
"politicians could be conflicted over tackling Australia's growing housing affordability crisis" http://t.co/XQzcWosrzb— Ecko (@ecko4inc) January 28, 2015
1 RP Data (2015). See Appendix A for each individual Parliamentarian’s holdings.
2 PC (2004); Senate (2008).
3 The ABS measure of housing prices is not quality-adjusted, so the index overstates the trend.
4 RP Data (2015).
5 Fox and Finlay (2012: 18 – Graph 4).
6 Kelly (2013).
7 HPW (2013: 4).
- Fox, Ryan and Richard Finlay. (2012). 'Dwelling Prices and Household Income', Bulletin December Quarter, Reserve Bank of Australia, Sydney.
- HPW. (2013). 'Housing 2020 Strategy', Department of Housing and Public Works, Queensland Government, Brisbane.
- Kelly, Jane-Frances. (2013). 'Renovating housing policy', Grattan Institute, Melbourne.
- PC. (2004). 'First Home Ownership', Productivity Commission, Melbourne.
- RP Data (2015). 'RP Data CoreLogic December Hedonic Home Value Index Results', RP Data
- Senate. (2008). 'A good house is hard to find: Housing affordability in Australia', Select Committee on Housing Affordability in Australia, Canberra.
Politicians should ensure that all their interests are declared - forgetting a house is not a good look. http://t.co/YGulQ7WcwD #qldpol— Dan McIntyre (@Dan_McIntyre) July 3, 2014