Secret RBA notes reveal harsh judgment of Labor’s housing policies

Reserve Bank officials judged that Labor’s first-term housing agenda did little to improve supply and possibly raised prices, directly linking migration to affordability as Labor battles to prove the budget will increase the availability of homes.

Internal notes from the bank, which it initially sought to keep secret, described Labor’s first three years of housing policies as “relatively modest”. The documents obtained under freedom of information laws were prepared for a meeting of RBA board members in May last year, the same month as the federal election.

The bank documents show its policy experts were critical of policies such as Labor’s Help to Buy share equity initiative and an expansion of a scheme allowing people to buy a house with a 5 per cent deposit.

“In recent years, many policies that subsidise [first home buyers] – are just demand side measures, pull fwd purchases; many of the view this just translates into higher prices,” they wrote. “Being characterised as a demand side measures to bridge the gap until supply is online.”

Treasurer Jim Chalmers moved on Monday to counter doubts about whether scrapping investor concessions would boost supply, releasing an estimate suggesting that $25 billion that would have been spent on investments may be diverted to new houses, which can still be negatively geared.

Core to Labor’s budget bet on housing affordability was a claim that its policies, including a $2 billion fund for housing infrastructure, will offset a projected drop-off of 35,000 new homes by an extra 65,000.

Bank officials note that key levers at the government’s disposal, the “main way the [government] influences” housing, had “not changed” as a result of Labor’s first-term housing agenda.

Those areas including “migration policy”, according to the internal talking points. The analysis comes from a policy issues meeting, typically held 10 days before a board meeting so members can discuss economic conditions.

The extent to which Australia’s migration rates have exacerbated the housing crisis has become a top-order political issue. The Coalition, under pressure from One Nation, has committed to explicitly link the migration rate to construction rates.

Net migration was running at record highs last term as people re-entered the country after the pandemic. It’s since dropped considerably.

The other ways the government could change the equation on housing, according to the meeting talking points, include regulations that contribute to undersupply, such as zoning and land-use laws, and tax settings.

This term, Labor has moved to overhaul negative gearing and the generous CGT discount, which many believe have skewed investment towards established properties rather than new homes and growing businesses, outbidding first home buyers and dragging down productivity.

Labor has also overhauled environmental regulations in its second term, after the bank’s analysis, which have held up housing developments.

Housing was a central theme of Labor’s budget last month, described by Chalmers as its boldest to date, and has been marked down harshly in polls. A messy debate about replacing the 50 per cent CGT discount with an inflation-adjusted model for private firms and shares, not just on investment properties, has muddied the government’s messages on housing.

However, Labor ministers are hopeful that a few weeks of pain will give way to a more direct argument over the months and years ahead that Labor is giving first home buyers a leg up. The tax changes will be pushed through parliament later this month.

Asked about the RBA documents, a spokesman for Housing Minister Clare O’Neil said the government had “supported” 420,000 new homes through its policies to increase supply, halved migration levels from post-COVID highs, and helped first home buyers. O’Neil announced a Productivity Commission review into housing supply last week.

“Instead of sitting on our hands for a decade without a housing minister, this Labor government is unarguably the most ambitious on housing in 70 years, making an already ambitious agenda even more ambitious through the most recent budget,” he said.

Labor has been applauded by many economists and housing experts for setting an ambitious target of 1.2 million new homes by the end of the decade. A combination of construction constraints, high interest rates and other factors has meant it is falling short so far.

“I think we should be careful assigning support to the 1.2m homes, as this is essentially just a target, but I think we can add some judgement to account for policy changes/changes to regulation,” an RBA official wrote.

Reserve Bank governor Michele Bullock said in September that governments were trying to take action on housing supply but that she did not expect major progress for a couple of years.

Reflecting on the bank’s analysis, chief economist at the right-leaning Centre for Independent Studies Peter Tulip said the RBA was right to say that those key factors had not “changed substantially”.

Tulip said the government had done “very little” on supply, which he argued was by far the biggest driver of the housing crisis. Supply was largely the domain of state governments, but the federal government could do a lot more through incentives to states, he argued. Labor pledged $3.5 billion to the states to boost construction.

“Immigration has a fairly substantial effect on housing affordability. Maybe not as important as interest rates, but more important than tax settings,” Tulip argued, while noting that cutting migration triggered economic trade-offs.

Coalition housing spokesman Andrew Bragg was forced to battle with authorities to get a copy of the bank documents, which he argued was another reflection on the Albanese government’s record on transparency. Labor accuses Bragg of clogging up the FOI system with bad-faith applications.

“The RBA documents show Labor is missing the big opportunities: to better align migration, to genuinely cut regulation which would drive the economic proposition of home building,” he said.

“Labor’s horror budget is only going to make a bad housing situation worse. We will end up with 35,000 fewer homes as a deliberate design feature, which is insane.”

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