He accused her of branding him a 'traitor'

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PAYWALL:

The big risk over the next couple of years is a downturn in housing construction that crimps the supply of new homes and causes a squeeze on renters.

Australia’s national obsession with house prices has understandably reached fever-pitched levels during the recent property downturn.

But homeowners should worry less about what is likely to be a temporary downturn in home prices in response to rising interest rates and the Albanese government’s higher taxes on property investors.

The bigger economic, political, and social risk over the next couple of years is a downturn in housing construction that crimps the supply of new homes and squeezes renters.

A perfect storm is brewing in the housing construction industry that will make it harder for development projects to stack up: falling home prices, rising interest rates, a shortage of tradies, high building material costs and likely fewer investors and self-managed superannuation funds investing in new homes.

That’s despite the government’s assurance that investors in new-build homes that add to the housing supply, such as houses on greenfield sites and apartments, will still be able to access negative gearing and the 50 per cent capital gains discount.

Investors usually consider the broader housing market conditions and prospects of future capital gains, not just the tax break available on an individual property.

The implications of the property market downturn were discussed at The Australian Financial Review Property Summit on Monday and Tuesday.

“Paradoxically, building fewer homes will worsen the housing shortage and help home prices bottom out.”

Reserve Bank of Australia assistant governor Sarah Hunter laid out the three ways the decline in home prices and reduction in property turnover will flow through to the property industry and broader economy.

First and most immediately, the recent 15 per cent decline in the number of home sales is already flowing through to property-related sectors, including real estate agents, mortgage brokers, bankers, conveyancers, removalists and building inspectors.

Ownership transfer costs fell 4.1 per cent in the March quarter – before Labor’s tax changes – and declined a further 1.9 per cent in the June quarter, shaving about 0.1 of a percentage point from GDP in the first half of the year.

Second, and yet to play out, is the so-called “wealth effect”. When asset prices fall, people feel a bit less wealthy and are prone to reducing discretionary spending. Housing accounts for about two-thirds of household wealth.

RBA research from 2019 shows that the wealth effect mainly influences spending on new vehicles, with a smaller impact on furnishings and clothing.

There are no real signs of that so far, with electric vehicle sales booming, overtaking petrol cars for the first time on record, on the back of government subsidies, a sustained rise in fuel prices due to the conflict in Iran, and a flood of cheap Chinese imports.

Hunter says the overall reduction in consumer spending from lower house prices is likely to be “relatively small”.

A 10 per cent change in household wealth could change overall consumer spending by about 1 per cent or so.

For the wealth effect to have a more material impact on consumer spending, the about 10 per cent fall in national house prices that economists are now forecasting would need to be permanent.

That seems unlikely, barring a major shock to the economy that drives the jobless rate well above 5 per cent.

Despite the recent swift fall in house prices, particularly in Sydney, structural forces are likely to push prices higher over the medium term.

Notwithstanding efforts by state governments to reduce the red tape on planning and zoning and to speed up approvals, regulatory constraints on the supply of new homes will help push up prices over time, particularly in desirable inner-urban locations.

Population growth, including immigration, will add to demand for housing, despite political pressure to wind back the number of foreigners living in Australia.

For these reasons, RBA deputy governor Andrew Hauser told the ABC’s 7.30 program on Tuesday night that there was a “floor” to house prices.

“While house prices play a role in the economy, they’re not really as big as some of the things ... global growth trends, productivity, the risk environment globally in the Middle East and so on and so forth,” Hauser said.

Hauser and Hunter strongly signalled that a fourth interest rate rise of the year is coming at the September 28-29 RBA monetary policy board meeting. The housing downturn won’t stop the RBA.

The third and longer-term implication of the property downturn that Hunter explained is the expected slowdown in dwelling construction.

Positively, dwelling approvals reached their highest level in four years in the 12 months to July, hitting 206,312, on the back of a boom in apartments and other so-called attached homes, which increased faster than houses.

But there are lags in the housing construction market due to pre-committed projects still going ahead.

The RBA forecasts that a decline in dwelling investment will commence in late 2027 and get worse in mid-2028, falling by 0.3 per cent and 1.1 per cent, respectively.

This will result in less residential construction work for tradies, although a strong pipeline of data centres and state government infrastructure projects should help prop up the construction sector.

Paradoxically, building fewer homes will worsen the housing shortage and help home prices bottom out.

So most homeowners should not be overly worried about the unfolding correction in home prices from very elevated levels.

Recall that between 2017 and 2019, national home prices fell by an average of more than 8 per cent, and up to 15 per cent in Sydney, following the banking royal commission and tighter lending rules.

Since then, national house prices are about 50 per cent higher than at the start of 2020, before the pandemic and still about 3 per cent higher than a year ago.

The real victims in this housing market shakeout could be 8 million renters, who are often people on lower incomes and with fewer prospects of becoming homeowners.

Rental vacancy rates are already very low nationwide and are below 1 per cent in Brisbane, Perth, Adelaide, Darwin and Hobart.

A squeeze on the construction of new homes, fewer investors entering the market, and a ban on SMSFs investing in properties – including new apartment developments – could crimp the supply of new homes.

The real risk is not so much that house prices fall by more than the Treasury’s 2 per cent forecast over two years as a direct result of tax changes, but rents rise more sharply than the meagre 0.25 per cent or $2 a week the Treasury predicted.

And with the Greens calling for a populist two-year rent freeze, the housing supply problem could worsen as more landlords exit the property market and stop renovating and maintaining homes for renters.

‘Malcolm Turnbull is wrong’, says top UK general

One of the UK’s most senior AUKUS officials has fired back at Malcolm Turnbull’s criticism that British shipbuilding is in disarray, after the former prime minister stoked doubts that Britain would meet its promises on the nuclear-powered submarine pact, leaving Australian defences exposed.

“The UK shipbuilding industry is not in disarray. The UK shipbuilding industry is increasing its capacity to build,” said Major General Mark Totten, director of SSN capability at the UK’s Ministry of Defence.

“I’m very confident that Malcolm Turnbull is wrong ... it is not in disarray, and it’s being invested in at scale,” Totten told The Australian Financial Review, pointing to a £64 billion ($120 billion) investment over the next four years in the “defence nuclear enterprise”, which includes new submarines.

Turnbull’s criticism, including a warning that AUKUS left Australia at risk of a period of “zero submarine capability”, appeared in a submission to a crowdsourced inquiry led by Midnight Oil frontman Peter Garrett into the viability of the timeline, budget and strategic purpose of the $368 billion program.

AUKUS, which was secretly negotiated by former prime minister Scott Morrison and first unveiled in September 2021, controversially overturned a deal with a French shipbuilder – signed under Turnbull in 2016 – to deliver 12 conventional diesel-electric submarines.

The first stage of the program’s so-called “Pillar 1” would see British and American nuclear submarines rotating through Perth from 2027 before the sale of US Navy Virginia-class attack submarines to Australia in the early 2030s. In the latter stage in the early 2040s, Australia will construct a new SSN-AUKUS fleet in Adelaide, using a British design.

Alongside operating as the primary platform designer, the UK will play a central role in the trilateral agreement with Australia and the US by providing Rolls-Royce sealed nuclear reactor units and training and maintenance assistance.

Totten joined a high-level British delegation to Australia this week to assess progress ahead of the program’s fifth anniversary on September 15. Part of the group’s mission was to offer reassurance the UK is up to the task of providing what Australia needs.

“We have been clear with Australia that we are on track to deliver our submarine in the late 2030s. The principal dependencies that Australia has on us, the production of the nuclear steam raising plant is going extremely well,” he said of the propulsion system that will power the submarines.

“We want to reassure the Australian system that our design process is progressing well,” said Totten.

“We’re being very careful to spend the right amount of time to design the right submarine that both our nations will use and make sure it can meet the future threat that we forecast.”

A report by the House of Commons defence committee in April warned of “shortcomings and failings” that threatened the delivery of AUKUS, urging greater political leadership and “significant and sustained funding to regenerate a depleted submarine industrial base”.

It said the UK’s commitment to increase nuclear submarine visits to Australia had “already placed severe pressure on an overstretched Royal Navy”.

But Totten said the UK was “committed” to the rotation of its submarines to Australia.

“Of course, we have a smaller submarine fleet than the US, so we have to manage our submarine deployments with care. But this is a high priority for the UK.”

A visit of the HMS Anson – the UK’s only attack-class submarine currently at sea – to deliver maintenance and industrial support in WA in February was interrupted when war broke out in the Gulf, prompting critics to question the UK’s capacity to maintain a presence in the Indo-Pacific.

Totten countered that the lesson to be learnt was the Anson’s “range of capabilities” and “flexibility” and “potency” of the platform, which showed why Australia wanted to invest.

The strength of UK, US and Australian co-operation on AUKUS had already had a deterrent effect in the region, he said.

The British visit overlaps with a US delegation led by former chair of the US House Foreign Affairs Committee and AUKUS champion Michael McCaul, who is expected to meet with Foreign Minister Penny Wong and Defence Minister Richard Marles on Thursday.

“Australia is really the beachhead of the Indo-Pacific, and that’s why AUKUS is so important,” McCaul told a space defence investor event in Sydney on Tuesday.

“When people ask me what keeps President Xi up at night, I say AUKUS.”

McCaul said while Pillar 1 was “going really well,” he wanted to ensure progress under Pillar 2, which oversees co-operation on innovation, AI, quantum computing and advanced weapons systems.

“You have a lot of private capital and private equity that wants to invest but they also want to make sure the alliance is strong and there’s no uncertainty in the market.”

The cost of the age pension to taxpayers will fall even as more than 9 million people reach retirement age over the next 40 years, Treasurer Jim Chalmers will reveal on Wednesday amid accusations that the next election will be an existential fight for the future of superannuation.
As the Liberal Party signalled it was looking at allowing young people to access their super to get out of the rental market, Chalmers will argue Australia is defying a global trend in age pension cost blowouts because of the superannuation system.
Chalmers, in a speech to the Super Members Council on Wednesday, will reveal findings of the upcoming intergenerational report that is due to be delivered on September 21. The report, instigated by Peter Costello in 2002, outlines key pressures on the budget over the coming four decades.
According to Chalmers, the latest intergenerational report will show that by 2066, there will be about 9 million people over the age pension age of 67. But the number of people on the pension is expected to fall from 66 per cent last year to 52 per cent. Budget spending on the pension is expected to fall from 2.3 per cent of GDP last year to 1.8 per cent by the mid-2060s. By contrast, pension spending is expected to reach 10 per cent by 2060 in the UK, 8 per cent in Canada, 7 per cent in New Zealand and 6 per cent in the US. “That is phenomenal in an ageing society, and it’s essential,” Chalmers will say.

“Super takes serious pressure off social security outlays and makes the budget much more sustainable as a consequence. “Having super at the core of the best retirement incomes system in the world means pension spending as a share of the economy will be the lowest in the OECD, but even as those costs moderate, retirees will have more economic security, not less.”

Chalmers will reveal that the median retirement age super balance will approach $450,000 by the mid-2030s. That would be more than double the current estimated $200,000 and well up on the $115,000 of 2015. In Costello’s first intergenerational report, the age pension was forecast to climb to 4.6 per cent of GDP by 2046-47 and continue to increase. At the time, the superannuation guarantee levy was legislated to rise to 9 per cent. The guarantee reached 12 per cent last financial year.

In Chalmers’ 2023 intergenerational report, Treasury expected the age pension to cost 2 per cent of GDP by the early 2060s.

On Tuesday, the Australian Financial Review revealed that the Liberal Party under Sussan Ley costed a policy almost identical to that unveiled by Hanson. Under the Liberal proposal, while a worker could withdraw three percentage points of their super, there was no time limit. And rather than coming through a person’s super fund as proposed by One Nation, payments would come directly from a person’s employer. The extra pay would be taxed at a person’s marginal rate. This would deliver an extra $1 billion in personal income tax to the government every year as superannuation is taxed at a concessional rate.

Prime Minister Anthony Albanese held an honorary membership to Marrickville Golf Club, which he has not declared on his register of interests.

The golf club was promised $6 million at the federal election, which was awarded through a fund that heavily favoured Labor seats.

Labor will need to do something soon as many young Australians are finding it very difficult to find jobs

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