When Malcolm Turnbull reintroduced legislation to create an Australian Building and Construction Commission, he argued it was necessary, among other reasons, to make housing more affordable. The bill, he said, would help "young Australian couples that can't afford to buy a house because their costs are being pushed up by union thuggery".
In Parliament a day later, Immigration Minister Peter Dutton doubled down on this argument -- referencing biker gangs for good measure: "When young Australians go to an open house this weekend, to a unit that they may not be able to afford or that they have been saving up for, they know that that unit is more expensive because they have seen building costs increase as a result of the involvement of the unions and bikies."
Average property prices in Australia have soared more than 30 percent in the last four years -- and most transactions are resales of homes built years ago. Auction prices continue to set new records in most capitals. Mortgage debt to pay these inflated costs is also setting records: Australians' personal debt now equals 130 percent of GDP, and the OECD and the IMF have warned of severe macroeconomic and financial consequences if and when the property bubble bursts.
With prices so high, fewer Australians can afford to buy: home ownership rates have fallen 5 percentage points in the past two decades, and more dramatically among 25-55-year-olds.
Yet somehow, amidst all this frothy exuberance, the Coalition focuses blame on the workers who build homes: replete with their safety boots, high-vis vests, and -- of course -- their union. The idea that this enormous macroeconomic and financial phenomenon can be ascribed to the 11.4 percent of construction workers who belong to a union, immediately struck most observers as far-fetched. It even sparked a viral social media campaign using the hashtag #blameunions, and proposing all sorts of other silly things that could be blamed on organised labour.
But when the Prime Minister attempts to explain something as important as housing prices, I prefer to take him seriously. For what's at stake is more than just an attempt to tar unions; that, after all, happens every day from this government and its backers. More worrying is what it reveals about the government's understanding of what is presently the most important (and precarious) feature of Australia's entire economy.
In a new report published by the Centre for Future Work, I assembled reams of empirical data describing union activity in the construction sector, construction wages, productivity, components of construction costs, replacement costs and resale prices for housing, and more.
Is there any empirical link between construction workers and soaring property prices?
It turns out that Mr. Turnbull's assignment of blame was even more preposterous than it first seemed. Far from the housing bubble being the fault of unions, it turns out that there is almost a perfect negative correlation between construction unionization and property prices: the lower union density falls in construction, the higher housing prices soar.
Unpacking the argument further, the government's claim falls apart at every step. The statistics showed that:
- Construction wages grew more slowly than the Australian average over the past five years.
- Wage gains in construction have lagged behind productivity growth, and hence real unit labour costs in construction have fallen.
- Construction labour accounts for only about one-fifth of the total costs of new building.
- Construction costs, in turn, account for less than half the market value of residential property.
- Construction labour costs correspond to well under 10 percent of housing prices (and even less in Australia's biggest cities).
Homes in Australia are fast becoming unaffordable, even for the workers who build them. On average, a construction worker now needs 9.2 years of pre-tax earnings to purchase a median home -- up 25 percent from just four years ago. It turns out those safety-booted workers are in the same bind as the rest of us.
If the government genuinely wants to make housing more affordable in Australia, it's pretty clear where it should focus attention. The real causes of the property bubble are property speculation, fueled by favourable tax rules which make it more rewarding to flip property than build or live in it, an unsustainable expansion of credit, and juicy margins captured by real estate commissions. To safely rein in housing prices, government should cool down speculation (including reforming capital gains and negative gearing concessions), more carefully regulate the banking sector, and reform property-related taxes.
If anyone believes the ABCC will bring down property prices for hard-working young couples, I've got some choice waterfront property in the Simpson to sell you. In the meantime, while the government carries on its crusade against all things union, the great Aussie property bubble just gets bigger and bigger.
You can download the full report: Beyond Belief: Construction Labour and the Cost of Housing in Australia.