Following my cri de coeur about the limited scope for progressive analysis now that Labor has adopted almost the whole of the LNP economic program, I got a number of useful suggestions, one of which was a detailed analysis of Labor’s most prominent spending initiative, the $10 billion social housing fund. This idea raises a lot of issues, so I’m going to tackle it a bit at a time
First up, is $10 billion a lot, or a little? There was a time when programs like this were typically described in terms of the annual expenditure they entailed. If that were still the case, the program would be a really big deal. With cheap publicly-owned land and scale economies, $10 billion a year would probably enough for 40 000 homes at $250k apiece. Compared to around 200 000 a year being built privately, that would make a big difference.
But it’s been a long time since the conventions of annual budgeting were observed. The standard procedure now is to quote spending over 4 years (the arbitrarily chosen period of forward estimates in the budget) and the LNP government has occasionally extended this to 10 years, which is absurd given the rate at which things change..
Even $10 billion over four years would still be a big deal however, enough to reinstate social housing as a major part of public policy.
Sadly, the crucial word here is “fund”. Labor isn’t planning to spend $10 billion. The idea is to borrow $10 billion, invest it in high-yielding assets and use the profit (the difference between the market rate of return and the government bond rate) to finance social housing. I’ll have lots more to say about this, but for the moment what matters is the amount that can be raised in this way.
The standard estimate of the “equity premium” is around 4 percentage points, meaning that the government could borrow at 2 per cent and plan to earn a 6 per cent return on average. That yields net earnings of $400 million a year, enough, on the calculations above, to pay for 1600 homes. That would be nice for the people who got off the waiting list, but not really a big deal.
Back in the day, the frill-necked lizard, which can make itself look a lot bigger than it really is, was briefly a popular meme, particularly in Japanese anime circles. Labor’s $10 billion fund is the frill-necked lizard of public expenditure policy.