Who wants to make housing affordable in Australia?

A 2023 poll from the Centre of Youth Policy and Education Practice claimed that 70 per cent of young Australians saw an urgency in fixing housing affordability. Since then, the Australian housing question has not left the public discourse. Earlier this year, the ‘People’s Commission into the Housing Crisis’, convened by advocacy group Everybody’s Home, painted a very concerning picture of the current state of affairs – widely spread housing stress, precarity, and financial hardship that leads to anxiety, uncertainty and inequality.

The dream of home ownership has become a pipe dream for most of the population. According to a recent ANZ/CoreLogic report, it takes more than10 years to save a 20 per cent deposit (more than13 years in Sydney) and a reported average of 50 per cent of income is required to service a new mortgage. Rental properties are also increasingly unaffordable. The same report found only 10 per cent of dwellings in the country are affordable to Australians on a median income.

The Help to Buy Bill will assist low-income earners to purchase their first home. The Bill sets up a scheme where approved prospective buyers can count on government help to take up to 40 per cent equity in the cost of a new home (30 per cent for existing properties). Buyers only pay the mortgage for their share of the property but won’t need to pay rent on the government’s share. The scheme will be available for only 40,000 homes in the next four years, and to be eligible, a buyer needs to earn less than $90,000 a year or a combined household income of $120,000.

Federal Minister of Housing Clare O’Neil said, “Help to Buy means a smaller deposit to help low—and middle-income Australians get on the housing ladder sooner.”

Prime Minister Anthony Albanese added, “So often these Australians have done all the right things – worked hard, saved up, made sacrifices, but a deposit for a home is still out of reach. Our government will step up and assist, opening the door of home ownership to tens of thousands of Australians.”

But are these measures enough to address the “affordability” question?

“The government is doing some good things”, says Everybody’s Home spokesperson Maiy Azize. “They’re just not things that match the scale of the crisis and not things that you would call market-wide solutions. They’re very small scale, helpful for the small number of people who can access them, but not things that are going to make housing more affordable for a large number of Australians.”

To Azize, government action needs to be concentrated on supplying housing, similar to the decades after World War II when, at its peak, the government was building more than30,000 homes a year. She there was a time when one in four new homes in the country was provided by the government, and one in three renters, up until the early 1980s, rented from the government at affordable rates.

“This is a big part of why housing in Australia was affordable,” says Azize. She says the government’s move to step away from funding and building social housing and to rely on private supply was a turning point.

“When you look around the world at the countries that have either turned around their housing crisis, or avoided it altogether, they are countries where the government is a big provider of housing”, Azize explains. “We need to see the federal government not just do these sort of small scale initiatives aimed at helping 10,000 people who want to buy their first home, or help a really small number of community housing providers finance their projects.”

Supply is the issue for Matt Bowes at the Grattan Institute. In his view, housing affordability comes down to the difference between Australians’ incomes and the price of housing. Low-income earners in the country, including people on welfare payments or casual jobs, are suffering from extremely high rents, low vacancy rates and an increased risk of homelessness. At the same time, the rise of interest rates post-pandemic didn’t dampen the increase in house prices, underlining the shortage of housing in certain areas.

The question of supply, who provides it, and where, is an important debate. The federal government’s plan to incentivise the building of 1.2 million homes won’t probably be completed within the planned five years. A recent report from the Business Council of Australia notes that housing completions and approvals remain at a near-decade low. The goal would need to see a staggering 240,000 new dwellings built annually, a record for Australia if achieved. In the latest ABS review, only 25,732 new dwellings commenced construction in the June quarter (a rise of only 1.7 per cent compared with the previous period).

Upzoning can be beneficial to large-scale investors where one parcel of land can now provide more housing, but to small investors, it creates more competition in the industry. “If we want to make housing more affordable, then it does mean that house prices have got to stop growing,” says Bowes. “Australia has other systems that allow people to build assets. Housing doesn’t need to grow significantly over time for us to have a prosperous economy – extensive housing, in many ways, is a barrier to a prosperous economy”.

For investors, affordable housing means that their investment has to lose value and remain low for longer. However, according to a recent research study commissioned by London Councils in the United Kingdom, a 1 per cent increase in housing affordability would boost the economy by £7.3 billion in the British capital.

Bowes explains, “When people are spending a lot of money on their mortgage, they’re not spending money on other things that can stimulate demand in the economy.”

“But more importantly, high house prices make it difficult for people to move.” The capacity for people to move to new areas, chase new opportunities, follow personal reasons, avoid commuting, find new lifestyles, etc., has vast benefits to society, according to Bowes. “If we’re making housing expensive, then it becomes difficult for people to take up economic opportunities they should be able to have.”

Bowes points to a recent e61Institute study that shows that when people move from regional areas to the city, their wages increase by an average of $8,000. But because of the high cost of housing in the city, the wage rise doesn’t compensate. “There are benefits to the productivity of workers in cities where they can share ideas and have better employment prospects, and if high house prices are locking them out of that, it costs our economy.”

“What we need to see is if federal and state governments work together to unlock housing supply,” says Bowes. He admits that there has been some progress in Victoria and New South Wales to reform planning controls and allow middle and high-density apartments near public transport. “[B]ut there’s certainly room to go further, and there’s certainly room to expand those reforms across other states that to date have not embraced the need to unlock more housing supply in our existing suburbs.”

In other international markets that rose in tandem with Australia’s, like Vancouver and Los Angeles, the bubble is slowly bursting, and property value dropped by almost 30 per cent in certain areas. Could Australia follow suit, or is the market different?

Bowes notes that the current planning system only prioritises existing residents instead of new builds. House prices can change for a myriad of different reasons, like a simple change in investment strategies, but in Australia’s case, Bowes believes that a shortage is driving up the demand.

Azize also sees Australia shielded from the impacts in those international markets, pointing out how tax benefits like negative gearing have insulated investors from the effects of high interest rates. She calls it a zombie market that continues to walk on, even when the economic reality is trying to push it down, impervious to a crash.

“I don’t know if a crash would be good,” Azize says. “But if we want housing to become more affordable, the cost will go down, and I think people are afraid of saying that.”

Negative gearing is considered an almost toxic political football that can topple party leaders and lose federal elections, but the winds might be shifting. A recent YouGov poll confirmed that most Australians now support changes to the tax system, including limiting and abolishing negative gearing and enforcing a three-property limit on investors.

The Real Estate Institute of Australia warns that abolishing negative gearing would worsen the current housing crisis as it could lead to investors abandoning the market, reducing supply to renters, and increasing rents. The Property Council of Australia supports this, pointing at Deloitte modelling that shows how negative gearing changes risk, shrinking the number of new homes by 4 per cent, hitting GDP and costing almost 8,000 jobs.

In an analysis of that report, the Australia Institute pointed out a couple of inconsistencies. Firstly, it was published in 2019, concerning only the policies proposed by then ALP leader Bill Shorten, in a model that accounted for houses built by private investors in the economic reality of 2019. And yet, the Australia Institute notes that the report also admits that without negative gearing, home ownership would rise 2.5 per cent by 2030, and house affordability would improve, reversing the trend of decreasing home ownership.

Matt Bowes of the Gratten Institute says the current tax policies aren’t working to the benefit of the whole country. “They don’t provide good value for money because they are ultimately overcompensating investors or the investment risks that they are taking when we could be using that money to either shore up the budget or to fund other important programs,” he says.

Bowes says scrapping negative gearing would have a minimal impact on housing affordability—probably between 1 and 4 per cent—but its value lies elsewhere. “If we want to reform tax concessions and budget, that’s valuable, but we should understand that it’s important for budget [and] less important for solving housing affordability challenges.”

The one thing that everyone agrees on is that there’s more the federal and state governments can do – build more in the long run but also support small changes that can offer relief while the dwellings are being built. The crisis affects low-income earners and essential workers, including nurses, paramedics, and teachers. A recent Property Council of Australia report on the effect of the housing crisis on essential workers shows that a couple comprised of a paramedic and a nurse, working full time in Sydney, could only afford to purchase in Liverpool. The options for median income public servants, child care workers and teachers are even more limited.

The result is increased migration from important economic centres like Sydney. The e61 Institute study mentioned earlier shows that both industrial and knowledge workers, who could benefit from Sydney’s higher wages, are leaving the city. This includes a decrease in care and service workers of all ages. In its conclusion, e61 considers that this decline in job and housing mobility has long-term implications for productivity growth, and cities risk increased income inequality, less social cohesion and greater political polarisation.

What else then can the state government do to tackle the crisis? Would it make an impact if negative gearing was limited to new builds only? What about discouraging auctions with an extra levy? A study by the University of Wollongong found auctions add a premium of up to 9.5 per cent to property prices. Or should vendors be forced to include asking prices in listings that can’t be refused if met, like what happens in France?

Bowes is pragmatic in his approach. “You’re always going to struggle if you’re working against the market,” he says, pointing at the ACT, where landlords circumvented rental control measures. “If there’s a shortage in the market, if people are competing heavily over these small number of properties, they’re going to instinctively want to bid up the price.”

Azize is more open to these options, stating that many people would welcome more regulation of the real estate industry, despite the government’s reluctance. But she adds regulations should also aim at supporting renters. “One thing the government could do that could benefit renters straight away is to limit rent increases [as it happens in many other countries]”.

Bowes also believes in more support for renters, but via rent assistance, to alleviate pressures on low-income earners, even if that could increase house prices or rent.

“The issue is that for low-income earners, there’s not really an alternative”, he explains. “Not providing them with the money is equally problematic. We’re in a bad situation but are making it worse if we fail to provide enough income support to those at the lower end of the income spectrum.”

The LSJ reached out to the office of NSW Housing Minister Rose Jackson for comments about the statements from both Azize and Bowes, but didn’t receive a reply.