A report from the Australian Government called State of the Housing System 2024 makes no attempt to sugar-coat the mess the government has created.
“There is no denying the housing crisis we are in,” it says. “It is a longstanding crisis, fundamentally driven by the failure to deliver enough housing of all types.”
“Prices and rents are growing faster than wages, rental vacancies are near all-time lows, 169,000 households are on public housing waiting lists, 122,000 people are experiencing homelessness and projected housing supply is very low.”
In fact, this crisis has been approaching for decades. The result is broad and damaging in its effects on many Australians.
Consider a small selection of facts from the recent Per Capita study, On Whose Account: Government Spending on Housing:
- In 1993, 44% of federal housing spending went to the lowest 20% of income earners. Three decades later, that figure sits at 23% of spending
- During the same 30-year period, the share of federal housing spending going to the top 20% of earners increased from 9% to 43%, and the share going to property investors ballooned from 16.5% to 61.4%
- In the 2023/24 financial year, federal investor tax breaks will be worth almost five times the amount spent on social housing and homelessness.
Will voters ever agree?
In the past, there has been a strong sense that any politician attempting to engineer a pause or fall in property prices would soon be out of a job. But there are now two-and-a-half generations of voters who are feeling the effects of decades of government housing expenditure failures, experts say.
“Gen X were only in their early 20s when the changes were made around the way the Commonwealth Government engaged with housing,” says Emma Dawson, Executive Director at Per Capita. “They’re certainly not as badly off as Millennials and Gen Z, but some are not far behind.”
“Even before the crisis got as bad as it is now, we found that roughly half of all property investors were concerned about rising property prices.”
Greens MP for Griffith, Max Chandler-Mather, says this change in voter sentiment is strongly reflected in public polling.
“The [Guardian] Essential poll asked what would people like to see happen to house prices,” Chandler-Mather says. “Roughly 15% said they’d like to see house prices go up. About 40% wanted to see house prices go down. Another 40% or thereabouts wanted prices to stabilise.”
“That’s because the skyrocketing house prices, in the end, really only benefit property developers, banks and wealthy property investors. It’s all at the expense of anyone trying to buy a home, and even owner/occupiers with a mortgage.”
The government’s State of the Housing System report says it now takes the average prospective homeowner a decade to save a 20% deposit. When they do, only 13% of homes are affordable, assuming they’re a median-income household.
Rents have also increased 35% since 2020, and the national vacancy rate is just 1.6%.
Housing inequality: How did we get here?
Over the last 20 to 25 years, says Matt Grudnoff, Senior Economist at The Australia Institute, the Australian Government has spent a small fortune “stuffing the housing market up”.
Negative gearing earns a great deal of bad press, Grudnoff says, but actually it only became a serious problem when it was supercharged by the Capital Gains Tax discount, introduced by the Howard government in 1999.
“Negative gearing, or making a loss on an investment, is only actually worth it if you either become positively geared for a period, or you make a big capital gain at the end that makes up for all those losses,” he says.
“The Capital Gains Tax discount effectively doubled the capital gain, making it far easier to swallow those losses over a period of time … That’s the same time that house prices picked up, and also that Australians became obsessed with buying a rental property as a way of building a nest egg.”
Dawson agrees, saying the Howard government also shifted investment from building social housing to Commonwealth rent assistance.
“So, the Capital Gains Tax discount massively increased the amount of tax revenue foregone from property investment,” she says.
“It lifted the concessions for people at the higher end of the income scale who were able to invest, and it reduced the direct spending on social housing, which blew out the social housing waiting list and led to a decline at the bottom end of the income scale.”
What are the human costs?
If the government put laws in place that made it extremely tax effective to invest in shares or bonds, Grudnoff says, a large percentage of Australians would likely pile into that asset class.
That would probably cause an asset bubble in that class. Importantly though, the over-valuation of equities or other vehicles would not result in people becoming homeless.
“When housing is overvalued, that causes real pain to real people,” Grudnoff says. “Not just homelessness, but also a struggle to pay a mortgage, spending more and more of their income paying off a house, etc.”
“Before 2000, a house was very much seen as a utility. Sure, its value would go up, but not dramatically. Since 2000, housing has been seen as much as a utility as an investment.”
The effect on lower income Australians, Dawson says, can be destructive.
“There is nothing more damaging than housing insecurity to a person’s wellbeing,” she says.
“Employment insecurity is bad. Being bereaved through losing someone you love, that is bad. But all of the evidence shows that housing insecurity is the most directly impactful thing on personal wellbeing. You can’t build or rebuild your life if you don’t have a secure home.”
How do we solve a problem like housing?
Various state and territory governments are considering ways to reverse the housing crisis.
In NSW, for example, planning rules are being changed to fast-track a greater diversity of homes like residential flat buildings of three to six storeys, terraces, townhouses, duplexes and smaller, one- to two-storey apartment blocks in suburbs where they are not currently allowed.
On a national level, three changes are essential, Chandler-Mather says.
1) “Government must phase out tax handouts for property investors which, over the next four years, will cost the federal government $175 billion,” he says.
2) “Government should do what European countries do, which is build good quality housing and then rent and sell them at well below market prices to a broad social cohort, including teachers, nurses and families who need a home in the area.”
3) “Finally, we need rent controls, or some form of cap on the amount rents can go up at the end of every lease,” he says. “This is for two reasons. One, it’s not reasonable to subject the third of the population who rent to unlimited rent increases. And two, it discourages the use of housing as a lucrative financial asset, which is crucial if we want to slow down or stabilise house prices.”
In his federal budget reply address, Opposition Leader Peter Dutton vowed to fix the housing crisis by slashing immigration to address the nation’s housing crisis. He says this would free up more than 100,000 homes over the next five years. Foreign investors and temporary residents would face a two-year ban on purchasing existing homes in Australia. He cast doubt on Labor’s target to build 1.2 million homes by 2029.
The housing crisis remains a tough and complex policy problem and a hot button political, economic and social issue.
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