In years and decades to come, we’ll become aware of just what profound damage we’ve inflicted on ourselves by our lack of a decent housing policy under all sides and all levels of government in the past thirty years.
In the latest list of policy proposals from the Grattan Institute, an all-you-can-eat buffet of reforms across all major areas of economic and fiscal policy, the section on housing stands out for its detail on what our failure on housing policy is doing to Australians — and no longer just younger Australians, and no longer just poorer Australians.
As a result of house price growth radically outstripping income growth, home ownership levels have fallen significantly across the board. One graph illustrates the dramatic change between the 1980s and now. Only the highest income quintiles in older age groups have been relatively immune from the fall; those in the lowest quintile have all suffered double-digit declines, but all groups aged below 45 have seen marked falls in home ownership.
This has a direct impact on inequality. Even before the recent surge in house prices, in the decade prior to 2016, housing helped drive net wealth growth of the two higher quintiles to levels that are multiples of those of lower quintiles. Housing is a slow-motion inequality bomb that is stretching Australia apart along income and age lines.
Apart from abolishing negative gearing and reducing the capital gains tax discount — which the Grattan team believes would only partially reduce demand and would have a small negative effect on house prices — the report sees the biggest problems as a failure to provide housing supply due to regulation and community opposition. Our level of housing stock — 400 dwellings per 1000 people — is far below the levels of other developed countries. In particular, we’ve failed to address the desire for townhouses, semis or apartments in more accessible suburbs rather than for new detached housing on the urban fringe.
But there’s bad numbers either way if there’s a significant boost in housing supply. It wouldn’t do much in the short term: “adding an extra 50,000 dwellings to Australia’s housing stock — an increase of about 25 per cent on current levels of construction nationally, or roughly 0.5 per cent of the national housing stock — would lead to national house prices being only 1 to 2 per cent lower than otherwise”. But the longer-term political implications are significant:
these estimates also imply that a sustained increase in housing supply would have a big impact on house prices. For example, if an extra 50,000 homes were built each year for the next decade, national house prices and rents could be between 10 and 20 per cent lower than they would be otherwise.
Note that that is off where prices would otherwise be, not an actual fall — but even so, no politician is going to want to tell homeowners that their main asset is going to grow noticeably less in value.
Based on that grim maths, the report recommends significantly expanding Commonwealth Rent Assistance, establishing a Social House Future Fund worth $20 billion using Commonwealth borrowings to fund ongoing social housing funding, and funding Brendan Coates’ proposal for a national shared equity scheme to encourage shared equity housing purchases by low-income people — which the report acknowledges will increase demand for housing, but that tightly targeting the scheme toward both low-income earners and lower-priced homes would reduce the risk.
In policy terms it’s a kind of counsel of despair — acknowledging that we’ve created a politically insoluble problem around the power of homeowners versus the rights of particularly lower-income and younger Australians that can only be addressed by expanding government support for renting and purchasing housing stock.
After Labor’s costly embrace of real reform in 2019, no one in the major parties is talking about significant housing policy reform. Meanwhile, the profound inequity we’re baking into Australia’s economy and society worsens.
