I once booked the late, great Australian housing economist Judith Yates for a speaking engagement. After a fascinating discussion ranging across her four decades of research in Australian housing, I cut to the chase: will houses ever become affordable again? After all, they can’t get more expensive forever, right?
Yates shook her head. Rather sadly, she explained that house price inflation was so baked into Australian policy settings that it was difficult to see how housing could quickly become more affordable. She dismissed any chance of a US-style housing crash: she thought that it had become almost an article of faith among policymakers that property prices had to be supported. Yates felt very sorry for younger generations, she told me. Things were likely to get worse, not better.
That was years ago, well before the pandemic. Things have indeed worsened for younger Australians — and anyone else who isn’t lucky enough to possess their own dwelling.
Rental vacancies are at their lowest level in years, well below the 2019 rates leading into the COVID pandemic. Recent data shows inner-city landlords pushing for rent hikes of 30%, and suburban vacancies falling to a rock-bottom 0.4%. The ABC carried a story this week of evicted tenants in Tasmania using the extra weeks required by landlords seeking magistrate’s orders as their final preparation for homelessness.
Things aren’t much better for those trying to buy. First-home buyers enjoyed a temporary boost during the pandemic, but recent falls in dwelling prices have been more than offset by savage hikes in interest rates. The longer-run picture is discouraging: dwelling prices have outpaced real wages for decades now. Homebuyers struggling with rising living costs will also find it harder to save for a deposit.
The policy settings almost all point in one direction: homeowners and landlords get extensive subsidies; renters get little. It’s not just negative gearing and capital gains tax — land taxes are also arguably much lower than they should be.
Australia’s social security system is strongly tilted towards homeowners. Despite the May budget increase, Commonwealth rent assistance is still an afterthought, compared to the billions showered on property investors. Migration is running hot, with hundreds of thousands of international students returning to Australian universities in recent months, and net migration expected to increase in coming years as well.
Supply is also a problem. Australia is not building enough dwellings, especially affordable dwellings. The National Housing Finance and Investment Corporation (NHFIC) recently modelled the national housing market. Its conclusions were bleak. The NHFIC forecasts a collapse in housing supply in coming years, graphically illustrated by the string of recent home-builder insolvencies. The report says that “slowing supply, together with increasing household formation, is expected to lead to a supply household formation balance of around -106,300 dwellings (cumulative) over the five years to 2027”.
This supply crunch is coming despite house prices seemingly bottoming, and rental demand is strong. Rising input costs are a big factor: lumber, steel and other construction material prices are way up since the pandemic. Interest rates obviously aren’t helping either: nasty spikes in mortgages in recent years have priced out first-home owners, and crimped the ability of developers to finance houses and apartments.
In summary, our housing crisis is getting worse, and quickly.
When confronted with this pressing issue, the Albanese government has done relatively little. Treasurer Jim Chalmers increased rent assistance in the May budget, and there was a brief line item about encouraging “build to rent” housing investors. The government has inked a Housing Accord, with the “ambition” of building “1 million new well-located homes over five years from 2024”. Housing Minister Julie Collins has also reestablished the National Housing Supply Council, helmed by Mirvac boss Susan Lloyd-Hurwitz.
Most prominently, Labor has proposed a $10 billion housing investment fund that it claims will leverage around $500 million a year in social and affordable housing construction, building around 30,000 new dwellings in its first five years.
As Guy Rundle points out today, there are significant questions about the structure of the housing fund’s model. But even if it succeeds on its own terms, a $500 million annual investment in housing will barely touch the sides of Australia’s giant housing market. According to the ABS, there are nearly 11 million dwellings in Australia, worth a whopping $9.6 trillion at the end of 2022. Judged against these figures, Labor’s fund looks like a worthy but small reform at best, or cynical window-dressing at worst.
Judith Yates died last year; NHFIC’s pessimistic report on housing supply this year is dedicated to her memory. A kind and charismatic woman, Yates is much missed by her colleagues. Her wise and egalitarian perspective on Australia’s housing woes is needed more than ever. As Yates pointed out in her work, Australia’s housing crisis took generations to develop. It will not be unwound quickly.
But there are a number of policy levers available that aren’t being used.
Most prominently, housing prices are not regulated. In Australia’s highly privatised housing market, vendors compete at auction to charge the highest possible price for selling a property. Landlords are free to charge the highest rent the market will bear.
Rent caps are anathema to many economists, and of course to landlords. But should they be? Our governments regulate energy prices, minimum wages, even university fees. Given current market failures, refusing to cap rents amounts to a free kick to landlords to make windfall gains.
Governments are also failing to build. Genuinely addressing housing supply requires a massive national effort of affordable home building, analogous to the huge public investments made after World War II. State governments are particularly culpable, in recent times selling off more public housing than they’ve managed to build. Capacity constraints also need to be addressed: we need to shore up our shaky construction supply chains, train more workers and tradespeople, and consider bailing out or even nationalising failing home builders like Porter Davis.
More fundamentally, Australia needs to start planning again. The vast bulk of our population lives in five capital cities. This is a quirk of history, not a rational plan for our population. Successive national and state governments have comprehensively failed to invest in regional cities and transport links on anything like the scale required.
Most of all, we need to get real about the solution to the housing conundrum: hurting rich people. If we really want housing to be more affordable, then dwelling prices and rents will have to fall, or at worst grow more slowly than wages.
Not many in our political class truly want that. After all, most of them are landlords.
Is Labor doing enough to address the housing crisis? Let us know by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
