Australia is spending billions trying and still failing to get people into decent homes they can afford. Some more radical options could be on the table.
Australia’s housing crisis is so deep that federal and state government interventions so far — no matter how welcome — barely scratch the surface of the problem.
It could be time for a legislated national housing strategy with the long-term aim of getting the whole population into housing that is adequate and affordable.
A key part of that strategy would be to build 950,000 social and affordable rental dwellings by 2041.
Certainly the government’s pledge to facilitate the building of an additional 1.2 million homes by mid-2029 is welcome. However, even if this target is reached, most of these additional homes would not be affordable.
The other component of that strategy would include reviewing critical parts of the taxation regime around housing — most prominently negative gearing and the capital gains tax discount.
Both are key factors in creating a favourable climate for housing to be viewed as an investment rather than just shelter and thereby drive up house prices. First-time buyers are constantly outbid by investors.
Although reviewing those tax issues is necessary as part of developing any broader strategy, political and economic realities mean it will take unusual bravery for a major political party to put them on the agenda in the current political and economic climate.
The scale of the crisis
Put simply, housing is unaffordable for a large segment of the Australian population.
An analysis based on the 2021 Census estimated there were at least 640,000 Australian households — or about 6% of the population — who were living in unaffordable or crowded housing or were homeless.
The changing tenure structure captures the crisis, with overall home ownership dropping from 70% in 2006 to 67% in 2021.
In the 25 years to 2019-2020, the proportion of mortgage-free homeowners fell from almost 42% to 29.5%.
More homeowners were paying off a mortgage and the people relying on private rentals increased from 18.4% to more than 26%.
The proportion living in state or territory social housing almost halved to 2.9%.
Social housing construction was negligible during the 2013-22 term of the last Coalition federal government and lagged dramatically behind population growth.
The drop in home ownership for younger households is a stark indication of the problem.
In 1981, 61% of Australians aged 25 to 34 were homeowners but this had plummeted to about 43% in 2021.
In the same time period, the proportion of homeowners aged 35 to 44 dropped from three-quarters to about 61%.
Many more households now rely on the private rental sector but low vacancy rates means rents have surged, with the national median increasing from $413 to $624 a week between March 2020 and June 2024.
The latest Anglicare Rental Affordability Snapshot found that only 0.6% of rental properties were affordable for someone on a full-time minimum wage.
It’s little wonder then that homelessness is up, with 122,494 people listed as homeless on Census night 2021, up 5.2% since 2016.
The government solutions
The Federal Government has argued that the key to resolving housing affordability is to significantly increase the supply of housing and each state and territory has been allocated a housing target.
The target is 1.2 million new homes over five years from July 2024, but building approvals are not at all encouraging.
Between July 2024 and January 2025 slightly more than 107,000 private dwellings were approved — about 33,000 fewer than required to meet a target of 20,000 dwellings a month or 240,000 annually.
Handbrakes on action
Each state has inducements for developers to submit proposals yet, based on Australia’s most populous state, New South Wales, the take-up has been negligible.
A key part of the NSW government’s strategy is to allow greater building density near 37 train and metro stations.
Eight months after the policy was implemented, just one development application had been submitted.
Developer lobby group Urban Taskforce in NSW chief executive Tom Forrest said the inducements did not go far enough to entice developers, arguing guidelines were “too light on height and density to make them worthwhile”.
The construction sector has been extremely hard hit by inflation, high interest rates and a lack of skilled labour.
Between September 2020 and December 2024, house construction prices have increased by 40%.
Excessive demand, due to the Federal Government’s HomeBuilder programme and record low interest rates, combined with supply chain disruptions pushed up costs dramatically.
No other sector of the economy has had as many insolvencies. In the year to June 2024, 2,975 construction firms were declared insolvent.
A lack of skilled labour has also added to the sector’s woes.
The emphasis on increasing densification has met resistance in many council areas across the country as communities and councils raise concerns about being sidelined in a planning process they believe is overdeveloping their suburbs.
They argue that the decision-making around densification is anti-democratic, disempowers the local community and council, and will intensify congestion.
The NSW Housing Delivery Authority has been criticised as a gift to developers that will increase congestion and open communities to inappropriate and ad hoc development.
What can be done
Resolving the housing crisis requires more than just increasing housing supply. Even if building targets are reached, it will not automatically fix the affordability issue.
The cost of land and construction makes it unlikely that the market will be able to provide affordable housing.
The evidence suggests addressing the tax regime around housing and a massive increase in government intervention is required.
Discouraging speculation in housing
Housing researchers have argued that the tax regime, namely negative gearing and the capital gains tax discount, have encouraged the ‘financialisation of housing’ in that housing is increasingly viewed as an investment.
In 2020-21, the Australian Taxation Office revealed that 2,245,539 Australians — around 20% of taxpayers — owned an investment residential property and collectively owned 3.25 million of the 11.1 million residential properties in Australia or nearly 30%.
In the December quarter of 2024, loans to investors accounted for 37% of all residential property loans.
Restricting or even scrapping negative gearing and the capital gains tax discount could lead to a substantial drop in investor activity and a decline in residential property prices.
Government intervention
The Federal Government is endeavouring to increase supply through its Housing Support Program as well as trying to rectify the collapse of social and affordable housing through extra funding.
The National Agreement on Social Housing and Homelessness will deliver more than $9 billion to state and territory governments between 2023-24 and 2027-28.
Other important initiatives include the $10 billion Housing Australia Future Fund, the $2 billion Social Housing Accelerator program, a $4 billion joint venture with the Northern Territory government to augment Indigenous housing and a $1 billion National Housing Infrastructure facility.
These programs in combination with state government interventions could perhaps result in the construction of about 75,000 social and affordable homes by 2029.
Even though the Federal Government has increased Commonwealth Rent Assistance for low-income renters by 25% since 2023, the virtual stagnation of rent assistance for a decade when rent increased dramatically means it is too low to ease rental stress for many.
Clearly resolving Australia’s housing crisis will not be an easy task, requiring massive government intervention which in the current political and economic context will be exceptionally difficult to put in place.
Originally published under Creative Commons by 360info™.
