Dr Matthew Thomas, Social Policy Section and Peter Hicks,
Economics Section
Australia’s significant housing problem
Housing supply in Australia has not kept up with underlying
demand—that is, the need for new housing stock as a result of
population growth and trends in household formation. This has
resulted in an estimated shortfall of almost
180 000 dwellings as at June 2009 and contributed to significant
levels of housing stress, especially among low income households.
In 2007–08 over 300 000 lower income home buyers and 445 000
lower income households renting privately were in housing
stress.
Many households have been effectively excluded from all but the
lower end of the private housing rental market and are spending
ever-increasing proportions of their limited income on housing.
While they may receive some support through government provided
rent assistance (RA), this assistance has not kept pace with rental
prices in many parts of Australia.
For those low income households most in need, the federal, state
and territory governments provide public housing. However, a
reduction in the size of the public housing stock has reduced the
ability of governments to provide affordable housing to these
households. Waiting lists for public housing are high and
increasing, and the housing affordability problem has contributed
to sustained high levels of homelessness in Australia. Current
National Housing Supply Council (NHSC) projections indicate that
the gap between supply and demand will continue to increase, thus
exacerbating the housing affordability problem.
The supply problem
The accumulated housing supply shortfall is due to a number of
factors, some of which are of a long-term nature. These
include:
- restrictions on the supply of available land for housing
- state and territory as well as local planning and approvals
processes
- lack of coordination between infrastructure planning and
housing supply, and
- skills shortages in the housing construction industry.
More recently, the global financial crisis (GFC) has resulted in
changed lending practices and reduced the availability of credit
for multi-unit development. This is particularly significant given
that over two-thirds of dwelling supply in the capital cities
between 2009–10 and 2018–19 is expected to be through
infill development and nearly all infill activity is likely to be
multi-unit development.
Recent reforms
The Rudd-Gillard Government implemented several measures
calculated to tackle the on-going housing supply crisis in
Australia. These reforms go beyond traditional forms of government
housing assistance such as home purchase assistance, the provision
of public housing and RA. They also seek to enhance the
effectiveness of the mainstream housing market for both renters and
buyers.
Among other things, the Government:
- introduced a National Rental Affordability Scheme
- established an Office for Housing and the NHSC
- provided for up to 19 300 new social housing dwellings and
repairs and refurbishments of over 60 000 existing social housing
dwellings through the Social Housing Initiative
- introduced the A Place to Call Home initiative which aims to
provide 730 new dwellings for the homeless
- supported the Residential Mortgage-Backed Securities Market
during the GFC
- provided a temporary increase in the First Home Owner’s
Grant to stimulate housing construction, and
- established a Council of Australian Governments (COAG) process
to clear infrastructure planning and provisions obstructions.
The current situation and future prospects
The progress and success of the above reforms have been assessed
by the NHSC which is independent of government, and by the COAG
Reform Council which is independent of individual governments. The
NHSC currently expects Australia’s housing shortfall to
increase considerably. Assuming medium growth in both supply and
demand, the accumulated deficit could reach 308 000 dwellings
by 2014 and 640 000 dwellings by 2029.
The housing supply problem has had a major adverse impact on the
affordability of housing for low income households. In
2008–09:
- almost half of the low-income households renting privately were
in rental stress
- only three per cent of dwellings were affordable to low-income
households (negligible for low-income Indigenous households),
and
- of all low-income households with a mortgage, almost half were
in mortgage stress.
Australia’s housing supply and affordability problems have
long-term causes and are unlikely to be resolved quickly. It may be
years before many of the above-mentioned measures yield significant
results, and this will only be the case if current levels of
investment—both government and private—are increased.
In addition, the housing problem is complex and multifaceted. Not
only does it involve monetary policy, but also planning and
taxation issues as well as questions about the appropriate size,
density and distribution of housing.
Where to next?
Improving the housing outcomes of Australia’s low income
households in the short to medium term, may require the
introduction of further reforms to improve the fairness of housing
policy.
The Henry Review of Australia’s tax and transfer system
noted the stimulatory effect on housing demand of the current
highly favourable treatment of owner-occupied housing. It
recommended a number of changes aimed at making housing more
affordable and better matching supply and demand. These
include:
- removing stamp duties
- streamlining land taxation so as to remove disincentives to
property investment
- moving to a more neutral tax treatment of negative gearing and
capital gains on investment in residential property
- reviewing infrastructure charges to remove impediments to
housing development activity, and
- refining RA and increasing its maximum rate to ensure that
renters are able to afford an adequate standard of dwelling.
While the institution of any or all of these proposed reforms
may assist in increasing Australia’s supply of housing, and
thus benefit low income households individually and collectively,
they present other economic and administrative challenges for all
governments.
Library publications and key documents
National Housing Supply Council, 2nd State
of Supply Report 2010, Commonwealth of Australia, Canberra,
2010,
http://www.fahcsia.gov.au/sa/housing/pubs/housing/national_housing_supply/Pages/default.aspx
Australia’s Future Tax System Review,
Australia’s future tax system: report to the Treasurer:
part two – detailed analysis, Commonwealth of Australia,
Canberra, 2010,
http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm