Elliott King, Economic Policy, and Dr
Matthew Thomas, Social Policy
Access to affordable and safe housing is essential to people’s health and wellbeing. Housing also forms a significant part of the economy. It is central to economic participation and productivity and a source of investment and wealth creation.
There is insufficient affordable housing to meet demand in Australia.
Housing affordability is a perennial issue in Australian politics. Various policies have been implemented to directly address affordability, though this usually takes the form of house purchase assistance or rental assistance (‘demand side’ measures).
Ideally, government interventions in the housing market should consider their impact across the entire housing continuum and be delivered in a more coordinated manner that increases the likelihood of realising optimum outcomes.
The housing continuum
The housing system is comprised of numerous housing
markets, housing stakeholders and policy tools. Moreover, there is not a singular
type of housing or housing tenure. Policies attempting to influence one type of
housing or tenure type can have flow on effects
across the full continuum of housing.
The housing continuum can be thought of as the
spectrum of housing types and tenures. The main forms of
housing tenure in Australia are public housing, community housing, private
rental and home ownership. Figure 1 illustrates a continuum, within which
different stakeholder groups and policy options could be listed to understand
where marginal changes to policy can impact across the entire system of housing
Figure 1 A housing continuum
Source: Adapted from Australian Government, Affordable Housing Working Group: Issues Paper,
prepared for the Council on Federal Financial Relations, (Canberra: Department
of Treasury, 2016), 2.
Any approach that is developed to address the needs
of a particular group – such as people with disability, first home buyers,
rental distressed, or key workers – can be located in this continuum. However,
pulling one policy lever may affect the entire continuum, having both direct
and indirect consequences in the wider housing market. A
well-functioning housing continuum would be in balance and necessary
interventions would ensure there are appropriate homes and supports at all
points to meet the needs of the community.
The participants in the housing spectrum are
diverse, including all layers of government, the individuals in need of housing
(public and private renters, and owner-occupiers), non-government providers,
public housing authorities, government funding bodies, private financiers and
property developers. Often, the delivery of housing stock and supports involves
explicit or implicit partnerships between these stakeholders (see, for
example, the NSW Government’s Landcom).
Insights: challenges across Australia’s housing continuum
Housing affordability has been an issue for some
time, however the latest cause of housing affordability concern stems from rapid
house price increases in capital cities and regional centres since the
onset of the COVID-19 pandemic.
The effect of these increases is not only
experienced by home purchasers but has also manifested in higher rents – in
most regions – for those in the rental market. Figure 2 shows the fluctuations
in the SGS
Economics’ Rental affordability index since 2011. Notably, rental
affordability appears to have worsened in most regions during the pandemic
despite rental moratoriums being in effect in most jurisdictions throughout
Figure 2 Rental affordability in
capital city regions and ‘rest of state’ to Q2 2021
Source: Australian Institute of Health and
Welfare (AIHW), Housing Data
Dashboard, Rental Market: Rental Affordability Index Tables, (Canberra:
Deteriorating rental affordability impacts a large
and growing proportion of households. Table 1 shows the proportion of
households in some form of rental accommodation in 2019–20. The proportion of
households in the rental market now, compared to 1994–95 has risen from about 26%
to 31% of households. Notably, the average proportion of household income to
housing costs has not changed substantially between these periods, but
examination of disposable income by quintile reveals that those in the lowest
quintile have seen an increase in their housing costs relative to household
income over this period, rising from an average of 22% to 29% (ABS, Housing
occupancy and costs, (Canberra: ABS, 2022), Table 1.2).
Table 1 Proportion of households that are owner
occupiers compared with private and public renters, and
proportional housing costs
costs as a percentage of household income 1994-95
costs as a percentage of household income 2019-20
without a mortgage
|Owner with a
territory housing authority renters
Source: Australian Bureau of Statistics
Occupancy and Costs 2019- 20, (Canberra: ABS, 2022).
Note: The table only includes the main
categories of renters—private and public housing renters. It does not include
renters in community housing.
stress (usually defined as 30% or greater of pre-tax income allocated to
mortgage repayments, though there
is some nuance to this calculation) is reportedly
worsening in the face of recent interest rate increases. The latest authorised deposit-taking institution quarterly statistics
show that although high loan-to-value ratio (LVR) (that is, greater than 90%)
loans have declined, new residential mortgage loans with a debt-to-income (DTI)
ratio greater than 6 increased from 17% of new loans to 24% between December
2020 and December 2021. In a period of rising interest rates, having a higher
DTI or high LVR – and so higher repayments relative to income – makes it more
likely that a borrower who experiences an adverse shock to their income or
expenses will miss mortgage repayments. The Reserve Bank of Australia’s (RBA)
April 2022 Financial stability review examines the risk these
borrowers pose to the stability of the financial system, but also includes
analysis of mortgage stress for high-DTI and high-LVR loans. Although these
loans account for a small proportion of overall lending, they have
‘historically been around four times more likely to report mortgage stress than
other borrowers, and three times more than those with only a high DTI or a high
The state of Australia’s social housing supply
Social housing is housing made available at below
market rates to low-income households that are unable to afford or access
suitable accommodation in the private rental market. It comprises public
housing, community housing, state-owned and managed Indigenous housing (SOMIH),
and Indigenous community housing. Public housing is owned and managed by state
and territory governments, while community housing is either owned or managed
by not-for-profit community sector organisations.
There are a range of measures for calculating
changes in the level of social housing. Social housing stock may be considered
as a percentage of overall housing stock or in relation to the size of the national
population. It is also possible to gauge the number of social housing
households as a proportion of total Australian households. Irrespective of the
measure used, it is evident that Australia’s social housing stock has been
declining for some time (Figure 3).
Figure 3 Social housing stock as
a proportion of total housing stock
Source: Productivity Commission, Report on Government Services 2022,
Housing and Homelessness, (Canberra: Productivity Commission, 2022)
Current social housing
stock is insufficient to meet present and projected need. As
at June 2021 there were 163,508 applicants on waiting
lists for public rental housing and more than 40% (67,656) of these were new
greatest need households– that is, households that were homeless, in inappropriate
housing that did not meet needs, adversely affected health or placed life and
safety at risk; or households that had very high rental costs. Additionally, almost
60% of applicants for mainstream community housing were in greatest need
(27,642 households) and 54% of the applicants awaiting SOMIH housing were in
greatest need (4,018 households).
Waiting list data may
overstate the level of need for social housing because some applicants may be
on more than one wait-list. Nevertheless, if the ‘evident need’ for social
housing is considered, then waiting list data may be seen to significantly underestimate
the real need for social housing.
Evident need typically
refers to households that are on a low income (approximately the bottom
quintile for the relevant household type) and in rental stress (in private
rental and paying more than 30% of income on rent). While these households may
be eligible for social housing, they may not apply for a number of reasons,
such as the stigma attached to this form of housing or because they are
discouraged by lengthy waiting times.
Government intervention in housing in general
Contemplating housing as a continuum reveals a
range of policy choices for governments at all levels. Broadly
speaking, the roles of Australian governments with regard to housing are:
- the federal government is responsible for national housing and
homelessness policy, financial sector regulations and taxation settings, which have
some influence on housing affordability
- state and territory governments are responsible for land use and
supply policy, urban planning and development policy, housing-related taxes and
residential tenancy legislation and regulation, each of which has an impact on
- local governments are mostly responsible for building approval,
urban planning and development approval processes, and rates and charges.
Table 2 presents a summary of specific types of
housing market interventions by level of government. As may be apparent,
certain policy levers – particularly at the federal level – are not specific to
housing provision but can significantly impact on encouraging or discouraging
the expansion of housing.
Table 2 High-level overview of
housing market interventions by level of government
| Government level
policy (interest rates)
and local government grants (eg GST, roads)
development support (RDA, City Deals, Smart Cities)
exemptions or subsidies for dwellings
protection and biodiversity conservation
incentives (income, company or capital)
(NDIS and rent)
or trauma categorisation
or moderate infrastructure
supply (green or brown field)
for targeted development
restrictions (eg affordable housing)
system (zoning, rules)
support for targeted group
living or energy incentives
fees and charges
controls, fees and charges
and regulations (transparency)
development and planning approach
fees and charges
(a) Where government recovers some or all
of the value which public infrastructure generates for private landowners.
Source: Hal Pawson, Vivienne Milligan and
Judith Yate, Housing Policy in Australia: A Case for System Reform, (gateway
East: Palgrave Macmillan, 2020); Department of the Prime Minister and Cabinet
of the Federation White Paper: Roles and responsibilities in housing and
homelessness, issues paper 2, (Canberra: PMC, 2014).
In recent years work has been put into bringing
institutions and private sector participants – banks,
similar – into the affordable housing supply system. But, there needs to be
greater coordination across all levels of government as the policy levers for
each point of the housing continuum are dispersed. Changes at one level of
government do not necessarily have the desired flow-on effects if corresponding
changes are not followed at other levels, or if another layer embarks on changes
without regard for actions taken elsewhere in the system. For example, local
governments may be focussed on maintaining the amenities of their specific
area, while the state or federal governments may be attempting to reshape the
entire urban environment to achieve a particular economic outcome.
How does the Australian Government currently
intervene in the housing system?
The federal government has no specific head of
constitutional power to legislate with respect to housing, which is the primary
responsibility of state and territory governments. Some housing
experts have argued that because federal and state roles and
responsibilities ‘cannot be robustly defined and allocated’, this complicates
housing policy-making, negotiation and accountability (p. 394).
Irrespective of this limitation, the Australian Government
intervenes in the housing continuum in numerous ways. Most of the interventions
at the federal level focus on the demand side of the housing market. Table 3
sets out current direct interventions in the housing market.
Table 3 Australian Government direct
interventions in the housing market
||What is it?
|First Home Super Saver Scheme (FHSSS)
||First home buyers
||Assists first home buyers to build a deposit inside their
superannuation, to save for their first home, due to the concessional tax
treatment and higher rate of earnings realised. Individuals have been able to
make contributions since 1 July 2017 and apply to release their savings since
1 July 2018.
Guarantee Scheme (FHG)
||Primarily targeted at first home buyers, but
certain subprograms assist other cohorts
guarantee scheme that provides a
guarantee on eligible loans equal to the difference between a deposit of at
least 5% and up to 20% of the property purchase price (to a maximum value, specified by area).
Certain subprograms set the minimum deposit requirement at 2%.
investment trusts (MIT)
||An increase to the capital gains tax (CGT) discount for resident
individuals from 50% to 60% where the MIT has used residential real estate to
provide affordable housing for at least 3 years prior to sale; and for
non-resident investors, a 15%- withholding tax rate if the MIT has used the
residential real estate to provide affordable housing for at least 10 years.
||A person or family that qualifies for an eligible social security
||A non-taxable income supplement, paid fortnightly to eligible
recipients. The payment is 75 cents for every dollar above a minimum
rental threshold until a maximum rate is reached. The thresholds and rates
vary depending on the household or family situation.,
Disability Accommodation (SDA)
||For eligible participants in the National
Disability Insurance Scheme
||Public, community, private rental and ownership
||The NDIS funds SDA for a small number of NDIS participants with
extreme functional impairment, or very high support needs, when deemed
necessary and reasonable. SDA funding is used to stimulate investment in the
building of new dwellings for NDIS participants.
||Generally, foreign investors must seek Foreign Investment
Review Board approval before acquiring residential property. Foreign
investors are barred from acquiring existing dwellings, except where the
investor is redeveloping an established dwelling in a way that ‘will genuinely
increase Australia’s housing stock’ (p. 15).
Housing and Homelessness Agreement (NHHA)
||State and territory governments
||Crisis housing and social housing
||The Australian Government provides funding to the states and
territories for the provision of social and community housing services,
crisis housing and homelessness services.
Housing Bond Aggregator (AHBA)
||Social housing providers
||The AHBA is operated by the National Housing Finance and Investment
Corporation (NHFIC). AHBA
‘provides low cost, long-term loans to registered
community housing providers (CHPs) to support
the provision of more social and affordable housing’.
In the direct interventions, one special case is
the relationship established under various Commonwealth-state
housing agreements (currently
Housing Agreement (CSHA) was the first national housing agreement and a
precursor to the NHHA. The first CSHA was driven largely by the need to address
a serious nation-wide housing shortfall after the Second World War. It
allocated funds for the construction of new rental dwellings only, with half of
this housing reserved for ex-defence force personnel. The intention was that the
federal government would support the states to deliver public housing to those
who wanted it, but with priority to those in greatest need.
Patrick Troy, notes ‘the Commonwealth was not setting out to replace private
ownership of dwellings but wanted to provide security of tenure and choice to
those who did not want or who could not afford to own a dwelling’.
Over time the Australian
Government's focus has shifted to prioritising support for home ownership and
eligible renters in the private rental market. With this shift, social housing
has moved from being a palatable alternative tenure type to residualised
and increasingly stretched welfare
Indirect interventions may also occur, such as
through infrastructure development, lending standards and taxation settings.
Infrastructure contributions through City
Deals and Regional
Deals typically involve measures for property development, including social
housing (for example, the Hobart
City Deal includes construction of ‘affordable housing options’). These are
in addition to the Infrastructure Investment Program that impacts housing by altering the built environment.
The Australian Government can also influence the
housing market through the regulation of the financial services sector, macroprudential
regulation and taxation settings. For instance:
standards (for example, LVR) and serviceability
requirements set by the Australian Prudential Regulation Authority influence
credit availability for prospective home purchasers
gearing allows an investor to offset housing associated expenses, including
loan interest payments and other outlays against their gross income, where the
income derived from the investment is exceeded by these costs.
- A 50%
discount on capital
gains tax (CGT) exists for Australian individuals who own an asset for 12 months
or more. A residential property that is a main
residence is fully exempt, provided eligibility and other assessment
criteria are met.
Although not directly under the control of the federal
government, the RBA targets a level in the cash rate, which
influences housing loan interest rates charged by financial institutions.
What can the federal government do to address
The mix of direct and indirect measures highlights
the complexity of the Australian Government’s involvement in housing. Direct
interventions have a clear effect, such as the FHG bringing forward home
purchases for eligible participants. Indirect interventions have wider impacts
than just housing; for example, tax changes to negative gearing or the CGT may
impact on investment decisions and tax arrangements more broadly.
A particularly vexing aspect of housing policy is
its long-term nature, and the effective locking-in of decisions as dwellings
are constructed. The work of housing policy experts, Hal
Pawson, Vivienne Mulligan and Judith Yates, suggests that the long-term
nature of this policy area requires:
- a broader and more equitable conception of
strategic housing policy – that is focused on delivering sufficient housing to
meet needs at all points of the continuum
- a research capacity that would support housing
strategy across the continuum – that is, enable the monitoring, analysis and
interpretation of housing system issues to assist in policy responses
- agreement on the roles and responsibilities of
all levels of government with regard to housing assistance
- a greater degree of policy and administrative
stability at the federal level.
Similar recommendations have been echoed in research reports
by the Australian Housing and Urban Research Institute, and previous parliamentary
With regard to social
housing, a group of prominent Australian housing researchers has
estimated that as at 2016 around 9% of all Australian households
were in need of social or affordable housing – that is, they were homeless, on
social housing waiting lists, or were low income households renting in the
private rental market and experiencing housing stress. This estimate translates
to a social housing need backlog of over 430,000 dwellings (p. 63). Based on
the assumption that the proportion of households in need of social housing
would hold constant over the next 20 years (but vary by region) it was
estimated that about 730,000 additional social housing dwellings would be
required to eliminate unmet need by 2036 (p. 1).
To prevent the existing
shortfall from worsening would
require the construction of nearly 15,000 additional
social housing dwellings a year. If the current backlog is to be eliminated,
the rate of construction would need to be around 36,000 dwellings a year. The
current annual social housing construction rate has been estimated
at just over 3,000 dwellings.
In the short-term, the Productivity Commission is currently
reviewing the NHHA- with its report due to the Treasurer by 31 August 2022.
This report will likely frame negotiations of the NHHA, which is due to expire
on 31 June 2023. Additionally, the House of Representatives Standing
Committee on Tax and Revenue tabled its final report into housing affordability in March
2022. This report did not receive a response from the Government prior to the 2022
Terry Burke, Christine Nygaard and Liss Ralston, Australian Home Ownership: Past Reflections, Future Directions, AHURI Final Report no. 328, (Melbourne: Australian Housing Urban Research Institute, 2020).
National Housing Finance and Investment Corporation (NHFIC), State of the Nation's Housing 2021- 22, (Canberra: NHFIC, 2022).
House of Representatives Standing Committee on Tax and Revenue, The Australian Dream: Inquiry into Housing Affordability and Supply in Australia, (Canberra: House of Representatives, 2022)
Productivity Commission, Report on Government Services 2022, Housing and omelessness, (Canberra: Productivity Commission, 2022).
Patrick Troy, Accommodating Australians: Commonwealth government
Involvement in housing (Sydney: The Federation Press, 2012), 283.
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