Constitutional limitations and the Commonwealth

Section 51 of the Constitution outlines most of the Commonwealth's legislative powers, but does not grant the Commonwealth a general power over housing matters like residential tenancies or zoning laws. Legislative powers not explicitly granted to the Commonwealth remain with the states. As such, the states hold the primary position to act on various housing issues (with some authority delegated to local governments).

The image below (Figure 1) summarises the current areas of responsibility for regulating various housing policy aspects, which largely reflects existing constitutional arrangements.

Figure 1: Division of regulatory and policy implementation responsibility over housing

Source: adapted by the Parliamentary Library from Australian Housing and Urban Research Institute, Submission to the Senate Standing Committee Inquiry into the worsening rental crisis in Australia, p. 22

The regulation of residential tenancies, taxation, land planning, and housing construction are examined briefly below. For further information about rental affordability issues in Australia please refer to the Parliamentary Library’s Issues and Insights article Implications of Declining Home Ownership.

Residential tenancies

Regulating rents and residential tenancy laws

It has long been acknowledged that outside of wartime (pp 2-3) the Commonwealth lacks a direct legislative power over residential tenancies, a limitation highlighted by the unsuccessful 1948 Rents and Prices referendum. However, this does not mean that the states and territories could not collaborate amongst themselves, or with the Commonwealth, to achieve uniform residential tenancy laws. In addition, the Commonwealth could attempt to regulate a proportion of residential tenancies, under certain constitutional powers as noted below.

Ultimately however, the states remain responsible for regulating rents, and the Commonwealth lacks the clear authority to impose a ‘rent cap’ on (or otherwise regulate) all residential tenancies, as that power remains with the states.

Regulating corporate housing market participants  

The Constitution provides the Commonwealth the power to make laws with respect to constitutional corporations, including any relationships they have with third parties (pp. 8, 16–17, 20). This means the corporations power could potentially support legislation regulating constitutional corporations that are residential landlords or offer residential property management services.

This may include regulating relationships that constitutional corporations have with landlords and tenants. However, it would not allow the Commonwealth to regulate natural persons without any relationships with a constitutional corporation (e.g. individuals who self-manage their rental properties).

The external affairs power and the human right to adequate housing

The Constitution permits the Commonwealth to legislate on matters arising from international treaties Australia has ratified in some situations. Under Article 11 of the United Nations’ International Covenant on Economic, Social and Cultural Rights (ICESCR), Australia must recognise and take ‘appropriate steps’ toward the right to ‘adequate’ housing. This may include taking appropriate legislative or other measures to regulate housing and rental markets in ways that promote that right (p 33).

It has been argued that the ICESCR could support Commonwealth legislation on residential tenancies under the external affairs power. However, any such legislation —such as rental caps—would need to be reasonably appropriate and adapted (paragraphs [33]-[34]) to promoting the right to adequate housing as understood under the ICESCR, not the broader housing market. Furthermore, such a law’s constitutionality would ultimately rest with the High Court.

Taxation of housing and related issues

All levels of government have various powers to impose various types of taxes and charges in relation to housing. For example:

• the Commonwealth taxes housing primarily via income tax (which includes capital gains) but also through the Goods and Services Tax (e.g. in relation to construction costs)
• the states tax housing through land and vacant property taxes, stamp duties and others fees and charges (pp. 1, 4) and
• local governments tax housing via rates and other fees and charges (p 4), such as short-term accommodation permit fees.

The Commonwealth's broad and flexible taxation power ‘extends to any form of tax that ingenuity may devise’ ([90-1355]), provided the tax laws do not discriminate between States or parts of States.  They can, however, potentially override (to the extent of any inconsistency) state taxes under section 109 of the Constitution. This allows the Commonwealth to implement diverse housing-related tax initiatives, including new taxes like vacant property taxes.

In addition to creating new types of taxes, the Commonwealth can also modify or abolish existing taxes on housing. For example, the Commonwealth could modify how rental income is taxed by altering rules on deductions, negative gearing, capital gains tax discounts or exemptions and tax rates. Such changes could be designed to encourage investment in housing construction through reducing associated tax costs. The states and local governments could also, absent any Commonwealth initiatives, also modify their taxes and charges to achieve similar outcomes.

Shaping the built environment

Planning the location and character of housing

State governments are constitutionally responsible for land-use planning. All states have land-use planning legislation and, as Ruming et al. (2014) note, they have been ‘careful to maintain’  their authority. Conversely, the Commonwealth plays an indirect role in shaping development, regulating land-use only in very limited circumstances. For instance, the Commonwealth regulates matters of ‘national environmental significance’ (such as World Heritage sites) using its constitutional external affairs power (section 51(xxix) of the Constitution). Section 52 of the Constitution also grants it authority over planning and managing most Commonwealth land.

Since World War II, the Commonwealth has primarily influenced housing through conditional grants to the states under section 96 of the Constitution. This includes national housing agreements and infrastructure funding, such as the Housing Australia Future Fund (HAFF) established on 1 November 2023 by the Housing Australia Future Fund Act 2023  (HAFF Act). Through the HAFF, Housing Australia provides funding to states and territories for eligible social and affordable housing projects.

In recent years, the Commonwealth has taken a more active leadership role in land-use planning, with varying levels of engagement. Key initiatives include:

• National Urban Design Protocol: This produced the Creating Places for People blueprint document (published in 2011). Developed in consultation with states and territories, Creating Places for People was launched by then Infrastructure Minister Anthony Albanese. Responsibility for implementation was given to designated ‘champions,’ including state and local governments.
• Disaster and Climate Risk Standards: On 9 December 2022, National Cabinet tasked planning ministers with developing a national standard for incorporating disaster and climate risk into land-use planning and building reforms. These standards have not yet been released.
• National Planning Reform Blueprint: On 16 August 2023, National Cabinet endorsed a blueprint to improve housing supply and affordability through planning, zoning, and land release reforms. Planning ministers are to report progress biannually.

The Commonwealth has also sought to ‘flex its fiscal muscle’ by tying infrastructure funding to urban planning standards. For example, a 2009 Council of Australian Governments (COAG) agreement introduced nine national criteria for capital city strategic planning. This agreement committed that ‘…by 1 January 2012 all States will have in place plans that meet the criteria’ and noted that ‘the Commonwealth will link future infrastructure funding decisions to meeting these criteria.’

Commentators (for instance, Ruming et al.) have observed that post-2009 capital city planning policies explicitly referenced the national criteria, leading to the conclusion that the criteria likely had more influence on planning policy than the Commonwealth’s 2011 National Urban Policy (which lacked an implementation mechanism). Accordingly:

If competition between jurisdictions for status of best capital city planning framework operated as a policy carrot to encourage the overt adoption of the national criteria, the risk of reduced national infrastructure funding operated as an implied policy stick. (Ruming et al., p.115)

Harmonising building standards

State and territory governments are responsible for the safety, health, and amenity of construction While it has no formal role, the Commonwealth coordinates nationally consistent building standards, through consensus with the states.

The National Construction Code (NCC) is a set of uniform technical requirements for building design and construction across Australia. It is given legal effect through state and territory legislation (for instance, the Environmental Planning and Assessment Act 1979 and the Plumbing and Drainage Act 2011 in NSW) and is updated every three years based on industry research, public feedback, and government policy.

The NCC is overseen by the Building Ministers’ Meeting, which includes state and territory ministers responsible for building and plumbing regulation. The NCC is published and maintained by the Australian Building Codes Board (ABCB), an agency within the Department of Industry, Science and Resources. Established in 1994 by an Inter-Government Agreement (IGA), the ABCB reports to the Building Ministers’ Meeting and is supported by the ABCB Office.

The most recent (2020) IGA affirms that the states and territories are primarily responsible for building and construction (Section 1.2) but highlights the importance of national consistency. The IGA’s stated goal is to improve building outcomes, boost public confidence, and enhance the building industry’s efficiency and global competitiveness (Section 1.1).

Regulatory responsibility for the housing market as a whole is fragmented between the three levels of government in Australia. Whilst the Commonwealth is able to provide leadership and coordinate policy responses in relation to housing to a certain degree, it cannot comprehensively regulate key aspects of the housing market.

This means that key areas related to the housing crisis in Australia remain the responsibility of the states and territories to resolve, either alone or in collaboration with each other or the Commonwealth.

What does this mean for the housing market?

Regulatory responsibility for the housing market as a whole is fragmented between the three levels of government in Australia. Whilst the Commonwealth is able to provide leadership and coordinate policy responses in relation to housing to a certain degree, it cannot comprehensively regulate key aspects of the housing market.

This means that key areas related to the housing crisis in Australia remain the responsibility of the states and territories to resolve, either alone or in collaboration with each other or the Commonwealth.

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