Australia has more and larger dwellings per person than ever. But you wouldn’t know it from the public conversation about housing.
Like we do every economic cycle, we misinterpret a short-term asset-pricing cycle for a long-term trend and shortage of physical homes. After all, the widely claimed shortage is global and suddenly emerged as prices boomed post-Covid.
The Business Council of Australia (BCA) is the most recent group to leverage the idea of a shortage of homes to push a reform agenda.
The BCA wants to “say yes to housing”.
So do I.
Yet I find it puzzling that they define the problem as a lack of home building, but propose spending billions subsidising infrastructure and removing taxes from property owners rather than spending those billions directly building homes.
When then prime minister Kevin Rudd wanted more homes built after the 2008 financial crisis, he gave $6bn to state public housing agencies, creating our last public housing construction boom.
When we need homes for the military, we have the Defence Housing Authority build new homes where and when they are needed.
The Housing Australia Future Fund could have spent a fraction of those funds on buying approved but stalled housing projects.
Lendlease last year sold a portfolio of 27,600 undeveloped new housing lots in existing estates. These could have been bought by the HAFF and fast-tracked for social housing. Instead, those ready-to-go housing lots were bought by another developer with the same interests in drip-feeding new homes to maximise their returns rather than minimise housing prices.
Like many proposals before it, the BCA focuses on things like removing taxes from property owners. One proposed tax change is to reduce withholding taxes on foreign investors for build-to-rent projects, which is a puzzle if ever I’ve seen one. Why exactly do we need tax breaks for foreigners when they have demonstrated they are happily already investing in these projects?
The BCA’s proposal to remove stamp duty and replace it with a land value tax is a popular one, but they neglect important trade-offs. Not only is stamp duty an economic stabiliser, taxing more in a boom and less in a bust, the lower transaction volumes can also benefit renters. Australian tenants are more likely to move because their landlord sells than to move for a job. New Zealand has no stamp duty and sees higher rates of forced moves by tenants due to landlord sales.
Meanwhile, it’s basic arithmetic that workers and their families entering the country to help build homes need more housing than they can build with their own labour time. A cynic might suggest that the BCA proposal to import more trade workers is designed to reduce the bargaining power that construction workers have at this high demand point in the property cycle.
Why is selling a house online so expensive in Australia? – video
Lastly, we always forget one hugely important policy setting in the country that is right now designed to get fewer homes built, not more.
Since April 2022, Australia’s central bank, the RBA, like others globally, decided that the inflation pulse must be tamed. With a record 240,000 dwellings under construction in Australia at that point, the best mechanism to do that was to make buying and building homes more difficult by raising the cash rate from 0.1% to 4.35%, quickly tripling mortgage rates from about 2% to about 6%.
It has worked to a degree, but even in June 2024 more than 220,000 homes were still under construction in Australia.
The housing shortage, crisis, or whatever term you want to use, is part of a global cycle. Yes, there are massively unequal effects from rapidly rising rents and prices on households across the country, and we should support these households. But removing taxes on property owners and spending billions not building homes is probably not the best way to help. When inflation falls and interest rates decline, home building will rise again, even without new tax breaks and subsidies.
Dr Cameron Murray is chief economist of Fresh Economic Thinking