Affordable housing

Housing affordability is shaping up as a key election issue and in a bid to bridge the widening gap to enter the market the federal government is expanding its deposit guarantee scheme.

Federal budget initiatives

But while the doubling of its Home Guarantee Scheme to 50,000 places is aimed at making it easier for first home buyers to get into the property market there are concerns it will do little to stem affordability issues.

The expanded scheme will make 35,000 guarantees – up from 10,000 – to first home buyers with deposits as low as 5%, 10,000 guarantees for regional buyers to purchase or build a new home, and 5,000 guarantees to support single parents to buy a home with deposits as low as 2%.

It applies to new or existing homes worth up to $700,000 in cities and $500,000 in regional areas.


Also, the scheduled increase of the First Home Super Saver will commence as announced in last year’s budget on 1st July 2022 and lift the cap from $30,000 to $50,000.

Plus, the National Housing Finance and Investment Corporation cap has been expanded by $2 billion to a combined $5.5 billion which is estimated to equate to an additional 27,000 dwellings.


Interestingly Josh Frydenberg’s budget speech didn’t mention housing affordability.

When quizzed on the subject, Scott Morrison, reiterated the Coalition standard line about buying a house is the best solution to low housing affordability.

In his mind (and maybe the Coalitions too?) you are superior if you hold your home rather than rent one.

For mine, there are three things that matter when it comes to the affordable housing issue.

Three things

  1. The Australian economy is addicted to housing. This has been the case over the past 20 years.  Chart 1 shows that today two thirds of all lending goes to housing.  It was just a third 30 years ago.  Many of our biggest companies – i.e., the banks – are dependent on dwelling price growth.  And most of us are too.
  2. And that brings us to the second thing, seven out of ten households hold a dwelling. They don’t want the value of that asset to fall.  Ditto when it comes to the share market – as most super funds have a heavy weighing to financial institutions, whose biggest asset base and business growth model is home lending.
  3. Real estate at its core is about supply versus demand. When demand exceeds supply, prices/rents rise.  The reverse interplay sees values fall.  The key to making housing more affordable is to reduce demand and/or increase supply.  And the new supply needs to be cheaper.

My quick replies

I think we should be doing everything we can to reverse the lines shown in chart 1.

For mine all federal, and many state, economic policies should address this issue.  Housing is shelter.  It is vital.  It is a place to live first and foremost.  A vehicle for profit or an economic return a distant second.

Business grows an economy.  More money to business enterprises will help boost our productive capacity and set the foundation for future growth.

But changing this mindset – at present – regrettably is just wishful thinking.  So, let’s forget doing something meaningful here and move on.

Any major changes that affect the value of existing housing – changes in property-related taxation, removing negative gearing etc. – just won’t pass the ballot box.  So, we really must cross this out too.

Yet what would be popular with most voters is restricting home ownership to Australian citizens.  It is beyond me why a federal electoral party doesn’t run with a No Passport – No Buy policy.

Many of the things that both major political parties do in the housing market space – like first home buyer incentives – increases demand.  This is seen as a good thing by the real estate and construction industries, but it often lifts end values and hence makes housing less affordable if there isn’t a corresponding (or greater) lift in the appropriate dwelling supply.

Since FHOG was introduced in 2000, there are less first home buyers – as a proportion of the total relevant first homeowners age group – than would have been the case  (in my opinion) if such incentives were not introduced.  See chart 2.

First home grants and guarantees (like the expansion just promised) are great politics, but poor policy.

One approach would be to try and reduce demand, by aggressively lifting interest rates or restricting investment activity for example.

But as I outlined here, there isn’t enough rental supply at present due to previous investment restrictions and higher interest rates adversely affect first home buyers and often renters too, as many landlords lift rents when their costs rise.

We could also reduce housing demand by seriously capping our immigration intake.  But the business lobby – again at present – makes this a very unlikely scenario.

Plus, we could legislate that certain housing-related costs are reduced.  Think real estate fees or investment selling commissions.  I think this needs exploring but it is questionable if changes here would improve housing affordability.  It would most likely see sellers and developers pocket more of the sales price.

So, we are left with trying to lift dwelling supply.

This is really the only thing that realistically could be implemented to help improve housing affordability.

And importantly that new supply needs to be cheaper – for buyers and renters – than it currently is.

How could this be done?

  1. Increasing the proportion of investment loans towards new construction by either dangling a carrot or using a stick to alter behaviour. I think a carrot is best so maybe lower interest rates for new investment housing builds for a time.  Another approach would be to offer a high rental yield for new stock.  I stress that these are short-term solutions.   This would lift the new supply, but not necessarily make it cheaper.
  2. Making it far easier for developers and builders to supply ‘alternative’ housing stock. This will mostly involve smaller product – both land and housing size/dimensions – and/or more occupants per dwelling and/or title.  Location, sitting, and design become very important.   Density needs to be offset.  This would lift both supply and introduce cheaper homes to buy or rent, especially for tenants who are prepared to share.  Our work suggests that some 65% of new housing supply over the next decade – in both urban and many regional places as well – needs to be this ‘missing middle’.
  3. Changing the tax and fee structures associated with new builds. For example, infrastructure charges should be set at 5% of the end price and not a flat fee.  The flat fee approach stops many developers building affordable stock.  Also, infrastructure charges should be levied at settlement.   Moreover, stamp duties could be substantially reduced for new homes and maybe the GST is either reduced or removed from new housing.  The GST action might have a set time frame.  This would increase the proportion of cheaper new builds.
  4. Much commentary about new housing supply focuses on the availability of appropriate zoned land. But little is said about the exhausting approval process and the various imposts that come with a development approval these days.  Worse still is that this is a moving target and one that often defies logic.  Plus, there is no consistency between councils or even within the same council!  This process needs to be streamlined.  This would increase supply and potentially reduce costs/price.  Why we also don’t have a nationwide building code – one that only varies according to climatic zones – is also beyond me too.
  5. Remove any tax imposts on Build to Rent. Also encourage this type of rental supply – which is big overseas and has a very large future in Australia – to other locations (it seems to be heavily focused in Melbourne at present) and across other product types such as townhouses, terraces, and small lot detached housing.   This will substantially increase supply.  Many tenants want security of tenure and a well maintained/managed abode.  They will pay a premium for this.  My project advice commissions in this space – which has been a lot in recent years – suggests that one in six tenants could live in BTR product within the next decade.
  6. Start to provide more ‘public’ housing. Governments should be entering the development space, especially when they own the land.  They could go down the BTR road, or offer a long lease purchase option, or sell with some form of equity holding.   Again, they need to work on getting the product and offer right.  Ideally, 10% of Australia’s new housing starts should be in the public space each year.

End note

Unless new housing supply is addressed then the affordable housing debate is just a lot of noise.

Those that like to rant can postulate for a reduction in housing demand or financially punishing those that already own or hold residential real estate, but woe betide any government that attempts to make changes here.

Remember often the first thing a new home buyer will ask once they have signed a contract is how fast will their new home grow in value.

This is fine and dandy, but we need to lift the number of affordable homes to rent and buy.

We need more cheaper new housing supplies.

A good place to start would be to revisit the newly expanded Home Guarantee Scheme and lower both price thresholds by say $200,000 plus limit its application to new ‘missing middle’ dwelling builds.

Social engineering?  Maybe, but something actually needs to be done.

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