Labor went to the election with a solid commitment on improving housing affordability, primarily targeted at demand side support and extra social housing.
While welcome, this does not address the underlying issue: that housing supply in Australia has fallen well behind demand and urgent reforms on the supply side are needed to improve housing outcomes for more households.
In Greater Sydney, the economic engine room of the nation, NSW DPE predict that the next 5 years will see only 151,490 new homes produced on the “medium growth” scenario – well below the 40,000 per year that the NSW Housing Strategy said was needed in 2021.
New Housing supply data on the NSW DPE Urban Development Program Dashboard shows that things are getting worse. The 12 months till the end of June 2022 saw new housing supply drop to a miserable 24,641 homes – 28.7% below the prior 5-year average which itself, saw the housing supply crisis emerge. This means we are almost certainly heading for the “low growth” scenario for Greater Sydney which predicts that only 143,475 new homes will be produced between 2021-2026. CLICK HERE for link to the DPE data
Labor’s federal election commitments included:
- Help to Buy – a shared equity scheme to support 10,000 home buyers each year with varying eligibility thresholds
- Regional First Home Buyer Support Scheme – a scheme which offers a government guarantee of up to 15 per cent for 10,000 first regional homebuyers who have been living in the region for at least 12 months. Existing houses, townhouses, units, house and land packages, off-the-plan apartments and land with a contract to build are all eligible under this Scheme
- Housing Australia Future Fund – Labor pledged to create the $10 billion Housing Australia Future Fund which will build 30,000 new social and affordable housing properties in its first five years
- National Housing Supply and Affordability Council – establish a national body with the goal to increase housing supply, undertake research and have a key role in the development and implementation of Labor’s National Housing and Homelessness Plan.
The Government, led on Housing by Minister Collins, it quite sensibly focussing on the delivery of these commitments and Tuesday’s budget is expected to detail funding accordingly.
But there is an urgent need for focus on supply side stimulus. Tuesday’s budget is a chance to take pro-active steps to boost private market housing supply.
Boosting demand with packages to assist those on low incomes, alone, is nothing but an offer of fools’ gold if housing supply is not significantly increased. It actually pushes up the price of new homes.
The lack of market housing supply creates greater and greater demand for social and affordable housing as even the lower end of the sale and rental markets become out of reach for many. So while social and affordable housing is clearly necessary given the current state of the market – greater focus needs to be applied to fixing the cause of the problem and not just the symptoms.
The cause is the lack of supply and its failure to meet demand for homes. The symptoms are rising home prices, declining affordability, increasing rents, increased demand for social housing, resulting in increasing homelessness and poverty. It is time Governments treated the cause.
The Government’s own National Housing Finance and Investment Corporation (NHFIC) spelt out the impact of supply side failure on renters:
“If housing authorities actively slow or impede the flow of new housing supply, it can exacerbate upward pressure on rents and prices, something that should be avoided if improved housing affordability is a primary objective.”
“Supply impediments and growing lags and lead times in many markets around Australia are increasing housing costs” NHFIC
Urban Taskforce Australia has a five-point plan for Housing supply side repair:
- Build-to-rent: Make the tax system fair for build to rent investments. Why do those that build student housing, seniors living or serviced apartments get an immediate GST tax credit while those that build for long-term rental apartments (under a single owner – just like student accommodation) do not get a GST credit for five years? This type of investment is favoured by Superannuation funds, but many have stayed away from BTR investments because of complexities in State Planning systems (risk) and the unfavourable GST treatment of this investment type)
- Super funds: Increase incentives for Australian Superannuation funds to invest in affordable, key worker and market housing supply
- Performance based grants: Link local infrastructure grants to boost housing supply by rewarding LGAs that overachieve on housing supply targets
- Government bonds: Increase the gearing of Government funding by expanding the use of low interest government bonds via NHFIC for the purpose of private sector delivery of housing supply (must include both market and affordable housing) and/or the delivery of associated local infrastructure
- Planning system reform or Planning fast-tracks: Financial rewards (or penalties) for States that increase the flexibility of their planning systems and provide fast track systems to deliver high yield housing supply developments could make a real difference to housing supply and affordability.
The Governor of the Reserve Bank of Australia, Philip Lowe, has also sent political leaders very clear advice on this issue. In a speech entitled “The Housing Market and the Economy” he said:
“So, the origins of the current correction in prices do not lie in interest rates and unemployment. Rather, they largely lie in the inflexibility of the supply side of the housing market in response to large shifts in population growth.” Philip Lowe
Supporting those who are struggling is in the DNA of the ALP. But offering demand side assistance can only work if the supply side is also addressed. It’s the Commonwealth that hold the big financial stick and their focus on the supply side is urgently needed.
Labor’s first federal Budget in almost a decade is a golden opportunity to signal to State Governments, LGAs and the private sector that it is prepared to be part of a collaborative solution.
The comments and analysis above can be attributed to Tom Forrest, CEO, Urban Taskforce Australia.
The Urban Taskforce Australia is a property development industry group, representing Australia’s most prominent property developers and equity financiers.