Wind back 20 years and the average full-time worker in Australia could pick themselves up a weighted median priced house in a capital city for around four times his or her yearly earnings before tax.
Fast forward to today and that same multiple has risen to 8.6, home ownership rates have dropped and many of those fortunate enough not to be locked out of the market altogether are being forced further out toward the urban fringe and thus further away from the best opportunities for employment and social activity.
Between 1996 and 2011, for example, home ownership rates dropped from 71.2 per cent to 66.9 per cent overall and from 52.2 per cent to just 42 per cent amongst 25-to-34-year-olds, according to ABS census data. In Melbourne, whereas more than 45 per cent of dwellings across almost every suburb bar a few in the inner east were affordable to low and middle income earners in 1981, Grattan Institute data suggests that by 2006, that could have been said of hardly any suburbs within 30 kilometres of the CBD.
What can be done? First, what would not work, according to Associate Professor Steven Rowley, Director Australian Housing and Urban Research Institute – Curtin Research Centre, would be to simply release more land. Instead, Rowley says affordability will only improve when there is a significant rebalancing of supply and demand and incomes grow faster than direct housing costs.
“We hear a lot about solving the housing affordability crisis by simply releasing lots of new land and making it easier for developers to deliver housing,” he said.
“The reality is more complex and you can have all the land you want, but unless development is profitable for a developer on a particular site, then no housing will result. Additionally, developers do not want to flood the market with land and housing because the result will be downward pressure on prices and this will impact on profitability.”
Beyond that, one thing many commentators suggest is that stamp duty should be replaced with better ways of raising revenue, such as land tax. As a transaction-based tax, RMIT Centre for Urban Research head professor Jago Dodson says stamp duty - the cost of which on a $500,000 home could amount to anything from $8,750 in Queensland to more than $20,000 in both Victoria and South Australia (subject to concessions) - acts as a barrier to those who seek alternative housing solutions as circumstances in their lives change (such as through switching jobs) and falls disproportionately as a burden upon those who relocate on a regular basis.
A better way, University of Auckland researchers Nicholas Ross Smith and Zbigniew Dumieński argued in an article on The Conversation last year, would be through taxes levied on the unimproved value of land. Such taxes exist everywhere in Australia except for the Northern Territory, but principal places of residences are generally exempt and rates charged are generally modest.
Inexpensive to administer and difficult to evade (as land cannot be moved to tax havens), Smith and Dumieński argue that such a tax would not only avoid punishing land owners for building on their land but would also encourage holders of vacant or inefficiently used land to either make use of that land or sell to others who will make use of the land.
Meanwhile, interesting issues surround negative gearing and capital gains tax. Industry lobby groups argue that the ability of investors to take advantage of negative gearing concessions encourages greater levels of new housing supply while enabling middle income professionals to get ahead financially. They add that previous attempts to remove the negative gearing tax concession in the 1980s led to a landlord strike which drove up rents.
A number of academics and economists, however, say this is nonsense. Pointing to ABS data which indicates that 93 per cent of all loans made to investors within the residential property market relate to the purchase of established rather than new housing, economists such as Saul Eslake and Grattan Institute researchers John Daly and Danielle Wood say that investor activity within the housing market adds very little to new housing supply in reality.
As for the apparent surge in rents during the mid-80s, this was concentrated in two markets (Sydney and Perth) and was not caused by the abolition of negative gearing but rather by strong population growth and insufficient levels of new construction in those cities. Elsewhere, rents actually fell during that period in Brisbane and Adelaide, and remained stable in Melbourne.
At any rate, even if less generous tax concessions did prompt some investors to sell, their properties would be purchased by current renters (who would no longer need to rent), meaning that any reduction in rental properties available would be equally matched as there would also be fewer renters to compete for these properties, Eslake, Daly and Wood say.
Dodson and Rowley both agree. Dodson refers to negative gearing as ‘essentially a subsidy for households on very high incomes to become landlords’ and outbid less wealthy households. Rowley, meanwhile, says Labor’s proposal to restrict the availability of negative gearing to newly constructed housing is sensible and may encourage potential investors to invest in new builds rather than compete with first home buyers for established dwellings.
Rowley also supports the removal or reduction of the 50 per cent capital gains tax discount on investment properties, and suggests this also be restricted to new housing in order to further encourage new supply.
Beyond tax, a number of commentators say more needs to be done to create mechanisms through which private capital is encouraged to invest in affordable housing.
In 2014, for example, the Australian Housing and Urban Research Institute called for the creation of a new type of instrument referred to as a housing bond. Under this arrangement, a new government body would raise large volumes of money from long-term low yield bonds issued by banks to institutional investors and would allocate these to community housing organisations (CHO), who would in turn use the money to purchase property which was either rented under subsidised rates or sold to low income families under a shared equity model. To make the bonds attractive to investors, the government would guarantee repayment in the event of CHO default. Such a mechanism, AHURI argues, would help to finance the development of affordable housing targeted at low income families in an environment whereby levels of public sector investment in social housing have dropped back in recent decades.
Beyond taxation and finance, there is planning and zoning, and the question of whether or not constraints within the planning system are having a material impact upon housing affordability. While property sector lobby groups insist that this is indeed the case, academics are not so sure.
Speaking particularly of the situation in Sydney and New South Wales in an article on The Conversation last year, for example, Sydney University professors Peter Phibbs and Nicole Gurran acknowledged that there was room for improvement in this area but added that reforms over the past 10 years meant the system in that state was now more flexible and responsive to greater levels of housing demand. Dodson says evidence on this topic is ‘somewhat mixed' and stresses that notwithstanding the potential for further efficiency gains in this area, this must be balanced against the need to avoid poor quality developments.
That said, a number of commentators suggest there are specific strategies with regard to planning which could make a difference. In his City Limits book published last year, for example, former Grattan Institute researcher on housing and cities and now assistant director of intergovernmental strategy of the Department of Premier and Cabinet (Victoria) Paul Donnegan argued that the simplification of convoluted planning zones and rules along with greater emphasis on housing diversity and choice within decision making could help unlock the potential of middle suburbs for greater levels of medium density development.
Others, such as Eslake and Melbourne-based Metropolitan Planning Authority CEO Peter Seamer argue that more should be done to improve transport links to outer suburbs so that housing within these areas can offer suitable living options without residents being forced to endure long and costly commutes to places of employment.
A further concept which has broad support among academics, meanwhile, revolves around inclusionary zoning – the reservation of a proportion of dwellings (usually 10 to 20 per cent) to be made affordable to low and moderate income earners as a condition of new development approval. Such an approach is being looked at in Victoria, for example, where the state government is drafting a pilot project which is expected to start on government land which is being readied for sale.
Phibbs, Dodson and Rowley all support this concept, with Dobson seeing ‘huge scope’ to do this within Australian cities. It may, however, be more difficult in fringe areas where margins may be tight. Rowley suggested such an approach could deliver significant quantities of affordable housing, though he cautioned that such a policy took years to bed down in the United Kingdom.
Finally, Dodson says Australian governments in general lack a holistic understanding of the interplay between the housing system, market and housing policy. At a federal level, for example, he says the Minister for Housing is primarily concerned about the social and welfare aspects of housing policy as opposed to the broader economic considerations. The Treasury, meanwhile, has a good understanding of the housing market, but is under-resourced in terms of its appreciation about how the system, markets and policy interact with each other.
Dodson says more courage is needed in this area.
“I think what we need to see is bolder strategic thinking,” he said. “If you look at the Senate Inquiry which came out last year, virtually all recommendations were rejected by the government.
“There is a real disinterest in this policy area at the federal level. State governments with their limited resources are not especially adventurous in this area either.”