Despite years of commentary and exhaustive economic analysis into the problems of housing affordability, most governments have steadfastly refused to entertain the need for a nationally coordinated policy approach to housing.

Now, as the market appears to have peaked and banks and regulators are tightening lending conditions to curb market exposure, another Government inquiry into home ownership and housing affordability is underway. But is it all now too late?

Traditionally, conservative Federal governments have resisted calls for a housing Ministry on the basis that this is really a responsibility for the states and local governments, which it is. State governments are responsible for regional planning and for policy approaches which affect supply through regional land use policies and through tax policies. Local government also plays a significant role in land use planning and local taxation. Combined, state and local governments are responsible for  the gamut of land supply restrictions, planning red tape, excessive political interference in planning decisions and exorbitant taxation of new supply through up front infrastructure levies.

These have been repeatedly identified as key culprits in the worsening housing affordability situation in Australia, yet despite the mounting evidence of policy failure and its impact on housing costs, little has changed. The Federal government has maintained its view that housing policy is for the states and local governments. What’s worse, we’ve even seen the Prime Minister suggest that escalating prices in Sydney and Melbourne aren’t a bad thing, and the Treasurer shrug off suggestions that excessive price growth poses risks to the economy. Instead, his focus is on pinging a number of foreign investors operating outside the law. You can’t help but feel this is a distraction to the bigger issue.

The head of the Reserve Bank, Glenn Stevens, has been muttering his concerns about excessive investment in housing for some years, leading him to describe the Sydney market earlier this year as “crazy.” This is coming from one the most conservative people in the country, who chooses his words with particular care, knowing that what he says can influence exchange rates and the entire economy. Imagine how concerned he must have been to let fly with a word like “crazy”? Or how he felt to find the government largely ignoring him?

Not waiting for yet another parliamentary inquiry to report, the Australian Prudential Regulation Authority (APRA) has started to tighten the lending screws, particularly for investors – who for the first time ever account for more than half of all housing lending. Banks are taking note and also pre-emptively increasing their interest rates for investors and lowering their loan to value ratios. While there is still some steam in the market, signs of cooling are already starting to appear. History tells us that downturns are almost always impossible to predict accurately, they arrive much quicker than anticipated, and take much longer to get out of.

If what we are about to see is a rapid cooling of overheated markets, particularly those driven by speculative off-plan apartment sales in major cities but also more generally established housing, this will not be a good thing. A lot of people will lose a lot of money, and confidence will take a hit. The economy will suffer.

What would have been preferable is a sensible national policy approach to housing supply and investment, which may have prevented the recent explosion of speculation in housing. A more sustainable increase in prices, if supply was allowed to match demand, might have seen modest price rises and affordability preserved for younger families trying to enter the market. It also would have prevented any rapid market deflation because there would have been no ‘bubble’ in the first place.

Ironically, as seems typical for Australian public policy, moves to introduce sensible policy settings may come when it’s all too late. Introducing changes into a falling or uncertain market have a habit of only making things worse.

  • Right on, Ross.

    Whilst everyone talks about the need to improve housing affordability, there appears to be an appalling lack of coordination with regard to efforts to go about this.

  • The federal-state division in Australia government is a severe impediment to sensible policy-making – it's all too easy for the two tiers to pass the buck to each other.

  • There are so many impediments to Australia having a viable housing strategy. Firstly the Commonwealth wants to leave it to the states. Secondly the largest advocacy groups – Industry Associations and lobby groups on the one side and the social housing advocates like the gap that exists between them. That allows for one to argue for more green fields land, public funded infrastructure, tax incentives and low interest rates and the other for housing levies and subsidies. The current developer delivery model has become expensive and inflexible. The project home building model has served Australian home buyers for over 50 years but id now needs to be adapted to accept that multi-unit will be a big part of the future and they must find a new supply offering. Housing for the most needy will always be an area where government must intervene and assist. But it must be value for money and sustainable. Labour's NRAS was neither. The industry must accept the importance of private rental more effectively supplied. The current model is not effective. Most importantly all strategies must sustain the aspiration of housing self-sufficiency. Influencing the right stock mix and location will be key.

  • But the most successful conservative Government in Australia's history, that of Bob Menzies, did involve itself in housing. In his second Ministry, in 1952, he gave an existing Minister the additional responsibily for Housing, and from that came the creation of the Federal Department of Housing. From that decision came the “Home Savings Grants Scheme” and the introduction of housing loans insurance. The tragedy for Australia is that, as the NSW 'Uglies" with their non Menzian policies took control of the Party, it no longer had any interest in nurturing the middle class that Menzies saw as the the party's natural constituency. The two main parties' constitutions have always, in the past, clearly showed the distinction between whom they sought to represent. The Liberals states an "objective of the Organization ( Liberal Party) shall be to have an Australian nation in which every family is enabled to live in and preferably to own a comfortable home at reasonable cost," while the ALP's constitution makes the broader statement " Labor believes that all Australians should have access to safe, affordable and appropriate housing throughout their lives." A nation of Renters will vote ALP.

  • Recently a normal mishap was used to attack the market place that provided housing for the people in the lowest income level. The signs went out "I am from the Government and I am here to help you".
    It was soon found that thousands of people were about to be forced to sleep in the streets or shop Verandahs, by the senior public servants that themselves lived in the upper middle class suburbs.
    The Left wing Councils welcomed the change that was going to force the lower class people out of their suburbs, and, took the initiative to question anybody living with a "non blood relative" or was not a "couple". We can not have too much freedom or democracy.
    The strict control and having an aim of keeping our cities "neat" works by accepting the fact that only the rich have rights. The excessive planning control, that now includes all manner of what used to be building matters, which attacks the smaller and more productive developers. The taxation system targetting those building at the same level, no matter how rich or poor they are, adds to the problem.
    My cousins who lived under endless control of the Soviets will tell you Fascist control is not productive.
    We need deregulation.

  • Except with regard to providing affordable accommodation for the most vulnerable, I don't think the Federal Government should become too involved in this. Housing affordability is not a national issue as it pertains mostly to one or two cities, an issue for those particular State and the various relevant Local Governments to better address a coordinated approach.

    Our first home was in Sydney. It has always been difficult there for first home owners there and was actually more of a burden on mortgage repayments in the late 80's than it is now – taking income, unit and house prices, no grants and triple interest rates into account. I don't remember this much fuss being made then as people tended to just adapt and get on with it.

    On the point of up front infrastructure charges – these are not a tax. They cover a significant portion (but generally not all) of the service infrastructure costs associated with new land developments. The majority of long term debt for public utilities is already related to assets and gets subsidised by low interest loans from the State. There is an intergenerational responsibility not to defer these costs. Stamp duty is the one I would remove.