Five questions to drive housing policy
The challenge for Australia’s federal government is to deliver policies that take price pressures off our biggest cities without risking new investment, says Property Council chief executive Ken Morrison.
In an opinion piece in the Australian Financial Review this week, Morrison says housing affordability is “very real” and is affecting “our cities, families and our social fabric”.
Australia’s 67 per cent home ownership rate is high by OECD standards, but it has been on a slow downward slide for 30 years, Morrison argues.
As prices rise, the number of Australians who have paid off their home has fallen from 40 per cent to 30 per cent in a generation.
Our largest cities have experienced sustained price increases, while smaller cities and regional areas have mostly experienced modest or flat house prices for the past six to eight years.
“Even with east coast construction at record levels, we are only just keeping up with population growth, let alone eating into the undersupply backlog of 1,000 dwellings that has built up over a decade. And with building approvals falling 17 per cent since July, there is every reason to be concerned.”
Morrison says our solutions must be focused primarily on the supply of new dwellings.
“Many of the policy solutions floated in recent weeks have been about encouraging more demand. But ignoring supply constraints while stoking demand will simply lift prices.”
He says understanding the role investors play in the market is also important.
“Investors have become the new bogeyman of housing policy. Yet new investment – including foreign investment – aids construction and boosts supply. New dwellings, no matter who they are built for, increase supply and take pressure off house prices and rents. They also provide jobs and help drive our economy.”
The 100-year-old negative gearing arrangements have resulted in a rental market that is working well, Morrison says. Rental growth has been modest for a long time, and average real rents have declined in all states.
The secret is initiatives that support supply, such as financial incentives that encourage state-based planning reform and that support downsizing.
We should also be looking to unlock institutional investment in housing to accelerate supply.
Morrison says the emergence of ‘build to rent’ housing in Britain, and the long-standing ‘multi-family’ segment in the US and Germany, have shown “there is a model for super funds to invest in new properties, providing renters with longer-term tenure, stability and a built product that better suits their needs,” he says.
“Build to rent has the potential to become a real driver of supply.”
Morrison says policy-makers should be asking themselves five questions when assessing different housing affordability proposals:
- Does it encourage the construction of new dwellings – at affordable prices – to match our population growth?
- Does it reduce the costs of buying housing and make it easier for people to move house?
- Does it help close the deposit gap?
- Does it open up innovative means to deliver affordable housing?
- Does the proposal make the problem worse?
“My hope is that the housing affordability budget will give the housing supply pipeline new impetus,” he says.
“If we can get beyond gimmicks and focus on the fundamentals, then the budget has the potential to be the most important in a decade.”