Is it time to let go of the great Australian dream? CEDA

Housing affordability, or rather the lack of it, is likely to persist in some capital cities because of a demand-supply imbalance and could have a big economic impact for Australia, according to the Committee for Economic Development of Australia’s latest report.

The issue of land supply needs greater focus, says the non-profit organisation's Housing Australia report 

“The great Australian dream of owning your own home has been around for more than half a century but with high house prices in some parts of Australia, there has been much debate about whether it will continue," CEDA Research and Policy Committee chairman, Professor Rodney Maddock said.

“The aim of this report is to provide a holistic review of housing in Australia and look at some of the drivers,” he added.

CEDA’s research shows that barring any major economic jolts, demand pressures are likely to continue over the next 40 years and supply constraints will continue. This is particularly the case in capital cities with a growing population and where an increasing proportion of Australia’s population are expected to reside. 

“Often the debate around housing affordability is centred on a few topics such as foreign investment, negative gearing and interest rates," said Professor Maddock.

“What the CEDA report highlights is that while these might be some of the factors, the issue is far more complex and without changes now, could have longer run consequences."

The research also considers the impact of housing affordability on the poorest citizens and includes a recommendation by Dr Judith Yates that every year Australia needs 20,000 new homes that those on low income can afford.

“Prolonged housing affordability issues will result in more people entering retirement without owning their home and low socio-economic households pushed to outer or regional areas where transport infrastructure is poor and job prospects are lower,” said Professor Maddock.

“In the long term this could have budget implications for governments as more people become reliant on government assistance.”

The report also suggested that the current structure of land supply may inadvertently make it in developers interests to drip feed dwellings into the market. 

“CEDA’s report looks at the UK as an example where developers bid high to obtain land for development and it is then in the interests of developers to build slowly to take advantage of rising market prices,” he said.

“This is an area that should be further examined and CEDA’s report highlights that a key difficulty in drawing policy recommendations for Australia is a lack of consistent and rigorous data available on supply of land for development in Australia and its correlation to housing prices.”

CEDA’s recommendations include:

• Relaxing planning restrictions, particularly those imposed by local councils, making them more consistent and allowing for increased density.
• Developing consistent planning and funding models for transport infrastructure to better connect new housing developments to the various employment hubs.
• Improving protections for long-term renters.
• Further relaxing rules around the means testing of income received from downsizing in situations where it results in greater housing density.
• Moving towards annual land tax in place of transaction taxes on housing such as stamp duty.
• Taxing a larger component of capital gains.  

“CEDA’s report in June on the service sector highlighted the majority of workers in Australia are engaged in service industries and this is growing. However, the shift to a service economy has contributed to a larger population living in our cities and coupled with overall population growth through migration, has impacted housing demand, especially in Sydney and Melbourne,” he said.

With most Australians choosing to live in our major cities, it is likely the trend of more people living in apartments and more long-term renters will become permanent and this means increased protection for renters is needed.

“In addition, we also need to ensure better transport and infrastructure to accommodate increased inner city density and to connect outer suburban developments to employment hubs.”

“Easing some of the tax incentives to invest in or retain residential property may also assist.”

He suggested that policies need to be in sync across the different tiers of government to address the issues.

“Despite the outlook of continued growth there are options for government to ease pressure and ensure long term negative consequences are reduced.”

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