The Housing Affordability Crisis in Australia: A Call for Change

Introduction

Housing affordability remains one of Australia's most pressing issues. Despite the country's vast resources and economic prosperity, many Australians find themselves priced out of the housing market with renting also ever more difficult. This blog delves into the root causes of the housing crisis, with a particular focus on the policies of the major political parties, the Labor Party (ALP) and the Coalition (LNP), and how their support for tax breaks to high house price speculators exacerbates the problem.

The Status Quo of Housing Policies

Australia's housing policies have long been dominated by a model that prioritises higher house prices and the concept of a “housing ladder”. Both the federal ALP and the LNP have effectively stood for this status quo, perpetuating a cycle of escalating prices and increasing financial barriers for prospective homeowners and a short supply of rentals.

Tax Breaks and Their Implications

One of the critical factors contributing to the housing affordability crisis is the joint support of the federal ALP and LNP for tax breaks that favour higher house price speculators. Two significant tax breaks in this context are the Negative Gearing Benefits (NGB or NG) and the Capital Gains Tax Discount Benefits (CGT).

The Parliamentary Budget Office in 2024 projected that these benefits would total a staggering $165 billion over ten years. This equates to $16.5 billion annually, a sum that significantly impacts the housing market.

The Problem with Negative Gearing and Capital Gains Tax Discounts

Negative gearing allows investors to deduct the costs of their rental property from their taxable income, effectively reducing their tax burden. While this might seem beneficial on the surface, it primarily serves to increase demand for existing properties, driving up prices and making it harder for first-time buyers to enter the market.

Similarly, the Capital Gains Tax Discount allows investors to pay a reduced tax rate on the profits made from selling an investment property. This further incentivises speculation in the property market, contributing to inflated house prices.

Missed Opportunities for Public Housing

What makes these tax breaks particularly problematic is that they do not require the construction of new homes. Instead, they are mostly used to speculate up the prices of existing houses. This means that the benefits primarily accrue to investors rather than addressing the underlying issue of housing supply.

To put this into perspective, the $16.5 billion annually spent on these tax breaks could instead be used to build 16,500 new public housing units worth $1 million each year or 33,000 new public housing units at $500,000 each year – that’s each and every year! Public housing provides a vital safety net for those unable to afford market-based housing, offering secure and affordable accommodation.

A Vision for Public Housing

Imagine if Australia had started developing 16,500 new public housing units ten years ago. Today, we would have 165,000 new units, @ $1 million apiece. If these units were three-bedroom homes, this would equate to 495,000 additional bedrooms, providing accommodation for 495,000 Australian residents and citizens at one person per bedroom.

Not only would this significantly alleviate or eliminate the housing crisis, but it would also be a cost-neutral solution for the government. The money spent on constructing these homes could be fully recovered through leasing and selling the new public housing stock to Australian housing consumers at cost prices. Beautiful.

The Current Political Landscape

Despite the clear benefits of investing in public housing, the current policy settings of both the ALP and the LNP continue to support the NGB and CGT. As a result, a vote for either the ALP (under Anthony Albanese) or the LNP (under Peter Dutton) is effectively a vote for higher house prices and a definite continuation of the housing crisis.

Current surveys and statistics reflect the public's frustration with this issue. According a recent Australian house price survey of 2024, more people wish for lower house prices 45% compared to those who prefer higher prices 35% (google: ‘Australian property price survey and statistics 2024’). This demonstrates a significant portion of the population is disillusioned with the current housing market dynamics and desires change.

Conclusion

The housing affordability crisis in Australia is a serious issue, deeply rooted in the policies that prioritise higher house prices and benefit higher house price speculators  over other citizens. Both the ALP and the LNP's support for tax breaks like the NGB and CGT perpetuates this cycle, making it increasingly difficult for Australians to access affordable housing for rent or purchase.

It's time for a paradigm shift. By redirecting the funds currently spent on these tax breaks towards the construction of new public housing, Australia can provide secure, affordable accommodation for hundreds of thousands of its residents – indeed everyone in the Australian housing market. This change is not only possible but necessary for the well-being of future generations.

As the housing crisis deepens, it's crucial that voters recognise the need for policy reform and advocate for solutions that address the root causes of the problem. Only then can we hope to see a fairer, more equitable housing market that serves the needs of all Australians and is not an undue expense on taxpayers.

Published by Christopher Alger. Please share.