House rents and prices are complex issues. The following are some quick observations written while on overseas travel. The core message is that the “house price crisis” is in essence an income inequality crisis. Starting with rents, between 2008 and mid-2023, real rents rose by around 1% per annum, which was below the growth in average disposable income per household. For the top three income quintiles rents remained generally around 18% of disposable household income. But for the bottom income quintile, rents were often over 30% and sometimes over 40% of disposable household income. Even with Commonwealth rental income support, net rent was often over 30% of household income. This key issue arises because the distribution of household income is much greater than the distribution of housing rents. In the housing rental market, the problems are almost certainly exacerbated by higher-income households owning second homes and by the growth in domestic and international holidays and tourism supplanting regular rental properties. The extent is unknown, but it is potentially another unequal household income issue. Turning to house prices, reflecting lower mortgage rates, the mortgage repayment inclusive of interest on a median price housing property was a similar proportion of median household income in mid-2023 as it was 20 years earlier in 2003. However, the home deposit had risen substantially relative to household income. This has almost certainly impacted first homeowners. The exact impacts are unclear as some families, possibly many, benefitted from rising incomes and returns on capital and likely supported related first homeowners. Also, later marriages and increasing numbers of immigrants delayed housing purchases. The impacts on homeownership are unknown. But, again, ownership outcomes are driven in significant part by income inequalities. But why did housing prices rise faster than rents over the last 20 years? Essentially because interest rates, the cost of capital, fell. Between 2003 and 2023, housing prices rose pretty much in line with ASX prices. Currently, the housing market is out of equilibrium (ceteris paribus, housing prices are likely to fall), as it takes around 2 years for the housing market to adjust to major changes in interest rates, such as have occurred in the last 18 months. Of course housing supply matters, but it is a major misconception to attribute the escalation of house prices principally to lack of housing supply. Between 2003 and 2022 the national housing stock rose by 4% more than the national population. However, critically, public (social) housing fell from 327,000 dwellings in 1995 to under 300,000 in 2021, from 6% of all dwellings to 3%. Also critically, several high-quality econometric studies have shown that the house price elasticity of the housing stock is between -2 and -3. To put this in context, there are over 11 million dwellings in Australia. Increasing the annual supply from 180,000 dwellings to 225,000 dwellings would increase the housing stock by 0.4% and would reduce average house prices by around just 1%. In this context, it is noted that one of the options cited in this survey is “ease planning restrictions”. This unqualified option would be a very poor way to increase the housing supply. Planning rules are needed to ensure that the benefits of new housing exceed the costs, including impacts on local amenity, the natural environment, noise, privacy, views, traffic and parking and so on. What is needed are quality benefit-cost exercises of planning and development options inclusive of all significant benefits and costs. Do we need under-utilised horse racecourses in the centre of our cities? Do we need twelve 18-hole golf courses in Sydney’s high residential value Eastern Suburbs? And it should be noted that housing developments from start to finish often take 4-5 years. Rushing development approvals to save 20 days approval time is an inappropriate approach to good urban planning. But to return to the central point. Of course, we need more housing and relatedly better urban planning, but the core housing problem is income inequality. We need a very substantial increase in seriously neglected public housing (affordable private rentals are no substitute), more income support for low-income rental households, and more support for first homebuyers with low or modest incomes. Taxing the use of housing for second home use or domestic or international tourists would probably contribute little to solving the underlying income distribution problem. Reference: Abelson, P., [House Prices and Rents in Australia 1980-2023: Facts, Explanations and Outcomes](https://taxpolicy.crawford.anu.edu.au/publication/ttpi-working-papers/21492/housing-prices-and-rents-australia-1980-2023-facts). Working Paper 14/2023, TTPI, ANU.

Provide more targeted financial assistance to first homebuyers, Provide more public housing, Allow people to withdraw superannuation savings to purchase a first home

Governments are not prepared to carry out reforms needed to improve the situation, notably getting rid of negative gearing and severe limits on the Airbnb industry.

Home affordability

Tighten the negative gearing and capital gains tax concessions, Provide more public housing, Remove barriers to building prefabricated homes

Negative gearing allows investors to claim tax deductions on rental property losses. Thus it is possible for a canny investor to invest in housing in order to reduce their total tax bill. The capital gains tax discount halves the amount of excise paid by people who sell assets that have been owned for 12 months or more. Clearly both these policies benefit the more affluent. It would be interesting to see calculations about whether the tax distortions created by these policies bring any benefit to the less well-off renters or if instead they simply offer a means for wealthier folk to own a holiday cottage, for example, as a tax deduction. The Australian construction industry uses old-fashioned methods of construction and would no doubt be resistant to changes in the techniques it uses, but there is little doubt that residential construction could be sped up by the production of modular and prefab buildings. These were used after the Second World War in the United Kingdom, for instance, when massive expansion of dwellings was required after bombing damage, and proved very popular with residents. Policymakers concerned with housing should investigate removing regulatory barriers for off-site construction of environmentally sound prefabricated modular buildings. Qualified planners and the Royal Australian Institute of Architects should be involved in order to maintain design quality standards. Given the extent of homelessness in our society, we clearly need more social housing for those in need.

Rental Affordability

Tighten the negative gearing and capital gains tax concessions, Provide more public housing, Remove barriers to building prefabricated homes

.

Ease planning restrictions, Fast-track immigration of home-builders

At a macro level, there is an excess demand for housing. It is unhelpfully simplistic to set the policy priorities as a binary choice of either renting or home ownership - it is clearly very nuanced, especially with respect to lower-income households, and requires addressing both. In the very short term, where the housing stock is fixed (for all intents and purposes), assistance to low-income renters is a very high priority. In the medium term, measures to bring forward supply, deconstrain the housing supply system and concurrently contain demand (for a time) are very high priorities. Transforming greenfield land (such as rural farming land) into subdivided, registered housing blocks can easily take five to eight years through structured state and local government planning systems and processes that sequentially change the property rights attached to the land and drastically increase its value. Measures to bring forward the supply of land for housing (including boosting strategic planning) are relatively low-cost, very important and deserve greater priority.

Restrain immigration, Provide more public housing, Ease planning restrictions

.

Home affordability

Replace stamp duty with a broadly based land tax that includes the family homes, Tighten the negative gearing and capital gains tax concessions, Ease planning restrictions

.

Home affordability

Provide more public housing, Replace stamp duty with a broadly based land tax that includes the family homes, Tighten the negative gearing and capital gains tax concessions

The current state of the housing market reflects many different policy factors and influences over many years. The tensions between housing as a store/source of wealth and the need to increase the supply of housing are challenging. Improving access and affordability in a permanent way will require sustained and coordinated action across many fronts.

Rental Affordability

Replace stamp duty with a broadly based land tax that includes the family homes, Remove barriers to building prefabricated homes, Provide more public housing

.

Home affordability

Replace stamp duty with a broadly based land tax that includes the family homes, Remove barriers to building prefabricated homes, Include the family home in the age pension assets test

The crisis in the rental market – particularly for single parents, low-income workers, and other vulnerable groups – is one of the most pressing challenges facing us.

Rental Affordability

Remove barriers to building prefabricated homes, Provide more public housing, Ease planning restrictions

Policies to address housing need to be aimed at stimulating supply. Current regulations that restrict supply, including urban infill, need to be addressed. Greater housing diversity and amenity within small areas is important and planning restrictions that work against housing diversity in terms of size and quality of housing should be reviewed. As an example, it is difficult to run a hospital in an area where the housing is too "low brow" for doctors yet too expensive for orderlies. In big cities, this adds to commuting and traffic congestion, and in regional areas it can lead to non-viability of hospitals.

Rental Affordability

Ease planning restrictions, Include the family home in the age pension assets test, Provide more public housing

The housing crisis is caused by ridiculously high immigration levels.

Home affordability

Restrain immigration

Housing affordability is mainly driven by the supply of houses relative to demand, meaning that whatever we can do to increase supply will increase affordability. Missing on this list – in my eyes – is a "tax" on empty houses or apartments. Several European cities treat empty apartments and apartments that are not used as permanent residences with higher taxes, to reduce the number of residences that are not used most of the time. That could increase supply and affordability. Rental affordability and home affordability are for me of equal importance. In light of the cost-of-living challenges we face at the moment, I do feel lower income groups are hit harder, thus for equity reasons rental affordability deserves, in my eyes, currently more attention.

Rental Affordability

Provide more public housing, Fast-track training of home builders, Fast-track immigration of home-builders

.

Rental Affordability

Ease planning restrictions, Provide more public housing, Remove barriers to building prefabricated homes

.

Home affordability

Tighten the negative gearing and capital gains tax concessions, Ease planning restrictions, Provide more public housing

I picked none of the options that merely help individual prospective buyers or renters without at least attempting to ameliorate the underlying dysfunctionalities in the housing market, which themselves result from what is likely a blend of government policies and activities, including inadequate public housing construction, negative gearing and taxation policies, and planning policies. There are other items on the list that also try to treat the root causes rather than merely the symptoms, including removing additional red tape, other taxation reform, and decreasing places for training in home-building-related trades. Reducing the inflow of international students may also have a meaningful impact on rent prices in areas close to our universities. The focus on home affordability is because home ownership, not rental affordability, is what in prior generations has provided financial stability and upward mobility to young people – and these are things they are missing today, which is even worse for our society than having unaffordable rents (although both are bad).

Home affordability

Ease planning restrictions, Tighten the negative gearing and capital gains tax concessions, Provide more public housing

We need creative solutions to the housing problem. Prefabricated houses are growing in popularity. They provide options for sustainable and cost-effective production and are quicker to build. They are also able to achieve high energy efficiency ratings. Fast-tracking training of builders is also important given the shortage of home builders in the market when demand for houses is so high.

Home affordability

Ease planning restrictions, Remove barriers to building prefabricated homes, Fast-track training of home builders

We need to push on both the supply side and the demand side. That includes lowering construction costs, and stopping throwing demand-side fuel on the fire like negative gearing and allowing people to access super for home purchases.

Home affordability

Remove barriers to building prefabricated homes, Fast-track training of home builders, Tighten the negative gearing and capital gains tax concessions

It will take more than just three of the options listed to address housing and rental affordability. Action to increase supply should be prioritised, although easing planning restrictions (i.e. overcoming NIMBYism) needs to be done with due regard to the environment and should prioritise increasing density, particularly around transport hubs. Distortions such as first homebuyer schemes and negative gearing that just add to demand should be removed. I also think there are strong arguments for including the family home in the age pension test and applying capital gains tax to homes above a certain level (such as 50% above the market median price for homes or apartments in the respective markets). There is also a need to increase social housing (alongside public housing) and to support build-to-rent models. Institutional investment in housing should be prioritised over so-called "mum and dad" investors. We see from the United Kingdom and the United States that this works much better for both landlords and tenants. Finally, both housing and rental affordability should be priorities – they are not mutually exclusive!

Rental Affordability

Ease planning restrictions, Tighten the negative gearing and capital gains tax concessions, Remove first homeowner grants and stamp duty concessions

.

Include the family home in the age pension assets test, Ease planning restrictions, Replace stamp duty with a broadly based land tax that includes the family homes

Unaffordable housing in Australia is largely a supply-side issue. We have population growth and high incomes, yet housing supply is slow to grow. Restricting immigration seems politically popular when framed in the context of housing and infrastructure, but it would backfire economically.

Rental Affordability

Remove barriers to building prefabricated homes, Ease planning restrictions, Replace stamp duty with a broadly based land tax that includes the family homes, Fast-track training of home builders, Provide more public housing, Fast-track immigration of home-builders

.

Apply capital gains tax to family homes (perhaps to homes above a certain value), Include the family home in the age pension assets test, Fast-track immigration of home-builders, Replace stamp duty with a broadly based land tax that includes the family homes

To me, both home affordability and rental affordability should be a priority. But on balance, rental affordability is higher because it is most important for the most needy. I wrote about the key role the cost of housing plays in the cost of living crisis [here](https://johnmenadue.com/the-cost-of-living-crisis-is-really-a-housing-crisis/).

Rental Affordability

Ease planning restrictions, Tighten the negative gearing and capital gains tax concessions, Provide more public housing

Regarding the high ratio of home prices to disposable incomes, we need to attack both the high numerator and the low denominator. The numerator (home prices) is too high partly because of excessive planning restrictions. Peter Tulip of the Centre for Policy Studies has won the argument concerning the excessive power of NIMBYs, even though not everyone wants to go quite as far down that road as Peter has done. Another factor is historically high immigration. Moreover, the denominator (disposable incomes) is too low primarily because immigration rates have recently outstripped their historic norms. My [research with Lance Fisher](https://www.sciencedirect.com/science/article/abs/pii/S0313592622001448?via%3Dihub) finds that a 1% rise in the labour force has historically been associated with a 1.4% fall in real wages, controlling for the capital stock and the terms of trade. We used annual data spanning 1978 to 2018. Regarding subsidies to renters versus subsidies to homeowners, I have ticked a box as requested without really having a firm opinion on the question.

Home affordability

Ease planning restrictions, Restrain immigration

The problem of house prices in Australia is aggravated by our concentration in large port capital cities. State governments could help by subsidising urban development projects in provincial cities. This was done successfully in Queensland from the 1970s until 2008.

Home affordability

Fast-track training of home builders, Ease planning restrictions, Fast-track immigration of home-builders

.

Rental Affordability

Replace stamp duty with a broadly based land tax that includes the family homes, Provide more public housing, Ease planning restrictions

I would focus on increasing supply: removing zoning? and planning regulations that limit high-density residences. Public sector interventions can focus on pairing high-density areas with convenient access to public transit and shared green spaces, creating more walkable neighbourhoods. I also support expanding and upgrading existing public housing, especially in areas with good public transit options, facilitating access to schools and jobs. These policies would benefit both renters and new homeowners.

Ease planning restrictions, Provide more public housing

The biggest problem is the slow growth of wages. We need tighter regulation of the quality and duration of rentals in line with the way many European countries and states regulate rents. This includes green requirements for residential construction and rentals with government funding towards the improvements. We need to get rid of the tax advantages for property investors including capital gains tax discounts and negative gearing, gift and inheritance tax exemptions. This will also assist with putting property on the market and bringing prices down. Above all, we need public housing provision across socioeconomic areas and profiles including construction and purchase to bring it back to at least previous levels and de ghettoise it. We need expansion of public training in all trades, for construction. All of this is doable. So far the political will is the issue. Immigration helps encourage both supply and demand.

Home affordability

Provide more public housing, Fast-track training of home builders, Tighten the negative gearing and capital gains tax concessions

.

Rental Affordability

Ease planning restrictions, Replace stamp duty with a broadly based land tax that includes the family homes

The focus ought to be on increasing supply.

Ease planning restrictions, Provide more public housing, Remove barriers to building prefabricated homes

Modifying policies that restrict supply is the best way to address high prices and rents. This could also include removing tax incentives for single-investment property landlords.

Home affordability

Replace stamp duty with a broadly based land tax that includes the family homes, Ease planning restrictions, Include the family home in the age pension assets test

The crisis is being driven by problems on the supply side. Interventions that affect the demand side (such as allowing the early withdrawal of super) are not going to assist and may exacerbate the situation. Given the large share of the population that is now priced out of the market (possibly forever) the focus has to be on public housing – not just for the sake of affordable rent but also long-term family stability (which is, in turn, important for social networks, children schooling etc.).

Rental Affordability

Provide more public housing, Fast-track immigration of home-builders, Ease planning restrictions

We need to move away from reliance on individual landlords to provide rental housing. That means expanding public housing, other social housing and commercial build-to-rent. We should also place a negative weight on any "job creating" project that diverts skilled workers from the home building sector. Stadiums and the AUKUS submarine program are examples.

Rental Affordability

Replace stamp duty with a broadly based land tax that includes the family homes, Ease planning restrictions, Provide more public housing

The use of land taxes, where land is taxed at a higher rate than buildings and improvements on the land, has been shown to increase supply and density (reducing sprawling). Increasing density allows efficient delivery of services such as transport. All of the taxation rules around real estate need to be considered together. Improving the transfer of housing across the income distribution is key to supply. Planning restrictions play a key role in this. In the short term, rental affordability is important until supply has caught up. The cost to society of insecure housing is large and the impacts are wide and far-reaching.

Rental Affordability

Replace stamp duty with a broadly based land tax that includes the family homes, Ease planning restrictions, Tighten the negative gearing and capital gains tax concessions

In addition to the need to expand housing supply, there is a need to make it more feasible to live, work and study in suburban and regional areas where housing can be relatively more affordable. Improved regional and community infrastructure, business opportunities, digital connectivity, and workplace flexibility practices such as working from home can help move highly-concentrated demand for housing away from inner-city locations.

Rental Affordability

Tighten the negative gearing and capital gains tax concessions, Replace stamp duty with a broadly based land tax that includes the family homes, Provide more public housing

The fundamental housing problem in Australia comes from the supply side. Government policies and regulations need to be much more supportive of new home building, especially of high rises and multi-dwellings. Short-term fixes to demand will inevitably have unintended consequences elsewhere in the economy. Restricting demand by curbing temporary migration is no solution. In particular, cutting the intake of overseas students (who use only 4% of the current housing stock) will minimally moderate the excess housing demand, but will surely damage a major export sector in Australia. Government interventions on the demand side should be biased towards assisting with rental affordability rather than purchasing affordability because renters are typically poorer and need more support.

Rental Affordability

Ease planning restrictions, Remove barriers to building prefabricated homes, Provide more public housing

A broadening of the tax base to cover housing wealth is a necessary long-term reform.

Rental Affordability

Apply capital gains tax to family homes (perhaps to homes above a certain value), Tighten the negative gearing and capital gains tax concessions

None of the 49 leading economists polled in the latest Economic Society of Australia survey said they believed the market was delivering good outcomes.

Home affordability

Provide more public housing, Ease planning restrictions, Replace stamp duty with a broadly based land tax that includes the family homes