With a slew of new housing policies announced last weekend, housing is now centre stage – and will likely remain so all the way to election day. Voters will scrutinise these policies against the backdrop of a housing market where, across much of Australia, the average household increasingly struggles to buy a home, let alone pay the rent.
The housing crisis – decades in the making – demands a crisis-level response. Every policy lever must be pulled, every level of government engaged, and every effort made to turn the situation around.
Policy should focus squarely on reducing construction costs and recalibrating market settings so the private sector can deliver enough homes to meet new demand. Without this, affordability will continue to deteriorate. Over-supply should be the goal, with the aim of achieving a sustained period where nominal dwelling prices rise more slowly than household incomes.
Unfortunately, many of the policies announced over the weekend are demand-side focused band-aid measures that fail to address how supply can be made more responsive.
To its credit, Labor has reasserted the commonwealth’s role in housing policy after nearly a decade of the previous government largely deferring to the states. The National Housing Accord, which aims to deliver 1.2 million homes over five years, has – somewhat bizarrely – drawn criticism for its ambition. Yet at the very least, it has forced accountability across all levels of government and sharpened the focus on supply-side solutions.
Still, more must be done. Here are four policies that would drive supply, improve incentives, enhance affordability, and strengthen accountability.
One, strengthen the National Housing Accord with better fiscal incentives.
The government should be commended for setting up the National Housing Accord. But it can be improved. The Commonwealth, with its fiscal capacity, has long relied on the National Housing and Homelessness Agreement, yet outcomes have consistently underwhelmed. While the common wealth will reward states under the New Homes Bonus for over achievement, these payments won’t flow for many years blunting the incentive. It’s time to think bigger.
Transport infrastructure is a critical enabler of housing supply, yet federal funding remains largely detached from housing targets. Each year, the commonwealth transfers over $13 billion to states for infrastructure, with a good chunk of this allocated to new rail projects that have the potential to crowd in vast amounts of new housing. The government has $12bn earmarked in new rail funding for the states over the next four years. These funds should be explicitly linked to housing delivery Gift this article 0 Comments performance, with funding augmented for states that meet supply targets – and penalties for those that do not.
Two, review housing regulations and construction expenses with a goal of reducing housing costs by 20 per cent.
Material and labour costs surged during Covid owing to material and labour shortages, and have remained stubbornly high, pushing builders out of business and shelving viable projects. Yet high costs cannot solely be blamed on the pandemic. Many building code and regulatory changes over the last two decades have lacked rigorous cost-benefit analysis, raising economic burdens without adequate scrutiny. Many have had adverse unintended consequences. Case in point: the National Building Code’s mandatory accessibility and liveable housing design standards have increased the cost of building a new dwelling by around $5000, with some putting this figure in the tens of thousands.
A comprehensive review of building and construction costs, including regulations, should aim to cut building costs by 20 per cent over five years. This would put a rocket under project feasibility for thousands of new homes across Australia. Additionally, future policy and regulatory changes affecting building costs should undergo transparent, ex-ante cost-benefit analysis.
Three, introduce national league tables on state housing performance.
Accountability in housing supply has been weak for decades. Inconsistent reporting, poor state policy co-ordination, and opaque zoning arrangements have enabled states to avoid responsibility for housing supply.
In a recent report, the Productivity Commission highlighted how fragmented reporting distorts supply data. As the Commission notes: “The information reported about time frames and targets varies widely by jurisdiction, and the usefulness of the metrics is not always clear.” A national benchmarking system should compare the cost of building and, critically, the number of developments blocked or significantly reduced in scale – not just planning time frames, which have typically been the focus.
Independently produced transparent league tables would expose underperforming states and help counteract the worst impulses of NIMBY-ism. Improved transparency around delivery costs and decision making would be a powerful tool for reform.
Four, establish a long-term, “set-and-forget” social housing policy.
The private sector delivers most of the new housing supply in Australia, so improving feasibility for the private sector to build should take precedence. But a well functioning social housing system is also essential. And it’s suffered from decades of under supply.
The Housing Australia Future Fund delivered by the current government has injected much-needed capital and first round projects are now being rolled out, but a long term and enduring subsidy mechanism remains absent. Governments continue to rely on piecemeal, stop-start funding often rolled out during crises, rather than a structured, permanent and scalable investment model.
International models are instructive. The US Low-Income Housing Tax Credit which has been in place for several decades attracts private capital to subsidised housing while sharing risk with the private sector. A similar long-term, market-aligned subsidy framework in Australia could draw in institutional investment while providing a steady pipeline of social and affordable housing. State first-home buyer grants, estimated to cost up to $2.5bn per year, could be abolished with funding saved met with the commonwealth contributing funding to set up a new enduring policy mechanism.
The next government will likely face continued strong population and new household growth, a lower interest rate environment driving demand, a fragile, high cost constrained residential construction sector and an insufficient forward scalable pipe line of social and affordable housing. The groundwork has been laid by the current government. Whoever forms the next government must be bolder and more creative in its approach – or risk leaving Australians further locked out of the housing market.
Hugh Hartigan is former head of research at Housing Australia and Michael Cominos is adjunct professor at the City Futures Research Institute.