Compare the Market economic director David ‘Kochie’ Koch explains the complexity of the housing crisis and how we might solve it.
Back in the 90s, the average loan size in Australia was $67,000. It’s now nearly 10 times that amount at $637,000 or more if you want to live in the capitals.
But the housing crisis isn’t just about unaffordable prices – it’s about supply shortages, regulatory constraints, and the growing gap between wages and property values.
A key difference between the 90s and now is that average mortgage size has risen six times faster than wages.
So, is there a solution to our housing crisis that will keep everyone happy? Here are five things governments can do now to take heat out of the market and supply homes for the next generation.
1. Negative gearing reform
Negative gearing was introduced in 1936, in the midst of the Great Depression, to encourage investors to buy property and then rent it out to those who couldn’t afford to buy their own home.
The intention was to ease the financial burden of the large upfront and ongoing costs of buying a rental property when compared to other more traditional investments.
Now, negative gearing is ingrained in the Australian psyche. The beneficiaries aren’t just faceless behemoths, but regular mum and dad investors looking to grow wealth for their families. Without it, we could see rental stock come off the market causing costs to spiral out of control.
David ‘Kochie’ Koch explains the complexity of the housing crisis and how we might solve it
Getting rid of negative gearing would be controversial. But there is no doubt it needs reform because the system is being exploited.
Tax concessions should be scaled back or stopped completely. An upper limit could also be imposed to limit the number of properties which can be negatively geared by any one taxpayer.
2. Make room for medium-density
One of the most critical yet often overlooked solutions to our housing crisis is embracing medium-density housing.
When most Australians think of a home, the image that often comes to mind is a single-family house with a backyard – a Federation bungalow or a weatherboard Queenslander on a quarter-acre block. But as Australia grows, so too must our perception of what makes a home.
Medium-density housing, which includes townhouses, row homes, and low-rise apartment buildings, offers a practical solution to the supply-demand imbalance plaguing our cities. These types of developments allow for more homes to be built on less land, making it possible to house more people without sprawling further into green spaces or compromising the quality of our neighbourhoods.
3. Build where people want to live
Satellite cities on the fringes can be great but if the commute is longer than an hour, lifestyles take a major hit.
Reforming zoning regulations is crucial. Local governments often impose restrictions that limit the density and type of housing that can be built, particularly in high-demand urban areas.
By relaxing these regulations and encouraging higher-density developments in well-serviced areas, we can increase the number of available homes without encroaching on green spaces or existing infrastructure.
Many young Aussies are struggling to get on the property ladder, and blame baby boomers for their housing troubles. (Stock image of young Aussies at a music festival)
4. Rethink the way homes are built
Prefabricated homes were a quick fix to plug housing supply gaps after World War II. Why can’t they be part of the solution today?
Temperature controlled facilities, where buildings can be produced safely and swiftly, free of weather delays, and the fury of the scorching Australian sun, could be a game-changer.
5. Do away with rubbish policies
Now here’s the controversial part: giving people more money to buy a home is not going to fix this problem. Politicians love handouts and money incentives because they are simple policies and to voters they look good on paper.
But the problem with incentives like the Homebuilder Scheme is that rather than helping bridge the gap for buyers, they simply push prices higher and further out of reach.
For example, let’s look at the Coalition’s proposal to allow buyers to raid their superannuation for a deposit. Analysis by the Super Members Council suggests such a policy would add 9% to median prices in capital cities. The extra cash isn’t all that helpful when it’s just eaten away by higher costs.
Throwing more money at the issue just isn’t the answer. We need tangible relief in the form of bricks and mortar.
