Historically low interest rates, an unprecedented period of continuous economic growth and strong levels of migration have contributed to ever-escalating real housing prices in Australia’s capital cities.
And housing affordability issues are likely to persist, according to the Committee for Economic Development of Australia (CEDA). In its latest Housing Australia report, CEDA forecasts that housing affordability will likely be an issue for the next 40 years.
“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.” CEDA Research and Policy Committee chairman, Professor Rodney Maddock said.
“Often the debate around housing affordability is centred on a few topics such as foreign investment, negative gearing and interest rates.
“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.
“One component of CEDA’s research considers the impact of housing affordability on the poorest citizens and includes a recommendation by Dr Judith Yates that Australia needs annually 20,000 new dwellings affordable to low income people.
“Prolonged housing affordability issues will result in more people entering retirement without owning their home and low socioeconomic households pushed to outer or regional areas where transport infrastructure is poor and job prospects are lower.
“In the long term this could have budget implications for governments as more people become reliant on government assistance.”
Professor Maddock said another key issue highlighted in the report is 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.”
Recommendations for government
In its report CED provided eight recommendations for Australian federal and local government that would contribute to easing supply and cooling-off demand:
- Priority of policy settings: policy needs to prioritise shelter to the most disadvantaged.
- 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: laws around tenancy must provide adequate protection and certainty to 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.
- Demand-side policies: governments should review the way in which pensions, superannuation and housing interact in providing support for Australians in the retirement phase.
- Taxing a larger component of capital gains.
“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 we need to accommodate this better with increased protections for renters,” Professor Maddock said.
“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.”