Why Housing Affordability in Australia Needs Real Solutions

15 Comments

1. Denis, there is no doubt in my mind that commision/council housing is the way yo go. In fact some years ago we had such housing, sadly there were some in our community that thought commission/council housing degraded the area!! Another factor that I believe saw the decline in such housing was the abuse by some who occupied them lack of maintenance and over crouding. Should we return (and I hope we do) to this form of housing I’d suggest rents should a percentage of the total income earnt by the occupants.

2. I have more than enough for a deposit. What I don’t have is sufficient income to get a mortgage; this is exacerbated by the ridiculous cost of housing.

3. The housing affordability crisis is too urgent to propose we wait until there is some political interest in implementing a (largely) untested economic theory that hasn’t been adopted as policy by any country.
   It is untested, risky and unsupported by the vast majority of experts and academics in the economic discipline.

4. The median house price is highish, but city median house values 2014-24 are stagnant as they have not doubled, 7% benchmark covering costs, inflation etc.; suggests decline in working age as Gen X and the boomer ‘bomb’ follows the silent generations.

   Our RW FIRE Media and commentary blame ‘immigration’, but that’s dominated by temporary resident international students, backpackers etc. who cannot buy, and formal research shows minor factor on rental market. All ignore investors (lemmings?) and proliferation of Air BnB taking long term rental properties off market.

   Issue is that we have a house market for families, but they are minority when eg. single middled aged and older women want or need something more modest and secure.

   Apartments are easy to find in the CBD and inner city, but not suburbs and regional centres, while our public/social housing stock has been cut severely in the past two generations; helping private house market retain value, till now..?

5. Thanks for your thoughts, Jon. You’re right, we once had good public and council housing. Sadly, governments let it decline, and a few bad cases were used to justify privatisation and sell-offs.

   If we look at places like Vienna and Singapore, public housing can be world-class, well-maintained, and mixed throughout communities so there’s no stigma.

   A sliding rent scale makes sense too. People pay what they can afford, homes stay secure, and communities stay strong. It’s time Australia rebuilt public housing properly, long-term investment, maintenance, and dignity for everyone.

6. Thanks for sharing that, Leefe. This is the part governments ignore. Many people can save a deposit, but house prices are now so high that the income test knocks them out anyway.

   The whole system is backwards. Instead of pushing buyers into bigger loans, we should focus on building affordable public housing, stabilising prices, and making homes based on need, not bank profit.

   You’ve highlighted exactly why the 5% deposit scheme won’t fix anything. It’s not a deposit problem. It’s a price problem caused by policy failure.

7. AC,
   Thanks for your comment. Just to clarify, Modern Monetary Theory isn’t untested, and it’s not fringe. There are many respected economists in Australia and internationally who support it, including academic researchers, former central bankers, and policy advisers.

   Australia already uses the core principle every day: as a currency-issuing nation, the federal government spends by creating money, not by collecting taxes first. The debate isn’t whether it works, it’s how we choose to use that capacity.

   Public housing is a perfect example. If we can fund banks, private developers and military projects, we can fund homes. The real risk isn’t dollar sovereignty; the real risk is pretending the government is financially powerless while people are left homeless.

   Some respected economists who support or advance MMT:

   Professor Bill Mitchell (University of Newcastle, Centre of Full Employment and Equity)

   Professor Stephanie Kelton (former Chief Economist for the US Senate Budget Committee)

   Professor Randall Wray (Levy Institute, Bard College)

   Dr Steven Hail (University of Adelaide)

   If mainstream economists with decades of research are already using this framework, it’s worth considering for solutions as serious as housing.

8. Thanks for your comment, Andrew. You’ve pointed out something important: the crisis isn’t driven by immigration, it’s driven by policy. Investors, short-stay rentals like Airbnb, and two generations of cuts to public and social housing have left people competing for too few homes.

   You’re also right that our housing stock doesn’t match who actually needs housing today. Many older Australians, single people, and low-income families don’t need a giant mortgage, they need secure, modest, affordable homes.

   If governments had kept building public housing instead of selling it off, this pressure wouldn’t exist. We can fix that now, we have the capacity to build again. The only thing missing is political will.

9. If you are referring to point 5, one agrees. MMT is a theory that lacks both theoretical and working models or exemplars.

   Red flag is which US groups support MMT and why; radical right libertarian experiment masquerading as benign Keynesian social economics.

   While the solution for ageing populations and funding budgets includes working age PAYE tax and GST, is to use temporary border or migrant churn.

   Short to medium term tourists and short to long term international students as ‘net financial contributors’, as almost all depart, forever.

   However, as they drive short medium term ‘immigration’ and population growth, they must be stopped aka ‘the great replacement’, and budget short falls and stress?

   No problem, Tanton Network types suggest that we implement the experimental MMT Modern Monetary Theory then there is no need for ‘immigrants’, potential outcome?

   See former Tory PM Truss and Kwarteng, adding to Brexit negatives on the economy, implementing ‘Kochonomics’ on steroids, to almost crash the economy….

   Both are ‘radical right libertarian traps’ to crash budgets, public sector services, government, economy and society, then reengineer aka ‘segregation economics’.

   See power behind Trump is Koch’s Vought and Tanton’s Miller to implement their joint Project 2025.

10. Denis, your patience is exemplary.

    From a previous article by Denis — “Government spending priorities reflect political choices, not financial limitations.”
    This obviously applies also to housing affordability, that being the subject of this article.

    Those who are critical of the thrust of this article need to explain why eye-watering investments in pie-in-the-sky defence contracts do not destabilise the Australian economy, but investment in public housing and other public infrastructure is risky.
    Even though investment in public infrastructure has been an integral part of our economic development. But hey, who cares about history?

    I can recall that thirty or forty years ago it was frequently noted in the news media that a healthy housing sector was a sign of a healthy economy.
    We lost sight of that due to reasons given by Denis — … a broader trend where government policies favour private markets over public purpose. Housing becomes an asset class for investors instead of a human right for citizens.
    In short, we allowed private gain to undermine our entire economy.

    Government spending priorities reflect political choices, not financial limitations.

11. If you attend a suburban auction in pretty well any city adjacent area in Australia, you will probably be surprised to find that the bidding very quickly pushes out the first homebuyers or others seeking a dwelling for their own occupation as the bids exceed one million dollars.
    The investors will then thrash it out and inevitably their bids will be tempered in accordance with the amount of support they will be able to get from government by way of negative gearing and ultimately capital gains tax concessions. Clearly these investors are not going to be able to make a commercial return even on the inflated rents they receive in the prevailing market and investors realize that: they are making what to most of us would be considered a dud investment but for tax offsets.

    We’ve said it before but it bears repeating : we should only offer negative gearing tax offsets to those who are actually increasing the housing stock in Australia, i.e. new builds. We have to stop churning existing houses as though they were bitcoins!

    If we can redirect housing investment into new builds it will have a considerable impact on the supply side factor AND act as a downward pressure on rents for existing housing stock.

12. Denis, I don’t wish to entirely go over ground we have previously discussed.
    However, the economists that support MMT remain a small minority.
    Previously you have used examples of high public debt nations. But they are all in long term economic decline. Are there any that would prefer more public debt to less?
    The MMT proponents argue that the restraint on spending is inflation. 
    We don’t seem to discuss the unwillingness of governments to act to curb spending as inflation increases. What we observe is the almost total reliance on interest rates to curb inflation. This is clearly more damaging to first home buyers.
    I really have little confidence in any federal government displaying the economic nimbleness required to cut programs and spending as inflation emerges.
    We already observe this reluctance.
    And we currently face increasing pressure on building and construction costs.
    Labour shortage bids up the rates, infrastructure programmes compete for the scarce labour, materials and equipment, contributing to cost increases.
    I can’t see that using public debt to resolves theses questions. On the contrary it is likely to further bid up labour and material costs.
    For what it is worth, my view is that we require a range of policies, and must address the half dozen causes.
    • cultural- we have to get away from the unsustainable attitude that first home buyers get a separate house on their own block. We see miles of new development of 2 story houses, with on artificial of natural shading on 309 square metre blocks. We need a far greater focus on high density housing
    • planning- there should be a national (efficient) planning standard. The resources involved in planning and approvals in developers, builders and various layers of government is ridiculous
    • only high density housing to be built within a kilometre of a rail station
    • tax- limit negative gearing to small investors
    • never again build a metro freeway without a rail line down the middle.
    • population increases housing demand.  It should be considered as a factor
    • government departments to encourage working from home, with a greater focus on this benefit for those working from non metro areas

13. An objection to MMT and sovereign currency ideas has been raised several times here over the months, to the effect that these concepts are high risk, having never been adopted by any major economy.
    It is implied by this objection that the current global financial system, comprised as it is of a collection of national systems with some extra provisions tacked on to allow for international trade and investment, has perhaps a track record of stability, or reliability, or perhaps the advantage of being “the devil we know”.
    The positives of the status quo are never actually defined, but one thing we do know is that stability and reliability do not figure among its advantages.

    The objection that alternatives to the status quo are high risk has an element of comedy about it when we actually look into the “devil we thought we knew” and discover that the concept at the centre of the discussion — money itself — is largely fictitious.
    Fictitious as in — does not exist.

    From a very useful Melbourne Uni article here– https://pursuit.unimelb.edu.au/articles/seven-common-myths-about-modern-money

    ‘Fiat money’ means money that is created and given value through the decisions of government. Official bank notes and coins are highly visible examples of fiat money.
    Today, in modern capitalist economies, the most dominant form of money by far is not fiat money. Instead, commercial banks create the vast majority of money, and they do so without the day-to-day involvement of governments. Physical currencies like coins and notes are playing a small and shrinking role in the money supply. The creation of commercial bank money is surprisingly simple and quite counter-intuitive. The overwhelming majority of money is created through private-sector bank lending. When a bank writes a loan, the borrowed amount and the obligation to pay the debt are created simultaneously…The borrower’s obligation is an asset for the bank; and the loan amount, deposited for the benefit of the borrower, is a corresponding liability for the bank.
    In this way, bank money is created anew – in the form of ledger entries – with every loan a bank writes, not from or in relation to deposits or other existing money…In creating money through lending, banks don’t transform deposits into loans, and they do not intermediate between depositors and borrowers. The risks and complexities facing commercial banks are much smaller than is widely believed.
    Contractual, ledger-based money – which, to reiterate, is by far the dominant form of money in modern finance and commerce – is not ‘collected’ through taxation at the national level.
    Instead, bank money used to pay taxes is wiped or vaporised the moment taxes are paid. Then, at a later date, when the national government needs to spend, new ledger-based bank money is spent into existence via the banking system.
    There is no structural requirement for the amount of bank ledger money ‘collected’ (i.e. destroyed) through taxation and government borrowing to equal or exceed the amount of bank ledger money created through national government spending.
    So to summarise, the dominant form of modern money is not directly controlled by governments. It does not circulate throughout the economy in a durable form.
    Banks do not gather it up as the basis for loans, and governments do not gather it up as the basis for public spending.
    The dominant form of money is not tradeable, nor can it be held outside the relevant country’s banking system…

    To add a little more perspective, this from wiki — In the United Kingdom, gross bank deposits outweigh the physical currency issued by the central bank by a factor of more than 30 to 1. The United States, with a currency used substantially in legal and illicit international transactions, has a lower ratio of 8 to 1.

    So which option presents the greater risk? The bankster option where deposits can be vaporised by a computer key, or a sovereign currency in which the purpose of money is societal enhancement?

14. I am going to pull the author up on the use and abuse of statistics.
    You are comparing the Median price of houses with the average income, which is 2 different measures.

    Average. The sum of all component values divided by the number of entities involved. Will be affected by outlier numbers.
    Median. The point where half the population of components are bigger and half are smaller.
    Now, while the average, full time wage in Australia is as the author, Denis Hay, states – above $88,000. But the Median wage is less than $50k. The median includes those working part time. It gets interesting here. The income “floor” is approx $20,000 for an unemployed person on benefits, with benefits tapering for a single person to Zero benefit at $38,000. So a single person within striking distance of the median wage is on some benefit or another.
    This translates to 50% of the population earning between $20,000 and $50,000. The other 50% earn in excess of $50,000 while the average wage covers the top 20% or so. The average wage matches a middle manager or higher in the work tree.
    Let me put it into simple terms:
    A pub is filled with 100 street cleaners on minimum wage. This means their wages are $49000 odd before tax. The average wage is $49,000 and the median wage is $49,000. Elon Musk enters the pub. He has a wage of, say, $100 billion (according to his latest pay deal with Tesla). The average wage just jumped to $990 million while the median wage did not change.
    In fact, the average house price is over $1 million. While the median house price is nearly 10 times the average wage, the same median house price is over 16 times the Median wage.
    Can we see now how skewed the house prices are?
    The actual median income is the same as the official minimum full time wage, with half the population earning less than that (mainly due to a trend towards part time work and casualisation of the lowest paid jobs. a person on that income can never buy a house under the current regime.
    The politicians know this yet still refuse to do the one sure thing to make houses more affordable and reduce rents and homelessness.

15. @A Commentator.
    I will address some of your comments,
    Lets start with labour shortages: Easily solved. Make apprenticeships a mandatory requirement for all builders getting government contracts. Every trade on a site must have at least 1 apprentice and up to the max possible following apprenticeship and Tafe guidelines. No apprentices, no contract. In 4 years there will be plenty of labour available.
    First Home buyers. Get no say in what they can have. I went looking for land in a suburb in between some regional cities. 250m2 block the same price as a 500m2 block in the city. With no services, no transport, no nearby shops. First home buyers can only afford 1% of the homes on the market. They are always outbid by investors who will get tax concessions on the price and rental income to offset part of the mortgage, usually interest only. No first home buyer can compete. full stop.
    Currently, building a 200m2 2 story house on a tiny block costs a bit less than a single story house of the same size. But not everyone can cope with 2 stories. Families with little kids, the elderly and frail and those with disabilities frequently need a home, flat on the ground, single story, with fittings that are appropriate for their ability. There is no mandatory accessibility standard in homes which means as people get older, or their needs change, there is not enough housing stock suitable for them.
    For this there should be a mandatory 10% of all houses to be build to a disability standard or impaired mobility standard. Every 2 story house must be constructed in such a way as to allow for fitting of a lift system. All 3 story and above must include lifts.
    Without this we risk having lots of new houses but none that impaired people can use.
    There should be Zero tax concessions of any type for existing houses or brown-fields developments. There should be only concessions for new stock in greenfields development. And the concessions should taper over a 5 year period down to Zero and any house, once resold, is ineligible for any tax concession.