Despite predictions of a housing market bust during the COVID-19 economic crisis, the Australian property market has emerged relatively unscathed. A combination of short-lived house price declines, generous federal stimulus housing measures and record-low interest rates have caused demand for property to surge. The result: property prices have ramped back up at a rapid rate and many aspiring first homebuyers are quickly finding themselves locked out of home ownership again.
Given this scenario, it is unsurprising that the Federal Government has included a raft of policy measures aimed at addressing housing affordability in this year’s Budget. The key measures include:
But do these measures represent a meaningful fix to Australia’s housing affordability crisis?
With house price growth clearly outstripping income growth in recent decades, there is no doubt that many potential homebuyers are locked out of the housing market because the high deposit barrier prevents access to home ownership. This is despite potential buyers being well-placed to otherwise meet regular mortgage repayments once they are home owners. All the key housing measures in the Federal Budget are therefore aimed at overcoming the biggest hurdle that most aspiring homebuyers face.
On another positive note, effort has clearly been made to introduce targeting into these measures. The Family Home Guarantee itself is directly targeted at single parents, whose capacity to purchase or bounce back into the property market is likely hampered by erosion of assets caused by relationship breakups, and the difficulty of accumulating enough savings on a single income while raising dependent children. Both guarantee schemes are subject to caps on property prices and income that preclude those looking to purchase in expensive areas, and the FHSS scheme permits withdrawal only from voluntary contributions.
At the same time, along with an extension to the HomeBuilder construction commencement period, the three schemes can be expected to boost construction jobs and support economic recovery through at least short-term multiplier effects.
Of course, there is legitimate concern that these housing measures will further drive up property prices despite efforts to target the measures. As I discussed in my 2020 report for CEDA on housing in economic recovery, there are also concerns regarding displacement effects – that is, the take-up of the guarantees may be largely from homebuyers who would have been able to meet the deposit hurdle on their own in the near future without assistance anyway. The end result is that wealth inequality may be worsened.
While there are pros and cons to these measures, the Budget overall misses the big picture on housing.
First, it is obvious that these measures have focused heavily on promoting access to home ownership. In comparison, less attention has been paid to improving the housing circumstances of the more precariously housed. The Government is providing $124.7 million in the Budget over two years under the National Housing and Homelessness Agreement to bolster public housing stocks or meet wage requirements in the housing and homelessness sector. In comparison, the HomeBuilder commencement extension is expected to cost $774.8 million over two years.
Secondly, there are obvious opportunities for reform that will improve affordability while potentially generating fiscal savings, but these have been overlooked. For instance, Commonwealth Rent Assistance (CRA) has repeatedly been found to be inadequate and poorly targeted, yet no attention has been paid to the possibility of reforming the system. While increasing the CRA rate will require government spending, this can be offset by savings from more effective targeting. Negative-gearing reforms continue to be elusive; Australia’s negative gearing policy is one of the most generous internationally, so there is scope to impose more restrictive quarantining rules to rental properties incurring a loss without abolishing the system.
Overall, the crux of the problem is that the Australian housing system has long been vexed by structural issues that perpetuate housing unaffordability and widen intergenerational housing inequality in an era of population ageing. While supporting home ownership for the wider population is a commendable policy objective, current measures may have the unintended consequence of pushing the Great Australian Dream further out of reach for the average Australian. There is no escaping the fact that the dream will fade further unless painful reform measures are taken to make property prices more affordable on a sustained basis. At the same time, tenure insecurity in the low-income private rental sector, and a persistent shortage of social housing stock, present challenges that must urgently be met as the renter and homeless populations continue to grow.