Home truths: the role of housing in economic recovery

Housing plays many roles in our economy and society, including as a consumable good, investment asset and infrastructure. In recent years an important narrative has emerged in which the housing system generally, and housing outcomes more specifically, are seen as important determinants of economic outcomes and productivity.

This paper offers a brief overview of the economic case for housing and changes to the housing market context since the first wave of the pandemic. Against this context, the effectiveness of the government’s housing stimulus package is critically assessed.

While there are well-known macroeconomic arguments for a housing stimulus package, given the multiplier effect, there are inevitably unintended consequences to large-scale public policy interventions. This paper addresses some of these.

Finally, it puts forward a case for social housing construction and housing tax-transfer reform for supporting long-term recovery in a post-COVID Australia. Thus far, these policy options have featured dimly in both federal and state government roadmaps to recovery.

Key findings:

• Public policy interventions in Australia’s housing system during the pandemic have been more generous to homeowners, investors and households in higher income brackets.
• While the macroeconomic argument for a housing stimulus package is sound, the government’s package will likely favour those who could have purchased property anyway, without assistance. It is thus likely to exacerbate wealth inequalities and potentially expose marginal home buyers to more risk in an uncertain economic environment.
• There is a strong case for building more social housing as part of a housing-led economic recovery strategy. Reviews of previous social housing construction initiatives show they effectively stimulate the building industry. Increasing social housing stock can also improve life outcomes for vulnerable Australians and bring significant medium and long-term economic benefits.
• Changes to the way housing is taxed could bring fiscal savings while also improving efficiency and equity. Replacing stamp duty with a uniform broad-based land tax; aligning the treatment of rental losses and capital gains; and limiting the family- home exemption from income-support means tests could all help stimulate economic recovery.

Listen: 

The reports authors, Professor Rachel Ong ViforJ and Professor Chris Leishman, joined CEDA's Chief Economist, Jarrod Ball to discuss how COVID has changed the conversation around housing policy, housing construction's effectiveness as a stimulus tool, tax reform, and social housing.

Further reading: Housing Australia

Housing trends - including supply and demand issues, and the intergenerational impacts of high housing costs and falling home ownership - were examined in our holistic 2017 review, Housing Australia. Read it here.