It’s Not One Thing. It’s A System Of Decades of Policy Choices
While Council has some ability to assist in the provision of low cost housing, we lose sight of the role that Federal and State Governments have played in creating the exorbitant cost of land (in a huge country) and housing (we have all the necessary resources here). The crisis is the result of a perfect storm of government actions and incentives that have collided. I’ll list the key policies that built the high cost of housing.
Tax Settings that Supercharge Investors
We have a draconian tax system that punishes us whenever we make or spend money so this point is made in regard to our existing system of fleecing us. CGT taxes your intelligent use of money.
– Negative Gearing: Allows investors to deduct losses on a rental property from their salary income, reducing their tax bill. It incentivises taking on debt to buy more properties.
– Capital Gains Tax Discount: Investors get a 50% discount on the profit from selling a property held for more than 12 months. This makes property a highly tax-advantaged investment.
– The Result: The government does not receive over $12 billion annually on these tax breaks—more than it spends on social housing, homelessness services, and rent assistance combined. This acts as a massive subsidy that helps investors out-compete first-home buyers.
Planning & Zoning that Choke Supply
While tax policy fuels demand, state government planning rules strangle the supply of new homes in our cities.
– Low-Density Zoning: In our major cities, the vast majority of land near the city centre is locked into low-density use.
– 80% of land within 30km of Sydney is zoned for 3 storeys or less.
– 87% of land within 30km of Melbourne is zoned for 3 storeys or less.
– Our country is vast and huge tranches of land have been locked-up by a wide variety of government policies for many decades.
– The Result: We prevent the creation of new subdivisions and the “gentle density” (townhouses, duplexes, low-rise apartments) needed near jobs and transport. This artificially constrains supply, making land—which now makes up over 60% of a new home’s cost—exorbitantly expensive.
Federal Policies & Monetary Settings
Both major parties have long used policies that, while appearing well-intentioned, often add fuel to the demand fire.
– First-Home Buyer Schemes: Programs that help people buy with a smaller deposit increase the pool of buyers and their purchasing power. Economists warn this puts “upward pressure on prices,” often helping people buy a home a bit sooner, rather than making homes more affordable overall.
– High Migration Levels: The federal government sets immigration targets. The recent rapid rebound has added significant housing demand at a time when supply is at a minimum.
– RBA Interest Rates: Record-low interest rates for over a decade made borrowing incredibly cheap. The RBA itself confirmed that “low interest rates explain much of the rapid growth in housing prices.” More recently, rapid rate rises have slowed new construction.
The Retreat from Direct Housing Provision
Governments used to be a major player in providing housing for those who couldn’t afford it. That role has shrunk dramatically.
– Decline of Social Housing: Social housing (public and community housing) now makes up just 3.6% of all dwellings, down from nearly 5.7% in the 1980s and a much larger share in the 1950s.
– The Result: A critical safety net has been removed. With fewer public homes, over 190,000 households are on waitlists, and 41% of those on the list are homeless or at risk of homelessness. This lack of supply at the bottom pushes more people into the already stressed private market.
Did Foreign Banks Play a Role? (Indirectly, Yes)
Allowing foreign banks into Australia didn’t directly cause a surge in home loans, but it added to the overall flow of credit.
– Increased Credit Supply: Deregulation and foreign banks brought in new sources of offshore funding, expanding the total pool of money available to lend in the economy. More credit chasing limited assets (like housing) contributes to price inflation.
– Their lending has historically focused on commercial property, not suburban home loans. However, by funding major residential developments (apartment blocks) and contributing to the economy’s overall credit flow, they play an indirect but real supporting role in the market.
A System Built on Policy
Australia’s housing crisis isn’t a simple market quirk. It is the predictable result of decades of policy choices:
Fixing it won’t be simple. It requires tackling the difficult politics of reform on both the supply and demand sides of the equation and Council sits at the end of that chain. The fix must first come from those governments which produced this crisis.
