Compare the market Chief Economic Officer David ‘Kohcie’ Koch explains the complexity of the housing crisis and how we might solve it.
In the 1990s, the average loan size in Australia was $67,000. Now it’s almost ten times that amount: $637,000 or more if you want to live in the capitals.
But the housing crisis is not just about unaffordable prices: it is about supply shortages, regulatory restrictions and the growing gap between wages and property values.
A key difference between the 1990s and now is that the average size of mortgages has increased six times faster than wages.
So is there a solution to our housing crisis that will keep everyone happy? Here are five things governments can do now to take heat out of the market and supply homes for the next generation.
1. Negative leverage reform
Negative gearing was introduced in 1936, in the midst of the Great Depression, to encourage investors to buy property and then rent it to those who could not afford to buy their own home.
The intention was to alleviate the financial burden of the large upfront and ongoing costs of purchasing a rental property compared to other more traditional investments.
Negative gearing is now ingrained in the Australian psyche. The beneficiaries are not just anonymous giants, but regular investor parents looking to increase wealth for their families. Without it, we could see rental stock leave the market causing costs to spiral out of control.
David ‘Kohcie’ Koch explains the complexity of the housing crisis and how we could solve it
Getting rid of negative leverage would be controversial. But there is no doubt that it needs reform because the system is being exploited.
Tax concessions should be reduced or suspended entirely. An upper limit could also be imposed to limit the number of properties any taxpayer can apply negatively.
2.Make room for medium density
One of the most critical, yet often overlooked, solutions to our housing crisis is to embrace medium-density housing.
When most Australians think of a house, the image that often comes to mind is that of a detached house with a backyard: a Federation bungalow or a weatherboarded Queenslander on a quarter-square block. acre. But as Australia grows, so must our perception of what constitutes home.
Medium-density housing, including townhouses, row houses and low-rise apartment buildings, offers a practical solution to the supply-demand imbalance affecting our cities. These types of developments allow more homes to be built on less land, allowing more people to be housed without expanding into green spaces or compromising the quality of our neighborhoods.
3. Build where people want to live
Satellite cities on the outskirts can be fantastic, but if the trip takes more than an hour, lifestyles are greatly affected.
Reforming zoning regulations is crucial. Local governments often impose restrictions that limit the density and type of housing that can be built, particularly in high-demand urban areas.
By relaxing these regulations and encouraging higher density developments in well-serviced areas, we can increase the amount of housing available without encroaching on green space or existing infrastructure.
Many young Australians are struggling to get on the property ladder and are blaming baby boomers for their housing problems. (File image of young Australians at a music festival)
4. Rethink the way houses are built
Prefabricated homes were a quick solution to close the gaps in housing supply after World War II. Why can’t they be part of the solution today?
Temperature-controlled facilities, where buildings can be produced safely and quickly, without weather delays or the fury of the scorching Australian sun, could be a game-changer.
5. End junk policies
Now comes the controversial part: giving people more money to buy a house will not solve this problem. Politicians love handouts and monetary incentives because they are simple policies and, to voters, they look good on paper.
But the problem with incentives like the Home Building Scheme is that, instead of helping to close the gap for buyers, they simply drive prices up and out of reach.
For example, let’s look at the Coalition’s proposal to allow buyers to tap into their retirement to get a deposit. Analysis by the Super Member Council suggests such a policy would add 9% to average prices in capital cities. Extra money isn’t as useful when it’s simply swallowed up by higher costs.
Spending more money on this issue is simply not the answer. We need tangible relief in the form of bricks and mortar.