The ghosts of governments past haunt Australian housing policy in 2025. From Menzies’ 1964 First Homeowners’ Grant Scheme through to Paul Keating and his introduction of capital gains tax, and then John Howard and Peter Costello’s changes to the capital gains regime in 1999, we are today in terms of housing affordability, a problem nearly 70 years in the making.
Compounding this is the fact that when it comes down to it, housing, particularly housing affordability, is an issue politicians of all stripes have little incentive to deal with to any greater extent than tinkering around the edges.
As Howard remarked, he was never once buttonholed by a voter on his famous morning walks and asked to “lower housing prices so my home is more affordable to someone else.” Howard had a sharp nose for electoral sentiment, and his daily stroll observation continues to hold, with both parties going into the recent federal election committed to ensuring house prices keep going in one direction: up.
The reason for this, says independent economist and former ANZ chief economist Saul Eslake, is that Australia has become a nation of property investors. The raw number of people – voters – who are new homebuyers each year is comparatively tiny, perhaps less than a quarter of a million individuals. They’re dwarfed by the percentage of Australians who are homeowners, property investors, or both, and therefore have every reason to want the value of their investments to continue rising.
In other words, homeowners and property investors are where the votes are. Potential new homebuyers? Not so much. The last thing a politician wants to do — and it doesn’t matter which side of politics they’re on — is disenfranchise the homeowner/investor voting bloc by making significant legislative and taxation changes, potentially leading to lower investment returns. Hence the tinkering around the edges.
Building more homes, shared equity, loan guarantees
Labor went into the election with several housing policy planks, the key ones being the undertaking to construct 100,000 new homes in a $10 billion, eight-year scheme, along with the effective nationalisation of Lender’s Mortgage Insurance, and an extension of the shared equity plan. There was also a commitment to ban foreigners from buying Australian property for two years, which one expert described as being “populist, small beer and not the main cause of housing being unaffordable.”
At the core of the housing crisis, however, is a supply problem, says Professor Hal Pawson, from UNSW’s City Futures Research Centre. And the questions around supply hinge on planning, construction technology and whether Australia has enough workers to build the planned homes, he adds.
State governments have clamped down on planning over the years, making it bureaucratically and financially difficult to get new developments off the ground, particularly regarding medium- and high-density developments in areas once the preserve of free-standing homes.
One way the Australian government is looking to rectify this situation is by moving back to some of the old COAG instruments with respect to Commonwealth-state relations, says Pradeep Philip, Lead Partner, Deloitte Access Economics.
“We saw this with the $900 million competition policy fund the treasury introduced, which affected federal-state relations, and to really get the housing crisis in hand, we need to see similar things done in relation to housing.”
Philip says the combination of the 100,000 new homes build and getting states on board to reduce planning red tape through COAG-style mechanisms will enable Australia to “get a really big hit on this problem.”
The issue remains, however, whether there is the political will to enact these reforms and resets in government relations to allow the faster, more efficient and affordable construction of dwellings for Australians. Medium- and high-density must be a focus, Philip says, and to an extent, this requires educating Australians about living in apartments.
It also means building apartments big enough for growing families, along with easy access to amenities like parks, schools, shops and effective public transport. At present, four-bedroom apartment developments are rare and tend to exist only at the very top end of the market.
Fiscal and regulatory effects
According to economist Eslake, the construction of the 100,000 new homes is only committed to $2 billion in the current budget, with the remaining $8 billion offset to future expenditure. Essentially, it’s kicking the can down the road, and the future success of the program will rely on whichever party succeeds in 2028 to maintain momentum and expenditure.
He also says the financial implications of the effectively nationalised mortgage lender’s insurance will have little fiscal impact, mainly because it’s unlikely to be called upon to any extent.
“Australians typically don’t default on their mortgages,” he says. “Most Australians will go without, say, holidays, private school fees and things like that, than miss a mortgage payment.”
Eslake also notes that APRA’s role will be renewedly scrutinised, and the organisation will be asked to remind banks and other lenders that they must continue to apply normal, prudent lending criteria, even if the government may pick up the tab in the event of a default.
Deloitte’s Philip says much of the expenditure is accounted for in the budget at a PFO level, but the success of schemes like the 5% deposit is contingent on how the private sector engages with the new legislation.
Overall, the boosting of supply is a measure experts view as being positive, but the reality is the housing affordability crisis — and the crisis in general — is not going to disappear overnight, if ever. Politicians have little stomach to really tackle the structural issues around topics like negative gearing, simply because, despite widespread public focus on housing, many Australians, and that means voters, simply don’t want them to.
Image: Australian Treasurer Jim Chalmers.