Elliott King, Economic Policy, and Dr Matthew Thomas, Social Policy

Key issue

Access to affordable and safe housing is essential to people’s health and wellbeing. Housing also forms a significant part of the economy. It is central to economic participation and productivity and a source of investment and wealth creation.

There is insufficient affordable housing to meet demand in Australia.

Housing affordability is a perennial issue in Australian politics. Various policies have been implemented to directly address affordability, though this usually takes the form of house purchase assistance or rental assistance (‘demand side’ measures).

Ideally, government interventions in the housing market should consider their impact across the entire housing continuum and be delivered in a more coordinated manner that increases the likelihood of realising optimum outcomes.

The housing continuum

The housing system is comprised of numerous housing markets, housing stakeholders and policy tools. Moreover, there is not a singular type of housing or housing tenure. Policies attempting to influence one type of housing or tenure type can have flow on effects across the full continuum of housing.

The housing continuum can be thought of as the spectrum of housing types and tenures. The main forms of housing tenure in Australia are public housing, community housing, private rental and home ownership. Figure 1 illustrates a continuum, within which different stakeholder groups and policy options could be listed to understand where marginal changes to policy can impact across the entire system of housing supply.

Figure 1          A housing continuum

Source: Adapted from Australian Government, Affordable Housing Working Group: Issues Paper, prepared for the Council on Federal Financial Relations, (Canberra: Department of Treasury, 2016), 2.

Any approach that is developed to address the needs of a particular group – such as people with disability, first home buyers, rental distressed, or key workers – can be located in this continuum. However, pulling one policy lever may affect the entire continuum, having both direct and indirect consequences in the wider housing market. A well-functioning housing continuum would be in balance and necessary interventions would ensure there are appropriate homes and supports at all points to meet the needs of the community.

The participants in the housing spectrum are diverse, including all layers of government, the individuals in need of housing (public and private renters, and owner-occupiers), non-government providers, public housing authorities, government funding bodies, private financiers and property developers. Often, the delivery of housing stock and supports involves explicit or implicit partnerships between these stakeholders (see, for example, the NSW Government’s Landcom).

Insights: challenges across Australia’s housing continuum

Housing affordability has been an issue for some time, however the latest cause of housing affordability concern stems from rapid house price increases in capital cities and regional centres since the onset of the COVID-19 pandemic.

The effect of these increases is not only experienced by home purchasers but has also manifested in higher rents – in most regions – for those in the rental market. Figure 2 shows the fluctuations in the SGS Economics’ Rental affordability index since 2011. Notably, rental affordability appears to have worsened in most regions during the pandemic despite rental moratoriums being in effect in most jurisdictions throughout 2020.

Figure 2          Rental affordability in capital city regions and ‘rest of state’ to Q2 2021

Source: Australian Institute of Health and Welfare (AIHW), Housing Data Dashboard, Rental Market: Rental Affordability Index Tables, (Canberra: AIHW, 2021).

Deteriorating rental affordability impacts a large and growing proportion of households. Table 1 shows the proportion of households in some form of rental accommodation in 2019–20. The proportion of households in the rental market now, compared to 1994–95 has risen from about 26% to 31% of households. Notably, the average proportion of household income to housing costs has not changed substantially between these periods, but examination of disposable income by quintile reveals that those in the lowest quintile have seen an increase in their housing costs relative to household income over this period, rising from an average of 22% to 29% (ABS, Housing occupancy and costs, (Canberra: ABS, 2022), Table 1.2).

Table 1            Proportion of households that are owner occupiers compared with private and public renters, and proportional housing costs

Owners and renters	1994–95 %	Housing costs as a percentage of household income 1994-95	2019–20 %	Housing costs as a percentage of household income 2019-20
Owner without a mortgage	41.8	3.1	29.5	3.0
Owner with a mortgage	29.6	18.4	36.8	15.5
State or territory housing authority renters	5.5	17.5	2.9	19.5
Private landlord	18.4	20.1	26.2	20.2

Source: Australian Bureau of Statistics (ABS), Housing Occupancy and Costs 2019- 20, (Canberra: ABS, 2022).

Note: The table only includes the main categories of renters—private and public housing renters. It does not include renters in community housing.

Additionally, mortgage stress (usually defined as 30% or greater of pre-tax income allocated to mortgage repayments, though there is some nuance to this calculation) is reportedly worsening in the face of recent interest rate increases. The latest authorised deposit-taking institution quarterly statistics show that although high loan-to-value ratio (LVR) (that is, greater than 90%) loans have declined, new residential mortgage loans with a debt-to-income (DTI) ratio greater than 6 increased from 17% of new loans to 24% between December 2020 and December 2021. In a period of rising interest rates, having a higher DTI or high LVR – and so higher repayments relative to income – makes it more likely that a borrower who experiences an adverse shock to their income or expenses will miss mortgage repayments. The Reserve Bank of Australia’s (RBA) April 2022 Financial stability review examines the risk these borrowers pose to the stability of the financial system, but also includes analysis of mortgage stress for high-DTI and high-LVR loans. Although these loans account for a small proportion of overall lending, they have ‘historically been around four times more likely to report mortgage stress than other borrowers, and three times more than those with only a high DTI or a high LVR’.

The state of Australia’s social housing supply

Social housing is housing made available at below market rates to low-income households that are unable to afford or access suitable accommodation in the private rental market. It comprises public housing, community housing, state-owned and managed Indigenous housing (SOMIH), and Indigenous community housing. Public housing is owned and managed by state and territory governments, while community housing is either owned or managed by not-for-profit community sector organisations.

There are a range of measures for calculating changes in the level of social housing. Social housing stock may be considered as a percentage of overall housing stock or in relation to the size of the national population. It is also possible to gauge the number of social housing households as a proportion of total Australian households. Irrespective of the measure used, it is evident that Australia’s social housing stock has been declining for some time (Figure 3).

Figure 3          Social housing stock as a proportion of total housing stock

Source: Productivity Commission, Report on Government Services 2022, Housing and Homelessness, (Canberra: Productivity Commission, 2022)

Current social housing stock is insufficient to meet present and projected need. As at June 2021 there were 163,508 applicants on waiting lists for public rental housing and more than 40% (67,656) of these were new greatest need households– that is, households that were homeless, in inappropriate housing that did not meet needs, adversely affected health or placed life and safety at risk; or households that had very high rental costs. Additionally, almost 60% of applicants for mainstream community housing were in greatest need (27,642 households) and 54% of the applicants awaiting SOMIH housing were in greatest need (4,018 households).

Waiting list data may overstate the level of need for social housing because some applicants may be on more than one wait-list. Nevertheless, if the ‘evident need’ for social housing is considered, then waiting list data may be seen to significantly underestimate the real need for social housing.

Evident need typically refers to households that are on a low income (approximately the bottom quintile for the relevant household type) and in rental stress (in private rental and paying more than 30% of income on rent). While these households may be eligible for social housing, they may not apply for a number of reasons, such as the stigma attached to this form of housing or because they are discouraged by lengthy waiting times.

Government intervention in housing in general

Contemplating housing as a continuum reveals a range of policy choices for governments at all levels. Broadly speaking, the roles of Australian governments with regard to housing are:

• the federal government is responsible for national housing and homelessness policy, financial sector regulations and taxation settings, which have some influence on housing affordability
• state and territory governments are responsible for land use and supply policy, urban planning and development policy, housing-related taxes and residential tenancy legislation and regulation, each of which has an impact on housing affordability
• local governments are mostly responsible for building approval, urban planning and development approval processes, and rates and charges.

Table 2 presents a summary of specific types of housing market interventions by level of government. As may be apparent, certain policy levers – particularly at the federal level – are not specific to housing provision but can significantly impact on encouraging or discouraging the expansion of housing.

Table 2            High-level overview of housing market interventions by level of government

Government level	Supply		Demand
	Encourage	Discourage	Encourage	Discourage
Australian	Monetary policy (interest rates) Major infrastructure State and local government grants (eg GST, roads) Regional development support (RDA, City Deals, Smart Cities) Tax exemptions or subsidies for dwellings	Prudential regulation (restrictive) Environmental protection and biodiversity conservation Business regulation	Tax incentives (income, company or capital) Income support Subsidies (NDIS and rent) Crisis or trauma categorisation Employment policy	Austerity measures Constraints on payments User fees Red tape
State or territory	Development partnerships Major or moderate infrastructure Transport policy settings Land supply (green or brown field) Grants for targeted development Land use planning Good trades training	Development deadlines Building quality regime Restrictions on brownfield Landholder stamp duty Value capture(a) Heritage restrictions Social restrictions (eg affordable housing) Planning system (zoning, rules)	Home buyer incentives Contiguous support for targeted group Social infrastructure Green living or energy incentives Public housing Community housing supports Targeted zoning	Land tax Conveyance duty Land based levies Tenancy rules User fees and charges
Local	Development approval (speed) Local infrastructure Urban partnerships Master planning Asset management plans	Development controls, fees and charges Rules and regulations (transparency) Betterment taxes Restrictive environmental protections Developer contributions Heritage restrictions	Place-based development and planning approach Community assets Green living incentives	General rates User fees and charges

(a) Where government recovers some or all of the value which public infrastructure generates for private landowners.

Source: Hal Pawson, Vivienne Milligan and Judith Yate, Housing Policy in Australia: A Case for System Reform, (gateway East: Palgrave Macmillan, 2020); Department of the Prime Minister and Cabinet (PMC), Reform of the Federation White Paper: Roles and responsibilities in housing and homelessness, issues paper 2, (Canberra: PMC, 2014).

In recent years work has been put into bringing institutions and private sector participants – banks, superannuation funds, and similar – into the affordable housing supply system. But, there needs to be greater coordination across all levels of government as the policy levers for each point of the housing continuum are dispersed. Changes at one level of government do not necessarily have the desired flow-on effects if corresponding changes are not followed at other levels, or if another layer embarks on changes without regard for actions taken elsewhere in the system. For example, local governments may be focussed on maintaining the amenities of their specific area, while the state or federal governments may be attempting to reshape the entire urban environment to achieve a particular economic outcome.

How does the Australian Government currently intervene in the housing system?

The federal government has no specific head of constitutional power to legislate with respect to housing, which is the primary responsibility of state and territory governments. Some housing experts have argued that because federal and state roles and responsibilities ‘cannot be robustly defined and allocated’, this complicates housing policy-making, negotiation and accountability (p. 394).

Direct interventions

Irrespective of this limitation, the Australian Government intervenes in the housing continuum in numerous ways. Most of the interventions at the federal level focus on the demand side of the housing market. Table 3 sets out current direct interventions in the housing market.

Table 3            Australian Government direct interventions in the housing market

Intervention	Targets	Continuum point	What is it?
First Home Super Saver Scheme (FHSSS)	First home buyers	Home buyers	Assists first home buyers to build a deposit inside their superannuation, to save for their first home, due to the concessional tax treatment and higher rate of earnings realised. Individuals have been able to make contributions since 1 July 2017 and apply to release their savings since 1 July 2018.
First Home Guarantee Scheme (FHG)	Primarily targeted at first home buyers, but certain subprograms assist other cohorts	Home buyers	Deposit guarantee scheme that provides a guarantee on eligible loans equal to the difference between a deposit of at least 5% and up to 20% of the property purchase price (to a maximum value, specified by area). Certain subprograms set the minimum deposit requirement at 2%.
Managed investment trusts (MIT)	Investors	Private renters	An increase to the capital gains tax (CGT) discount for resident individuals from 50% to 60% where the MIT has used residential real estate to provide affordable housing for at least 3 years prior to sale; and for non-resident investors, a 15%-  withholding tax rate if the MIT has used the residential real estate to provide affordable housing for at least 10 years.
Commonwealth Rent Assistance	A person or family that qualifies for an eligible social security payment	Private renters	A non-taxable income supplement, paid fortnightly to eligible recipients.  The payment is 75 cents for every dollar above a minimum rental threshold until a maximum rate is reached. The thresholds and rates vary depending on the household or family situation.,
Specialist Disability Accommodation (SDA)	For eligible participants in the National Disability Insurance Scheme	Public, community, private rental and ownership	The NDIS funds SDA for a small number of NDIS participants with extreme functional impairment, or very high support needs, when deemed necessary and reasonable. SDA funding is used to stimulate investment in the building of new dwellings for NDIS participants.
Foreign investment (restrictions)	Foreign investors	Home buyers	Generally, foreign investors must seek Foreign Investment Review Board approval before acquiring residential property. Foreign investors are barred from acquiring existing dwellings, except where the investor is redeveloping an established dwelling in a way that ‘will genuinely increase Australia’s housing stock’ (p. 15).
National Housing and Homelessness Agreement (NHHA)	State and territory governments	Crisis housing and social housing	The Australian Government provides funding to the states and territories for the provision of social and community housing services, crisis housing and homelessness services.
Affordable Housing Bond Aggregator (AHBA)	Social housing providers	Community housing	The AHBA is operated by the National Housing Finance and Investment Corporation (NHFIC). AHBA ‘provides low cost, long-term loans to registered community housing providers (CHPs) to support the provision of more social and affordable housing’.

Coordination mechanism

In the direct interventions, one special case is the relationship established under various Commonwealth-state housing agreements (currently the NHHA).

The Commonwealth-State Housing Agreement (CSHA) was the first national housing agreement and a precursor to the NHHA. The first CSHA was driven largely by the need to address a serious nation-wide housing shortfall after the Second World War. It allocated funds for the construction of new rental dwellings only, with half of this housing reserved for ex-defence force personnel. The intention was that the federal government would support the states to deliver public housing to those who wanted it, but with priority to those in greatest need.

Housing researcher, Patrick Troy, notes ‘the Commonwealth was not setting out to replace private ownership of dwellings but wanted to provide security of tenure and choice to those who did not want or who could not afford to own a dwelling’.[1]

Over time the Australian Government's focus has shifted to prioritising support for home ownership and eligible renters in the private rental market. With this shift, social housing has moved from being a palatable alternative tenure type to residualised and increasingly stretched welfare housing.

Indirect intervention

Indirect interventions may also occur, such as through infrastructure development, lending standards and taxation settings.

Infrastructure contributions through City Deals and Regional Deals typically involve measures for property development, including social housing (for example, the Hobart City Deal includes construction of ‘affordable housing options’). These are in addition to the Infrastructure Investment Program that impacts housing by altering the built environment.

The Australian Government can also influence the housing market through the regulation of the financial services sector, macroprudential regulation and taxation settings. For instance:

• Lending standards (for example, LVR) and serviceability requirements set by the Australian Prudential Regulation Authority influence credit availability for prospective home purchasers
• Negative gearing allows an investor to offset housing associated expenses, including loan interest payments and other outlays against their gross income, where the income derived from the investment is exceeded by these costs.
• A 50% discount on capital gains tax (CGT) exists for Australian individuals who own an asset for 12 months or more. A residential property that is a main residence is fully exempt, provided eligibility and other assessment criteria are met.

Although not directly under the control of the federal government, the RBA targets a level in the cash rate, which influences housing loan interest rates charged by financial institutions.

What can the federal government do to address housing issues?

The mix of direct and indirect measures highlights the complexity of the Australian Government’s involvement in housing. Direct interventions have a clear effect, such as the FHG bringing forward home purchases for eligible participants. Indirect interventions have wider impacts than just housing; for example, tax changes to negative gearing or the CGT may impact on investment decisions and tax arrangements more broadly.

A particularly vexing aspect of housing policy is its long-term nature, and the effective locking-in of decisions as dwellings are constructed. The work of housing policy experts, Hal Pawson, Vivienne Mulligan and Judith Yates, suggests that the long-term nature of this policy area requires:

• a broader and more equitable conception of strategic housing policy – that is focused on delivering sufficient housing to meet needs at all points of the continuum
• a research capacity that would support housing strategy across the continuum – that is, enable the monitoring, analysis and interpretation of housing system issues to assist in policy responses
• agreement on the roles and responsibilities of all levels of government with regard to housing assistance
• a greater degree of policy and administrative stability at the federal level.

Similar recommendations have been echoed in research reports by the Australian Housing and Urban Research Institute, and previous parliamentary inquiries.

With regard to social housing, a group of prominent Australian housing researchers has estimated that as at 2016 around 9% of all Australian households were in need of social or affordable housing – that is, they were homeless, on social housing waiting lists, or were low income households renting in the private rental market and experiencing housing stress. This estimate translates to a social housing need backlog of over 430,000 dwellings (p. 63). Based on the assumption that the proportion of households in need of social housing would hold constant over the next 20 years (but vary by region) it was estimated that about 730,000 additional social housing dwellings would be required to eliminate unmet need by 2036 (p. 1).

To prevent the existing shortfall from worsening would require the construction of nearly 15,000 additional social housing dwellings a year. If the current backlog is to be eliminated, the rate of construction would need to be around 36,000 dwellings a year. The current annual social housing construction rate has been estimated at just over 3,000 dwellings. 

In the short-term, the Productivity Commission is currently reviewing the NHHA- with its report due to the Treasurer by 31 August 2022. This report will likely frame negotiations of the NHHA, which is due to expire on 31 June 2023. Additionally, the House of Representatives Standing Committee on Tax and Revenue tabled its final report into housing affordability in March 2022. This report did not receive a response from the Government prior to the 2022 federal election.

Further reading

Terry Burke, Christine Nygaard and Liss Ralston, Australian Home Ownership: Past Reflections, Future Directions, AHURI Final Report no. 328, (Melbourne: Australian Housing Urban Research Institute, 2020).

National Housing Finance and Investment Corporation (NHFIC), State of the Nation's Housing 2021- 22, (Canberra: NHFIC, 2022).

House of Representatives Standing Committee on Tax and Revenue, The Australian Dream: Inquiry into Housing Affordability and Supply in Australia, (Canberra: House of Representatives, 2022)

Productivity Commission, Report on Government Services 2022, Housing and omelessness, (Canberra: Productivity Commission, 2022).

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[1] Patrick Troy, Accommodating Australians: Commonwealth government Involvement in housing (Sydney: The Federation Press, 2012), 283.

 

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