Chapter 2Boosting the stock of social and affordable housing
Unaffordable, inadequate housing in the private rental sector puts greater pressure and cost on the social housing and homelessness system. A robust and healthy social housing system likewise eases pressure on the private rental sector.
2.1The severe shortage of social and affordable housing isoneof the major drivers of the current rental crisis.This chapter examines policies, initiatives and investment that have the potential to boost Australia’s stock of social and affordable housing and help to make better use of the stock we already have.
2.2Firstly, the chapter explores the gaps in Australia’s existing social housing stock and proposals for addressing such gaps. It goes on to examine current government initiatives to boost the supply of housing, including the Housing Australia Future Fund (HAFF), the National Housing Accord (the Accord) and the National Housing and Homelessness Plan (the Plan).
2.3The chapter then addresses possible ways in which supply could be increased through the investment of both government and non-government entities. This includes incentivising build to rent (BTR) models, and the use of tax incentives and planning reform to support private development.
2.4Finally, the chapter addresses how to encourage better use of the homes Australia already has by considering short-term rental accommodation (STRA), the effects it has on the rental market, and possible regulatory approaches to limit the exodus of long-term rental supply.
Social housing gaps
2.5Many inquiry participants linked the current rental crisis to unmet social housing demand, arguing that the private rental market is unable to meet the needs of many Australians, particularly those on low incomes.
2.6After discussing the extent of the social housing shortfall, this section outlines proposals from inquiry participants for addressing this shortfall and discusses the Australian Government’s Social Housing Accelerator (SHA) initiative.
Unmet needs
There is a rental crisis not just in the private market, but also in social housing.
2.7The Australian Institute of Health and Welfare estimated that there were around 442,700 social housing dwellings across Australia as at June2022.
2.8Inquiry participants provided a wide range of estimates of current and projected unmet need for social housing and/or affordable housing, for example:
The National Housing Finance and Investment Corporation (NHFIC) provided a ‘conservative’ estimate of about 377,000 households currently inneed of social and affordable housing.
Per Capita’s Centre for Equitable Housing told the committee that ‘we probably need to be building around 160,000 social housing dwellings by 2036’.
The Centre for Urban Research at the Royal Melbourne Institute of Technology (RMIT) noted an Australian Housing and Urban Research Institute (AHURI) projection that 727,300 additional dwellings by 2036 would be required to eliminate unmet social housing need.
2.9The Community Housing Industry Association (CHIA) suggested that:
Australia needs around 8–9 [per cent] of its total housing stock to be social housing for low income households and around another 3 [per cent] to be affordable rental housing for moderate income households. This is about three times the current supply.
2.10The 2021 statutory review of the operation of the National Housing Finance and Investment Corporation Act 2018 adopted the following estimates of the shortfall in social and affordable housing stock for the period 2016–36:
614,000 additional social housing dwellings ($183 billion); and
277,000 additional affordable housing dwellings ($110 billion).
Decline over time
What is incontrovertible is that there has been a genuine crisis in social housing for decades. The decline in government investment … has failed those households who most need support.
2.11Ajoint statement to the committee from over 80 organisations submitted that:
… Australia’s stock of social housing has fallen consistently over preceding decades. Public housing has not been supported by governments. Transfers of property and/or management, and availability of lower cost finance to community housing, does not ensure the number and diversity of social housing dwellings increases at a rate sufficient to keep up with demand for genuinely affordable homes.
2.12The committee’s interim report highlighted the following evidence on the decline in the quantum of social housing stock:
The Grattan Institute observes that social housing stock has barely grown in 20 years, while the population has increased by 33 per cent. Similarly, the City Futures Research Centre notes that annual social housing lettings have fallen since the mid-1990s from 52,000 to 29,000: ‘a nominal reduction of 44per cent, but pro rata to population, down by over 60 per cent’.
2.13The Committee for Economic Development of Australia (CEDA) noted that the supply of social housing ‘has not been keeping pace with population growth and the current shortfall poses a risk of more Australians falling into precarious housing situations’. CEDA also highlighted that this failure to keep pace with population growth had contributed to the rise in homelessness between 2011 and 2021.
2.14The City Futures Research Centre (CFRC) submitted that the proportion of Australian households in social housing is now down to four per cent from over six per cent inthe mid-1990s. It noted that annual construction of social housing dwellings, ataround 3,000 over the past decade, has barely offset sales and demolitions.
2.15In addition to evidence about a decline over time in the quantity of social housing stock, the committee heard concerns about a decline in its quality. For example, Change the Record submitted:
Disinvestment, residualisation and neglect of public housing has both reduced the pool of available homes, and decreased the quality and liveability of properties as stock ages and is not maintained or replaced.
2.16The Real Estate Institute of Queensland (REIQ) also argued that both the quality and volume of social housing require improvement.
First Nations peoples
2.17Indigenous Business Australia highlighted to the committee that First Nations peoples are significantly more likely than other Australians to rent, and less likely to own their own homes. Submitters observed that First Nations peoples are disproportionately affected by discrimination in the private rental market. ANTAR noted that First Nations people have ten times the homelessness rate of non-Indigenous people.
2.18As such, the social housing shortfall carries particular implications for First Nations peoples. Change the Record quoted a 2020 report by the Australian Human Rights Commission (AHRC):
The chronic shortage of social housing stock across Australia has left Aboriginal and Torres Strait Islander women and their families struggling in overcrowded and inadequate living conditions, unable to keep themselves and their families safe and secure, and with the constant threat of homelessness if they cannot find a way to make ends meet.
2.19The CHIA cited a 2021 Productivity Commission finding that the proportion of First Nations people notliving in overcrowded homes was only 78.9 per cent compared to 92.9 per cent for the general population, and short of the Closing the Gap target of 88percent by 2031. The proportion of First Nations people living in appropriately sized housing has been rising since 1996, and reached 81.4 per cent in 2021.
International context
2.20Australia is not alone in having seen a decline over time in the role played by social housing in its housing mix. Over recent decades, ‘public investment in housing development has declined on average in the OECD [Organisation for Economic Co-operation and Development]’.
2.21OECD research found that, of around 20selected countries for which data was available for both 2010 and 2020, socialrental dwellings as a proportion of all housing stock:
increased notably in only two countries (Iceland and Korea);
fell most notably in Finland, the Netherlands and Poland; and
fell less notably in a further 11 countries (Austria, Belgium, Denmark, Estonia, Hungary, Germany, New Zealand, Norway, Portugal, Slovenia andthe United Kingdom (UK)).
Implications for the private rental market
2.22A number of rental property owners and their representatives argued that meeting the accommodation needs of all sectors of society should not be seen as a function or responsibility of the private rental market. Forinstance, the REIQ submitted that:
The moral debate of whether all Australians are entitled to secure housing is justified, however, it is unreasonable to expect private investors to place themselves in financial hardship in order to house others at their cost. Respectfully, we do not consider it is the responsibility of private investors to provide social housing in Australia, that responsibility lies with the Government.
2.23Other submitters also argued that the private rental sector should not be relied upon to fill the gap left by governments by meeting the needs of low-income earners. For example, the Southern Homelessness Services Network (SHSN) argued:
Leaving the provision of housing for people on the lowest incomes up to the private market does not work and does not provide housing that is safe, accessible, affordable, available, appropriate and sustainable.
2.24AHURI observed that the ‘increasingly residualised’ social housing sector had contributed to the present situation where:
… large numbers of households who are ineligible or insufficiently ‘needy’ … to get into social housing are living in unaffordable and insecure conditions in the private rental market.
Proposals for addressing the social housing shortfall
2.25The variety of potential mechanisms to address the social housing shortfall was highlighted by the 2021 statutory review of the operation of the National Housing Finance and Investment Corporation Act 2018. The review suggested that the $293billion investment it deemed necessary to meet the shortfall in social and affordable housing stock over the next two decades could be met:
… via contributions from both the public, private and the not-for-profit sector. This includes the use of mechanisms such as direct government subsidies, private investment, leveraging current social and affordable housing stock and planning policies.
2.26Numerous inquiry participants called for specific targets for the construction of new social housing dwellings. For example, the Australian Council of Social Service (ACOSS) urged the Australian Government to deliver ‘a ten year, 25,000 dwelling per year pipeline of social housing investment’ to meet current and projected demand estimated by ACOSS at 500,000 dwellings.
2.27Other inquiry participants, including National Shelter, Everybody’s Home, Anglicare Australia and the Tenants’ Union of Tasmania, agreed that 25,000 dwellings per year are needed to meet the current shortfall.
2.28A joint statement to the committee by over 80 organisations submitted that:
Governments should aim for investment consistent with meeting a target of a minimum 10 per cent of all housing being public or community housing by 2036.
2.29The Renters and Housing Union (RAHU), calling for the same result but by 2035, suggested this could be done by ‘a combination of new construction and acquisition of existing properties’, with a focus on dispersion to avoid concentration in certain areas.
2.30In addition, the committee heard that the type, quality and location of new social housing stock are important: for instance, CEDA highlighted the need for ‘smaller units’ because:
… most social housing households are single adults, but only 26 per cent of the stock is one-bedroom or a bedsit, as it was built to meet different needs historically.
2.31Further, Change the Record highlighted that First Nations peoples need social housing dwellings that are:
… codesigned, culturally appropriate, [and] climate resilient … to address the severe overcrowding and disadvantage being experienced by Aboriginal and Torres Strait Islander peoples...
2.32Some inquiry participants saw a need for innovative ways to access private rental stock for social housing purposes during the medium term while the stock of long-term social housing is being increased. For instance, Ms Katelyn Butterss of the Victorian Public Tenants Association (VPTA) told the committee that VPTA had recommended to the Victorian Government the introduction of a ‘housing asset bond’, being a ‘head-lease program’:
… which would allow Homes Victoria to identify property types in particular areas where there is a clear need for them on the waitlist, and to seek to lease those properties from the private rental market, delivering market rent, plusperhaps an additional one per cent, as payment to the landlord, inreturn for receiving their property into the public housing stock portfolio. Over the medium term—10 years—the property owner would receive that home back, less reasonable wear and tear.
Social Housing Accelerator (SHA) funding for state and territory governments
2.33The Australian Government announced in June 2023 the $2 billion SHA ‘to deliver thousands of new social homes across Australia’. That funding was distributed among state and territory governments on a per capita basis in mid-2023, on condition that it be committed by 30June2025. The finalised implementation plans of all states and territories are intended to ‘deliver around 4,000 new social homes by 2028’.
2.34The Victorian, New South Wales (NSW) and Queensland governments have separately announced plans to use their SHA funding, totalling approximately $1.5 billion, to build up to around 2,870 new social housing dwellings (suggesting average per-dwelling SHA funding of around $524,000, ranging from $405,000 in NSW to $633,000 in Queensland):
The NSW Government expects to add ‘around 1,500 new social homes … by 2028’ to its social housing portfolio using its SHA funding ($610.1 million);
Victoria’s SHA funding ($496.5million) will be used to build up to 769 new social housing dwellings, including through redeveloping two high‑rise public housing towers in Melbourne’s Carlton; and
The Queensland Government will build ‘up to 600 social housing dwellings’, 80percent of them outside Brisbane, with its SHA funding ($398.3 million).
2.35The SHA initiative was broadly welcomed by inquiry participants, though some suggested that the scale of the SHA was insufficient in light of need. In Victoria, for instance, SHA funding for the construction of up to 769 new social housing dwellings would provide a relatively small contribution to the Victorian Government’s existing commitment to deliver 12,000 new social and affordable homes (which itself would only boost the state’s social housing supply by 10 per cent).
2.36Several submitters expressed concerns about the Victorian Government’s recent announcement of its use of SHA funding which will see the relocation of residents from 44 public housing towers to enable the redevelopment of social housing.
2.37Those concerns centred on the forcible displacement of existing tenants and transfer of public housing to community housing, with higher rents and in a different area. For example, Professor Libby Porter of the Centre for Urban Planning described this as ‘a disaster’, noting international research finding that ‘when you displace communities of that nature, at that scale, you cause phenomenal harm’—affecting livelihood, social connections and physical and mental health.
2.38Ms Fiona York, of the Housing for the Aged Action Group (HAAG), called for more community consultation and further investigation of ‘options like renovating, repairing or restoring the housing’.
Housing Australia Future Fund (HAFF)
2.39The HAFF was established by legislation passed on 14September2023. In their joint submission, Treasury and the Department of Social Services (DSS) said the HAFF would ‘support the private rental market through an ongoing funding stream to increase social and affordable housing, as well as address other acute housing needs’.
2.40As explained to the committee by a representative of Treasury:
The HAFF will help deliver the government's commitment of 30,000 new social and affordable homes over five years, and that will include … homes for women and children impacted by family and domestic violence. Disbursements from the HAFF will also be used to deliver the government's commitments to help address acute housing needs.
2.41The HAFF consists of the HAFF Special Account and investments of the HAFF, with an initial credit of $10 billion to the Special Account from Consolidated Revenue and the possibility of additional credits in future.
2.42The Housing Australia Future Fund Act 2023 (the HAFF Act) provides that $500 million will be disbursed each financial year from 2024–25 to 2028–29, with that amount indexed thereafter to the Consumer Price Index (CPI). In any year, the Finance Minister and Treasurer could increase the designated annual amount by means of a disallowable legislative instrument.
2.43The Australian Government intends to allocate the 30,000 social and affordable homes to be delivered over the HAFF’s first five years as follows:
20,000 homes for social housing (of which 4,000 would be for ‘women and children leaving or experiencing domestic and family violence and older women on low incomes who are at risk of homelessness’); and
10,000 ‘affordable homes for frontline workers like police, nurses and cleaners’.
2.44Housing Australia will seek funding applications for HAFF financing through funding rounds. Applications for funding through the HAFF program ‘will open as soon as practicable following the registration of the Investment Mandate Direction’ (a legislative instrument to be made by the Housing Minister).
2.45The HAFF Act is subject to regular reviews, with the first such review to be completed by 31December 2026 and each subsequent review to be completed within five years of the previous review.
Views on the HAFF
2.46Evidence to the committee indicated overwhelming support for the establishment of the HAFF. This mirrored the ‘broad and enthusiastic support among a majority of stakeholders’ for the HAFF’s establishment that was reported by the Senate Economics Legislation Committee in its inquiry into the then-proposed legislation to establish the HAFF.
2.47PowerHousing Australia echoed the views of many submitters to the present inquiry in saying:
The sector and community is supportive of the HAFF, seeing this a necessary first step for the expansion to the social and affordable housing in Australia.
2.48Along similar lines, the St Vincent de Paul Society expressed the view that:
… the HAFF is not a ‘silver bullet’ but it is part of building a comprehensive long-term plan involving key stakeholders (state and territory governments, private developers, social and affordable housing providers and charities) to address 30 years of inaction.
Benefits of the HAFF
2.49The President of the Real Estate Institute of Australia (REIA) told the committee that his organisation supported the passage of the (then) HAFF Bill because:
The Housing Australia Future Fund does give an important injection of social and affordable housing funding for the states and territories, in order to help them catch up with an area that has been long neglected by the states and territories. It is very important legislation to try to get more housing, more quickly into the market, at the affordable end, right now.
2.50The Grattan Institute submitted that the HAFF would guarantee a new flow of investment, providing subsidies to state governments and community housing providers to support construction of social and affordable housing with the promise that HAFF returns would top up discounted rent payments, and so making projects viable. It further argued that the differences between the HAFF and direct government funding of new social housing construction had been overstated.
2.51In welcoming the HAFF, community housing providers said they had ‘shovel‑ready’ housing projects suitable for commencement. Mr Michael Chester of UnitingWA described the benefit of the HAFF thus:
… there is no economic model with social housing that enables that to be built without some sort of grant, capital input or support. … HAFF is a critical component for us as a social housing provider in terms of enabling us—in conjunction with other state government initiatives, assets that we already own and debt financing through commercial means—to build social housing.
2.52Along similar lines, the CHIA submitted that:
The Federal government has the tax-raising and borrowing powers of the scale required to underpin the investment that is needed and unlock contributions from the private and charitable sectors and can supplement housing programs funded by the State/Territory governments. Theproposed [HAFF] is one example of the form such potential investment could take.
2.53The HAFF was described by Mr John Engeler, CEO of Shelter NSW and Chair of National Shelter, as a new way of ensuring a consistent approach over time to investment in social housing, rather than ‘anincidental, ad hoc policy setting’; and as ’qualitatively different to anything that we’ve had in the sector’.
Similarly, Mr Matt Lloyd-Cape of the Per Capita Centre for Equitable Housing described as one benefit of the HAFF its being ‘somewhat protected from the vagaries of individual government policies’; and told the committee that this should protect over the long run the investment in social housing.
Concerns about the HAFF
2.55While generally supportive of the HAFF, some inquiry participants raised concerns about the HAFF’s scale, cost, and scope; as well as the extent of discretion in the allocation of HAFF funds.
2.56The most common criticism of the HAFF was that its scale would prove insufficient to make much of an impact in addressing Australia’s unmet demand for social and affordable housing. For example, the Grattan Institute said its ‘biggest concern with the HAFF is that it does not go far enough’. Professor Libby Porter told the committee that AHURI had estimated that unmet national demand for social housing would be around 550,000 dwellings by 2037, and that:
Given that we can also see the trajectory that we're on is a deepening year on year of that number of unmet need, I think we can fairly safely say that that's why an influx of 20,000 is grossly inadequate.
2.57Some inquiry participants suggested that planned expenditure for the HAFF and the SHA (discussed above) is inadequate relative to the need for social housing, particularly public housing. For example, Per Capita told the committee that:
The scale at which [the HAFF is] being implemented probably could be increased substantially. In terms of the accelerator's $2 billion, we need to see quantums larger than this invested in repairing our public housing stock…
2.58Along similar lines, Anglicare Australia submitted that:
The Federal Government … will only guarantee that the [HAFF] will deliver a minimum of 9,600 homes, or 30,000 homes in the most generous scenario. This is a long way away from Australia’s 640,000 home shortfall. After years of under-investment in social housing... Turning this around will require regular, on-budget commitments well beyond the proposed [HAFF].
2.59The Youth Affairs Council of South Australia (YACSA) submitted that it is ‘is unclear how this [HAFF] support reaches young people as they rarely have access to social housing with CRA supporting young people at almost ten times the rate they access social housing’.
2.60In the context of the current rental crisis, another issue raised by some submitters was the lag time between the HAFF’s establishment and its delivery of additional dwellings.
National Housing Accord (the Accord) and National Housing and Homelessness Plan (the Plan)
2.61As the committee noted in its interim report, all tiers of government have policy responsibilities affecting the rental and housing landscape, with the states and territories responsible for most of the key policy levers directly influencing housing provision. In recent years the Australian Government has sought to provide national leadership and coordination on housing policy.
2.62This section provides context on the evolution of federal housing policy frameworks before considering in more detail the Accord and the proposed Plan.
Background on intergovernmental housing policy frameworks
2.63The National Housing and Homelessness Agreement (NHHA) is the latest in a series of housing agreements since 1945 between the Commonwealth and the states and territories.
2.64CFRC highlighted the significant contribution made by public housing funded by Commonwealth-State Housing Agreements. Itinstanced the construction of almost 250,000 dwellings over 25 years to 1970, built mostly for ‘low-moderate-income working families and the aged’, with 100,000 of those dwellings sold to households on favourable terms.
2.65The then Commonwealth Housing Commission declared in 1944 that ‘adwelling of good standard and equipment is not only the need but the right of every citizen’.
2.66AHURIargued that this same ambition informed Commonwealth-State housing agreements up until 2000, but that the NHHA’s ‘increasingly transactional focus’ over more recent years is ‘not consistent with the long history of partnership between the Commonwealth and the states to supply housing for low-income households’.
2.67A major review of the NHHA by the Productivity Commission found in 2022 that:
… the NHHA is more of a funding agreement for homelessness and housing services than an agreement for coordinated policy action. While it facilitates the transfer of funds from the Australian Government to States and Territories to support housing and homelessness programs, it does not foster intergovernmental collaboration nor set out a national reform agenda.
2.68Current government initiatives to coordinate a national approach to housing include:
the HAFF legislated in late 2023 (discussed above);
the Social Housing Accelerator (discussed above);
the National Housing and Homelessness Plan (discussed below);
the National Housing Accord (discussed below);
National Cabinet’s August 2023 decisions on ‘A Better Deal for Renters’ and the ‘National Planning Reform Blueprint’ (the Blueprint);
the National Housing Supply and Affordability Council, established in2023, which has the primary role of advising the Commonwealth on matters relating to housing supply and affordability;
the New Homes Bonus (noted below);
the Housing Support Program, ‘a $500 million competitive funding program for local and state governments to kick-start housing supply’;
Housing Australia, which among other things operates:
the National Housing Infrastructure Facility (NHIF), a $2 billion ‘facility that provides finance for eligible housing enabling infrastructure projects that will unlock new housing supply’;
the Affordable Housing Bond Aggregator, ‘providing loans to registered community housing providers by aggregating their lending requirements and issuing bonds to institutional investors’;[96]and
the Home Guarantee Scheme, enabling eligible home buyers to buy a home through Housing Australia providing authorised lenders with a guarantee of up to 15 per cent of the value of the home loan, thus removing the need for the home buyer to pay Lenders Mortgage Insurance.
Additional arrangements in relation to the Northern Territory (NT) only.
2.69A further initiative to increase home ownership is the Help to Buy Program. Legislation to establish this program was introduced into the Australian Parliament on 30 November 2023. Under the program ‘[t]he Government will support eligible homebuyers with an equity contribution of up to 40per cent for new homes and 30 per cent for existing homes.’ This will be available for up to 40,000 households.
National Housing Accord
2.70In 2022 the Commonwealth Government entered into the National Housing Accord with state and territory governments, local government, institutional investors and the residential development and construction sector. The Accord is intended to ‘unlock quality, affordable housing supply over the medium term’. It includes $350 million in Commonwealth funding over five years from 2024–25 for up to 10,000 affordable homes. For their part, states and territories committed ‘to support delivery of up to an additional 10,000 affordable homes’.
2.71While the original Accord target was to build 1 million new homes over five years from mid-2024, National Cabinet agreed in August 2023 to increase this target to 1.2 million. The Commonwealth has committed $3billion for the New Homes Bonus, ‘for states and territories that achieve more than their share of the one million well-located home target under the National Housing Accord’.
2.72Together with the HAFF, the Accord is intended to ‘encourage institutional investment in social and affordable housing and contribute to the development of the community housing sector’. TheAccord states that Australia has both a low level of institutional investment in housing and ‘the world’s third largest pool of capital in our superannuation system, which is hungry for investments that will deliver stable returns over the long term for the benefit of members’.
Views of inquiry participants
2.73Generally, inquiry participants were highly supportive of the Accord. Forinstance, PowerHousing Australia submitted that:
Both the [Housing Australia Future] Fund and the Accord will provide a solid foundation for the future growth and stability of social and affordable housing that is so needed in Australia at this time.
2.74However, there were suggestions that the Accord could be improved by more specific targets, greater transparency and ensuring that dwellings built under the auspices of the Accord meet certain standards. For example, Ms Emma Greenhalgh of National Shelter told the committee that the Accord should include ‘a target and a supply of social and affordable housing’.
National Housing and Homelessness Plan (the Plan)
2.75The Australian Government announced in its 2022–23 Budget that a ten-year Plan would be developed by 2024, ‘in association with states and territories, industry bodies and not for profit organisations, to support the development of short, medium and long term housing and homelessness policy’. In the interim, the existing NHHA has been extended by one year to 30 June 2024. It will be replaced by the proposed Plan.
2.76Treasury and DSS advised the committee that the proposed Plan will ‘set out a shared vision to inform future housing and homelessness policy in Australia’ and ‘set out the key short, medium and longer term reforms needed to address housing challenges’.
2.77DSS has engaged in a public consultation process and is collaborating with ‘key stakeholders including state and territory governments, local government, not‑for‑profit and civil society organisations, industry bodies, superannuation funds and other experts in housing, finance and urban development’.
2.78The Plan will be Australia’s first national housing and homelessness plan.
Views of inquiry participants
2.79Submitters were supportive of a national plan as a potential means of enabling intergovernmental (and intragovernmental) coordination to tackle challenges in a range of policy areas affecting the complex housing market.
2.80Inquiry participants stressed the need for the proposed Plan to focus on affordable and appropriate rental housing. Forinstance, AHURI stated:
It is essential for this plan to prioritise delivering rental housing that is affordable to very low and low income households in areas that are close to employment and other amenities (including health and education facilities).
2.81Similarly, NT Shelter suggested that government could act now to ease the future burden of renters by fulfilling the Plan’s potential to ‘deliver a range of measures that will make a material difference to those who currently have unmet housing need or are at a disadvantage in the housing market’.
2.82The CHIA also highlighted the Plan’s potential to enhance the supply of affordable and accessible housing:
Rental housing is just one part of a broader housing sector. CHIA’s position is that long term fixes are needed, and these must be guided by a National Housing and Homelessness Plan that focuses on ensuring all Australians can access housing that is affordable, and guides private rental, social and affordable housing supply within this context. A national approach to housing supply is essential.
2.83CHIA further submitted that the Plan should contain clear, measurable targets and ‘separate but fully integrated plans’ on:
homelessness;
the needs of those facing high barriers to accessing the private rental market, such as Indigenous households and people with disability; and
rental housing supply in both capital cities and rural and regional areas.
2.84Arguing for a dedicated housing and homelessness plan for young people, TheSalvation Army highlighted evidence that:
young people have different needs to adults experiencing homelessness;
23 per cent of those experiencing homelessness were aged 12–24 (according to 2021 census data); and
‘the earlier someone becomes homeless, the more likely they are to be homeless later in life’.
2.85The Salvation Army submitted that the Plan should set clear, measurable goals and entail ‘critical consideration of the quantum and nature of different cohorts impacted by housing unaffordability and homelessness, and their varying support needs’.
2.86Other inquiry participants called for more clarity on the transition between the NHHA and the Plan, and on the Plan’s role and functions; forprioritising home ownership; and for evaluation and reporting on the Plan.
Build to rent (BTR) models
2.87The committee heard that an expanded Australian BTR sector could help alleviate the current rental crisis by enhancing the supply, affordability, quality and tenure security of rental housing and reducing churn in rental properties.
2.88BTR accounts for about 0.2 per cent (by value) of Australia’s residential housing sector. BTR involves ‘apartment blocks or larger developments purpose-built for rental occupation and held in single ownership as a long-term revenue‑generating asset’. This contrasts with the build to sell model, more common in Australia, where developers build homes for individual sale.
2.89Although BTR models are often associated with private investment, the committee notes that they can also be employed by non-profit organisations.
2.90This section discusses current incentives to grow the BTR sector; international examples; BTR’s perceived benefits; concerns expressed about BTR; and suggestions from inquiry participants on ways to support Australia’s small but expanding BTR sector.
Tax incentives and governments’ initiatives
2.91As noted in the committee’s interim report, tax incentives have recently been introduced to boost the BTR sector. Inquiry participants generally welcomed these changes to tax settings that can be expected to incentivise the BTR sector. However, Property Investment Professionals of Australia (PIPA) argued that ‘incentivising everyday investors in the same way would deliver a far more efficient and immediate benefit to the rental market’ (than tax incentives incentivising corporate investment to fund BTR).
2.92At the federal level, the tax rate for managed investment trusts will be halved from mid-2024 (from 30 per cent to 15 per cent), and the capital works tax deduction (depreciation) rate for new BTR properties is rising from 2.5percent to 4percent per year. Several states are now encouraging BTR construction with a 50 per cent land tax deduction or other measures.
2.93Treasury and DSS highlighted to the committee that research commissioned by the Property Council of Australia suggests that changes to federal tax settings ‘could unlock 150,000 apartments over the next decade’. Another projection is that around 55,000 dedicated units in the BTR sector may be completed by 2030—which would make up only 1.5 per cent of Australia’s total rental supply.
2.94The committee heard from state and territory governments of a range of BTR initiatives now underway, for example:
the Australian Capital Territory (ACT) Government has allocated land blocks for BTR development, involving both a commercial and an affordable model, with ‘adegree of subsidy’ for the affordable component (for developments including a minimum of 15percent of affordable rentals);
the NSW Government has announced a BTR pilot program on the South and North Coast of NSW; and
the NT Government is partnering with the community housing sector in a build-to-rent development for social housing (involving the redevelopment of a ‘larger-scale public housing complex’ in Darwin).
2.95Aware Super informed the committee of its build-to-rent strategy, involving 470 existing apartments in four capital cities with 1,700 more units in the pipeline; and an ‘Essential Worker Housing’ component offering 20 per cent below‑market rent.
International examples
2.96The United States of America (USA) and UK provide examples of larger BTR sectors that have been supported by government policy.
2.97In the USA, government-chartered agencies encourage investment by backing BTR loans and guaranteeing payment on mortgage-backed securities.
2.98In the UK, a BTR fund was established in 2013 to provide £1.1 billion in debt financing for developers constructing purpose-built rentals. Institutional investment in BTR construction rose from GBP2.5billion in 2011 to almost GBP4.5 billion in 2022. Between 2015 and 2023, total UK stock of BTR units expanded from around 11,300 to around 82,600, an average annual growth of 30per cent.
Benefits of BTR
2.99Some inquiry participants suggested that BTR has the potential to boost supply, including of affordable housing, as well as enhancing tenure security and enabling a beneficial diversification of rental property ownership.
Boosting supply
2.100According to some submitters, larger-scale investment by institutional investors in the BTR sector would expand the supply of rental housing. In particular, the committee heard that a greater reliance on the BTR sector could increase the supply of affordable housing. PowerHousing Australia told the committee that community housing providers had pioneered the BTR model in Australia, with a record of creating ‘truly affordable housing’ for ‘those in need’.
Affordability
2.101Some inquiry participants suggested that sourcing more rental housing stock through the BTR sector could potentially assist rental affordability by:
increasing the stock of both ‘affordable’ rental housing and the wider rental housing supply; and
mitigating the impact on rental prices of short-term interest rate increases, which can arguably be better borne by institutional than individual investors.
Tenure security
2.102Some submitters argued that a larger BTR sector could increase tenure security and reduce the high turnover of Australia’s rental stock—in part because the BTR sector would generally not experience evictions of the type resulting from changes in the personal situations of individual investors.
2.103Mr Peter Mares suggested that the churn in rental properties could be reduced by an expanded BTR sector if developers did not sell individual dwellings in the short-to-medium term, as developers could then be expected to structure their business around rental streams rather than shorter‑term capital gains.
Diversification of ownership
2.104Many inquiry participants took the view that Australia would benefit from more institutional rental investment, particularly in BTR developments, partly through reducing the current reliance on small, individual investors.
2.105For example, Bankwest Curtin Economics Centre (BCEC) argued that:
Housing supply in Australia needs to learn the lessons of what works best internationally—and shift over time from ‘mum and dad investors’ relying on rising property values to build family wealth, to institutional investment creating rental properties at scale...
2.106The Interim National Housing Supply and Affordability Council expressed asimilar view:
… accessing institutional capital to invest in rental stock is one way to increase housing supply, which would improve affordability and ease rental shortages. Diversifying sources of rental supply through institutional capital will reduce over-reliance on individual landlords.
2.107AHURI noted that ‘larger scale providers may be more responsive to profit signals and able to take on risk around new investments’; but also that ‘there are political and equity issues with disrupting an established class of investors’.
Concerns about BTR
2.108The main concerns expressed to the committee about expanding the BTR sector included doubts about whether BTR could boost affordable housing supply, the efficacy of government subsidies and ethical considerations regarding corporate landlords.
Affordability
2.109Many inquiry participants questioned the capacity of BTR development to effectively enhance the supply of affordable housing. For instance, MrHayden Groves, President of the REIA, told the committee that:
… these sorts of institutionalised assets … will be useful in that they will provide rental supply, but it will be at the upper and more bespoke end of the rental continuum. So it's not really a solution to affordable housing in the immediate term because it really will be high-end type rental accommodation.
2.110The Productivity Commission submitted that ‘the extent to which build-to-rent construction just replaces other construction is contested and has not been empirically studied’.
2.111The Centre for Urban Research drew to the committee’s attention a 2019 research paper of the Productivity Commission which found it was not clear that institutional investment provides an avenue for more affordable housing and noted that ‘most of Australia’s pioneering [BTR] projects have targeted the premium segment of the rental market’.
2.112While acknowledging that Australian Government efforts to incentivise institutional investors might bring a welcome increase in rental housing stock, Think Forward contended that ‘this method will continue to see renters being used as an investment asset creating wealth for others’.
Government subsidies
2.113Where BTR schemes include affordable housing as one component, this often involves government subsidies to the property owner to support below‑market rental rates. In the absence of government subsidies, the committee was told that ‘it is simply not possible for BTR apartments to be offered to those on middle to low incomes, whose incomes are too low even with rent assistance to generate the sort of return on capital expected by shareholders’.
2.114Some inquiry participants cast doubt on the efficacy of government subsidies. The Productivity Commission submitted that governments should not subsidise ‘affordable build-to-rent’ developments. It argued that ‘[s]ubsidies for affordable rental properties are not a good way to tackle rental affordability’ because subsidies can displace private construction of market-rate housing and carry hidden costs, aswell as limiting choice and potentially being poorly targeted or unfair.
Corporate landlords—Ethical considerations
2.115Some inquiry participants cautioned that ‘build-to-rent does not guarantee ethical landlordism’. For example, Mr Joel Dignam of Better Renting told the committee that the behaviour of corporate landlords in Australia has not been exemplary, and that the same was true in the US and the UK:
… in the US … corporatisation has been quite a bad thing for renters. Although you might see greater rigour around some compliance with rental laws, you can also see a much more mercenary approach to issues like rent increases and, potentially, discrimination against tenants.
2.116Digital Rights Watch (DRW) highlighted the need for ‘regulators to be proactive’ in guarding against the use and sharing of data for surveillance or speculative purposes as an increasing number of BTR projects produces ‘agreater presence of institutional landlords in the private rental ecosystem’.
Suggestions for future policy
2.117Inquiry participants argued for a range of government approaches to the expanding BTR sector.
2.118A number of suggestions related to the incentivisation of BTR through beneficial tax settings and planning processes. For example, the Property Council of Australia recommended that National Cabinet work ‘to remove barriers to investment in BTR, including foreign investor surcharges, treatment under land tax regimes and design requirements’.
2.119The interim National Housing Supply and Affordability Council proposed that:
Commonwealth, state and territory governments should develop nationally consistent planning provisions under which large-scale build-to-rent projects are a separately defined development type subject to expedited planning and development assessment.
2.120Many other suggestions from inquiry participants centred on ensuring that BTR does not merely generate supply at the higher end of the private rental market, but also delivers affordable rental housing, For example:
Aware Super submitted that for entities other than community housing providers—including superannuation funds—current tax settings make ‘building affordable housing to rent more expensive than building to sell’, and called for the extension to all affordable housing providers of the ‘nominal consideration rule’ for GST treatment;
BCEC recommended the development of a ‘long‑term national Build to Rent scheme … designed to deliver a steady supply of subsidised low‑income affordable rental properties at scale’;
Per Capita recommended that state governments legislate requirements for the inclusion of affordable rental units within new BTR projects in return for land tax concessions or other incentives;
ANTAR recommended subsidies to support the earmarking of ‘a portion’ of BTR development for ‘affordable/below market rent housing’ for First Nations renters; and
Mr Peter Mares, citing potential benefits for both tenure security and accommodation quality, recommended that ‘all build-to-rent dwellings supported by federal and state tax concessions remain available for rental for the life of the building (minimum 50 years) and cannot be strata-titled and sold-off as private dwellings’.
2.121The McKell Institute and the Construction, Forestry, Maritime, Mining and Energy Union (CFMEU) recommended consideration of ‘build-to-rent-to-buy’ schemes.
Private investment
2.122This section discusses evidence in relation to private investment and the supply of rentals, including the impact of tenancy law reform on investment decisions; tax incentives; and calls for planning reforms.
Potential impacts of tenancy law reforms on private investment
2.123The committee received conflicting evidence on whether strengthening renters’ rights through tenancy law reform or other measures would disincentivise small private investors.
2.124Many property owners and their peak bodies suggested to the committee that tenancy law reform could result in disinvestment, less rental supply and higher rents. For instance, the REIQ argued that:
If the cost of owning a rental property is not sustainable, private investors may become motivated to sell their property or move to the short-term letting market, withdrawing valuable supply from the private permanent rental market.
2.125Similarly, PIPA pointed to the following results of its 2022 Annual Investor Sentiment Survey:
…25.1 per cent of respondents cited changing tenancy legislation as a reason for selling their investment property in the previous 12 to 24 months, stating that it had become too costly or difficult to manage. Many others mentioned the loss of control over their property and increased compliance costs.
2.126Additionally, the Property Investors Council of Australia stated that since the Victorian Government’s enactment of its March 2021 tenancy law reforms, Victoria now faces ‘a revolt from investors and as a consequence, a very difficult challenge to supply adequate rental accommodation’; and that many property investors now regard Victoria as ‘an “anti-property investor” state.
2.127By contrast, several inquiry participants challenged the notion that there would be negative consequences if private investors were to sell their properties. For instance, Professor Libby Porter of RMIT University argued that investors leaving the market would in fact be a positive opportunity for housing to be more equitably distributed.She explained that when investment properties are sold:
… the housing supply doesn’t go away; the houses are still here. … Someone else will purchase it, and then that makes that property available in a different kind of way.
2.128Similarly, Ms Fiona Caniglia, Executive Director of Q Shelter, conveyed that the sale of investment properties would not diminish overall housing supply:
… these homes are not lost to the market. … there might be an individual investor that sells. But that house is still there and, in the current environment, every house that’s still there is really important and plays its part in that broader housing system. It will still be housing someone, which currently is still very helpful.
2.129Ms Antonia Mercorella, Chief Executive Officer (CEO) of REIQ, acknowledged that properties sold by investors may be bought by other investors or owner-occupiers. Ms Mercorella indicated REIQ’s support for those properties to be purchased by owner-occupiers so that more renters could transition to home ownership.
2.130In addition, various inquiry participants contended that there was no evidence that strengthened renters’ rights would disincentivise investment and cause existing landlords to leave the rental market. For instance, CFRC reported the following findings of its 2022 research on this question after past law reform in two states:
We found no statistically significant increase in properties exiting the Sydney and Melbourne sectors around those events: in fact, the Sydney property exits trend was slightly lower after the New South Wales reforms. The Melbourne properties entries trend was slightly lower after the commencement of the 2015 review, consistent with some investors pausing for ‘due diligence’. But there was no ‘disinvestment’ effect.
2.131Institutional investors currently play only a small role in Australia’s residential rental market, as noted above. On whether strengthening renters’ rights might discourage institutional investors from investing in residential rental property, the case of Germany is noteworthy:
The German policy environment demonstrates that a robust market for institutional housing can coexist with strong tenant rights, including policies that set maximum limits on rent increases in tight housing markets and tenant protection laws that limit the circumstances under which landlords can terminate rental contracts.
Tax incentives
Negative gearing and the capital gains tax discount
2.132Though negative gearing and the capital gains tax discount are two separate policies, many inquiry participants raised them together, arguing that as a combination, they contribute to the inefficiency, inequality and unaffordability of the current rental market. A large number of submitters argued that they should both be removed or at least significantly curtailed. Conversely, other submitters strongly supported their continued existence.
2.133Negative gearing is ‘the tax deductibility of interest payments and other investment costs, including where they exceed investment income and are deducted against non-asset income’. CFRC explained that this:
… helps asset owners bear larger losses than they otherwise would—and hence take on higher levels of debt than they otherwise would, and pay higher prices than they otherwise would, in order to hold an asset in anticipation of capital gains.
2.134The capital gains tax (CGT) discount means that ‘when an investor is taxed on asset gains—at the point of sale—they pay at only half the rate that would otherwise apply to their income’.
2.135Inquiry participants argued that, together, negative gearing and the capital gains discount encourage property investors to regard properties in a speculative manner, in search of capital gains in the short- or medium-term rather than seeking positive rental yields.Further, Dr Amy MacMahon, MP for South Brisbane, contended that negative gearing ‘provides an enormous incentive for landlords to hoard property by making this cost a tax deduction’.
2.136On the other hand, Ms Antonia Mercorella, representing the REIQ, strongly disagreed with the idea that property investors seek only capital gains and not rental yields, arguing that for units in Brisbane, property values in real terms have declined over the last ten years.
2.137Submitters argued that these tax incentives lead property owners and investors to see themselves not as providing housing, but as investing in an asset. MrTim McKibbin, representing the Real Estate Institute of NSW (REINSW), when asked whether any consideration is given to ‘housing not just being an investment commodity’, replied that this would be ‘rare’, and that ‘the overwhelming majority of people who buy rental properties … are looking to maximise the returns on their investment’.
Impact on the rental market
2.138Inquiry participants contended that these tax incentives have a significant effect on the rental market, by driving up house prices and rental prices, for a number of reasons. For example, CFRC argued that, since those with higher levels of income and gearing benefit the most, there is more investment in higher value properties, while ‘lower value properties are more likely to be passed over by investors and fall out of the rental sector, and the relative few remaining properties become less cheap to rent’.
2.139Energetic Communities cited research indicating inflationary effects of negative gearing on house prices, costs which then get passed on to tenants.
2.140Several submitters suggested that negative gearing and the capital gains tax discount (for which a property becomes eligible after a year) also contribute to property churn—buying and selling properties in quick succession.
2.141Additionally, some submitters made the point that the focus on capital gains rather than rental income means that landlords are often unable or unwilling to repair their rental properties. Per Capita contended that Landlords’ mortgages are often not covered by their income, which means that ‘landlords simply do not have the capital or income to fund repairs and upgrades to their rental properties during the average life of a tenancy’.
2.142Ms Maiy Azize, representing Everybody’s Home, pointed out that, as landlords’ costs go up, negative gearing means that any increased losses are tax-deductible, whereas ‘[r]enters have nothing like that kind of support’. She went on to remark: ‘what are renters, taxpayers and the public getting in exchange for underwriting that [landlords’ costs]? It seems like it’s not a lot because housing is only getting more expensive’.
Cost to government
2.143Many submitters highlighted the significant cost to government of these policies, and the unequal distribution of the benefits. Though submitters differed in their assessments of exactly how much these incentives cost government each year, there was general agreement that the figure is, or will soon be, in the tens of billions. For 2022–23, the Government estimated the aggregate tax reduction for rental property investors to be $24.4 billion.
2.144Many submitters noted that negative gearing and the capital gains tax discount disproportionately benefit high-income households rather than low-income households. For example, Dr John Hawkins, Hugh Meredith and Dr Yogi Vidyattama stated that the CGT tax concession ‘reduced government revenue by over $20 billion in 2022–23, with three-quarters of the benefit accruing to the top 10 per cent of tax filers’.
Support for these measures
2.145Some submitters, mostly those representing property owners, expressed strong support for the measures to continue in their current state. Mr Hayden Groves, representing the REIA, commented that ‘certain taxation settings, such as negative gearing and capital gains tax settings, are so important to maintain so that we can continue to encourage private investment’.
2.146Master Builders Australia argued that ‘[m]oves to curtail these features of the tax system would result in less accommodation being made available to the rental market’. The Centre for Independent Studies suggested that such a move would be largely ineffective, since ‘these concessions raise housing prices by only 1–4%, while reducing rents’.
Calls for reform
2.147Conversely, a number of participants were very strongly in favour of removing both measures in their entirety, either incrementally or all at once. Several submissions proposed redirecting the considerable revenue gained from their removal into projects that would relieve housing insecurity for low-income earners, such as the creation of more social and affordable housing.
2.148Several submitters favoured reducing but not eliminating the existing negative gearing and CGT tax incentives. For example, Per Capita proposed allowing negative gearing to offset only investment income, rather than all income, to be ‘more in line with international comparators’. Somesuggested reducing the capital gains tax discount from 50 per cent to 37.5per cent or 25 per cent.
2.149Finally, a few submitters suggested using tax incentives as levers to achieve specific policy outcomes. For example, some proposed targeting negative gearing only at new homes, to incentivise investment in new builds and thus increase housing supply. Others suggested that the capital gains tax discount should only apply, or should increase, after holding a property for a longer time, to disincentivise selling quickly.
2.150Submitters also proposed that these tax incentives could be limited to properties which provide low-income rentals, comply with tenancy laws, meet energy efficiency standards, are not used as STRA or meet accessibility standards.
Land tax and stamp duty
2.151A number of inquiry participants raised issues about high or rising levels of land tax and the impacts on rents and explored the possibility of converting stamp duty into a broad-based land tax.
2.152Some submitters expressed concerns about perceived high levels of land taxes, and their potential to raise rental prices and decrease supply, though land tax is tax-deductible for investors. Treasury and DSS observed:
State and territory tax settings can also influence rental supply and prices Most states impose land taxes on investment properties with some imposing additional surcharges on foreign investors. Owner-occupied homes are generally exempt from these taxes. This higher tax burden is likely to be passed on in some degree to renters as investors aim to recoup the taxes through rents’.
2.153As an example, Mallee District Aboriginal Services anticipated that, with the Victorian announcement of additional land taxes, renters would have to pay these additional costs as investors ‘struggle to absorb this financial burden on top of ongoing interest rate rises’.
2.154Submissions from several organisations representing real estate agents or property developers proposed that relief from land taxes and stamp duty could be utilised as incentives for various policy outcomes. For example, land tax or stamp duty relief could be used to encourage investors to invest in affordable housing, BTR developments or rental properties in areas of high need. The ACT Government noted that, in the ACT, private property owners are incentivised to ‘offer dwellings as affordable rentals through a Land Tax Exemption Scheme’, which currently involves around 140 properties. Snug suggested that land tax relief could incentivise owners to commit to longer-term leases.
2.155In their submissions, the Property Council of Australia and Master Builders Australia also raised the issue of foreign investor surcharges, arguing that they are a barrier to investment in and development of new housing, and should be reconsidered.
2.156Finally, several inquiry participants contended that more should be done to encourage the transition from stamp duty to a broad-based land tax. They argued that stamp duty unfairly penalises younger people, who are more mobile, and leads to inefficient allocation of housing market resources as people are less likely to move to housing that suits them better because of the financial barrier.
2.157CEDA asserted that transforming stamp duty into a land tax ‘would enable hundreds of thousands of households to shift from renting to owning their own home’. Mr Brendan Coates, representing the Grattan Institute, made the case that the federal government should help the states to fund the transition from stamp duty to land tax.
Vacant property land tax
2.158Some submitters argued that, for the tax incentives outlined above or simply for the sake of ease, it is sometimes more beneficial to an investor to leave a property vacant than to fill it with a tenant, reducing the supply of rental properties on the market.
2.159To address this problem, several inquiry participants proposed implementing a vacancy tax, similar to that currently in place in Victoria, to incentivise investors to put their properties on the market rather than leave them vacant. Forexample, the Centre for Urban Research suggested that a property should be classified as vacant if not lived in for more than three months in a calendar year, with the vacancy tax on such a property increased by fiveper cent annually.
2.160There were also suggestions that, in extreme cases where properties are vacant for a number of years, governments could undertake compulsory acquisitions to force such properties them back into the rental market—as happens, forexample, in Brazil.
Calls for planning reforms
2.161A number of inquiry participants proposed reforms to planning regulations to boost the supply of rental housing and contribute to stabilising rent prices. The National Housing Supply and Affordability Council, for example, urged state and territory governments to ‘identify, review and address barriers in planning and zoning systems that impede the construction of rental dwellings’.
2.162Suggestions for reform included: increasing the efficiency and permissiveness of planning systems; facilitating the construction of diverse and well-located housing; permitting higher density development; and mandatory inclusionary zoning.
2.163Some state and territory jurisdictions have already implemented or are currently implementing planning reforms with the stated goal of streamlining planning and approval processes. The Victorian Government’s Future Homes initiative, for example, allows developers to purchase ready-made architectural designs for apartment buildings and access streamlined planning processes.
2.164On the other hand, several inquiry participants indicated that planning reforms are not a meaningful solution to housing supply issues. Change the Record, for instance, stated:
Claims from the property and banking industries and allied politicians that the solution to the housing crisis is to simply ‘unlock supply’ by liberalising planning systems are predictable and tired, and deliberately obscure the true structural causes of housing unaffordability in Australia.
National Planning Reform (the Blueprint)
2.165National Cabinet agreed on 16 August 2023 to a Blueprint that involves measures such as streamlining approval pathways; promoting well-located medium and high-density housing; and considering the phased introduction of inclusionary zoning and planning.
2.166Several inquiry participants expressed support for the Blueprint, with the Grattan Institute welcoming it as a ‘major step forward’ and Master Builders Australia calling for the Blueprint to be implemented ‘as a matter of urgency’. Master Builders Australia submitted that:
A national planning reform blueprint that looks at the key pinch-points in the building process from planning, zoning and land release will be a key pillar in addressing our housing supply challenges.
2.167The committee heard arguments from some inquiry participants, however, that the Blueprint does not go far enough in relation to inclusionary zoning, as discussed below.
The efficiency and permissiveness of planning systems
2.168A number of stakeholders criticised existing planning systems for being overly time-consuming and restrictive for developers, and argued in favour of the streamlining and relaxation of planning rules. For instance, Abundant Housing Network Australia recommended ‘moving from prescriptive and arbitrary rules to a more permissive, outcomes-based regulation of land use and development’.
2.169Some submitters indicated that complex planning processes can significantly delay development projects and add to the cost of development, thus preventing new rental supply from entering the market. According to the Centre for Independent Studies:
A mountain of academic research finds zoning restricts supply, and this increases prices and rents. More specifically, researchers find: less building in jurisdictions with tight planning restrictions; more building when restrictions are eased; lower prices and rents when restrictions are eased; prices exceed marginal costs for both detached houses and apartments; substantial economic harm from zoning restrictions; and so on.
2.170Similarly, the Housing Industry Association claimed that restrictive planning rules disincentivise private investment in the construction of new rental housing:
Policymakers [have been] forcing out investors in recent years … planning restrictions that limit building heights and densities, and ongoing building code changes, ha[ve] seen apartment supply contract sharply.
2.171Several submissions pointed to Auckland as an example of a jurisdiction where the relaxation of planning rules had a positive effect on dwelling construction rates and dampened rents. Auckland ‘upzoned almost three-quarters of its residential land’ in 2016, which ‘removed many restrictions on medium density development’. This meant that ‘townhouses and small apartment buildings [were permitted] in areas that had previously only allowed detached homes’.
2.172Additionally, the Centre for Independent Studies cited research that estimated ‘these reforms approximately doubled the rate of construction in Auckland, adding 5 [per cent] to the dwelling stock (not allowing for demolitions) over 5 years’. The Grattan Institute claimed that the reforms also caused a ‘decline in rents of 14-to-35 per cent for two- and three-bedroom dwellings’.
2.173The Centre for Independent Studies submitted that the relaxation of restrictions on granny flats in NSW in 2009 ‘led to a five-fold increase in construction, or about 49,000 extra dwellings by 2020’.
2.174Conversely, a number of inquiry participants cautioned against relaxing planning restrictions. Some inquiry participants argued that planning reforms would not lead to an increased supply of rental housing as developers would still have control over ‘when or how fast to build’. Dr Cameron Murray, Research Fellow at the University of Sydney, quoted economist Tim Helm who explained why developers may strategically choose not to build:
Even when it is profitable to build, it can be more profitable not to build, because development-ready land rises in value through time, and over-supplying housing means selling at a discount. … most feasible development opportunities are rationally left undeveloped as strategic investments, in what is described as speculation or landbanking.
2.175The Australian Health Promotion Association cited evidence demonstrating that developers ‘limit the pace of release of land to maximise profits’:
A 2022 report by Prosper Australia investigated the rate of lot sales in nine master-planned housing developments, finding that developers used a staged release approach aimed at securing profits by avoiding supply-led price declines (Fitzgerald, 2022). The Master Planned Communities still held more than three quarters of land vacant after almost 10 years of production time (Fitzgerald, 2022).
2.176Emeritus Professors David Hayward and Terry Burke challenged the notion that planning deregulation improves housing affordability and claimed that deregulation has ‘been accompanied by declining building quality, which has left many living in accommodation that is barely safe to live in’. This was echoed by the Anti-Poverty Network SA who wrote:
Loosening of urban planning regulation is resulting in numerous examples of poor and unsustainable buildings with short lifespans, inadequate design, establishment of heat sinks in metropolitan areas, poor infrastructure and community development.
2.177The Anti-Poverty Network SA recommended the strengthening of urban planning rules ‘to improve the integrity and quality of building[s]’.
Expediting planning processes for social and affordable housing
2.178The committee heard some suggestions that social and affordable housing should be subject to more relaxed planning restrictions than other types of housing. Grounded Community Land Trust Advocacy suggested that ‘affordable housing planning applications … [should] be fast tracked through council’, while the Abundant Housing Network Australia recommended that public, community and commons housing projects should be exempt from planning, heritage and consultation requirements.
The need for more diverse and well-located housing
2.179Inquiry participants stressed the importance of building diverse and well-located housing to meet community needs. As stated by Mr David Bare, Executive Director for NSW at the Housing Industry Association, there is a need for new supply that ’comprises a more diverse range of housing typologies and is located where housing is needed’.
2.180My Home Network highlighted, for example, that there is a scarcity of one- and two-bedroom dwellings, meaning that ‘many people [are] paying more for a 3or 4 bedroom dwelling that they don’t need’. My Home Network therefore urged governments to put in place ‘incentives and or [sic] quotas/conditions on planning permits for developers to build smaller dwellings’.
2.181Numerous submitters emphasised that new supply should be well-located in ‘high amenity areas’ near existing transport, social and commercial infrastructure.The AHRC warned that housing that is located too far from infrastructure and amenities can lead to ‘spatial segregation which excludes people from equal access to public services, education, transportation or other services and opportunities’.
2.182Matthew Maltman, a research economist, supported the idea of higher density construction around transit corridors such as train and tram lines and major bus routes. He argued this would have multiple benefits, including reducing commuting time and costs for renters and creating ‘vibrant, walkable communities’.
2.183Additionally, Ms Kerren Crosthwaite, First Assistant Secretary of the Housing Division at Treasury, indicated that building new housing supply close to existing infrastructure and amenities would be ‘most efficient and effective’. This was reiterated by the Grattan Institute who cited research that estimated ‘building in already-established areas can save up to $75,000 per home in accompanying infrastructure and service provision’.
Residential density rules
2.184The committee received evidence that planning rules in many places across the country currently do not allow for medium- and high-density development. CEDA, for instance, pointed out the prevalence of planning rules that restrict the construction of townhouses in various residential suburbs across Brisbane and Sydney. The committee heard that ‘even in more populated areas—such as inner-urban Melbourne, nearly 30 per cent is zoned for low density’.
2.185There were calls for residential density rules to be amended to allow higher density development in certain areas. For example, the Abundant Housing Network Australia remarked that:
Density is good for people, good for the economy, good for communities and good for the environment—and it’s the only way to build enough homes for everyone in the face of a changing climate.
2.186Mr David Bare of the Housing Industry Association told the committee:
We need to build more well located high- and medium-density dwellings to address the shortfall while maintaining strong levels of supply in detached and semidetached dwellings. This requires a united approach and commitment by all levels of government to grease the tracks of supply.
2.187Several submitters identified the need to address the ‘missing middle’—the lack of medium density development in middle suburbs of major cities. Dr Michael Fotheringham, Managing Director at AHURI, observed:
We tend to build high-rises in the inner cities, around the CBD, and then larger properties around the urban fringes of our cities, which continue to sprawl. We need to do more gentle density within our middle-ring suburbs.
Mandatory inclusionary zoning
2.188HAAG defined ‘inclusionary zoning’ as:
… a land use planning intervention by government that either mandates or creates incentives so that a proportion of a residential development includes a number of affordable housing dwellings.
2.189A range of inquiry participants supported the implementation of mandatory inclusionary zoning to increase the supply of affordable rental housing. Although the Blueprint committed to the ‘consideration of the phased introduction of inclusionary zoning’, several stakeholders argued that this should have gone further to enact mandatory inclusionary zoning for all new developments.
2.190Submitters gave a number of examples where inclusionary zoning had been successfully enacted in Australia. These include the City of Sydney’s inclusionary zoning scheme which has operated since the mid-1990s and has generated 900 dwellings that are managed by a community housing provider. Additionally, an inclusionary zoning scheme in South Australia resulted in ’17[per cent] of all dwellings between 2005–15 in major residential development areas of SA … dedicated [as] affordable homes’.
2.191The CHIA claimed that inclusionary zoning had worked well in England where:
In 2019/20 20,000 social and affordable homes were generated solely through inclusionary zoning obligations and without any other grant funding. 3,812 of these homes were social housing.
2.192Suggestions regarding the appropriate proportion of new developments that should be allocated to social and/or affordable housing ranged from 10 to 35 per cent of total development. Per Capita also proposed a requirement that the proportion of new development that is social and/or affordable housing ‘must remain social rental homes in perpetuity or with minimum terms of at least 25years before units can be sold’.
2.193For example, one model put forward by some submitters stated that:
10 percent of housing floorspace … developed on privately owned land in metropolitan areas should be designated, in perpetuity, as social and affordable rental housing, under CHP [community housing provider] management.
Short-term rental accommodation (STRA)
2.194Under ‘A Better Deal for Renters’, National Cabinet agreed to ‘consider options for better regulation of short-stay residential accommodation’.
2.195Submissions did not refer to a shared definition of STRA. States and territories define it slightly differently in their approaches to regulation. South Australia and the NT do not have definitions of STRA. For other jurisdictions:
Tasmanian legislation defines ‘short stay premises’ as premises in relation towhich the owner or occupier ‘enters into, or seeks to enter into, a short stay booking service arrangement with a booking platform provider’;
NSW defines STRA as ‘a dwelling used by the host to provide accommodation in the dwelling on a commercial basis for a temporary or short-term period’, and does not define how short a period this must be, except that a STRA booking ‘cannot last more than 3 months’ under tenancy legislation;
Western Australia is developing a draft Position Statement for Tourism, in which STRA is defined as ‘the collective name given to holiday homes, units or apartments (usually built for residential purposes) offered for short-term letting, often through an online booking platform or management agent’;
Queensland’s recent STRA review defined it as ‘accommodation that falls in-between visitor accommodation (e.g., hotels) and more formal long-term accommodation arrangements (e.g. property rentals);
Victoria defines STRA as ‘apartments, houses and rooms rented like hotels and motels, through online providers’; and
The ACT defines STRA as ‘properties where either whole or part of the property is rented on a short-term basis through a digital booking platform, such as Airbnb or Stayz’.
2.196The most popular booking platform for STRA in Australia is Airbnb, which accounts for around 75 per cent of activity in the sector. Other popular platforms include Stayz and Booking.com.
The prevalence of STRA
2.197The number of properties listed as STRA has increased significantly in recent years, with Productivity Commission data suggesting that the number of Australian listings on Airbnb grew on average by 2.4 per month between July 2016 and February 2019. Although the pandemic slowed and even reversed this trend, this appears to have been temporary. The McKell Institute highlighted to the committee that STRA listings in Melbourne ‘jumped 37percent in the 12 months to April this year’.
2.198Underlying the significant growth of STRA over recent years is the fact that it is frequently more profitable for investors than long-term rentals. Per Capita undertook research which showed that in all areas studied, STRA ‘had the potential to exceed median annual rental yields in less than 100 nights’.
Impacts of STRA on the rental market
2.199As noted in the interim report, many submitters highlighted STRA as a factor influencing the rental market, though they differed as to its significance.
2.200According to inquiry participants, a consequence of an increase in STRA is a decrease in the supply of long-term rental housing. Research from Swinburne University of Technology found a ‘direct link’ between ‘the incidence and cost of STRA use of dwellings of various sizes, and supply shortages and rent increases in the long-term rental housing system in local areas and across NSW’.
2.201Some submitters also presented evidence that the rise in STRA has directly led to a rise in rents. The Productivity Commission cited ‘Australian and international evidence’ that the rise of short-term rentals ‘could put upward pressure on rents’. Per Capita referenced research that ‘increasing Airbnb listings by 200 increases rents by 7 [per cent]’, and that, conversely,
… the return of properties from the short-term to the long-term rental market can reduce upward pressure on rental prices. During the COVID19 pandemic, the return of 113 properties to the private rental market in Hobart occurred in line with a 9 [per cent] drop in median rents, 65 [per cent] of which can be attributed to the change in Airbnb numbers.
2.202However, inquiry participants highlighted that the effects of STRA on the rental market are likely to vary significantly in different local areas. AHURI noted that in Melbourne and Sydney as a whole, commercial Airbnb listings only represent ‘between 1 and 2 per cent of total rental stock’. On the other hand, the Productivity Commission cited evidence that Airbnb listings accounted for 12 per cent of private rental stock in Hobart in 2020, and 48 per cent in Byron Bay in 2017. Inquiry participants generally agreed that the number of STRA properties is much higher in areas with ‘significant tourism appeal’, and that STRA will thus have a greater effect on rental supply and affordability in such areas.
Regulating STRA
2.203At the time of National Cabinet’s agreement on ‘A Better Deal for Renters’, STRA regulations were already in place in some states and territories, though their requirements varied significantly.
2.204The NSW Government in 2021 limited non-hosted STRA to 180days per year in certain areas, including Greater Sydney, and created a STRA register to monitor this and to ensure compliance with fire safety regulations.
2.205Tasmania requires booking platform providers (for example, Airbnb) to report quarterly on the details of properties used for short stays.
2.206Since the announcement of ‘A Better Deal for Renters’, the Victorian Government committed to implementing a Short Stay Levy of 7.5 per cent ofshort-stay accommodation platforms’ revenue.
2.207Local councils across the country have also implemented further measures. Forexample, Brisbane City Council instituted a rate rise of 50 per cent for properties used for non-hosted STRA more than 60 days per year. The City of Hobart implemented a similar measure. Byron Shire will limit non-hosted STRA to 60 days per year from September 2024. Some local councils in Tasmania require application for planning permits to list a property as non-hosted STRA.
Limiting regulations
2.208Submitters proposed various approaches to regulating STRA. Several submitters suggested that large-scale regulation should be limited. For example, the Productivity Commission highlighted the possible negative economic consequences of constraining the short-term rental sector stating:
… cheaper and more accessible tourist accommodation benefits travellers and increases tourism activity, providing employment opportunities and extra income for residents.
2.209Airbnb similarly argued, in its submission, that economic activity created by Airbnb supports employment in ‘domestic cleaning, gardening and property management’ as well as tourism-related jobs in ‘restaurants, cafes and retail shops’.
2.210The Productivity Commission suggested that ‘addressing the structural barriers to the supply of rental properties’ should be a key goal in addressing STRA-related problems. Similarly, the Property Owners’ Association of Queensland (POAQ) encouraged the committee to examine the underlying reasons why long-term rentals are being converted to STRA.
Data collection and monitoring
2.211One light-touch approach supported by many inquiry participants is what AHURI calls a ‘notificatory’ approach. This is an approach requiring STRA owners to register their properties with a relevant authority and meet basic safety criteria. NSW implemented this approach in 2021, creating a mandatory STRA Register, and making registration conditional on fire safety compliance. This approach ‘provides a baseline for monitoring of the sector’ including data collection and possibilities for greater opportunities for future regulation if necessary.
2.212In November 2023, Western Australia established a STRA Register, under which all STRA owners must register their property by 1 January 2025.
2.213Another approach to data collection and monitoring would be to work with STRA platforms (e.g. Airbnb) on data-sharing agreements or requirements. Oneexample here is the Tasmanian requirement for platforms to report quarterly on certain details of properties used for short stays.
2.214Internationally, STRA platforms can also be engaged for enforcement purposes, such as requiring removal of non-compliant properties (as in New Orleans) or calculating, collecting and remitting taxes or levies (as in Amsterdam, Berlin and Paris).
Restricting the use of a property as STRA
2.215Some inquiry participants proposed that direct restrictions, at the strata, local, state or territory, or federal level, on the use of properties as STRA, would be beneficial and would discourage property owners from listing their homes as STRA, and encourage them to rent the properties out on the long-term market. They suggested that this could be achieved by planning restrictions or by caps on the number of nights a property can be rented out as STRA.
Planning rules
2.216The committee heard suggestions that STRA regulation could require development or planning approval for homes to be used as STRA. This approach is used in various places in Australia (such as Brisbane City Council and, announced in November 2023, the Perth Metro Area) and worldwide (such as New York and Amsterdam).
2.217This approach would allow only limited numbers of properties to be used as STRA, or only properties which meet strict criteria. New Orleans has implemented very strict rules along these lines, only granting one STRA permit per block, selected by lottery—all owners must also undertake short-term rental owner training and provide floor, evacuation, noise abatement and sanitation plans. In extreme circumstances, this approach could be adapted to prevent any new existing residential accommodation being converted into STRA.
Caps on offering a property as STRA
2.218Several submissions argued for a cap on the number of nights a STRA property can be rented out each year, as currently in place in NSW. NSW is the only Australian jurisdiction to have implemented such a cap. This approach is also seen in cities across the world, with different caps: London and San Francisco have a 90–day cap and Amsterdam a 30–day cap.
2.219Monash Law Students’ Society (MLSS) proposed that more flexibility be allowed for local governments to implement localised caps. Currently, local governments generally lack the power to implement their own restrictions on STRA; although they can lobby state governments to implement local caps, as Byron Shire council has done, or indirectly regulate STRA by using council rates and planning restrictions.
2.220Submitters also noted that compliance measures would have to be undertaken alongside caps, if this were to be a widespread policy. Research from Per Capita indicated that roughly 20 per cent of listings in Sydney and Byron Shire did not adhere to the 180-day limit. Swinburne University of Technology pointed to similar problems in the US and Europe, claiming that ‘without compliance… all other policies are limited in their impact’.
Incentives for long-term rentals
2.221Various submissions proposed carrot-and-stick measures to encourage STRA owners to bring their properties back into the long-term rental market.
2.222Airbnb’s submission noted that ‘it is unlikely that many short-term rental accommodation properties would ever be placed into the long-term rental market’, for example holiday homes which the owners wish to retain occasional use of.
2.223However, research from Shelter Tasmania indicated that the majority of properties in the short-term rental market in Hobart City, and at least two-thirds of the STRA properties in Launceston, were previously in the longer-term rental market. This suggests that a significant proportion of STRA properties could be relisted as long-term rental properties, given the right incentives and circumstances.
2.224The Real Estate Institute of Western Australia (REIWA) proposed the development of a ‘suite of incentives’ for STRA owners to rent properties long-term.
2.225In November 2023, Western Australia established the Short-Term Rental Accommodation Incentive Scheme, offering a $10,000 financial incentive to existing owners of non-hosted STRA to transfer their property to the long-term rental market for at least 12 months.
2.226On the other hand, submissions also proposed financial penalties for STRA owners who continue to rent short-term. For example, Per Capita pointed to recent increases in council rates for STRA by Brisbane and Hobart city councils which have been recently increased by 50 per cent and 100 per cent respectively, a move also suggested by the Sellicks Woodlands and Wetlands Action Network (SWWAN). MLSS similarly proposed a specific ‘Airbnb levy’ payable by STRA owners.