9 ways to fix Australia's housing crisis

The key starting point for any serious consideration of the housing situation is to understand that housing is a basic need, and not a wealth creating asset.
We have established a tax and government support framework which treats housing a far too favourably. There are many elements of this:
Why is the value of the family home not counted in determining govt pension entitlement;
Why can I live in a $3mil home and have taxpayer support for a seniors health card;
Why do we allow negative gearing and CGT benefits on investment properties. 80% of investment properties are owned by the top 10% of taxpayers. Anyone who has taken advantage of this will attest that it is a no brainer, with a really impressive compound investment return. This is not a benefit for the population that needs a house to live in.
There are many other angles on this.

"treats housing a far too favourably ... value of the family home not counted in determining govt pension entitlement":
Why is not Age Pension paid to all age eligible, including those who paid for it? Why have the perverse incentive that reducing Assessable Assets results in increased Age Pension?

"80% of investment properties are owned by the top 10% of taxpayers": The ones who pay most of the tax are incentivised to provide rental accommodation that would otherwise either not exist or cost more.

"Why not pay a pension on age eligibility"? I have a very different outlook on what I expect from the government. Why should I expect the young and business taxes to give me more money at retirement age. It is money I do not need. Income and business taxes could be lower if the government was not paying out money to those who don't need it.

We have a situation in Australia where the tax treatment on residential real estate (a tax haven for those who can afford to "invest" in houses because it is a no lose situation.) Think about it; why do we put so much money into our houses (extend/ renovate beyond what is needed). At the same time productive businesses are struggling for capital. ... Kids from the bottom 60% of the demographic are not lucky enough to get assistance from the bank of mum & dad and can't afford our over capitalised real estate... Unless they have capabilities to get incomes well above the median in their late 20's.

Take the investors out of the housing game and house prices would be about 30% cheaper, and a product for basic shelter rather than a no brainer investment for those who can afford it. (The 30% cheaper bit comes from what a median income couple can afford to buy)

This a subject with many dimensions, very few of which are ever rationally discussed within our current government framework.

1. Empty houses and empty lots should be subject to a 350%(not 35%) extra council rates.
2. Ban the cgt exemption on principal primary residence/family home because it is absolutely inequitable to those that can't afford to buy and also because it is being rorted. (Investment properties being claimed as ppr)
3. Planning laws reform. Should be able to build up(higher than 2 stories) and expansion of zoned residential land. Australia has lots of space compared to other countries so there shouldn't be an issue but there is.
4. Cgt/negative gearing reform on any more than 1 investment property per household. For every investment property over 1, taxes should get worse. E.g 20% on first, 40% on second, 80% on third etc
5. Rent, mortgage interest and council rates minimum should all be fully tax deductible.(and I mean the full amount not the 30% or so by which they'll reduce income tax). They are all unavoidable necessity expenses.

John your points provide some worthy ideas but you are providing financial suggestions (more tax) for what is essentially a social issue. Spongy typifies many of the younger generation who want to have an extravagant lifestyle and expect someone else to pay for their lifestyle. Social changes over the last 60+ years are-
, People 70+yo will have been educated by parents who experienced the great depression. They were forced to save. Young people have little understanding of a depression
. Typical new houses were 3 bed 1 bath no driveway no grass no concrete no aircon 10lights. Compare to now.
. Cash used to be used. Credit cards have encouraged excessive spending.
. Universities are now a business. They now provide a range of useless degrees as long as people pay.
. Education has been dumbed down with much useless subject matter.
. Governments over this period have changed from doing what is best for the country to doing what is best to stay in power.
. Governments are happy for people to rely on handouts, Control the money, control the person.
. People are marrying at a later age and not thinking about the future until a later age.
. People are living longer. Governments are encouraging aged care in the home therefore less housing available.
.

"Social changes over the last 60+ years are-":

Backing up a bit:
. Great Depression was a severe Credit Crunch - only those who did not need to borrow money could, the rest had to save before buy.
. WWII governments run up huge debts - almost as risky as today.
. Post WWII financial repression to rapidly pay down government debt - borrowers had to prove they could pay off a mortgage by showing saving strong savings rate at the lending bank.

1970+ when government debt back down in sight of Terra Firma, credit became easier resulting in inflation.
. Inflation ment that borrowing to buy homes was more profitable than saving to buy - lockin cost early, inflation eroded the value of the loan principal.
. Interest rates increased until there was less but still an advantage in borrowing over saving.
. Inflation subsided in part due to large interest rates, part to cheap goods from renewed globalisation.
. Cheap money resulted in large home prices - to the capacity to pay, as ever.

Now: extra terrestrial debt everywhere, not just government.
Still, a sighted couple can own a home without debt in under 4 years - by saving 90% of average wage income.

I struggle to find why any non citizen should be allowed to buy a house.

I also struggle to find why we allow non citizens to buy houses and leave them empty. Try finding people actually living in big houses in some of the eastern suburbs of Melbourne. Maybe they all became citizens and decided to leave?

It is good to have a discussion about ideas. Most of the ideas in the past have let to lots of demand and increased prices with nearly every government scheme helping more people (who previously couldn’t afford to buy) to buy in an overpriced market and forcing prices up more. At the same time social housing has gained a terrible reputation and is not being built and managed effectively. However vested interest by politicians to get re-elected means that serious choices probably won’t be made. I fear we are heading into a split society where those who miss out will feel they have no stake in the future except via multi-generational mortgages.

I personally don’t know the answer, but the two us bought our first house after going bush and getting jobs where accommodation and food was provided and we saved everything rather than drinking or smoking it. The modern equivalent is FIFO as one person explained how they did it.

On another note, small blocks with large houses with a concrete driveway and a roof that goes boundary to boundary, means that most of the newer suburbs are nearly all hard surfaces. When it rains there is nowhere for the run off to go, other than flood lower lying areas where land and houses are not worth as much, which is yet another burden on those who have less. We probably need a politician who is more like a statesperson rather than a politician and can develop an effective plan and then bring people along with him/her in implementing it.

There is effectively no competition to the Australian “own you own home” aspiration. I think this is a key to the problem. there should be 2 viable and competitive housing solutions, own your own and secure quality rental. The reason home ownership cost is continuously moving out of reach is that secure quality rental is a very poor second.

Fix secure quality rental to be competitive as a compeling housing solutions and home ownership will fix itself

Given the stronghold that the unions have over the construction industry in this country the only way that “secure quality rental” can be made affordable is with a government subsidy or partnership. But there may not be enough votes in any election campaign to make that a reality anytime soon.

Whenever some real tax reform is raised by the government of the day, the opposition tends to run a scare champagne because it’s an easy way to muster criticism towards government. The electorate always seems to fall for it and hence it’s become an ingrained strategy with the voters that are aligned ideologically with the opposition in particular, eagerly jump on the bandwagon. Unfortunately, this means real reform that is likely to be good for the country and its citizens, refer to the experts not the politicians, always has trouble getting a fair hearing and ultimately gets lost in the bitter partisanship.
Where there are disputed areas of our tax system, such as discounts to capital gains tax, negative gearing, superannuation tax concessions and family trust arrangements, many of us enjoy access to them. While they're available to all, these areas tend to be used most by older and wealthier Australians who then have vested interests in pushing hard to keep the existing rules in place. The way our current tax system is set up means workers shoulder most of the tax burden, but it's unsustainable as our population ages. A “substantial review of the tax system” by former Treasury boss Ken Henry in 2009 made more than 100 recommendations, most of which have not been implemented. We know the solutions.

We should not forget that those same “older and wealthier Australians” were once the backbone in the workforce shouldering “most of the tax burden” and if they were prudent and responsible with their spending may get to enjoy some of the fruits of their labors. Moreover after paying significant income taxes, paying for private schooling for their kids and paying for private health care they may also be denied access to the age pension by virtue of being labelled “self-funded retirees” because they were prudent and responsible.

No doubt housing is outrageously expensive in Australia but is it unaffordable? If it were then logically house prices should plateau or drop.The law of supply and demand or do you think there are more owners of multiple properties and therefore negative gearing is part of the problem.

Melbourne and Sydney property prices are falling.

We have to wait and see how far and for how long.

Government stopping temporary residents buying established property for 2 year may have an impact.

I mistakenly believed they already couldn't and could only buy new.

Thank you. Good to see someone who is looking at the whole picture. I haven't real all the comments, but there are now ways to build quicker, like modular or prefabricated homes. A way of getting more supply quickly to the market, and solving the problem of shortage of tradesmen.

It is worth considering that the rate of property price growth in the larger cities over last 30 years has coincided with the 30 year decline in nominal interest rates in this country. The tax
and pension concessions that housing attracts are simply "icing on the cake". Given the property price cycle is dictated by the debt cycle, it is not surprising the predicament we find ourselves in today. At the end of the day, it would seem that bank lending policy and standards determines how high and how long prices will rise. Governments have shown repeatedly that they are not interested in addressing the affordability problem. Instead, their actions are simply to provide an ideal environment for expansive bank lending. That cannot continue ad infinitum. We all know what happens next when a rubber band is stretched to capacity. Time will tell whether the modern-day players in the banking industry can remember the lessons of past recessions in this country, in particular the 1970s and 1990s.

John,
Thank you for this paper. However, as far as I could see, there is no mention in your paper of improving the usage of the existing housing stock. A key part of this is the impediment to mobility caused by state government stamp duty and agent fees.
I have a personal example of this. When we bought our home 40 odd years ago and extended it, it was appropriate (if probably oversized) for our family. Now we are 80, just the two of us, and the place is way oversized and we should downsize. That would free up our place for a young family to upsize to. However, with the SA state government's 5.5% stamp duty on the purchase, 3% agent fees on the sale, costs of moving and perhaps some minor renovations on the new place, the downsize would cost us $200k. We might only survive for a couple of years, so that downsize might cost $50k per year of use.
It won't happen!
The young family upsizing to buy our place would be up for a similar amount.
That is inefficient use of our property - in part driven by the SA government tax and by excessive agent fees.

Great point John,

Let’s add it to the list and I will follow up with some research.

I suspect it also applies in other states.

I also believe that the concept of Stamp Duty needs to be re-examined as it has become unfit for purpose as property prices have escakated.

You could alway rent out the spare room by taking in a boarder. Cheaper housing for somebody that needs it and a little extra money for yourselves. It may also be handy to have an extra person in the house in case you need an extra set of hands.
This was actually common 50 years ago. I remember a few families who had a border in the spare bedroom, especially when the adult children had left home, Even in my own family we had a border for two years, which allowed him to save money in those 2 years to return overseas.
I have friends (in their 60’s) who have overseas students boarding in there home. There is even a program which matches students with homes.

There can be tax implications when renting out a room

Why can't we just reduce immigration (a lot !) ???

One comment. Clearly these forums are dominated by boomers with mortgage free property, interested in maintaining the status quo. But what about future generations? Put something up here about abolishing franking and they'd be howls of indignation and 100's of comments. Self interest always wins the day..

"mortgage free property, interested in maintaining the status quo":
It is those paying mortgages who would be significantly affected should home price reductions put them in negative equity. They can stay out of negative equity by saving and paying of principal owing.
Those who own their home without debt are unaffected, except where their home was to finance age care.

"But what about future generations?":
Save 90% of average after tax income and buy home 'cash on knocker' in under 4 years or, with minimum wages, save 20% 'deposit' in 1 year.
Lash to mast, stuff dunnage in ears, ignore marketeer's siren song.

"howls of indignation":
Loudest howls of indignation would come from wage earners should income tax withheld by employers and paid to ATO not be credited to the wage earners and the wage earners were taxed again on their 'after tax' income leaving them with:
= (1 - 47%) * (1 - 47%)
= 28.09% of gross income.

Exactly what I was going to say about the impact of negative equity (if house prices fell) on current mortgage holders and the nexus between PAYG tax that everybody pays and understands and franking credits which many don't- also not sure what "abolishing franking" (which is about avoiding double taxation) has to do with "fixing Australia's housing crisis".

A simple step is to revert from the mythical cgt discount, which encourages short term turnover of rental properties and penalises all those holding fir a long time-and also penalises those who fully hold rental properties every year after a few years. The very high fraction of rental properties held by people with a single property, often to downsize to( releasing usually a large land and building at the same time) and so held for a long time. The one sided ever increacing risks imposed by the ever escalating support for tenants have quite logically caused many of these small holders to sell out (we are one of them) as the risks and imposts and indeed the non discount cgt 50% regime directly penalises those like us continually upgrading the fully owned single downsize/age care entry reserve holding to finally realise that the risk levels of such a large saving asset had moved into impossible territory. We did nearly two years ago and are so relieved that we did-what has happened is predictable a huge fraction of these landlords have now sold out, thereby sharply reducing rental availability, and moving to debt financed corporates using (short term only) cgt “discount”.

The reversion to a simple cgt base on the inflated price base would make a significant difference very quickly-it it isn’t too late already for the small rental providers moving sharply against property holding.

A little more (any) attention to the easily dismissed moms and dads investments for downsizing and age care funding(remember these costs have shot up) is unlikely to be reversed-and it’s become a major pressure on rental availability

“abolishing franking”
Here we go again. Someone not understanding what franking credits are. I’ll explain it by posing a question.

Why should a multi millionaire who has $10,000 of franking credits be able to use them to reduce his/her tax?

While the retiree on moderate income have his/her franking $10,000 of franking crisis confiscated

Franking credits don't reduce tax, they prevent double taxation.

If your tax bracket is over 30% you're required to pay the additional tax still.

If your tax bracket is under 30% you'd get that extra tax back the company paid on your behalf.

Assumes 100% Franking.

If your tax bracket is 0% then you get all of the tax back the company paid on your behalf.

You pay no more, or no less tax you're required to pay with Franking Credits than without.

Many of the points in the article and comments above will make some contribution to moderating the housing market, but ignore one of the biggest contributors to the cost of housing - the substantial growth in the size of a family house in the last 25 years. In the 1960s and 70s two adults and four children got on perfectly well in houses from 100 to 125 m² in size. My parents housing commission house for a family of six was 98 m². Today's houses are 225 to 250 m², and the family size is probably smaller than it was when I was young. In my view the increase has a lot to do with the tax-free investment value of the family house. If buyers recognise that part of what they are buying is their family home, and part is a long-term investment for their financial future, they could think about the cost of their mortgage differently.

Thank you Ian,

A good observation and also large houses are hardly energy efficient - but who complains?

My parents and my 3 siblings lived in a 2 bedroom unit until each of my brothers and sister left at age 16, 18 and 19. I stayed ( as the youngest) and studied at UNSW ( commerce/law) with free education courtesy of Gough Whitlam.

We note today that the Government is part forgiving HECs, stopping non resident ownership of housing and providing electricity rebates. All admissions of the failure to manage the cost of living.

And of course way back when ( here in WA) you bought a house and land package.You then had your own house on your block of desert. Fencing,painting ,window treatments,concreting to reach the road .Turn the desert into a garden, everything was an added expense for your 3 bed I bath mansion .All done slowly over the years.Sitting on milk crates and eating off your wooden pallet dining table was fun.

Now I want a fully finished turnkey operation,landscaped gardens etc etc.These of course come "free" with the house.Along with "free" swimming pools ,"free" air conditioning.No wonder house builders are going bust daily when everything is "free"

As always the issue remains supply & demand. We need more supply. Govt housing may well be the option simply as govt housing presumably is non-profit so should be lower cost. It's a bit tacky to have govts back out of the housing market and hope private investors fill the gap and then get annoyed when they expect to make a profit - why else would they risk their capital if not to make a profit? Just focus on issues to increase supply and the problem will self-correct. Whether that's cheaper pre-fab construction, less council interference/red tape or whatever, I'm sure a national conference of major builders could quickly tell govt at all levels what is needed (they probably already know).
One separate subject I have never quite understood is why fixed rate loans are so unpopular here, but in the US 30 year fixed loans are the most common. All the angst we have when interest rates go up could be easily avoided if we had more fixed rate loans. At least you have the surety as to your future obligations.

"We need more supply.": Or less demand - greater utilisation.

"US 30 year fixed loans":
https://www.fhfa.gov/about/fannie-mae-freddie-mac

Always interesting John even if largely unrealistic.
You are spot on no property owner wants to see (or vote for) policies that would depress their asset prices.
A little challenging taking property advice from you when it looks like CAM recently torched ~$3m of shareholder cash on property investments gone sour.

ASX CAM:
https://www.marketindex.com.au/asx/cam/advanced-chart

ADJusted for dividends etc, indexed to 100:
= 3.3 ^ (1 / (2025 - 2004)) - 1
= 5.85% / y.

"no property owner wants to see (or vote for) policies that would depress their asset prices":

Larger after tax, after inflation interest rates resulting in mild deflation, who would not vote for that?

GeeDubs
Despite your commentary adding little to the debate, being mildly derogatory, and hidden behind a nom de plume, I will reply.

The CAM direct property portfolio has no exposure to residential property.

Two of the property investments that significantly accounted for the write downs, are managed by a listed property manager.

The properties are retail related and suffered from overgearing, a reset of their borrowing terms following covid and a devaluation as cap rates responded to higher bond yields.

The nonsense about negative gearing and CGT discount causing the issues is ridiculous. We are at pimples on a pumpkin people.

I wish you could upload images to this thread. I have chart showing in 1970-1975 we had 18-20,000 public housing approvals per annum with less than 13m population.

Since the year 2000 almost every year has less than 4,000 and we are over 26m. Now, if you could see the chart, 10,000 missing homes per annum is generous (i.e. a detailed calc likely to be more) and 55 years is 550,000 homes that are missing due to governments of all political persuasions, state and federal obviating their responsibilities. So as a ratio the government(s) are building 10% of what they did in 1970.

Blaming the only remaining landlords for the rental crisis when the biggest landlord left the room is so ignorant of the facts. Further, like in Victoria, if you keep persecuting the only remaining landlord with ludicrous and over the top levies, fines, expenses and taxes, they too will leave the market, just the like government already has.

Good old Alan did a series on the ABC recently and completely missed this single and most important aspect to the current problems. Not sure how diligent his research was?

There will always be at least 20% of the population that can probably never afford a house the government either needs to provide a regulatory environment (with yet more tax concessions not less than the existing ones are required) or stump the billions and billions themselves.

Anyone who argues CGT and neg gearing are to blame just doesn't understand the dynamics. I personally would be happy with indexation (CGT) as you should not pay tax on inflation and quarantining loss to the asset (although income account (losses) to capital account (gains) would need to be resolved). But to ban them is akin to fixing an alcoholics problem with an endless supply of vodka.

Australia,USA,UK,NZ,Can.,Fr.,Sweden,Israel,Ireland all have home ownership rates between 63 and 69% with the Australia in the middle at 67%.Do we have a unique problem ?

You're right Stan.Having people I've worked with and distant relations in a few countries they repeat the same thing as here. The UK,where a lot of them are really into conspiracy theories,and a couple of flat earthers.They are great fun,immigration is to blame keep them out,.I'm sick of telling them there are too many green lizard people,we have to get rid of them,they carry the blame.

They love the words follow the money,that takes you to the criminals. Bill Gates is to blame,he has their share of the money and he is trying to kill them to get even more of it .When I casually point out that following the money isn't a bad idea,I'll show you why .Pull up a chart of Microsoft,show them the price of the stock in 1992 when Gates became the richest man in the world .Split adjusted the price is probably a few cents ,every few cents they spent then is worth ~ $400? now. Of course they may have had to spend $400 for 1 share back then,it's just the adjust that takes it down to a few cents .

I could write a book about the strange things they want to see and the list of people and things that should be blamed for what they choose to see,do and believe. You put that very well.

Hi Stan

The percentage of home ownership might be consistent but the price of homes to income is not. Nor is the level of household debt to GDP.

Australia is near top of the pops on price to income and wins gold for household debt ratio.

Residential property in major Australian cities is hideously expensive. Home ownership will continue to decline if not rectified and the numbers of retirees with debt will grow as well.

Home ownership has dropped a small % overall but that statistic only tells part of the story, if you look into home ownership by age group, the drop in 2 age groups is very large.

Has anyone travelled to Europe or Asia over the past 20 years and noticed the standard housing of local citizens? Just saying it's all relative as lower cost does not equate to better standard of living

“changes in CGT changed the dynamics of property investing. Investors willingly gave up yield for capital growth”
There is no need to look to scapegoats such as negative gearing or changes to CGT as being responsible for the “housing crisis” if the growth in house prices can be fully accounted for by combining the growth in household incomes (including the rise of dual income households) with the growth in borrowing capacity due lower cost of borrowing.

"house prices can be fully accounted for by ... growth in borrowing capacity due [to] lower cost of borrowing":

Put up cost, put down price.

Another article about housing affordability.
My take, after reading all the ideas floating around, is that the problem is intractable in the current political climate.
Bipartisan support, give me a break, our system doesn't work like that.
But hey, I'm a 73 year old negative single male.

Intractable sounds about right because nothing made in this country is affordable any more -
high cost of living means that the cost of labor is also high -
hence we import everything that can be loaded onto a boat -
so why should housing be any different-
kit homes anyone ? -
although we would probably need to import the labor to erect them.

One idea would be as myself were made redundant from the car industry as thousands of others were. We could’ve built houses in factory conditions as others did after the second war much cheaper and they could be places straight on site on a slab pre-wired pre-plumbed for everything. No problems with weather etc , 3 shifts 5 days a week would get thing moving.

Peter C, can't recall where saw recent article to refer you for interest, encouragingly a company now doing, some Councils slowly accepting apparently and they didn't look half bad. Very busy, inkling it said hard to keep up with demand, maybe new type of apprenticeship in field would help in what some may see as up & coming industry, to my untrained eye appeared to be combination of engineering and builder skills. Looked nice, far improved on 'pre-fabs' in UK in many places after WW2 many of which still standing eyesores even with 5* landscaping efforts around some.

Some valid points but the fundamental question is missed. Is a house an investment or a human need? Alan Kohler pointed this out recently. If, as a society, we want it to be the former then tinkering with the metrics won't help and property will progressively become the domain of the wealthy. Or if we actually decide it's the latter, then we need policies that match this. But we need to answer the basic question first.

Thank you Derek,

If the answer to the fundamental question that you present - is that housing is a human need - then housing and indeed property would be owned by the government.

That is not going to happen and no one would suggest that it is a solution in a democratic Australia.

So the question - as I proposed it - is how to manage the residential property market to make it more affordable and limit the risk of a severe market correction?

Exactly. It's not a "fundamental question" at all. It's an example of binary thinking - everything must be entirely one thing or the other - that herds people into ideological argument and stops actual progress.

That's not correct. Answering the question just informs public policy, leading to the sorts of solutions you suggest. The problem is that we can't decide. We want it both ways. So the pendulum has fallen to the investment side. As a society we are worse off.

It seems to me that every initiative of government in the last 25 yrs (ie. My short adult life, give or take) has been to push the investment bandwagon. Grants, tax policy, reducing investment in social housing and expecting private 'investors' to fill the gap, banking regulations. They are geared to encourage, promote, entice people to 'invest' in property. I don't know why we are so surprised at the current situation.

I get emails from REA - "How has your home performed this year". This tells me everything about what is wrong with our system.

The solutions you suggest are fine, but only if the the fundamental question is asked and answered first. To say the only alternative is a socialist utopia is absurd. Governments/we just need to decide if we want homes to be the domain of the rich or not. Because we are doing a good job of that at the moment.

Know it's not popular with most, still think up to $50,000 super drawdown for 30+ yr olds who have minimum of 10yrs contributions to super should be allowed to help with deposit with conditions of repayment of same to Super within 7 yrs to get them over the line of homeownership now. Once they have a mortgage & home, their 'other' savings attitude will change so not to lose home.

Sorry Lyn, that may help on an individual level, but collectively it just gives people a bigger deposit and prices just get bid higher. All it means is your $750,000 home will end up costing $800,000. Until we fix supply, all these ideas to throw more cash at the problem just make it worse.

This is a good idea when considered on the individual level, but giving everyone access to super would be a disaster for our housing market.
New Zealand did this in 2010, and it resulted in massively increased house prices, lower home ownership rates, and high mortgage/debt stress.

I'd like to see some statistics with regards the following:

1. How many people who want to buy somewhere to live, can't, because they say property is too expensive (where they'd like to buy)?
2. What are the reasons given why those people can't buy a place to live?
3. Where are those people trying to buy a place to live?
4. What sort of dwelling are those people trying to buy?
5. What is the average price of a dwelling where those people are trying to buy?
6. How much can those people afford to buy a place to live?
7. What are the age cohorts of the people who want to buy but can't, because of financial reasons?
8. What steps are those people taking to buy a place to live?
9. What is the income of those people who are trying to buy a place to live?
10. How much money do those people have?
11. How much money do they save?
12. How much can they borrow?

Of course, there are many more things to know to understand the true situation.

Cash rate at 6%
Migration level capped at 1% population.

It doesn’t need a complicated 9 point formula to understand access to credit and demand has driven property to nose bleed levels.

Andy R

I think you missed the whole point of the article… ie to move housing prices lower without creating an implosion. Note the statement

“We need to accept that the housing price bubble needs to be deflated by a managed policy rather than a future market implosion.”

Your two point suggestion would create a managed implosion.

My suggestion will do none of that..

Returning cash rate and migration to a long term average will only help boost the average Australian citizen in the long term. (Dont be short sighted)

Higher rates will help control inflation, encourage savings and strengthen the currency.

Lower migration will take pressure off public services, local infrastructure, increase wage growth and enhance long term social cohesion.

Restoring Australia way of life back to where it belongs! #1
God bless

"fix Australia's housing crisis":

0. Larger interest rates.

'Make Saving Grand Again' to the point where first home buyers can afford to pay 'cash on knocker'.

In these difficult housing times it is a pity that a rental property held in a SMSF fund cannot be rented to a family member especially when commercial property can.

How could that make a difference if the rental property is already let, as it should be to provide income to the super fund for current/future super pensions?

I currently rent but have enough in Super to buy a house and still retire at 60.

Why can't my Superannuation buy a house now and I rent it of my Superannuation at market rates?

I'm still providing for my retirement, my rent money goes towards my Superannuation, not some other investor.

Because, Disgruntled, we would need a whole new layer of bureaucracy to ensure that you were letting it to yourself at "market rates" - whatever that means to you. The only way you know market rates is by putting the place on the market.

"Why can't my Superannuation buy a house now and I rent it of my Superannuation at market rates?":

Law. Arm's length.

Presumably, you do not have cash to buy a home now.
You could buy a home now with a mortgage where payments are less than your current rent.
At 60 you could retire, and retire mortgage with cash from super.

English expression can be difficult. Question related to having sufficient funds in super to buy a property to rent to a needy relative at market rate when elderly superannuant does not have similar disposable income in private funds. In time, the needy relative would most likely inherit when trustees distribute.

Geoff/Dudley my question was rhetorical in response to Samantha's re renting to related parties.

I just added renting to ones self, paying rent to your own Superannuation rather than a landlord.

Rent could be set as the average of 3 real estate rental assessments.

There wads the equity deal where government (state or federal, can't remember which) could own X% of your property and you didn't pay interest but they got an equivalent % of profits if you sold at a later date.

$600k property, 30% equity to government

Sell house for $1M down the track, government gets 30%

Similar thing was touted for Superannuation.

John
I totally agree with you that the best way to improve housing affordability is to implement policies which cause a price fall in housing costs. However any Government that attempts that is doomed to be thrown out.
Re your specific 9 points;
1) Agree, but I would go even further. Reduce the LVR to 70%, i.e you need a 30% deposit and any amount received from the bank of mum and dad must be considered by the lenders as existing debt which reduces the amount a borrower can lend. The exception is if the borrower has a written, signed and witnessed document that the amount received from the bank of mum and dad is a gift and does not have to be repayed.
2) Agree, and restrict foreign companies and trusts from buying residential property. Also make it a criminal offence for a local resident to to be a front buyer when the actual owner is a foreign non resident.
3) Disagree, but change the mix of immigrants, Only 5% of immigrants work in building and construction. We have critical skills shortages in areas such as aged care, health, teaching, IT, truck drivers, even fruit and vegetable harvesters. Do we really stop immigrants in areas of skills shortages?
4) Agree. However the biggest Nimby councils are in wealthy social economic areas with great facilities and powerful constituents. They constantly complain that even medium density housing will change the character of the neighbourhood.
5) Agree, the secret to reducing rents is to build more public housing. The amount of public housing in our cities is less than half what it was 50 years ago (per head of population) In fact over the last 50 years Governments have torn down public housing and sold the land to build private dwellings. A block to 10 flats became 1 McMansion.
6) A few years ago I spoke to the CEO of a large public offer super fund. He said whilst he does not have anything against build to rent, they can’t make it work financially. A 3-4% gross return of residential housing is just not enough. They are not in build to rent because it is not a good enough return for their members.
7) Agree and go further, scrap the 50% CGT discount . However no politicians will even look at this area again after Bill Shorten proposed the limiting of negative gearing and the reduction of the CGT discount.
8) Agree and limit banks to 70% LVR’s in future.
9) Agree and make it easier for pensioners to rent out one bedroom per home without that income being included in the income test. So many older single people with 3 and 4 bedroom homes where the extra bedrooms are just storerooms.

The Real estate institutes would hate your proposals because they love high house prices and they will start a campaign against anything that threatens higher housing costs.

Real estate agents don't care about the price, they care about churn, buying and selling happening

Thank you Peter,

Re your point 6 - I think that the return quoted - 3 to 4% - refers to a rental yield.

Further, I suspect it is a yield on market value and not on cost.

But happy to be corrected.

In any case the idea of a residential housing infrastructure bond requires a structure where the rental streams are channelled into a structure, that then distributes those net cashflow returns to the bond holder ( having funded the building costs including land acquisition etc).

The bond could be set for 10 to 20 years with a minimum yield return guaranteed by the government. That gives the bond a strong secondary market.

At maturity the bond fund could be converted into a equity fund or bought back fully by the government to hold and support the tenants or facilitate the acquisition of the properties by the tenants. The ultimate resolution of the asset being determined by the market.

Yield is always against value, not cost

Disgruntled

If a Investor funds the cost of building a residential house their actual rental yield is calculated on their cost.

The total return to that investor is the market value ( on completion) less cost ( ie capital gain) plus the cash yield on cost.

The IRR is the total return ( capital gain plus cash net income) / divided by the time the asset is held.

If the yield on cost is the same as the yield at market value then the asset has been over capitalised or rent is being undercharged.

Social housing ( as a sub category) is generally characterised by lower rent and so needs government support to the investor whom finances the construction ( build to rent) to lift the total return.

Non social housing - build to rent - should produce much much better returns than 3% or 4% - if the development is properly structured and cost of construction properly set.

That's a different barrel of fish.

Due to the building of a new dwelling.

Next investor who buy it, it's about yield on the price.

Same as someone that bought a house 45 years ago, yield is on current value, not what they paid for it 45 years ago.

“Rising house prices are positive for owners and will attract their votes.”

Not me. My house is my home, not an investment How its market value changes is pretty much irrelevant.

Trevor, as my much older brother told me when I was 16 about a gold necklace received as birthday gift, nothing has a value unless one wants to sell and there is a buyer at same time and you'd better remember that. Never forgotten.

Can't speak for everyone else, but it has always been hard on a single wage IMO, So what did I do?

1. Increase your income. (Fifo work for me).
2. Save deposit and buy a unit. Keep the unit.
3. Save next deposit buy a townhouse. Keep it.
4. Save next deposit buy a house. Keep it.
5. Save next deposit buy another house. Keep it.
Manage/maintain/improve/rent out as you go and live in the house you want to. Understand the 6 year rule and all relevant state regulations.
6. Retire and work when/if it suits you (50 for me).

Yes it took from 2000-2020 (Brisbane ) to get to the point of being able to leave work, yes I worked the whole time, yes it was hard, yes tenants can be a challenge, yes I drive a 20 year old ute, yes I am owed a lot of holiday's and time off.

But yes it was worth it and Ive shared my strategy many times to interested parties, my experience is not many are prepared to do the hard long-term work to reap the rewards.

Sorry if this upsets some people but honestly look at what you can do to change your future rather than complaining about the current reality.

Politicians are not the answer and superannuation will be taxed until it's just a pension. Build your own wealth outside super and in my opinion property is the cornerstone, yes I still see opportunity in Brisbane market, yes in undesirable areas but in 20 years, they will be desirable...
Best of luck with your property search.....

S.D.W. You made my heart sing reading your comment. Hard work & learning how to use finance along the way is definitely what works whether property or anything else. Australians are safe if all followed your advice.

Re Point 7, If rent was to become tax deductible in certain tax bands it's likely some landlords would push up rent in a tenancy changeover just by knowing that fact.

What about moving the public servants out of the cities.

There is a shortage of rental properties and houses for sale in rural regional areas. Not enough for school teachers and nurses as it is.

I suggest a scheme with a three pronged approach for Sydney ( that could be adapted for other cities) that:
1. Increases the size of secondary dwellings (granny flats) from 60m2 to 120m2 as complying development.
2. Allows the secondary dwelling to be subdivided from the principal dwelling to create two separate Torrens titles.
3. Provides tax and pension exemptions for owners who sell or rent the primary or secondary title to essential workers and means tested first home buyers at or below 75% of market value or rent.
That would increase supply, reduce cost and assist downsizing and avoid the need for council approvals if the rules of the scheme are complied with eg landscaping. It should be at or close to revenue neutral.

It’s simply a broken situation. First home buyers are usually median income workers , & the median is about $67k PA , a lot lower than the average $100k.
Banks usually only lend up to 5 times salary , so borrowing capacity is only $335k for the median & $500k for the average . And if the family want kids,,,only 1 salary can be relied upon.
After paying expensive rents both of those borrowers will need savings up to $100k deposit, so what can they buy.??. Nothing much , apart from cheap dumps in places you wouldn’t want to take your dog.
Even “homes” in high crime areas of Sydney & Brisbane are in the 7 figure range.
Who wants to put down $200k in hard earned savings as a deposit , then be tied to an $800k mortgage for 30 years in a crappy location .
The future for these prospective home owners is bleak.

More ideas to reduce housing costs:
1. Improve building management practice to reduce costs eg avoid workers standing around waiting for materials.
2. Simplify the Building Code of Australia to encourage innovation leading to lower cost buildings.
3. Find cost reductions in excessive Australian Standards eg over designed concrete slabs.
4. Reduce red tape at every level.
5. Reduce dependence of Government and Councils on revenue raised mainly from increasing housing prices.

2. The current innovation has led to blocks of units cracking up, being deemed as unsafe to live in, faulty plumbing just to name a few of the problems of condemned properties.

Yeah. Well said.

Units cracking up is due to poor building work, not "innovation".

Why graph a 27 year period? Perhaps a 60 year period would provide the extra data for a more informed debate.

There are two sectors that need support.
Firstly, for those that don't have sufficient savings and/or income to purchase a dwelling our governments must enter into arrangements to provide both long term rental social housing and rental affordable housing. This is a government responsibility that is no different to the support offered through pensions and schemes such as the NDIS. Such arrangements can include the government providing seed funding to housing trusts or long term land leases at peppercorn rent on unused/underutilised land to housing trusts. Or they could simply directly subsidise the rent or offer tax incentives of a similar value to the rental subsidy required.
The second sector is the 'entry level' dwelling. Governments and their advisers have been hellbent on upping the requirements in building regulations and specifications. But there has been no pause in the cycle of changes. The added red & green tape is adding to the complexity and cost of constructing dwellings. Let's freeze the regulations for 8 to 10 years and give the suppliers, trades and builders time to confidently round out their knowledge and expertise instead of continually changing the rules. Let's also make sure that there are agreed documented ways to comply with the rules without having to pay for 'expert reports'.
When our children moved out of home they quickly identified 'afforadble housing'. In many cases it was the 1960's flats which despite all their shortcomings were simply constructed and economically constructed.

“This is a government responsibility that is no different to the support offered through pensions and schemes such as the NDIS”

Not really. Pensions are for old people and the NDIS is for disabled people.

By far the biggest problem has been excessive migration. There are simply too many people and not enough houses, with the construction industry flat out building houses and infrastructure already. Under the current Labor government, net migration is running at twice the record of any previous government. Bizarrely, this has predominantly been low skill migration, hence declining productivity, disposable income and GDP per capita. Limit migration to high skill migrants who have a high paying job lined up, and make sure students head home after finishing their studies instead of hanging around for years on low/no skill jobs.

Why isn't there a discussion about Super as it effectively takes 12-15% of wages and does nothing to assist people into their own home? Owning a home is considered the best way to start retirement but our super funds merely want their members become renters. Mr Swan where are you wanting to get embers into home ownership ?

The role of Super is to provide a retirement income , rather than flame the house prices even higher

Super is in fact helping moderate house prices because it forces people to accumulate wealth in assets other than housing, thus providing capital for productive assets(rather than fixed bricks and mortar

Re point 6, as an American expat living in AU for 15 years, I've often wondered why large scale "build to rent" projects don't seem to be popular here. All American cities feature large "condo complexes" from basic and affordable to high end luxury.

BTR projects have to struggle against the tax system. The Feds recently doubled BTR's building depreciation allowance to 5% p.a.from 2.5%. However, state governments have done little to nothing to ease the burden of annual land tax for BTR. Land tax is vastly higher for BTR because usually one party owns the building compared to often zero land tax in NSW if each apartment is owned individually. NSW has a land tax exemption threshold of $1.08m, indexed. VIC is just $50k. BTR rentals are always higher than otherwise, typically 15%, partly due to higher profit needs of a commercial enterprise than a mum&dad investor and partly to offset the land tax disadvantage. BTRs know exactly the fully burdened cost to offer an apartment for lease. A private investor often does not know and may try to avoid maintenance BTR cannot legally do. Then there is CGT if the BTR is sold.

“NSW has a land tax exemption threshold of $1.08m, indexed.”

NSW treasurer has frozen the threshold.

Hard to argue with most of your proposals John.

I wonder if CGT changes might also help although given any such change would not be retrospective then maybe that horse has bolted. I understand correlation doesn’t always equal causation but the rise in house prices since 2000 does correspond with the Howard/Costello CGT changes. I recall at the time Costello banging on that these changes were going to be wonderful for productivity and innovation. I also recall the now despised Mark Latham making a very insightful speech where he said words to the effect the only outcome of these changes would be to turbocharge the property market.

You are right in my view (Correlation vs causation). My view also is this period also coincided with a massive drop in interest rates and a commensurate increase in borrowing capacity. It is the supply of capital (my view) that caused this shift, not the tax changes. CGT calculation methodology rarely features in a prospective purchasers mind as a key reason for buying.

Also note, if my view is correct, rising and sustained higher rates will reduce the supply of capital that prospective purchasers have notwithstanding this weeks small drop.

'this period also coincided with a massive drop in interest rates and a commensurate increase in borrowing capacity
This is the elephant in the room that nobody wants to acknowledge has been the biggest driver of growth in house prices. As a matter of fact if you combine the growth in household income (due to inflation and/or productivity) with the growth in borrowing capacity (due to massively lower cost of borrowing) you just about arrive at the growth in house prices. Simple really.

The changes in CGT changed the dynamics of property investing. Investors willingly gave up yield for capital growth.

7% to 10% were common rental yields, now investors are happy with 2% to 3% if they are getting great capital growth.

Capital growth has started to reduce in this current economy.

Another boost in the early 90's was a result of more dual income households.

I was born in the late 60's and was at primary school in the 70's and high school in the 80's. It was quite common for single income households back then or the wife worked part time for a little extra money for the household. Think late night trading Thursday and Friday and Saturday until 1PM.

Late 80's and into 90's that started to change more.

So higher income households being able to borrow at low interest rates plus CGT changes for the early investors to get first mover advantage.