A new report is recommending Australian governments immediately switch housing stimulus away from market housing to the social rental sector.
The University of New South Wales has delivered a report to the Housing and Productivity Research Consortium titled Housing: Taming the Elephant in the Economy.
That report reveals that national household debt now sits at almost 185 per cent of the national GDP — up from 70 per cent in 1990.
The report is calling for more consideration to be given to the social rental sector, as it would likely lessen the consequences currently associated with inflation and exponential price growth.
If enacted, it could see a diversion away of funds currently put towards stimulus measures including HomeBuilder, first home buyer schemes, and other state-based building and buying grants and stamp duty tax breaks towards investment in as-yet unidentified rental programs and the delivery of further funds to improve the supply of social and affordable housing.
According to the report’s lead author, Professor Duncan Maclennan, the report’s findings confirm that the Australian housing system is not working for the economy.
He said: “Australia’s approach to housing policy has fuelled income and wealth inequality and created significant economic instability. This is a huge drag on productivity and warps Australia’s capital investment patterns.
“The recent explosion in house prices brings a fresh and troubling dynamic. Rampant price growth has returned to the larger cities and is now spreading to regional Australia. This is in part due to the pandemic-fuelled work-from-home revolution but is also because so many younger Australians can no longer afford the life they want as home owners in the larger cities.”
Professor Maclennan had argued that policymakers must pay greater attention to the economic fallout created by housing market distortions.
While acknowledging that rising residential housing markets can support positive impacts on productivity, the report noted that residential investment can also “crowd out” investment in more productive activities and lead banks to prioritise lending to housing consumption and “rent seeking” investment that provides no positive feedback into Australia’s economic productivity, which is not factored into current policy debates.
According to the professor, “the Commonwealth government’s policy actions are boosting inflationary pressures and the RBA has effectively washed its hands of responsibility for house prices, arguing higher prices are good for the economy”.
“But when people are paying more and more for rent and to service their mortgages, they have less and less to spend on other goods and services.”
Housing economist Saul Eslake has also weighed in on the issue, noting how booming house prices are locking more young people out of the market.
“But this is far from a short-term or cyclical issue. It’s a structural problem that’s been building for decades. And it’s one that won’t be solved by policy initiatives that just tinker round the edges,” he conceded.
“It’s been more than amply demonstrated that what governments need to do is step back from policies which serve mainly, or only, to inflate the demand for housing, and step up to pursue policies which expand the supply of it.”
Kate Colvin, the national spokesperson of Everybody’s Home, has also weighed in on the issue, stating that “it’s time to shine a light on the fundamental flaws in our nation’s housing policies and create a concrete plan of solutions that work to address growing housing inequity, like building more social and affordable housing”.
As well as the redirection of stimulus measures, the report has recommended keeping the Reserve Bank of Australia in check, with the Australian government urged to expand the formal accountabilities of the RBA to include maintaining a more price-stable and well-functioning housing market.
It’s also calling for the instigation of a Royal Commission on Housing Future Australia, which it believes is required “given the fundamental nature of the issues involved”, as well as their disparate nature across departments and levels of government.
It would also provide framing for new government approaches, in a bid to reverse “the substantially problematic trajectory of Australia’s housing system over recent decades”.