The federal government won't solve the housing crisis
Australia's housing crisis won't be solved by federal policies alone, and demand-side measures from both major parties risk pushing prices even higher, while critical supply-side barriers—like restrictive zoning laws and regulations—remain largely unaddressed.
Lately I've been giving a fair bit of attention to the federal Labor government's attempts at dealing with the housing crisis. That's mostly because it's in government and has actionable policies in the space: a housing target of "one million new well‑located homes over 5 years", a multi-billion dollar "Housing Australia Future Fund", and two pieces of legislation – "Help to Buy" and "Build to Rent" – currently being blocked in the Senate.
The federal Greens also get a regular mention because they effectively hold the balance of power in the Senate, so if Labor wants to get anything done, it has to cut a deal with them. Their policies are important to the extent that they influence Labor's policies.
But the federal Coalition? Not so much, mostly because they haven't really said much. But as the election draws near, the Coalition's plan for housing is starting to become clearer. And so far, it's not encouraging:
"In the lead up to the federal election, which must be held by May 2025, the Coalition is trying to woo aspirational first homebuyers with a policy that allows them to access a portion of their superannuation to use as a deposit."
And:
"The Coalition is considering stripping the prudential regulator of some of its powers to regulate mortgage borrowing, and overhauling credit laws that MPs fear are locking first homebuyers out of the property market.
The opposition launched a Senate inquiry into mortgage regulations in August, fuelled by concerns that rules aimed at reducing the riskiest forms of borrowing had gone too far and made banks too cautious about lending to first homebuyers."
So, demand-side measures. Unless there's something also planned to allow for supply to respond, then these policies will boost housing demand and raise prices. In terms of the distributional impact, owners would benefit, some people's access to housing would improve, but plenty of people – especially those with low super balances for various reasons, such as women who have had a career break – would be pushed out.
As for the potential changes to prudential regulations, if people were struggling to get mortgages then it might make some sense if done right – we obviously would want to avoid a severe relaxation in lending standards, such as the one that led to the US subprime crisis in 2007-08.
But it's just not clear that Australian lending standards are too tight, given the recent rise in the number of borrowers who are facing cash flow shortfalls:
According to Moody's, delinquency rates have "been rising steadily for the last two years from a historically-low base and were now back up around long-term average levels".
If mortgage delinquency rates are close to the long-term average then it's hard to make the case that lending standards have been tightened "too far", as claimed by the Coalition. The last thing we would want is to loosen lending standards so much as to risk a future financial crisis, given the long-run "scarring" they tend to cause. And for what, to stimulate demand while doing nothing for housing affordability? Really?
Ultimately, there are only a few concrete things a federal government can do to help solve the housing crisis, and none of them have been tried. And from the looks of it neither major party, nor the Greens, appear willing.
We're not building enough
Prices alone don't tell us anything about why housing is less affordable. For example, prices could be rising because households have become wealthier, real interest rates are low, people are willing to spend more on their homes, or because of supply constraints – or most likely, some combination of it all.
Work by the ANU has shown that even after adjusting for quality, "real house prices rose by about 50% between 2003 and 2022", so it's not purely a preference for bigger, nicer homes. It also found no rise in average mortgage payments as a proportion of average household income, so it's not just that we've become wealthier and were willing to put it all into housing: real median incomes are only up about 35% over the same period.
That means other factors explain a lot of the housing affordability problem. And the completions and population data suggest it might be that we just haven't built enough: