Who owns your home?
Maybe it’s owned by your parents. Maybe a landlord. Maybe a super fund, or, if you’re one of the 6000 students living on ANU’s campus, perhaps it’s global investment firm AMP Capital. Maybe, just maybe, it’s you.
But most people reading this don’t own their place and won’t for years.
A third of Australia’s population is renting, and they’re pretty much stuck there. Growing numbers of Australians are becoming painfully aware that they’re locked out of the housing market as house prices hurtle upwards.
Any economics student can tell you price rises are produced by rising demand or falling supply. Australian housing demand has recently grown ridiculously fast, largely because immigration intakes have risen to record levels from the start of this century.
Supply growth, meanwhile, has been painfully low. New developments are hindered by a string of red tape restrictions and recent inflation has driven up the cost of construction labour and materials. Historically low numbers of properties are available to buy or rent.
All the demand growth and supply slowdowns are great news for the other two-thirds of the population that own property. Increased house prices make landlords and homeowners wealthier, so they want prices to keep rising.
But for renters and hopeful homebuyers, price increases translate to higher rents or bigger mortgages. Rents rose around 10 per cent on average nationwide over 2022, and have increased at a similar pace ever since.
As 2023 comes to a close, ANU students have once again ventured into the Canberra suburbs in the hope of renting a sharehouse. We hear the same horror stories every year: the searchers have found themselves stuck in lines of prospective tenants going down the block, alongside families, smartly-dressed APS grads, and way too many awkward classroom acquaintances.
Canberra, even more than the rest of the country, is crying out for change. But most of the national debate is stuck in Microeconomics 1.
The country’s governments are focused on the supply issues. They’re aiming to build 1.2 million new homes in the next five years. This includes direct spending on new houses, like the federal government’s $10 billion housing fund. But the shortage of tradies and building materials means every house a government builds is a house a private developer can’t build, so direct spending will have limited effect.
To get around shortages, governments are also encouraging supply by cutting building restrictions. The ACT has made cautious changes like letting landlords split large plots of land into two smaller plots. Victoria went full Dictator Dan and threatened to take planning powers from councils, and NSW followed suit by announcing it will force some councils to unwind development bans.
Big changes to restrictions could enable more new builds, but it will still take a few years for new houses to get built. Even worse, developers tend to release new builds slowly, rather than all at once, to keep local property prices high and maximise their profits. Supply moves slowly, by nature and by design.
So if we want instant results, perhaps we should turn to demand. We could shift demand quickly by cutting our immigration intake. Less population growth means less extra people who compete to buy or rent. 60 to 70 per cent of Australians want less immigration, including federal opposition leader Peter Dutton. However, cutting immigration would also do real damage. Australia’s migration system aims to bring in workers who have much-needed skills, so less immigration would worsen our labour shortages. Calls to reduce immigration also sound dangerously like xenophobic dog whistling and White Australia nostalgia, particularly in the current racially charged environment.
The federal government has decided to take a cautious middle ground by veering away from 2023’s record highs while keeping a strong immigration intake. We’ll see small cuts in housing demand growth, but nowhere near enough to solve the crisis.
If tinkering with demand and supply won’t give us better housing affordability, where do we turn? One alternative, championed by the Greens in Australia, is to slam a roof on top of demand and supply forces and simply freeze (or cap) rent levels. If the government says your landlord can’t raise the rent, you won’t have to pay more rent.
A rent freeze would by definition improve rental affordability. However, it would also necessarily make it impossible for landlords to increase their profits from rentals. No matter how many shiny new kitchens they put in or how much black mould they clean up, they wouldn’t be able to charge more rent. Rental properties would gradually get worse and worse.
The Greens housing spokesman Max Chandler-Mather led the campaign for a rent freeze this year, and told Woroni 2023 was “just the start,” but his proposal is fundamentally flawed. Even in Canberra, where we have strict rent caps, it takes countless applications and hundreds of dollars in rent bidding to be accepted for a rental.
This narrow focus on price limits, demand, and supply ignores the distribution of housing.
Who owns your home?
Around 70 per cent of Australia’s private housing stock is owner-occupied. The other 30 percent of houses are investment properties. That 30 percent is held by 2.2 million Australians or around 20 percent of Australia’s 11.4 million taxpayers. Investors hold more than their share.
Australia’s tax system encourages this skewed distribution
because we’ve rigged it to ensure landlord profit from investing in housing. We let investors take a 50 per cent discount on capital gains tax payments, plus extra tax deductions (AKA negative gearing) when their rent income doesn’t cover their property purchase and maintenance costs.
Investors get an easy ride regardless of how much we boost supply or cut immigration, so they’ll keep buying up every house that comes on the market. Every house an investor buys is a house a renter can’t buy, so the distribution will stay uneven.
ACT Senator David Pocock believes the solution lies in getting rid of these tax benefits. “If you start out from the point of view that housing is a human right, rather than an investment vehicle or wealth creation tool,” he tells Woroni, “then you change our tax system.”
The independent Senator says a rent freeze is “just kicking the can down the road for a couple of years.” He reckons the problem is not just demand or supply, but the “whole heap of people who have invested, just based on rules”.
Pocock wants the government to “turn the ship” – to cut the capital gains tax discount and “limit the number of properties that you can negatively gear and slowly phase [deductions] out over time”.
These tax benefits are supposed to keep up rental supply by encouraging people to become landlords. But, to bring Micro 1 back into frame, this also encourages demand for housing, which drives up prices and drives renters out of property markets.
Tax reform would make housing less profitable, pushing landlords out of the property market and into alternative investments.
Some renters could buy in, and those who keep renting won’t be facing as much competition.
We’d still face the same issues of supply shortages and demand growth, and we’d still only have a few homes making it to market. But those homes will go to the people who need a place to live, instead of those who already have one.
Who owns your home?
If we put renters and landlords back on an even footing, then, maybe, just maybe, it could be you.