Fundamental overhaul of Australian housing system required to ensure affordability for future generations

Australia’s overheated housing market will struggle to meet supply and demand for future generations without fundamental structural reform, a parliamentary inquiry has been told.

A revival of the controversial housing policy negative gearing is just one of the avenues the federal government has been encouraged to take to cool the market.

House values across the country have increased more than 21 per cent in the 12 months to the end of October – the highest annual growth rate since June 1989.

It now takes an Australian almost a decade to save for a 20 per cent deposit on a house, up from 5½ years in September 2001. Home ownership rates are also declining.

UNSW City Futures Research Centre’s Hal Pawson said Australia’s housing market had a structural affordability problem.

“What is needed is a much more fundamental reform of the entire system that looks at housing supply and demand issues – policy settings that affect both of those things,” he said.

CoreLogic’s Eliza Owen said the low rates of home ownership were “exacerbated” in low income cohorts.

“So that would suggest that you have widening wealth inequality perpetuated through Australia‘s housing system,” she told the inquiry.

While CoreLogic noted the tighter credit conditions introduced by APRA last month could create a headwind in the market, SQM Research’s Louis Christopher said longer-term reform was required.

He added reforms to stamp duty and negative gearing could add more liquidity to the market.

“We should consider phasing out negative gearing. Our view is that you need a phase-out period, you don’t do it all in one hit,” Mr Christopher said.

“Otherwise, you could create quite a wave in the market. Rather, you take us over a three to five-year view in terms of changing these taxes over.”

A national housing strategy, spearheaded by the federal government, was also suggested to ensure infrastructure was built in areas with an oversupply of housing or land as a way to entice people to live there.

“Housing is inherently a product that you can’t bring to market instantly … but other factors around the supply side, like the provision of infrastructure are really critical as well,” Mr Pawson said.

“We can’t ignore that.”