Addressing housing affordability – time to tell the truth

| April 28, 2017

David Thorp argues that the current housing affordability crisis is an inevitable consequence of decades of increasing inequality​. He says there are obvious solutions to the problem.

I often find that an unwillingness to state the real problems is the biggest obstacle to identifying and agreeing on solutions, and Australia’s housing affordability debate seems to be no exception. As fate would have it, I have no such qualms.

Current public discourse has ​occasional vague statements about increasing housing supply but has mainly focussed on potential tax changes, which contrary to the distraction of negative gearing concerns, ​should be focussed on ​rectifying Peter Costello’s disastrous changes to superannuation and capital gains tax​ and replacing property stamp duties with a uniform land tax (which will shift the investor market from unreliable single-property owners to ​more stable and professional multi-property rental management​).

Housing affordability is a complex issue that cuts across just about every other aspect of public policy. But most importantly, the following critical issues have been rather lacking in public discussion:

  1. Who do we want to help, with what sort of housing and why can’t these people afford such housing at present?
  2. The important role of housing as a vehicle for retirement savings alongside superannuation, and its dependency on immigration
  3. Why can’t we use fast trains to connect cheaper land to existing employment centres?

It’s perhaps no surprise that most politicians don’t want to specify who they would prioritise for help (as others rightly urge), since doing so would also reveal which voters’ wishes they won’t be addressing. Because the fact is, housing affordability is inextricably linked to the distribution of wealth, and addressing that is an unavoidably expensive game of winners and losers. The price of desirable land is simply dictated by how much money is available to spend on it – it can’t be unaffordable for everyone; the problem is that wealthy people push up prices beyond the reach of others. So it’s time we faced the truth that the current “housing affordability crisis” is an inevitable consequence of decades of increasing inequality​ (which is partly ​caused by unequal property ownership, but also a trend reflected in global markets​).

Clearly, the best solution to inequality is a more progressive tax and welfare system​ (which actually may also improve the economy overall​). So-called “affordable housing”​ supply schemes are simply bureaucratic means of ​allocating available housing (and ​not always to those most in need​), instead of through usual market-price mechanisms (although there are ​legitimate arguments for doing this, in order to reduce the spatial stratification of society by wealth​).

The problem of who gets to buy the available property is exacerbated for those at the bottom of society, because in this world, money is the route to more money, so if you have a low paid job (or none), you’re going to have a tough time getting a bank loan to get on that first property “ladder of opportunity”. Hence government-facilitated financing mechanisms, such as a social housing bond aggregator or co-ownership schemes, are worth pursuing, even though they may not be “game changers”. But the government also forces the poor to put what meagre savings they have into superannuation, so they can’t even leverage that by using it for a house deposit. We could allow a small minority of the poorest in society to access their super for housing, without this materially bidding up house prices (rather, it would just change who wins the bidding) – but that wouldn’t buy many votes! Unfortunately, the more people you try to help this way, the less effective it will be.

Opposition to such policy changes based on artificial policy segregation along the lines of “housing is for housing, super is for saving”, is at best simplistic, and at worst disingenuous and self-serving (I’m disappointed in you, ​Paul Keating​!). The reality is that superannuation constitutes only a minority of people’s retirement savings​. For decades, Australians have used housing and immigration as the path to a comfortable retirement – downsizing and selling land on the back of strong price growth paid by the next generation.

So although in principle we could relax development controls until supply matched immigration (and the price of housing was reduced to the marginal cost of building another unit in a high-rise building), this conflicts with the economic interests of the large numbers of existing land owners, as well as being constrained by valid or self-interested opposition to increased urban congestion – even though this could be substantially addressed through ​improved public transport​, acceptance of smaller homes (which are currently ​2-3 times bigger than is typical in Europe​) and cost-effective staging of new property developments using modular manufacturing technologies​ and competitive supply​/consumer choice to meet social/affordable housing targets​.

Which brings me finally to the obvious solution to these problems – as adopted by most global cities – which is to use fast trains to connect cheaper, distant land to existing employment centres​.

Or to put it another way: Why are NSW trains so slow when ​journey times could easily be slashed using well established modern train systems​ (not even needing Very High Speed Trains like TGV)?! I suspect, again, that is in someone’s self-interest not to ask…

Housing Affordability Online Consultation:

Q: What can be done to improve housing affordability?

David Thorp
Dr David Thorp is an analytical, strategic reformer with a conscience, working on public service strategy/reform, finance, economics, fiscal strategy, transport, housing and planning, sustainable energy and social/human services. David has a BA in engineering from Cambridge and a Ph.D in solar photovoltaics from the University of NSW. His work and ideas in these areas, along with theories of gravity and the universe, can be found at

One Comment

  1. ck

    April 28, 2017 at 7:58 am

    Housing affordability for first home buyers and in general cannot be resolved by increasing taxes and changes to the current property / tax laws, because that would hurt the many existing home owners. Buying property in expensive areas like Sydney is not perhaps for all .
    The real solution is as stated by Dr Thorp the improvement of fast rail and transport systems to allow decentralisation into other cities , fringe areas and rural towns. Land is cheaper away from main cities hence more affordable, Australia has lots of land, use it properly.
    Another solution is for local government and planning laws to be relax permit change of use of property to be automatic. I have large well built apartments which are approved and used as serviced apartments but Bayside council has restricted their use to be for tenancies for less than 90 days. This means an owner occupier cannot live there. Owner want to live there or rent them out long term in addition to letting short term (if desired ) but council has made this so called change of use difficult. We are presently being assessed for DA now which has taken 2 years so far. 100% of the owners are for lifting the council imposed restrictive use which defies common sense. In effect 35 apartments in Sydney could be made available as affordable housing if council were to approve and remove the restrictions. I am sure there are other existing buildings in a similar situation. Ironically AirB&B and other short term lets are illegal but councils are not stopping it. It seems NSW parliament will approve short term letting across the board or ease the current planning laws to permit it into Residential buildings . If this is the case existing strata titled serviced apartments should automatically be permitted to be used for residential also. Using existing buildings to increase residential stock will help ease the affordability crisis.