Housing crisis

Australia’s housing crisis is self-inflicted. We need four reforms to reverse it | Matt Grudnoff

HHow come in Australia, one of the richest countries in the world, we have a housing crisis where hundreds of thousands of tenants cannot afford a roof over their head ? To understand why rents are skyrocketing, we need to look at the larger political problem: We’ve spent about two decades trying to screw up the housing market and we have, catastrophically, succeeded.

The Australian property market is down. For too many low- and middle-income people, the big Australian dream of owning a home is no more than a fantasy.

As property prices have risen, outpacing incomes, large numbers of people who want to buy a home but cannot are being forced into the rental market, which is also driving up rents.

The best long-term solution to the structural problems of the rental crisis is to build more social housing.

Building more social housing doesn’t just help those who need it most financially. It helps everyone. If Australia had more social housing, there would be fewer people trying to rent on the private market, freeing up properties for other tenants. Social housing also increases the supply of housing, putting downward pressure on house prices, making it easier for those trying to buy their own home.

Traditionally, state governments build social housing. This has led to pushbacks, with successive federal governments saying it’s a state government responsibility and state governments saying they just don’t have the money to do it.

The social housing boom in the post-war period was built by state governments, but largely funded by the federal government. It’s because the federal government has all the money. If we want more social housing, it will have to happen again.

The next problem is the explosion of the wrong type of request.

After the capital gains tax reduction was changed in 1999, investors took an increasingly larger share of residential real estate. The size of the net rental loss (the amount claimed as negative debt) has also exploded.

This explosion in investment demand has driven out owner occupiers and forced more people to rent. Australia has moved from housing as shelter to housing as an investment.

There are not two separate markets for rental properties and owner-occupied properties. When a home goes up for sale, whether it becomes an owner-occupied home or a rental property depends on who buys it.

Suppose the government introduces policy changes that make it harder to make money by investing in housing. The various real estate and investment groups are shouting that this will only hurt tenants because there will be less rental housing, which will drive up rents even further and make even more people homeless. But this is nonsense.

When an investor leaves the house, the house does not cease to exist. Instead, it is sold. If things have changed to discourage investors, then who are they selling to? Those tenants who really want to buy their own home. Thus, the number of rental units decreases, but the number of tenants also decreases, because some tenants buy their own housing and cease to be tenants.

This is why the second solution to solving the rental crisis could be to reform the incentives that give investors an advantage over owner-occupiers.

Negative debt and capital gains tax reduction reforms will in the longer term lead to lower house prices than they otherwise would be, and since the price of housing is the one of the main determinants of the price of rent, it will also lower rents.

These two reforms – more public housing and changes to tax relief for investors – are not going to be easy. These are also longer-term reforms. Reforms that help tenants right now are also needed.

The third immediate reform concerns tenants’ rights: this means that we need a ban on ‘without cause’ evictions, where landlords can evict tenants without reason.

We moved from a system in Australia where it was expected that most people would only rent temporarily and eventually own their own homes. This means that tenants have relatively few rights. This must change.

Not all countries have a housing system that assumes most people will own their own home. In these countries, tenants have more rights.

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The last thing we need to do is make renting more affordable by increasing rent assistance or reviewing rental caps, like in many countries in Europe and some US states.

Years of neoliberalism have taught us to believe that we do not have the capacity to legislate housing price controls – but in a housing crisis we have the right as a democracy to decide whether housing is more important than landlords who charge exorbitant rents. This should be a democratic issue rather than an economic one.

Decades of underinvestment in social housing and huge tax breaks to encourage landlords to invest have wreaked havoc on our rental market. We need to make big changes to reverse the crisis we have created.

Matt Grudnoff is Senior Economist and Director of the Economics Program at the Australia Institute. Twitter: @MattGrudnoff