Australia has some of the highest property prices in the developed world, but that’s no accident.
John Daley of the Grattan Institute and Simon Breheny Institute of Public Affairs both agreed - housing prices in Australia are a direct result of policies which have pushed up demand and restricted supply, and they're skeptical either major party would change that.
“Most of those issues arise from various government policies,” Breheny said. “There is simply more demand every year than there is supply."
Daley said this was having a real impact. “Home ownership rates are falling for all households aged less than 55, particularly for those on low incomes,” he said.
Breheny agreed that problem hit younger Australians especially hard. “[Prices are] extremely high and that has a particular effect on young people who are trying to get their foot on the ladder,” he said.
So what can be done about it?
Freeing up planning restrictions
Breheny and Daley told us the number one problem is housing supply. The biggest limit on supply, they said, is zoning regulations which prevent tall apartment buildings.
“In inner city-areas in particular, you can’t develop land in a way that you might be able to if freer market arrangement existed,” Breheny said.
“A perfect example of that is miners cottages and other one story dwellings existing in inner-city areas, where really you would expect for there to be two or three or four story buildings and apartment buildings,” he said.
The low-rise skylines over Richmond in Melbourne and Darlinghurst in Sydney prove his point.
John Daley agreed, saying that zoning was “the major constraint on increasing density, which is the key to increasing supply.”
Allowing for more high-density apartments would lower property prices, our experts said.
As well as agreeing this was the main problem, both were pessimistic anything would change. When proposals for loosening planning laws occur, voters in these areas invariably argue that changes would ruin the character of the suburbs or destroy current views, they said.
People are too invested – literally – in the status quo.
Clover More, Lord Mayor of Sydney, recently described the potential effects of State Government rezoning as ‘wholesale carnage of our city area.'
Breheny is cynical, “I think it’s motivated more by the propensity of people to want to protect their investments rather than that they want to protect any particular character,” he said.
Ditching negative gearing
Negative gearing is a hot button issue at the moment, with the Labor Party proposing to partly wind back the tax benefit. The Liberal Party has slammed the policy as a risk to housing prices – which is kind of the point – and also claim it would push up rental prices.
Negative gearing allows investors to purchase housing and rent it out, and if they pay more back on the mortgage than they get in rent, they can subtract that amount from their tax liabilities – it’s treated the same way as a charitable donation.
Both our experts said that removing negative gearing would lower prices because it would reduce demand from investors, but they also said its effect would be minimal.
A report by the Grattan Institute estimates that cutting the tax break would reduce prices by 1-2% while saving the government $5.3 billion a year.
Labor made negative gearing reform a key policy in the most recent election, so cutting back on negative gearing is perhaps the most likely reform to be embraced by a future government.
But the strong reaction from the Liberal Party and housing industry shows it’s still a divisive issue.
First Home Owner Grant and land tax
There are a range of other measures Breheny and Daley mentioned, including ending the First Home Owner Grant. They said the subsidy for new buyers just pushed up prices by pumping more money into the market.
Daley from Grattan suggested alterations to land taxation - increases in tax could make houses less attractive as investments.
But Breheny said he didn’t see that working, though that's unsurprising given he’s from the low-tax leaning Institute of Public Affairs.
In 2009 the Treasury Department told the government that simplifying land taxation and reducing stamp duty could have a soothing effect. Stamp Duty - a tax on property sales - makes people more reluctant to sell, meaning houses stay off the market for longer, but it's a significant source of revenue for State Governments.
Treasury also said the system was geared to help small investors rather than big developers, meaning large-scale projects which could offer cheaper units were less likely to occur.
But again, changes to these policies seem unlikely. Most people think of the First Home Owner Grant as a good thing for housing affordability, and it would be a brave government to argue that a new property tax would lower prices.
A bleak prognosis
It seems the only likely change will be a small 1 or 2% reduction - maybe - if Labor wins the election and follows through on negative gearing reform.
As for anything else, "based on history, I'm not holding my breath," Daly said.
Breheny told us too many voters have an interest in seeing prices remain high.
"Those that own property now don’t want to see their investment decrease so they constantly push back against any policy or party which threatens the value of investment,” he said. "Really we should be moving to a system that sees property not as an investment, but as housing or accommodation – as opposed to something you expect to see increase in value overtime."
But he doesn't hold out much hope of that happening.
"I think is is impossible for government to solve the housing prices problem, as depressing as that may be for people of our generation," he said.
“Every time they've tried to solve the problem they’ve only made it worse."
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