Australia's focus on housing supply isn't enough to solve this crisis

Australia Broadcast Center

a day ago

The deputy chair of the National Housing Supply and Affordability Council, and principal with SGS Economics and Planning, Marcus Spiller, says that to meet the government's housing target there will need to be nearly 34 square kilometres of infill land made available for new dwellings every year.
He said this at a conference of housing industry people last week and later explained the sums to me.
The Housing Accord target is 1.2 million dwellings over five years, or 240,000 per year. Seventy per cent of those are to be in established suburbs to save on the infrastructure needed in new greenfield suburbs. That's 168,000 per year.
The average density for dwellings in established areas (houses, units and apartments) is 50 per hectare. Divide 168,000 by that and you get 3,360 hectares, or 33.6 square kilometres.
That's 26 times the size of Melbourne's CBD … every year (across Australia).
I was on the panel at the conference, and it was Chatham House Rule, so no quoting those present. But I can quote myself and Marcus Spiller because I cleared it with him later.
When they went along the panel at the end and asked everyone for their solutions to the housing crisis I said: "If that figure of 34 square kilometres is true, and it obviously is, and affordability is a crisis as everybody says it is, then surely that means radical measures are needed."
I went on: "Maybe communities and local councils can't get to decide anymore what happens in their suburbs; planning decisions should be taken over by a national body focused on housing supply rather than how each suburb looks — say, the National Housing Supply and Affordability Council."
At this point the chair of the NHSAC, Susan Lloyd-Hurwitz, was vigorously shaking her head, a bit horrified.
"And do we really need all those golf courses? How about someone studies how many people play golf, how often, and therefore how many courses are needed for them?" I asked.
"And what about all the parks? Can we cut back on parks?"
By now I had lost the room, and the pitying consensus was that Kohler had gone mad.
Someone in the planning business came up afterwards to tell me that taking planning decisions off local councils would be a very bad idea indeed.
OK, fair enough, and I doubt that any state premier will want to deal with men in plus-fours and flat caps lying in front of bulldozers about to level bunkers and greens.
But the challenge remains. Where will 34 square kilometres of empty land in Australia's suburbs come from every year?
Marcus Spiller thinks there may have to be compulsory acquisition by governments of privately owned houses so large areas can be assembled for developers. And that assumes that the construction industry is capable of building 240,000 dwellings a year, and that they will be "affordable" rather than the luxury apartments that are mostly going up at the moment.
Bulldozing golf courses is pointless if there's no-one to build houses on them.
ANZ chief economist Richard Yetsenga wrote in a report last year that between 1945 and 1950, housing construction accounted for 84 per cent of all new building activity.
In the March quarter this year housing construction was 62 per cent of total building activity of $39 billion, but on top of that there was $35.4 billion worth of engineering construction — roads, tunnels, bridges and renewable energy.
So housing is down to just 33 per cent of total construction: engineering work is crowding out housing.
The number of dwellings completed in 2024 was 177,000, against a Housing Accord target of 240,000 per year.
In its State of the Housing System 2025 report, the NHSAC estimated demand in 2024 at 223,000 dwellings, 46,000 more than supply.
Housing approvals have increased a bit lately but are still nowhere near enough. In May approvals totalled 15,212 which is an annual rate of 182,544.
So the rate of housing construction needs to increase by 30 per cent, quickly, while the same number of roads, tunnels and solar and wind farms continue to get built because they are needed as well.
In its report, the NHSAC wrote that the main barriers to supply are "structural constraints".
"These include an inadequate pipeline of skilled workers; scarce, fragmented and costly land suitable for development; low rates of productivity and innovation in the construction sector; restrictive and complex land use and planning approval systems in some jurisdictions; market frictions and financial incentives that limit the optimal use of the existing housing stock; and a fragmented housing policy and regulatory ecosystem that adds to costs, timeframes and risks."
The NHSAC also said there was a strong case for tax reform to encourage more housing.
As I pointed out at the conference last week, taxation of housing is at the level that applies to things the government wants to discourage, like smoking and gambling.
Usually when the government wants to encourage something, like R&D, it gives it a tax break.
Housing has two tax breaks as well as all the taxes on new construction — the capital gains tax discount and negative gearing, but they apply to existing as well as new dwellings, so no extra encouragement for new housing.
If negative gearing and the CGT discount can't be removed or lowered on existing houses because Labor lost the 2016 and 2019 elections with that as policy, then perhaps they should just increase the tax breaks for new housing — that is, make them CGT-free on the next sale.
Richard Yetsenga points out that there are 11 million dwellings in Australia, for 26.6 million people, which is theoretically enough. That suggests, he says, that the problem is misallocation rather than a genuine shortage.
Yes, but is the government going to force people to sell their holiday homes? And in any case, they are nowhere near employment or public transport so only useful as holiday homes.
The other problem with achieving more supply is capital.
The current plan is that it must be private capital because governments haven't got the money, because priorities have changed since the days of plentiful public housing.
But if affordability is to be improved, housing can't be a good investment.
To keep the current level of (un)affordability — that is, with house prices at nine to 10 times incomes, residential real estate has to be a poor investment, providing a return of no more than 3-4 per cent per annum, including rent, so incomes can keep pace.
To return to the affordability of 25 years ago — a house price to income ratio of four times, it would have to be an absolutely rubbish investment for 20 years with zero return.
That means private capital can't do it — only the government can.
The Labor government is trying to make up for the lack of investment return with the $10 billion in the Housing Australia Future Fund (HAFF) to be given to community housing groups that mobilise capital from super funds with subsidies, which is a good policy but about one-10th of the size it needs to be.
The target for the HAFF is 40,000 homes over five years, or 8,000 per year. The NHSAC says the housing shortfall will be 79,000, ten times the target.
All of which suggests that the current focus of policy on supply won't cut it.
Demand, that is the level of immigration, must be brought down as well — a lot.
Unless, of course, golf is entirely banned. There are 1,584 golf courses in Australia taking up 71.3 square kilometres of land, or a bit more than two years' worth of what's needed. Then they can move on to the parks.
Alan Kohler is finance presenter and columnist on ABC News and he also writes for Intelligent Investor.