Productivity Commission exposes decades of housing policy failure

The Productivity Commission (PC) on Friday released a report entitled “In need of repair: The National Housing and Homelessness Agreement”.

The report notes that “Australia has a housing affordability problem” with “Australians, particularly those on low incomes, spending more on housing than they used to” while “demand for social housing is rising”

“Rising rents and low vacancy rates are placing private renters under pressure, which increases demand for government-funded housing and homelessness services”.

Meanwhile, “home ownership rates are falling, particularly for young Australians”. In particular, “the share of younger households owning their home fell from about 44 per cent to about 36 per cent from 1997-98 to 2019-20”, while “home ownership rates at any given age have fallen for successive birth cohorts and there is limited evidence of ‘catching up’ later in life”.

The PC calls for better targeting of housing assistance towards low-income renters, as well as abolishing first homeowners’ (FHB) grants, which “works against improving affordability”. It also wants to see measures taken to boost supply:

The Australian Government should review Commonwealth Rent Assistance as a priority. There is a strong case for changes to improve its adequacy and targeting.

State and Territory Governments should commit to firm targets for new housing supply, facilitated by planning reforms and better co-ordination of infrastructure.

The $16 billion governments spend each year on direct housing assistance could achieve more if it was better targeted to people in greatest need. The nearly $3 billion given to first home buyers works against improving affordability. This money would be better spent preventing homelessness.

These changes will help more low-income households in the private rental market and reduce the number of people who experience homelessness or need social housing.

The PC also notes that the federal government’s immigration policies have a significant impact on housing affordability

Population growth is a key driver of housing demand…

Demand for housing is affected by population growth (both natural increases and net migration). Australia’s population grew strongly over the past 20 years, increasing by 6.5 million people, with 56 per cent attributable to overseas migration (ABS 2021f).

Most of the additional recent demand for housing services was in urban areas. 77 per cent of Australia’s population growth was in capital cities in 2018-19, and over 83 per cent of this growth was in Australia’s three largest cities, Sydney, Melbourne and Brisbane (figure 2.5, ABS 2020b, 2021f). Student visa holders made up over 40 per cent of net migration between 2014-15 and 2018-19, with over 70 per cent of them moving to New South Wales or Victoria, placing additional demand on already in-demand Sydney and Melbourne…

Since 2000, immigration has added nearly 4 million people to the Australian population (ABS 2021h; PC 2016a, p. 95), and the majority of immigrants have settled in either New South Wales or Victoria…

The PC, therefore, calls on governments to take into account the impact of immigration on the housing market:

There are sound reasons for governments to intervene in the housing market, and there are many policy levers governments can use improve housing outcomes. Non-housing policies, such as immigration and taxation, also affect the market, and governments need to be cognisant of their effects when developing housing policy…

As these policies sit outside the NHHA, the Commission did not look at them in any detail…

The PC’s points around FHB grants are especially pertinent. FHB grants began in the 1960s and have been cancelled and then re-introduced ever since.

Governments have spent tens-of-billions of dollars on FHB grants and subsidies over that time, and yet home ownership rates have gotten worse over that period. They have provided minimal benefit to FHBs, acting instead to inflate values for the benefit of vendors. In this regard, FHB grants have been a massive policy failure and should be cancelled, with funds instead used for low-income rental assistance and social housing.

That said, this is another ‘housing affordability’ report that can be added to the pile alongside:

• Menzies Research Centre: Prime Ministerial Taskforce on Home Ownership 2003;
• The Productivity Commission’s First Home Ownership Report in 2004;
• A Good House is Hard to Find Report from the Senate Select Committee on Housing Affordability in Australia in 2008;
• Western Australia’s Affordable Housing Strategy 2010-2020;
• NHSC: State of Supply Reports (2008, 2010, 2011, 2012, 2013 onwards);
• Senate Inquiry into Affordable Housing, 2014-2015;
• Parliamentary Inquiry into Home Ownership 2015; and
• The Morrison Government’s 2021 housing affordability and supply report.

On top of these we have gotten many reports from think tanks like the Grattan Institute, the McKell Institute, and others.

Thousands or workhours and millions of dollars in salaries and consultants’ fees have been spent on these reports and absolutely nothing has come from them.

Like the others, nothing significant will likely come from this new PC report because our politicians don’t actually want more affordable housing. Their policies – be it mass immigration or FHB grants – work directly against this goal.

Instead, rental affordability is destined to get much worse as the Albanese Government ramps immigration to unprecedented levels, sending rental vacancies plummeting, rents soaring, and spiking homelessness.