Home ownership rates have been declining in Australia for most of the 21st century. At the same time the proportion of people in private rentals is increasing. Housing is becoming increasingly expensive as a larger share of the existing housing stock is purchased by households not to occupy but as an investment. The result of this is that the proportion of rental properties is rising and so the proportion of households who rent is also rising. This then explains why home ownership rates are falling.

For the last 25 years, average house prices have increased at twice the rate of income. Each year housing becomes more expensive and further out of reach of first-home buyers. Tax concessions such as the capital gains tax (CGT) discount and negative gearing are encouraging housing speculation and driving up the price of housing.

There are only two ways to make housing more affordable. Either the supply of housing is increased relative to demand, or the demand for housing is decreased relative to supply. If a housing affordability policy does not relatively increase supply or decrease demand, then it will not make housing more affordable. 

The authors argue the problem with the current housing policy settings is that they incentivise demand but do little to increase supply.

Recommendations

• Restrict negative gearing to newly built housing.
• The capital gains tax discount should be scrapped, and capital gains should be taxed like other types of income.
• Macroprudential policies should be explored to reduce households access to credit for buying residential investment property. 
• The government should not pursue policies that preference one group of home buyers by allowing them access to more funding.