Australia's Future Tax System

Final Report: Detailed Analysis

Chapter E: Enhancing social and market outcomes

E4. Housing affordability

Key points

Access to affordable housing is a key policy issue for the Australian community that is only likely to grow in importance. Policies of Australian governments have traditionally treated owner-occupied housing as the preferred housing tenure. This approach reflects the desire of most Australians to own their home. It also recognises the benefits ownership can bring both the community and homeowners, such as greater security in retirement. The approach in this Report is consistent with this policy goal, while recognising that home ownership will not be realistically available, or the right solution, for all households.

Measures of housing affordability emphasise different aspects of the issue, but all reflect the cost of housing and people's ability to pay for it. For renters, reforms to housing assistance would improve the ability of low-income earners to afford rental housing. For purchasers, affordability is constrained by prices that remain high relative to average income levels. While high prices or rents may result from increases in housing demand, they can only be sustained at high levels when supply is not responsive. Evidence suggests that the current supply of housing is insufficient, placing ongoing pressure on house prices.

Reforms to stamp duties and land tax would reduce current impediments to housing supply generated by the tax system. However, as taxation is not the major source of supply constraints in the Australian housing market, housing affordability would be best promoted through wider reforms that facilitate housing supply.

Housing supply can be restricted through a range of policies, such as planning and zoning regulations, as well as the approvals processes that govern them. However, such policies are designed to achieve a range of policy objectives, against which their impact on the price of housing should be assessed. The use of infrastructure charges has the potential to improve the allocation of infrastructure. However, where they are not set appropriately, infrastructure charges can reduce the supply of new housing, which can increase overall house prices.

This is not a straightforward area of policy because while reforms to increase supply may promote housing affordability, they can also reduce existing home values and change the shape of Australian cities in ways that many existing residents do not desire. This suggests a serious community dialogue is needed on the distribution and quality of housing across Australia. As a first step, the Council of Australian Governments should review building and land use policies and infrastructure charges to ensure they do not unnecessarily restrict the supply of housing.