Submission to Inquiry into the worsening rental crisis in Australia
8 September 2023
On 22 June 2023 the Senate referred an inquiry into the worsening rental crisis in Australia to the Community Affairs References Committee for inquiry and report, with an interim report to be presented by 23 September 2023 to aid in the deliberations of the National Cabinet on renters’ rights, and a final report to be presented by 28 November 2023.
Key findings and recommendations:
- Australia is facing a crisis in the affordability and quality of housing which is leading to increased inequality and homelessness, threatening to shatter the social contract. While homelessness has always existed, it increasingly affects families with children, and essential workers who are unable to find accommodation near their work. Recent migrants are also experiencing extreme stress and crowding of rental accommodation.
- It is demand growth rather than supply constraints that has pushed up housing prices.
- The connection between population growth – driven by high immigration – and high housing inflation is often ignored or denied in political circles but is accepted as an undeniable fact by almost everyone knowledgeable about the property industry.
- Following the lull during the pandemic, the Albanese government has slammed its foot on the immigration accelerator, leading to record population growth and consequent record rates of rent inflation.
- An accumulation of ill-advised policy measures (e.g., negative gearing, reduction in capital gains tax, and first home buyer grants) have combined with accelerated population growth to create a perfect housing storm.
- The solution to the housing crisis is multi-faceted. It must include a combination of tax reform, regulation, investment in public housing and a sustainable population policy that will contribute to demand management.
- A lower net migration level is needed to slow growth and stabilise population size. Even an optimally regulated market will not prevent housing inflation in the face of endless population growth.
- The government must make a genuine commitment to affordability by stabilising house prices. Without rising prices, housing will gradually become more affordable in real terms as wages grow. It is disingenuous of government to claim to be addressing housing unaffordability while implementing policies that ensure strong capital gains in real estate.
- Policies must dampen housing demand. Population stabilisation, through lower immigration levels, is an essential component. A target for net overseas migration should be around 50,000 to 80,000 per year, similar to immigration levels experienced in the 1990s. This is ample to accommodate Australia’s refugee intake and to recruit genuinely needed skills, but would take the heat out of housing and rental markets.
- The only way to ensure additional affordable housing in the places it is needed is through renewed investment in public housing. The full $10 billion earmarked for the Housing Australia Future Fund should be spent directly on public housing, not speculated on risky financial markets and not used to subsidise private build-to-rent projects. Public housing directly addresses homelessness and housing stress among the most vulnerable, without needing to shift the dial on the whole property market, as the build-to-rent approach must do. However, unless public housing were to absorb all the increase in household numbers, the trend toward lower affordability and home ownership can’t be reversed until population growth is stemmed.
- Rental subsidies drive prices up at the bottom end of the rental market. They represent poor value for money compared with providing social housing, as the government has no asset to show for its investment. They currently cost government close to $5 bn. However, with 1.5 million households currently depending on rental assistance, transitioning them to public housing would be a long-term project. More importantly, both the number of recipients and the amount of supplement they need are growing rapidly due to the housing crisis. The only effective way to stem this growing liability is to slow population growth and stabilise house prices.
- Foreign investment in all real estate should be banned. Foreign investment only serves to bid up prices and displace prospective homeowners. We do not need foreign capital to build rental stock. It is well known that restrictions on foreigners buying existing properties are easily circumvented. Anecdotally, foreign buyers are more likely to leave properties vacant, removing housing stock from the market. Australia’s real estate market has become a magnet for international money laundering. China, like many other countries, does not allow foreigners to own land, and Canada has moved to end it. A complete ban on foreign purchase of Australian land would be the quickest contribution to stabilising land prices.