Will the election fix housing affordability?

Owning and building a home in Australia has never been tougher.

As affordability hits its worst level since 2008, and with buyers requiring almost half of their pre-tax income for mortgage repayments, the dream of home ownership is slipping further out of reach.

But rising costs aren’t the only issue. The latest Productivity Commission report revealed a concerning decline in the homebuilding industry.

Over the past 30 years, physical productivity has more than halved, and labour productivity has dropped by 12% - weighed down by regulatory burdens and a lack of innovation. These factors are driving up costs and hindering supply, exacerbating an already dire housing market.

This situation has been further compounded by the collapse of several Australian companies within a matter of months, including Zorzi builders, Ultimo Construction, Clarke Homes and Inspired Property Group.

So with affordability at crisis levels and construction productivity struggling to keep solid foundations, what’s next for home buyers?

Australia’s housing crisis stems from surging demand due to population growth, social expectations and low interest rates, coinciding with construction challenges such as land shortages, red tape, and rising costs for materials (driven by significant Government incentives during the Covid years), labour, insurance and fuel.

Property investment remains a favoured strategy for building wealth, largely due to incentives such as negative gearing and capital gains tax discounts. On the other hand, foreign investment, though relatively small in scale, has had a concentrated impact in certain areas, influencing local property markets significantly.

Adding to this is the rising cost of land and infrastructure. These increased costs make it more challenging and expensive to build new properties.

With the federal election looming, it’s time for the Australian Government to step up and take immediate action.

Despite some positive attempts to remove regulatory burdens, such as fast-tracking housing approvals in NSW, there’s still a long road ahead, and regulatory challenges remain a pressing issue that must be addressed to tackle the crisis and cement a solid pathway.

At a federal level, both Labor and the Coalition have responded to the crisis with a series of new initiatives.

These include establishing a $10b Future Fund to build 30,000 affordable homes within five years, offering renter support and superannuation access for first home buyers, tightening regulations for foreign investment, co-purchasing up to 40% of a new home for first home buyers to reduce the deposit and loan burden, and unlocking up to 500,000 new homes by funding infrastructure.

However, while these initiatives sound reasonable, many are still pretty hard to achieve. For example, since its establishment in September 2023, Labor’s Future Fund has only agreed to finance 800 homes, of which none have been completed.

Policies such as the Help to Buy scheme may also serve to increase house prices and do nothing to address undersupply in regions that need it most.

What remains clear, is we need more homes that cost less. This requires further investment in social housing, embracing medium-high density housing and reducing speculative investment to prioritise sustainable long-term gains.

The Property Council of Australia supports increasing affordable housing supply through a comprehensive approach involving federal, state, and local governments, and defends negative gearing as it protects the rental market. This is a fair call, especially considering that annually, about one-third of new dwelling construction is financed by investors.

Meanwhile, industry experts remain sceptical of the government’s promises and quick-fix solutions, arguing that current policies favour demand over supply.

As the WA lead for property and construction in Audit and Assurance, I regularly engage with many insightful professionals and I asked some of these industry leaders to share their views on the current crisis, and what can be done to remedy it.

In speaking to Jason Black, Director of property investment company Dorado, he believes current political policies being touted by the major parties favour demand but neglect supply. He explained that high input costs (land, labour, materials and time) often exceed revenue, making developments challenging, and despite the Federal Government’s claims of wanting sustainable house price growth, there’s a lack of motivation and intent to tackle supply issues.

Another property development expert, Eugene Lim, CFO of SKS Group Australia, said in WA, high construction costs and labour shortages make many projects unfeasible. He believes Government grants are not a permanent solution, and the Government should provide temporary housing for tradespeople, and adjust the National Construction Code to allow smaller, more affordable apartments.

According to Michael Veletta, Director at Cygnet West, a commercial real estate agency, the past five years have been a perfect storm for WA’s residential market, with rising property values and strong rental demand causing supply shortages. Despite this, he said recent strong rental and selling demand, along with the 2020 Building Bonus and Home Builder Grants, have led to a profitless building boom. However, he stated that strata development and alternative construction methods could offer future solutions.

While there are many ways to lay bricks, we know the foundations must remain solid to ensure stability and growth. Just as a well-built house needs a strong base, Government investment is crucial to our nation's vibrancy and accessibility.

To recover from the housing crisis, we need solutions that are well-rounded, feasible and long-term. Only then can we ensure that the Aussie dream of home ownership remains within reach for all, and not just a select few.

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