Housing Affordability

Housing affordability is pretty important. Shelter is fundamental in the hierarchy of needs. Young couples put off having children until they can afford a house. Their living expenses influence the number of children they might have. The number of children they have is influenced to a large extent by how old they are when they start having children. Their lives get put on hold until they can afford a home. A huge part of their take-home pay goes toward their mortgage. 

The Australian cities mostly developed after the invention of the motor car and after trains. Australian cities are thus less densely populated than many older cities elsewhere in the world.  In Australia, people learned to commute by car or train to their family home along tree-lined streets with big green nature strips past parks and ovals to their spacious houses with large front and back yards. To give this up would be cultural heresy. The political force referred to as "Not in My Backyard" NIMBY is very real in Australia. As the population has grown, the demand for land has grown. A never-ending force pushing the price of land higher and higher has occurred. It would have happened whether negative gearing existed or not. Negative gearing perks just made things much worse.  

If Australia is to grow and prosper, then housing affordability needs to be contained in a meaningful way. At present, this is not the case. The reason, in my opinion, is that everyone wants to live in almost exactly the same place. Until we address that issue, the problem will only get worse as the population increases. We need to clearly identify why everyone wants to live in the same 0.1% of Australia. We need to provide alternatives elsewhere that offer many of the same benefits. And we need to find the funding for those alternatives. 

Politicians acknowledge that there is a problem. However, they are either insincere in their attempts to solve the problem, or they are incapable of diagnosing the problem correctly. Possibly it's a little of both. Either way, the problem is not solved. All the solutions I have seen so far from both the right and left of politics seem unworkable in the long term. However, in the short term, those policies might be vote winners. I'm talking about more public housing, freezing rents, or giving first-home owner grants. The latest idea is that the Government shares ownership of your home. And let's not forget to use your super fund to buy your home. The present Government might even think about reducing negative gearing tax benefits. I think that was tried in 1985 with dire results. 

I'm not against removing negative gearing tax benefits. However, such a major change in how our country runs needs to be introduced over 10 years. I hate to be cynical, but if the Labor Party brought this policy in, my bet is the Liberals would reverse it at the next election. The Liberals would see a reversal of such a policy as a clear vote winner for their traditional voting market. 

So if you don't touch negative gearing, what else can you do? You need to basically increase the supply of real estate in big cities and at the same time reduce consumption. And I don't think reducing the supply of skilled workers coming into Australia is a great idea. I do not think ruining our education industry by restricting student visas is a crash-hot idea either. So let's look at who lives in these big cities. Do they really need to be there? If not, what is stopping them from moving to regional areas?

And I get that both major parties realise that Australia is in a real bind. They think that we can't afford to allow our real estate market to drop because nearly every business loan, car loan, and credit card overdraft in Australia is guaranteed against some real estate. If property prices drop enough, banks will be making a form of "margin call" on everyone all over Australia. This will create a cascading effect. It won't be pretty!

In my opinion, we should just look at the data and find out if it is true. Possibly only new mortgage holders and stupid investors are up to their armpits in debt. Others might have an equity buffer. Can the Australian Government afford to guarantee new owner-occupiers and let the investors liquidate? The data is hidden. Is that because it's so terrible? Then we should expect the banks to act more responsibly by introducing appropriate legislation. Hang on... wasn't there a Royal Commission in 2019 looking into some of this stuff? Some bloke named Ken Hayne was not too happy with the banks. I wonder if we had taken his advice, would the two major parties be so scared on house prices dropping now?

What I propose may cause a gradual decline in house prices over some years. Or prices may rise slightly depending on the level of immigration. But an increase in price will be somewhat suppressed if the following measures are instituted. Plus, it will get us out of the bind where we are literally burying our money in big city dirt. And what I propose is funded and encourages other parts of the economy. 

People move to big cities for work opportunities. If you worked one week out of four in the office and the other days you spent working remotely, would you feel the need to live close to work? What if your work was in a building that had a little serviced flatette inside the same building and was part of your work conditions? Would you be prepared to live regionally and commute to this building for one week out of four? I think various Governments need to look at how they can make this happen. I believe they'd be surprised at how many prospective good-quality employees might be open to this restructuring of the workplace. Many would love to bring up a family in a regional area and still work in a big city job with access to that big city job pay. The employee might take a pay cut because their smaller mortgage means their disposable income is higher.  

In a city like Sydney, possibly as many as 500,000 old retired people are rambling around in big old, difficult-to-maintain houses. Some of these homes are beautiful and just need TLC. But they are just too expensive for young people to buy. Surely, many of the properties being demolished for higher-density housing could have been restored, except for the fact that they were sitting on prohibitively expensive land. 

How many retired people feel compelled to stay in big cities because the older they get, the more medical help they need. All the best medical help can be found in the big cities. It doesn't make sense to move away from those facilities. Specialists need to be able to practice remotely via video link. If you move to a country town, you should be able to visit the local doctor. He or she examines the patient with the guidance of the specialist via video link. It's a doctor's appointment with two doctors, the local GP and the specialist. Both doctors receive a fee for this appointment, paid for by Medicare and/or private insurance. Even a specialist nurse in a regional hospital or clinic might be able to help in this regard. How many GP's get frustrated because the specialist doesn't tell them what is happening with their mutual client? This will improve the quality of GP care. Yes, you will need more GPs. But it's probably easier to attract a GP to regional areas than specialists. 

If it is decided that the patient needs to go to the big city hospital to see the specialist, then a helicopter service run by a regional transport company like Rex or the State ambulance service will transport the patient from the local township helipad to the helipad of the hospital required. I could imagine large Chinook-style helicopters doing round trips to regional towns (though it could be a passenger plane that can take off and land vertically), picking up multiple patients and completing daily round trips to big hospitals. The Chinese-made Geely AE200 is an electric-powered flying car with a range of 200 km. I think it was at the Everything Electric Show in Sydney in February 2025. Tesla is working on a flying electric car that takes off vertically and is said to have a range of 500 km. Again, this would be paid for by Medicare, private insurance, and subsidized by State Governments and the Federal Government. I imagine noise pollution would be a problem and would need to be addressed.  Chinooks make lots of noise. But modern electric drones that can carry passengers might be quieter. Bladeless drones, although experimental at this stage, are much quieter. I was at the Royal North Shore Hospital whilst a helicopter was landing, and it was surprisingly quiet because the windows in the room I was in were double-glazed. 

To make this service as affordable as possible, Governments would fund these services by increasing the stamp duty on the purchase of real estate over $1 million.  You might say, "The last thing we should do is increase the cost of purchasing a home". In the long term, it won't make housing more expensive. Real estate might be going up by an average of 10% a year in Australia's larger cities. Charging a few percent extra with higher transaction costs so you can use that money to incentivize people to move out of the city will put downward pressure on house prices. Also, the people who must live in the city for work have an inelastic demand for real estate. If nothing is done, prices will still go up, and those people will borrow more money and buy anyway. Or they will just miss out and get trapped in a poverty cycle when they stop working in old age. 

It's April 2025. Trump has destabilized global markets. The Reserve Bank is predicted to drop interest rates four times over the next 12 months. That will see huge upward pressure on house prices. It happened before when interest rates dropped as a result of the pandemic. Prices rose 33% over the next 2 years. The same thing happened after the GFC. If you are going to put increased transaction costs on the real estate market, now is the perfect time to do it, whilst interest rates are falling. Instead of making the limited supply of real estate cheaper to buy, you would set the foundation for a massive increase in the supply of real estate by spreading demand to regional areas by introducing policies that encourage movement to regional areas.

If interest rates dropped from 5% to 4% over the next year, the repayments on a home loan would drop by 20%. That would lead to a price hike in real estate by 20% since home buyers often borrow to their absolute maximum to buy the best homes they can afford. If transaction costs rose by say $100,000 to pay for the ideas I am suggesting in this blog, then house prices will rise by 20% less $100,000 in increased transaction costs. When lending to borrowers, the banks will take the increased transaction costs into account. It's an expense home buyers will gladly pay because getting into the real estate market in the big cities is imperative for them. 

To incentivize retirees to move to regional areas when qualifying for the age pension, allow them to hold triple the amount of cash and investment assets (but no big city real estate). So a couple can now hold $1,410,000 if they move to a regional town out of the big city. If they stay in that big house in the big city or keep it, then they only qualify for the aged pension using the existing criteria, which is $470,000.  

This extra money flowing into regional areas will boost the local regional economies. Many people in the city won't sell because they are worried that they will not qualify for the old-age pension.  If that's the only thing stopping them from moving, then just pay them the pension with the more attractive criteria, and the Federal Government can place some surcharge on the real estate purchase to help pay for the increased social security spending. Again, if more properties become available because more people move out of the big cities, then prices will drop slightly more than the increase in transaction charges. 

If a regional area is struggling to survive, I believe it should be able to apply to the Federal Government to allow retirees to move to the area. Retirees should be able to qualify for the age pension, no matter what level of cash assets they have in these special areas. The retirees need to liquidate all their real estate in the big cities. Imagine if a mine or a power station closed. This can have a major effect on a country town. They have infrastructure, but they need to replace the people they lost with the closing mine or power station quickly. If they have the funding from real estate transactions in big cities, this might save some dying townships.  The houses already exist. They just need occupants. 

Some people are afraid to move to regional areas because it's so far from their kids and grandkids. They think they'll see them far less. Put sleeper trains and first-class train travel on in regional towns and give these retirees four free return trips per year for as long as they live in a regional area. Normal people and big city retirees will have to pay to use the train service as usual. High-speed rail seems to be too much of a leap in Australia, so why not try to normalize luxury train travel whilst solving our housing affordability issue as well? How far can a train travel in 10 hours? You could be asleep for most of that time and wake up at Central Station. You might even foster a brand new industry. Imagine luxury train trips crisscrossing our country. Orient Express, eat your heart out!

If the retiree arrives at a hospital by Chinook air ambulance for an in-person specialist appointment, they should be allowed to go to their kids' place for a few days after a hospital visit. Their kids can pick them up from the appointment. After the visit, they can choose to go home by Chinook air ambulance from the hospital helipad or sleeper train, depending on their preference.  

Some investors may think that prices will rise in regional areas, so they'll just invest in those areas, forcing prices up unreasonably. Prices will rise in regional areas, but not because of a lack of land. New subdivisions require services, and new homes being built will be of a better standard. So, prices will reflect environmental and technological improvements more so than land inflation. As such, rampant speculation by investors will still be confined to big cities where the supply of land is severely restricted, but land inflation will be dampened somewhat as existing stock in the big cities turns over more readily.   

Some might say that giving these extra pension benefits to city dwellers discriminates unfairly against regional would-be pensioners. We are not asking regional would-be pensioners to uproot their lives and make room for new people in their familiar city neighborhoods. City dwellers are often making a scary decision to move. We have to give enough incentives to persuade them to break with city life. We also need them to have enough money left over to know that if they can't handle the move, then they may be able to move back to the city, even if it is a smaller property. Also, when those city retirees move to regional towns, they bring their money with them and improve those regional towns in so many ways as a result. Extra health facilities will also be provided because there will be a larger market for those services in these growing regional towns. That will help the pensioners who are already living there. 

All the land facing onto large State and Federal highways in large cities should be under State planning control. Take the planning rights for all such land away from Local Councils. This will partially remove the NIMBY effect in each state. State Governments should consider changing the zoning along all their highways to high-rise dwellings. The ground level should be retail and commercial, with at least four stories of residential accommodation above. Every 500 meters, there should be a bus turn-off bay to allow buses to get off the main road and to allow other buses to get past the stationary bus. The land contributing to the bus bay area should be allowed to go up an extra floor. All windows facing the busy road should be double glazed by law. 

All strata properties should have solar panels and batteries as part of the original build. The power generated should be sold to the occupants or the grid. That money is used to reduce strata fees. I know many people will not move to Strata Properties because they are afraid of the affordability of strata fees. This is especially true if they are pensioners living on a limited fixed income. Imagine just being able to pay all your living expenses with the pension you are given, then a large special levy comes from the strata because problems occur in the building. You'd be forced to sell. What a financial disaster!

If planning rules were changed so that developers were allowed to build strata properties higher and garages deeper on the condition that developments had more good-sized three or four-bedroom apartments, then more families would be willing to live in high-rise developments. Presently, developers mostly build one or two-bedroom apartments. Three-bedroom apartments are rare. Families can't fit into such structures. At best, young families use apartment living as a stop-gap solution for their lifestyles. Or they restrict the size of their planned families, which creates more issues for our society years later.

Why do we have a shortage of tradesmen in Australia? If an apprentice completes a year of studies at TAFE and a year of service with an employer, the government should pay them a bonus fee, which makes being an apprentice worthwhile. I know immigrants who come here from overseas want their kids to be doctors, lawyers, and bankers. They look down on blue-collar workers. But someone has to actually build the structures we use and live in. 

The costs involved in building houses and apartments has increased considerably over the past one or two decades. Research groups should be funded to find technological advances which improve the quality of real estate structures, and their surrounds, and lower the costs of producing those goods. That may include streamlining approval processes, improving or inventing new equipment which help build infrastructure more efficiently. It could also be new subdivisions funded by government which display the latest and greatest ideas and technologies. Prizes would be given to winners and grants would be given to those who wish to compete. Sort of like a solar race for builders. Each subdivision should focus on an architectural theme to create an overall harmony for the subdivision. It should not only include builders, architects and town planners, but water, sewer and power providers. 

The end product would be sold off by the Government to recoup it's expenses. All new subdivisions produced at present are for profit only. This government funded subdivision is to create innovation in the industry. It should not be sold off at below market value for public housing. The funds obtained from this project will be used for the next competition. It will not crowd out the best of private industry. Eventually it will lower their costs and improve the products  they put to market. These competitions should get plenty of free publicity. A show like "The Block" or "Australia's House and Garden" would willingly preview these events and pay the government a negotiated fee for the privilege.

A Federal Strata Commission Advisory Body needs to be set up. It receives feedback from the public, industry, and various government bodies about what is working well in the world of strata buildings, what is wrong, and what problems look to be evolving. That federal body makes recommendations annually to the various States to change and adapt their legislation. The purpose is to make strata living more attractive over time and gradually remove concerns people may have about moving from a house to a strata property. It can be issues like addressing possible conflicts of interest between private assessors and developers. It can even look at new technology, such as rust-proofing iron rebar in cement floors and balconies, so "concrete cancer" can't develop. "The surprising materials that could decarbonise construction" YouTube video talks about this. (Please take note of this if your income depends on mining iron ore in Australia).

These are just a few ideas to affect the supply and demand equation, which affects housing affordability in Australia's big cities. There must be other ideas as well. You don't need to spend huge amounts of money on public housing. In the big cities, the land is just too expensive to make the taxpayer dollars go very far. Just focus on helping those who don't need to be in big cities move away. Help them decide to move to regional areas and free up the existing land in the big cities. There will be a fresh supply of retirees every year who can be influenced to vacate those big-city homes. 

I do like the idea of homes that remain vacant incurring a vacancy tax as well. For me, that's a "no-brainer". Victoria has had this tax since 1st January 2018. If it were a bad idea, it would have been repealed by now. 

It is possible that Menzies was our longest-serving Prime Minister because he made owning a family home obtainable for the average Australian. And he made that the backbone of his democratic movement. It became the Australian dream. Some might say that people like John Howard destroyed that movement when they allowed the democratization of the family home to be usurped by big business. Investors of real estate hold property for years, locking out generations of potential home buyers. You may not need to dismantle negative gearing, but you should at least steer it to work for the country, rather than against it. Give tax benefits to investors where you want real estate investment and charge that cost against the existing benefits where you don't want overinvestment in real estate. 

Focusing on immigrants for price rises in the real estate market is extremely problematic in a multicultural society. We see what is happening in other countries. We encourage that at our peril. The cracks in those countries are being exploited by international "bad actors". Let's not go down the blame game path. Let's explore the solution path.