The Great Australian Nightmare: Contemporary Housing Pressures and Urban Policy Responses

If housing affordability pressures in the 1980s were linked to high interest rates and the difficulties of obtaining a loan, by the 1990s falling interest rates and easy finance had begun to fuel a new housing boom (Beer 1993; Yates 2011). Cash grants for first home buyers were introduced in the year 2000, initially to cushion the impacts of a new Goods and Services Tax (GST), and were later used to stimulate demand for new housing following the GFC, exacerbating inflationary pressures (Berry and Dalton 2004; Yates 2011). All of these factors combined with ongoing support for ownership in the form of highly advantageous taxation arrangements for owner occupation and property investment.

As in previous decades, a series of inquiries and special working groups (summarised in Table 9.2) have investigated housing affordability concerns, commencing with a Productivity Commission report on barriers to home ownership (2003). In addition, between 2008 and 2013 a quasiindependent National Housing Supply Council (NHSC) was formed to advise on aspects of the land and housing supply pipeline and overall affordability trends (NHSC 2014).

Table 9.2 National level inquiries relating to housing




Commonwealth State Housing Commission


Committee of Inquiry into Housing Costs


Productivity Commission: The costs of first home ownership


Senate Select Committee: A good house is hard to find: Housing affordability in Australia


Council of Australian Governments (COAG) Reform Council: Housing Supply and Affordability Reform


Senate Economics References Committee: Out of Reach? The Australian Housing Affordability Challenge

Source: The authors

The NHSC declared that Australia faced a shortage of around 85,000 dwellings, based on a projected gap between estimated household formation rates and new housing production since the year 2000 (National Housing Supply Council 2009). The Council also found that if new social housing production had kept pace with the level attained in 1996, an additional 90,000 dwellings would have been produced by 2008, which would amount to a modest surplus (NHSC 2009). Had the NHSC Council used the early 1980s as the base reference, this surplus may have even been higher. Figure 9.1 shows the changing rates of public sector dwelling production from a high of around 12 % of total output in the mid-1980s, to around 2 % in 2014/15. The marked exception during this period was short-lived economic stimulus funding for social housing in the context of the GFC (which funded almost 20,000 dwellings), and a tax incentive for affordable rental housing construction (the National Rental Affordability Scheme [NRAS]) which operated between 2009 and 2014 and supported the construction of around 37,000 units.[1]

Overall, Fig. 9.1 shows a volatile pattern of housing production between 1985 and 2001. In the mid 1990s, ‘negative gearing’, a tax benefit which allows investors to offset the costs of mortgage finance and other expenses against their whole income was introduced, briefly removed, and then reintroduced. In 1999, the pending introduction of

Housing provision in Australia, public and private sector output, 1984-2015

Fig. 9.1 Housing provision in Australia, public and private sector output, 1984-2015

(Source: ABS 8752.0 (Table 37, Seasonally adjusted flow))

a Goods and Services Tax (GST) which would affect housing construction costs by around 10%, moved production forward for some projects, which explains the sudden drop in new housing starts by 2001. In the same year, the introduction of a capital gains tax discount (halving the tax payable on assets, including investment properties, held for over 12 months) further stimulated the housing market, whilst capital gains on the sale of the primary home continued to remain tax-free.

Much of the anxiety about sluggish housing production occurred over the decade between 2004 and 2014 during which period output appeared to stagnate at the tail end of the 1996—2004 boom). However, in the context of a rising market and with mortgage interest rates at an all-time low, in 2013/14, rates of new housing supply did begin to rise as shown in Fig. 9.1. This increased output continued on the back of rising property prices (especially in the capital cities) where homes for moderate- and low-income owners are generally out of reach.

A number of factors explain the steep house price inflation which occurred during the 1996—2004 boom and has continued in the years following the GFC. Yates (2011) points to the mid-1980s/early 1990s, during which time wages increased along with female workforce participation (and the rise of dual-income households), whilst access to mortgage finance became much easier, boosting demand for housing. Investor activity in Australia’s housing market has also been an important part of this story, with investor loans increasing during the 1996—2003 boom and again between 2013 and 2015 (Gurran and Phibbs 2016).

Housing Tenure Australia 1994-2014 (Source

Fig. 9.2 Housing Tenure Australia 1994-2014 (Source: ABS 2014 Cat 6416.0 (Table 4))

By the new millennium, house price inflation exceeded income growth, and rates of absolute home ownership began to decline (Fig. 9.2). The effects of this are shown most clearly when looking at the tenure propensities of couples aged between 25 and 34 years. In this cohort the proportion living in private rental accommodation has climbed by over 10 % between 2001 and 2011 (Fig. 9.3). In part, this shift may be explained by changing demographic patterns, such as extended periods of study in tertiary education. But housing affordability pressures have clearly affected the capacity for Australians to enter and sustain home ownership (Yates 2011, Beer and Faulkner 2009). Increased demand for rental accommodation by aspiring home owners also places pressure on the private rental market, exacerbated by the declining supply of social housing. By 2011/12 the proportion of households in social housing had dropped to 3.9 % as shown in Fig. 9.2.

Concern over the perceived impacts of the planning system on new housing production persisted over the decade despite a series of

Partnered persons aged 25-49 years by five-year age groups

Fig. 9.3 Partnered persons aged 25-49 years by five-year age groups: percentage living in rental accommodation, Sydney, Melbourne and Rest of Australia, 2001 and 2011

(Source: Derived from Birrell and McCloskey 2016, p. 6, original based on ABS Census data)

significant reforms to state planning systems (see Gurran and Phibbs 2013; Ruming et al. 2014). Consistent with the tone of public discourse at the time, in late 2012, Council of Australian Governments (COAG) declared a new housing agenda which again called for state planning system reforms to boost housing supply and improve affordability (COAG Reform Council 2012). By this point, the NHSC estimated the national housing shortage to be in the vicinity of 284,000 dwellings, which it based on projected rates of household formation and estimated net new dwelling construction.

  • [1] Modelled on the US Low Income Housing Tax Credit scheme, Australia’s NRAS offered $100,000 inCommonwealth and State tax credits over 10 years, provided that units were rented to an eligible household at 20 % below market rents for the decade, after which period the affordable obligation ceased.
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