Activity 8(i)

Activity 8i: Housing affordability and government responses

  1. A housing affordability crisis refers to the rise in house prices to the point where it becomes exceedingly difficult for relatively younger Australians (e.g. those in their 20s and 30s) to afford the purchase of a house. It is loosely referred to as a crisis because it has the potential to create intergenerational inequality, where the only Australians who will be in a position to afford a house are those with access to inherited wealth.
  1. the inability for younger families to afford to purchase a house has the potential to create an element of insecurity in the sense that they will be forced to rely on rental properties with the security of tenure is less certain (e.g. as tenants they may be asked to vacate the premises at the expiration of the lease when they would prefer to remain in the same property), which therefore can create instability within families.
  1. Excessive growth in house prices has occurred because the growth in demand for houses has exceeded the growth in the supply of houses. It therefore stands to reason that any attempt to reduce the pressure on house prices needs to include efforts that are designed to reduce the demand for houses (e.g. demand for investment purposes) and/or efforts that are designed to increase the supply of houses (e.g. the government releasing more government land for the construction of houses).
  1. The provision of the first homeowners grant is designed to reduce the overall purchase price of a house for first homeowners as the grant means that any given purchase price will cost the first homeowner less than second or third homeowners. [However, the grant does exert upward pressure on the price of houses in the market which negates the value of such grants for future first homeowners.] The elimination of tax benefits such as negative gearing and the capital gains tax discount could be a measure that would reduce the demand for houses by investors, which exerts downward pressure on the price of houses and makes them more affordable for first homeowners.
  1. As highlighted in the previous question, a homeowners grant does indeed exert upward pressure on the market price of houses. It is for this reason that it is a less preferred measure of addressing housing affordability compared to those measures that ultimately lead to an increase in the supply of houses (such as changes to government zoning laws that permit greater development), which help to drive the price of houses downwards.