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Who’s to Blame?

By Hayden Groves

Housing affordability is one of the most significant challenges of the modern era. Both house prices and rents are at record highs in Perth and across much of the nation with Perth’s median house and rent prices at around $600,000 and $600 per week respectively and growing faster than any other major Australian capital.

We understand that the reason for these rises is down to simple economics, higher demand and short supply means prices and rents rise. Governments have done a spectacular job at shifting blame away from their own housing policy failures to investors, banks, real estate agents, local councils and developers. Yet, each of these sectors play a pivotal role in delivering the existing housing stock. Governments, on the other hand, through their taxation and other policies actively undermine housing supply.

Property investors, mostly families that own a single investment property, provide 90 percent of all residential rental homes across Australia, housing millions of tenants. They obtain a moderate benefit by claiming some of the expenses stemming from that investment against their taxable income via negative gearing. However, once positively geared, investors pay tax on the property’s income and pay Capital Gains Tax if they make a profit upon selling.

Banks, whilst not the most popular corporate citizens, provide the funding for property through mortgages. Banks also provide the funding for developers. Us real estate agents provide the services that help investors navigate residential tenancy laws, help people into home ownership and enable property transactions. Local councils often stymie property developments, especially increased density but they also adapt their planning laws over time, enhancing our urban environments.

Developers provide housing on mass, adding density to areas where people aspire to live, work and recreate. Part of the reason property values are rising is the cost of construction, both labour and materials, has risen by around 40 percent in 3 years with end property values for finished product not at levels sufficient to support the viability of the project. Developers work to a margin and if the project fails the feasibility test, it doesn’t get built.

That’s why new emerging density areas such as those around the new Metronet hubs will take several years to be developed; the cost of delivering the project is higher than the combined value of the housing produced. These cost constraints are not limited to construction costs. Land tax, holding costs, public art levies, developer levies, rates, headworks fees and stamp duty are additional cost burdens representing around 25 percent of the total development costs.

This is where government ought to step in. If they were serious about housing supply, government would support the groups that provide the housing. Instead, state and federal governments either fail to provide the housing themselves (public housing waiting lists are at record highs) or set policies (stamp duty, tenancy law changes and land tax for example) that actively discourage additional housing supply.

If it isn’t government, who is to blame for the housing crisis?

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