Australia's housing crisis is a pressing issue, and many are wondering if building more homes is the magic solution. However, an expert in housing economics, Professor Christian Nygaard, has a different perspective. He argues that even an ambitious plan to construct 1.2 million homes over the next five years, as proposed by the Albanese government, won't significantly improve housing affordability.
Nygaard's research model suggests that this massive construction effort might only reduce the national house-price-to-income ratio from 8.0 to 6.7, which is a relatively small impact. In cities like Sydney, where the ratio is even higher, the reduction could be minimal.
But why is the payoff so weak? Well, it's not just about the number of homes built. As Nygaard explains, several factors come into play. Over time, we become wealthier, which increases housing demand. Additionally, our tax system makes homeownership financially appealing, and changing borrowing costs over the years further exacerbate this issue.
"The sum of all these factors means that the overall impact on affordability is more limited than one might initially think," Nygaard says.
So, while increasing supply is important, it's not the sole solution to the housing crisis. Nygaard believes that policymakers need to focus on the distribution of housing and who these new homes benefit. Simply building more homes won't address the broader societal challenges and wellbeing outcomes associated with housing affordability.
This leads to a crucial point: by emphasizing supply, politicians can avoid the difficult conversation about tax settings that have made investing in housing so lucrative. Nygaard suggests that changes to capital gains tax discounts for investors could have a symbolic and practical impact, but more radical thinking may be required.
"Touching the capital gains in the owner-occupied sector is politically challenging," Nygaard notes. "But by focusing solely on building more housing, we might be missing the root causes of the problem and prescribing the wrong policy solution."
So, while building more homes is a step in the right direction, it's not the entire answer. The housing crisis is a complex issue that requires a multifaceted approach, and Nygaard's insights provide a thought-provoking perspective on this ongoing debate.
