A house on a fish hook / Risks and negative sides of buying a house concept

The notion that urban policy is a fact-based discipline, guided by analysis, is now widely doubted. Political integrity has become a laughable oxymoron –  partisanship rules. Let’s examine these conditions from the perspective of the housing affordability debate, now heating up.

A little like predictions of climate change, detected by sensitive academics decades ago but more broadly ignored, early signals of an approaching housing crisis have now ballooned to become mainstream experience. 

As popular awareness has increased, and as happened in other significant policy contests, partisan interest groups are currently marking out their policy positions for maximum advantage. 

The issue is complex but in a macro sense, accounts of the housing affordability currently divide along strongly partisan lines that favour either “supply-side” or “demand-side” explanations.

On the supply side, conservative commentators, developers and wealth managers claim the lack of affordable housing is due to planning constraints that prevent developers from building in sufficient scale to provide affordable housing. 

On the demand side, progressive commentators claim that tax settings that favour the already wealthy, along with the financialisation of housing as an asset class, are the primary causes of housing unaffordability. 

The most penetrating accounts contain elements of both perspectives, yet due to its skewed terms of reference – to explore only supply side issues – many dismiss the current parliamentary enquiry into the topic as a set-up to find “planning constraints” as the cause, leaving taxation settings unexamined. 

Thus, like our experience of climate change debates, those over housing affordability are likely to dissolve into partisan finger-pointing and lack of adequate action, all the while preserving current inequitable policy settings that unevenly benefit key interest groups.

The social consequences of high housing costs currently dominate debate.  First homebuyers, those on lower incomes, the young, many older single women, are left to participate only as observers; the victims of a broken housing system.

Yet, other dimensions are less remarked upon but are equally concerning. Let’s look at a few.

The economic costs of ballooning house prices

Housing provides the economic service of shelter; more expensive dwellings are taken to provide better quality shelter.

Yet, over the last year, average Sydney houses earned more than most of their occupants, some $700 per day, seven days per week 52 weeks in the year – equivalent to a household income of more than $250,000 a year. 

Though this rate of price growth is now slowing, and will likely slow further with expected interest rate rises, its significant feature is that most of it occurred with no concomitant improvement to national productivity. It amounted solely to an unproductive transfer of wealth.

Presenting at a recent on-line seminar, Corelogic’s head of Australian research Eliza Owen displayed a slide that illustrated this point (see below). It revealed that more than half of Australia’s household wealth is represented by dwellings – by itself an alarmingly large proportion of wealth tied up in assets that offer little productive growth. 

The more shocking figure emerges from the quantum of dwelling sales, which exceeded $400 billion – some 5 per cent  of total building stock value – during the last reporting year.

During this period Australia-wide dwelling prices increased by some 20 per cent. 

Yet due to the lag between approvals and construction of new buildings, and little or no changes to existing traded dwelling stock, the increased price did not correspond to better shelter.

Averaged out to a flat 10 per cent increase over the whole year (and excluding inflation of some 0.89 per cent), some $40 billion of household wealth was consumed for no national productivity improvement whatsoever – an “opportunity cost”.

To place this number in context, at the current average price per house of $1 million in Sydney, the unproductive increase in housing costs last year amounted toabout 40,000 homes, or accommodation for 104,000 people at 2.6 persons per household – about the population of Ballarat in Victoria.

The broader point here is that housing unaffordability has a national productivity dimension that has become more urgent due to pandemic-induced deficits. Investment in housing consumes such a large proportion of household wealth that other nationally more productive investment is simply crowded out.

Monopolistic features of current housing provision

Land is necessarily monopolistic, well-illustrated by real estate patois: “There are three important elements of property – location, location and location” and “land; they’re not making any more of it”.

Its anticompetitive character is partly diffused in how it is traded, typically through competition amongst a number of purchasers, and by how it is improved, which is where of planning controls issues figure.

Housing provision is best conceived as a large and complex system of economic, material and cultural relationships between many parties, institutions and individuals.

Hoping to impart some analytical clarity to these relationships, the chair of the parliamentary committee inquiring into housing, Jason Falinski, combatively reduced it to simple supply or demand terms:

“Should we accept the unfair deficit of seats on the housing bus or stand up to the outrageous misuse of power by the high priests of policy who lie to all of us to protect their privileged position?”. 

From this it appears the committee’s conclusions were written before its work even began. 

The American urbanist, Ed Glaeser, also considers that supply and demand factors are the root cause of housing unaffordability:

“There’s no repealing the laws of supply and demand. If you have robust demand that is met with anaemic supply, places will become too expensive and unaffordable to ordinary people” – though he doesn’t prefer one account above others in the way that Falinski clearly does.

Regulations are the favourite whipping boy of conservative commentators.

The notion that planning controls are the cause of housing unaffordability is contradicted by the behaviour of the housing-for-profit industry, which simply does not want to build affordable housing. 

For example, attempts to require it do so through inclusionary zoning – planning requirements to build a fixed proportion of new development for affordable housing – are regularly and staunchly resisted by the industry, despite persistent market demand for cheaper housing. 

Further evidence is the widely observed practice of limiting land and apartment releases if over-supply threatens higher prices. This is exactly the same way that high prices for relatively abundant goods like diamonds, Australian wool and oil are maintained globally. 

Statistical analysis of approvals and completion, such as those from the NSW Planning Minister, also contradicts claims of regulatory causes.

The for-profit housing industry dominates housing provision in Australia monopolistically; it applies this dominance to elevate profit, not to lower housing costs.

Viewed together, these conditions are evidence not of regulatory constraints but of “market failure” in the housing system.

The problem with the Falinski position is that it points away from the core origin of the failure – the operation of the for-profit industry itself.  

Thus, to re-apply his analogy more accurately, the solution to the “unfair deficit of seats on the housing bus” is not to build more buses but provide bicycles – to provide alternatives to the current for-profit housing provision model. 

The for-profit housing industry dominates housing provision in Australia monopolistically; it applies this dominance to elevate profit, not to lower housing costs.

The for-profit housing industry dominates housing provision in Australia monopolistically; it applies this dominance to elevate profit, not to lower housing costs. This is not due to malign collusion but a simple response to market signals, though the outcomes are essentially the same. 

Though there is competition within the for-profit housing provision system, it does not compete with other systems and is therefore monopolistic as a system. 

Thus, complaints that regulatory controls prevent it from building more affordable housing are a complete furphy. 

What is needed is greatly increased competition from other systems of housing production, particularly the not-for-profit (NFP) sector. This is known as imparting a competitive discipline to the problem; an approach that would normally be supported by conservative-leaning commentators.

How might “market failure” be addressed?

Market failure is the generally accepted precondition for government intervention. But what should be its focus?

Oft-cited approvingly by the property development industry for targeting planning controls, Peter Tulip notes that, “apartments and townhouses are prohibited on most of our urban land, which is reserved for detached houses”. 

Elizabeth Farrelly seems to agree that low-density inner suburbs need to be opened up for more dense low-rise development. Certainly, the high infrastructure investment that typical inner-city suburbs benefit from warrants more efficient utilisation through regulatory change.

However, the negative externalities – the adverse un-costed consequences – of the current “for profit” housing system are well known. They include not only the failure to provide affordable housing, but the additional un-met infrastructure costs of per-urban development, the climate and other costs of poor design, and recent spectacular failures of Sydney apartment developments following deregulation of the industry some eight years ago. 

If greater competition is one leg of housing affordability reform, then a second leg – that of regulatory relaxation – should be confined to the NFP sector and denied to the for-profit sector on the legitimate grounds of the latter’s peristent market failure to deliver affordable housing and for its more general product failures that now require onerous re-regulation.

Financialisation of housing 

Other factors affecting housing affordability are clearly at play, such as the current “cheapness” of money, as Ross Gittins observes. 

This cheapness is not universally available; the already wealthy can access and service larger loans and therefore outbid first home buyers, albeit in the context of limited supply. Further, the conversion of housing from necessary shelter into an asset class is an undeniable cause of rising unaffordability.

For this reason, a third leg of any solution must include measures to isolate affordable housing from the cycles of capital accumulation that currently prevail.

Thus, any housing affordability policy solutions need to address all of the contributing factors in an integrated way or the current urban pathologies will only be reshaped rather than eliminated.


Encouragingly, the former NSW Treasurer, now Premier, has indicated a willingness to consider all options for policy reform. What then might he consider?

Improved housing affordability will likely exhibit at least the three key features explored above. 

Firstly, affordable housing will be removed from circuits of wealth creation, restoring the primacy of its shelter function. This does not mean that its value growth should be static. Rather, it should be construed to redirect speculative investment to more productive sectors of our national economy.

Secondly, it should be delivered through a variety of systems, including the “for profit” system if it wished, that are genuinely competitive in order to lower prices. 

Thirdly, it should not be accompanied by any regulatory changes that diminish existing spatial standards, as seems to be the current industry push. 

Yet effective policy action seems unlikely

But, will state and federal governments take effective action?

Unfortunately, it seems unlikely. 

Our governments appear to have been systematically rorted, and the broader public interest sidelined, to an extent that undermines any claim to the superiority of our governance at the very time that grotesque autocracies are challenging democracies across the globe. 

Many kleptocrats would blush at the bewildering policy and political chicanery on display in Australia over the last few years – recall the resistance to Royal Commissions into the banking and aged care industries; ongoing revelations of systematic misconduct by casino management; disgraceful state parliamentary behaviours exposed by ICAC, refusal to establish an effective federal ICAC and attacks on state ICAC’s; concealment of suspicious funding allocations behind cabinet-in-confidence provisions; appalling and persistent mismanagement of Australia’s national energy and environmental policies; the rash of NSW apartment building failures following relaxation of developer warrantee obligations; regular disposal of social housing properties to private developers; the Robo-debt fiasco; the mishandling of numerous state infrastructure projects; unapologetic state and federal “pork barrelling”; the systematic spurning of expert infrastructure and related advice; broad hobbling of the public service; persistent deranged backbencher utterances; water resources mismanagement; bungled pandemic management; pointed international shaming over defence contacts; asylum seeker mistreatment; stubborn climate change inaction; treatment of women in our parliament; repeated outright lying; opposition to marriage equality; ongoing indigenous disadvantage; an almost methodical general decline in political integrity; and in some instances, direct jeopardy of our national security.

Perhaps we should not be shocked, given the notorious conservative ambivalence to the whole idea of government; recall Reagan’s “government is not the solution to our problems, it is the problem”? 

If we took the family car to the wrecker for a service, should we be surprised if they tore it apart and sold the bits for profit?

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  1. What a marvelous piece of verbal shuffling . Housing demand is by people numbers and when demand exceeds supply prices will rise. This demand was created by politicians starting with John Howard who tripled immigration with the idea it would cause a growth in GDP and as a result we have a housing crises as well as rampant corruption. Australia’s market is the go to place for money laundering with banks, real estate agents, migration agents , politicians developers all in for a piece of the action.

    1. Don’t agree Don. Not at all. Read the copious amounts of arguments we’ve published as to why housing is not only about supply. It’s a highly complex system. If supply brings down prices, developers stop building immediately. And more mid rise apartment or any other sort are unlikely to be affordable for many people.

      1. Hi Don, Thanks for your comments. A quick question: if immigration is the root cause of our housing crisis (and associated corruption) why did house prices rise an unprecedented 20% across the nation in 2021 (more in Sydney) yet immigration (including student renters) flat-lined during the same period due to COVID-19 travel restrictions? Kind regards, Mike Brown

  2. Excellent piece challenging the status quo and dogmatic assumptions on many fronts. With regards to new thinking on more effective approaches to land, finance, governance and planning standards for more affordable, inclusive and green housing outcomes consider this recent UN report #Housing2030 launched in Geneva a few weeks ago. It also outlines not for profit models of regulation as well as funding and financing in countries where this sector is thriving, such as Austria and Finland. https://unece.org/sites/default/files/2021-10/Housing2030%20study_E_web.pdf Another report on Land Policies also outlines better approaches.
    https://smartland.fi/wp-content/uploads/Land-policy-for-affordable-and-inclusive-housing-an-international-review.pdf As you can guess, I am not so pessimistic – rather more hopeful as I know it can be better and have recently observed about face on neo-liberal policies in the Netherlands, Germany, Ireland, with each country re-establishing more progressive housing policy leadership at the national level. Here’s to that in Australia!