Despite growing consensus Australia’s housing system is broken, it failed to rate a mention in this year’s federal budget. It’s a remarkable oversight given the threat the housing crisis poses to the economy.
Australia faces a shortfall of half a million social and affordable dwellings. Around 35 per cent of Australian renters are in rental stress. Aussie households have almost two dollars of debt for every dollar of disposable income. Home ownership levels among younger people have collapsed, and Australian real estate is the second most expensive in the world. Yet in terms of policies that would boost the supply of social and affordable housing, provide relief for private renters or improve home ownership rates, the budget contained nothing.
Instead, the big-ticket item was relatively modest cuts to personal income tax for low-to-moderate income earners, and the promise of bigger cuts in seven years’ time. While some tax relief is welcome, it pales into insignificance in the face of Australia’s housing crisis. For a median income family, the proposed tax cut of $515 a year would barely cover one week’s rent. It is equivalent to 0.04 per cent of the deposit required to purchase a median-priced home in Sydney. Better than nothing, certainly, but only just.
The omission of housing from the budget is particularly remarkable given the threat out of control housing costs poses to the economy. Households in rental stress inevitably cut back on consumption as do those with heavy debt loads who face the added threat of possible interest rate hikes. Both groups are highly sensitive to cost of living pressures. Any substantial decline in consumption risks sending the economy into a downward spiral as businesses cut costs by shedding staff, thereby reducing economic activity even further. Reduced economic activity has a flow-on impact on tax revenue, increasing the likelihood of additional borrowing to sustain services.
Another consequence of unaffordable housing is a decline in home ownership, which in turn has serious implications for the retirement saving system. The viability of the age pension and superannuation is based on the assumption that by the time people reach retirement age they will have very few housing costs. The decline in home ownership threatens that assumption as more seniors will be stuck renting. This risk is compounded by the fact that today’s historically large mortgages mean more home owners will reach retirement age with large debts and will use up most of their superannuation paying them off, leaving less to cover ongoing living expenses. The result will be more demand for the age pension, and for benefits like Commonwealth Rent Assistance.
As well as impacting household budgets and government resources, a lack of affordable housing can affect social cohesion and productivity. The decline of affordability, particularly in capital cities, is forcing low-to-moderate income workers to move to the outskirts or relocate altogether. Forcing workers to commute long distances to inner city job hubs increases congestion, impacts productivity and brings additional costs to those workers and their families. This process also risks establishing a form of economic apartheid in which low and moderate income households are prevented from living in the communities in which they work.
In 2016 the Commonwealth endorsed the United Nations’ New Urban Agenda, committing to the provision of adequate housing for its citizens. This budget suggests they didn’t mean it.
Housing experts, through the Everybody’s Home campaign, have developed a plan to fix Australia’s broken housing system. At a bare minimum we need a national housing plan and a federal minister to drive it. We can and should be doing more. Right now, we couldn’t be doing much less.
Greg Budworth is group managing director of social and affordable housing provider Compass Housing Services, and vice president of the General Assembly of Partners of UN Habitat.