While housing has finally become an election issue, neither major party is treating the issue with the urgency it demands. The price of housing affects the life of every Australian on a daily basis. While abstract economic figures can feel detached from reality, the impact of them is felt in a very real way by our family, friends, and neighbours. Young couples I have talked to have the choice of purchasing a house now and delaying having children, or having children and potentially locking themselves out of the housing market for a decade (or more). Rental prices are also increasing sharply in NSW, putting immense pressure on the vulnerable in our society. Our whole society benefits from everyone having access to affordable and stable and without it we are not in a position to thrive. 

While it seems like rentals haven’t yet followed housing’s decades long trend of significantly increased prices, recent rent increases in regions of NSW have been concerning. Rents in Sydney have increased 28% from $585 in February 2020 to $753 in February 2023, while in many parts of NSW rents have increased 10-15% in this year alone.  Vacancy rates are also still low and international students are also returning to Australia (which is great), both of which will put a further strain on our housing market. While buying a house is optional, having a roof over your head isn’t and renters can be vulnerable to price changes. The consequences of this are painful. For some this may just involve household budget cuts. For others it may involve a dislocation from their support network as they are priced out of their community and forced to live further away from friends and family. For some, however, rent pressure may cause homelessness. While a few people benefit from higher rents, they are a terrible thing for our society as a whole. 

Buying a house still remains unreachable for far too many in our society, despite some recent price drops. According to the ABS, in NSW the average dwelling price in the September 2022 quarter was $1 125 600. The median house price in Sydney was $1 200 000 and $775 000 in the rest of NSW, while the median price for an attached dwelling was $745 000 in Sydney and $680 000 in the rest of NSW. The wages Australians are earning simply do not match these valuations. Making the generous and in many cases unrealistic assumption that a worker could save a healthy 20% of their post tax income per year, it would still take a full time median wage worker 12 years and a minimum wage worker 18.5 years to save a $140 000 deposit for a 700 000 house.* This is without even thinking about paying the rest of the 80% mortgage off. Even were prices to drop 20-50% from today’s levels, buying a house would still be an unrealistic dream for many Australians. 

While there are several underlying drivers of the problem, prices are set by supply and demand and there is a fundamental supply/demand imbalance that has developed over many years. The best way to fix the housing crisis long term is to fix this. You have to decrease demand, increase supply, or do both. Given that our ability to reduce demand is limited, the main answer is more housing.

Given this crisis, what are the Government and Opposition planning to do? Both parties have recognised the issue, but are not addressing it with the urgency and scale it demands. Many of their policies are helpful at the margins, but do not sufficiently address the structural problem of the imbalance between supply and demand. We’re unfortunately going to have to get into the weeds, so if a detailed discussion about tax reform isn’t your thing, you may wish to skip the next four paragraphs. 

Much of the effort in discussion from both parties seems to be about reforming stamp duty/transfer tax, which is a significant tax paid when you buy a home in NSW. The Liberals are currently waiving stamp duty for new home buyers buying houses costing up to 650k (with a concessional rate up to 800k) , and offering a “First Home Buyer Choice” between paying stamp duty or incurring an annual fee for homes between 650k and 1.5 mil. The ALP for their part wants to abolish stamp duty for new home buyers. These policies aren’t really that different. A stamp duty waiver is effectively a new home buyers grant by another name and the “First Home Buyer Choice” functions similarly with the upfront cost, though has an ongoing payment. It’s reasonable policy and potentially helpful for new homebuyers, but doesn’t address the underlying issues and may actually increase prices by allowing new buyers to spend more.  

While not committing to reform at this election, the Liberal party long term appears to wish to drop stamp duty for an ongoing tax on the value of land. Abolishing stamp duty is a sensible reform as the tax hinders people from easily moving to a house that better suits their needs. For example, a growing family may wish to move into a bigger house, while an older couple whose children have moved out may be living in a large house with several bedrooms spare. In both of these cases, stamp duty taxes this process to make it more expensive.  Removing stamp duty will thus allow families to move more easily and hopefully ease the  supply/demand imbalance as larger dwellings house more people on average. 

The significant revenue generated by stamp duty would of course need to be replaced by another tax. Whether a different tax would be preferable to a land tax is an open question, but our initial research suggests that a land value tax is preferable to stamp duty. We would like to see the NSW Government commit to abolishing stamp duty with a timeframe for implementation and would call on the opposition to show courage by not running a scare campaign against the reform. 

While a complex and sensitive issue, we should also note that current pension rules that test assets can also help prevent downsizing. The issue here is that pension asset tests often don’t include the family home, but surplus money generated from the sale of a family home is counted. This means that those selling their house to buy a cheaper home may have a reduced pension or lose it entirely, which is obviously a strong disincentive to downsizing. This is a federal issue and we should also note that the Federal Government is taking some steps to address the housing affordability issue, which we won’t discuss in detail here. 

The Liberal party also has a mixed suite of other housing policies. They have a shared equity scheme that would allow workers normally unable to access a home loan to purchase a house alongside the State Government with only a 2% deposit. Allowing buyers to purchase with a 2% deposit is reckless and exposes them to a very significant risk of owing more than their house is worth. We have previously warned about the risk of negative equity here and note that recent house price drops mean that some Australians likely already have negative equity. On a positive note, the Liberal party is also running an accelerated infrastructure fund and generally appears to be trying to fast track zoning applications. This is a good policy that will help increase housing supply to the market, though we question whether this scheme is large enough to meet the pressing needs. On the rental front, the Government also states they are improving social housing. We see this as positive, but doubt that their initiatives will significantly reduce the huge wait lists for public housing. The Liberal party seems to have recognised the problem of housing, but their initiatives lack the urgency and scale required to address this crisis in an acceptable amount of time. 

The ALP also appears to be seeking to undertake various legislative reforms designed to improve and streamline the increasing housing supply in NSW - see here and here. These reforms seem generally positive, but it is difficult to judge their eventual impact. One policy of note is that the ALP appears to have promised to fund 30 million worth of new housing as a part of a pilot build to rent program. We welcome this initiative, but note that it is but a drop in the ocean compared to the major housing crisis that NSW is currently undergoing. The ALP is taking steps in the right direction, but without the urgency that this crisis demands.

With regards to renting, the ALP appears to be trying to improve the experience of renting and strengthen the rights of renters - see here. They seek to do this through a system of transferring bonds, appointing a rental commissioner, and by making it easier to have pets. We are broadly supportive of these changes provided that landlords are sufficiently protected from the risk of bad tenants. 

While concerned with the implementation, we would like to make a shout out to the Greens who in their housing policy have acknowledged the scale and urgency of this problem.   Their policy is complex and we won’t analyse it in detail in this article. Generally speaking, we are broadly supportive of changes to protect renters (provided landlords are also protected) and agree that significant additional social and affordable housing is required. The concerns we have with their policies are mostly around negative market impacts. An example of this is the rent freeze that the Greens advocate for. While sounding great and undoubtedly popular with renters, rent freezes or caps are a terrible idea because they strongly discourage investment in creating additional housing, thereby making the problem worse long term. Overall, however, the Greens appear committed to affordable housing and there are some initiatives to address the supply/demand imbalance. 

While both major parties appear to be taking steps in the right direction, their solutions lack the urgency and scale to adequately address our current housing crisis. This crisis is impacting the lives of renters and potential homebuyers across NSW. While we wait for change, people are unable to afford rent, facing dislocation from their communities, and generally struggling. We can do better. 

*The pretax minimum wage in Australia is approximately $42255 a year, while the median hourly earnings was $37.3, which full time equates to approximately $73 719.32 pretax https://www.abs.gov.au/statistics/labour/earnings-and-working-conditions/employee-earnings/aug-2022 . If tax is approximately $4570 and $14425 respectively (let’s ignore the medicare levy), this comes out to be approximately $37 685 for a minimum wage worker and $59 294 for a median wage worker. Assuming that each of these workers could save 20% of this income, this would be $7532 and  $11859 per year.