Not enough houses still the crux of the affordability problem

TOO few homes continues to be the major issue confronting housing affordability, according to the Housing Industry of Australia.

The latest HIA Housing Affordability Report shows affordability fell by 4.5 per cent in the March quarter, with more than 1.8 average incomes now required to service a typical mortgage nationally, the worst result since HIA began measuring affordability in 1994.

“Australia’s housing affordability problem is caused by too few homes,” HIA chief economist Tim Reardon said.

“The latest interest rate increases have reduced borrowing capacity but the underlying driver of poor affordability remains that housing supply has failed to keep pace with population and economic growth.”

Reardon said the Affordability Report also highlighted why recent changes to housing taxation and self-managed superannuation (SMSF) fund borrowing arrangements should be carefully reconsidered.

“The Australian Government has acknowledged, and made public, that the changes to negative gearing will reduce housing supply over the coming decade by around 35,000 homes,” Reardon said.

“It has now introduced another measure that restricts another source of private capital used to finance new housing, yet no assessment has been released showing what this will mean for future housing supply.”

Media reports have stated that Treasury has advised parliament that around 4300 new SMSF limited recourse borrowing arrangements were entered into during 2024.

“That figure does not tell us how many homes depended on those investors for projects to proceed,” Reardon said.

“The loss of one source of investment can affect far more than the individual dwelling ultimately purchased.

“People create demand for housing. Investment creates supply.”

Reardon said SMSFs do not create additional demand for housing because they do not live in the homes they help finance.

“They provide another source of capital that allows new homes to be built,” he added.

“Home prices aren’t high because there are too many investors at weekend auctions. This is a symptom of the housing shortage.

“Rents aren’t rising because there are too many investors owning homes. This, also, is a symptom of the problem.

“To understand the underlying problem, it should be considered that Australia is attempting to accommodate approximately 11 million households in just 10 million homes.”

Reardon added that what improves affordability is increasing the number of homes available.

“Policies that reduce the amount of capital available to build those homes risk making affordability worse,” he said.

“The government has modelled the adverse impact of the negative gearing reforms on housing supply and should provide the same level of transparency on the impact of restricting SMSF investment. 

“This analysis should include the adverse impact of this change on state government revenues, which are likely to be negative.

“If Australia is serious about improving affordability, every housing policy should be assessed against one simple question: will it result in more homes being built?”