Housing affordability is a perennial issue that seems to be spilling over into the political domain in a way that is more divisive and acute than ever. And as usual, the political class is more interested in sounding like they are engaging with the issue than actually addressing it.

Oddly enough it is the left side of politics that has shown the most interest in the critical supply side of the equation. The Liberals on the other hand appear poised to double down on demand-side solutions by rehashing their ‘super for homes’ policy – as if there wasn’t already enough money flowing into property! Meanwhile everyone else on the right merely points to immigration.  

There is no question that the heart of this issue is the fact that there is not enough housing being built to keep supply in step with demand – I previously hypothesised that more atomised living arrangements could be at least partly to blame, Bob Day suggested land supply was responsible.

Politicians never talk about the amount of misallocated capital which has resulted from government intervention.

There are other problems too – government intervention during Covid brought forward demand and deferred builder collapses, aggravated by inflation of material and labour costs. The affordability of borrowing to buy a house has also tightened – with mortgage repayments rising significantly due to interest rate hikes. 

There has also been a long history of demand-side grants, subsidies, policies and exemptions that have aimed to increase affordability while also maintaining high prices. That’s before we even talk about how much state and local governments rely on higher house prices, particularly via stamp duty and council rates.  

But there is something more fundamental at the heart of the property market – the extent to which government intervention directs investment away from more productive investment involving genuine innovation. Australia is anti-business, and Labor’s changes to stage 3 tax cuts indicate the punitive attitude government takes towards higher income earners. 

Politicians never talk about the amount of misallocated capital which has resulted from government intervention. People respond to incentives – and there is very little incentive to invest in innovation and business, but plenty to invest in property – notwithstanding the current constraints.

The affordability of borrowing to buy a house has also tightened – with mortgage repayments rising significantly due to interest rate hikes. 

Would you start a small business and deal with endless red or green tape, the highest nominal minimum wage in the world, the above median corporate tax rate, and spiralling energy costs? 

Given the government’s policy settings you’d be more likely to buy an investment property, write off the interest payments against your taxable income, and claim a capital gains discount if you decide to flip it or sell up later. Perhaps you’d even build a property portfolio by leveraging equity along the way. 

You’d benefit from the legislative protection of inflated prices that has resulted from real estate becoming such a large pool of private wealth and key source of state and local government revenue. You’d bank on local council opposition to new development, and large public infrastructure projects tying up resources to halt new housing supply coming to market amidst ever growing demand. 

Australian property has become such a safe bet that it is now even a well-known vehicle for international money-laundering! 

Talk of new housing supply, development, upzoning or adjusting the rules around capital gains tax and negative gearing won’t change the fundamentals. Australia is anti-business and anti-innovation. Housing is the only way to get ahead in the lucky country.

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  1. Great Article Max to reinforce your point the Business Council of Australia’s latest report demonstrates Australia is experiencing net capital outflow! Foreign and Domestic Businesses are apparently leaving. In Victoria there were 7500 fewer businesses in January 2024 compared to Jan 2023. So Business has got the message and is leaving. On the housing market couple of extra points I may have missed in your article. Friedman’s crowding out applies here. Huge Government infrastructure and housing projects ramp up prices and force households to compete with the Victorian and Federal Governments. No Surprise plumbers electricians etc earn high pay these days. Secondly the CFMEU ramps up building costs across the entire industry. Labour Governments use Governments contracts to set industry standards. We need to go on the attack. A One person’s pay rise is another job! Note every time the CFMEU gets a pay rise how many ordinary Australians give up on renovations because they are priced out of the market? Lastly the obsession of expanding university places for people who do not want them by Labour Governments in particular has reduced the number of people who go TAFE and hence the supply of people with building skills. The housing market is an A grade example of Reagans dictum. Government is not the solution, it is the problem. Keep up the great work.


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