House prices appear to be moderating by themselves, but where is the government?

The boom in house prices over the past year has caused much pain for young people who have watched the dream of home ownership slip further away. But the report of an inquiry by the House of Representatives’ economics committee, released last week, only confirms there are no easy solutions.

The federal government set up the inquiry last year during a buying frenzy that lifted the average price of a capital city house by 24 per cent in 2021. While the report of the Coalition-dominated inquiry contains interesting recommendations, none is likely to make much difference in the short term.

Credit:Peter Rae

The main policy recommendation calls for reforms to planning laws to make it less expensive and easier to build enough homes in big cities to meet demand. It says more high-density towers should be built close to public transport hubs. Jason Falinski, the committee’s chair, said he wanted to “cut the Gordian knot of oppressive regulation”.

But, as the report acknowledges, decisions on zoning and density rules and the provision of infrastructure are the responsibility of state and local governments. The inquiry found the federal government could still play an indirect role by offering cash to states to encourage them to streamline planning approvals in appropriate locations. The payments would be modelled on the national competition payments used to spur economic reform in the 1990s.

The report says the federal government could also fund the infrastructure such as public transport and schools needed to service higher-density living.

While higher-density housing around transport nodes offers a cheap and efficient way to accommodate growing populations in our big cities, this is a fraught area that federal politicians enter at their peril. They must not undermine the basic zoning rules needed to ensure new development is carefully planned and offers a good lifestyle to residents. Still, in cases when good developments are blocked by irrational NIMBY opposition, federal cash might help.

There are other positive ideas in the report. It encourages states to shift from stamp duty to a broad-based land tax.

One controversial recommendation would allow people to use their superannuation accounts as security when taking out a loan to buy their first home. While this is superficially attractive, its probable immediate effect could be to send house prices even higher by injecting more money into the market. Using superannuation to buy a house also detracts from its main purpose as a source of income in retirement. In the rare cases where someone defaults on a loan, they could lose their super, too.

The ALP did not endorse the report, which it said was rushed for political reasons. The federal opposition’s main housing policy is to set up a $10 billion fund to build about 20,000 social housing units over the next five years. It is a worthwhile plan but it will make only a small difference in a housing market now worth $10 trillion.

For those who have watched the dream of home ownership slip further away, it all seems a little inadequate. Meanwhile, though, the outlook for house prices has changed in a way that could take some heat out of the issue. In the first quarter of this year, prices appear to have stabilised, and economists say that if the Reserve Bank raises interest rates, it will put downward pressure on prices. At the same time, the political focus has shifted to the rise in the cost of living, especially where petrol is concerned.

This is not a signal for politicians to become complacent. The issue of housing affordability and supply will remain of crucial importance to many despite a temporary lull. It is a vital, if vexed, area of economic reform.

Gay Alcorn sends an exclusive newsletter to subscribers each week. Sign up to receive her Note from the Editor.

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