And in more detail...

It's not news that housing affordability, rental stress, and homelessness have become big problems in Australia. There is a litany of factors contributing to the current crisis — from not having enough housing stock, pressure on the available stock due to increases in immigration (see the Good Party's Immigration policy), artificial levers like a halving of the capital gains tax and the ability to negatively gear multiple properties, and so forth. The bottom line is that the available housing stock has been priced out of the reach of too many Australians primarily because, for a broad cross-section of the community, home ownership has become a means of creating wealth rather than essential shelter.

The Aussie Dream has become a Ponzi scheme

Australian federal and state governments have long appreciated the benefits to the economy of home ownership. When homes are built or renovated, an army of tradespeople is employed to do the work. Once the job is done, fridges, couches, washing machines, driers, and other household items are often renewed. During a housing boom, the activity this generates is great for the economy. And it suits almost everyone's purpose, from property owners to governments, for the boom to be never-ending. When the mood in the housing market is good and interest rates accommodating, the value of the property increases, boosting the homeowner's wealth. The homeowner may then buy an investment property using the increased value of the newly purchased/built/renovated premises, and the cycle starts over.

When house prices rise, as they have done across Australia for most of the last 30 years, the property's value increases even if it falls into disrepair. As a result, much of Australia's domestic wealth, the wealth of Australians, is generated by rising property values, which induces more investment in properties, boosts house prices, and the land tax revenue collected by state governments. And so the housing "Ponzi scheme" continues.

The losers in Australia's collective obsession with real estate investment are those who can't afford the ever-increasing exorbitant cost of buying into the market. There is little alternative other than to rent. And if they can't afford the rent, they can become homeless.

When house prices rise, as they have done across Australia for most of the last 30 years, the property's value increases even if it falls into disrepair. As a result, much of Australia's domestic wealth, the wealth of Australians, is generated by rising property values, which induces more investment in properties, boosts house prices, and the land tax revenue collected by state governments. And so the housing "Ponzi scheme" continues

At the last official count^[1], 116,427 fellow Australians indicated they were homeless — sleeping in homeless shelters, sleeping rough, or sleeping in their vehicles or on the couches of friends and family. Some are grandparents, some are children, some are single mothers, and some are mentally disabled.

Homelessness, or staring down the barrel of it, is a frightening fact of life for too many Australians living in one of the world's wealthiest OECD nations. This isn't right. Every Australian must have access to available, affordable housing. So how do we make that happen? Create structural change while not being intimidated by innovative solutions. Read on...

Negative gearing and capital gains tax concessions — a restructuring to rein in house prices

House prices in Australia really started to jump in 2000 when the Howard government halved the capital gains tax for property investors. Coupled with negative gearing, which allowed people to reduce their income tax by offsetting their losses in property investment, investors naturally saw this as a way to own multiple properties and have their income tax pay for it. The long-term result has made housing in Australia among the world’s most expensive, helped push rents into the stratosphere, and led to taxpayers funding subsidies totalling $27 billion.

The great Australian dream of home ownership has become the great Australian tax dodge. And the mean house price, which up until 2000 was roughly three years’ wages, is now nine years’ wages.

At first blush, eliminating negative gearing and the capital gains tax concession in their entirety would seem like a solution. But then, the argument goes, this would remove investment from the market, and even fewer new homes and apartments would be built.

But there is an elegant solution. End negative gearing and capital gains tax entitlements on existing homes but allow these entitlements on new properties

But there is an elegant solution. End negative gearing and capital gains tax entitlements on existing homes but allow these entitlements on new properties. This would encourage investment in new housing stock while discouraging investors from competing with owner-occupiers in the purchase of existing properties. An immediate effect of this change would be the stabilising of prices on the majority of properties going under the hammer. And investors could still make money from housing by getting into the construction of new rental housing 

One political party has the backbone to do what we all know has to be done. The Good Party will “grandfather” the existing rules governing negative gearing and capital gain tax concessions and modify them to encourage the building of new homes for the rental market and reduce housing price pressure.

Limiting home ownership to citizens and permanent residents

It may surprise you to learn that anyone can buy a new home or land in Australia (as long as they intend to build a home on it). And why wouldn’t they want to when it’s such a great place to live, AND lots of money can be made investing in housing? At the Good Party, we think homeownership should, first and foremost, be about shelter for the people who actually live here. So we will also move to make the minimum standard for home ownership in Australia that you be a permanent resident domiciled in this country.

A commitment to increasing the nation's housing stock

We've all heard that for the pressure to be relieved on housing availability and affordability, there needs to be a commitment to increasing affordable housing stock to take the pressure off demand. This isn't something that can be left entirely to the market, although the market can play a significant role in the solution.

The current Labor federal government has announced two housing initiatives. The first is the Regional First Home Buyer Scheme, where the government will guarantee up to 15 percent of the purchase price for eligible first-home buyers. And the second is the Housing Future Fund, which aims to use the returns on $10bn to underwrite the construction of 30,000 "social housing properties and affordable properties." After a decade of neglect, the Good Party agrees that these initiatives are welcome, but some important details still need to be included. For example, federal Labor says that 10,000 affordable homes will be built for frontline workers — police, nurses, and EMTs. But where will these affordable homes be built? The problem many people in these jobs find is that they can't afford to buy a home in the suburbs even close to where they work, especially in the capital cities.

Funding 100% mortgages for frontline workers

The Good Party's unique strategy would allow the government to fund 100% of the mortgage for these frontline workers with little imposition on the federal budget. To begin with, the states would be asked to waive stamp duty to make the program a joint federal-state initiative. Next, the federal government would lend prospective borrowers the total cost of the property on an interest-only basis^[2]. These mortgages would then become assets on the national accounts and, therefore, would not add to the nation’s net debt. Finally, the additional interest cost of these loans to the government would be offset by the borrowers’ repayments.

With this strategy, the government could conceivably cover the mortgages in a budget-neutral way for thousands of frontline workers who don’t currently own a home. And it would provide the flexibility of buying a home near their workplace.

With this strategy, the government could conceivably cover the mortgages in a budget-neutral way for thousands of frontline workers who don’t currently own a home. And it would provide the flexibility of buying a home near their workplace

And a significant additional benefit of this initiative — staff shortages in areas like nursing would likely evaporate if the job came with a cheap, clear pathway to home ownership.

The normal credit checks would apply to ensure the borrower could afford the payments. And the loan would only apply to those who had maintained employment for a period of, say, two years. There would also be a cap on the loan, limited to the median house price of the area in which the property is purchased when the loan is issued[3]. If the worker left their job, they would be given an acceptable period to have the home refinanced by a retail institution. If the property were to be sold, the homeowner would keep 100% of the capital gain.

A scheme like this has appeal when property values are rising, but what happens in a falling market where the owner could conceivably owe more on their property than the property is worth? Experience has taught the banks to ride out these circumstances until the market turns around, as it inevitably does. The government would follow this example. As for the owner, a home is not something readily walked away from when the going gets tough. Like the banks, homeowners in this situation tend to hang on until the situation improves.

Making the investment in affordable housing stock viable for institutional investors

Another "fix” the federal government should investigate is convincing the states to start calculating land tax in such a way as to make investing in housing more attractive to superannuation funds. Currently, land tax is calculated on the combined value of the properties owned by a landlord, the rates charged progressively, and with healthy tax breaks. This works for an investor with one, two, and perhaps three properties but would heavily penalise a fund that owned a large portfolio of properties (100 properties owned by 100 individual investors attracts far less land tax than would 100 properties owned by a single investor).

A super fund with many homes in a portfolio would be more willing to offer longer leases than a "mum and dad" investor while being more mindful of jumping on maintenance issues to maintain the value of the investment on behalf of its fund members. And, of course, being known as a “good landlord” would do wonders for the fund’s reputation in a market where many super funds are investing in affordable housing.

A super fund with many homes in a portfolio would be more willing to offer longer leases than a "mum and dad" investor while being more mindful of jumping on maintenance issues to maintain the value of the investment on behalf of its fund members. And, of course, being known as a “good landlord” would do wonders for the fund’s reputation in a market where many super funds are investing in affordable housing

We think too much about land and not enough about space

Land availability, or lack of it, is often cited as one of the reasons for soaring house prices. This is especially true in Sydney, which is constrained by natural borders. But, with a little lateral thinking, there is an enormous amount of unexploited space available. But while land might be limited, the same can't be said about space because there is plenty of it if the problem is viewed laterally.

There is the space over railway lines, for example — literally hundreds of kilometres of it. This currently vacant space can be made use of to solve our need for urban housing and other infrastructure. Plenty of other cities around the world, such as Tokyo, New York, and Calgary, utilise it to help solve their housing needs. We should do the same.

State governments could release the above-train-line air spaces, preferencing investors such as super funds seeking to build a mix of affordable rental, owner-occupied, and social housing. This could be made especially attractive to investors and builders by allowing the sale of half of the development to individuals. The other half of the development would be offered to institutional investors like super funds (assuming suitable adjustments have been made to the land tax regime - see above) on the proviso that it’s reserved for a mix of affordable rental, owner-occupied, and public housing.

And perhaps in the distant future, when all available space is gone, we might think of using the machinery that creates our underground expressways and train lines to tunnel vast underground communities.

Land availability, or lack of it, is often cited as one of the reasons for soaring house prices. This is especially true in Sydney, which is constrained by natural borders. But, with a little lateral thinking, there is an enormous amount of unexploited space available. But while land might be limited, the same can't be said about space, because there is plenty of it if the problem is viewed laterally

The five-Year Residential Renting Lease

In Australia, 2.9 million households out of a total housing stock of 9.8 million dwellings are renters^[4]. That's 31% of Australian households, a significant number. Governments have worked hard to get us to own our homes, but they’ve largely ignored people who don’t. Because of this preference, almost anyone who rents will tell you they feel exposed. Very little is in place to protect renters from high rental increases, poor or no maintenance, the threat of eviction, and so forth. With interest rates on the rise, there's anecdotal evidence that renters are given two letters from their landlord — one is a rent increase, and the other is an eviction notice. The renter is given no choice other than to pick one.

The Good Party wants renters' rights firmly on the national housing affordability agenda. One option would be the promotion of five-year leases. What could be in it for the landlord offering such a long-term lease?

• no land tax on that property
• the tenant pays for all repairs and maintenance
• annual rent increases tied to whichever is the lessor, the CPI or WPI (National Wage Price Index)
• guaranteed uninterrupted income on the property
• a bond of two month’s rent

What’s the advantage for a renter on a five-year lease? Security. The property owner would only be able to break the lease subject to negotiation (with the tenant). The tenant, however, would be permitted to end the rental agreement with, say, three months’ notice. There would have to be a penalty for this to discourage it — for example, the bond goes to the homeowner.

Another advantage would be predictable rent increases, which could be offset against any agreed improvements to the property undertaken by the renter.

As for the bond, it’s about time the states paid a fair interest on this money, which they can often hold onto for years. Queensland, Victoria, Western Australia, NT, ACT and Tasmania, for example, pay no interest at all on this money. In the remaining states, the interest paid is substantially below market rates.

Adding the weight of the law to a landlord's "obligations"

As described by state departments like NSW Fair Trading, landlords have "obligations" and "responsibilities." However, without legal protections for tenants, there's no meaningful pressure on landlords to provide a property to rent that's fit to live in. Or perhaps the residence started its rental life in reasonable shape, but after a number of years of use and no repairs undertaken, the abode has become less than liveable.

There have to be legal consequences for recalcitrant landlords who refuse or stall to provide housing that's habitable by reasonable standards. Perhaps it should be a percentage of the rent paid by the tenant reimbursed and/or the property removed by law from the rental market until repairs are completed

All too often, there are reports in the media about landlords who refuse to undertake reasonable repairs, preferring to end the lease, often on spurious grounds, because the rental crisis means there'll always be someone who'll lease the property no matter what its condition. And often for more money simply out of desperation. Enough! There have to be legal consequences for recalcitrant landlords who refuse or stall to provide housing that's habitable by reasonable standards. Perhaps it should be a percentage of the rent paid by the tenant reimbursed and/or the property removed by law from the rental market until repairs are completed. 

While these are matters for state governments, the rental crisis is national, and it deserves a whole-of-nation response. The Good Party would propose convening the national cabinet over this issue.

A National Rental Ombudsman

What is clear is that there needs to be a National Rental Ombudsman who can adjudicate the issues between tenants and landlords. With the pressure on rental accommodation availability at breaking point and tempers flaring, the appointment of an ombudsman at the national level is well past due. 

The Vacant Residential Property Tax 

Also contained in the 2021 Census was the startling news that fully 10% of all dwellings in Australia are unoccupied. That's 1,043,776 homes. Meanwhile, the national rental vacancy rate is at an alarming low of just 1%. Perhaps there is a solution to the housing stock shortage in plain sight — taxing homes left vacant or untenanted for more than six months of the year. The purpose of such a tax would be to encourage owners to make their property available for purchase or rent, thereby taking some pressure off the housing and rental markets.^[5]

The imposition of a tax, especially a new tax, is never welcomed. Still, The Good Party would call for a significant vacant dwelling tax (VRPT) to be imposed nationally. Any revenue generated by a tax like this would then go toward underwriting further initiatives proven to alleviate homelessness.

Together with legal obligations for landlords, a Rental Ombudsman, and the establishment of a VRPT, renters would be far less exposed to the uncertainties of the market.

[1] 2016 Australian Census

[2] The federal government can borrow money for this scheme at an unbeatable rate and pass that rate on to borrowers

[3] The median house price in Sydney at as October 2022 is currently $1.26 million

[4] 2016 Australian Census

[5] The Victorian state government introduced a limited version of this – the Vacant Residential Property Tax (REIV) for certain residential suburbs of Melbourne.