New Grattan Institute report calls for more housing in inner metro areas

BUILDING an extra 50,000 homes a year for a decade could leave Australian house prices 5 to 20 per cent lower than they would be otherwise, and stem rising public anxiety about housing affordability, according to a new report released last week by the Grattan Institute.

"Within living memory, Australia was a place where housing costs were manageable, and people of all ages and incomes had a reasonable chance to own a home with good access to jobs. But home ownership rates are falling among all Australians younger than 65, especially those with lower incomes," the report writes.

Housing affordability: re-imagining the Australian dream

"Owning a home increasingly depends on who your parents are, a big change from 35 years ago when home ownership rates were high for all levels of income. Those on low incomes – increasingly renters – are spending more of their income on housing."

The report calls on state governments to change planning rules to allow more homes to be built in inner and middle-ring suburbs of cities, with small-scale urban infill projects and denser development along key transport corridors to be allowed 'as of right'.

While the report acknowledges that development in middle suburbs has increased in recent years, it says these record levels of housing construction is the bare minimum needed to meet record levels of population growth driven by rapid migration.

In other areas, the report calls on the Australian Government to address demand-side issues by reducing the capital gains tax discount to 25 per cent, abolishing negative gearing, including owner-occupied housing in the Age Pension assets test, and considering a reduction in the nation's migrant intake.

"It took neglectful governments two decades to create the current housing affordability mess. They preferred the easy choices that merely appear to address the problem," said Grattan CEO, John Daley.

"The politics of reform are fraught because most voters own a home or an investment property, and mistrust any change that might dent the price of their assets. But if governments keep pretending there are easy answers, housing affordability will just get worse. Older people will not be able to downsize in the suburb where they live, and our children won't be able to buy their own home."

Following the release of the report, the Planning Institute of Australia (PIA) cautioned against relying too heavily on populist, supply-side fixes and constant planning-reform interventions.

PIA Chief Policy Officer, Rolf Fenner, said that while governments have an important role in helping people enter the housing market, ramping up the release of new land, setting housing targets, and mandating alternative planning assessment procedures was not the most effective or sustainable way to put housing within reach of more Australians.

"We have to ensure that we as a nation also consider the quality of design, type of product, and the sustainability attributes of the new and renovated housing we build," Mr Fenner said.

Mr Fenner said previous approaches to increasing housing supply had proved counter-productive and resulted in increased levels of substandard quality housing, more traffic congestion, longer commuting times and hardened community attitudes towards increased housing densities.

"Land releases and construction activity in our largest cities has been at record or near record levels for many years. Yet, house prices across a majority of our major cities have continued to track well above wage increases," Mr Fenner said.

"If there is a need for more development along key transport corridors and more medium-density housing in established suburbs that are close to jobs and transport – as the Grattan report argues – then it's crucial these re-developments be properly and expertly planned in both a strategic and place-making sense.

"Otherwise the liveability, overall wellbeing and quality of our cities may worsen. And opposition to higher densities and overseas immigration may continue to grow."

Mr Fenner said many of the 13 recommendations contained in the Grattan Institute Report, particularly those that advocated winding back negative gearing and capital gains tax breaks, were valid.

"PIA has long argued that land subdivisions and speculative housing investment fuelled by tax incentives can, and do, lead to poor planning outcomes. We also appreciate the Grattan Institute's call for an explicit population policy," which Mr Fenner said should be in the form of a national settlement policy.

More information about the report, 'Housing affordability: re-imagining the Australian dream', is available from the Grattan Institute website at <>.

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