POLICY

Housing affordability impacts industry

Diana Dajcman, Policy Advisor

Master Builders Victoria (MBV) has continued to see housing affordability as a long-standing issue that deeply affects our industry. Amongst the chaos of COVID-19 and lockdowns, the topic of housing affordability has seen some renewed attention, as house prices continued to climb by 15.6 per cent in Melbourne and 20 per cent in Geelong in the year to August 2021. Upward trends on prices pressed the House of Representatives Standing Committee on Tax and Revenue to conduct an inquiry on Housing Affordability and Supply. Master Builders Australia provided one of the 147 submissions. Property prices were expected to decrease as international and state borders closed due to the spread of COVID-19. Alongside this, for the first time in 28 years, Victoria experienced a population decrease of nearly 43,000 people over the year to March 2021. As well as a population decrease, there has been a shift in preferences towards larger living spaces and neighbourhoods out of cities as people started spending more time at home. Increases in house prices are a consequence of having inadequate housing supply for years. Growing populations, employment, and incomes create greater demand for housing. In addition to this, Government incentives and low mortgage interest rates play a role in further saturating the market as more Victorians purchase their own home. While demand for housing can increase significantly over short periods, new housing supply usually responds to these changes very slowly. Victoria has been unable to match supply with growing demands for housing for a variety of reasons. New home building is incredibly costly, so developers and builders are unlikely to proceed if conditions seem too risky. Government regulations on costs and availability of land, zoning and planning arrangements make producing new homes difficult. As a result, only a fifth of total housing supply has been built in the last 10 years, and nearly two-thirds of total homes in Victoria were built over 20 years ago. The mismatch between supply and demand relates to various factors such as the number of dwellings, the types of dwellings, amenity, and location. This highlights that our current restraints in the supply of new homes are placing a massive burden on the price of housing. According to the Grattan Institute, homeownership rates among 25 to 34-year-olds fell from more than 60 per cent to 45 per cent between 1981 and 2016 in Australia. For 35 to 44-year-olds, ownership fell from 74 per cent to 62 per cent in the same period. This suggests that falls in homeownership reflect higher dwelling prices than changes in preferences in younger age groups.

Impact of regulation and taxes on housing affordability

Master Builders Australia submitted a paper to the Housing Affordability and Supply Inquiry conducted by the House of Representatives Standing Committee on Tax and Revenue. Their submission investigated the role that regulation and tax play in housing supply and affordability. Regulations such as limitations on land and restrictive planning laws are the major causes of shortages in land and the supply of homes. These regulatory processes should be navigated to bring new housing into the market. Fees and charges throughout this process add to the cost of supplying new homes. Currently, the ongoing changes to the National Construction Code (NCC) and regulations for outcomes such as accessible housing and energy efficiency are adding to the cost of housing. Most businesses in our industry are small, with 69 per cent operating as sole traders and 30 per cent hiring less than 20 employees in Victoria. This means that most businesses will not have the resources to adequately deal with a raft of regulatory changes unless the pace of change is slowed down. MBV has been continuing to advocate for greater transition periods for changes within the 2022 NCC. Higher costs in building homes will negatively affect the building and construction industry as fewer people will afford to build new homes. Housing is an easy target for government taxation revenue due to the immobile nature of land and dwellings. These taxes can end up inflating the cost of creating new homes. Taxes on incomes and industries also places upward pressures on building material costs, prices, and the supply of homes. In the case of the residential building industry, some of the most significant taxes include the Goods and Services Tax (GST), stamp duties, land taxes paid by developers and builders, local government rates, payroll tax, levies applied during the development and building process and developer contributions. When it comes to housing, invisible taxes which are not directly paid by building and development also influence the costs of building new homes, such as taxes levied on the cement industry. Master Builders Australia recommended in their submission that the set of taxes imposed on housing throughout the

build needs to be investigated. Stamp duty tax is an example of government taxation that puts additional financial burdens on the housing market. When households are faced with a stamp duty tax, they cannot freely down or upsize their homes or move to another location for school or work. This places additional pressure on our industry as existing homes are not being allocated efficiently to our population’s needs. MBV argues that taxes with the most detrimental impacts on housing affordability should be immediately frozen to reduce their long-term burden substantially. The economic benefits of housing affordability go beyond the obvious benefits to those renting or intending to purchase a home for the first time. Fewer costs in moving homes will create greater mobility for labour markets to fulfil job vacancies, reducing the risk of trade shortages. If housing costs were significantly reduced, wage demands would soothe, which would provide Australia with the opportunity to be economically competitive internationally. This would mean more international investment and greater international demand for our goods and services. The issue of housing affordability is complex, with considerable variation across geographic markets, time and circumstances facing individuals, families, and households. MBV believes that the best affordability outcomes result when new housing supply can be delivered as quickly and cost-effectively as possible.

Master Builders Analysis of ABS building activity and Residential Property Price Indexes

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