It's Supply, Stupid

Apologies to former US President, Bill Clinton for the phrase manipulation, but today’s blunt headline is a reminder that every other approach to addressing housing affordability is edge-tinkering compared to the central factor - lack of supply.

There has been much discussion about housing affordability in recent times. WA has been least effected compared to east coast states, with home values and rents only just now nudging back to pre-peak levels. Yet, the phrase, ‘rental crisis’ is frequently used by property commentators as a way of highlighting the challenges faced by first-time buyers and renters.

Perth’s median rent for houses and apartments is less than $450 per week, less than it was six years ago. Median house prices are at $525,000, below the 2016 peak. 

Average wages here are higher than they were in 2016 and there are helpful government programs such as the First Home Loan Deposit Scheme that helps first timers into the market with just a five percent deposit. There are $10,000 grants too and stamp duty rebates. There were rent moratoriums for tenants for twelve months in 2020/21. The McGowan government has pledged to provide thousands more social houses and federal Labor wants to build 20,000 new social houses and start a shared equity scheme if it wins government later this month. 

However, adding more housing supply to the market is the surest way to mitigate unaffordability. Demand for housing currently outstrips supply, hence rising rents and house prices. 

Yet, there is no new policy setting (apart from the modest stamp duty rebate for off-plan acquisitions due to end soon anyway) that encourages private investors to buy property that supplies most of the rental stock in the market.

WA property investors remain relatively shy at around 20 percent of all new loan commitments, less than the long-term average of 30 percent and about half that of NSW’s 40 percent. Privately owned properties that are rented represent 27 percent of all homes in Australia.

Yet, there remains a policy imbalance that focuses on social housing that represents only 3 percent of the housing spectrum. The $875m due to be spent on more social housing is necessary but will go nowhere near addressing demand. How about incentives for mum and dad investors to buy and supply affordable homes for rent?

Instead, investors get whacked with high stamp duty and federal tax settings (negative gearing and capital gains taxes) are reasonable, not generous. 

Worse-still, our state government are considering changes to tenancy laws that will further disincentivise private property investment, putting even more pressure on supply. REIWA surveyed over 8,000 property investors about only two of the proposed changes with 61 percent saying they would sell if these changes were made. That should terrify tenants.

Yet, governments seem determined to further undermine private property investment for anti-aspirant ideological reasons that I find hard to understand.