Reserve Bank Assistant Governor gets it right on housing

In her recent address in Hobart, Reserve Bank Assistant Governor Hunter stated that the home building industry is facing a 'perfect storm,' as noted by HIA Senior Economist, Matt King.

"New home building is plagued by a structural undersupply of new greenfield and infill land, inefficiencies and delays in planning regimes, development approval processes, skilled labour shortages, construction cost escalation, and the aftermath of the most rapid interest rate hiking cycle in a generation," King explained.

However, Mr. King emphasized that Assistant Governor Hunter missed a crucial point: the punitive taxes on new housing.

"New housing is one of the most highly taxed and regulated sectors in the economy, akin to the sin taxes on tobacco and alcohol. Taxing housing only leads to fewer homes being built, rising rents, and declining home ownership."

In 2019, the HIA commissioned the Centre for International Economics (CIE) to research the taxation of the housing sector.

The report revealed that in Sydney, only 50% of the total outlay for a new house and land package in a greenfield estate reflects resource costs.

The other 50% comprises regulatory costs, statutory taxes, and excessive charges.

"Any government policy changes to reduce taxation on new housing will significantly benefit housing affordability and undoubtedly boost the supply of new housing," King asserted.

Assistant Governor Hunter correctly identified that major structural causes are contributing to the severe undersupply of new housing:

"Underlying demand for housing, whether people rent or own their homes, is fundamentally determined by the size of our population and the number of people that live (on average) in each dwelling."

This concept, while seemingly self-evident, is still misunderstood by some government agencies.

Hunter also noted that estimates of underlying housing demand range between 260,000 to 320,000 homes per year.

This sharply contrasts with the National Housing Supply and Affordability Council's (NHSAC) finding in its State of the Housing System 2024 report, which puts current underlying demand at around 230,000 homes, moderating to approximately 174,000 in the future.

King remarked:

"The NHSAC fails to accurately quantify and project underlying housing demand, neglecting factors such as real income growth, changing demographic profiles, an aging population, an increasing share of one-person households, increased urbanization, and other elements likely to alter the dwelling mix."

In its "Housing Australia’s Future" report, under various real income scenarios, HIA estimates that Australia's future underlying housing demand ranges from 227,826 to 249,585.

This significantly exceeds the Council's forecast of 'stabilized demand' of approximately 174,000 for 2024-25 and beyond.

"Asst Governor Hunter’s statement that the housing crisis 'will not be a quick fix' is both timely and highly probable," King concluded.

About Joseph Ballota Joseph is a Property Coach who put hundreds of people on the road towards wiping away their mortgage in under 5 years through expert Property Investment Plans.