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Why Big Business Pushes Policies That Limit New Housing Supply

In the midst of Australia’s ongoing housing affordability crisis, it may come as a surprise that influential business groups are actively pushing for policies that would restrict the supply of new homes. A closer look reveals that property developers and other big business interests have a strong financial incentive to limit the pace of new housing construction, even as countless families struggle to find affordable places to live.

The Illusion of a Housing Shortage

Despite common perceptions, Australia actually has more and larger homes per capita than ever before. The sudden emergence of an alleged “housing shortage” in recent years coincides suspiciously with a boom in property prices following the Covid-19 pandemic. As economist Cameron Murray explains, this misinterprets a short-term pricing cycle as evidence of a long-term supply deficit.

Big Business Proposals Fall Short

Lobbying groups like the Business Council of Australia (BCA) have seized on the notion of a housing shortage to advance their own policy agendas. The BCA claims to “say yes to housing” but proposes measures that would do little to directly increase home construction, such as:

  • Spending billions on infrastructure subsidies
  • Removing taxes on property owners
  • Reducing withholding taxes for foreign investors in build-to-rent projects

If the goal were truly to build more homes, a more direct approach would be for the government to finance public housing construction, as it did after the 2008 financial crisis. Ready-to-go housing developments could also be purchased to provide social housing quickly. Yet the BCA’s proposals conspicuously avoid such measures.

Questioning Tax Reforms

Replacing stamp duty with a land value tax is a popular proposal but has drawbacks. Stamp duty acts as an economic stabilizer and reducing it could lead to more renters being displaced when landlords sell. The benefit of tax breaks for foreign investors is also questionable when they are already eagerly investing without them.

Workers and families entering the country to help build homes need more housing than they can build with their own labor. Some suggest importing more trade workers may be designed to reduce construction workers’ bargaining power in times of high demand.

– A confidential industry source

Interest Rates Restrict Supply

An often overlooked factor constricting Australia’s housing supply is the Reserve Bank’s policy of sharply raising interest rates to control inflation. Higher borrowing costs make buying and building homes more difficult and expensive, slowing the pace of construction.

April 2022 June 2024
240,000 homes under construction 220,000 homes under construction
Cash rate raised from 0.1% to 4.35% Mortgage rates tripled to ~6%

The Global Housing Cycle

The current “housing crisis” appears to be part of a global economic cycle rather than a permanent condition. Rapidly rising rents and prices inflict immense hardship on many households which demands an effective policy response. However, removing taxes on property owners and subsidizing infrastructure projects are unlikely to be the best solutions for those who are suffering most.

According to analyst forecasts, natural shifts in inflation and interest rates should allow home building to rebound in the coming years, even without additional tax breaks or subsidies. The focus, they argue, should be on providing direct support to severely impacted households rather than shoring up developers’ bottom lines.

As Australia grapples with a chronic undersupply of affordable housing that has reached crisis proportions, it’s clear that decisive action is needed. However, the public must scrutinize policy proposals carefully to discern whose interests they truly serve. While the idea of a “housing shortage” provides a convenient narrative for advancing certain agendas, the reality is far more complex. Australians who care about equitable access to housing must push their leaders for solutions that will provide meaningful relief to those most in need, not further enrich entrenched interests.