Give councils cash to help bring down housing prices: think tank

Local councils would get money directly from the federal government as a reward for approving more and higher-density housing under a proposal to help poorer and younger Australians get a foothold in the property market.

Centre for Independent Studies chief economist Peter Tulip said turning the federal government’s controversial Urban Congestion Fund into a program to financially support councils dealing with increasing population densities would be one way to take pressure off housing prices in major cities.

Councils should receive payments to boost densities in sought-after areas, according to CIS chief economist Peter Tulip.Credit:Peter Rae

A report by the Organisation for Economic Co-operation and Development (OECD) on Thursday showed one of the biggest falls in the developed world in home ownership by younger and poorer Australians. Between 1981 and 2016, home ownership among 25 to 34-year-olds in the bottom 20 per cent of income earners dropped by 40 percentage points.

The OECD found ownership rates had fallen across every generation for several years, but in every case, people on lower incomes had suffered the most.

While the report focused on the impact of tax policies on housing, it found the biggest factors were the lack of housing supply – particularly in major cities – plus the step-down in global interest rates since the 1990s.

Tulip, a former Reserve Bank economist, said it was clear a lack of supply in areas where people wanted to live was the leading cause of higher house prices.

He said finding incentives for councils and state governments to improve infrastructure and build more houses would take pressure off prices and enable people to live where they wanted.

“A big problem is NIMBYs who don’t want more people living where they live. That stops other people, living in another part of the city, moving to that suburb,” he said.

“Just about every complaint about increased densities or more homes has people complaining about increased traffic, congestion, more people in local parks. That can be dealt with.”

Tulip said the Urban Congestion Fund, which was created by the former federal government and came under fire for directing cash into marginal electorates, could have its mandate changed.

Councils could get paid up to $25,000 per completed house within their area from the congestion fund to improve local infrastructure or amenities.

Grattan Institute economic director Brendan Coates agreed supply was the overwhelming problem facing younger people.

He said much of Australia’s unmet housing demand of recent years had been “hidden” as people lived in bigger households than they wanted.

Between 1966 and 1996, the number of people per household fell from 3.5 to 2.6. But the decline had since stalled, with younger Australians starting households later. This was most pronounced in the nation’s most expensive cities.

“The simple fact is we have not built enough housing to meet the needs of Australia’s growing population. Among developed countries, Australia has had the second-biggest decline in housing stock relative to the adult population in the 20 years leading into COVID,” he said.

“Australia’s land-use planning rules are highly prescriptive and complex. The politics of land-use planning – what gets built and where – favour those who oppose change. But change is desperately needed.

“Australia can and should follow the lead of other cities around the world by building more houses to arrest this crisis. If we do not build enough houses to keep up, we will be poorer for it.”

Coates said inequality would grow, with communities segregated between housing haves and have-nots, if more homes were not built.

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