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Overview of housing system in Australia

Discusss about the housing Policy Issue of Australia.

Housing policy refers as government action to obtain housing objectives in a country. These objectives consider the development of housing quality along with stock of dwellings and dealing with insufficient homes for people. Thus, housing policy chiefly considers the condition and supply of the housing stock (Tighe, Hatch and Mead 2017). Housing affects the welfare system of Australia, especially in urban areas as well. The Commonwealth Government takes responsibilities to implement these policy levers for controlling housing demand. On the other side, state, territory and local governments take responsibilities to control housing supply based on policy levers (Beer et al. 2016). At present, the country has experienced insufficient supply of houses and consequently housing prices gave increased significantly due to excess demand in some well-known urban areas like Sydney and Melbourne.  

This report intends to focus on housing policy issue of Australia through explaining recent government responses. Moreover, this report will discuss about potential policy options based on which further recommendations can be provided.

Housing policy of the Australia government tries to find reasons regarding housing market failures and welfare benefits of home ownership. The government of any country tries to adopt normative policy goal to provide adequate and appropriate houses by sufficient number to meet present and future excess demand. Main elements of housing policy in Australia are divided under three heads, which are, commonwealth, states and local (Gurran and Ruming 2016). Commonwealth government applies macroeconomic policy, industry policy and Commonwealth State Housing Agreement (CSHA) to fund the states and territories. State government considers public housing authorities, assistance to income buyers, public rental housing, planning and consumer protection. On the other side, local government applies zoning, advocacy and local affordable housing programs. Housing market has some exclusive features for which policy makers provide special focus on affordability and supply of houses for people of any income group.  This specified market is different from markets of other products, as houses cannot be moved from one place to other. Moreover, this expensive and durable item takes long time to produce for which increasing supply of houses by large number within short period is not possible. Housing market in Australia is divided into various segments, based on degree of substitutability, dwelling characteristics, tenure and location. Moreover, tenures for houses are of two types that are rental and home purchase. A person in Australia either can rent a home or can purchase one (Bentley et al. 2016). Demand side factors that can influence a person to take rent or purchase a home are demographic change and other economic factors like income of the consumer, bank interest rates and so on. On the other side, supply of houses depends on availability of land, potential profit and construction costs.

Chief issue related to housing policy

In Australian housing market, structural changes have restricted people from accessing owner-occupation for first homebuyers in urban areas and consequently lower income households experience rental stress in the private rental market. Hence, policymakers have addressed challenges to ensure access of housing affordability for each person. To do this, understanding of excess demand for houses and excess pressure on government for creating houses have become an important issue. For the past few centuries, private sector has dominated housing system of Australia. Housing policies after the post-war period has supported to grow home ownership based on the tenure of choice (Dufty-Jones 2018). Moreover, public houses have provided lower income households a long-term alternative affordability. On the contrary, private rental housing has supported mobile and young households. Global trends of housing demand have increased significantly between the periods of 1980s and the starting period of global crisis in 2007. The chief reasons behind this increasing housing demand are increase in real income of households, decrease in nominal interest rates and growing capacity for borrowing among people. The housing market condition in Australia has been exacerbated due to excessive population growth and this in turn has increased demand for houses. Hence, increasing demand but stagnant supply of houses has led the housing prices in this country to increase further compare to the household incomes (Gurran 2018). As a result, access of home ownership among first buyers has reduced significantly.

 

Figure 1: Population growth in Australia

Source: (Tradingeconomics.com. 2018)

At present, Australia is experiencing shortfall of affordable homes by more than 2000000. Hence, to fix this issue, a national strategy is required. In New South Wales, more than 60000 households are waiting for social and affordable houses (Tradingeconomics.com. 2018). However, the state has not constructed new dwellings presently. Most of the dwellings are constructed between 1990 and 1995 compare to 1995 and 2010.

At present, South Australia, Western Australia and Australian Capital Territory have adopted effective housing plans that the commonwealth government can follow. South Australia has created 5485 affordable houses between 2005 and 2015 through implementing planning. However, this policy requires new developments to give a certain percentage of incentives or affordable houses. According to this scheme, SA can supply 17% new houses to people. The Western Australia has also taken housing strategy in 2010 to supply 20000 affordable housing policies until 2015 (Saberi et al. 2017). In New South Wales, the state government has developed a scheme to provide only 2000 affordable rental houses in Sydney (Morris 2017). These inclusionary planning rely on private development and for this the government can give funding and construction for constructing of affordable dwellings. The National Rental Affordability Scheme of 2008 has given tax incentives to investors for constructing new houses while rent has been decreased below market rates. Moreover, the government has generated 36700 affordable houses that are owned privately. However, the scheme has been discontinued in 2014 and rents have been increased in 2018 again (Pawson, Milligan and Martin 2018). Moreover, the country provides national disability insurance scheme since 2017 to construct 16000 affordable houses.

Present government responses

 

Figure 2: Home Ownership Rate in Australia

Source: (Tradingeconomics.com. 2018)

In Australia, Home Ownership Rate in 2011 was 67%. However, this rate has decreased over the year and in 2016, it has become 65% (Tradingeconomics.com. 2018).

After considering housing affordability issues of Australia, some policy options can be considered. Firstly, the government can address various problems that marginal and vulnerable first homebuyers experience. Secondly, affordability of rental houses can be improved for people of all income groups through addressing the decline in the availability of rental houses that they can afford. Thirdly, the government can revise housing strategy policies as number of social housing are decreasing in the market (Cornell 2018). Thus, potential policy options can be taken for the first household buyers. Firstly, government can increase supply of affordable housing through proper planning regulations like inclusion zoning of South Australia. Secondly, government can assist marginal purchasers to access dwellings by targeting first homeowner grant based on income and price and restricted new dwellings. Moreover, the government can provide transitional access like KeyStart in Western Australia to mortgage finance (Saberi et al. 2017). Thirdly, the role of hybrid tenures can be increased for instance shared equity programs of Western Australia, land rent scheme in Australian Capital Territory and community land trust models as seen in U.S. On the other side, to protect vulnerable buyers from excessive stress, the government of Australia can develop appropriate safety for vulnerable owners.

In addition to this, the government can reduce increasing pressure on housing prices and for this, some policies can be applied as well. Firstly, the government can reduce tax incentives, which in turn can reduce demand pressures from households of higher income group such as land tax and CGT exemptions for owner-occupiers. Secondly, cost pressures can be reduced on new dwellings through providing funding infrastructure and by reducing obstacle on development. Thirdly, land price gradients can be reduced as well through adding price pressures in various established areas through developing infrastructure improving regional development. Fourthly, statements regarding housing are required to develop all major government portfolios to link boarder agendas with housing.

The government of Australia can apply other policies as well to decline availability of affordable houses for rent, improve affordability for renters of low-income people and reduce increasing pressure on rents. For this, the government of Australia can continue National Rental Affordability Scheme (NRAS) to develop confidence in chief stakeholders through providing financial construction (Pawson, Milligan, and Martin 2018). Moreover, subsidies can be provided for accessing well-located land for public for not for Profit (NFP) providers related to affordable housing. Furthermore, Henry review recommendations for Commonwealth Rent Assistance can be adopted. The government can protect public housing assets to ensure that public housing is viable financially. In addition to this, competition can be increased within the private markets of house renting by increasing rental housing socially and affordability.

Conclusion:

Thus, at the end of entire discussion, it can be conclude that housing affordability has become an important issue for Australian government. Increasing demand for houses but stagnant supply of houses has influenced many people adversely to take purchase home or rent houses. This increasing demand for houses has led housing prices to increase further in Australia. However, to overcome this situation, the government can take various steps to overcome housing issues of this country. This is important because Australian population has increased significantly over the year and this in turn has increased demand for houses in urban areas like Sydney and Melbourne and so on.

References:

Beer, A., Bentley, R., Baker, E., Mason, K., Mallett, S., Kavanagh, A. and LaMontagne, T., 2016. Neoliberalism, economic restructuring and policy change: Precarious housing and precarious employment in Australia. Urban studies, 53(8), pp.1542-1558.

Bentley, R.J., Pevalin, D., Baker, E., Mason, K., Reeves, A. and Beer, A., 2016. Housing affordability, tenure and mental health in Australia and the United Kingdom: a comparative panel analysis. Housing studies, 31(2), pp.208-222.

Cornell, V., 2018. Housing Implications of Individual Budget Home Care Models for Older Renters: An Australian Case Study. Journal of Housing For the Elderly, pp.1-15.

Dufty-Jones, R., 2018. A historical geography of housing crisis in Australia. Australian Geographer, 49(1), pp.5-23.

Gurran, N. and Ruming, K., 2016. Less planning, more development? Housing and urban reform discourses in Australia. Journal of Economic Policy Reform, 19(3), pp.262-280.

Gurran, N., 2018. Public Cities, Public Scholars? Questioning Urban Policy and Research in Australia. Urban Policy and Research, 36(1), pp.1-10.

Morris, A., 2017. The Removal of Millers Point Public Housing Tenants in Inner-Sydney by the New South Wales Government: Narratives of Government and Tenants. Urban Policy and research, 35(4), pp.459-471.

Pawson, H., Milligan, V. and Martin, C., 2018. Building Australia's affordable housing industry: capacity challenges and capacity-enhancing strategies. International Journal of Housing Policy, pp.1-23.

Saberi, M., Wu, H., Amoh-Gyimah, R., Smith, J. and Arunachalam, D., 2017. Measuring housing and transportation affordability: A case study of Melbourne, Australia. Journal of transport geography, 65, pp.134-146.

Tighe, J.R., Hatch, M.E. and Mead, J., 2017. Source of income discrimination and fair housing policy. Journal of Planning Literature, 32(1), pp.3-15.

Tradingeconomics.com. 2018. Australia Home Ownership Rate | 1966-2018 | Data | Chart | Calendar. [online] Available at: https://tradingeconomics.com/australia/home-ownership-rate [Accessed 23 Jul. 2018].

Tradingeconomics.com. 2018. Australia Population | 1960-2018 | Data | Chart | Calendar | Forecast. [online] Available at: https://tradingeconomics.com/australia/population [Accessed 23 Jul. 2018].

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