Australia's Housing Crisis: A Manufactured Catastrophe Born of Policy Failures

Photo byKeith Mitchelson

Australia’s housing crisis is no accident—it’s the result of decades of policy decisions that disproportionately benefit the wealthy, leaving wage-earning citizens at a disadvantage. Central to this dilemma are tax laws introduced under the Coalition government, which have inflated property prices and created a speculative market driven by capital, not construction.

The Capital Gains Tax Catalyst

In 1999, then-Prime Minister John Howard slashed the Capital Gains Tax (CGT) by 50%, a move that was expected to stimulate housing transactions and bolster tax revenues. Instead, CGT transactions dropped by 10% in just three years, and government revenues shrank. Investors, emboldened by this tax break, rushed to pour their wealth into property, prioritizing existing houses as quick-return assets, creating a frenzy of speculation without generating new housing .

To make up for the shortfall in tax income, the Coalition introduced the Goods and Services Tax (GST) in 2000. While this bolstered government coffers, it disproportionately impacted low-income Australians. Over two decades later, with stagnant wages and inflation on the rise, the GST now hurts low-income households the most .

A Crisis of Supply and Demand

The issue isn’t just about tax policy but also a deep imbalance between housing supply and demand. Despite soaring house prices, new construction has plummeted. In the 1970s, Australia built almost 10 homes per 1,000 people annually; today, that number has dropped to just over 6. This housing deficit fuels price hikes and keeps aspiring homeowners locked out of the market .

As house prices soared, real estate agents inflated expectations, banks courted wealthier, low-risk borrowers, and the gentrification of urban areas accelerated. Middle- and working-class families saw their neighborhoods transformed as wealthier buyers moved in, driving prices even higher. The impact? Entire generations, once able to afford housing, are now priced out of the markets their families once called home .

The Influence of Wealthy Investors

Australian property has become a safe haven for global investors seeking to grow their capital. The introduction of policies allowing Self-Managed Superannuation Funds (SMSFs) to invest in housing has only exacerbated this trend. In 2023 alone, $60 billion flowed into housing through SMSFs, further widening the gap between wealthy investors and regular homebuyers .

This "crowding out" effect pushes everyday Australians to remain renters for longer periods, while those with significant capital secure properties at an increasing pace. High interest rates, intended to curb inflation, barely make a dent in the investment strategies of these wealthy buyers. Instead, they continue to outbid others, further inflating prices and concentrating wealth .

Can the Albanese Government Reverse Course?

The Coalition’s policies of the late 1990s and early 2000s clearly laid the groundwork for today’s housing crisis. While the Albanese government has made attempts to address housing shortages, their efforts remain too modest to counteract the entrenched issues. Meanwhile, the rising cost of living—driven by inflation, price-gouging by supermarkets, energy suppliers, and landlords—has only deepened the crisis.

The solution lies in bold policy reforms that challenge the status quo. Economists argue that reversing the CGT discount and curbing negative gearing could begin to correct the housing market. However, such measures require political courage and a willingness to disrupt the status quo .

The housing crisis is not just a story of markets and numbers; it’s a tale of communities pushed to their limits, of families priced out of their own neighborhoods, and of a country grappling with the unintended consequences of policies designed to reward the few at the expense of the many. Australia’s future will depend on whether its leaders can muster the resolve to fix a crisis decades in the making.