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Part 1 - The Cost of Commodification:

How Australia's Housing Market Is Failing Future Generations

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This article is divided into two parts as each component is extensive. Part 1 (this article) covers the context and underpinnings of housing commodification in Australia. Part 2 covers policy reform recommendations to combat housing commodification, their rollout timeline, and statistical modelling of their outcomes.

The transformation of housing from a fundamental human need into a financial asset class represents one of the most significant shifts in Australian economic policy over the past four decades.

As we begin navigating 2025, the implications of this commodification are becoming increasingly apparent, with far-reaching consequences for future generations of potential homeowners.

 

The Scale of the Challenge

Recent data from the Australian Bureau of Statistics (ABS) paints a concerning picture. Homeownership rates among Australians aged 25-34 have fallen from 50.2% in 1996 to just 37.4% in 2024. For those aged 35-44, the decline is equally stark, dropping from 68.8% to 52.3% over the same period.

The Reserve Bank of Australia’s (RBA) Housing Market Analysis (December 2024) reveals that the median house price to median income ratio has reached 8.5 in Sydney and 7.2 in Melbourne, far exceeding the 5.0 threshold traditionally considered the upper limit of affordability.

International human rights treaties such as the International Covenant on Civil and Political Rights (ICCPR), the International Covenant on Economic, Social and Cultural Rights (ICESCR), and the Convention on the Rights of the Child (CRC) each state a person has the right to adequate housing. Adequate housing is considered to be secure, habitable, affordable, accessible and legal.

Secure shelter is also considered a fundamental human necessity according to the psychologist Abraham Maslow, as depicted within Maslow’s Hierarchy of Needs (1954). Secure housing is deemed a basic human need, alongside health, employment, access to resources, family and social ability.

Australia’s current economic policy does not appear to be providing these fundamental human rights to the current, let alone next, generation.

 

The Mechanisms of Commodification

1. Investment-Driven Market Distortion

The APRA Quarterly Property Exposure Report (Q4 2024) highlights concerning trends: investment properties now represent 32% of all residential mortgages and interest-only loans comprise 21% of new mortgage lending. Further, negative gearing benefits amount to $4.3 billion annually.

This picture of investment driven distortion is also evidenced with Property Investment Professionals of Australia (PIPA) data: in capital cities 46% of properties sold in 2024 were to investors, 27% of these investors own multiple properties, and foreign investment accounts for 12% of new dwelling purchases.

2. The Impact of Housing Supply

The National Housing Finance and Investment Corporation (NHFIC) State of the Nation’s Housing Report 2024 identifies critical housing supply issues.

Whilst the annual new dwelling completions figures total 183,000, the estimated annual demand needs were 232,000. This equates to a shortfall of new housing in 2024 for nearly 50,000 Australians.

Cumulative data estimates this housing supply shortfall to be 175,000 dwellings over the next five years. That’s 175,000 Australians not being able to have secure housing, or needing to compromise by sharing with family or friends, renting, or otherwise not having housing access.

 

The Social and Economic Consequences of Housing Commodification

1. Generational Wealth Disparity

The Grattan Institute’s Housing Affordability Report (2024) reveals the median first home buyer age has increased to 35.8 years. Homeownership for Generation Z is an outlier rather than a norm.

Further this report evidences the average time for a homebuyer to save a 20% deposit is 11.2 years in Sydney and 9.8 years in Melbourne. We also have intergenerational wealth transfer accounting for 60% of first home deposits.

This data suggests it takes first home buyers in Australia’s major capitals a decade to save their initial deposit, in which time more than half will resort to relying on the bank of Mom and Dad to effectively action their deposit.

2. Economic Stability Risks

The RBA Financial Stability Review (December 2024) highlights the household debt-to-income ratio is 185%. In addition, mortgage stress is affecting 38.7% of borrowers and the investment property leverage ratio is 73.2%. What does this mean? Aussies are under finance strain by way of both owner occupier mortgage debt and also property investment debt.

 

Highlighting Policy Failures and Market Distortions

First and foremost we have the impact of taxation policy. Treasury analysis indicates that current policies create market distortions For example:

1. Negative gearing benefits skew 67% toward the top income quartile. Negative gearing allows individuals with high incomes to minimise taxation liabilities through investment property ownership.

2. Capital gains tax discount costs $6.8 billion annually. Individuals whom can afford to make profit on the sale of investment properties minimise their taxation liabilities at a multi-billion dollar cost to everyday Australians every year.

3. Property investment tax concessions exceed first home buyer support by 4:1. When taxation policy is skewed to wealth creation via property investment, over and above first home buyer incentives, it is clear where taxation policy focus rests – property investment.

Next we have planning and supply constraints. Productivity Commission data shows, for example:

1. The average time for housing development approval is currently 18.2 months. The process is lengthy and inefficient.

2. Zoning restrictions reduce potential housing supply by 25%. Outdated zoning measures currently limit progressive housing development that could provide additional housing for first home buyers.

3. Infrastructure charges add $86,000 to the average new dwelling cost. This cost will typically be passed down the line to the home buyer in some form. This cost is often equal to the home buyer’s house deposit.

 

Conclusion

The commodification of housing represents a significant policy failure that threatens both social cohesion and economic stability of the country. Immediate, coordinated action across all levels of government is essential to prevent the permanent exclusion of future generations from homeownership.

Success requires political courage, policy coordination, and a fundamental shift in how we view housing – not as a speculative asset class, but as essential infrastructure for a stable, prosperous Australian society.

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