This article is the second part of a 2-part series. Part 1 can be found here: https://kittyandmiles.com.au/part-1-the-cost-of-commodification-how-australias-housing-market-is-failing-future-generations/

Australia’s housing affordability crisis has reached a critical juncture in 2025.

With homeownership rates among 25-34 year olds falling to 37.4% (ABS Housing Data, 2024) and median house price to income ratios exceeding 8.5 in major capitals (RBA Housing Market Analysis, December 2024), the need for comprehensive policy reform has never been more urgent.

This media piece outlines a detailed framework for policy intervention designed to rebalance Australia’s housing market and ensure sustainable access to homeownership for future generations.

Current Market Context

Before examining specific policy recommendations, it’s crucial to understand the current market dynamics driving the affordability crisis. These were explored in Part 1 of this article.

To provide a summary we have the following:

1. Market Distortions – Recent APRA data (Q4 2024) reveals that investment properties represent 32% of residential mortgages, the household debt-to-income ratio has reached 185%, and mortgage stress affects 38.7% of borrowers.
2. Supply Constraints – The NHFIC State of the Nation’s Housing Report (2024) has identified we have an annual supply shortfall of 49,000 dwellings, development approval times are currently averaging 18.2 months, and infrastructure charges are adding circa $85,000 to new dwelling costs.
3. Affordability Metrics – Treasury analysis (2024) shows that median house prices are 8.5 times the median income in Sydney, first home buyers require 11.2 years to save a 20% deposit, and rental stress affects 45% of lower-income households.

There is a systemic housing crisis caused by investment-driven market distortion and a shortfall in housing supply.

Comprehensive Policy Reform Framework

Policy Area 1 – Taxation System Reform

Modifications are urgently required to negative gearing policy. The following adjustments are needed:

• Phasing out benefits for existing properties over the next five years
• Retention of benefits for new construction only
• Capping deductions at $20,000 annually per taxpayer

Capital Gains Tax (CGT) reform is also required as a matter of urgency. The following changes are needed:

• Reduction of the CGT discount from 50% to 25%
• Introduction of a sliding scale based on holding period

With application of the above, the expected impact utilising Treasury modelling is:

1. a 12% reduction in investor property demand
2. an 8% improvement in first home buyer access to property
3. $3.2 billion in annual revenue that can be directed toward housing initiatives
4. reduced speculative housing investment
5. enhanced housing market stability

With reforms to both negative gearing and CGT policy, the present incentive to commodify housing is reduced. Market access for owner occupiers, notably first home buyers, inevitably improves with the above measures in place. Why is the government not comprehending this and taking action?

Policy Area 2 – Planning System Overhaul

Further improvement can be obtained by addressing the current housing supply barriers – excessive approval timeframes, inconsistent planning requirements across jurisdictions, and archaic restrictive zoning that reduces potential supply by 25%.

The first step to improving housing supply for first home buyers is the introduction of standardised planning approval processes. For example the:

• Implementation of a national planning framework
• Standardisation of all assessment criteria
• Introduction of mandatory timeframes to eliminate drawn out approval processes

To implement the above changes we’d be looking at a federal-state planning Accord, as well as the creation of a digital assessment platform. A total resource allocation of $450 million would be required to fund this.

Next we need urgent density reform, especially in sprawling capital cities such as Sydney. In simple terms we need to:

• Up-zone middle-ring suburbs
• Remove height restrictions near transport hubs
• Mandate minimum densities

With the above changes, NHFIC project 45,000 additional dwellings can being constructed annually. There would also be a 15% reduction in development costs and improved dwelling affordability in target areas.

By combining a digital approval process that is standardised at a national level, and bringing zoning into the 21^st century, we can automatically lift housing supply levels, minimise development costs and improve housing affordability for those that need it most – everyday, working Australian first home buyers.

Policy Area 3 – First Home Buyer Support

This brings us to the addressing the current challenges first home buyers face when entering the Australian property market.

These challenges are most commonly their deposit requirements exceeding their savings capacity, stamp duty as an additional lump sum payment due at purchase impacting available deposit funds, competition in the marketplace from established investors, and limited first home buyer scheme accessibility.

Recommended policy solutions to provide additional first home buyer support are two-fold:

Enhanced Deposit Support

• Expand the First Home Guarantee scheme to 50,000+ places annually
• Introduce progressive deposit requirements
• Implement additional assistance for core services such as nursing, teaching, and emergency services
• Abolish stamp duty for first home buyers 
• Lift eligibility income caps to market medians

Super Access Reform

• Increase the First Home Super Saver Scheme cap
• Allow partial balance access up to a set percentage
• Implement repayment requirements to ensure retirement security

Modelling suggests the financial impact of the above would be a $3.2 billion program cost, with an expected 35,000 new first home buyers becoming homeowners annually, and an average deposit reduction of $85,000.

Policy Area 4 – Foreign Investment Reform

The market impact of foreign investment was discussed in Part 1. In short, 12% of new dwelling purchases are by foreign investors. The current vacancy rate for such purchases is 4.1% and this impacts property prices in premium areas by 7.2%+.

Two direct reform measures are required to curb foreign investment in property:

Investment Controls

• Increase the Foreign Investment Review Board fees
• Strengthen the penalties on vacant property
• Enhance compliance monitoring

Revenue Allocation

• Direct surcharges to housing initiatives
• Fund first home buyer programs
• Support social housing construction

With the above reforms, modelling predicts $890 million in additional annual revenue, as well as reduced vacant property rates and improved market access for residents.

Policy Area 5 – Social Housing Investment

At present there is a gross shortfall of available social housing. 155,000 households are on social housing waitlists nationwide. The average wait time is 3.2 years and the maintenance backlog is circa $2.2 billion. Not good enough.

We need to invest in social housing to support all Australians. For example:

A Construction Initiative

• The federal government pledging a $10 billion commitment
• State-matching requirements
• Public-private partnerships to increase availability

An Operational Framework

• The establishment of a National Housing Authority
• Coordinated state delivery
• Community housing sector integration

From the above we’d have delivery targets of 35,000 new dwellings over five years, 15,000 renovated properties, and 5,000 transitional housing units.

Implementation of the Policy Reform Framework

The implementation of the above policy reform framework could be tri-phasic across 5 years, as such:

Phase 1 (Year 1)

• Establish a National Housing Authority
• Initiate tax reform legislation
• Launch planning system standardisation

Phase 2 (Years 2-3)

• Implement deposit support programs
• Roll out planning reforms
• Begin social housing construction

Phase 3 (Years 4-5)

• Complete tax transition
• Evaluate program effectiveness
• Adjust measures as required

The impact on the above systemic framework adjustments have been modelled by KPMG. Their economic modelling in 2024 indicates:

1. a GDP benefit of 0.4% over five years
2. employment creation of 62,000 job positions
3. construction industry growth of 8.2%

Measuring Success of the Policy Reform Framework

To ensure the recommended framework is performing as expected, the following key performance indicators (KPIs) can be implemented.

Measure Market Access

1. First home buyer market share to increase to 35%
2. Median price-to-income ratio to reduce to 5.5
3. Deposit saving time to reduce to 5 years

Supply Outcomes

1. Annual completions meeting demand
2. Development approval times equal to or less than 6 months
3. National vacancy rates of circa 3%

Social Outcomes

1. Reduced housing stress
2. Improved rental affordability
3. Decreased homelessness

Financials of the Policy Reform Framework

It is anticipated a total program cost of $15.2 billion from Federal government, $12.8 billion from State contributions, and the Private sector leveraging $28.5 billion.

Revenue sources would include tax reform savings of $3.9 billion annually, foreign investment fees of $890 million annually, and a bond issuance program of $5 billion.

Final Thoughts

The implementation of this comprehensive policy framework represents a crucial opportunity to address Australia’s housing affordability crisis.

Success requires political courage, cross-jurisdictional cooperation, and sustained commitment to reform. The economic and social benefits of action far outweigh the costs of continued market failure.

Note: All statistical data and market indicators referenced in this article are based on available information as of January 2025. Policy recommendations are subject to economic conditions and may require adjustment based on market responses.

References:

1. Australian Bureau of Statistics Housing Data, 2024
2. Reserve Bank of Australia Housing Market Analysis, December 2024
3. APRA Quarterly Property Exposure Report, Q4 2024
4. NHFIC State of the Nation’s Housing Report, 2024
5. Treasury Housing Policy Analysis, 2024
6. KPMG Economic Impact Analysis, 2024
7. Productivity Commission Planning System Review, 2024