The current cost-of-living crisis is predominantly driven by declining housing affordability. For any government response to be effective, it must focus on measures that improve this crucial aspect. The discussion involves both demand-side and supply-side solutions, each with its own set of challenges and timelines.
On the demand side, there is a common belief that renters, often perceived as the poorest, require the most housing assistance. Targeted rent subsidies and increased social housing are logical responses. However, recent data indicates that renters have not faced the same decline in living standards since COVID-19 as new home buyers have. This discrepancy suggests that policies should also consider the plight of first-time home buyers.
In response to this, the Coalition proposes assisting first-time home buyers by allowing them to draw funds from their superannuation accounts. Labor, however, argues that using superannuation for home purchases undermines its primary purpose of funding retirement. Additionally, there's a concern that injecting more funds into a supply-constrained housing market will simply drive up prices rather than increase the availability of homes.
A more sustainable approach involves supply-side measures to increase the number of available dwellings. However, this solution is not immediate. Increasing the housing supply is a complex and time-consuming process due to several factors. One significant barrier is the shortage of skilled tradespeople needed to construct new houses. The government is addressing this by increasing subsidies to encourage training in trades, but it will take years for these efforts to yield results.
Zoning restrictions also pose a major obstacle. Many areas where people want to live have strict limits on new constructions. Governments are beginning to override local councils' objections to increasing housing density, but these changes require extensive community consultations and further time before the building industry can respond to new development opportunities.
The cost of finance is another critical factor. Between 2019 and December 2024, the living standards of mortgaged households fell by 5.6%, whereas renters saw a 2.9% increase, and outright homeowners enjoyed an 8.5% rise. The year from June 2022 to June 2023 was particularly harsh due to significant interest rate hikes, which hit new home buyers the hardest.
As interest rates eventually decrease, the rate of increase in living costs will likely slow. However, this is contingent on government and Reserve Bank policies successfully reducing inflation to within the target range. The interplay between interest rates and inflation is complex and requires carefully coordinated policy actions to ensure that financial relief reaches those most affected by the housing affordability crisis.
In conclusion, addressing the cost-of-living crisis requires a multifaceted approach focusing on improving housing affordability. Both demand-side and supply-side measures, alongside strategies to manage the cost of finance, are crucial. These efforts will take time to implement and require coordinated actions across different levels of government and industry stakeholders to achieve long-term success.
