It’s the political issue Australia’s politicians need to solve before it’s too late: housing affordability.

Engineer Marko Matvikov summed it up on social media this week. 

It’s surprising how many individuals in their 50s and 60s have already paid off their homes, raised a couple of kids, and perhaps even acquired a vacation or investment property, all on a single average or below-average income. For instance, there’s the painter I spoke to today who, at 57, earns around $80,000 a year.

Now consider the young workforce today who, burdened with $50,000 in student loans, might work into their 70s without ever owning a home or feeling financially secure enough to start a family, even if both partners earn above-average incomes.

This reflects the situation of many of my friends whose parents immigrated here with nothing, managed on lower-than-average wages and yet could afford to own property and raise a family, while their children excel academically and professionally but have little tangible wealth to show for it.

There was a time when a single average income could fund home ownership, support a family, and pay off an investment property. Those days are gone, as housing affordability grows increasingly out of reach. For younger Australians, including dual-income couples with decent salaries, owning a home is becoming a distant aspiration without a burdensome mortgage creating lasting financial strain.

Despite numerous proposed policy solutions, including Albo’s new homeowner deposit scheme—which even he acknowledges will likely inflate prices—the situation continues to deteriorate.

The figures are telling. By late 2024, the national average property value soared to eight times the average annual income, setting an unwanted record, and the portion of income necessary to service a new mortgage expanded to over 50%.

Renting isn’t a refuge either: a record one third of gross income now goes on paying the median rent. Saving a deposit can take more than a decade on most incomes (hence the design purpose of Albo’s deposit scheme), and in Sydney it’s closer to 13 years. And of course during that lengthy period people are saving up a deposit, house prices rise significantly, leaving them needing to save even more.

Prime Minister Anthony Albanese and Housing Minister Clare O’Neill hand over a housewarming gift to new homeowner Maria as the government promotes its cheap deposit scheme which critics say will only fuel more price rises.

Australia’s capitals are among the least affordable places to live in the developed world. That is a structural failure for Australia.

Wages aren’t even close to keeping pace, and any interest earned on savings is taxed at the top marginal income tax rate of the person trying to find the funds for their deposit.

On today’s average full time wage of just over $100,000 a year (the median wage is much lower) half your pay packet disappears into mortgage repayments the moment you buy. That’s around $1,000 a week, before rates, taxes, insurance and all the rest of it.

Australia’s capitals are among the least affordable places to live in the developed world. Independent research group Demographia’s latest international survey ranks Sydney second only to Hong Kong. Melbourne, Brisbane and even Adelaide are all ranked as ‘severely unaffordable’.

That is a structural failure for Australia.

The rental market is an absolute pressure cooker. National vacancy rates have fallen to just over one percent, meaning that finding a place to rent is struggle street for many. Compromises get made, homelessness and couch surfing are on the rise and larger families are being forced to squeeze into small dwellings just to make ends meet, or even find somewhere to live.

It’s nothing short of a national crisis.

Rents keep going up as more and more people chase fewer homes. Investors can name their price, and tenants have to cop it or move further away from their community, families and workplaces.

And the supply pipeline is failing. Building approvals slumped again in August, down six percent, with apartment approvals (the stock that actually adds density near jobs and public transport) dropping more than houses. Targets to deliver 1.2 million new homes by 2029 look heroic at best, yet the government remains in denial.

Governments keep juicing up demand while supply lags. First home buyer guarantees and small deposit schemes might shave years off the saving grind, but they also pull extra buyers into the growing queues without fixing supply side problems. They bid up prices when listings are thin. Even the government concedes these changes can nudge prices higher, and the Reserve Bank was blunt in saying it.

It’s a political sugar hit that only worsens the structural failures in the longer term.

Sydney apartment buildings. There is a dire need for more units and apartments in the inner city to fix the country’s housing crisis, says Peter van Onselen.

Meanwhile, student debt acts as ballast at the start of adult lives. Yes, the government has capped indexation at the lower end of inflation or wages, and legislated a one-off 20 percent HECS cut. But many new workers still begin their working lives with massive debts, and the one-off nature of the HECS cut doesn’t help anyone under 18 who is about to be injected into this broken system.

So what can the politicians do that would actually move the needle?

First, stop adding raw demand into the mix without new homes available. Tie any buyer-side assistance to additional supply: one new dwelling for every subsidised purchase, delivered via pre-approved shovel-ready projects.

If that condition can’t be met, simply press pause on the buyer schemes and make the building happen first.

Second, fix the tax settings that punish movement (stamp duty) and reward hoarding larger homes. Little wonder older people are reluctant to downsize when they have to pay a huge tax for buying a smaller place.

Whether it’s using land tax as a replacement for stamp duty, or some other approach, the existing step-up is worsening the situation. Which is precisely why we need root and branch tax reform and the debate that goes with it. Even if our politicians are either blind to this fact or just scared to make it happen.

The ACT’s long-term shift from stamp duty to broad based land tax could be a national reform. Stamp duty is a mobility tax that strands empty bedrooms and penalises right sizing dwelling choices. Annual land charges do the opposite. Phase the changes in, cut rates elsewhere to keep the reform revenue neutral, and compensate low income retirees along the way.

Third, build at a scale where people want to live: near train lines, jobs and existing services. Some of this is happening but not enough of it and not broadly enough.

That means rezoning for gentle increases in density within reasonable proximity of stations, on arterials and include serious build-to-rent incentives in development contracts. Reserve social housing for key workers so demographic structures aren’t out of whack.

Our politicians need to think bigger and more laterally generally, warns Peter Van Onselen

Fourth, rescue apartment supply, and quickly. Unit approvals have been the weak link precisely when we need them the most. Some of what’s required includes a cultural shift around apartment living, and reducing stamp duty makes it easier for apartment ownership to be a stepping stone to a house.

Finally, calibrate migration to our national circumstances, not wishful thinking and tired tropes about diversity and multiculturalism. Australia remains a migration nation, and should be and always will be. But permanent and temporary intakes should flow with demonstrated new dwellings. The National Housing Supply and Affordability Council has already warned this crisis is decades in the making, and it won’t be solved by demand side optimism.

Park of the problem is undoubtedly student visas for higher education, which are widely regarded by arrivals as a pathway to permanent residency. This is the fault of governments, not universities, who have become hooked on international student fees because government funding has fallen away. If that isn’t fixed then we have to give up on targets for more domestic graduates because they don’t pay for the system on their own.

And yes, our politicians need to think bigger and more laterally generally. Much of the above requires greater interaction and agreement between the federal and state governments. Which is precisely why federation reform is also necessary.

We’re an urban coastal nation, roughly two thirds of Australians now live in the eight capital cities, and the vast majority of us live within 50 kilometres of the coast. That concentration is a choice, not a law of nature. Purpose built, well connected new cities, backed by federal state compacts, special purpose planning rules and infrastructure investment might sound like lofty thinking, but it’s not impossible if the political class think beyond each electoral cycle.

If we can carve new suburbs out of paddocks on city fringes, we can plan new cities that people actually want to move to.

For anyone who still wants to argue it’s all fine, don’t catastrophise the situation, tell that to a couple on $200,000 who are told they can only afford a unit 40kms from their work despite a decade of saving, and that they must hand over half their income  to a bank for the next 30-40 years.

For anyone who still wants to argue it’s all fine, don’t catastrophise the situation, tell that to a couple on $200,000 who are told they can only afford a unit 40kms from their work despite a decade of saving 

Or tell that to a tenant facing annual 10 percent rent hikes, if they are even lucky enough to hold onto the lease when vacancies are at one percent.

This isn’t a lifestyle gripe, it’s the quiet collapse of a one-time national promise: work hard, play by the rules and own a home of your own outright long before you retire.

Here is a simple policy politicians can lock onto that would also help. The interest earned on savings for new homes (or just first home buyers) either aren’t taxed at all or only at superannuation rates, rather than at the savers’ top marginal tax rate.

Policy makers created this housing mess and they can undo it, if they try hard enough. It’s a generational challenge that will only get worse if we don’t find a way to fix it, fast.