"Aside from mining, pretty much our entire economy is made up of demand driven services. We don’t make things here friend, we send emails. An entire nation, circling back and touching base;" and so many of those service jobs are bullshit office jobs occupied by the otherwise unemployable, destined to be gobbled up by AI over the next few years. It makes one wonder what the Australian economy will actually look like in a decade.
If I’ve learned anything from these types of debates, it’s that a lot of people seem to think everybody else’s job is bullshit except their own job which is in fact very important.
You can make any job seem nonsense by describing it in this dismissive “just sending emails” way, doesn’t mean you actually have a deep understanding of it.
Sure, but for what its worth that was more of a joke for readability's sake. The larger point was that these jobs are not bringing wealth into the country. They are just moving money around within Australia. Yes there are instances where consultants do work for overseas clients (which I count as an export) but by and large this is what the bulk of people in our economy are doing for a living.
Administration is an overhead, it is non productive and should be minimised.
An unacceptably large proportion of the national workforce is non contributory to economic growth, and couple this to falling productivity, and we are going downhill.
If I pay my son for mowing the lawns, the net worth of the family is unchanged. The same applies to a country, it is about providing goods and services to others that increases our income, not the overheads of non productive sectors such as Government
I agree with the diagnosis, but not the conclusion. What we’re seeing isn’t market failure; it’s the market responding perfectly to the signals it’s been sent. And those signals, from zoning restrictions and tax incentives to artificially low interest rates, have all pointed towards inflating this particular asset class.
The core issue isn’t that the market can’t provide affordable housing. It’s that government intervention has distorted the incentives so badly that rational private actors are pushed into speculation, not supply. Introducing even more government spending, without fixing the underlying distortions, risks capitalising those subsidies straight back into land prices.
What to build, where, and how much should be driven by actual demand, not bureaucratic guesswork. The solution isn’t more state control, it’s coordinated deregulation. Let the market respond freely to demand by removing restrictive planning barriers, coordinating infrastructure delivery across the three levels of government, and refraining from policies that crowd out private investment in construction.
The more central planning we throw at this, the worse it will get. Just my 2 cents, fully acknowledging I'm not the housing expert...
Right now, the private sector is struggling to deliver because the economics of delivery are no longer adding up.
To restore confidence and capacity, we need:
- More development-ready land
- Faster approvals and reduced red tape
- Subsidised enabling infrastructure
- A skilled construction workforce pipeline
- Embracing modern, efficient building methods
- Tax and policy reform
- A wider mix of available housing types
- Halting the regulatory creep on building standards
𝟐. 𝐈𝐧𝐯𝐞𝐬𝐭 𝐢𝐧 𝐩𝐮𝐛𝐥𝐢𝐜 𝐡𝐨𝐮𝐬𝐢𝐧𝐠 𝐚𝐭 𝐬𝐜𝐚𝐥𝐞
The private market can’t meet all housing needs right now where a growing cohort of Australians cannot afford what the market is producing. In the late 40s and 50s, governments built tens of thousands of homes at a scale. Today, the social housing waitlist is growing, and the system is struggling to keep up.
We need long-term investment in public housing to:
- Stabilise rents
- House essential workers and vulnerable people
- Stimulate the modular and affordable housing sector
Thanks for the thoughtful reply. I think we’re mostly aligned on the diagnosis, even if we differ slightly on the next steps.
On the first front: absolutely, we need to restore the private sector’s ability to deliver. However, we should be clear-eyed about what is stopping it. It’s not a lack of willingness, it’s that the incentive structure is broken. Zoning, planning delays, and infrastructure gaps all matter. However, so do tax settings like negative gearing and CGT discounts, which have actively funnelled capital into existing stock rather than new supply. If “tax reform” means tackling those distortions, then I’m all for it.
My concern is that solutions often involve adding further government activity on top of a distorted base, such as subsidies, grants, or targeted infrastructure spending, without first stripping back the original distortions. We end up baking in the problem. The market reacts rationally to the signals it gets, and right now those signals are skewed.
That’s why I’m sceptical about large-scale public housing, too. It sounds appealing, but history shows it tends to crowd out private delivery, struggle with long-term maintenance, and eventually become politically and financially unsustainable. The 1950s example often cited occurred in a totally different environment, one without today’s regulatory and fiscal constraints. My grandpa built a house from vacant land to a turnkey in 16 weeks. That is completely unfathomable in today's environment.
What we need is a genuine reset: clear, neutral rules; tax settings that don’t privilege speculation; and room for supply to respond organically to demand. Less interference, fewer mixed signals, and a return to letting price and demand shape outcomes - IMHO.
I agree with pretty much everything you're saying and I've argued these points in past articles. My whole thing at the moment is basically saying, ok that's what needs to happen, what policies out of those are actually politically feasible?
9 times out of 10 if it's about boosting supply through greenfield development on the fringe it's less controversial.
Everything else, whether it's upzoning or extracting these artificial drivers of demand, then it's political suicide.
And if you accept that, then we need to wait for a durable political majority of Australians who will vote for more radical change, and we basically aren't going to see transformative change until we hit a crisis point. Until then, we will see more can-kicking.
So my post is kind of about saying if you acknowledge these constraints, what is achievable meantime?
For some time now, when the issue of high purchase price and high rents comes up on social media I have argued for the revitalisation or reimplementation of public housing. It for three decade after WW2 until all Australian states and political parties were seduced by economic rationalism and either forced the various Housing Commissions to return a profit and if they didn’t basically closed them down because, of course, the private sector could provide social housing at a lower cost and more efficiently that worked well. Didn’t it?
Could this be the beginning of the end of our love affair with McMansions ?
Is this the time in our history to begin looking at smaller homes which SHOULD equate to lower construction cost which COULD potentially start a second tier of homes across the whole country.
Back in the 00's when I was building energy efficient european style homes I thought we would one day see energy ratings like in US & Europe where they can quantify how efficient in $$ terms a house was. I envisaged a day a home would be advertised as 5 bed 3 bath 2 car - 300m2 building area - 750m2 land - 9 star energy efficiency - $2,000 - $2,500 energy per year.
I was wrong.
Perhaps we can see a change in advertising from 5 bed 3 bath 2 car - 300m2 house - 750m2 land to 4 2 2 - 160m2 house on 350m2 land ?
It would mean all rooms would be smaller and with lot sizes being significantly smaller than a decade ago, we may need to forgo luxurious front yards and backyards.
Perhaps government could have a go at building communities where communities are carved into slightly larger street blocks and something of a community park is everyone's backyard. Meaning, instead of everyone having a backyard, could we go back in time and create community atmosphere by having kids playing with neighbouring kids and perhaps some community gardens filled with real food ? Wish I could draw my idea but, essentially, what I'm talking about is NOT having lots back-to-back - all the houses around the perimeter of the street block would only have side neighbours (thereby reducing some of the neighbourly issues) and everyone's backyard was connected via a gate to a 'central park' type community play area - these community areas could be of varying sizes but with building lots becoming smaller, land developers would not be losing too much.
It would, however, involve council stepping in to maintain these areas unless it became a 'thing' that the community on that block paid a strata-type fee to have it maintained.
Lord save us from that entire strata industry but I pray we are able to return one day to a community that looks after each other rather than builds fences so that noone can see anyone else and noone talks, or worse, spies on each other !
Thanks for your comment Steve, I agree with a lot of things you wrote and I would just make a few observations.
I worked as a council town planner and I recall the time when the State Government brought in the small lot subdivision. This was all part of an Australian wide urban efficiency drive (AMCORD) to get, amongst other things, more houses being serviced by the same length of infrastructure (i.e. pipes and wires). So smaller lots inevitably resulted in narrower frontages and longer depth due to the often standard frontage to depth ratio employed in subdivision at that time. These smaller lots often meant that the ONLY house that could be built on these blocks was a two storey townhouse or Courtyard dwelling. I say ONLY because people wanted space and the economics of putting on an extra storey and getting a better sales price was a no brainer (as you would know better than me). Again these sort of houses would not be the sort of houses that easily enable the type of energy efficient housing that you desired.
I was always struck by the number of objections we would get, in those early years, for small lot subdivision. To many people at that time - small lots were the devil incarnate and it was not uncommon to get 200+ objections. Massive numbers. So it was a brave Council and Councillors that ignored those community objections. But now these small lot subdivisions are more accepted and you can't object to them anyway (well at least not in Qld) provided you complied with the standard code.
But what I really want to say is that outcomes are almost always a factor of design, whether deliberate or unintentional. In the drive to get more urban efficiencies, I think we lost the opportunity to do small lots with longer frontages where you can also utilise passive design principles to increase energy efficiency. As always there are balancing decisions and trade offs when making policy. Subdivision design was never my strong point, but I do think some smart urban designers could come up with a way to allow small lots with wider frontages as part of a larger englobo land package.
I know from my own experience that finding a small lot (400m2) detached house on a single level with 2 bedrooms is like finding hens teeth and the only real option I can find is villas and that is a battle royale when it comes to competing buyers. So there is a real large pent up demand for this form of housing. It is just that it can't or won't be done without some trade-offs, usually profits.
How would you qualify for government built housing? Because we all know Australians love a rort. How do you prevent ‘mum and dad’ buyers from gobbling up the stock?
I won’t pretend I’ve given it a lot of thought but I’d assume you’d means test it the same way you do any social program? Also there are lots of examples of public housing schemes conditions where you aren’t allowed to resell the homes at market rate, it has to be sold at a proportionally reduced rate.
I think Cam Murray has suggested a solution whereby owners in the parallel system can sell only to people in the pool of eligible buyers. Seems practical?
I agree with your conclusion. The market won't build cheap housing, but the public sector can.
But you also say this:
"Most types of housing projects simply aren’t profitable anymore. With rising interest rates, labour shortages, expensive materials, and razor-thin margins, developers can’t make the numbers work"
I hear this a lot, usually when developers are lobbying for lower taxes or rezoning.
Is it actually true? How do you know?
And what do you mean by "not making the numbers work"?
Do you mean "a developer can't buy land to develop at a price that lets them make a profit"?
Because that seems unsurprising and inevitable. Competition between land buyers will always bid price of land up to the residual land value (i.e. the development profit), or even higher.
If developers could make easy money buying sites and developing them, that state of affairs wouldn't last long.
The fact that there is no easy money in development doesn't mean "housing projects aren't profitable". It just means land prices reflect those profits, so margins for developers are always and everywhere thin. Nothing special about right now versus 50 years ago on that front.
Or do you instead mean "developers already owning land can't make a money demolishing existing structures and building new ones"?
If so, do you have any evidence for that?
Because my understanding is that there is already loads of feasible capacity for development (i.e. sites that could be profitably redeveloped), and that the reason it is not being turned into housing straight away is that it's more profitable to bank it for future development.
There are 100,000s of thousands of approved but not commenced dwellings in our capital cities, for example. Greenfields land costs ballpark $50-100k to prepare and so a house could be sold for say $200-300k above that. But the developers are selling them for $600k+. It would be feasible to sell heaps more at $300-400k, but they don't, because they make more money landbanking.
So full disclosure, I am neither an economist (and am at least a standard deviation dumber than yourself), nor a developer so I am not on the front lines with how these calculations and decisions are made but what I am hearing from developers is that the result of the recent cost escalation means that developers now need to sell new apartments at the following (approximate) prices for a 110m², 3-bedroom apartment:
~$1.5 million in Melbourne (approx. $14k/m²)
~$1.6 million in Brisbane (approx. $15k/m²)
~$2.2 million in Sydney (approx. $18k/m²)
My whole point is that at these prices, the number of Brisbanians out there with the ability to spend $1.6m on a new apartment (but not a house) is very small — especially while that same sum will buy you a well-located palace in the same city. The demand created by this small group is an order of magnitude (or two) short of what we would need to densify our way out of this housing crisis via the private sector apartment projects alone. This is also why I think that the next 5 or so years will see precious little apartments getting built beyond high-end luxury stock - with the bulk of new supply activity going towards greenfield housing.
Totally agree with you re: land banking (though wasn't aware that the approved, but not commenced dwellings was that high) and think we should enact policies to put a stop to it or at least reduce it. I'm a big support of LVT for that reason.
But to your point that just because there isn't "easy money" in development doesn't mean that they *cant* develop - while that's no doubt true, they still aren't doing it - and they are the ones who build housing. So if we could get back to some kind of similar conditions to the twenty-teens where they were building significantly more (even without an LVT) - then wouldn't that be better than now?
No doubt it's true: for a developer to make the profit margin they expect on either (A) the price they already paid for land, plus construction costs, or (B) the price a seller is asking for land, plus construction costs, they'd have to price units far higher than buyers can afford today.
There is some fascinating economics here.
What's going on is that:
1. Rising costs and flat sales prices have compressed the development residual (the Residual Land Value, or RLV); but
2. Lower RLVs haven't yet fed into lower land prices; which suggests
3. Developers holding land are reluctant to crystallise losses by selling land for less than they paid or houses at a lower margin than they hoped for; or
4. They are holding onto land as an asset, because they know development returns will be higher in future, at which point they can either develop, or sell their land for a higher price than today.
The really important point here is that land prices are different to other input costs. Land prices aren't a fixed and uninteresting part of the development equation that must be taken as given. You can see that if you compare land to, say, building materials.
Building materials prices are set by the cost of production for building materials.
But land prices are not set the cost of producing land - because there is no such cost! They are set by the demand for land for development.
Land prices tell us about what land buyers and sellers think will happen to development prospects in future. If they're high, and haven't fallen to a level that makes immediate development highly profitable, that tells us developers think development will be more profitable in future.
Which is to say: developers are rationally holding back from building today, because it's more profitable for them to build tomorrow, not because it's unprofitable to build per se. (Think about a vacant inner urban lot or a greenfields estate - I promise you that you can more than cover your cost of construction with the sales price, even right now.)
It's a really important point to understand, because much lobbying asks government to change one or the other part of the development residual - e.g. to reduce developer charges, or increase allowable density - and the lobbyists pretend this will make more development profitable today.
It won't - because it'll just feed straight into higher land prices. The market develops at an optimal rate, and increasing feasibility won't change that rate.
So interesting! It is almost like the reverse of a deflationary event where people hold off buying goods in anticipation of them being cheaper in the future. Developers hold off making goods (housing) because there is no cost to them in sitting on their hands until circumstances change and they can take less risk. Do you think an LVT is the solution to the land banking issue?
On your point regarding how improving feasibility won't actually reduce prices and will just feed into higher land costs - I have read cam's articles on this and my feeble brain can't seem to absorb this argument.
Are you saying that when there's changes in things like construction costs or taxes that improve feasibility, the "wiggle room" this creates just causes land values to go up because there is more capacity for buyers to pay? And that "unlocking" these gains in lower costs on the developer side just causes a different equilibrium to be found?
"Are you saying that when there's changes in things like construction costs or taxes that improve feasibility, the "wiggle room" this creates just causes land values to go up because there is more capacity for buyers to pay?"
Exactly. Those tax breaks, or changes in construction costs, are passed back into land prices.
Suppose a site is zoned for townhouses which sell for $6m and cost $3m to construct (including a development margin to compensate for risk). There's also a $1m developer charge (DC).
Developers do the calculation:
Sales price ($6m)
-
Development costs ($3m+$1m)
=
RLV ($2m).
None of them will pay more than $2m for the land.
And because there's competition between them to acquire the site, it'll end up priced at $2m (no less).
Now suppose the $1m DC is abolished.
The RLV rises to $3m. After all, if the land price remained at $2m, anyone could buy it, develop it, and get $1m profit more than necessary to compensate for risk. So developers bid the price up to $3m.
Same story if you upzone the site: the sales price rises, the RLV rises, and the land price rises.
Lowering taxes or removing regulations to increase feasibility just causes land prices to rise.
The reason improving feasibility won't change housing supply is that how many houses are built at a given point in time depends on whether the return from building today is better than the return from building tomorrow. It doesn't depend on the level of the RLV: it depends on the returns from building vs waiting.
For instance, if you own the land in my example, you could build today, sell the homes, and put your $2m profit in the bank, earning (say) 5%, leaving you with $2.1m in a year's time.
But if you think your $2m worth of development-ready land is likely to rise in value by (say) 10% this year, then you should hold it as undeveloped land. If you're right, it'll be worth $2.2m in a year's time, and by landbanking, you've made more than you would by developing it.
Changing taxes doesn't change those relativities.
For example, abolishing the $1m DC changes a $2.1m return on developing today into a $3.15m return on developing today, and changes a $2.2m return on waiting into a $3.3m return.
Reducing taxes pumps up land prices - but doesn't change the fact that the 10% return on the land price from landbanking trumps the 5% return on developing the land and putting the cash in the bank.
As always, Cameron has the most detailed explanation, here:
I think I get it now - thanks for taking the time. So assuming all of this is true - is the conclusion that there's nothing really to be done in boosting private sector housing activity?
A realistic detailing of the unpalatable economic truths that are so conveniently ignored by all the pronouncements of the mass of respondents about the housing crisis.
One problem about a mass building of state owned rental housing, how is it going to be paid for, we have a Government running record deficits and planning to do so for the next decade.
People expect the Government to work miracles, but never ask where the money is going to come from.
There is a simple message, the Government has no money, it is the peoples money, the Government can only spend on the people's needs by taking from the people by way of Taxes, levies and excise duties, and there is a limit to how much taking can be done.
So, it is a matter of priorities, what do the majority of the people want the Government to spend less on, and how much more do they want to be taxed to pay for public housing.
I would leave this unpalatable, if there is a War in our region, then it all becomes somewhat academic, as we will probably end up as a vassal State of the Peoples Republic of China. I wouldn't think the USA will come to our aid when we are not prepared to make anywhere near an adequate investment in our own National Security.
Why has this happened, how about blaming ourselves and our political masters, after all we all were lulled into accepting their promises of a future Nirvana, and a solution to all problems, so long as we voted for them.
A realistic detailing of the unpalatable economic truths that are so conveniently ignored by all the pronouncements of the mass of respondents about the housing crisis.
One problem about a mass building of state owned rental housing, how is it going to be paid for, we have a Government running record deficits and planning to do so for the next decade.
People expect the Government to work miracles, but never ask where the money is going to come from.
There is a simple message, the Government has no money, it is the peoples money, the Government can only spend on the people's needs by taking from the people by way of Taxes, levies and excise duties, and there is a limit to how much taking can be done.
So, it is a matter of priorities, what do the majority of the people want the Government to spend less on, and how much more do they want to be taxed to pay for public housing.
I would leave this unpalatable, if there is a War in our region, then it all becomes somewhat academic, as we will probably end up as a vassal State of the Peoples Republic of China. I wouldn't think the USA will come to our aid when we are not prepared to make anywhere near an adequate investment in our own National Security.
Why has this happened, how about blaming ourselves and our political masters, after all we all were lulled into accepting their promises of a future Nirvana, and a solution to all problems, so long as we voted for them.
A realistic detailing of the unpalatable economic truths that are so conveniently ignored by all the pronouncements of the mass of respondents about the housing crisis.
One problem about a mass building of state owned rental housing, how is it going to be paid for, we have a Government running record deficits and planning to do so for the next decade.
People expect the Government to work miracles, but never ask where the money is going to come from.
There is a simple message, the Government has no money, it is the peoples money, the Government can only spend on the people's needs by taking from the people by way of Taxes, levies and excise duties, and there is a limit to how much taking can be done.
So, it is a matter of priorities, what do the majority of the people want the Government to spend less on, and how much more do they want to be taxed to pay for public housing.
I would leave this unpalatable, if there is a War in our region, then it all becomes somewhat academic, as we will probably end up as a vassal State of the Peoples Republic of China. I wouldn't think the USA will come to our aid when we are not prepared to make anywhere near an adequate investment in our own National Security.
Why has this happened, how about blaming ourselves and our political masters, after all we all were lulled into accepting their promises of a future Nirvana, and a solution to all problems, so long as we voted for them.
I like this article and agree that "unleashing the market" so to speak isn't enough on its own. While you say "we can’t lift wages at a rate that exceeds housing inflation for decades on end," would raising the minimum wage not have a significant impact? I'm also wondering about the pros and cons of rental assistance or even UBI, and how just giving people money compares to building public housing. Curious to know your (or anyone's) thoughts.
Just a note when I was in the wealthier parts of Hong Kong I stayed with a friend in their apartment. I was impressed. Large rooms not pokey at all two or more balconies etc. This was not just an apartment. It was a small town. It had its own doctor, shopping centre, parks, gardens and sporting facilities. Easy transit using small business in and out of town. Extremely well thought through. It was built by a private developer and people bought the apartments. We could do something similar in Australia . The land here would be a lot cheaper and in due course we will have to confront insane building costs in Australia. Complexes like this would be ideal for older Australians but adequate for Australians of any age in my opinion.
If the government started a big public housing program like you suggest, how do you think it could avoid the usual problems and stigma that come with social housing, while still making homes affordable and actually available?
So in my mind the stigma comes from the fact that because we currently build so few social homes now that they only people who get to use them are the traditional targets of that stigma (drug addicts, vagrants, ex-cons etc). If we slowly built to a situation where say 20% of all housing in Australia was publicly delivered, then the sheer quantities of normal people living in them would negate the stigma over time.
Having said that I do think it is important to avoid the mistakes of the past in concentrating public housing where it is cheapest and most convenient.
I have previously argued that one way to negate this while getting the public housing system moving quickly is for the government to commit to buying a percentage of new private stock off the plan.
Say a developer proposes to build a set of ten townhouses in an inner suburb. The Government would then commit to buying one of those townhouses for the purpose of providing subsidised housing for those who need it. This would artificially boost demand for Missing Middle housing, because developers would have more confidence in knowing they have one less townhouse to sell.
Now expand this to the macro scale - demand for new Missing Middle housing would increase, cities would meet population growth in a more sustainable way, more lower-income workers would be able to live closer to their job, birds would return to the forest.
How much more tax are you prepared to pay, or what Government services do you think should be cut, to pay for this purchase of housing by the Government.
It is like an opportunity to print money, and the rorts that have resulted, should be a major embarrassment to the Government. The numbers milking that scheme both administrating companies and claimants should be seriously looked at.
Another area that should be scrutinised is the administration of In Home help for the aged.
Why, companies who administer the help take a modest 35%, of the government aged care grant to manage the provision of in home help. If a pensioner gets a $10,000 allowance for assistance, the administration of that assistance costs $3500. It seems to be accepted by the Government without question.
The Submarines are the insurance premium required by our allies to stand by us when we need them to help defend our homeland.
In the real world of geopolitics, military strength and allies that will stand by us when push becomes shove , is what keeps our complaisant country safe
The World is as dangerous now, if not more so, thanks to nuclear weapons, than it was in 1938, and to think otherwise is dangerous denial.
Government housing was a bipartisan policy from the Chiffly government through the Menzies government. It is time to bring it back.
I would also limit the number of houses a person (real or corporate) could own to three. There would be a five-year transition during which anyone owning more than that (including prominent politicians) must sell their surplus.
I have argued for something similar in the past. A less extreme version could be that investors can own as many homes as they like, but only if they are new builds.
Interesting that Botswana is close to us: a stable economy dependent on mineral exports. We won’t diversify until the dollar drops and that won’t happen until our resource exports fall. The resource curse I think it’s called. Hopefully green steel, green aluminium and green ammonia may be on the horizon but not for 20 years.
"Aside from mining, pretty much our entire economy is made up of demand driven services. We don’t make things here friend, we send emails. An entire nation, circling back and touching base;" and so many of those service jobs are bullshit office jobs occupied by the otherwise unemployable, destined to be gobbled up by AI over the next few years. It makes one wonder what the Australian economy will actually look like in a decade.
A year ago I wasn’t freaking out about this, but I am now!
If I’ve learned anything from these types of debates, it’s that a lot of people seem to think everybody else’s job is bullshit except their own job which is in fact very important.
You can make any job seem nonsense by describing it in this dismissive “just sending emails” way, doesn’t mean you actually have a deep understanding of it.
Sure, but for what its worth that was more of a joke for readability's sake. The larger point was that these jobs are not bringing wealth into the country. They are just moving money around within Australia. Yes there are instances where consultants do work for overseas clients (which I count as an export) but by and large this is what the bulk of people in our economy are doing for a living.
Administration is an overhead, it is non productive and should be minimised.
An unacceptably large proportion of the national workforce is non contributory to economic growth, and couple this to falling productivity, and we are going downhill.
If I pay my son for mowing the lawns, the net worth of the family is unchanged. The same applies to a country, it is about providing goods and services to others that increases our income, not the overheads of non productive sectors such as Government
I agree with the diagnosis, but not the conclusion. What we’re seeing isn’t market failure; it’s the market responding perfectly to the signals it’s been sent. And those signals, from zoning restrictions and tax incentives to artificially low interest rates, have all pointed towards inflating this particular asset class.
The core issue isn’t that the market can’t provide affordable housing. It’s that government intervention has distorted the incentives so badly that rational private actors are pushed into speculation, not supply. Introducing even more government spending, without fixing the underlying distortions, risks capitalising those subsidies straight back into land prices.
What to build, where, and how much should be driven by actual demand, not bureaucratic guesswork. The solution isn’t more state control, it’s coordinated deregulation. Let the market respond freely to demand by removing restrictive planning barriers, coordinating infrastructure delivery across the three levels of government, and refraining from policies that crowd out private investment in construction.
The more central planning we throw at this, the worse it will get. Just my 2 cents, fully acknowledging I'm not the housing expert...
I don't disagree and ultimately I think it needs to be a two-pronged approach.
𝟏. 𝐈𝐦𝐩𝐫𝐨𝐯𝐞 𝐭𝐡𝐞 𝐩𝐫𝐢𝐯𝐚𝐭𝐞 𝐬𝐞𝐜𝐭𝐨𝐫'𝐬 𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐭𝐨 𝐝𝐞𝐥𝐢𝐯𝐞𝐫 𝐚𝐟𝐟𝐨𝐫𝐝𝐚𝐛𝐥𝐞 𝐬𝐮𝐩𝐩𝐥𝐲
Right now, the private sector is struggling to deliver because the economics of delivery are no longer adding up.
To restore confidence and capacity, we need:
- More development-ready land
- Faster approvals and reduced red tape
- Subsidised enabling infrastructure
- A skilled construction workforce pipeline
- Embracing modern, efficient building methods
- Tax and policy reform
- A wider mix of available housing types
- Halting the regulatory creep on building standards
𝟐. 𝐈𝐧𝐯𝐞𝐬𝐭 𝐢𝐧 𝐩𝐮𝐛𝐥𝐢𝐜 𝐡𝐨𝐮𝐬𝐢𝐧𝐠 𝐚𝐭 𝐬𝐜𝐚𝐥𝐞
The private market can’t meet all housing needs right now where a growing cohort of Australians cannot afford what the market is producing. In the late 40s and 50s, governments built tens of thousands of homes at a scale. Today, the social housing waitlist is growing, and the system is struggling to keep up.
We need long-term investment in public housing to:
- Stabilise rents
- House essential workers and vulnerable people
- Stimulate the modular and affordable housing sector
- Counterbalance market volatility
Thanks for the thoughtful reply. I think we’re mostly aligned on the diagnosis, even if we differ slightly on the next steps.
On the first front: absolutely, we need to restore the private sector’s ability to deliver. However, we should be clear-eyed about what is stopping it. It’s not a lack of willingness, it’s that the incentive structure is broken. Zoning, planning delays, and infrastructure gaps all matter. However, so do tax settings like negative gearing and CGT discounts, which have actively funnelled capital into existing stock rather than new supply. If “tax reform” means tackling those distortions, then I’m all for it.
My concern is that solutions often involve adding further government activity on top of a distorted base, such as subsidies, grants, or targeted infrastructure spending, without first stripping back the original distortions. We end up baking in the problem. The market reacts rationally to the signals it gets, and right now those signals are skewed.
That’s why I’m sceptical about large-scale public housing, too. It sounds appealing, but history shows it tends to crowd out private delivery, struggle with long-term maintenance, and eventually become politically and financially unsustainable. The 1950s example often cited occurred in a totally different environment, one without today’s regulatory and fiscal constraints. My grandpa built a house from vacant land to a turnkey in 16 weeks. That is completely unfathomable in today's environment.
What we need is a genuine reset: clear, neutral rules; tax settings that don’t privilege speculation; and room for supply to respond organically to demand. Less interference, fewer mixed signals, and a return to letting price and demand shape outcomes - IMHO.
I agree with pretty much everything you're saying and I've argued these points in past articles. My whole thing at the moment is basically saying, ok that's what needs to happen, what policies out of those are actually politically feasible?
9 times out of 10 if it's about boosting supply through greenfield development on the fringe it's less controversial.
Everything else, whether it's upzoning or extracting these artificial drivers of demand, then it's political suicide.
And if you accept that, then we need to wait for a durable political majority of Australians who will vote for more radical change, and we basically aren't going to see transformative change until we hit a crisis point. Until then, we will see more can-kicking.
So my post is kind of about saying if you acknowledge these constraints, what is achievable meantime?
For some time now, when the issue of high purchase price and high rents comes up on social media I have argued for the revitalisation or reimplementation of public housing. It for three decade after WW2 until all Australian states and political parties were seduced by economic rationalism and either forced the various Housing Commissions to return a profit and if they didn’t basically closed them down because, of course, the private sector could provide social housing at a lower cost and more efficiently that worked well. Didn’t it?
Could this be the beginning of the end of our love affair with McMansions ?
Is this the time in our history to begin looking at smaller homes which SHOULD equate to lower construction cost which COULD potentially start a second tier of homes across the whole country.
Back in the 00's when I was building energy efficient european style homes I thought we would one day see energy ratings like in US & Europe where they can quantify how efficient in $$ terms a house was. I envisaged a day a home would be advertised as 5 bed 3 bath 2 car - 300m2 building area - 750m2 land - 9 star energy efficiency - $2,000 - $2,500 energy per year.
I was wrong.
Perhaps we can see a change in advertising from 5 bed 3 bath 2 car - 300m2 house - 750m2 land to 4 2 2 - 160m2 house on 350m2 land ?
It would mean all rooms would be smaller and with lot sizes being significantly smaller than a decade ago, we may need to forgo luxurious front yards and backyards.
Perhaps government could have a go at building communities where communities are carved into slightly larger street blocks and something of a community park is everyone's backyard. Meaning, instead of everyone having a backyard, could we go back in time and create community atmosphere by having kids playing with neighbouring kids and perhaps some community gardens filled with real food ? Wish I could draw my idea but, essentially, what I'm talking about is NOT having lots back-to-back - all the houses around the perimeter of the street block would only have side neighbours (thereby reducing some of the neighbourly issues) and everyone's backyard was connected via a gate to a 'central park' type community play area - these community areas could be of varying sizes but with building lots becoming smaller, land developers would not be losing too much.
It would, however, involve council stepping in to maintain these areas unless it became a 'thing' that the community on that block paid a strata-type fee to have it maintained.
Lord save us from that entire strata industry but I pray we are able to return one day to a community that looks after each other rather than builds fences so that noone can see anyone else and noone talks, or worse, spies on each other !
Just a thought from a simple Sydney builder.
Thanks for your comment Steve, I agree with a lot of things you wrote and I would just make a few observations.
I worked as a council town planner and I recall the time when the State Government brought in the small lot subdivision. This was all part of an Australian wide urban efficiency drive (AMCORD) to get, amongst other things, more houses being serviced by the same length of infrastructure (i.e. pipes and wires). So smaller lots inevitably resulted in narrower frontages and longer depth due to the often standard frontage to depth ratio employed in subdivision at that time. These smaller lots often meant that the ONLY house that could be built on these blocks was a two storey townhouse or Courtyard dwelling. I say ONLY because people wanted space and the economics of putting on an extra storey and getting a better sales price was a no brainer (as you would know better than me). Again these sort of houses would not be the sort of houses that easily enable the type of energy efficient housing that you desired.
I was always struck by the number of objections we would get, in those early years, for small lot subdivision. To many people at that time - small lots were the devil incarnate and it was not uncommon to get 200+ objections. Massive numbers. So it was a brave Council and Councillors that ignored those community objections. But now these small lot subdivisions are more accepted and you can't object to them anyway (well at least not in Qld) provided you complied with the standard code.
But what I really want to say is that outcomes are almost always a factor of design, whether deliberate or unintentional. In the drive to get more urban efficiencies, I think we lost the opportunity to do small lots with longer frontages where you can also utilise passive design principles to increase energy efficiency. As always there are balancing decisions and trade offs when making policy. Subdivision design was never my strong point, but I do think some smart urban designers could come up with a way to allow small lots with wider frontages as part of a larger englobo land package.
I know from my own experience that finding a small lot (400m2) detached house on a single level with 2 bedrooms is like finding hens teeth and the only real option I can find is villas and that is a battle royale when it comes to competing buyers. So there is a real large pent up demand for this form of housing. It is just that it can't or won't be done without some trade-offs, usually profits.
Nah, the tradespeople are a cartel, and they’ll make the costs ridiculous per square foot.
Is strata the Australia term for HOA?
How would you qualify for government built housing? Because we all know Australians love a rort. How do you prevent ‘mum and dad’ buyers from gobbling up the stock?
I won’t pretend I’ve given it a lot of thought but I’d assume you’d means test it the same way you do any social program? Also there are lots of examples of public housing schemes conditions where you aren’t allowed to resell the homes at market rate, it has to be sold at a proportionally reduced rate.
I think Cam Murray has suggested a solution whereby owners in the parallel system can sell only to people in the pool of eligible buyers. Seems practical?
I agree with your conclusion. The market won't build cheap housing, but the public sector can.
But you also say this:
"Most types of housing projects simply aren’t profitable anymore. With rising interest rates, labour shortages, expensive materials, and razor-thin margins, developers can’t make the numbers work"
I hear this a lot, usually when developers are lobbying for lower taxes or rezoning.
Is it actually true? How do you know?
And what do you mean by "not making the numbers work"?
Do you mean "a developer can't buy land to develop at a price that lets them make a profit"?
Because that seems unsurprising and inevitable. Competition between land buyers will always bid price of land up to the residual land value (i.e. the development profit), or even higher.
If developers could make easy money buying sites and developing them, that state of affairs wouldn't last long.
The fact that there is no easy money in development doesn't mean "housing projects aren't profitable". It just means land prices reflect those profits, so margins for developers are always and everywhere thin. Nothing special about right now versus 50 years ago on that front.
Or do you instead mean "developers already owning land can't make a money demolishing existing structures and building new ones"?
If so, do you have any evidence for that?
Because my understanding is that there is already loads of feasible capacity for development (i.e. sites that could be profitably redeveloped), and that the reason it is not being turned into housing straight away is that it's more profitable to bank it for future development.
There are 100,000s of thousands of approved but not commenced dwellings in our capital cities, for example. Greenfields land costs ballpark $50-100k to prepare and so a house could be sold for say $200-300k above that. But the developers are selling them for $600k+. It would be feasible to sell heaps more at $300-400k, but they don't, because they make more money landbanking.
Thoughts?
Hi Tim - huge fan of your work!
So full disclosure, I am neither an economist (and am at least a standard deviation dumber than yourself), nor a developer so I am not on the front lines with how these calculations and decisions are made but what I am hearing from developers is that the result of the recent cost escalation means that developers now need to sell new apartments at the following (approximate) prices for a 110m², 3-bedroom apartment:
~$1.5 million in Melbourne (approx. $14k/m²)
~$1.6 million in Brisbane (approx. $15k/m²)
~$2.2 million in Sydney (approx. $18k/m²)
My whole point is that at these prices, the number of Brisbanians out there with the ability to spend $1.6m on a new apartment (but not a house) is very small — especially while that same sum will buy you a well-located palace in the same city. The demand created by this small group is an order of magnitude (or two) short of what we would need to densify our way out of this housing crisis via the private sector apartment projects alone. This is also why I think that the next 5 or so years will see precious little apartments getting built beyond high-end luxury stock - with the bulk of new supply activity going towards greenfield housing.
Totally agree with you re: land banking (though wasn't aware that the approved, but not commenced dwellings was that high) and think we should enact policies to put a stop to it or at least reduce it. I'm a big support of LVT for that reason.
But to your point that just because there isn't "easy money" in development doesn't mean that they *cant* develop - while that's no doubt true, they still aren't doing it - and they are the ones who build housing. So if we could get back to some kind of similar conditions to the twenty-teens where they were building significantly more (even without an LVT) - then wouldn't that be better than now?
Thanks Riley - likewise!
Those stats sound about right.
No doubt it's true: for a developer to make the profit margin they expect on either (A) the price they already paid for land, plus construction costs, or (B) the price a seller is asking for land, plus construction costs, they'd have to price units far higher than buyers can afford today.
There is some fascinating economics here.
What's going on is that:
1. Rising costs and flat sales prices have compressed the development residual (the Residual Land Value, or RLV); but
2. Lower RLVs haven't yet fed into lower land prices; which suggests
3. Developers holding land are reluctant to crystallise losses by selling land for less than they paid or houses at a lower margin than they hoped for; or
4. They are holding onto land as an asset, because they know development returns will be higher in future, at which point they can either develop, or sell their land for a higher price than today.
The really important point here is that land prices are different to other input costs. Land prices aren't a fixed and uninteresting part of the development equation that must be taken as given. You can see that if you compare land to, say, building materials.
Building materials prices are set by the cost of production for building materials.
But land prices are not set the cost of producing land - because there is no such cost! They are set by the demand for land for development.
Land prices tell us about what land buyers and sellers think will happen to development prospects in future. If they're high, and haven't fallen to a level that makes immediate development highly profitable, that tells us developers think development will be more profitable in future.
Which is to say: developers are rationally holding back from building today, because it's more profitable for them to build tomorrow, not because it's unprofitable to build per se. (Think about a vacant inner urban lot or a greenfields estate - I promise you that you can more than cover your cost of construction with the sales price, even right now.)
It's a really important point to understand, because much lobbying asks government to change one or the other part of the development residual - e.g. to reduce developer charges, or increase allowable density - and the lobbyists pretend this will make more development profitable today.
It won't - because it'll just feed straight into higher land prices. The market develops at an optimal rate, and increasing feasibility won't change that rate.
Cheers!
So interesting! It is almost like the reverse of a deflationary event where people hold off buying goods in anticipation of them being cheaper in the future. Developers hold off making goods (housing) because there is no cost to them in sitting on their hands until circumstances change and they can take less risk. Do you think an LVT is the solution to the land banking issue?
On your point regarding how improving feasibility won't actually reduce prices and will just feed into higher land costs - I have read cam's articles on this and my feeble brain can't seem to absorb this argument.
Are you saying that when there's changes in things like construction costs or taxes that improve feasibility, the "wiggle room" this creates just causes land values to go up because there is more capacity for buyers to pay? And that "unlocking" these gains in lower costs on the developer side just causes a different equilibrium to be found?
"Are you saying that when there's changes in things like construction costs or taxes that improve feasibility, the "wiggle room" this creates just causes land values to go up because there is more capacity for buyers to pay?"
Exactly. Those tax breaks, or changes in construction costs, are passed back into land prices.
Suppose a site is zoned for townhouses which sell for $6m and cost $3m to construct (including a development margin to compensate for risk). There's also a $1m developer charge (DC).
Developers do the calculation:
Sales price ($6m)
-
Development costs ($3m+$1m)
=
RLV ($2m).
None of them will pay more than $2m for the land.
And because there's competition between them to acquire the site, it'll end up priced at $2m (no less).
Now suppose the $1m DC is abolished.
The RLV rises to $3m. After all, if the land price remained at $2m, anyone could buy it, develop it, and get $1m profit more than necessary to compensate for risk. So developers bid the price up to $3m.
Same story if you upzone the site: the sales price rises, the RLV rises, and the land price rises.
Lowering taxes or removing regulations to increase feasibility just causes land prices to rise.
The reason improving feasibility won't change housing supply is that how many houses are built at a given point in time depends on whether the return from building today is better than the return from building tomorrow. It doesn't depend on the level of the RLV: it depends on the returns from building vs waiting.
For instance, if you own the land in my example, you could build today, sell the homes, and put your $2m profit in the bank, earning (say) 5%, leaving you with $2.1m in a year's time.
But if you think your $2m worth of development-ready land is likely to rise in value by (say) 10% this year, then you should hold it as undeveloped land. If you're right, it'll be worth $2.2m in a year's time, and by landbanking, you've made more than you would by developing it.
Changing taxes doesn't change those relativities.
For example, abolishing the $1m DC changes a $2.1m return on developing today into a $3.15m return on developing today, and changes a $2.2m return on waiting into a $3.3m return.
Reducing taxes pumps up land prices - but doesn't change the fact that the 10% return on the land price from landbanking trumps the 5% return on developing the land and putting the cash in the bank.
As always, Cameron has the most detailed explanation, here:
https://www.fresheconomicthinking.com/p/explainer-markets-efficiently-delay
Thanks for your interest!
I think I get it now - thanks for taking the time. So assuming all of this is true - is the conclusion that there's nothing really to be done in boosting private sector housing activity?
Monaco of the Pacific. It’s a Pacific globalist retreat in the making.
A realistic detailing of the unpalatable economic truths that are so conveniently ignored by all the pronouncements of the mass of respondents about the housing crisis.
One problem about a mass building of state owned rental housing, how is it going to be paid for, we have a Government running record deficits and planning to do so for the next decade.
People expect the Government to work miracles, but never ask where the money is going to come from.
There is a simple message, the Government has no money, it is the peoples money, the Government can only spend on the people's needs by taking from the people by way of Taxes, levies and excise duties, and there is a limit to how much taking can be done.
So, it is a matter of priorities, what do the majority of the people want the Government to spend less on, and how much more do they want to be taxed to pay for public housing.
I would leave this unpalatable, if there is a War in our region, then it all becomes somewhat academic, as we will probably end up as a vassal State of the Peoples Republic of China. I wouldn't think the USA will come to our aid when we are not prepared to make anywhere near an adequate investment in our own National Security.
Why has this happened, how about blaming ourselves and our political masters, after all we all were lulled into accepting their promises of a future Nirvana, and a solution to all problems, so long as we voted for them.
A realistic detailing of the unpalatable economic truths that are so conveniently ignored by all the pronouncements of the mass of respondents about the housing crisis.
One problem about a mass building of state owned rental housing, how is it going to be paid for, we have a Government running record deficits and planning to do so for the next decade.
People expect the Government to work miracles, but never ask where the money is going to come from.
There is a simple message, the Government has no money, it is the peoples money, the Government can only spend on the people's needs by taking from the people by way of Taxes, levies and excise duties, and there is a limit to how much taking can be done.
So, it is a matter of priorities, what do the majority of the people want the Government to spend less on, and how much more do they want to be taxed to pay for public housing.
I would leave this unpalatable, if there is a War in our region, then it all becomes somewhat academic, as we will probably end up as a vassal State of the Peoples Republic of China. I wouldn't think the USA will come to our aid when we are not prepared to make anywhere near an adequate investment in our own National Security.
Why has this happened, how about blaming ourselves and our political masters, after all we all were lulled into accepting their promises of a future Nirvana, and a solution to all problems, so long as we voted for them.
A realistic detailing of the unpalatable economic truths that are so conveniently ignored by all the pronouncements of the mass of respondents about the housing crisis.
One problem about a mass building of state owned rental housing, how is it going to be paid for, we have a Government running record deficits and planning to do so for the next decade.
People expect the Government to work miracles, but never ask where the money is going to come from.
There is a simple message, the Government has no money, it is the peoples money, the Government can only spend on the people's needs by taking from the people by way of Taxes, levies and excise duties, and there is a limit to how much taking can be done.
So, it is a matter of priorities, what do the majority of the people want the Government to spend less on, and how much more do they want to be taxed to pay for public housing.
I would leave this unpalatable, if there is a War in our region, then it all becomes somewhat academic, as we will probably end up as a vassal State of the Peoples Republic of China. I wouldn't think the USA will come to our aid when we are not prepared to make anywhere near an adequate investment in our own National Security.
Why has this happened, how about blaming ourselves and our political masters, after all we all were lulled into accepting their promises of a future Nirvana, and a solution to all problems, so long as we voted for them.
I like this article and agree that "unleashing the market" so to speak isn't enough on its own. While you say "we can’t lift wages at a rate that exceeds housing inflation for decades on end," would raising the minimum wage not have a significant impact? I'm also wondering about the pros and cons of rental assistance or even UBI, and how just giving people money compares to building public housing. Curious to know your (or anyone's) thoughts.
Just a note when I was in the wealthier parts of Hong Kong I stayed with a friend in their apartment. I was impressed. Large rooms not pokey at all two or more balconies etc. This was not just an apartment. It was a small town. It had its own doctor, shopping centre, parks, gardens and sporting facilities. Easy transit using small business in and out of town. Extremely well thought through. It was built by a private developer and people bought the apartments. We could do something similar in Australia . The land here would be a lot cheaper and in due course we will have to confront insane building costs in Australia. Complexes like this would be ideal for older Australians but adequate for Australians of any age in my opinion.
Complexes like this would be ideal for older Australians, especially those with arthritis and other disabilities when the lifts were out of service.
If the government started a big public housing program like you suggest, how do you think it could avoid the usual problems and stigma that come with social housing, while still making homes affordable and actually available?
So in my mind the stigma comes from the fact that because we currently build so few social homes now that they only people who get to use them are the traditional targets of that stigma (drug addicts, vagrants, ex-cons etc). If we slowly built to a situation where say 20% of all housing in Australia was publicly delivered, then the sheer quantities of normal people living in them would negate the stigma over time.
Having said that I do think it is important to avoid the mistakes of the past in concentrating public housing where it is cheapest and most convenient.
I have previously argued that one way to negate this while getting the public housing system moving quickly is for the government to commit to buying a percentage of new private stock off the plan.
Say a developer proposes to build a set of ten townhouses in an inner suburb. The Government would then commit to buying one of those townhouses for the purpose of providing subsidised housing for those who need it. This would artificially boost demand for Missing Middle housing, because developers would have more confidence in knowing they have one less townhouse to sell.
Now expand this to the macro scale - demand for new Missing Middle housing would increase, cities would meet population growth in a more sustainable way, more lower-income workers would be able to live closer to their job, birds would return to the forest.
How much more tax are you prepared to pay, or what Government services do you think should be cut, to pay for this purchase of housing by the Government.
Also the NDIS is rife with abuse and could do with a good slashing
It is like an opportunity to print money, and the rorts that have resulted, should be a major embarrassment to the Government. The numbers milking that scheme both administrating companies and claimants should be seriously looked at.
Another area that should be scrutinised is the administration of In Home help for the aged.
Why, companies who administer the help take a modest 35%, of the government aged care grant to manage the provision of in home help. If a pensioner gets a $10,000 allowance for assistance, the administration of that assistance costs $3500. It seems to be accepted by the Government without question.
I’m prepared to pay more tax but to me I’m gazing hungrily at that largely pointless order of $368bn for 5-7 submarines
The Submarines are the insurance premium required by our allies to stand by us when we need them to help defend our homeland.
In the real world of geopolitics, military strength and allies that will stand by us when push becomes shove , is what keeps our complaisant country safe
The World is as dangerous now, if not more so, thanks to nuclear weapons, than it was in 1938, and to think otherwise is dangerous denial.
See I think we should just get nukes and be done with it as the US may or may not defend us depending on their mood - why risk it?
Government housing was a bipartisan policy from the Chiffly government through the Menzies government. It is time to bring it back.
I would also limit the number of houses a person (real or corporate) could own to three. There would be a five-year transition during which anyone owning more than that (including prominent politicians) must sell their surplus.
I have argued for something similar in the past. A less extreme version could be that investors can own as many homes as they like, but only if they are new builds.
https://theemergentcity.substack.com/p/how-to-solve-housing-unaffordability-6fc
If this was policy, you can bet your bottom dollar that the Australian would rail against because “government bad” - but you’re 100% correct!
Interesting that Botswana is close to us: a stable economy dependent on mineral exports. We won’t diversify until the dollar drops and that won’t happen until our resource exports fall. The resource curse I think it’s called. Hopefully green steel, green aluminium and green ammonia may be on the horizon but not for 20 years.