Government's Role in Australia's Housing Market

The Housing Market Conundrum

Picture this: an uninhabitable shack in Mount Druitt, Sydney, sells at auction for $1.18 million. No power, no water, and 11 bidders fighting over it. SOURCE

It isn't an isolated case. Across Australia, the median home value has risen by roughly $230,000 (about 39%) in five years. Is that just the market, or is there more going on?

My argument is this: governments have good reasons not to fix it. An ageing population is getting expensive, the tax base is narrow, and rising house prices quietly help on both fronts. Policies have favoured property investment and turned homes into wealth-building tools, and younger Australians are paying the price.

Housing as an Economic Lever

It's easy to see the housing market as simple supply and demand. The reality is that governments have long used housing as a lever to stimulate the economy and manage their budgets.

Historical Context: Housing as a Stimulus Tool

Housing has always been a go-to sector for stimulus. In downturns, policies that encourage building and buying are used to boost jobs and activity. After World War II, for example, Australia invested heavily in housing for returning soldiers and a growing population.

Impact: Housing as a Wealth Accumulation Tool

Tax settings and first home buyer incentives (covered below) have turned housing into the main way Australians build wealth. Property isn't just somewhere to live, it's an investment, and that competition keeps pushing prices up.

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Approximately 60% of Australian property investors utilise negative gearing to offset taxable income, reinforcing property investment as a wealth-building strategy.

The Ageing Population and Fiscal Pressures

Australia is getting older. By 2025, nearly one in five Australians—about 18%—will be aged 65 or over, and this proportion is projected to rise steadily in the coming decades.

The Financial Strain of an Ageing Population

An ageing population brings increased demand for healthcare, aged care services, and pensions. These services are costly, and funding them becomes more challenging as the proportion of working-age individuals shrinks relative to retirees.

The government faces a fiscal dilemma: how to fund the growing needs of an ageing population without overburdening the working-age population with taxes.

Home Equity as a Funding Mechanism

One approach has been to encourage older Australians to tap into the equity of their homes to fund their retirement and aged care needs. This can be done through downsizing, reverse mortgages, or home reversion schemes.

By accessing the wealth tied up in their homes, seniors can fund in-home care, medical expenses, or move into aged care facilities. This strategy reduces the immediate financial pressure on government resources.

Livable Housing Design Standards

To support ageing in place, the Livable Housing Design Standard (LHDS) was added to the National Construction Code. It only applies in states that adopted it: Queensland brought it in from 1 October 2023, while NSW and WA chose not to. For your build, it means features like a step-free path to the entry, wider doorways and corridors, and reinforced bathroom walls so grab rails can be added later. The aim is to make homes safer and more adaptable as people age, delaying the need for costly residential aged care.

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By 2066, it's projected that 21% of Australians aged 65 and over will be 85 years or older, highlighting the increasing demand for aged care services. SOURCE

Taxation Shortfalls and Indirect Revenue

Governments collect income tax, company tax and GST. But there's a less visible side: what happens when those sources fall short.

The Corporate Tax Gap

Multinational corporations operating in Australia have been under scrutiny for their tax practices. Despite generating significant revenues, some of these companies employ strategies to minimise their tax liabilities, such as profit shifting to low-tax jurisdictions. This practice reduces the taxable income reported in Australia, leading to substantial revenue losses for the government.

In response, the Australian Taxation Office (ATO) has implemented measures like the Multinational Anti-Avoidance Law (MAAL) to combat these practices. However, challenges persist, and the effectiveness of these measures is an ongoing concern.

Undercharging for Natural Resources

Australia is one of the world's biggest exporters of liquefied natural gas (LNG), yet the revenue collected is surprisingly low. In 2017-18, Australian LNG companies reported revenues of $29.7 billion but paid just $1.07 billion in Petroleum Resource Rent Tax (PRRT).

In contrast, Qatar, another major LNG exporter, received approximately $26 billion in royalties from its LNG exports during the same period.

That suggests Australia isn't getting full value from its natural resources.

Housing Market as an Indirect Revenue Source

So where does housing come in? Not directly. Negative gearing and the capital gains tax discount actually cost the federal budget money. But rising prices pay off in other ways. States collect stamp duty and land tax, which grow with property values. The federal government gets GST on new homes and income tax from a busy construction sector. And the bigger the home equity older Australians hold, the more they can fund their own retirement and aged care, which eases pressure on the pension and public services.

That's why there's little appetite to let prices fall, even though rising prices hit first home buyers hardest.

The James Hardie Example: A Shrinking Tax Base

In March 2025, James Hardie, the fibre cement company that operates extensively in Australia but is domiciled in Ireland, announced it would buy US-based AZEK for about US$8.75 billion and move its primary listing to the New York Stock Exchange. Moves like this raise questions about how much tax big companies pay here, and the deal also proceeded without a James Hardie shareholder vote, which sparked an investor backlash.

The Double-Edged Sword of Housing Policies

Negative gearing, the capital gains tax (CGT) discount and first home buyer grants are meant to make housing more accessible. They've also pushed prices up.

Government Incentives: A Closer Look

Negative Gearing: Investors can deduct rental property losses from their taxable income. It encourages investment, but it also increases demand and makes it harder for first home buyers to compete.

Capital Gains Tax Discount: Investors get a 50% discount on capital gains tax for assets held longer than 12 months. It rewards long-term investment but can also fuel speculation.

First Home Owner Grants (FHOG): These help first home buyers, but boosting demand without boosting supply can push prices higher. The Reserve Bank has noted such subsidies can have "pervasive" effects on housing by lifting demand and prices.

Impact on the Housing Market

The result: existing owners and investors get wealthier, first home buyers get priced out, and the wealth gap widens.

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Negative gearing and the capital gains tax discount cost the federal budget around $20 billion per year, more than twice the $8.4 billion state and territory governments spent on public and community housing in 2022-23. SOURCE

Australia's housing market has long been a cornerstone of wealth accumulation, particularly for the Baby Boomer generation. However, this dynamic has created significant challenges for younger Australians, who now face an uphill battle in achieving home ownership.

A Tale of Two Generations

For many Baby Boomers, property investment was a pathway to financial security. They benefited from policies like negative gearing and capital gains tax discounts, which made property investment more attractive. Over time, these incentives contributed to rising property values, bolstering the wealth of those who entered the market early.

In contrast, younger generations are grappling with a vastly different landscape. Skyrocketing property prices, stagnant wage growth, and increased living costs have made it increasingly difficult to save for a home deposit. For instance, in early 2024, the median house price in Australia was 8.6 times the median gross disposable household income, up from 4.9 times in 2002.

The Impact on Young Australians

The challenges faced by younger Australians are multifaceted:

Delayed Home ownership: Many are postponing purchasing a home, leading to longer periods in the rental market and less financial stability.
Increased Debt: Those who do manage to buy often take on substantial debt, making them more vulnerable to economic downturns.
Mental Health Struggles: The stress of housing insecurity can lead to anxiety and other mental health issues.

The housing affordability crisis doesn't just affect individuals—it has wider societal consequences:

Economic Inequality: The wealth gap between property owners and non-owners continues to widen.
Reduced Social Mobility: As home ownership becomes less attainable, it becomes harder for individuals to improve their economic standing.
Strain on Public Services: Increased demand for rental assistance and social housing places additional pressure on government resources.

Building the Solution: Government Initiatives and the Path Forward

There are efforts underway to boost social and affordable housing and help first home buyers. Here's what's on the table (as at October 2026):

Key Government Initiatives

Housing Australia Future Fund (HAFF): Established as a $10 billion investment fund, the HAFF aims to deliver 30,000 new social and affordable homes over its first five years. This includes 20,000 social housing units and 10,000 affordable homes for frontline workers like nurses and police officers.

National Housing Accord: This agreement between the federal government, states, and territories sets an ambitious target to build 1.2 million well-located homes over five years from July 2024. The Accord includes a $350 million commitment from the Commonwealth to support the delivery of 10,000 affordable homes, matched by states and territories.

Social Housing Accelerator: A $2 billion initiative aimed at delivering around 4,000 new and refurbished social homes across Australia. The funds were provided to states and territories in June 2023 to commence building immediately.

National Agreement on Social Housing and Homelessness (NASHH): Effective from July 2024, this agreement provides $9.3 billion over five years to support social housing and homelessness services, offering flexibility to states and territories to address local needs.

Supporting First-Time Buyers

Help to Buy Scheme: Launched in December 2025, it helps low- to middle-income buyers by having the government take an equity share of up to 40% of a new home's price (30% for an existing home). You need a deposit of just 2% and no lenders mortgage insurance.

5% Deposit Scheme (formerly the Home Guarantee Scheme): The government guarantees part of your loan so you can buy with a 5% deposit and avoid lenders mortgage insurance. From 1 October 2025, the income caps were removed, the cap on places was lifted, and the property price caps were raised.

Local Government Efforts

Local councils are also playing a role in addressing the housing crisis. For example, the Noosa Council in Queensland has waived infrastructure charges for secondary dwellings, such as granny flats, to encourage homeowners to build and rent out these units. This policy aims to increase the availability of affordable rentals for key workers and small households.

Rethinking Housing as a Public Good

Using housing as an economic lever, through negative gearing, the CGT discount and first home buyer grants, has fuelled property price inflation. Add a narrow tax base, with multinationals minimising tax and natural resources undercharged, and governments have every reason to keep prices rising.

Recent initiatives, such as the Housing Australia Future Fund and the National Housing Accord, signal a shift towards addressing these issues by increasing the supply of social and affordable housing.

However, to create a more equitable housing system, a fundamental rethinking is required—one that views housing not merely as an investment vehicle but as a basic human right and a cornerstone of community well-being.

If we want a fairer housing market, we need policies that put affordability first and make sure every sector pays its fair share.

Frequently Asked Questions (FAQ)

1. Why does the Australian government use housing as an economic lever?

Housing drives a big part of the economy. Tax settings that encourage property investment stimulate activity, and rising values lift state revenue from stamp duty and land tax.

2. How do these housing policies affect affordability?

While these policies boost investment, they also increase demand for housing, leading to higher property prices. This makes it more challenging for first-time buyers to enter the market, exacerbating affordability issues.

3. What is the impact of multinational corporations on Australia's tax revenue?

Some multinational companies employ strategies to minimise their tax liabilities in Australia, such as profit shifting to low-tax jurisdictions. This reduces the tax revenue available to the government, potentially leading to greater reliance on indirect taxes like those from the housing market.

4. How does the ageing population influence housing policy?

As Australia's population ages, there is increased demand for healthcare and aged care services. The government encourages older Australians to tap into their home equity to fund these needs, reducing the financial burden on public resources.

5. What initiatives are in place to address housing affordability?

Programs like the Housing Australia Future Fund and the National Housing Accord aim to increase social and affordable housing, while Help to Buy and the 5% Deposit Scheme help first home buyers get in.

6. How effective are first-home buyer grants in improving affordability?

While these grants provide financial assistance to first-time buyers, they can also increase demand without a corresponding increase in supply, potentially driving up property prices and negating the intended affordability benefits.

7. What role do local governments play in housing affordability?

Local governments can influence housing supply through planning approvals and infrastructure development. Some councils have implemented measures like waiving fees for secondary dwellings to encourage the construction of affordable housing options.

8. How does the government's approach to natural resource taxation affect housing policy?

Undercharging for natural resource exports, such as LNG, leads to lower tax revenues. To compensate, the government may rely more heavily on indirect taxes, including those from the housing sector, which can impact housing affordability.

9. What is the significance of the James Hardie case in this context?

James Hardie operates extensively in Australia but is domiciled in Ireland, and its AZEK acquisition came with a move of its primary listing to the NYSE. Moves like this can shrink the domestic tax base.

10. What can be done to improve housing affordability in Australia?

Addressing housing affordability requires a multifaceted approach, including increasing housing supply, reforming tax policies to ensure fair contributions from all sectors, and implementing targeted assistance programs for those most in need.

Why the Government Won’t Fix the Housing Market: The Cost of Ageing

The Housing Market Conundrum

Housing as an Economic Lever

Historical Context: Housing as a Stimulus Tool

Impact: Housing as a Wealth Accumulation Tool

The Ageing Population and Fiscal Pressures