The National Cabinet has agreed to a new $3.5 billion incentive for states and territories to build 1.2 million homes over five years in a bid to address the country’s housing affordability crisis.
The incentive, called the New Home Bonus, will see the federal government pay $15,000 for each home that is built above the initial target of 1 million homes. The payment will not start until 2028. The agreement also includes a $500 million competitive fund to support essential services such as basic amenities in new housing projects. This fund is intended to encourage states and territories to quicken the pace of building approvals and housing construction.
However, the reality is that it’s mostly a policy to make it look like the government is doing something. The truth is that the housing affordability crisis is a problem that nobody in the government seems to want to solve. As John Howard once said, ‘I don’t get people stopping me in the street and saying, John, you’re outrageous; under your government, the value of my house has increased.’
For the government that is intent on meddling with the markets, at least they’re finally targeting the right thing this time (that is, supply-side incentives) rather than demand-side things like the FHOG and stamp duty concessions, which do nothing more than add to the price of houses. Will it work? It should have some effect, but it’s really going to do nothing to stop the inevitable progression of the market cycle.
Paradoxically, if the market is left to itself, the coming spike in demand will affect supply more than government intervention. It is what will make all the unfeasible sites that the developers are currently sitting on feasible again. The solution to high prices is high prices.
In addition to the new incentive, the National Cabinet also agreed to set nationwide principles on renters’ rights. These principles include a ban on “no-ground” evictions and a limit on rent increases to once a year. However, the agreement did not set a deadline for states and territories to implement these principles.
Here are some of the key takeaways from the agreement:
- The federal government will pay $3.5 billion in incentives to states and territories that build 1.2 million homes over five years.
- The incentive will be paid in the form of $15,000 for each home that is built above the initial target of 1 million homes.
- The payment will not start until 2028.
- The government will also provide $500 million for essential services such as basic amenities in new housing projects.
- The National Cabinet agreed to set national principles on renters’ rights but did not set a deadline for states and territories to implement these principles.
The agreement is a step in the right direction in the government’s efforts to address the housing affordability crisis. However, it will likely do little to address the price issue resulting from the monetary system turning housing into a financial asset. More affordable housing would likely lead to better social outcomes since most people probably don’t want to live in a future where their children can’t afford to buy a property. Having said this, there is little we can do to change the outcome, so the only reasonable response is to invest in property ourselves.