Build baby build

The solution to the housing shortage is cheaper construction, not punishing small property investors

If crashing the property market is government policy, the Prime Minister should find the courage to tell us so. After all, it is a policy which might succeed, at least in the short term, which is the only timeframe which seems to matter to Anthony Albanese.

The Budget measures penalising property investors are the biggest contributor to the dampened demand, as reflected in record-low property clearance rates and falling vendor expectations.

Yet this crude, short-term policy measure is bound to make homes more expensive in the long run, by ensuring that demand continues to exceed supply.

Developers won’t commit to build homes on which they can’t make a profit. High fixed costs and bureaucratic delays already make new-builds a marginal proposition in the key markets of Sydney and Melbourne. A fall in prices of as little as 10 per cent would lead to a dramatic slowdown in construction, ending any hope that Albanese will fulfil his promise to build 1.2 million extra homes by 2029.

The abolition of incentives for property investors is a mean-minded, ill-conceived measure by a government led by a Prime Minister who knows nothing about the economics of the housing market but much about politics.

It does nothing to alter the fundamentals of a market in which the gap between supply and demand continues to grow. Unmet demand, exacerbated by high immigration, remains the most important dynamic in the market.

sustainable way to reduce the margins on second-hand homes is to build new ones more cheaply. In a dynamic market economy, where governments kept their fidgety fingers to themselves, a shortage in housing supply would be self-correcting. Higher prices increase the potential return on new investment, encouraging developers to build more homes.

When market interference impedes what economists call the price mechanism, investment in production is deterred.

Today, a new build on a subdivision barely bigger than a postage stamp in outer metropolitan Sydney commands a price of well over $1 million. This is not because of price gouging - the standard government explanation for high retail prices in any sector. It is because any developer who offered it for less would go bankrupt.

The rise in production costs, driven by steep increases in raw materials prices and a labour shortage, is impossible to beat.

Yet a recent study confirms that at least half of fixed costs are imposed directly by governments, state and federal.

A report commissioned last year by the Housing Industry Association found that $576,000 of the cost of a new house-and-land package in Sydney was absorbed by government taxes, regulatory costs, and charges.

In Brisbane, the value of tax and regulatory imposts had more than doubled in six years. Other states are not far behind.

Time being money, unnecessary delays in subdivision approval were pushing prices even higher.

Chalmers might protest that many of these costs are outside the federal government’s control. Most of the approval process and the levying of taxes and charges are in the domain of state and local governments.

Yet Chalmers should use his authority as the federal Treasurer to convene a meeting of premiers, and develop a united strategy to reduce the price of new builds that everyone agrees - at least on paper - is the nub of the property market’s problem. They could follow the example of Canada’s centre-left Prime Minister, Mark Carney, who worked with the provincial government in Ontario to refund Harmonised Sales Tax (HST) on new property. Removing HST, the Canadian version of GST, will save homebuyers in Ontario up to $150,000 on the price of a new home.

Carney has also led the way in slashing immigration, which Albanese is still reluctant to admit is a factor in driving up property prices. The number of non-permanent residents in Canada has fallen from 3.1 million 18 months ago to 2.6 million in the second quarter of this year.

House prices in Canada have steadily fallen each month since April 2025

Rather than frantically forcing prices down by denying future generations investment opportunities, Chalmers should address the barriers within governments’ power to fix.

There is an instructive contrast between Carney, who came to politics after a career at the highest levels of international finance, and Albanese, who became prime minister after a career fighting the politics of envy. Carney instinctively asks what incentives drive behaviour. Albanese asks, “What slogan will survive the evening news?”

That difference is becoming apparent in housing policy. Albanese acts as if housing affordability can be achieved by political decree. Houses are expensive because sellers are greedy.

Yet Carney’s background as an economist tells him that houses are expensive because too few are being built. If governments suppress prices while construction costs, taxes, planning delays and compliance burdens remain unchanged, they simply squeeze developers’ margins.

Supply falls further behind demand, worsening the problem.

The Canadian government is trying to increase supply by making homes easier and cheaper to build - releasing land, financing construction, backing prefabricated housing, reducing taxes on new homes and slowing population growth.

The objective is not to crash the housing market; it is to build enough homes that prices grow more slowly than incomes. Affordability improves because supply catches up with demand.

That is the lesson Australia keeps missing. The value of a house is not something governments can legislate away.

If Anthony Albanese genuinely wants younger Australians to own a home, he should spend less time talking about making houses cheaper and more time making them easier to build.