Housing Policy Debate: Experts Slam ‘Dumpster Fire’ Approach & Offer Fixes

With the federal election just around the corner, housing affordability has emerged as a key battleground, with both Labor and the Coalition unveiling policies aimed at easing the burden for first-home buyers. However, these policies have been met with criticism from economists and housing experts, who argue they fail to address the fundamental issue: the chronic undersupply of affordable housing.

Major Parties’ Policies Under Scrutiny

Labor’s campaign launch featured a proposal to allow first-home buyers to purchase properties with a 5 per cent deposit. They also pledged $10 billion towards the construction of 100,000 new homes over eight years, earmarked exclusively for first-time buyers, through grants to state and territory governments, as well as providing zero-interest loans or equity investments.

The Coalition’s policy focuses on tax relief, proposing that first-time buyers of newly built homes be able to deduct mortgage interest payments from their taxable income for a period of five years.

Economists Deliver Damning Verdicts

The economic community has largely responded negatively to these proposals. Prominent economist Chris Richardson bluntly described the parties’ platforms as a “dumpster fire of dumb stuff.” Saul Eslake went even further, labelling the Coalition’s tax deduction plan a “candidate for dumbest policy decision of the 21st century.”

The primary concern among economists is that both policies are likely to stimulate demand without adequately addressing supply constraints. This increased demand, they argue, will inevitably lead to further price inflation, potentially exacerbating the affordability crisis. This aligns with established economic principles; increased demand against static or shrinking supply always pushes prices upward.

Supply-Side Solutions Over Demand-Side Fixes

Housing experts contend that the core problem is the shortage of affordable housing stock and that policies need to focus on increasing supply rather than simply stimulating demand. For decades, Australian housing policy has prioritised measures aimed at boosting demand, such as first-home buyer grants and stamp duty concessions, while neglecting the critical need to increase the availability of housing at all price points.

AHURI’s Critique

Michael Fotheringham, Managing Director of the Australian Housing and Urban Research Institute (AHURI), has been particularly critical of the Coalition’s policy, arguing that it merely *demands* more supply without actively creating it. “It might demand more new supply, but it is not an intervention to create new supply,” Fotheringham stated, adding that it was “actually putting fuel on the fire.”

He acknowledged that Labor’s 5 per cent deposit scheme could also contribute to inflationary pressures, but noted that it was at least coupled with a policy attempting to address housing supply, albeit one that may be insufficient.

The Role of State and Local Governments

Joey Moloney, Deputy Program Director of Housing and Economic Security at the Grattan Institute, points out the complexities of boosting housing supply at the federal level. He emphasises the crucial role of state governments and local councils in this process, particularly concerning planning approvals and land release.

“It’s tricky for the federal government, because they don’t have a lot of levers on the supply side,” Moloney said. “A lot of these really detailed and laborious policy levers need to be pulled at the state level.”

Moloney highlights the importance of increasing housing density in established suburbs with existing infrastructure. While initiatives like the New South Wales Government’s Transport Oriented Development programme in Sydney and the Victorian Government’s Activity Centres programme in Melbourne aim to address this, these efforts often face community resistance.

“Inevitably, you’re going to upset someone, because, inevitably, it’s going to involve building an apartment building next to someone who doesn’t want apartments next to them,” Moloney explains. “Then you’re going to have local members getting confronted by people angry about what the government is doing in their neighbourhood — and there’s a political cost associated with that.” This political cost is often a factor in why governments favour demand-side policies, which are generally more popular, despite their limited long-term effectiveness.

Barriers to Increasing Housing Supply

Beyond planning and approvals, several significant hurdles stand in the way of increasing Australia’s housing supply.

Workforce Shortages

Labour shortages in the construction industry are a major impediment. Dr Fotheringham argues that both major parties need to develop a comprehensive workforce strategy that goes beyond simply providing additional funding for apprenticeships. This includes attracting new workers to the industry, upskilling existing workers, and addressing the gender imbalance in construction trades.

Building Material Costs and Land Banking

Katrina Raynor, Director of the Centre for Equitable Housing at Per Capita, highlights the impact of building material costs, which, while easing somewhat, remain elevated. She also raises concerns about land banking, where developers strategically withhold land from the market in anticipation of future price increases.

“There is a degree to which landowners and developers will strategically not develop land to wait until prices increase,” Raynor says. “So you can move all the planning barriers in the world, and it still may not eventuate in rapid construction of housing.” Addressing land banking would likely require policy interventions focusing on land tax or development timelines.

The Forgotten Third: Renters

A significant oversight in the current policy debate is the lack of attention given to renters, who comprise nearly a third of Australian households. While policies targeting first-home buyers and new builds may have some merit, experts question the wisdom of simply pushing more people into a system that is fundamentally flawed.

Dr Raynor questions the approach of getting more Australians into the housing market “at all costs”. “We continue to allow more people to get into a cooked system, without fixing it,” Raynor says. Policies addressing security of tenure for renters, rent controls, and increased investment in social and affordable housing would provide a more comprehensive approach to tackling the housing crisis. These options, however, tend to be politically difficult to implement.

“What are the implications of continuing on the same trajectory five or ten years into the future?” Raynor asks, highlighting the need for a more sustainable and equitable housing system.

Source: Industry research and analysis.

This article is based on a report from www.abc.net.au titled “Labor and Coalition housing policies a ‘dumpster fire’, expert says”. You can find the original article here: https://www.abc.net.au/news/2025-04-15/housing-policy-election-supply-labour-liberal/105176200