Housing Affordability and 21st-century problems

Housing affordability is a pressing issue that affects millions of people around the world, and Australia is no exception. This report delves into the major findings of the third AHURI-funded National Research Venture (NRV3), which focused on Housing Affordability for Lower Income Australians. The study aimed to identify the key challenges and risks associated with housing affordability in the 21st century and to draw out policy implications that could help address these issues. The findings reveal that housing affordability is not just a temporary problem but a structural one, with complex and diverse causes that require comprehensive policy responses.

Housing affordability is a significant and widespread problem in Australia. It affects a large number of households, particularly those with lower incomes. The average amount spent on housing costs across all households in Australia has increased gradually from around 11 per cent of household income in the mid-1970s to just over 15 per cent in 2003-04. Currently, around 15 per cent of all households pay at least 30 per cent of their income in meeting their housing costs. For lower-income households, this proportion is almost double the Australia-wide average, at 28 per cent.

Housing affordability is not just a temporary issue but a structural one. This means that it is deeply embedded in the current housing system and will not improve without significant policy changes. The evidence generated through the NRV3 research process indicates that housing affordability will not improve without adjustments to existing policies and additional action by governments at all levels.

The causes of housing affordability problems are complex and diverse. Major driving factors can be found both within the housing system and beyond it. For instance, demographic and economic trends play a significant role. Under scenarios consistent with the Australian Government’s Intergenerational Reports, the proportion of lower-income households with a ratio of housing costs to income of more than double the Australia-wide average could increase by more than 20 per cent by the time those who are now 25 turn 65.

Affordability problems have specific spatial and cyclical dimensions. This means that the severity of housing affordability issues can vary significantly depending on the location and the economic cycle. Policy responses need to be tailored to different local market contexts and be responsive to changing economic conditions.

The households most at risk of facing the multiple problems that arise from a lack of affordable housing are lower-income households in the private rental market. These households often struggle to find adequate housing that meets their needs without causing significant financial stress. Housing markets have failed to provide an adequate supply of affordable housing for lower-income households, exacerbating the problem.

Individual households experience and address housing affordability problems in different ways. While housing provides shelter, it also influences a range of non-shelter outcomes for individual households, such as workforce participation, access to jobs and services, family stability, and educational attainment. Declining affordability has implications for economic performance and labor market efficiency, social cohesion and polarization of cities, environmental considerations, and the creation and distribution of wealth through home ownership.

An integrated set of policy responses capable of addressing the range of factors that contribute to poor affordability will be required. Both housing policy action and action in other policy arenas will be necessary. For example, affordability will not improve if provision of additional income support to households in housing stress is not matched by a supply-side response because of bottlenecks in the housing market and a price effect results instead.

Policy responses need to be tailored to different local market contexts and be responsive to changing economic conditions. A strategic framework that guides the actions and prioritizes different players will be required to promote cohesive action and avoid fragmentation of policy responses. Additionally, policies that assist households to obtain affordable housing should be designed to be responsive to their individual needs and adjust to changes in those needs.

Housing affordability is a critical issue that requires urgent attention and comprehensive policy responses. The findings of the NRV3 research program highlight the structural nature of the problem and the need for integrated and tailored policy solutions. Addressing housing affordability is not just about providing shelter; it is about ensuring that all Australians have access to adequate housing without compromising their overall well-being and opportunities for economic and social advancement.