When good intentions backfire: why Australia keeps making housing less affordable

Dr Lyndall Bryant, from the QUT School of Economics and Finance, founder and leader of the Centre for Justice -  Housing Security Research Group

Australia’s housing debate has become a kind of national ritual. Each year brings new schemes, new inquiries, new promises and yet the experience of ordinary Australians remains stubbornly unchanged. Homes are getting more expensive, rents are rising and the dream of secure housing feels increasingly out of reach.

So it’s time to ask a question that cuts through the political noise:  Are our governments’ actions improving housing affordability or are they making it worse?

It’s not a cynical question. It’s a policy reality check.

Last year’s 5% deposit scheme for first home buyers was pitched as a lifeline for first home buyers. Lower the deposit hurdle, help more Australians into home ownership.   Simple.

Except housing markets don’t reward simplicity.

By boosting demand at the lower end of the market without increasing supply, the scheme pushed prices up precisely where first home buyers were already stretched. Industry groups warned this would happen. Researchers warned this would happen. And now the data is confirming it.

The result? A policy designed to help first home buyers ended up making their entry point more expensive.

This is the pattern we see repeating: interventions that sound helpful but ultimately inflate short term demand when supply is a long term game.

Governments don’t provide rental stock at scale. Community housing providers do extraordinary work, but they cannot meet national demand and are focused at the low-income demographic. The private rental market is the choice of housing for millions of Australians and CGT concessions are one of the few levers that keep investment flowing.

Reduce those concessions, and you risk shrinking the rental pool. Fewer investors mean fewer rental properties. Fewer rental properties mean higher rents. Higher rents mean reduced affordability.

It’s a chain reaction we’ve seen before.

The Hawke–Keating Government briefly removed negative gearing in the mid‑1980s. Within 18 months, rents spiked in Sydney and Perth, vacancy rates tightened and the policy was reversed.

The lesson isn’t that tax reform is impossible. It’s that housing policy is an ecosystem. Change one setting without adjusting the others and the consequences can be swift and severe.

The complexity is the oversimplification of the ‘supply-demand’ conundrum.  Demand is a short term factor, for example when interest rates change and demand shifts almost immediately.  Supply on the other hand is long term play.  When policies around supply change, it takes around five years for this to flow onto new stock on the ground, especially for the medium and high density housing we need to meet the government’s housing supply targets.

Today’s debate risks repeating history. Calls to reduce CGT concessions are growing louder, from unions, economists and political actors, but the risk of unintended consequences remains the same.

The Treasurer has been clear that the government’s broader focus is on supply. And he’s right to emphasise it. Australia’s housing crisis is fundamentally a supply crisis. We are not building enough homes, and the construction sector is under extraordinary pressure.

But supply isn’t just about new builds. It’s also about how we use the housing we already have.

This is where policy imagination matters.

Across Australia, millions of bedrooms sit empty every night. Some belong to older homeowners living alone in large family homes. Others are in dwellings where the cost of living is excessive but uncertainty about what taking on a housemate will do to their pension or tax impacts, feel too risky.

What if policy made it easier and more attractive to rent out those rooms?

Ireland’s “Rent‑a‑Room” scheme offers a compelling model. Homeowners can earn rental income up to a tax‑free threshold of €14,000 per year ($24,000 AUD) by renting out spare rooms in their primary residence. The policy has unlocked thousands of affordable rooms, expanded supply quickly and provided additional income to households facing rising costs.

Australia could adopt a similar approach. A targeted tax exemption for renting out spare bedrooms would:

• expand affordable rental options without building new dwellings
• provide income support to homeowners, particularly older Australians
• make more efficient use of existing housing stock
• relieve pressure on the construction sector
• avoid the market distortions created by demand‑side subsidies

It’s a rare example of a housing policy that improves affordability without unintended inflationary effects.

If the federal government is serious about improving housing affordability, it must resist the temptation to reach for politically appealing but economically risky levers. Reducing CGT concessions may sound like a fairness measure, but without a corresponding increase in rental supply, it risks worsening affordability for millions of renters.

Housing policy requires balance, not band‑aids.

Australia’s housing market needs private investors. It needs targeted incentives that expand supply. It needs tax settings that encourage, not discourage, participation in the rental market. And it needs creative solutions that make better use of the homes we already have.

Until we align our policies with the realities of how housing markets actually function, we will continue to see well‑intentioned interventions that make the problem worse, not better.