06/07/2026
Monday Money Talk with Noel Whittaker
Housing affordability has suddenly become the defining political issue of our time. The Government wants us to believe that greedy landlords and generous tax concessions are largely to blame, and that its sweeping changes to capital gains tax and negative gearing were essential to stop house prices spiralling ever higher. Once again, the argument is built on faulty foundations.
Never forget that house prices are determined by the simple forces of supply and demand. Supply depends on planning laws, land releases and the speed at which new homes can be built. Demand is driven by population growth, immigration, consumer confidence and, above all, borrowing capacity. The more people can borrow, the more they can afford to pay, and that extra purchasing power is quickly reflected in higher house prices.
Migration also fuelled demand. Between 2007 and COVID, net overseas migration averaged about 233,000 people a year. It then surged to a record 563,000 in 2022–23, placing even more upward pressure on house prices.
But the biggest driver was borrowing capacity. Let's wind the clock back to 1 July 2007. The Reserve Bank cash rate was 6.25 per cent, standard variable mortgage rates were around 8 per cent, the Sydney median house price was about $560,000 and Average Weekly Ordinary Time Earnings were approximately $53,000 a year. A typical Sydney house therefore cost around ten and a half times the average annual wage. Borrowing was expensive, banks were conservative and buyers could generally borrow only what their incomes would support. House prices were rising, but at a measured pace.
Then came the black swan event that changed everything – the Global Financial Crisis. Concerned that Australia might slide into recession, the Reserve Bank embarked on one of the most aggressive interest-rate cutting cycles in its history. Between September 2008 and April 2009, the cash rate was slashed from 7.25 per cent to 3.00 per cent. Mortgage repayments fell dramatically, allowing buyers to borrow far more. Families who previously qualified for a $500,000 loan suddenly found they could borrow substantially more without increasing their repayments. That extra purchasing power flowed straight into the housing market.
By November 2010, as the Australian economy recovered on the back of China's seemingly insatiable demand for our resources, the Reserve Bank had lifted the cash rate back to 4.75 per cent. Yet mortgage rates remained well below their pre-GFC levels. Sydney's median house price had climbed to about $643,000 while average earnings had risen to around $67,400 a year. A typical home cost around nine and a half times annual earnings. The recovery had not been driven by wage growth. It had been driven by cheaper credit.
And that was only the beginning. From late 2011 the Reserve Bank embarked on another prolonged easing cycle, progressively cutting the cash rate to just 1.50 per cent by August 2016, then the lowest level in Australian history. Every rate cut enabled buyers to borrow more, and house prices responded accordingly.
Between 2017 and 2019 something interesting happened. Interest rates barely moved, but APRA tightened lending standards. Banks became far more conservative in assessing borrowers, maximum loan sizes shrank and Sydney house prices fell despite wages continuing to rise. It was a timely reminder that the availability of credit can matter just as much as its cost.
In 2019 the Reserve Bank resumed cutting rates as economic growth slowed. Then came an even bigger black swan event – COVID. Faced with the prospect of a deep recession, the Reserve Bank slashed the cash rate to just 0.10 per cent while the Federal Government unleashed unprecedented fiscal stimulus through JobKeeper, JobSeeker supplements, cash payments and business support. Banks offered mortgage repayment holidays, households accumulated record savings because they could not travel or spend freely, and confidence returned far more quickly than anyone expected. At the same time, the HomeBuilder scheme triggered an unprecedented surge in residential construction just as supply chains were breaking down and skilled labour was becoming scarce. Building costs soared, completion times blew out and the industry has never fully recovered.
Mortgage rates fell below 2 per cent. Working from home increased demand for larger homes and lifestyle locations. Fear of missing out swept through the market as buyers rushed to lock in historically cheap finance, helped by generous assistance from the Bank of Mum and Dad. Cheap credit, massive government stimulus, parental assistance and FOMO combined to produce one of the biggest housing booms in Australian history.
Successive Commonwealth governments continued to fuel demand through low-deposit guarantee schemes and shared-equity programs under which the Government became a part-owner of the home. Whatever their good intentions, these schemes increased buyers' purchasing power without creating a single additional home. In a market already constrained by limited supply, the inevitable result was further upward pressure on prices.
The lesson is obvious. When more people have the capacity and confidence to compete for a limited number of homes, prices rise. Tax settings may influence the market at the margin, but the dominant drivers over the past two decades have been interest rates, the availability of credit, government stimulus, population growth, migration and simple human psychology. They were the real forces behind Australia's housing boom, not negative gearing or capital gains tax.
Interest rates lit the fire. Governments then poured petrol on the flames.
Even if interest rates had never fallen, housing would still have become far less affordable because governments have quietly transformed new homes into one of their biggest revenue sources.
In 1976, taxes, fees and regulatory charges made up less than 10 per cent of the cost of a new house-and-land package. Today, depending on where you live, governments are taking somewhere between one-third and one-half of the total cost. In Sydney, the figure is pushing 50 per cent, meaning roughly $576,000 of a median-priced new home represents government taxes, charges and compliance costs.
Not bricks. Not timber. Not labour. Just tax.
Half the cost of a new home in Sydney flows into government coffers before the family even walks through the front door. This didn't happen overnight. Over many years, governments at every level shifted the cost of infrastructure away from the general tax base and onto new housing. Developer levies, infrastructure contributions, stamp duty, GST, environmental requirements, planning charges and compliance costs have been piled on one after another until affordability has buckled under the weight.
According to HIA research, government charges now account for roughly 33 to 41 per cent of the cost of a new home in Brisbane and 37 to 43 per cent in Melbourne. These are extraordinary figures, yet politicians continue to speak about housing affordability as though it were some mysterious market failure.
It isn't.
A young couple buying a $700,000 house-and-land package in Brisbane is effectively borrowing somewhere between $230,000 and $290,000 simply to pay embedded government charges. They then spend the next 30 years paying mortgage interest on that tax burden from income that has already been taxed once before. Government gets its money immediately. The buyers carry the debt for decades.
What makes this even more frustrating is that governments continue to announce first-home buyer grants, shared-equity schemes and guarantee programs that supposedly improve affordability while simultaneously inflating demand and maintaining the taxes and levies that have made housing so expensive in the first place. It is the economic equivalent of punching someone in the face and then offering them an ice pack.
The solution starts with honesty. Governments need to stop pretending that housing taxes are somehow separate from the affordability problem when they are one of its major causes. Every levy, charge and regulatory impost attached to new housing should be audited against one simple question: should this cost really be loaded onto first-home buyers?
Some charges will survive that test. Many won't. Infrastructure that benefits the whole community should be funded by the whole community, not disproportionately by younger Australians trying to buy their first home. Loading ever-higher infrastructure costs onto new housing may be politically convenient because the bill is hidden inside a mortgage, but economically it is destructive. It suppresses supply, inflates prices and locks another generation out of home ownership.
Of course, that would require governments to give up one of their favourite revenue streams. That is why voters need to start forcing the issue. The next time a politician claims to care about housing affordability, ask one simple question: if governments are really serious about making housing cheaper, why do they take up to half the price of a new home in taxes, charges and compliance costs?
