Page 9 - Wealth-Adviser-Issue-113 (FWP)

ISSUE 113
JUNE 2025

The Firstlinks article, “Can’t Separate Housing Policy restrictive zoning laws in major cities have prevented the
from Migration Policy,” reinforces this point: “With the construction of higher-density housing, exacerbating the
reopening of the international borders we have not been shortage. For example, in Sydney, only a small fraction of
building anywhere near enough new homes.” This simple land is zoned for medium- or high-density housing, despite
observation highlights the core of the problem—demand is the city’s chronic housing shortage.
outstripping supply, and the consequences are being felt Another layer of complexity is added by the role of for-
across the country. eign investment. While foreign buyers are often blamed for
To truly address the crisis, it is essential to understand driving up prices, the evidence suggests that their impact is
its root causes, its economic and social consequences, and relatively small compared to domestic factors. Nevertheless,
the practical solutions that can help rebuild the Australian the perception of foreign investment as a problem has
Dream. shaped public debate and policy responses.
The cumulative effect of these factors is a housing market
Root Causes: Population Growth, Migration, that is increasingly unaffordable for average Australians.
2 and Policy Failures As the Firstlinks article, “Key Factors Behind the Housing
To understand the housing crisis, it is necessary to Supply Crisis,” notes: “The mismatch between supply and
delve into its root causes. At the heart of the issue is rapid demand is most acute in high-growth areas.” This mismatch
population growth, driven primarily by high levels of is not just a matter of economics; it is a reflection of deeper
immigration. While immigration has long been a corner- policy and planning failures that need to be addressed.
stone of Australia’s economic and social policy, its impact on
housing demand has often been underestimated or ignored Economic and Social Consequences:
in political discourse. 3 Inequality, Wealth, and Resilience
The Sustainable Population Australia briefing note is The housing crisis is not just an economic issue—it is also
unequivocal: “The connection between population growth a social one. The rising cost of housing has led to increased
– driven by high immigration – and high housing inflation inequality, with wealthier Australians benefiting from
is often ignored or denied in political circles but is accepted rising property values while others are left behind. This
as an undeniable fact by almost everyone knowledgeable dynamic is particularly evident in the growing gap between
about the property industry.” This reflects a growing consen- generations, with younger Australians finding it increasingly
sus among experts that migration is a significant driver of difficult to afford their own homes.
housing price increases. The Sustainable Population Australia briefing note makes
However, migration is not the only factor. Supply-side a powerful observation: “Wealth inequality has increased
constraints—such as slow planning approvals, restrictive much more than income inequality, and land inflation is the
zoning laws, and high construction costs—have also played main cause. It is recreating a Dickensian dystopia, locking in
a critical role. The Firstlinks article, “Key Factors Behind the intergenerational classes of advantage and disadvantage.”
Housing Supply Crisis,” explains: “Housing supply is inelas- This statement underscores the profound social implications
tic, meaning that significant changes in the rate of popu- of the housing crisis, with the potential to entrench inequal-
lation growth such as those seen over recent years don’t ity for decades to come.
necessarily result in a supply response.” In other words, The impact on wealth management and financial resil-
even if demand increases rapidly, the supply of new homes ience is also significant. For many Australians, property is
cannot keep up due to structural and regulatory barriers. their largest asset and a key component of their retirement
Policy failures have compounded the problem. Tax in- planning. However, the current market dynamics mean that
centives like negative gearing and capital gains tax discounts those who do not own property are at a significant disad-
have encouraged speculative investment in property, driving vantage. The Firstlinks article, “9 Ways to Fix Australia’s
up prices and making it harder for first-home buyers to enter Housing Crisis,” notes: “The average investor/SMSF trustee
the market. These policies have created a situation where needs all the help they can get.” This reflects the challenges
property is seen as a vehicle for wealth accumulation rather faced by individuals and families trying to navigate an
than a basic need. At the same time, planning and coordina- increasingly complex and volatile housing market.
tion between federal and state governments have often been The Productivity Commission has highlighted the
inadequate, leading to fragmented and ineffective responses growing intergenerational divide, with younger Australians
to the crisis. facing lower rates of home ownership and higher levels
The Grattan Institute has highlighted the need for of housing stress than previous generations (Productivity
planning and zoning reforms to unlock more housing Commission, 2023). This trend has implications not just for
supply (Grattan Institute, 2023). Their research shows that individuals, but for the broader economy and society. When

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