By Cassandra Mascarenhas, Product & Marketing Strategist, MakeSpace - a housing advisory and project delivery for community, affordable and specialised housing providers 

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Housing affordability in Australia is not the responsibility of any single level of government, regulator, or institution. That, according to the National Housing Supply and Affordability Council (NHSAC), is part of the problem. The NHSAC's State of the Housing System 2025 report found that net housing completions fell short of newly formed households by around 68,000 in 2024, and that significant system-wide reform across multiple levels of government and industry is needed to materially improve housing outcomes. Understanding who holds which lever, and why those levers have not yet been enough, is the starting point for any serious discussion about what needs to change.

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How did Australia's housing affordability and supply shortage reach this point?

The price-to-income gap in Australian housing is not new, but its scale is often underestimated. Between 1985 and 2025, median house prices across Australian capital cities rose by more than 1,500% in nominal terms. Average full-time earnings rose by around 400% over the same period, based on ABS and RBA data. In Sydney, purchasing a median dwelling now requires over ten times the median annual household income. A decade ago, that ratio was closer to six.

The practical consequences are measurable. A median-income household earning approximately $118,000 could afford just 15% of all homes sold in FY25. An average-income household saving 20% of their income toward a 20% deposit would need 5.8 years to get there. An estimated 1.26 million low-income households were in financial housing stress in 2024–25, spending more than 30% of their disposable income on housing.

Two structural forces sit behind these numbers. The first is that housing demand analysis has consistently shown demand outpacing supply across most capital cities and many regional centres, driven by population growth and household formation that planning and construction systems have not kept pace with. The second is a decades-long shift in housing policy away from supply-side investment (public housing, infrastructure) toward demand-side measures including grants and tax settings. That shift is well documented and widely contested.

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Have first home buyer grants and demand-side housing policy helped or hindered affordability?

The debate over government grants and schemes is genuinely contested, and it is worth understanding the mechanism before forming a view.

Demand-side housing policy - grants, stamp duty concessions, HomeBuilder - works by giving buyers more purchasing capacity. The problem, economists argue, is that where all buyers in a competitive market have access to the same grant, sellers adjust their prices upward to capture that additional capacity. The beneficiary of a $10,000 first home buyer grant in a rising market is often the vendor, not the buyer.

The HomeBuilder scheme (2020) brought this tension into focus. It was credited by the Reserve Bank and ABS with successfully stimulating construction activity during COVID-19. It also brought forward a significant volume of demand that would not otherwise have existed at that point, contributing to trade and materials cost escalation that persisted well into 2022–23 and reduced project feasibility for other housing programs.

This does not mean demand-side policies serve no purpose. Stamp duty concessions for first home buyers in particular price brackets provide genuine cost relief at the point of purchase. But the aggregate effect on housing affordability in the medium term is contested, and most economists and the NHSAC point to supply-side housing policy as the more durable solution.

Supply-side programs such as the National Housing Accord (targeting 1.2 million new well-located homes by 2029), the Housing Australia Future Fund (HAFF), and state programs including Victoria's Big Housing Build ($8+ billion, targeting 12,000+ social and affordable homes), aim to address the structural shortage rather than stimulate demand within it. According to AHURI, 219,000 new homes were completed in the first 15 months of the Accord, with building approvals up 17% over that period.

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How do negative gearing and the capital gains tax discount affect housing affordability?

Tax settings are among the most debated levers in housing policy, and also among the most politically sensitive.

The 50% capital gains tax discount, introduced in 1999, reduces the taxable gain for investors who hold an asset for more than 12 months. In 2024–25, the discount cost the federal budget an estimated $19.7 billion. Analysis by the Parliamentary Budget Office, commissioned by the Senate Select Committee on the Operation of the Capital Gains Tax Discount, found that approximately 83% of the benefit flows to the top 10% of taxpayers by income. Negative gearing, which allows property investors to deduct losses against other income, works alongside the CGT discount to make residential investment more financially attractive relative to owner-occupation.

Critics argue these settings increase property investor demand for dwellings, driving up prices for first home buyers and low-income housing seekers. ACOSS's March 2025 report found that the wealthiest 10% of households hold two thirds of the value of investment property. Further, the number of years required to save for a home deposit has risen from 9.0 years in 2015 to 11.2 years in 2025.

The Senate Select Committee on the Operation of the Capital Gains Tax Discount, which tabled its final report on 17 March 2026, found that the current design of the discount "can distort decision making and incentivise tax planning," and that it has skewed home ownership toward investors over owner-occupiers.

In the 2026–27 Federal Budget, delivered on 12 May 2026, the government announced the 50% CGT discount will be replaced with inflation-based indexation and a 30% minimum tax on gains from 1 July 2027. Negative gearing will be limited to new residential properties. Investors in new builds will have the choice between the existing 50% discount and the new arrangements. The changes apply only to gains arising after 1 July 2027, with transitional arrangements protecting existing investments.

CPA Australia has urged caution, noting that changes to CGT or negative gearing in isolation could unsettle investment decisions without addressing the core issue: Australia is not building enough homes. Tax settings can shape incentives, but most experts agree that housing market reform requires planning reform and construction capacity improvements alongside any changes to the tax system.

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Housing governance in Australia: who holds responsibility and where are the gaps?

Under Australia's constitutional framework, housing is primarily a state and territory responsibility. State and territory governments control land use planning, zoning, development approvals, and public housing stock. Federal housing policy operates primarily through funding mechanisms, such as the Housing Australia Future Fund, the National Housing Accord, and the National Housing and Homelessness Agreement, and through tax settings.

The Reserve Bank of Australia (RBA)’s mandate covers inflation and employment. The Australian Prudential Regulation Authority's mandate covers financial system stability. Neither institution treats housing affordability as a primary objective, though the RBA's interest rate decisions have had a significant bearing on borrowing capacity and property prices over the past fifteen years. Former RBA Governor Philip Lowe stated that using interest rates to curb house prices would be an inappropriate use of monetary policy.

For community housing providers, not-for-profit organisations, and purpose-driven developers working within this system, the governance picture matters because it shapes what can be expected from which level of government, and where the gaps in accountability sit.

The Parliament of Australia's July 2025 research brief on which level of government holds the keys to housing policy found no clear answer. The NHSAC has repeatedly identified fragmented, piecemeal responses across levels of government as a systemic barrier to improving housing outcomes. There is no single national body with comprehensive accountability for affordable housing development or housing affordability as an outcome.

"The Australian housing system remains far from healthy and is continuing to experience immense pressure." Susan Lloyd-Hurwitz, Chair, National Housing Supply and Affordability Council, May 2025

There is also an intergenerational housing dynamic at work. Established homeowners, a large and politically influential constituency, have a financial interest in maintaining property values. Housing policy that might reduce prices is structurally difficult to advance, regardless of which party holds government.

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What would a coordinated national approach to affordable housing development and planning reform look like?

The National Housing Accord represents the most significant attempt at coordinated federal, state, and territory action on housing supply in recent decades. The 1.2 million homes target, the National Planning Reform Blueprint, and the Housing Australia Future Fund (which supports social housing, affordable housing, and crisis accommodation), reflect a recognition that federal housing policy cannot function in isolation from state planning systems.

Treasury data shows the Housing Support Program has committed $1.5 billion to states and territories to fund infrastructure that unlocks new housing supply. The 2026 Federal Budget added a further $2 billion for electricity, road, and drainage infrastructure to support new housing development.

Decentralisation and transit-oriented development are increasingly discussed as long-term supply strategies. The COVID-19 period demonstrated that remote work can shift population toward regional areas - but also that demand moving to regional markets without a supply response simply pushes up regional prices. Infrastructure investment has to precede or accompany population movement for decentralisation to function as an affordability lever rather than an affordability problem in a new location.

The NHSAC's State of the Housing System 2025 makes fifteen policy recommendations across five areas. The overarching message is consistent: piecemeal responses have not been sufficient, and structural reform across planning, construction capacity, tax settings, and housing investment is needed together, not sequentially.

For a closer look at how Victoria's planning system is using affordable housing contributions and net community benefit frameworks as a practical delivery mechanism, our blog on affordable housing and the Victorian planning system covers this in detail.

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How MakeSpace supports affordable housing project delivery for not-for-profit housing providers

The policy debate around housing affordability in Australia will continue to evolve. For community housing providers, not-for-profit housing organisations, and purpose-driven developers, the more immediate question is what can be done within the current environment to plan and deliver more social and affordable housing.

MakeSpace works with providers on the project delivery side of this - navigating planning systems, structuring housing project feasibility, managing procurement, and supporting construction oversight across specialised residential accommodation and affordable housing projects. The delivery risk sits at the project level, regardless of how the broader policy landscape shifts. Getting feasibility assumptions right, managing procurement carefully, and maintaining strong project governance are where outcomes are ultimately determined.

For context on how social housing, community housing, and affordable housing connect as parts of the same system, our blog on Australia's housing spectrum covers the full picture.

If your organisation is working through the planning or delivery considerations for an affordable housing project, we would welcome a conversation.

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Frequently Asked Questions (FAQs)

Why haven't government grants made housing more affordable in Australia?

Government grants for first home buyers increase purchasing capacity in a competitive market. When all buyers have access to the same grant, sellers adjust prices upward, capturing the benefit rather than the buyer. Economists broadly describe this as a demand-side effect: grants bring forward purchasing decisions and can inflate prices rather than addressing the underlying housing supply shortage. The most durable affordability improvements come from increasing supply, which reduces the competition that allows demand-side grants to be absorbed into higher prices.

What is the capital gains tax discount and why is it controversial?

The 50% capital gains tax discount allows property investors who hold an asset for more than 12 months to pay tax on only half their capital gain when they sell. Introduced in 1999, it cost the federal budget an estimated $19.7 billion in 2024–25, with Parliamentary Budget Office analysis finding approximately 83% of the benefit flowing to the top 10% of taxpayers by income. The 2026–27 Federal Budget announced the discount will be replaced from 1 July 2027 with inflation-based indexation and a 30% minimum tax on gains. Critics argue the existing discount has increased investor demand for housing at the expense of owner-occupiers; supporters argue changes in isolation risk disrupting investment without solving the underlying supply shortage.

Is the RBA responsible for housing affordability?

The Reserve Bank of Australia's mandate covers inflation and employment, not housing affordability. Historically low interest rates between 2010 and 2022 increased borrowing capacity significantly and contributed to property price growth, but the RBA does not target house prices. Former Governor Philip Lowe indicated on a number of occasions that using interest rates to curb house prices would be an inappropriate use of monetary policy. The connection between RBA decisions and housing costs is direct and significant, but housing affordability is not a stated objective of monetary policy.

Which level of government is responsible for housing in Australia?

Housing is primarily a state and territory responsibility. States control planning, zoning, development approvals, and public housing stock. The federal government funds and coordinates through programs including the Housing Australia Future Fund, the National Housing Accord, and the National Housing and Homelessness Agreement, and shapes the market through tax settings including the capital gains tax discount and negative gearing. No single body holds comprehensive accountability for housing affordability outcomes — the National Housing Supply and Affordability Council monitors the system and makes recommendations, but it does not hold delivery responsibility.

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Sources: NHSAC — State of the Housing System 2025; NHSAC — State of the Housing System 2026; AIHW — Housing Affordability; PropTrack Housing Affordability Report, November 2025; Australian Generational Housing Gap (ABS and RBA data); ACOSS — Homes for living, not wealth creation (March 2025); Senate Select Committee on the Operation of the Capital Gains Tax Discount — Final Report, March 2026; Australian Government — 2026–27 Budget: Tax Reform; AHURI — Federal measures to tackle Australia's housing challenges; Parliament of Australia — Which level of government holds the keys to housing policy (July 2025); Treasury — Increasing housing supply; Treasury — CGT and negative gearing briefing

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Last updated on June 20, 2026