I was stunned earlier this week when I heard the federal Greens had been accused of being in an “Axis of evil” with the Coalition in blocking the Housing Australia Future Fund (HAFF). Sure, the Greens’ call for rent controls is misguided, but the Greens’ central critique of the HAFF was sensible. If you’re actually going to invest in social housing, which is the Government’s intention, the HAFF looks like an ineffective and roundabout way of doing that. It requires the Government to borrow $10 billion to, as the Greens put it, gamble on the stockmarket, with the hope of generating a sufficient return to fund social housing.

Historical data on equity returns versus borrowing rates would suggest the Government could come out ahead in the long-term by following this strategy, but obviously it is risky and it’s silly to tie social housing funding to the outcomes of investments managed by the Future Fund, which would look after the HAFF’s funds. The strategy also couldn’t be used on a large scale because the more money the government tries to borrow, and hence the more bonds it needs to sell, the higher its borrowing costs as the market demands higher interest rates before it buy the additional bonds and lends the government more money. As a former Treasury official, I also hate the idea of the HAFF because setting up and running these types of funds absorbs the time of officials which could be better spent. And they complicate the task of public financial management. As Cameron Murray argued in a podcast conversation I had with him a few months ago, if the government wants to fund social housing it doesn’t need to set up the HAFF: Odd way to fix housing crisis proposed by Aus. Gov’t: invest in stocks first w/ Dr Cameron Murray, Sydney Uni.

In my view, the federal government misstepped by adopting this odd policy from the Grattan Institute. It looks like Prime Minister Alabanese had to take charge last week and announce a $2 billion Social Housing Accelerator, which was a real win for the Greens and acknowledgement the HAFF policy was a failure and really was not required after all.

On the Social Housing Accelerator, I should acknowledge here Graham Young’s blistering critique of it in an Australian Institute for Progress (AiP) newsletter Labor’s $2 Bn social housing policy inflationary and will result in fewer and less affordable dwellings, which I thought made a good point about the risk of crowding out other construction as social housing projects compete with other housing projects for resources.

Regrettably, there probably isn’t much the federal government can do on the supply-side in the short-term to fix the housing crisis. On the demand side, however, it has much more scope to do something. A major contributor to the current housing crisis is the record rate of net overseas migration, at 400,000 people in 2022-23. In my view, the government should tighten up the visa policy settings to give us a level of immigration that best balances the needs of industry and the broader community. At the moment, we seem to be prioritising the demands of industry for more migrant labour over the needs of the broader community.

Of course, we need to do more on the supply-side, too. In my recent podcast conversation with him on housing and immigration, Alan Kohler mentioned a really good idea worth considering from demographer Simon Kuestenmacher: that state governments could set housing development targets for local governments and tie grant funding to the achievement of those targets. As much as I loathe central planning and am generally supportive of some decentralisation, I think this idea is worth consideration given the magnitude of the housing crisis we are facing. Obviously the targets the state governments set would need to be much higher than current housing development levels across council areas. You can listen to my full conversation with Alan Kohler via this link: Immigration & Australia’s housing crisis.

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