What can Australia learn from Europe’s housing plan?

The European Commission recently released its first-ever Affordable Housing Plan.

Property prices have outpaced incomes across Europe over the past decade. Home ownership has been pushed out of reach for many.

But for economically successful cities and tourist regions, price and rent trends have been even more stark. For example, the commission reports that “in cities and regions in high demand, even one third of average income is often not sufficient to pay the rent on a 25 square metre apartment”.

The commission’s plan, therefore, is mainly a response to the growing worries about the socially destructive effects of failing housing systems.

Equally concerning, though, is the economic damage wreaked by housing affordability stress. The commission sees this as “impairing labour and educational mobility, weighing on economic growth, innovation, and competitiveness”. It’s a highly pertinent assessment for Australia.

So what does the European plan suggest, and what lessons does it hold for Australia?

Tackling housing unaffordability

As in Australia, the commission’s top prescription for enhanced housing affordability is ramped-up home building. Here, it’s estimated that EU-wide industry output needs to rise by 40% to match current demand.

This is in the same ballpark as the Australian government’s five-year aspiration to enable the construction of 1.2 million new homes from 2025. That’s a 33% increase over the 2005–25 norm.

As desirable as such an objective may be, the scope for significantly enhancing affordability in this way remains questionable. It’s particularly doubtful in light of recently published Australian modelling on the relationship between house building and house prices.

This analysis suggests that, without complementary policies, generating even a very modest affordability improvement would be challenging. It would require housing industry output to be boosted by a third, not just for five years, but consistently for two decades.

Wisely, though, the commission’s plan recognises many complementary efforts are also needed. These include “maximising the efficient use of the existing building stock”. In other words, policymaker attention to expanding new housing production is illogical without a parallel emphasis on reducing the large numbers of vacant and under-used homes nowadays present in many countries.

With one million Australian dwellings unoccupied on census night in 2021 and another million owner-occupied properties grossly underutilised, this point resonates here, too.

Fundamental land tax reform, widely supported by economists and other housing experts, is the most obvious solution in Australia, just as in other countries.

The role of other property tax settings

Similarly highlighted as problematic by the European Commission is how “increased financialisation and speculation” is putting further pressure on housing affordability.

In response, EU member states are encouraged to implement measures including “effective taxation policies” and “[assigning] a set share of new housing developments to social and affordable housing, reflecting local housing needs”.

If transposed to the Australian setting, these messages would reinforce growing calls for winding back private landlord tax concessions.

Read more: How many of Australia's 2.2 million property investors would lose out under a new plan to curb negative gearing?

The European Commission recommendations also align with Australian calls to expand affordable housing contribution requirements. That is, developer obligations to include below-market rental units within market-rate housing projects in pricey areas.

Not only does this effectively source housing subsidy from land value, it can also help to ensure a degree of social mix in areas otherwise dominated by higher income populations.

The plan also addresses the need for improved energy efficiency and building quality to lower living costs. These important housing policy issues are largely neglected in Australia.

More social and affordable rentals

The European Commission’s advocacy on housing for low-income groups rejects any suggestion that stepped-up market house building (if achieved) can be solely relied upon to “naturally” address such needs.

This idea, termed “market filtering”, is the process sometimes described as “trickle-down housing”.

Rather, the plan contends that “expanding social and affordable housing is particularly important to support low- and middle-income households”.

To facilitate this, restrictive state aid rules are to be relaxed to encourage more affordable housing investment.

This measure has no direct Australian parallel. But the commission’s stance here chimes with the National Housing Supply and Affordability Council view. It says “significant investment is needed to increase [Australia’s] stock of social and affordable housing”.

Spending has been recently stepped up by both federal and state governments in Australia, but current commitments remain insufficient in both scale and duration.

The importance of ambition

The EU plan, of course, has limitations.

Its problem analysis is stronger than its pledged responses. Consistent with EU traditions, these lean heavily towards market-enabling measures rather than active interventions.

And the union’s powers over member states in areas such as property tax and land use planning are very limited.

But perhaps the plan’s greatest significance to nations beyond the EU is simply its existence and ambition.

Here in Australia, federal Labor pledged in 2022 to produce a long-term housing and homelessness strategy during the last parliament. Regrettably, this commitment remains unfulfilled.

There is an echo of the EU’s constrained position in the Commonwealth’s limited authority over state and territory governments on housing.

But, unlike Brussels, Canberra controls key housing-related policy levers on taxation, financial regulation and social security. The federal government also has financial firepower vastly superior to the states.

Other countries show it can be done. Most notably, in developing its own National Housing Strategy in 2017, federal Canada has provided an instructive model for federal Australia.

Though recent Australian housing policy innovations have been both many in number and generally positive in nature, they remain piecemeal and patchy. There is no coherent road map for the deeper reforms needed for transformative change.

Given the inherent complexity of housing, this is an especially challenging policy domain. As argued in our new book, therefore, a purposeful housing reform agenda demands a long-term, federally-led national housing mission and strategy, underpinned in legislation.