The House That Business Built

On a crisp spring morning in Sydney, the Business Council of Australia unveiled its latest prescription for the nation's housing woes. With characteristic confidence, the lobby group for Australia's largest companies declared it was "time to say yes to housing" and outlined an ambitious plan to build 1.2 million new homes over five years.

The report, released in October 2024, paints a dire picture of a housing market in crisis. Sydney and Melbourne rank among the world's least affordable cities. Rents are soaring. Housing completions and approvals have plummeted to near-decade lows. The cost of building has skyrocketed while construction productivity has stagnated. For the Business Council, the diagnosis is clear: Australia desperately needs more housing supply.

Their proposed cure is a potent cocktail of deregulation, tax reform, and government incentives aimed at unleashing a wave of new construction. Rezone vast swaths of cities for higher density. Streamline planning approvals. Replace stamp duty with land tax. Provide tax breaks for build-to-rent developments. Tackle union militancy on building sites. The prescription is comprehensive and, at first glance, compelling.

Yet a closer examination reveals some glaring omissions and questionable assumptions. The report gives short shrift to demand-side factors driving Australia's housing affordability crisis. It largely ignores the role of investors and speculators in inflating prices. And it fails to grapple with mounting evidence that boosting supply alone is unlikely to meaningfully improve affordability in major cities.

Most strikingly, the Business Council's blueprint contains no serious analysis of the fundamentally inelastic nature of housing prices—the stubborn tendency of prices to keep rising even as supply increases. This phenomenon, documented by researchers like Ben Walsh, helps explain why decades of record housing construction in Australia have failed to improve affordability.

The report's blind spots are perhaps unsurprising given the vested interests of the Business Council's members. Australia's largest property developers, construction firms, and banks all stand to benefit handsomely from policies that stoke housing demand and construction activity. But what's good for corporate bottom lines may not align with the long-term interests of aspiring homeowners or the broader Australian community.

As policymakers grapple with Australia's intractable housing challenges, the Business Council's latest offering provides a useful starting point for debate. But it should be viewed as what it is - a wish list from big business rather than an impartial roadmap to housing affordability. To chart a sustainable path forward, we must look beyond simplistic supply-side solutions and confront the deeper structural forces shaping Australia's housing market.

The Affordability Mirage

At the heart of the Business Council's report lies a seductive promise: build more homes and affordability will follow. It's an intuitive idea with powerful appeal. If only we could overcome regulatory barriers and NIMBY opposition, a tsunami of new housing supply would wash away the affordability crisis.

The report bolsters its case with some compelling statistics. Housing prices in Australia have surged from 4.9 times median disposable income in 2002 to a staggering 8.6 times in 2024. Meanwhile, housing completions have plummeted to levels not seen since 2013. Surely ramping up supply is the obvious solution?

Yet this supply-side fixation glosses over mounting evidence that boosting construction alone is unlikely to meaningfully improve affordability, particularly in major cities. As urban economist Alain Bertaud has observed, "The idea that increasing housing supply will reduce prices is based on the simplified supply and demand curve taught in Economics 101. The reality is much more complex.

"This complexity stems from the fundamentally inelastic nature of housing prices, especially in desirable urban locations. As Ben Walsh has documented, housing supply and prices often rise in tandem rather than moving in opposite directions as simple economic models would predict.

Walsh's essay shows that between 2006 and 2016, the number of homes in Australia grew by 17% while prices surged by 69%. In Sydney, dwelling numbers increased by 15% over that period while prices skyrocketed by 83%. The pattern holds across most global cities—New York, London, Vancouver, and others have all seen sustained price growth despite significant increases in housing supply.

Several factors contribute to this price inelasticity. Land in desirable urban locations is inherently scarce and becomes more valuable as cities grow, regardless of how many homes are built. The financialisation of housing means prices are increasingly driven by investment flows and speculation rather than simply the balance of supply and demand for shelter. And rising inequality concentrates purchasing power among high-income households and investors, pushing up prices at the top end of the market.

The Business Council's report does not attempt to grapple with these complexities. It presents no evidence that its proposed supply boost would meaningfully improve affordability, particularly for low and middle-income households. Instead, it simply asserts that more supply will lead to lower prices and rents.

This faith in supply-side solutions flies in the face of recent Australian experience. Between 2012 and 2017, Australia underwent a historic building boom that saw annual housing completions surge from around 145,000 to over 220,000. Yet this period coincided with some of the steepest price increases on record. In Sydney, median house prices nearly doubled between 2012 and 2017, despite the supply surge.

The report's authors might argue that even more dramatic supply increases are needed to impact prices. However, there are practical limits to how quickly the housing supply can expand, particularly in established urban areas.

As Walsh notes, "There is no evidence from anywhere in the world that building more housing on the scale plausible in Australia will materially reduce house prices."None of this is to say that boosting the housing supply is unimportant. More homes are needed to accommodate Australia's growing population. But presenting supply as a silver bullet for affordability is misleading at best and disingenuous at worst. It sets up aspiring homeowners for disappointment while deflecting attention from other crucial policy levers.

A more honest approach would acknowledge the limits of supply-side interventions and present them as part of a broader strategy to improve housing affordability and access. This might include demand-side measures like reforming tax incentives for property investors and direct assistance for low-income renters and social housing investment.

However, such nuance is largely absent from the Business Council's report. Instead, we get a one-sided paean to deregulation and building our way out of the crisis. It's a narrative that serves the interests of property developers and construction firms. But it offers false hope to the millions of Australians struggling with housing costs.

The Development Dilemma

Another glaring omission in the Business Council's report is any serious examination of the role of property developers in Australia's housing market. The report presents developers as neutral agents simply responding to market forces and regulatory constraints. But this ignores the outsized influence developers wield over housing supply and urban development patterns.

In reality, large developers play a far more active role in shaping housing markets than the report acknowledges. They strategically drip-feed supply to maintain high prices, land banks to constrain supply in desirable areas, and lobby for planning changes that maximise their profits rather than housing affordability.

As urban planner Nicole Gurran has documented, there is often a significant lag between planning approvals and housing completions in Australia. This is partly due to genuine construction constraints. But it also reflects deliberate strategies by developers to stage releases and maintain price growth.

The phenomenon of "land banking," where developers hoard undeveloped land to artificially constrain supply - is well-documented but unmentioned in the Business Council report. A 2018 study by Prosper Australia found that in Melbourne alone, over 20,000 development-ready housing lots were being withheld from the market by developers.

The report's proposed planning reforms would give developers even greater latitude to shape urban development patterns. But there's little discussion of how to ensure these enhanced powers would be used to improve affordability rather than simply maximise profits.

This brings us to a fundamental tension at the heart of Australia's housing system: we rely on profit-motivated private developers to deliver a social good (affordable housing). The Business Council's proposed reforms would double down on this model. But they offer no compelling evidence that unleashing developers will align with broader social and economic goals.

Indeed, the track record suggests otherwise. Despite decades of planning deregulation and pro-developer policies, housing affordability in Australia has deteriorated dramatically. Perhaps it's time to question whether for-profit developers can be trusted as the primary delivery mechanism for affordable housing.

Alternative models like community land trusts, public housing, and non-profit developers have shown promise in other countries for delivering affordable homes at scale. But such approaches receive scant attention in the Business Council's report. Instead, we get an unwavering faith in market forces and private developers to solve the affordability crisis.

This one-sided view is perhaps unsurprising given the Business Council's membership includes some of Australia's largest property developers. But it undermines the credibility of their policy prescriptions. A more balanced approach would acknowledge the limitations and potential conflicts of interest inherent in a developer-led housing system.

Demand-Side Blind Spots

While the Business Council's report offers a comprehensive suite of supply-side reforms, it is strikingly silent on demand-side factors driving Australia's housing affordability crisis. This imbalance reflects a broader tendency in Australian housing policy debates to fixate on supply while ignoring or downplaying the role of demand.

Yet demand-side factors have played a crucial role in Australia's house price boom. Record-low interest rates, favourable tax treatment for property investors, and rapid population growth have all fueled demand and pushed up prices. Foreign investment, particularly from China, has also been a significant factor in some markets.

The report makes no mention of negative gearing or capital gains tax discounts—two of the most contentious aspects of Australia's housing policy. These tax breaks cost the budget billions each year and have been widely criticised for inflating housing demand and prices. Yet they are conspicuously absent from the Business Council's reform agenda.

Similarly, the report is silent on macroprudential policies that could help curb speculative demand and improve affordability. Measures like stricter lending standards or limits on interest-only loans have proven effective in cooling overheated housing markets in other countries. But such demand-side interventions don't rate a mention in the Business Council's blueprint.

This supply-side myopia leads to some curious contradictions. The report bemoans Australia's high housing costs but advocates for policies that would likely inflate demand and prices further. It calls for replacing stamp duty with land tax - a worthy goal in itself, but one that would almost certainly drive up prices in the short to medium term as the tax burden is capitalised into land values.

The proposed tax breaks for build-to-rent developments would bring more institutional capital into the housing market. But there's little consideration of how this might impact affordability for aspiring homeowners competing against deep-pocketed investors.

Even the report's discussion of migration—a key driver of housing demand—focuses solely on supply. There's no examination of how different migration policies might impact housing affordability or whether infrastructure and housing supply can realistically keep pace with rapid population growth.

This demand-side blindness reflects the vested interests of the Business Council's members. Property developers, banks, and construction firms all benefit from policies that stoke housing demand and prices. But what's good for corporate profits may not align with the broader goal of improving housing affordability.

A more balanced approach would consider both supply and demand levers. This might include gradual reform of investor tax breaks, tighter lending standards for investors, and more nuanced population policies that consider housing market impacts. But such measures are likely to be unpopular with the Business Council's constituency.

The result is a report that presents a partial and ultimately flawed prescription for Australia's housing challenges. By focusing almost exclusively on supply, it misses crucial pieces of the affordability puzzle. And it risks leading policymakers down a path that could exacerbate rather than alleviate Australia's housing woes.

The Innovation Gap

For all its talk of reform and transformation, the Business Council's housing blueprint is remarkably conservative in its thinking. It largely doubles down on Australia's existing market-led, developer-driven housing model rather than exploring genuinely innovative approaches to improving affordability and access.

The report pays lip service to innovation, with brief mentions of modular housing and build-to-rent developments. But it fails to seriously engage with more transformative ideas that could reshape Australia's housing landscape.

There's no discussion, for instance, of community land trusts - a model that's gained traction in the US and UK for delivering permanently affordable housing. These trusts separate land ownership from building ownership, allowing residents to build equity in their homes while keeping the land in community ownership. This helps maintain affordability over the long term.

Similarly, the report ignores the potential of cooperative housing models, which have a long history in Europe of providing affordable, high-quality homes. In cities like Zurich, housing cooperatives now provide around a quarter of all rental housing, offering secure, affordable tenancies outside the speculative market.

The concept of "social housing" in the report is limited to traditional public housing models. There's no exploration of more innovative approaches like Vienna's "cost-rental" system, where the government develops high-quality housing rented out at cost-covering levels. This model now houses around 60% of Vienna's population and has helped make it one of the world's most liveable and affordable cities.

Even within the realm of market housing, the report's thinking is limited. There's no mention of rent-to-own schemes, which can help bridge the gap between renting and homeownership. Nor is there any discussion of shared equity models, where governments or non-profits take a stake in properties to improve affordability.

The report also fails to engage with emerging ideas around "housing as a"service"—subscription-based models that offer flexibility and affordability. Companies like Lowe Living in the US are pioneering approaches that blend elements of homeownership and renting, potentially offering a "third way" in housing tenure.

This lack of innovative thinking is a missed opportunity. Australia's housing challenges are complex and deeply entrenched. Solving them will likely require fresh approaches and a willingness to learn from successful models around the world.

Instead, the Business Council offers a prescription that largely tweaks around the edges of the existing system. It's a conservative approach that may serve the interests of established industry players. But it's unlikely to deliver the transformative change needed to meaningfully improve housing affordability and access for all Australians.

The Long View

Perhaps the most fundamental shortcoming of the Business Council's report is its failure to grapple with the long-term implications of its proposals. The focus is squarely on boosting housing supply and construction activity in the short to medium term. But there's little consideration of how these policies might shape Australia's cities and communities over decades to come.

This short-term thinking is evident in the report's approach to urban planning. It advocates for widespread upzoning and streamlined approvals to facilitate more development. But it offers no vision for what kind of cities this might create. There's no discussion of urban design principles, community needs, or environmental sustainability.

The push for faster, easier development approvals also risks sacrificing long-term planning for short-term expediency. As urban planner Peter Phibbs has warned, "The danger is that we end up with a lot of poor-quality housing in poorly planned neighbourhoods that will create problems for generations to come."The report's tax proposals similarly prioritise short-term stimulus over long-term sustainability. The shift from stamp duty to land tax is presented primarily as a way to boost housing market activity. But there's little analysis of how this might impact urban development patterns or government revenues over the long term.

Even the headline goal of building 1.2 million homes in five years raises questions about long-term sustainability. Can Australia's construction industry realistically ramp up to this level of activity without compromising quality or creating future liabilities? What happens to all those construction workers when the boom inevitably ends?

This short-term focus reflects the business cycle mindset of many Business Council members. But housing policy needs to take a much longer view. Homes and urban infrastructure shape cities for generations. Get it wrong, and we saddle future Australians with poorly designed communities, environmental degradation, and massive retrofit costs.

A more responsible approach would situate housing policy within a broader long-term vision for Australia's cities and regions. This might involve:

Some state governments have begun to adopt more integrated, long-term approaches to urban planning. The Greater Sydney Commission's three-cities model, for instance, attempts to guide the city's development over a 40-year timeframe. However, such thinking is largely absent from the Business Council's national prescription.

The report also fails to seriously engage with the long-term social impacts of its proposed policies. How might further entrenching a market-led housing system affect inequality and social cohesion over time? What are the implications for intergenerational equity if housing remains unaffordable for younger Australians?

These are complex questions without easy answers. But they are crucial considerations for any comprehensive housing policy. By focusing narrowly on boosting supply and construction activity, the Business Council's report misses the forest for the trees. It offers a recipe for short-term stimulus but no roadmap for building the sustainable, equitable cities Australia needs for the future.

The Business Council of Australia's housing report exemplifies the inherent limitations of industry lobby groups in contributing meaningfully to complex policy discussions. Their fundamental conflict of interest severely undermines their ability to provide truly constructive feedback on housing policy.

The Business Council, representing Australia's largest companies, including property developers, construction firms, and banks, is inherently biased towards policies that benefit its members' bottom lines. This conflict of interest is evident in their report's unwavering focus on supply-side solutions and deregulation, which would primarily benefit developers and construction companies.

Their prescription for boosting housing supply through widespread rezoning, streamlined approvals, and tax incentives for developers aligns perfectly with the profit motives of their members. However, it fails to address the broader societal implications of such policies or consider alternative approaches that might better serve the public interest.

It's crucial to remember that the Business Council, as an entity, cannot vote. Neither can the corporations that make up its membership. This raises serious questions about the legitimacy of their outsized influence on government policy.

In a democratic system, policy decisions should ideally be driven by the will of the voting public, not by the lobbying efforts of non-voting entities. The Business Council's attempts to shape housing policy highlight a concerning disconnect between policy influence and electoral accountability.

The disproportionate influence of groups like the Business Council suggests a troubling dynamic where tax revenue and corporate interests may be prioritised over the democratic will of the people. While businesses certainly contribute to the economy and government coffers, this should not translate to undue influence over policy decisions that affect all Australians.

The report's narrow focus on market-led solutions and supply-side interventions reveals the limited perspective of industry lobby groups. By prioritising the interests of their members, they fail to consider the full spectrum of policy options and innovative approaches that could address Australia's housing challenges more comprehensively.

The Business Council's housing report serves as a stark reminder of the limitations of industry lobby groups in shaping public policy. Their inherent conflicts of interest, lack of electoral accountability, and narrow perspective make them ill-suited to provide balanced, forward-thinking solutions to complex societal challenges.