Australia’s housing affordability crisis has been thrust further into the spotlight, with the OECD urging the federal government to lift social housing targets and overhaul tax settings, even as new data shows a long-awaited lift in home building activity.
In its annual economic survey of Australia, released ahead of Treasurer Jim Chalmers’ fifth federal budget in May, the Organisation for Economic Co-operation and Development said the economy was “now normalising” after an extended period of weak post-pandemic growth.
It forecast average growth of a little more than 2 per cent in coming years, supported by interest rate cuts and a recovery in household disposable incomes.
But the Paris-based body warned that deep structural issues remained, pointing to slow productivity growth, high housing costs and persistently high carbon emissions.
Housing affordability featured prominently in the report, with the OECD calling out the social and economic damage caused by chronic undersupply.
It backed federal and state efforts to increase density and ease land-use restrictions, warning that housing shortages were undermining labour mobility, worsening intergenerational inequality and forcing workers into longer commutes.
The organisation also renewed its call for higher social housing investment, noting that social housing now accounts for about 4 per cent of Australia’s housing stock, down from 6 per cent in 1990 and roughly half the OECD average.
It recommended increasing public funding and replacing state-based stamp duties with a broad-based land tax.
These warnings come as fresh Australian Bureau of Statistics data shows signs that housing supply is beginning to respond.
A total of 48,778 dwellings commenced in the latest quarter, up 11.6 per cent on the same period last year.
It was the strongest quarterly result since March 2022 and sits 17.2 per cent higher than at the start of the National Housing Accord period.
Private sector house commencements rose 6.9 per cent to 28,485 dwellings, while commencements for other residential buildings, including apartments and townhouses, increased 3.5 per cent to 18,747 dwellings, their highest level in four years.
The rebound follows improvements in housing approvals and marks a shift from recent years, when approvals were falling sharply, and construction cost inflation peaked at a 50-year high of 17 per cent.
That inflation has since eased to 2.1 per cent, improving the feasibility of new projects.
Despite the uptick in commencements, completions remain below what is needed to materially improve affordability, reflecting the legacy of earlier approval declines and ongoing labour shortages across the construction sector.
The federal government has staked much of its housing agenda on boosting supply, committing $45 billion across multiple initiatives.
These include the National Housing Accord’s target of 1.2 million homes over five years, planning and approvals reforms, workforce programs such as Free TAFE and apprenticeship incentives, and the Housing Australia Future Fund, which aims to deliver 55,000 social and affordable homes.
Tax incentives for build-to-rent developments are also expected to unlock up to 80,000 new rental properties.
Housing Minister Clare O’Neil said the latest figures showed policy coordination across governments was starting to gain traction.
“These are encouraging figures that show that the reforms federal Labor is leading with our state and territory government partners are starting to bear fruit,” she said.
“Housing supply is starting to turn the corner, with more home building starting, more tradies on the tools, and ultimately more homes built for Australians.”
The OECD, however, cautioned that supply reforms alone would not resolve broader fiscal pressures.
With budget deficits projected to persist for the next decade, it urged the government to pursue spending restraint and revenue-raising tax reform, including broadening the GST and considering a higher rate, with proceeds used to reduce reliance on personal income tax.
It estimated such changes could lift the size of the economy by 1.6 per cent over a decade.
The report also said Australia was broadly on track to meet its 2030 emissions targets, but called for stronger action on transport and agricultural emissions, including a gradual increase in fuel excise, which it said remained well below European levels.
While housing commencements are moving in the right direction, the OECD’s assessment makes clear that sustained reform and long-term investment will be required if supply gains are to translate into meaningful affordability improvements.
