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How Housing is Widening the Gap Between Rich and Poor in Australia

Homelessness is not a bug in the system, writes Peter Mares – it’s a predictable outcome of our housing policies. 

As the Albanese government develops a National Housing and Homelessness Plan, Housing Minister Julie Collins says she wants a clear strategy for all levels of government to work with business and the community sector “to better support people facing housing challenges”. 


This sounds like we could solve Australia’s housing crisis just by getting key players to collaborate. Perhaps even return to that golden age when home ownership transcended class and income as a marker of an egalitarian society. 


But homelessness is more than a bug to be ironed out. It is a predictable feature of our housing market. If we want to eliminate homelessness —and chronic housing insecurity — we need a different approach. 


As an analogy, consider the conventional view that some level of unemployment is necessary to keep the economy running smoothly. According to this contested theory, joblessness “disciplines” the labour market and prevents workers from demanding excessive wages. 


Could housing be similar? Does our current market require a certain level of homelessness and housing insecurity to keep real estate values and rents buoyant? 


I think it does. Because as things stand, Australia’s housing policy unsuccessfully attempts to meet two incompatible aims. 


First, today housing is treated as a primary vehicle for building personal wealth. Second, the market is meant to provide everyone with a decent home. The tension between these two goals is obvious. If housing is to be a store of wealth, then homeowners and investors need real estate prices and rents to keep going up. Yet when rents and house values rise relentlessly, many Australians can’t afford a home. 


We are prioritising housing as an asset class, rather than as an essential good. This policy bias fuels inequality. 


It’s not just that people on high salaries can afford to buy large, well-located homes in leafy suburbs (and a beach house for the weekend, too), while those on low wages or government pensions must settle, at best, for renting a modest home from a private landlord. The deeper problem is that unequal access to housing gets baked into wealth disparities and handed down through generations.  


As the left-hand (light orange) bar chart in this Grattan Institute graphic shows, a rising tide of economic growth has lifted all boats over recent decades. The incomes of the top quintile (the highest 20 percent of income earners) have risen more than those of the bottom quintile (the lowest 20 percent). The differences are marked but not extreme, thanks in part to the redistributive effects of taxation and government benefits.  


Rising housing costs are contributing to income and wealth inequality: 



Real growth from 2003–2004 to 2019 –2020, equivalised households. Source: Grattan Institute 


After paying for housing though (see middle graph, in dark orange), the income gap between rich and poor widens. This is because poor households (who mostly rent) spend much more of their income on housing than rich folk (who are mostly homeowners).  Over 200,000 poor households in Australia pay at least half of their disposable income in rent, pushing them deeper into poverty. 


The result, evident in the right-hand (maroon) chart, is that the rich pile up wealth while the poor stay poor. Wealth — or the lack of it — is then passed down the generations in the form of housing, as renters beget renters and homeowners beget homeowners. This is fuelled by a dynamic identified back in 1983 by housing scholar Jim Kemeny, in his book The Great Australian Nightmare: 


Home ownership is encouraged by being given favoured treatment and subsidies — this makes home ownership more attractive than other tenures — this results in demand for home ownership rising—this in turn places pressure on politicians to make access to home ownership more easy — this is turn results in greater favoured treatment, which further increases demand, and so on in a vicious circle. 


Today, this vicious cycle is duplicated in tax concessions for property investment. Negative gearing and the capital gains tax discount foster an investor class who pressure politicians to maintain and expand those incentives. And given that the average federal MP owns at least two properties, investors and politicians are often one and the same. 


My calculations show that Australia’s long property boom has coincided with a transfer of wealth to the rich: 



In 2003–2004, the wealthiest quintile — the top one-fifth of households by net worth – held 57 per cent of the value of all residential property in Australia. By 2019–2020 (the latest available data), their share had increased to 62 per cent. 


In short, our housing system delivers an ever-bigger slice of the housing pie to the wealthiest Australians. This is not a bug in the system. It is how the system works. Yet it could be designed differently. 


Minister Collins wants a new National Housing and Homelessness Plan to "support those in need". She should aim higher by adopting the mission set by leading housing scholars that “everyone in Australia has adequate housing”. That needs more than a few tweaks. It requires public investment over decades to build decent homes that Australians on the lowest incomes can afford to rent. The new Housing Australia Future Fund is a welcome but limited start. The next step would be to reform subsidies like homebuyer grants, stamp duty concessions, negative gearing, and the capital gains tax discount, and invest the savings in long term plan to build social housing. 


Peter Mares is the author of No Place Like Home: Repairing Australia’s Housing Crisis. He is a regular contributor to Inside Story magazine, an adjunct Senior Research Fellow at Monash University’s School of Media, Film and Journalism, a Fellow with the Centre for Policy Development, and a moderator at Cranlana Centre for Ethical Leadership. 


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