Economics expert warns Morrison-era programs worsening Aussie housing affordability

Previous government schemes aimed at addressing Australia's devastating housing crisis have had "unintended consequences" and "worsened" the situation, one of the nation's leading economics experts has warned.

The HomeBuilder scheme in particular, which "shifted demand" by attempting to enhance affordability for potential homeowners, ended up "eventually diminishes affordability to a level where supply can meet demand".

"Subsidies of this nature typically do not cause long-term positive impacts on the market and often result in market disruptions," Dr Peyman Khezr, Senior Lecturer, Economics, Finance and Marketing at RMIT University said.

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"The solution lies in identifying and addressing the source of the problem, which is twofold: supply and demand.

"Grants, like HomeBuilder, shift the demand by enhancing affordability for potential homeowners. However, the supply cannot respond rapidly enough in the short term to cater to this surge in demand.

"Consequently, the price mechanism reacts to the excess demand by inflating the cost of home construction. This increase eventually diminishes affordability to a level where supply can meet demand.

"Put simply, grants rapidly stimulate demand while supply struggles to keep pace, ultimately leading to a rise in prices."

Khezr explained that cash injections, in the form of grants, result in inflated prices and deteriorate housing affordability in the long run.

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"Instead of pumping cash into the housing market, the government should identify sources of market inefficiencies and regulate the market to address these issues," Khezr said.

"For instance, speculation in the housing market is a significant problem that worsens housing affordability and exacerbates inequality.

"Adequate regulation could reduce or eliminate speculative demand for homes, allowing first-time home buyers to compete more fairly in the market.

"Other sources of market inefficiencies relate to the market mechanism itself.

"Regulations promoting consumer protection would improve fairness in the housing market and benefit home buyers in the long term."

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