Follow the money
Free to all + if capital walks, fewer homes will get built
For what seems like yonks, I’ve argued that Australia’s housing crisis isn’t really a housing problem.
It’s a capital problem.
Every government speech begins with the same objective: more housing, more affordable housing and more rental housing. Yet almost every major policy announcement seems to make investing in residential property a little less attractive than it was before.
This week provided two more examples.
The first is the continuing debate around limiting self-managed super fund (SMSF) borrowing for residential property.
The second is the growing impact of the Federal Government’s proposed changes to negative gearing and capital gains tax, together with the Australian Taxation Office’s revised treatment of holiday homes.
Viewed individually, each policy may appear relatively modest. Viewed collectively, they send a very clear message about the future direction of housing investment.
The SMSF debate is particularly interesting because it is often portrayed as though large numbers of Australians are borrowing through superannuation to speculate on housing. The reality is quite different. Only around one in ten SMSFs currently use borrowings, with my estimate suggesting there are around 35,000 to 38,000 SMSFs nationally that have leveraged residential property investments. That is a relatively small proportion of Australia’s housing market. However, these investors are disproportionately active in purchasing new apartments and off-the-plan developments, meaning their contribution to new housing supply is likely much greater than the headline numbers suggest.
The changes surrounding negative gearing and capital gains tax have received much of the attention, but another policy deserves greater scrutiny. The ATO has now tightened its approach to holiday homes. Where owners retain significant private use of a property, deductions for interest, rates, depreciation and other holding costs may no longer be available. While this primarily affects lifestyle investors rather than mainstream landlords, it is another example of residential property becoming progressively less tax-effective as an investment.
None of this is really about whether these individual policies are right or wrong. The bigger issue is that Australia increasingly treats housing as though it is simply a planning exercise. We approve more land, encourage more density, release more precincts and announce ambitious housing targets. Yet planning approvals don’t build homes.
Capital builds homes. Construction finance builds homes. Developer equity builds homes. Investor demand builds homes, well somewhat. And on this last point, there wasn’t enough investment monies going into new builds before these changes. The legislated budget changes have just made matters worse.
Revisit
That said, without those ingredients, planning approvals become little more than numbers on a government spreadsheet.
I’ve written many times that around 96% of Australia’s new housing is delivered by private capital. Governments rarely build homes themselves. Instead, they rely on developers, investors, banks and home buyers to fund and carry the risks associated with delivering new supply. That private capital only flows when the expected return justifies the investment.
This is where I think the current policy debate is becoming increasingly inconsistent. On one hand, governments continue telling us that Australia desperately needs more housing supply. On the other, they continue introducing measures that either reduce investment returns, increase holding costs or add uncertainty to future profitability. Those two objectives don’t naturally sit together.
Capital is remarkably mobile. If housing becomes less attractive, investors don’t simply stop investing. They redirect their money into private credit, listed equities, commercial property, infrastructure or they simply leave it in cash. Housing, however, is not mobile. If investment slows, fewer projects commence, fewer dwellings are built and supply falls further behind demand.
None of this means tax concessions should never change or that property investors deserve special treatment. It simply means we need to recognise one fundamental economic reality. If private capital delivers almost all of Australia’s housing, then public policy should encourage that capital to invest in housing rather than steadily encouraging it elsewhere.
Housing doesn’t get built because governments announce ambitious targets. It gets built because someone is prepared to risk their own money. And that’s the part of the housing equation we seem increasingly willing to forget.
The Matusik Seven
New housing is first and foremost a capital problem.
Governments don’t build homes, the private market does.
And private investors fund almost all rental housing.
Capital follows the best or at least better returns.
No new housing supply happens unless development is profitable.
Policy must match buyer ambition.
In short, economics wins.
I hope you enjoyed another free Missive. The next eight or nine posts throughout July will be available exclusively to paid subscribers. If you appreciate independent, evidence-based housing analysis that often calls the market well before the headlines catch up, I'd encourage you to become a paid member. You'll receive every Missive in full, exclusive research and reports, member discounts and a growing library of housing intelligence designed to help you stay ahead of the market.
On point Michael.
The Matusik Seven:
• New housing is first and foremost a capital problem.
• Governments don’t build homes, the private market does.
• And private investors fund almost all rental housing.
• Capital follows the best or at least better returns.
• No new housing supply happens unless development is profitable.
• Policy must match buyer ambition.
• In short, economics wins.
In Queensland, the State Planning Department fails to understand these very basic principles.
Over the years, I've met with senior Planning Department officials, including Directors-General and ministerial policy advisers, and provided detailed, evidence-based reports explaining why private investment is essential to solving the housing crisis.
They just don't get it, or don't want to get it.
Instead. they prefer to spend $6 billion on social housing to try to plug a faster escalating social housing list - 53,000 poor souls on that list as of July 2025, goring by around 2,000 per month, or 50% each year.
The State government smashes private investors $28,000 per room in infrastructure charges for a low-density house for 5 occupants in low density zones, where no infrastructure is upgraded. No new or upgraded sewer, water, stormwater, roads, parks, transport hubs - existing infrastructure is tapped into.
This is simply profiteering at the expense of housing key workers.
Queensland is the only state in the country with a crippling, investor-deterring 'Super Tax' on affordable housing (rooming accommodation), where a billionaire like Clive Palmer can buy and own over a hundred residential houses, most with more than 5 rooms, multiple ensuites and pays zero per-room infrastructure charges, but a 5 room, 5 occupant home in the same street for key workers who cannot afford to buy, so forced to rent is hit with over $140,000 in room infrastructure charges.
Mum and dad investors who want a single rooming house for their retirement, do not have a lazy $140,000 down the back of the couch to pay these unjustifiable super taxes on affordable housing and banks don't fund government charges and fees. This super tax on privately funded affordable housing kills investment.
Queenslanders looking for returns, instead invest in other States, such as Victoria, where more rooms per rooming accommodation is permitted, no per-room infrastructure charges, and land tax is exempt.
In other words, a Labor State (Victoria) supports and encourages privately funded affordable housing.
An LNP State (Queensland) actively discourages privately funded affordable housing.
The Queensland Premier is fond of saying, "Queensland is open for business".
A cute line, but when it comes to private investment in affordable housing, Queensland is pushing the door shut.