'More affordable housing' actually makes a large cohort of voters very angry

Labor has committed to investing $10 billion in building homes (in addition to their previous support for social and affordable housing). They are also touting their help-to-buy shared equity scheme and their expanded Home Guarantee Scheme that will enable borrowers to take out loans with a deposit of just 5 per cent.

The Coalition has promised to invest $5 billion in infrastructure for additional housing.

They are also promising to allow people to withdraw from their super to invest in housing.

Finally, they have floated the idea of allowing mortgage interest payments to be tax deductible, subject to various limits.

Both parties have promised to address labour and supply shortages in the construction industry; though it is far from clear that anything they have announced will have a meaningful effect.

Housing policy experts have weighed in on the merits of these policies, including my colleague Dr Peter Tulip - who gave them decidedly mixed reviews.

None of this should be surprising, as most leading experts have been in consensus on this issue for some time.

In short, the housing problem is almost entirely on the supply side. There are serious blockages and restrictions that have massively driven up the cost and time of expanding the housing stock. Most of these restrictions are at the state or local government level.

By contrast, demand-side policies, especially those aimed at boosting demand for first home buyers, will do little to improve housing affordability.

They will either feed through into higher house prices overall, or will have little to no effect. The latter typically occurs because the scale of the support is miniscule compared with the size of the housing market as a whole.

All of this is known and to a large extent agreed - at least by mainstream economic experts.

This leads to an interesting question: why has so much focus has been spent on the wrong side of the debate - the demand side?

After all, even with respect to major parties' current election platforms, there are more policies (and likely more dollars) aimed at boosting demand than there are at boosting supply.

Not to mention both sides have policies aimed at curtailing demand as well; for example, immigration restrictions.

There are several reasons, some of which are specific to housing and others that are symbolic of the failings of our political system more broadly.

The first, and likely most important, is that there are far more homeowners than there are renters.

In fact, 2021 census data suggests there are more home owners with a mortgage (35 per cent) than the entire stock of renters in the country (31 per cent).

When you consider that many renters are not in a position to buy a home and some are choosing to rent, the number of voters with a mortgage is likely many times higher than the number of prospective home buyers.

Home owners, especially those with substantial mortgages, are strongly invested in the value of their properties increasing. This connection is not just limited to their net worth; there is also a consumption effect of rising house prices.

Home owners feel confident and secure when house prices are rising, even if much of the actual benefit of this is long delayed - or even illusory. And they get very angry at the thought of prices falling.

Therefore if "more affordable housing" means "house prices fall", a small cohort of voters will be very happy. And a far larger cohort will be furious.

Not something a major party wants to contemplate in the throes of an election.

The second, and almost as strongly motivating for some, is ideology. There remains a group of policymakers, activists and others who are utterly convinced all the available evidence is wrong and that the cause of the housing affordability crisis is negative gearing, capital gains tax discounts and the interaction between them.

For many in this group, their ideological priors are so strong that the answer must be "greedy housing developers" and "nasty capitalism". They cannot accept the problem is government.

As a result, this group is mostly anchored on the left, but there are a few on the right as well. They do not have the support of the mainstream or the voters, as the 2019 election showed, but they do have an impact on policy.

The best example of this is the fact that most of Labor's supply-side initiatives in their first term of government focused on the ideologically safe (but far less effective) social and affordable housing space.

The third main reason is that the voters reward politicians on the basis of the visibility of programs and money committed upfront, and not on solving problems.

Much of the evidence for this is inferred - in the sense that politicians' behaviour strongly aligns with this explanation in so many policy areas that it is hard to deny.

Politicians have become addicted to announcements. Their lists of achievements for their electorates are usually a laundry list of spending programs and commitments to do things.

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Look at infrastructure, for example. The focus is entirely on how much is spent, not on what is actually delivered. That is far from the only example: defence and taxation are two other obvious areas.

The key issue is that the voters are reinforcing this behaviour. They have learned to look out for this and are rewarding it. If you think this is too cynical, take a look at any commercial network's coverage of the budget. It's all spending and "how much do I get".

Which brings us back full circle to the major parties' housing policies. The demand-side policies announced by both parties make little economic sense. However, they make a lot of political sense. Having a bunch of demand-side programs (even if they are of limited impact) creates the impression of tremendous activity - a government taking the problem seriously.

Actual solutions would involve negotiating with state and local government to change the policy settings and overcome NIMBY opposition. That's hard work, and not very visible to the electorate.

Far easier to just whack another zero on the first home buyers grant and call it a day.