Reviving the Housing Market: How Government Involvement Can Increase Supply

The housing market today faces a complex challenge. Many policies focus on adjusting demand—slowing immigration, cutting capital gains tax incentives, increasing taxes on investors’ holiday homes, reducing investor benefits, or boosting first-home buyers with no lenders mortgage insurance. Yet, these moves do not increase the actual supply of homes. They only shift who is competing for the limited housing available. The real issue remains: there simply are not enough homes being built.

If developers, builders, not-for-profits, and NGOs will not increase supply despite numerous incentives, then governments must step in directly. By using public funds to build homes through state building teams, governments can increase supply, generate tax-free revenue from sales, and reinvest profits to build even more homes. This approach can also boost productivity in the private sector by reducing pressure and creating a more balanced market.

Government-led housing construction site with cranes and new homes

Why Demand-Side Measures Alone Are Not Enough

Many current housing policies focus on limiting demand or shifting it between groups. For example:

• Slowing immigration aims to reduce the number of new residents needing homes.

• Cutting capital gains tax incentives discourages property speculation.

• Increasing taxes on investors’ holiday homes tries to reduce investment demand.

• Reducing investor benefits aims to cool investor activity.

• Supporting first-home buyers with no lenders mortgage insurance helps certain buyers enter the market.

  
  

While these policies may reduce demand pressure temporarily, they do not create more homes. The supply side remains constrained by limited construction activity. Without more homes being built, prices stay high, and affordability worsens.

The Supply Problem: Why Builders and Developers Are Not Delivering Enough

Despite generous incentives, private builders and developers often hesitate to increase supply. Reasons include:

• High land and construction costs reduce profit margins.

• Planning and regulatory hurdles delay projects.

• Market uncertainty makes large investments risky.

• Labor shortages limit building capacity.

• Preference for high-margin luxury or investment properties over affordable homes.

  
  

Not-for-profit and NGO organizations also face funding and capacity limits. As a result, the housing supply gap continues to widen.

How Government Can Step In to Increase Supply

Governments have tools and resources that private players lack. By directly investing in housing construction through state building teams or agencies, governments can:

• Build homes at scale using public funds.

• Operate without profit pressure, focusing on affordability and need.

• Reinvest sales revenue tax-free into new projects.

• Create jobs and boost productivity in the construction sector.

• Set standards for quality and sustainability in new housing.

  
  

For example, state teams like QBuild in Queensland have experience in construction and maintenance. Expanding their role to build new homes can accelerate supply growth.

Financial and Economic Benefits of Government-Led Housing Supply

While governments may lose some stamp duty revenue when building homes themselves, they gain in other ways:

• Stamp duty on sales to new buyers still generates revenue.

• Tax-free profits from sales can fund further construction.

• Reduced housing market volatility supports broader economic stability.

• Increased housing availability improves affordability and social outcomes.

• Stimulated construction activity creates jobs and supports related industries.

  
  

This approach turns housing supply into a sustainable cycle of investment and growth.

Examples of Government Involvement in Housing Supply

Several countries and regions have successfully increased housing supply through government action:

• Singapore’s Housing Development Board (HDB) builds and manages affordable public housing for over 80% of residents.

• Vienna’s municipal housing programs provide high-quality, affordable homes through city-owned construction.

• New York City’s affordable housing initiatives include direct government investment and partnerships with nonprofits.

  
  

These examples show that government-led supply can work at scale and improve housing access.

What Needs to Happen Next

To revive the housing market through increased supply, governments should:

• Expand state building teams’ roles to include new home construction.

• Allocate dedicated funding for large-scale public housing projects.

• Streamline planning and approvals for government-led developments.

• Partner with community organizations to address specific housing needs.

• Monitor and report on supply outcomes to ensure transparency and accountability.

  
  

By focusing on supply, governments can create a more balanced housing market that benefits all Australians.