Modeling the market: boost for housing policy

The impact of land taxes, first home-owner grants and other policy reforms on the Australian housing market will soon be easily calculated using a microsimulation policy tool currently under development at Murdoch University.

Murdoch School of Economics researchers Mr Paul Flatau, Mr Richard Watson, and Dr Gavin Wood received a one-year $119,000 grant recently from the Australian Housing Urban Research Institute (AHURI) to develop a microsimulation model of the Australian housing market.

“The model is a first for Australia. It will be used to examine both the impact on the housing market and the budgetary costs of Federal and State taxation and housing policy reforms,” said Dr Wood.

“There is currently a large gap in Australian social policy work on the economic and social impacts of housing-related policy reforms in Australia”.

The researchers said existing microsimulation and related social policy models based at research centres in Canberra, Sydney and Melbourne did not account fully for the housing market, particularly the supply-side of the market.

They have already developed a small-scale prototype of the model and used it to examine the impact of Commonwealth policy on the supply of low cost housing.

The Murdoch researchers believe recent concerns about the availability of low-cost rental housing in the Australian private residential rental market are well founded.

“Census data for the period 1986 to 1996 show that while there has been a significant increase in the number of low-income renters in the private residential housing market, the availability of low-cost rental accommodation has declined significantly,” said Mr Flatau.

“The policy debate in Australia has been too narrowly focused on demand-side policies (e.g. income-tested private rental subsidies) or on options to limit the decline in the public housing rental stock.

“The missing link in the debate is policy options designed to increase the supply of low-cost private rental accommodation.”

Preliminary findings from the study indicate that existing Federal capital works tax deductions (commonly referred to as ‘building-write-off allowances’) are poorly targeted to the low-cost rental market.

“The Commonwealth Government needs to consider the introduction of a targeted low-income housing tax credit (or rebate)” said Mr Flatau.

The microsimulation model will eventually provide support for the development of large-scale housing forecast models and play an integral part in the long-term goal of making Murdoch University the leading centre for housing economics in Australia.

Dr Wood has already established strong links with UK and United States housing economics research centres and leading experts in the field such as Professors John Parr and Pat Hendershott who have visited Murdoch’s School of Economics.p