Sebastian Muñoz-Najar has only just finished primary school. The 13-year-old is still years away from learning how to drive. He cannot legally work. He’s too young to even have a social media account.
But he’s already despairing about his future housing prospects.
Amid near constant headlines about Australia’s deepening housing crisis, the Adelaide student began worrying about what the future might look like for his generation.
Armed with Google and a calculator, Sebastian was shocked to find that, if the current trajectory of house prices and wage growth continues, by the time he graduates from university the average house in his city will be 17 times his likely income.
“It’s really sad to see how this issue is affecting the present generation’s views on what Australia is – how their life should go,” he told the BBC.
While there’s no dispute that Australia is in a housing crisis, solutions to it have divided the nation and paralysed politics for over a decade.
Now the government is promising a polarising reform, scrapping lucrative tax breaks which it says will help tackle the intergenerational inequality which has come to define the market.
Critics argue it could stifle the investment Australia needs to build more houses and could worsen the plight of renters. Others say the rule changes unfairly threaten the wealth they’ve spent their lives toiling for.
But many younger Australians like Sebastian argue the social contract that hard work is rewarded has long been broken anyway.
They feel they have been denied the kinds of opportunities their parents enjoyed, and hope the changes will begin rebalancing the playing field and bring housing security back in reach for future generations.
A lucrative investment
Australia has some of the least affordable cities on Earth. The average property now costs almost 10 times an ordinary household’s income, quadruple what it was about 25 years ago, and rents have doubled over a similar period.
The simple fact is that Australia does not have enough homes for its growing population, which is driving unaffordability.
Decades of inadequate investment in social housing, sluggish construction rates, and Australia’s restrictive planning laws – which limit homes being built where most people want to live – have taken a toll.
But there have long been arguments that housing tax breaks are also increasing strain on the system.
The main culprits are negative gearing, which allows owners of investment properties to detract any losses from their taxable income, and the capital gains tax (CGT) discount which means people selling an asset are only taxed on half their profits.
Together, they have made housing a more lucrative investment, incentivising the buying and selling of homes for profit.
Wages had roughly kept up with house prices until they were introduced around the start of the millennium. This was a turning point in both economic and social terms, analysts say.
But these tax settings are staunchly defended by many homeowners – who are quite content to see house prices climb and their wealth grow – as well as investors and industry figures who say change threatens their profits and the essential role they perform in the market.
Bearing the brunt of the crisis are young people: They tend to face the quandary of saving for larger and larger deposits while paying greater rents, before servicing longer mortgages with high repayments relative to their income – all often for smaller houses further from work.
Sebastian’s parents themselves quietly harboured concerns about their children’s futures, but were upset to find out this was weighing so heavily on his mind.
“I was thinking two things,” his father Ed tells the BBC.
“The first one is, you should not be worrying about this. You should be worrying about things like your homework and your friends and school.
“The second one is, you don’t have to take it sitting down.”
Together they turned their angst into action, building a website laying out their calculations and starting a petition calling for changes to the CGT discount and negative gearing which has garnered thousands of signatures.
“We hope this would remove the incentive to use houses as investments and bring houses back to being places to live,” Sebastian says.
Labor proposed changes to negative gearing and CGT at successive elections in 2016 and 2019. It lost both, and many pointed the finger at its housing promises.
But since 2019 the housing crisis has worsened, its impact reaching further up the class ladder. Demographics have also shifted, with disenfranchised millennial and zillennials making up a greater share of the voter base, and many of their parents seeing the crisis touch their loved ones for the first time.
“It’s like a slow boiling frog… this has been building for more than 20 years but it has hit crisis point,” Danielle Wood, chair of the Productivity Commission – the government’s own independent economic think tank – told the BBC.
“And I think these tax changes have probably become a bit symbolic in thinking about what’s created this problem.”
Retired couple Christine and Cliff Hill shrug off the complaints of younger generations.
Cliff, 64, points out that moving to outer suburbs, saving every dollar – and not going on “expensive overseas holidays” – was how they could afford their first home.
“You can’t go complaining that houses are $1m because they aren’t. They’re $500,000 or $600,000 but the young folks don’t want to live 35km from Melbourne,” he says.
The couple own their home in Hoppers Crossing, in Melbourne’s western suburbs, and have three investment properties. They recently sold a fourth property – a four-bedder that they bought in 2010 for $320,000, offloading it for $668,000.
They say Tuesday’s tax reforms are a recipe for disaster. They argue that investors will increase their rents or sell their properties, which might see an initial increase in homes on the market, but the supply still won’t meet demand, meaning houses will remain unaffordable for most.
“The government are going after the inter-generational gap that they keep talking about – and being a baby boomer, I’m really over that,” says Christine.
But elsewhere Labor is seeing signs that public mood has changed enough for them to try again: one such hint perhaps being the backlash to Prime Minister Anthony Albanese’s purchase of a multi-million-dollar cliff-top home in 2024.
In their first budget after a landmark election win – which comes as appetite for action on the housing crisis feeds minor parties – the government has promised to replace the CGT discount with a markdown in line with inflation, and limit negative gearing to new builds only.
However, the changes will be “grandfathered”, meaning they apply only to established homes bought after the budget. Those who benefit from these polices already will not lose those advantages.
‘Not a panacea’
But the reforms mean little without other levers being pulled to increase housing supply, experts say.
The tax changes are likely to lead to a small dip in prices, and by decreasing some investor demand will create more room in the market for first-time buyers and owner-occupiers.
“[But] they’re not a panacea on house prices,” says Wood.
Blame is increasingly being shifted to migration – with the Coalition opposition and right-wing party One Nation both pushing for cuts to ease demand.
Though migration is contributing to Australia’s growing population, experts say it’s a small factor affecting housing supply, and economists warn controls need to be weighed carefully due to flow on impacts on the labour market.
“We just need to make it easier and faster to build,” Wood says.
Construction regulation is essential for safety, but there are now so many approvals to obtain and processes to navigate that build times have slowed by about 40% in the past 15 years.
Sebastian says the tax changes feel like a step in the right direction, but he is sceptical that policymakers truly have his best interests at heart. Many own investment properties themselves, and he notes the decision to grandfather the change protects them.
“Young people, they feel let down… disappointed in policymakers for allowing this to happen. And they also feel just sad that the ‘Australian Dream’ of owning a house is unattainable for them.”
