Developers creating major housing crisis

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A prominent economist has criticised government support for first home owners, labelling them "builder and developer profit margin enhancement grants".

Saul Eslake told a federal parliamentary committee examining housing affordability the grants designed to bring new people into the market were driving up both house and rent prices, in turn creating a more attractive market for property investors.

Eventually, he said, low-income renters pay the price with higher rent.

"When people say property investors play an essential role in providing rental housing, they do so only because they increase the demand for rental housing by squeezing people who would otherwise have bought those properties to live in them," he said.

In his written submissions to the inquiry, Mr Eslake lashed politicians' "crocodile tears" regarding those unable to own a home.

"Deep down they know there are far more people who already own at least one property, and who therefore have a very strong interest in policies which result in continued property price inflation," he wrote.

Australian Housing and Urban Research Institute director Steven Rowley told the inquiry private developers were bringing 99 per cent of new properties onto the market, despite being unable to produce houses suitable for low-income earners.

He added the country faced a "major challenge" with median income earners not able to afford a median-priced home.

CoreLogic researcher Eliza Owen noted conversation surrounding house prices only reached government and media when more wealthy people were affected, adding the long-term decline in ownership rates were mostly in low-income cohorts.

"That would suggest that you have widening wealth inequality perpetuated through Australia's housing system," she said.

The Grattan Institute's Brendan Coates agreed, adding it would have "very profound consequences" on society's structure, particularly in retirement.

"If you own your own home in retirement you're a very good chance of living a very comfortable retirement," he said.

"If you are a renter, then given the current structure of our income support system, you are potentially in quite a lot of trouble."

The committee was told just 2.5 per cent of established properties were on the market at any time, down from 4.5 per cent in 2008.

SQM Research's Louis Christopher said ownership rates could improve if negative gearing was phased out across three to five years, adding improved infrastructure in regional towns could be vital to encouraging populations to spread.

He stressed the need to address ownership issues in the short-term before "Big Australia" sees the population swell to projections of 40 million people by 2050.

The hearing comes as Labor ramps up its campaign message about Australia's housing affordability crisis in marginal seats.

Labor's housing spokesman Jason Clare has been criticising Australia's failing housing policy in seats like Gilmore, on the NSW south coast, and in the Hunter region.

"It's harder to buy than ever before, it's harder to rent than ever before and there are more homeless Aussies than ever before," he said.

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