Infrastructure voucher
The only long-term solution to the housing shortage in Australia is to build more houses. One impediment to new housing developments is the misalignment of incentives between the different levels of government — where the costs of new developments are mostly local but the benefits flow over into the rest of the country. As Peter Tulip from the Centre for Independent Studies notes:
Many of the perceived costs of high-density construction — crowding, noise, congestion, and so forth — are borne locally. So understandably, the neighbours object. However, the benefits, in terms of lower housing costs and economic growth, are dispersed throughout society. One state or council might decide to build a lot of housing, however inward migration means that lower housing costs and other benefits accrue elsewhere.
One proposal to help address these misaligned incentives is for the federal government to offer some sort of incentive payment. In particular, Tulip suggests that the federal government could provide infrastructure assistance to help balance the scales and incentivise local development.
A variation on this idea would be to convert the current federal government spending on infrastructure into a voucher scheme, where local councils received a fixed amount of federal infrastructure assistance based on the number of people living in that area. The 2022/23 federal budget allocated $17.5 billion towards state and local infrastructure, which equates to approximately $700 per person in the country.
Paying a $700/person infrastructure voucher to local councils would create a number of benefits:
Help to align the development incentives, as local councils that allow/encourage more housing will attract more people, and therefore would receive a larger infrastructure voucher payment.
Decentralise decision making, so that each area is able to decide on the infrastructure spending that best matches their local circumstances and preferences.
Remove the power of federal bureaucrats and politicians to pick winners, and therefore remove the temptation for the federal government to pork-barrel or play favourites.
Improve the incentive to find the most cost-effective mix of housing development and infrastructure that suits each local area. The benefits from greater efficiency in local infrastructure would go directly to that local area.
There is no silver bullet when it comes to housing availability and affordability, but one part of the puzzle is to improve the incentives faced by local councils so that they get the benefits or costs associated with their planning and development policies.