Younger, low-income households are bearing the brunt of a housing affordability crisis, largely caused by community opposition to development.

Those are the key findings of a new 176-page report by the Grattan Institute think tank into the vexed issue of worsening housing affordability.

The report focused on the dramatic decline in home-ownership levels, particularly among younger and poorer households.

Whereas at the start of the 1980s more than 60 per cent of 25-34-year-olds owned a home across almost all income brackets, that rate has now dropped below 50 per cent for all but the highest income group.

The biggest fall has been for those in the bottom 20 per cent of household incomes, where only a fifth of those under 35 own a home, down from nearly two-thirds just a few decades ago.

Home ownership rates are falling fastest for younger, low income earners. ( Supplied: Grattan Institute )

The Grattan Institute's chief executive, John Daley, said it marked a significant shift away from the long-held Australian dream of home ownership.

"If you go back 35 years, Australia was a place where housing costs were fairly manageable and people of all ages and incomes had a pretty good chance of owning their own home," he told Radio National Breakfast.

"It's become a country in which whether you own your own home really depends on how much income you've got and how wealthy your parents are."

While renting may have become a lifestyle choice for some young people, the Grattan report highlights how housing costs have risen especially sharply for low-income earners across all age brackets.

Housing costs have been rising most steeply for lower income households. ( Supplied: Grattan Institute )

That is because low-income households are facing a double-whammy — not only are they increasingly locked out of home ownership, but their rents are generally rising faster than their incomes.

ABS figures, cited by Grattan, show the proportion of poorer renters in capital cities spending more than 30 per cent of their income on rent jumped from about 35 to nearly 50 per cent over the past decade, putting many of those people under serious financial stress.

Dr Daley also argued most people still ultimately aspired to home ownership, due to a range of government policies that were much more favourable for owners than renters.

"Renting in Australia is typically a much less attractive option than home ownership," he observed.

"There's all of these tax breaks for home ownership, there's welfare breaks for home ownership and we also have tenancy laws that, relative to the rest of the world, give tenants much less rights."

Housing affordability rises near the top of voter concerns

The financial predicament that many households are finding themselves in, and the social costs of it, have catapulted housing affordability to being the second most important political issue after health in some surveys.

Housing has stormed up the charts to become the second most important political issue. ( Supplied: Grattan Institute )

John Daley said that was due not only to deep concern from the young people directly affected, but also parents worried their children may never be able to own a house, forcing many to stay in the family home longer.

"For the 20 per cent of Australians whose parents are in the top 20 per cent of incomes they'll probably be all right — bank of mum and dad is working fine for them," he argued.

"But for most Australians, the bank of mum and dad doesn't provide a contribution and if it does it's relatively small.

"Go back 35 years, that didn't matter, you could essentially buy a house on your own income, these days it's a lot harder. And that, I suspect, is why it's such a big political issue."

'Perfect storm' of factors pushing up home prices

Dr Daley said younger Australians who had not been able to access home ownership were the victims of a "perfect storm" of economic factors and policy mistakes.

"We've had rising incomes and falling interest rates, and those, of course, have pushed up house prices," he observed.

"We've had rapid migration, so that's increased demand.

"We've had tax and welfare settings that have further fed into demand. And then we've had planning rules that restricted how much housing got built.

"We need to have development get ahead of population growth for quite some time to catch up on that undersupply."

The report argues increasing housing supply — particularly of town houses, terraces and mid-rise apartments in middle-ring suburbs, 10-35 kilometres from the CBD — is the best way to improve affordability over the long term.

It estimates building an extra 50,000 dwellings per year nationally, on top of Australia's current record construction levels, could lower home prices by between 5-20 per cent.

But Dr Daley said that was an unpopular policy.

"If you really want to do something about housing affordability in the long run, you are going to have to look at supply and that means you are going to have to look at what do we do to our cities that, at the moment, are very sparsely populated by global standards," he said.

"Everyone agrees with this, so long as it happens in the suburb next to theirs."

Housing affordability fixes 'politically really hard'

Dr Daley said the reason housing affordability had continued to deteriorate in the face of rising public concern was that the most effective solutions were generally unpopular.

"The reality is that most of the things that are going to make a really big difference, and are not bad for the economy or the budget, are politically really hard," he argued.

Aside from reducing planning red tape to speed up new developments, Grattan suggests a raft of potentially unpopular tax changes.

The report argues up-front stamp duties should be swapped for general property taxes, as is gradually occurring in the ACT.

That would mean an annual tax bill on owner-occupied properties on top of council rates.

It also urges state governments to stop disadvantaging large-scale property investors by applying flat-rate land taxes with no tax-free threshold, which would potentially hit landlords with one or two lower-value properties.

Perhaps the most unpopular changes would be at the federal level.

"The Commonwealth Government can improve housing affordability somewhat — and immediately — by reducing demand," the report argued.

"It should reduce the capital gains tax discount [from 50] to 25 per cent; abolish negative gearing; and include owner-occupied housing in the age pension assets test."

However, Grattan estimates changes to negative gearing might only reduce home prices by around 2 per cent, making little dent in the housing affordability problem.

While generally supportive of a high immigration intake for its boost to economic growth, the report does raise the prospect of "tapping the brakes" on migration if Australia cannot build enough new homes and infrastructure to keep up with demand.

"If you are not going to change the planning rules, then you at least want to have a think about whether that level of migration is the right trade-off," Dr Daley said.

"For people who haven't bought their own home, they're the people who effectively pay for migration if we don't get planning right."

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