Housing, class, and ‘classless’ residential capitalism in Australia

Rapidly rising house prices, increasing inequality, and a stagnating homeownership rate have drawn renewed attention lately to the importance of property ownership to class position and formation. Property ownership, however, has always been crucial to class politics under capitalist social relations. The political rationality of post-War liberal—and later neoliberal—capitalism in Australia found expression in housing, fiscal, and financial policy, with enduring consequences.

In the 1980s, the selling of public housing in the UK under Margaret Thatcher’s ‘Right to Buy’ program set off a fierce debate about the importance of home ownership to class. In Australia, since at least the late 1940s, homeownership and then investor-landlordism have been important to a capitalist class project that obscures class relations by confounding property ownership and returns from capital with wages and returns from work.

In response to a widely-recognised housing crisis in Australia at the close of WWII, the Commonwealth Housing Commission identified ‘three main income groups’: a high-income group capable of making its own financial arrangements; a middle-income group ‘reasonably well provided for by existing arrangements’; and low-income earners for whom the Commission was mainly concerned to provide housing. Robert Menzies, who became Prime Minister in 1949, framed the class-structure of Australian society differently. In his 1942 ‘forgotten people’ speech, he had idealised a middle class that would see itself as neither worker nor capitalist: a class of people ‘constantly in danger of being ground between the upper and the nether millstones of the false class war’ who, properly regarded, represented ‘the backbone of the country.’ Excluded from this definition were ‘at one end of the scale the rich and powerful; those who control great funds and enterprises’ and who were as a ‘rule able to protect themselves’ and, ‘at the other end of the scale the mass of unskilled people, almost invariably well-organised, and with their wages and conditions safeguarded by popular law.’

For Menzies, class politics meant the construction of a middle class defined not by its economic position but by the morality and values of the individuals who comprised it. Hence, it would be capable of absorbing the working class, of nullifying its more radical tendencies and the demands it might make. The ‘kinds of people’ Menzies saw himself representing in parliament were:

salary-earners, shopkeepers, skilled artisans, professional men and women, farmers, and so on … in the political and economic sense, the middle class. They are for the most part un-organized and un-self-conscious. They are envied by those whose social benefits are largely obtained by taxing them. They are not rich enough to have individual power. They are taken for granted by each political party in turn. They are not sufficiently lacking in individualism to be organized for what in these days we call ‘pressure politics’.

In the same speech, Menzies went on to specify that the ‘value of this middle class’ was, first and foremost, a ‘stake in the country.’ That is, a ‘responsibility for homes—homes material, homes human, homes spiritual.’ Homes material represented ‘the concrete expression of the habits of frugality and saving for a home of our own’; homes human was the proper place for a man’s wife and children, the instinct to be with whom was the great instinct of civilized man; and homes spiritual was explicitly attached to the ‘only real freedom and it has as its corollary a brave acceptance of unclouded individual responsibility.’

Menzies’ ‘middleclass’ was, then, comprised of patriarchal, owner-occupied households paid for by liberal subjects willing and able to independently govern themselves and their families. As Judith Brett points out, this posed a paradox: a ‘class of individuals … not opposed to some other class but opposed to the very idea of class.’ Key to this strategy was displacing the conflict of the workplace to the tranquillity of the home to thereby neutralise it.

Using the financial and fiscal powers of the state to rapidly raise the home ownership rate in Australia was crucial to this political strategy. Though, in hindsight, Australia’s eventual transformation into a home-owning society looks inevitable, at the close of WWII it seemed unlikely. Between 1921 and 1947, the home ownership rate held steady at around 52 per cent. Following WWII, it increased dramatically to peak at 71.4 per cent in 1966. In urban areas, between 1947 and 1954 it increased at 2 per cent per annum—from 46.4 per cent to 61.3 per cent. Though buoyed by rising incomes and strong economic growth, this was in no small part due to policies that privileged mortgage lending over loans for other purposes, generous subsidies and tax concessions.

From 1956, the public housing stock was sold into private home ownership in a move that predated Thatcher’s right-to-buy by a quarter-century. This increase in home ownership was not coercive: there was a strong desire on the part of Australians to own their own homes. But neither was it natural or inevitable: housing policy in Australia from the late 1940s was, for political and ideological purposes, biased heavily toward home ownership over secure private or public renting.

The liberalisation of the financial system in the 1980s and 1990s had a profound effect on housing in Australia. During a period now contentiously understood to be the beginning of neoliberalism in Australia, Hawke and Keating deregulated interest rates, floated the dollar, and admitted international banks and financial institutions to operate in Australia. During the post war boom, loans for investment properties were rationed and extended as business loans at an interest rate premium.  After financial liberalisation, they were aggressively extended as new financial institutions competed for market share.

Following a brief pause in 1985, the ability to offset losses and interest paid on investment properties against other income—known as negative gearing—was reinstated in 1987. From 1985, capital gains were taxed at the marginal income rate in the year they were realised, but indexed for inflation so that the real, rather than nominal, gain was taxed. Owner-occupied housing remained exempt.

On the heels of financial liberalisation, John Howard, styling himself after Robert Menzies, deftly re-refocused Australians’ attachment to owner-occupied real estate toward speculation, rent-seeking and capital gains. In 1999, as part of a suite of changes to business taxation enacted following the 1998 Ralph Report, the Howard-Costello Coalition government ended the indexation of capital gains taxation and replaced it with a blanket 50 per cent discount—effectively halving the marginal tax rate on capital gains for property investors. The top marginal tax rate for income from capital gains was slashed from 47 cents in the dollar to 23.5 cents—less than the next two lower income tax brackets at 43 and 33 cents in the dollar.

The key beneficiaries of these changes were owner-occupiers who could borrow against their existing equity to invest in rental properties with effectively zero cash outlay. Negative gearing was no longer a way to merely delay taxation to the time of sale when capital gains would be taxed at the full marginal rate, but a means of avoiding progressive income taxation altogether by converting income from labour into preferentially taxed wealth. Investors could now use ‘losses’ made on their investment properties to reduce their income tax liability for unlimited periods of time, only to pay capital gains tax at half the marginal rate upon sale. By 2005-06, the top two percent of income earners, who were earning 14 per cent of total pre-tax income, were realising 48 per cent of capital gains while the top 9 per cent—those earning greater than $80,000—accrued more than two-thirds of all capital gains. In 2014-15, the top two deciles of income earners received 82 per cent of the benefits of the CGT discount while the bottom seven deciles received a mere 14 per cent.

In the low-inflation, low-interest rate environment of the early 2000s and in the context of the end of the equities boom of the late 1990s, investment in real estate became more attractive than it had been at any time in Australia’s history. Demand surged as the simplification of the tax system made it easier for real estate agents and the property investment seminar industry to market new mortgage products for investment properties. By 2003, outstanding credit for owner-occupiers was rising at 20 per cent per annum while credit for investors grew at 30 per cent per annum. Over the decade to 2003, the proportion of taxpayers with investment properties doubled to 17 per cent and investment loans as a proportion of new loans increased from 20 per cent to more than 40 per cent.

House prices surged. Between 1996 and 2004, average house prices in Australia more than doubled in nominal terms and increased by 80 per cent in real terms with more than half of the price rises occurring between 2001 and 2004. In the early-1990s, the median house price in Australia was around 4 times average per capita income. By 2004, it was 7 times. Over the 25 years to 2021, median house prices increased by 500% in real terms from $160,000 to $825,000. During the year to December 2021 alone, house prices rose by 23.7 per cent. The home ownership rate has fallen, particularly for younger, low-income households. Soaring house prices have made it more difficult for first-home buyers to compete with investors, those who rode the earlier property booms, and their peers fortunate enough to receive wealth transfers from their parents.

The total value of residential real estate in Australia currently stands just shy of $10 trillion. People’s class position and life chances are now significantly shaped by their share—and often their parents’ share—of this extraordinary wealth. At the same time, the distribution of wealth in Australia has become less equal. From 2003-04 to 2019, the top 20 per cent of Australian households’ wealth increased from 59 per cent to 63.4 per cent, while the share of every other quintile fell.

As Jim Kemeny pointed out in the 1980s, housing under capitalism is always distributed unequally between the rich and poor. The point is not simply that the distribution of housing is divided along class lines, but that housing policy is class-divided along tenure lines. Thus, policy has operated as one aspect of a project that seeks to deny the very reality of class in Australian society. The absence of public housing, generous subsidies for owner-occupation and real estate investment, and the insecurity of private renting makes property ownership all but compulsory. At the same time, it has become increasingly difficult, if not impossible, for broad swathes of the population to attain it. Though small steps have been taken towards ending no-fault evictions in some states, leases remain short and tenancies insecure so that landlords can most easily realise their tax-advantaged capital gains.

One third of Australians now rent privately from approximately 17 per cent of their peers. Class relations rooted in work and production are complicated by debt and rent relations. While rising levels of household debt in Australia have received wide-spread attention, the other side of the balance sheet is just as important for understanding the politics of class and housing in Australia. Rather than a widespread push-back on the commodification and financialisation of housing, aspiring homeowners and investors continue to buy into the logic of capital gains. At the ballot box, the ALP’s failed campaign to reduce tax concessions for investment properties at the 2016 and 2019 elections means that these are unlikely to become electoral issues any time soon. Though welcome, promised new social housing supply is dwarfed by years-long wait lists.

Housing policy in Australia has not been abandoned to an idealised free market. Rather, demand-side subsidies and easy finance have been used to foster competitive economic subjects who earn wages and produce surplus value for their employers while seeking rents and capital gains from their peers. As a result, class-divides in Australia have been both exacerbated and obscured.

From the mid-1990s, the Coalition set about relegating public housing to a ‘sump tenure’, increasing the direct subsidies and social tax expenditures for home ownership, and making investment in rental properties as attractive as possible. A reserve army of private tenants not-quite-able to purchase their own homes yet unable to qualify for public housing was required to provide the rental income that made landlords’ investments viable. The homeownership society envisioned and enacted by Menzies, and the financial liberalisation of Hawke and Keating, provided the necessary but not sufficient conditions.

As work has become less secure and less well paid, wealth—particularly housing wealth—has become increasingly important to peoples’ class position along intra- and inter-generational lines. At the very moment that people have sought security in real estate in an increasingly risky world, interest rates are rising and those with less liquidity will feel the pain the most. A falling property market will expose the masked class divides in Australian society even more than did the rapidly rising property market. A more redistributive, socialised housing system that ensures an end to the subsidies for owner-occupation and investment properties, and true tenure neutrality between public renting, private renting and owner-occupation, is desperately needed.


Image: Chris Betcher

Martin Duck

Martin Duck is a PhD candidate at the University of Sydney, Department of Political Economy. He is researching the financialisation of residential capitalism in Australia.

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  1. A useful quick overview, but with problems and omissions. Income from property has always been with us. You actually have to lose money to claim negative gearing loss – essentially the government shares these losses with you. House price rises year to Dec 2021 ignoresprevious year of significant price falls. Somewhat misleading coverage of public housing – it maxed out as a % of occupied stock in 1971 and again in 1991. No acknowledgement of the very high on-budget subsidy to public housing that makes it so unattractive to govt, nor mention of the fastest growing tenure community housing. While one can’t disagree that housing policy in Australia is very badly broken, one wonders if the persistent call for a “tenure-neutral” policy which we have been pushing since the 1980s will ever cut the mustard – it does not have the support of the public

  2. Ain’t Capitalism grand?
    As long as most politicians hold investment property portfolios (it’s on the public record) these taxpayer funded subsidies for the smug middle class will never, ever be rescinded.
    The same applies to private health cover and private schools.
    Ain’t Capitalism grand?

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