The HIA has called on the government to embrace new conversations about housing affordability in Australia, particularly about tax.

The HIA's comments follows the Grattan Institute report that blames government "inaction" for the dismal state of housing affordability in Australia. 

“The current housing affordability crisis is the product of two decades of policy neglect,” says HIA Managing Director, Shane Goodwin.

“It is the core issue that HIA has championed fixing, and is responsible for the affordability challenge facing Australian cities.

“For too long governments have chosen quick fix options to the very long term problem of housing affordability. Australia needs brave and bold policies that go to the heart of the affordability problem,” Goodwin said.

“We need to resume the discussion around tax especially where it cascades applies to land and housing and put an end to upfront taxes that are keeping so many first home buyers out of the market.

“We need to get serious about planning reform, these things are the keys to solving housing affordability which have largely been overlooked by state and federal Governments.

“We need all tiers of government back at the table, driving these discussions and implementing change.

Goodwin said it was "pleasing" the Grattan report, 'Housing affordability: re-imagining the Australian dream' "mirrors" the HIA's calls for reform, but has reservations about making changes to current levels of migration.

The Grattan report claims that building an extra 50,000 homes every year for a decade could lower house prices in Australia by between 5 and 20 per cent, going some way to stemming public anxiety about housing affordability.  

The report says home ownership rates are falling in Australians, especially among those younger than 65 and those on lower incomes. Owning a home increasingly depends on the wealth of your parents, the report claims. In addition, renters are spending a larger percentage of their income on housing.

Grattan says rising incomes, low interest rates, high rates of migration, tax and welfare settings fuelling demand, and restrictive planning rules have caused house prices to more than doubled in real terms over the last 20 years. Housing affordability strains are the most acute in Sydney and Melbourne. Since 2012, house prices have risen 50 per cent in Melbourne, and 70 per cent in Sydney.

High levels of development in the middle-ring suburbs in Sydney and Melbourne barely covers record levels of population growth driven by rapid migration, following a decade of housing shortages.

The Grattan report says state governments must fix planning rules to allow more homes to be built in inner and middle-ring suburbs, particularly in Sydney and Melbourne. More small-scale urban infill projects should be allowed without council planning approval, Grattan says.

State governments should also allow denser development along key transport corridors and should swap stamp duties for flat-rate property taxes. State land taxes on investment property should be a flat rate with no tax-free threshold, to encourage more institutional investors to provide longer-term tenancies.

The federal government can improve housing affordability by reducing the capital gains tax discount to 25 per cent, abolishing negative gearing, and include owner-occupied housing in the Age Pension assets test. The federal government could also consider lowering the current high rates of migration.

"It took neglectful governments two decades to create the current housing affordability mess," the report claims.

"They preferred the easy choices that merely appear to address the problem. The politics of reform are fraught because most voters own a home or an investment property, and mistrust any change that might dent the price of their assets. But if governments keep pretending there are easy answers, housing affordability will just get worse. Older people will not be able to downsize in the suburb where they live, and our children won’t be able to buy their own home."

Click here to download the Grattan report.

Read more about housing affordability in Australia:

Australian property "severely unaffordable": Demographia

Affordability improves, allowing first-home buyers into the market

Affordability is improving, and first-home buyers are back in the market