State budgets tinkering around the edges of our housing crisis

As the Reserve Bank of Australia pushed the cost of money down to unprecedented lows, purchasers were able to borrow more on the same income, allowing them to bid up the price of housing against each other.

House prices actually hit a peak on average across Australia in the fourth quarter of 2021, which was the bottom of the interest rate cycle, confirming the correlation with interest rates up to that point. (You may live in a town where prices continued to rise, but these figures are for averages, and there are always exceptions).

But when the Reserve started dramatically raising interest rates, instead of receding, house prices more or less maintained their value-or even rose in some markets.

In 2021, housing was expensive, but not unaffordable. The damage has since been done in less than three years.

It's easy to blame the Reserve Bank, and they deserve criticism for pushing rates so low for so long, but they seem to have realised their mistake and raised rates to more or less their long-term average.

The market is not responding to interest rates as it should because it is constrained by supply and demand issues.

That's why the Commonwealth needs to ignore special pleading from the vested interests in the "people importing" business, and dramatically restrict immigration to skilled migrants in areas in genuinely short supply, like construction.

It also needs to do a number of other things, like running a fiscally conservative budget, and tempering its roll-out of infrastructure.

The states also need to rein-in their spending on infrastructure with their debts projected to hit a cumulative $800 billion (US$535 billion) by 2028, according to S&P Global.

However, more than anything else, they need to rapidly expand the supply of land.

Instead, they are all tinkering around the edges, and in some cases, actually making things worse.

All the state governments are making extravagant promises about building social housing, and their political opponents are often trying to outbid them. This is the worst way to try to fix the housing crisis.