Housing affordability in Australia is no longer just a challenge for young people trying to buy their first home. It has become a nationwide crisis affecting everyone from low-income earners to established families. Rents are skyrocketing, vacancy rates are at historic lows, and property prices remain stubbornly high. This situation puts immense pressure on household budgets and the broader economy, as more income goes toward shelter rather than consumer spending or savings.
Financial journalist Alan Kohler has proposed a bold idea to fix this mess: establishing an AEMO for housing. His proposal suggests we need a body similar to the Australian Energy Market Operator (AEMO) to manage housing supply and demand. Just as the AEMO ensures the lights stay on by coordinating energy production and distribution across the grid, Kohler argues that a dedicated housing body could coordinate the complex web of supply, construction, and planning to ensure we build the right homes in the right places.
This article examines why the current market is failing, how the AEMO model works, and whether applying this structure to housing could lead to a more stable and affordable future. We will dig into the potential benefits, the political hurdles involved, and the data needed to make such a system succeed.
The Urgent Need for Housing Market Intervention
The Australian housing market suffers from structural issues that have built up over decades. Simply building more homes is not a complete answer if the timing, location, and type of housing do not match what the population actually needs.
Rising Property Prices and Rental Stress
Home prices in major capital cities remain elevated, pushing the dream of homeownership further away for many. In Sydney, Melbourne, and Brisbane, median house prices remain a massive hurdle for first-home buyers. Even for those who have entered the market, the cost of servicing a mortgage takes up a record share of disposable income.
Renters are under even more pressure. With rental yields rising and competition for available properties fierce, many tenants face "rental stress," where they pay more than 30% of their income just to keep a roof over their heads. This creates a cycle of poverty and financial instability, as tenants are often forced to move frequently or settle for substandard accommodation.
Chronic Housing Shortages and Low Vacancy Rates
Vacancy rates across Australia have sat below 1% in many areas for years. A healthy market usually sees a vacancy rate of around 3% to provide enough choice and competition. When vacancy rates drop this low, landlords hold all the power, which drives rents up further.
The housing supply deficit is a result of years of under-building relative to population growth. While developers want to build, they face significant barriers. This lack of available housing stock is the primary driver of the current crisis, and without a systemic change, these shortages will continue to fuel price growth.
The Disconnect Between Supply and Demand
The current system relies on a fragmented approach to planning and construction. State governments, local councils, and private developers often work in silos with different goals. Planning bottlenecks cause massive delays, while shifting construction costs make many projects unprofitable.
There is a clear mismatch between where people need to live and where houses are built. Demand surges in areas close to jobs and transport, but planning laws often restrict density in those spots. Meanwhile, new housing estates on the urban fringe often lack the infrastructure—like schools and hospitals—needed to support growing communities.
The AEMO Model: A Blueprint for Energy Management
The Australian Energy Market Operator (AEMO) is the entity that keeps the lights on across Australia. It acts as a central coordinator for the national electricity market. Understanding how it operates is essential to seeing why Kohler suggests using it as a model for housing.
AEMO's Role in Energy Supply and Demand
AEMO does not own the power plants or the poles and wires. Instead, it manages the flow of energy. It forecasts future demand based on weather, population growth, and industrial needs. It then works with generators to ensure that enough electricity is available when and where it is needed.
This role requires high-level coordination. AEMO must ensure that the grid is reliable, secure, and cost-effective. If there is a risk of a shortfall, AEMO takes action to bring more supply online or manage demand to prevent blackouts.
Mechanisms for Balancing the Energy Market
AEMO uses data and market signals to keep the system in balance. It provides transparent information to energy producers so they can plan their investments. If a specific region faces a supply gap, AEMO flags this early, allowing the industry to react.
This model works because it removes guesswork. By providing a "single source of truth" for energy data, AEMO ensures that the private sector can invest with confidence. It balances the need for immediate supply with long-term infrastructure planning.
Applying the AEMO Analogy to Housing
Alan Kohler’s proposal is to create a similar national body for housing. The goal is not for the government to take over building homes, but to provide the coordination and data that the market currently lacks.
Functions of a Housing Market Operator
A national housing body could take on several key roles. First, it would provide national housing supply forecasting. By analyzing population trends, migration, and economic data, it could tell us exactly how many homes we need and where they should be located.
Second, it could coordinate with state governments and local councils. A major issue today is that local planning decisions are often made without considering national housing targets. A housing operator could hold councils accountable for meeting these targets and identify areas where planning laws need to change to allow for more density.
Addressing Supply Chain and Construction Bottlenecks
A housing operator could also help identify and remove bottlenecks in the construction industry. If there is a shortage of skilled labor or building materials, this body could work with industry groups to prioritize essential projects.
It could also facilitate discussions between developers and government agencies to ensure that infrastructure—like water, electricity, and roads—is ready before new housing developments start. This would prevent the situation where new estates are built but remain isolated from vital services.
Data and Intelligence for Informed Decision-Making
Currently, housing data is scattered across various state and federal departments. A national housing operator would consolidate this into a single, accessible database. This would give developers, investors, and policymakers a clear picture of market trends.
With better intelligence, we can move away from reactive, short-term policies. Instead, we could make decisions based on where the population is actually heading, which would lead to a more efficient use of land and capital.
Potential Benefits and Challenges of a Housing AEMO
Applying the AEMO model to housing is an ambitious goal. It offers clear advantages for market stability but also faces significant implementation challenges.
The Upside: Achieving Market Stability and Affordability
The primary benefit of a coordinated approach is stability. By setting clear targets and providing better data, we can reduce the boom-and-bust cycles that define the Australian property market. Investors and developers would have more certainty, which leads to a more steady stream of new housing.
Improved Affordability Outcomes
Over the long term, better alignment of supply and demand should moderate price growth. If we consistently build the right type of housing in the right locations, we can prevent the extreme shortages that drive up prices and rents. This is the most effective way to address the affordability crisis.
Enhanced Infrastructure Planning Integration
A national housing body could ensure that housing development and infrastructure planning happen at the same time. This means schools, public transport, and hospitals would be ready when new residents move in, creating more liveable and productive communities.
The Hurdles: Implementation and Governance
Despite the potential, establishing a housing AEMO is not easy. Australia is a federation, and land-use planning is historically a state and local government responsibility. Getting all states to agree to a national body would require significant political will and cooperation.
Navigating Federal and State Jurisdictions
There is a risk that a national body could be seen as an overreach by the federal government. States may be reluctant to give up control over planning and zoning laws. A successful model would need to find a way to incentivize states to cooperate rather than force them.
The Role of the Private Sector and Market Forces
Some critics worry that government intervention could stifle the private sector. The goal must be to support private developers, not replace them. A housing operator should focus on removing obstacles, like slow planning approvals, rather than imposing new regulations that make development more expensive.
Data Privacy and Monopoly Concerns
Consolidating data is useful, but it also carries risks. Protecting the privacy of individual data and ensuring that the housing operator remains transparent and accountable is essential. We must avoid creating a powerful entity that can distort the market through poor decisions or lack of competition.
Conclusion
Alan Kohler’s proposal for an AEMO for housing offers a clear path toward a more functional housing market. Australia currently suffers from a lack of coordination, fragmented planning, and a persistent mismatch between supply and demand. These problems will not solve themselves.
By creating a national body to oversee housing supply, we can provide the data, stability, and coordination needed to fix our housing shortages. While the political and logistical challenges are real, the cost of inaction is much higher. It is time for a serious national debate on how we can better manage the most essential part of our economy—the homes we live in. Balancing supply and demand is the only way to ensure housing remains affordable for future generations.
Here's why there is not any real progress being made on housing affordability.
Every Australian who owns a home or flat, which is the majority of us, earned an additional $82,648, on average, from the appreciation of their property over the last 12 months. Since only half of that amount is subject to taxes, this amount exceeds the average wage.
According to the ABS, there are 11.1 million residences and the total value of the residential stock at the end of March was $10.7 trillion, which is $917.4 billion more than it was a year earlier.
Since there is a total of $2.3 trillion in mortgage debt, the equity of Australian home owners went from $7.5 trillion to $8.4 trillion, resulting in a 12-month capital gain of 12%.
The value of Australian real estate has increased by 10% over the past five years, which is significantly more than the sharemarket's yearly return of 7.4%.
As secure as homes
Any politician foolish enough to expose that gravy train would be damned.
They are not foolish, either, so if you own a home, do not worry: housing will not be made more inexpensive. Anything that costs anyone money, much less the vast majority of population, is not politically feasible.
Since the median house price in Australia has doubled over the last 25 years as a multiple of average weekly earnings, from four to eight times, it means that the drawbridge to the castle of home ownership, in which the majority of voters are contentedly ensconced, has been pulled up: Only those with a boat to cross the moat can gain access to it.
Australian society has deteriorated due to a catastrophic failure of government policy at all levels.
The actual problem
In the metaphor, the "boat" refers to both a deposit and a wage that is significantly more than normal, as well as access to the parents' house equity.
A person with an average weekly income would still have $500 left over each week even if they were able to obtain the $150,000 down payment and then borrow $625,791 (80% of the purchase price) to purchase the median-priced home. With two children, a full-time job, and average weekly incomes, a couple would have $867 a week left over for groceries, clothing, utilities, and health care. Insufficient.
Renting is not much better these days. The average couple with two children living in the median rental in Australia now earns about $1000 per week after rent and child care, as the median rent has reached a record high of $627 per week.
Due to the insufficient and disorganized housing supply, the expense of housing is generating a generation of insecure renters and working poor.
Possible remedy
For housing, there must be some sort of counterpart to the Australian Energy Market Operator (AEMO).
That is, a more robust National Housing Supply and Affordability Council that employs its own personnel rather than the Treasury secretariat it currently uses.
The National Electricity Market is, of course, managed by AEMO, which is not possible with the national housing market. However, a major issue with housing is that supply decisions are scattered and unrelated to demand.
The task of studying the national housing market and making sure it is balanced, as AEMO does with energy, falls to no one. AEMO "worked with more than 1300 stakeholders, produced 60 presentations and studies, and examined more than 110 submissions from business, consumer, and community leaders and governments" in order to prepare the 2024 Integrated System Plan.
If the cost of the house itself is prohibitive, what good is it to go to such lengths and make sure that every household has adequate reasonably priced gas and electricity?
Temporary rentals
First, the rise in short-term rentals (STRs), particularly Airbnb, at the expense of long-term leases would present a challenge for a new Australian Housing Market Operator (AHMO).
Grounded, a group that promotes community land trusts, has conducted a thorough analysis of STRs in 13 areas and discovered that their profits are 80.9% higher than those of long-term rentals.
It makes sense that investors are moving their properties from long-term rental services to Airbnb.
According to Karl Fitzgerald of Grounded, short-term rentals accounted for 74.2% of the new housing supply in the markets he examined, and Airbnb currently makes up roughly 35% of the rental supply pool.
Fitzgerald proposes the implementation of a "Locals First Airbnb Cap 'n Trade" system, which would limit the number of licenses granted and cut it by 5% every two years until the ratio of short-term to long-term rentals was restored.
As the supply of licenses decreased, their value would rise and they might be traded. Karl Fitzgerald wants the income to go toward shared equity projects led by local communities, such as community land trusts.
Complex equilibrium
However, it is obvious that the government needs to control the balance between short-term and long-term rents more forcefully, regardless of how it does it.
A 7.5% fee on short-stay properties has been proposed by Victoria, but it appears to be uncertain and would only slightly alter the situation nevertheless.
The transition from long-term to short-term rental homes is a national issue that requires national attention.
Legislation to provide tax incentives for "build to rent," or when institutions construct housing to own and rent for a long time, is one measure the federal government has announced to increase the supply of rental properties.
This kind of housing makes up 5% of the housing supply in the UK and 12% in the US; in Australia, it makes up 0.2% since developers may sell the plan to people for a higher price thanks to negative gearing and the capital gains tax reduction.
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