The First Rung is Gone – Here’s How to Build It Back
Australia’s housing affordability crisis is no longer just another turn of the boom-bust cycle – it’s a structural failure decades in the making. And we won’t fix a structural problem with cyclical thinking. As Kent Lardner, Head of Research at FOUNDIT, argues, we’ve spent years using the wrong tools at the wrong time. First-home buyer grants, shared equity schemes and tax breaks were meant to help young Australians, but instead they poured fuel on the fire. These well-intentioned handouts have inflated entry-level prices rather than improved access, ultimately destroying the first rung of the home ownership ladder in most capital cities.
The Entry-Level Collapse: A Structural Failure
Look at what’s happened to the “starter home” market. In Sydney, the entry-level segment has all but collapsed. In 2025 less than 1 in 25 properties sold across Greater Sydney went for under $500,000 – a mere 4.0% of sales . It’s the smallest entry-level market of any major capital city, a stark indicator that the bottom rung of the ladder has splintered. Melbourne isn’t far behind; only around 15% of Greater Melbourne homes sell under $500k, and those are overwhelmingly apartments or far-flung fixers . Other capitals tell a similar story – affordable is now a vanishing category. By late 2022, only 1.8% of Sydney listings were under $600k (and Canberra just 1.4%), down from healthy shares just a few years prior . In Brisbane, the sub-$500k market shrank to about 3% of sales .
This isn’t a temporary blip; it’s a new normal. “Australia’s affordability problem is not cyclical; it is structural, reinforced by both ends of the market at once,” Lardner writes . At the lower end, cheap housing has essentially been squeezed out by rising floor prices. At the top end, housing doubles as a wealth asset, with investors and high-earners bidding up everything in between. What used to be a ladder is now missing its bottom rungs. Young buyers are forced to either stretch their budgets to breaking point or give up on the metro market entirely. The data shows what many feel: the first-home dream in our big cities has become a cruel joke.
Decades of Demand-Side Mistakes
How did we get here? Decades of policy missteps played a big role. Instead of tackling the structural issues, successive governments opted for demand-side sugar hits – cash grants, generous schemes, tax concessions – that made politicians look busy but ultimately backfired. The First Home Owner Grant (FHOG) is a prime example. Studies have found that the FHOG simply capitalised into higher prices, with one analysis showing it boosted house prices by nearly 19% . Essentially, every dollar gifted to first-home buyers got added onto the price tag by sellers. Shared equity programs and 5%-deposit government schemes have a similar effect: they help individual buyers marginally, but when thousands of people suddenly can bid higher, prices in that bracket move up.
“Increased buyer demand — fuelled by easier access to credit — has coincided with stronger price growth in lower-priced homes. Rather than improving affordability, these schemes have created greater competition and higher prices for first-home buyers,” Lardner notes, echoing what many economists warned from the start .
Tax policy compounded the problem. Incentives like negative gearing and the capital gains tax discount turbocharged investor demand, making it harder for home buyers to compete. Investor activity drove up prices, particularly in the entry segment where rental properties are attractive . The Australia Institute points out that more investors mean more renters and fewer owners – a trend directly at odds with the Great Australian Dream . Meanwhile, housing supply growth consistently lagged behind the surge of cashed-up buyers. Even when supply did improve, easy credit and speculation meant prices kept climbing regardless . In short, we tried to fix a supply-side affordability issue with retail-focused demand injections. The result? A structurally skewed market where the only “affordable” options involve major compromises (size, location, or both) .
A New Option: Leasehold Homes for Affordability
It’s clear we need a fundamentally different approach – one that rebuilds the first rung of the housing ladder instead of handing out taller stepladders to individual buyers. Kent Lardner proposes creating a new housing asset class based on leasehold ownership, a model common in parts of Southeast Asia. In places like Singapore and Hong Kong, residential properties often come with 99-year or 60-year leases rather than freehold title . Buyers still own their homes, just for a finite term. This keeps the initial price far lower, because you’re not buying the land forever – you’re leasing it for, say, 30 years. After that, the land (or the dwelling rights) revert to the owner (often the state or a developer), who can then redevelop or re-lease it. It’s a bit like buying a long-term operating lease on the property, which dramatically lowers the entry cost.
Imagine a new class of Australian homes sold on a 30-year leasehold basis. It could work across housing types – low-density (house and land packages in new suburbs), medium-density townhouses, and high-density urban apartments. In each case, the buyer purchases the dwelling and the right to occupy/use the land for 30 years, but does not pay for perpetual land ownership. That could slash upfront prices by 30-40% or more, instantly putting ownership within reach for those who currently can’t get a look in. For example, a house-and-land that would cost $800,000 freehold might be, say, $500,000 under a 30-year leasehold, because you’re essentially paying for the house and a long-term land use, not the land itself outright. Crucially, leasehold owners are still owners – they can live in the home, renovate it, rent it out, even sell their remaining lease term if they choose. It’s not the same as renting month-to-month with a landlord; it’s secure tenure, just not infinite tenure .
Such a system isn’t alien to Australia. The entire ACT operates on 99-year crown leaseholds, and Canberra hasn’t crumbled – in fact, it’s one of our most livable cities. There’s even an ACT Land Rent Scheme that lets buyers purchase a home while renting the land from the government for a nominal rate . Leasehold models are also commonplace in the UK and Asia for making housing accessible in land-constrained markets. What Lardner is proposing is to add this as a new option nationwide – not to replace freehold, but to offer a parallel path for those priced out of traditional freehold housing.
Not Second-Class, Just Different – And Better for Today
We must address the elephant in the room: Australians are culturally attached to freehold, the notion that you “own your land outright.” Will people accept leasehold homes, or see them as a consolation prize? The key is framing. Leasehold ownership should not be pitched as “second-class” or something you settle for; it should be sold as a different form of ownership that suits the current era. It’s about creating an affordable stepping stone, not a dead-end.
Kent Lardner emphasizes that a 30-year home doesn’t trap you – it propels you. For many young families, a secure 30-year home could cover the key chapters of life (raising kids, building careers) in the community of their choice. By the end of the term, their financial position would likely be much stronger; they could potentially transition to a freehold home if they wish, or negotiate an extension, or move into another leasehold if it suits. In this way, leasehold housing becomes a pathway: it restores a first rung on the ladder that has been missing, allowing people to start climbing again. It also suppresses speculation in that segment. Why? A time-limited asset is less attractive to flippers and speculative investors who bank on infinite capital gains. A 25-year remaining lease on a unit, for example, isn’t likely to double in price in a year – its value is naturally tempered by the diminishing term. This keeps the prices stable and affordable for occupant-buyers. It redirects housing back to its fundamental purpose: a place to live, not a get-rich-quick chip.
Far from being a radical idea, this concept would align housing prices more closely with actual use and depreciation. Houses aren’t immortal; they require renovation and have a practical lifespan. Under perpetual freehold, land values (and speculative fervor) drive prices to extremes, while the physical house often ages and deteriorates. Leasehold flips that script – you pay primarily for the dwelling’s use-value over 30 years. It’s a fundamentally more sustainable approach in an era of sky-high land values. And as Lardner puts it, we must not let “perfect” become the enemy of “affordable”. A leasehold home, done right, feels like ownership in all the ways that matter – you have autonomy, stability, and a stake in the market – without the crushing price tag.
Policy Levers to Make It Happen
For this new leasehold housing class to take off, it needs support from policy-makers. Here are several moves Kent Lardner suggests to turn theory into reality:
Restrict foreign buyers to leasehold properties. Non-resident investors would be limited to this new class of housing. This channels foreign capital into funding new affordable developments without driving up freehold house prices. (Today, foreign buyers are a small but high-impact part of demand, especially in new developments . Under this plan, they become part of the solution by financing housing stock that locals can occupy on leasehold terms.)
Rezone and release land specifically for leasehold housing. Governments (state and local) could designate certain new growth areas or precincts as leasehold-only zones. By doing this, they can sell or lease public land to developers at lower cost (since it’s not a perpetual sale), on the condition that the homes built are sold as 30-year leaseholds. Essentially, seed a new market. After setting it up, the government’s role is to step back and let industry and buyers drive it.
Separate land ownership from dwelling ownership legally. This might mean government or a statutory authority retains ownership of the land (or a trust does), while individuals own the dwelling and rights to the land for the term. Variations of this exist (Community Land Trusts, land rent schemes) showing it’s quite feasible to split the title this way . With the right legal framework, banks can lend to buyers on the security of the lease (just as they lend on apartments with strata or company title). In fact, many countries’ banks routinely finance leasehold properties.
Tie leasehold precincts to affordability outcomes. Policymakers could ensure that leasehold homes are meeting their goal (e.g. by limiting them to owner-occupiers or first-home buyers for an initial sale, etc., or capping annual rent of land if any). The idea is to prevent these from simply becoming a backdoor for investors – they should be homes for those who’d otherwise be locked out.
Educate the public and industry. A campaign would be needed to normalize the concept of home ownership with a time limit. This includes assuring buyers that they have rights and security (much like Singapore’s 99-year HDB flats, where owners enjoy full rights during the lease ). Industry bodies, banks, and insurers would also need guidance to adapt to this model confidently. With clear legislation, a 30-year property right can be just as secure as a freehold during its term.
Build Fast and Smart – Embrace the New Construction Frontier
One more critical piece: none of this works without tackling construction costs and speed. Making homes cheaper on paper is pointless if we don’t also deliver them efficiently. Lardner points to modern construction technology – prefabrication, modular building, automation – as the necessary twin to leasehold reform. Factory-built housing can cut costs and build times dramatically, and improve quality to boot. We’re talking about houses or apartments manufactured in sections in a plant, then shipped and assembled on-site in days. This method can reduce waste, labor costs, and weather delays, meaning more affordable homes delivered faster . Think of housing construction moving closer to a car assembly line – with economies of scale and precision.
Australia’s massive Inland Rail project could be a game-changer here. This new freight rail line spanning Victoria to Queensland could serve as the backbone for distributing prefab housing components nationwide. Envision giant factories in regional hubs building modules for homes, which are then loaded onto trains and shipped cheaply to where new housing is needed – whether it’s Western Sydney or peri-urban Brisbane. Instead of dozens of individual construction sites stick-building houses over months, clusters of sites could be rapidly supplied with modules ready to bolt together. It’s faster, and likely cheaper per unit. Embracing this would not only lower costs but also create high-tech manufacturing jobs in regional areas. In short, we need to industrialize homebuilding if we want truly affordable supply at scale. Coupling a leasehold land model with prefab construction savings could deliver entry-level homes at prices we haven’t seen in decades.
Stop the Band-Aids – Time to Reshape the Market
This is a bold vision, and it won’t be easy. But what’s the alternative? Keep throwing first-home buyer grants at voters every election and hoping magically that prices don’t rise in response? Albert Einstein said the definition of insanity is doing the same thing over and over and expecting a different result. After decades of one-off bonuses, interest rate tweaks, and minor tax tinkering, it’s time to admit the truth: we can’t grant or tax-break our way out of a structural affordability crisis. We have to build our way out, by changing the system itself.
Kent Lardner’s call to action for governments is simple: Stop treating housing like a political soundbite and start treating it like the economic infrastructure problem it is. That means focusing on supply-side innovations and new ownership models that reshape the market from the ground up, rather than subsidies that only paper over the cracks. It means enabling new housing typologies (like 30-year homes) and new construction techniques to flourish, backed by policy support and public acceptance.
Australia’s housing market, warped by decades of misaligned incentives, needs nothing less than structural surgery. It’s time to rebuild that first rung on the property ladder. A new leasehold housing class, supported by smart policy and modern construction, could be the foundation of a more accessible, sustainable housing future. The question is, will our leaders have the courage to stop handing out band-aids to first-home buyers and instead start laying the groundwork for real, lasting change? The next generation of Australians is watching and waiting for an answer.
Kent Lardner is Head of Research at FOUNDIT. He urges policymakers to take bold action now – because solving a structural problem means fixing the structure itself.