Progressive Money

Economics in the Real World · scenario 6 of 10 · about 13 min

“If governments can create money, why can't they build 500,000 houses tomorrow?”

Why people make this argument

Once people learn that the Commonwealth issues the Australian dollar and cannot run out of it, this question follows naturally. Housing is expensive, rents are rising, and governments often say they cannot afford to build enough. If money is not the problem, what is?

The question is a good test of the difference between a financial constraint and a real one. In its strongest form it is a challenge to politicians: if the barrier to building is not a shortage of dollars, then 'we can't afford it' is not a good enough answer, and the public deserves to hear what the real barriers are and what is being done about them.

Ideas you'll need

  • Real-resource constraints
  • Inflation from spending beyond capacity
  • Planning and land supply
  • Building capacity over time

What isn't in dispute

The National Housing Supply and Affordability Council forecast in May 2025 that Australia would build 938,000 new homes in the five years to 30 June 2029, 262,000 short of the 1.2 million Housing Accord target. That is roughly 188,000 homes a year, so 500,000 extra homes is more than two and a half years of the whole country's building.

The Council pointed to shortages of skilled workers, high material and financing costs, low construction productivity and, in some places, restrictive or complex planning and land-use approvals. The Commonwealth cannot run out of Australian dollars.

How mainstream economists would analyse it

Mainstream economists would say the question confuses money with resources. A home takes land, approvals, materials and the hours of carpenters, electricians and plumbers. If governments tried to add 500,000 homes quickly, they would bid those workers and materials away from private builders, renovations and infrastructure, pushing up construction costs and adding to inflation, without many more homes being finished.

RBA research by Kendall and Tulip found zoning pushes big-city house prices well above the cost of supply, and the Grattan Institute argues planning reform is the biggest long-run lever. Many mainstream economists support more public and community housing, but as a sustained program alongside planning reform, more construction workers and better productivity, not a sudden splurge. They would also count the extra debt and interest as a cost.

How MMT economists would analyse it

On 'tomorrow', MMT economists give much the same answer. Their central claim is that a currency issuer's limits are real resources and inflation, not money, and housing is a clear case: the binding constraints are workers, materials, land and approvals. Randall Wray writes that a deficit 'can certainly be too big', fuelling inflation.

Where they differ from mainstream economists is on what follows. If money is not the barrier, they argue, governments should deliberately expand real capacity: train and employ more construction workers, invest in building methods and materials, and build public housing at a steady pace, using taxes or other measures to make room if demand pressure builds. On this view 'we can't afford it' is the wrong answer; the honest one is 'we haven't built the capacity yet'.

Your turn

Your turn: Answer the question in the claim. Then say what a federal government that wanted many more homes could realistically do over five to ten years, and what would limit it.

Show a model response and the rubric

Because money is not the constraint that matters. The Commonwealth can create Australian dollars, but not carpenters, bricks, serviced land or planning approvals. Australia is forecast to build about 188,000 homes a year; trying to add 500,000 at once would mostly bid up wages and material prices, pull builders off other projects and add to inflation, rather than produce homes tomorrow.

Mainstream and MMT economists largely agree on this. They differ on what comes next. Many mainstream economists stress planning reform and productivity, and count debt and interest as costs. MMT economists argue that because money is not the barrier, governments should deliberately expand capacity and build public housing steadily.

Over five to ten years, a federal government could fund training and skilled migration for construction, back better building methods, pay states to reform planning, and finance public and community housing at a steady pace. The limits are workers, land, state planning powers, competing infrastructure and inflation. My view assumes the building industry is near capacity; evidence of spare capacity, such as falling construction costs, would strengthen the case for building faster.

A strong response

  • Distinguishes the financial constraint, which the Commonwealth does not face in its own currency, from real-resource constraints
  • Explains how spending beyond the building industry's capacity shows up as higher costs and inflation
  • Uses the scale of current building, from a dated source, to judge the size of the task
  • Recognises the role of land and state planning systems
  • Represents where mainstream and MMT economists agree and where they differ
  • Proposes realistic medium-term steps and names what would change the assessment

There is no single right answer. Reach your own conclusion, and be ready to say what evidence would change it.

Limitations and counterarguments

The MMT answer is clear that the limit is real, but expanding capacity is slow and uncertain: training a tradesperson takes years, and governments do not always build quickly or cheaply. Public building also competes with private building for the same workers, so it may partly replace rather than add to supply. Using taxes to make room is easier to propose than to legislate.

On the mainstream side, how much supply responds to planning reform is debated. Cameron Murray argues developers release land at a pace that protects prices, so rezoning alone may deliver less than hoped. And treating inflation risk as decisive can become a reason never to start a large public building program at all.

Revisit What limits government spending? Demand, capacity, inflation and jobs · Stephanie Kelton: The big myth of government deficits | TED · Cameron Murray - The Great Housing Hijack | Australia's Biggest Book Club · Webinar Series: The Great Divide: Australia's housing mess and how to fix it. With Alan Kohler

Sources