Offered a choice between reviewing housing policy or a sly session of nasal mining, most sane pleasure seekers will go for the nose.
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Until very recently, Australia’s policy response to the affordable housing crisis seems little more than earnest handwringing and the banking of profits; an exasperatingly-sclerotic endlessly-repeating pantomime pitting worthy Cassandras against self-interested players peddling mutually irreconcilable policy binaries.
However, aspects of the Greens’ recently announced housing policy could well disrupt this infuriating stalemate.
The Greens’ solution
As presented at the National Press Club on March 6, the Greens propose to establish a public developer to build more affordable housing, explicitly aiming to break the private developer monopoly of the market: “Relying on private developers to tackle the housing crisis is like relying on Coles and Woolworths not to rip you off.”
Under the plan, some $12.5 billion would be allocated over five years to construct 360,000 affordable homes with 70 per cent for rent capped at 25 per cent of household income, and 20 per cent of the total reserved for those with the lowest incomes.
The remaining 30 per cent would be sold for cost plus five per cent, and could only be resold back to the government at a value confined to original cost, plus inflation. Completed homes would be allocate by lottery.
Funding would be partially offset by scrapping current $27 billion tax breaks for property investors.
…and so, the Panto starts again…
Unsurprisingly, critical commentary was swift and broad.
It ranged from the measured and non-partisan through to outrageously self-serving.
The Grattan Institute considered that the Green’s scheme was both expensive and poorly targeted to those most in need, taking particular aim at allocation-by-lottery.
Professor Hal Pawson of the UNSW agreed and added that building industry capacity was notoriously inelastic – slow to increase production when faced with greater demand; conditions that typically result in higher dwelling prices.
The progressive think tank, Per Capita, expressed dismay that though its submissions were most cited by the Greens, its recommendations for more government-developed social housing were largely ignored.
Its executive director, Emma Dawson, considered that implementation of the Greens’ policy instead risked making housing conditions worse for Australia’s most vulnerable.
The Housing Industry Association agreed with Pawson, pointing out that in the absence of stimulus to grow the industry, the national government’s target of 1.2 million homes over the next five years would instead likely be achieved 10 years late.
A community housing provider was less dismissive but noted that the likely success depended on implementation details that are yet to be released.
The national government pointed out that it had long commenced its own affordability scheme that had attracted support with state governments and, anyway, the Greens did not control the budget so therefore could not seriously advance their proposal.
Delivered shortly before the Greens announcement, the Property Council of Australia criticised the government’s announcement, claiming that proposed incentives needed to double before for-profit developers would build affordable homes, helpfully adding that immigration needed to increase to provide labour to build homes (and bodies to occupy them).
Quelle surprise: the conservatives, shamelessly claiming that they are the only party not beholden to vested interests, are keen to find an affordable housing policy pathway that preserves existing capital gains tax and negative gearing settings, notwithstanding their state-counterpart’s pre-election promise to roll-back these perks.
They also blamed worsening housing affordability on the growth of compulsory superannuation – hence their enthusiasm to allow the young to draw down their retirement wealth early to buy housing, but without addressing the other factors that have generated the crisis in the first place.
The obvious result would be to accelerate price escalation (generating “super profits” for existing home-owner/voters) and the already distressed young would risk losing their long-term financial stability!
Underscoring the inequity of this perspective, Yogi Vidyattama observed what we all suspect, that current housing policy settings are fundamentally exploitative:
“If Labor’s 2019 program (to phase out housing investor tax breaks) had been adopted, the share of households who own their home rather than rent would have climbed 4.7 percentage points… But for landlords the displaced would-be owners are useful. They become tenants, helping the investment make sense” (emphasis added).
And so it goes…
It is no wonder that housing policy torpor persists. How is it possible to make any headway in all of this?
However, it is suggested here that the answers to 4 questions may impart some useful pathway illumination: who builds; for whom; what gets built; and where.
Who builds?
Elements of the Greens’ announcement warrant less dismissive treatment than it attracted.
Firstly, the Greens consider that who builds affordable housing actually matters.
Modest planning measures that encourage the for-profit housing development industry to build more affordable housing have been tried over recent years with little success.
One called “inclusionary zoning” – a requirement to devote a small proportion of developer output to affordable housing, generally 1-3 per cent – was and continues to be resented by the for-profit housing industry.
A recent example: one of Australia’s largest residential flat developers, Meriton, was granted consent within the City of Sydney Council area to build 800 new apartments.
Rather than build a minimum 3 per cent affordable dwellings, Meriton elected to pay the financial equivalent – some $29 million – as a levy to Council; an arrangement that is perfectly legal.
Governments can address this directly by building more houses. This is really the only option to meet the “social” end of the housing market, which can only be funded from taxation.
The NSW government’s affordability initiative would increase this percentage to some 15 per cent near transport hubs in return for planning bonuses that allowed greater development capacity. The for-profit industry has, or is attempting to, whittle this back to 10 per cent but, unsurprisingly, wants to hang on to the profits arising from the increase.
It has been clear for some time that the for-profit industry simply does not want to build affordable housing.
To be fair to the industry, why should they? They are in the business to make a profit.
They respond to market signals. Even though there is a growing demand for more affordable housing, why should they be compelled to provide it when there is still demand for more expensive housing?
In this perspective, the unmet demand for more affordable housing is a market failure, which governments are left to remedy.
Governments can address this directly by building more houses. This is really the only option to meet the “social” end of the housing market, which can only be funded from taxation.
Here, Per Capita offers useful insights:
“In 2023-2024, federal investor tax breaks will be worth more than 10 times the amount spent by the federal government on social housing and homelessness services through the National Housing and Homelessness Agreement” (emphasis added). The funding implication is pretty clear.
Governments can also address market failure indirectly, which is what the NSW government’s planning incentives aim to do.
However, the for-profit industry is not the only sector that provides housing.
The not-for-profits (NFP) sector differs from the larger for-profit sector in removing most of the business profit component from the cost of housing they provide (builders, designers and project managers still get paid).
So, the obvious question that state planning agencies might consider; why grant generous planning breaks to the reluctant for-profit sector to build 10-15 per cent of what it repeatedly demonstrates it is unwilling to provide, when the same or greater breaks granted to the NFP’s would deliver closer to 100 per cent of its output as affordable housing?
“In 2023-2024, federal investor tax breaks will be worth more than 10 times the amount spent by the federal government on social housing and homelessness services
Disproportionately advantageous planning stimuli for the NFP’s can be justified by the market failure of the for-profit sector to provide affordable housing.
The industry inelasticity Pawson refers to would mean greater competition for builders between for-profit and NFP providers, though if furnished with sufficiently greater yield through planning up-zoning the NFP sector could out-compete the for-profits commercially but still keep the per-unit cost of dwellings lower.
…and for whom?
The Greens also appear to recognise that, for those in need of it, new affordable housing should be kept insulated from the existing housing system to prevent its “financialisation”.
Restricting uptake to one house per applicant and confining resales back into the same system on a cost-plus basis should theoretically prevent it becoming just another financial product.
Dawson’s concern that even with these restrictions the cost of dwellings may still be out of reach for many low-income applicants is, perhaps, a detail of system design, not an in-principal objection.
The Grattan’s and Pawson’s concerns about allocation by lotteries is likewise not a fundamental flaw. Less objectionable methods might include the obvious; means-testing applicants.
Ideally, the effect of the Greens’ initiative over time would result in a larger stock of affordable dwellings, held by those needing shelter, not by those seeking returns on investment.
Their removal from the rental market should, as Vidyattama suggests, dampen rental demands in the for-profit and investment market and by virtue of this competition lessen the current harmful price inflationary pressures of scarcity on rents and home purchases.
It might eventually provoke investors to look elsewhere for greater returns, such as in genuinely productive and innovative Australian enterprises; not a bad outcome either.
…and the what and where?
The first two of these questions broadly address the commercial conditions faced by developers, those seeking to be housed and the impact of regulations on those conditions.
The last two questions involve more the cultural settings within which these commercial decisions are made, and will be addressed in a follow-up article.
In the meantime, we might usefully keep in the back our minds a re-expression of a former NSW Premier’s memorable epithet, “Sydney is not full, just badly housed”.
