Deputy Chair of the National Housing Supply and Affordability Council – Dr Marcus Spiller
There’s a raft of action occurring across multiple fronts to mitigate the housing crisis, including planning reform, new institutions to finance social housing, accelerated land release, support for first home buyers and jurisdictional tax adjustments to facilitate BTR projects.
By and large these measures make sense in their own right and are worth doing.
Today, I want to take an historical perspective and ask, is there a coherent vision of the Australian housing system binding these actions, and if so, is it fit for purpose?
In the early post World War II period, the national vision for the housing system was sharply focused on creating a large social housing sector.
Australia was gripped by a reconstruction fervour, looking to build a new future following the horrors of the war and the desperate times of the Great Depression which preceded it.
The first Commonwealth State Housing Agreement (CSHA) was struck in 1945, with the public sector mandated to play a central role in the housing system.
Social housing was imagined as much more than a safety net for those who couldn’t secure reasonable accommodation in the private sector.
Rather, it was seen as a primary source of worker housing and was to be a crucial agent in Australia’s economic modernisation.
Large public housing estates were commissioned to support our ports, energy generators (for example, Latrobe Valley) and manufacturers (for example, in Adelaide’s northern suburbs hosting GMH).
During the 1950s through to the 1980s, public housing starts ranged between 10,000 and 20,000 per year.
Government was a big player in housing supply.
At the same time, the long postwar boom was unfolding.
Incomes grew rapidly and suddenly home ownership came within reach of most ordinary working people.
‘Homeownership for all’ supplanted a dominant social housing sector as the de‑facto Commonwealth vision for the Australian housing system.
In the 20 years to 1966, home ownership surged from less than 55 per cent of all households to a postwar peak of over 70 per cent.
Reflecting and reinforcing this shift, a series of tax breaks and transfers in favour of this tenure became embedded in the way we think about the housing system.
These included providing grants for first home buyers, exempting owner occupiers from imputed rent tax, and excusing the family home from capital gains tax and various means tests for Commonwealth pensions and benefits.
The mid‑1980s was a crucial turning point, not only for the housing system but in our general approach to public policy.
Under the banners of ‘micro‑economic reform’ and National Competition Policy, a quiet but profound revolution was prosecuted in our country.
The postwar ‘mixed economy’ was systematically taken apart through a bipartisan program of deregulation, privatisation and the pursuit of market processes in the delivery of public services.
As a nation, we eschewed the idea of a normative vision for housing tenure mix and public sector involvement in land and housing supply.
The vision became one of market liberalisation; freed from undue regulation and constraints on competition, commercially motivated transactions would spontaneously align housing supply with household preferences, and by extension, community needs.
Governments of all persuasions slammed the brakes on aggregate social housing investment.
Once lauded as foundational to Australia’s economic development, social housing came to be seen as entrapping people, denying them sovereignty in their housing choices.
In the new market driven vision for the housing system, the best way to assist those who could not afford commercial offerings would be to top up their incomes so they could participate in the market.
Social housing would play only a residual or safety net role.
The Commonwealth embarked on a program of regulatory reform.
All planning legislation across Australia was officially scrutinised, and to some extent, streamlined in the 90s and early 00s as part of the intergovernmental agreements on competition policy.
The Australian Government duly switched its fiscal priorities in housing from physical production to direct income support through Commonwealth Rent Assistance.
The market would attend to the bulk of the need for housing affordable to low‑ and moderate‑income earners through the commercial downward filtering of the dwelling stock.
That is, the vacancy chains set in train when households occupied newly built housing would ultimately result in a pool of lower priced stock.
The predicament we find ourselves today in might suggest that this market efficiency vision has failed us.
However, several influential institutions and commentators have suggested that this vision hasn’t been given a chance to succeed.
They argue that market liberalisation, especially in the planning area, hasn’t gone far enough.
The National Housing Supply and Affordability Council’s work suggests that an efficient market is essential, but not sufficient, to deliver a housing system that meets the needs of Australians.
An evolved vision is needed going forward.
The great majority of housing in Australia has been, and will continue to be, supplied through commercially driven market transactions.
It is therefore critical that these markets operate as well as they possibly can.
This means keeping regulations to the minimum required to deliver public policy outcomes, maintaining competition amongst the developers of new housing, avoiding or eliminating land hoarding and other rent seeking behaviours and ensuring that households have a sound understanding of their options and the trade‑offs involved.
But an efficient market can’t ever be enough, by itself, to deliver a well‑functioning housing system.
This is because commercial transactors are not rewarded for the spillover benefits which they might create.
For example, a commercial developer would unlikely forsake the opportunity for higher rents or sales value in order to supply housing at an affordable price so that key workers might live in the area to the advantage of local hospitals, councils, childcare centres, hospitality businesses and the like.
Having local access to these key workers is of great economic value to the host community, but it has no commercial value for the developer.
Similarly, a commercially motivated developer has no business reason to provide housing which is affordable to lower income households in well serviced locations, notwithstanding that the wider community would benefit significantly from ensuring that these households have good access to health, education and job opportunities.
Meanwhile, the downward filtering of housing is erratic and certainly can’t guarantee that affordable housing will be provided in the locations where it is needed most.
A well‑functioning housing system therefore requires that all communities are equipped with an adequate infrastructure of non‑market housing as well as featuring efficient private housing markets.
The vision and policies which guided the housing system through the long postwar boom, and indeed, the extended period of unbroken growth ushered in by micro‑economic reform are unlikely to fit the bill today.
There’s strong evidence to suggest that home ownership adjusted to lower levels, permanently, with the new millennium.
Part of this reflects a structural upward shift in housing prices following a protracted period of low interest rates that attended market liberalisation 30 years ago up to relatively recent times.
Part of it also reflects changes in the way Australia earns its living, how we conduct our working lives and demographic and social changes.
The relationship between where and how we build our housing, and the geography of opportunity has shifted markedly.
Buying an affordable house on the urban fringe is no longer the social escalator it once was.
Our metropolitan areas are now so much larger.
Unlike the 50s, 60s and 70s when the suburbs hosted a healthy stock of high paid jobs many of which were linked to the manufacturing economy, today’s best paid jobs are in advanced business services and these show a strong propensity to locate in the inner city.
So, young, aspirational households face a cruel dilemma – rent in well located areas and build their careers, or deny themselves and their family members opportunity but get a toe hold in homeownership in less well located neighbourhoods.
As well as maintaining a focus on efficient markets to do the heavy lifting in housing supply, a fit for purpose vision for the housing system should address 3 additional imperatives.
Firstly, a refreshed role for social and affordable housing is warranted, so that we again treat it as an enabling infrastructure rather than a residual safety net.
The backlog in this infrastructure after 4 decades of, at best, treading water, is now enormous.
There is a consequential need to leverage private capital in building up stocks of social and affordable housing at a reasonable pace, even if this comes at a somewhat higher fiscal cost in the longer term.
The government’s establishment of the Housing Australia Future Fund is an important institutional reform in this context.
Secondly there is a need to expand tenure choices for Australians, but in all cases ensuring that they can make their house a home.
These tenure choices could include fractional ownership, secure rental co‑ops, community housing and affordable housing, as well as traditional private rental and home ownership.
Thirdly, recognising that Australians will be spending more time in private rental, either by choice or necessity, it’s important that this sector provide greater security of tenure and better service levels for tenants, compared to their inconsistent treatment under current arrangements where ‘mum and dad investors dominate’; this includes expanding the BTR sector supported by institutional investment.
To realise a better housing system, a number of reforms are necessary including in planning systems, construction sector productivity, facilitation of infill development, and tenure taxation.
Economics 101 tells us that planning regulation is essential to correct for 2 market failures; the externalities involved in land use and development, and the need to design, arrange and sequence development so that essential infrastructure like roads, drains, parkland, schools, hospitals, public transport – all of which tend to be natural monopolies – can be supplied efficiently.
As mentioned, planning systems underwent searching review as part of National Competition Policy in the 1990s and early noughties.
Nevertheless, there is scope for continuing improvements to ensure planning regulations remain fit for purpose.
It’s vital that planning schemes maintain sufficient zoned capacity for housing, so that developers may respond swiftly to surges in demand, though we ought not forget that planning can only enable development, it can’t make it happen.
Ongoing planning reform should recognise that development rights are reserved by the Crown, in the same way as mineral deposits, water resources and other regulated rights are reserved in the public interest.
Part of the uplift in land value that goes with the granting of development rights should be returned to the community, to help fund essential infrastructure including local supply of social and affordable housing.
We are embarking on a major push to improve housing supply elasticity at the same time as we are withdrawing, quite rightly from a planning point of view, from the traditional way we have supplied housing in Australia – cutting up land on the urban fringe.
Getting more housing built in well located established areas will require a minor revolution in construction norms, with far greater use of factory‑built dwellings and dwelling modules.
It will also require greater involvement by state land development companies like Landcom to assemble and de‑risk sites so that private developers can get on with producing medium density housing at pace.
Finally, and trickiest of all, we need to move towards fairer tax treatments of different housing tenures, so that those who cannot achieve, or do not want, home ownership are not unduly disadvantaged.