With Australia's housing crisis growing, there is a dire need for an economic solution that will rectify the situation in the long term, writes Dr Klaas Woldring.
THERE IS A concerningly low level of public ownership of housing in Australia, as well as an enormous shortage of affordable rented accommodation. The free market has failed housing.
In a country that has high levels of immigration, currently reaching even as high as 400,000 per annum, the availability of plenty of suitable publicly owned housing for rent is an absolute necessity. Currently, at least 10% of all privately owned housing stands empty, some partly used by Airbnb. Much of this can and ought to be used for renting to those who need it.
The serious housing problem that has emerged in Australia needs urgent as well as long-term solutions. The new NSW ALP Premier, Chris Minns, may be on the right track when he says it is not too late to fix the housing debacle. But is his solution the right answer or only part of it? Certainly, this is also a federal (national) issue as a recent Senate debate made very clear.
The Australian Housing and Urban Research Institute (AHURI, Melbourne) has issued a number of relevant research reports on this issue.
Some explanatory definitions of relevant terms provide assistance here, especially the concepts of “social housing” as contrasted with “public housing”:
- public housing, which is owned and managed by state and territory governments; and
- community housing, which is managed (and often owned) by not-for-profit organisations.
Social housing differs from private rental in that housing is allocated according to need, rather than by households competing in a market. [It] is government-subsidised short and long-term rental housing. In Australia in recent decades, it has mainly been available to people on very low incomes...
The privatisation of public (government-owned) housing has contributed significantly to the steep increase in rents. If the example of NSW is typical for the country as a whole, the trend has been short of disastrous. Michael McGowan reported that a massive dossier of property sales by the conservative NSW Government during its 12 years in Government ‘has revealed almost $3.6 billion in public housing stock and land was disposed of’.
Housing Minister Rose Jackson ordered a pause on further sales when they showed that ‘the Coalition offloaded 7,628 properties across the state between 2011 and 2023’.
One would think “pause” is not good enough now.
The full scale of public housing sell-offs was disclosed as follows:
‘...as wait time ballooned, the Coalition disposed of hundreds of millions of dollars worth of stock in individual suburbs.’
Some 4,500 public properties were built off the proceeds, but it amounted to a net loss regardless. However, the previous NSW Government did plan for 23,000 social housing properties over ten years (from 2016) but wait times grew by about 15% to 52,000 households in 2022. Premier Minns said the only way is up for housing — essentially high-rise.
However, the issue demands broader consideration. That surely concerns the already very high level of concentration of the population in six or so major cities. Are these high-rise buildings going to be built all in major cities and close to public transport options? Just how high will they go? Will they be in permanent public ownership or sold off? What has happened to the brave decentralisation policies of the ALP in times past? Can governments encourage people to move to the regions, where the cost of land and building is considerably lower than in the major cities?
It is sad to see the huge newly built-up Sydney suburbs with extensive rows of too-large single houses on tiny blocks of land.
According to AHURI statistics, Australia's level of social housing in 2020 is very low (4.4%) in comparison to the UK (16.7%) and countries within the European Union (with an average of almost 8% but varying from 34.1% in the Netherlands to less than 1% in Lithuania).
However, the supply of sufficient housing is currently also a big problem in the Dutch housing market. From 2013 onwards, there was a sharp decline in the number of new buildings realised and during the last four years, production fluctuated just under or above 50,000 homes yearly. In combination with an increase in the number of new households due to immigration, the housing shortage increased by about 3.2% in 2018.
The construction of new houses has, as in Australia, not kept up with arrivals from other countries. However, the already densely populated Netherlands is not really an immigration country.
In the Netherlands, people are very familiar with renting government-owned houses. My parents and their friends almost all rented government-owned houses. They were built for that purpose and were maintained well. Mostly, they were in a row of single or two-storey houses and later also moderately high-rise, around six to eight levels. Around the 1960s/1970s, the percentage was probably higher still, possibly over 50%.
There are great advantages associated with this system of significant public ownership. It makes the workforce much more mobile. People easily change houses, and the differences in quality and layout are relatively small between cities and regions. There is no stigma attached to public housing and the quality is generally good. Furthermore, it allows the Government to keep the level of rents low including that of the private sector houses for rent.
The recent proposals by Premier Minns seem to concentrate on more high-rise buildings in Sydney as it is more economical to build that way — if done well, of course. There is good evidence in Sydney that some good social housing exists and many high-rise apartments have been built well. However, dreadful stories of several huge mistakes have also been exposed.
Pressures to cut corners have been reported in the last 20 years particularly, some resulting in major high-rise faults with many occupants having to seek other accommodation. The medium-density apartment constructions in Hornsby in recent years are good examples.
Minns outlined his quite detailed vision to the Sydney Morning Herald recently. He stressed that “We have to go up”. Sydney should not grow by going further west. His view is that by doing that, the Government would also protect open space and parkland. Minns said he wanted a ‘youthful city, attracting and retaining young people who wanted to live and build their careers in Sydney’.
He also made a comparison with New Yorkers who, he believed, had a more parochial attitude.
But, he said:
‘...a lack of affordable housing would have devastating economic and cultural impacts on Sydney and would be the single biggest impediment to the city’s growth.’
He said that the NSW Government had already introduced legislation to change rental laws positively but supply remained an issue. However, instructing staff to find more vacant blocks is one thing, but actually finding them is another. Several city dwellers are questioning the additional high-rise prospects as having the potential to destroy their views, pleasant environment, parking availability, parks and so on.
Certainly, there are different views among ALP governments, referred to by the media as “clashes”. One practice that generates conflicting opinions is that of “negative gearing”, often encouraged by conservative governments. Negative gearing means investors in housing deduct any losses they make on an investment property from their taxable income. This works, so it is claimed, to keep rentals low by maximising deductions from taxation.
Maybe, but there are aspects that are questionable for other reasons. The practice turns housing construction into a commercial market occupation based on tax avoidance strategies. Apparently, first-home buyers also pay higher interest rates compared to investors, surely an unfair practice.
Federally, the ALP has developed an all-embracing Housing Australia Future Fund (HAFF) of $10 billion. The fund would ‘provide $500 million each year to support investment in social and affordable housing’, and ‘fund the delivery of 30,000 social and affordable homes over five years’, allocating $330 million for acute needs. The bill passed the House of Representatives in February 2023 but was blocked in the Senate in May 2023. The Greens opposed it for several reasons.
Senator David Pocock, as well as the Greens, announced he would be seeking changes to the bill. Senator Jacqui Lambie suggested that the Government should drop its Stage 3 tax cuts to fund its housing commitments. The Greens took issue with the scheme's design as an “investment fund”, with a preference to put money directly into social and affordable housing.
They claimed the bill also did not provide for low-income renters and argued that more funds should be provided for First Nations housing. Senator Pocock was of the view that the fund should be increased to $20 billion. The ALP leader in the Senate, Penny Wong, referred to postponing the vote as “filibustering” andsaid it was “undignified” for the Greens to be teaming up with the Nationals and Liberal Party. By the end of May, the bill had not been passed.
The Greens' position is worthy of further explanation and examination.
Housing spokesperson, Max Chandler-Mather, presented the Greens' position in Canberra. He also explained this on ABC's Q+A on Monday 22 May, with host Stan Grant presenting five politicians. The ALP representative, Dr Michelle Ananda-Rajah, explained her party's aims and described the Green's position as “policy Nirvana”. What follows is a short summary of the Greens' policy position as presented on the internet.
The Greens are blocking the legislation in the Senate because the HAFF bill fails to match the severity of Australia’s housing crisis. They argue that HAFF is supposed to deliver 30,000 social and affordable homes over five years. This would be the first significant federal investment in rental homes for low-income earners since the Rudd Government’s social housing initiative a decade and a half ago. That $5.6 billion scheme, in response to the Global Financial Crisis, built almost 20,000 new dwellings and repaired another 12,000, some of which had become uninhabitable.
After that sugar hit, it was back to the usual lean years for not-for-profit housing providers. The result: Australia’s share of social housing, where rent is fixed at 25% of tenant income, continued its long-term decline to fall from just over 5% of all dwellings in 2001 to 3.8% at the last census.
Labor’s scheme is a meagre response to the scale of the problem. More than 163,000 households are waiting for social housing. Since many of those households are couples and families with children, the number of people stuck in the queue is well over 300,000 and their wait could be longer than ten years. Four in ten households are classified as “greatest need” — in other words, they’re not just struggling to keep a roof over their heads but may be homeless or at risk of homelessness, fleeing family violence, or living in housing that makes them sick.
In its latest State of the Nation’s Housing Report, the National Housing Finance and Investment Corporation (NHFIC) estimates that 331,000 low-income households are in rental stress, spending more than 30% of their income on rent and unable to afford other essentials such as food, heating and transport. But, as the corporation acknowledges, this estimate is conservative.
Other recent analysis puts unmet housing needs at 640,000 households. Therefore, the 30,000 homes promised under the HAFF will barely affect Australia’s housing crisis.
The Greens also say it will take too long for any homes to get built. In the interim, thousands of low-income tenants are at risk of being forced out of their current homes as they are removed from the expiring National Rental Affordability Scheme (another Rudd initiative).
The $10 billion for the HAFF will be invested rather than spent directly on housing. Only its returns, at least a year away, will fund construction. Australia’s existing Future Fund lost money last financial year, so it could be several years before proceeds are available to invest.
The Government says that up to $500 million from the HAFF could be invested in housing each year but it hasn’t specified a minimum annual spend. However, even assuming immediate positive returns, money from the fund won’t provide up-front grants to build dwellings. Instead, it will be used to bridge the gap between the rents low-income tenants can afford to pay and the costs of building, maintaining and operating housing.
The idea is to give not-for-profit housing providers revenue certainty so that they can borrow from other sources. In this way, modest sums of public money are used to leverage large amounts of private capital for a positive social purpose.
Analysis by AHURI concluded:
‘No amount of “innovative” procurement or financing will yield a government “free lunch”...’
The researchers found that the cheapest and most efficient way to fund new social housing is direct public investment — which is what the Greens are pushing for.
“Our point to the Government is that you would not fund schools or hospitals via an uncertain gamble on the stock market. We’re much better off investing money directly in building public and affordable housing every year.”
Like Rudd’s GFC stimulus package, the HAFF will soon be fully committed. New builds will grind to a halt and we’ll be back to square one.
The Greens want the Government to commit $5 billion in social housing funding annually. They say the money could come from reining in negative gearing and the capital gains concessions to property investors or repealing the Stage 3 tax cuts. They are also calling for a two-year rent freeze.
Furthermore, they could involve adapting sophisticated European models of rent regulation. Germany, where 58% of households rent, has a system of reference rents for similar-quality dwellings in the same city or region.
In a society that is still dominated by the old battles of the two-party system, this complex issue requires greater awareness by many people. Possibly also a new type of reformer is needed. Those who are prepared to suggest bold solutions, that don't fit the historic polarised two-party and single member district ways of thinking, need to be heard. The Greens are positioning themselves well in this for the new field.
Note: Previously, this article addressed that Senator Jacqui Lambie had moved to block the HAFF bill. This information is incorrect and has been amended.
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