City Futures Blog

News and research in housing and urban policy, from Australia’s leading urban policy research centre.

City Futures Blog random header image

The big lesson from Opal Tower is that badly built apartments aren’t only an issue for residents

Posted by on January 17th, 2019 · Cities, Construction, Government, Guest appearance, Housing, Housing conditions, Strata, Sydney

By Laura Crommelin, Bill Randolph and Hazel Easthope (City Futures Research Centre), and Martin Loosemore (Built Environment, UNSW Sydney). Originally published on The Conversation.

The saga of Opal Tower, the 36-storey Sydney apartment building evacuated on Christmas Eve after frightening cracking, has helped to expose the deep cracks in Australia’s approach to building apartments.

An interim engineering assessment released yesterday indicates concrete panels cracked due to their manufacture and assembly deviating from the original design. Though the building is structurally sound and in no danger of collapse, repairing the faults will be costly, slow and disruptive to residents.

The tower’s size, age (it is less than six months old) and the timing of its cracks might have made it particularly newsworthy, but badly built apartment blocks are far from unusual. Right now across Australia’s cities many buildings have significant leaks, cracks and fire safety failings.

So we can’t just address faults in individual developments. We need to identify the systemic flaws in how “compact city” policies have been planned and implemented.

Cracks in the compact city

The consequences of these flaws increasingly affect us all.

As the population of Australia’s capital cities grows, more of us are living in apartments. Governments have been promoting greater housing density as an alternative to sprawl for decades. But they haven’t always ensured this density has been done well, including in terms of building quality.

In the aftermath of the Opal Tower saga, experts have pointed to many reasons why building defects can occur.

These include the fact that developers owe buyers few legal obligations once the apartments are sold, which limits their risk if they get things wrong. There are also significant market pressures, particularly in boom times, to build quickly and cheaply. And there are gaps in how the construction process is overseen, meaning errors go unnoticed.

These are not new observations, but getting regulations in place to address them has proven challenging. A case in point is NSW’s new defects bond, requiring developers to put aside 2% of the building value to fix defects down the track. The bond’s introduction was delayed for years, and it will be a few more years yet before we know if it works.

Scoping the problem

So just how severe is the situation? Right now, we don’t know for sure.

In 2012 a City Futures Research Centre project surveyed apartment owners in NSW. Out of more than 1,000 respondents, 72% knew of defects in their strata-title complex. Among those whose apartments had been built since 2000, the percentage was 85%.

That project only looked at building defects as one of a number of issues facing apartment owners, however, so it didn’t document the issue in detail.

Our new research project will examine just how prevalent building defects are, the reasons they occur, and how strata-titled housing can be improved.

While the research will focus on Sydney, we hope it is a step towards changing planning and development policies to ensure better quality apartment buildings nation-wide.

Increasing inequality

A system allowing defective apartment buildings not only creates huge financial and emotional stress for residents but much wider economic and social risks.

Poor building practices undermine confidence in the multibillion-dollar construction industry, the strata management industry and in the planning system.

They also contribute to inequality. This is because apartment residents are more likely to be younger, renting, on lower incomes, and from non-English speaking backgrounds.

Amid growing concerns about the widening gap between housing “haves” and “have nots”, there is renewed political interest in housing policy. Certainly this is a crucial issue for governments to tackle, but it goes beyond a focus on housing supply and prices. Addressing quality must also be a priority.

At the same time, we also need to step back and reconsider how we do compact-city planning more broadly – including the roles governments and the private market play. With two-thirds of us now calling our biggest cities home, we need to have a serious public conversation about what we want our cities to be and how we can best achieve those goals.

We can’t afford to ignore the growing evidence that our cities are cracking under the strain. Because like the Opal Tower owners, we’re all going to bear the cost when things go wrong, and we’ll all have to live amid the wreckage.The Conversation

There are lessons to be drawn from the cracks that appeared in Sydney’s Opal Tower, but they extend beyond building certification

Posted by on January 11th, 2019 · Construction, Government, Guest appearance, Housing conditions, Sydney

By Geoff Hanmer, Adjunct Lecturer in Architecture, Univeristy of NSW, Sydney. This article is republished from The Conversation under a Creative Commons license. Read the original article.

The reasons for the cracked concrete that triggered the evacuation – twice – of residents from Sydney’s Opal Tower over Christmas and the New Year are unknown and will take time to properly establish. Many commentators are jumping to the conclusion (yes that includes you, Senator Carr) that the problem is the result of the privatisation of building certification. Instead of being done by government or council inspectors, certification is now done by private contractors engaged by the developer.

It might well be a contributing factor, but what went wrong at Opal Tower is is much more complex than that. Making certification a government responsibility again won’t solve it.

Opal is unusual. Very few residential buildings in Australia have ever been evacuated due to construction defects, and fewer still because of structural cracking. The vast majority of construction defects in multi-unit residential buildings are waterproofing failures. Rather than creating short-term alarm, they create long-term misery. Because misery does not generate headlines, the problem of quality in multi-unit housing continues to be ignored by governments.

Most strata buildings are defective

Strata title allows each resident to own the space in which they live as well as a share of the common property including pipes and walls. It’s the way apartments are usually sold after they are developed.

We don’t have definitive, current data on the extent of defects in strata title buildings. Researchers from UNSW’s City Futures Research Centre have begun collecting the information for Sydney. But there are clear indications that defects are significant and widespread.

A 2012 study by City Futures surveyed 1,020 strata owners across NSW, and found 72% of all respondents (85% in buildings built since 2000) knew of at least one significant defect in their complex.

In 2017 a City of Sydney survey identified defects and maintenance as the top concern of owner occupiers of apartments, along with short-term letting through organisations such as Airbnb.

Unfortunately for those keen to leap to conclusions about certification, studies showed the same thing back in the early 1990s when certification was largely in the hands of local governments. In fact, studies have found the same thing ever since speculative housing became common in Australia, from the end of World War One.

In fact, ever since speculative housing development and investment has become common (after World War I in Australia), residential construction defects have been a concern both here and overseas.

The market for residential buildings is extremely competitive, and controlling the cost of construction is one of the key factors in making a profit. Sometimes, the urge to maximise profit dominates to the extent that both short and long-term construction failures are inevitable.

It’s the consequence of cost control

There are, of course, reputable developers and builders, but reputation usually finishes last, undercut by less-reputable players who produce buildings that are slightly cheaper.

Defects in single-storey speculative houses with pitched roofs are probably just as common as defects in multi-unit dwellings with flat roofs, but they are much easier to fix because the houses are close to the ground and no strata committee is involved.

They are also much easier to find; a competent building inspection initiated by a purchaser is normally enough to protect the buyer. On the other hand, a building inspection of a single unit in a multi-unit development is highly unlikely to find defects which are located elsewhere in the common property of a building.

There are 653 apartments in the Meriton-developed Regis Towers, for example, which was the subject of a long-running legal action for defects.

Intervening at certification is too late

The only practical way to make multi-unit dwellings a good investment for the residents and a decent place to live is for government to take a pro-active role in driving quality throughout the design and construction process, not just at the end when the building is certified for occupation, or at the beginning when it gets a development approval.

It is a simple reality that no other actor in the construction process has the capacity to take this role. It is also simpler and cheaper to build in quality than to rectify defects.

Often, a $1 detail realised for fifty cents will cause endless grief and cost thousands of dollars to fix.

Reducing the amount of rectification required will improve sustainability outcomes by containing the amount of embodied carbon incorporated in the building.

If the building performs well, it will have a longer life and that will reduce the need to eventually replace it with a new building; again saving materials and improving the outcome for embodied carbon. It is worth remembering that 20 million tonnes of construction and demolition waste are produced in Australia each year.

Governments have been reluctant to intervene early

Governments have as good as ignored the problem of defects in multi-unit residential construction even though they have been aware of it for years.

This is particularly concerning because the state governments in NSW and Victoria have been busy spruiking this type of accommodation as the solution to the pressures of rising populations in Sydney and Melbourne. Given this, the protections for apartment owners under existing legislation are ludicrously slight.

Unfortunately, compliance with the National Construction Code (NCC) in its current form is no guarantee. There are so many ambiguities and grey areas in the NCC and in the way that it is applied that it is a guarantee of almost nothing, particularly when it comes to waterproofing.

A simple example is the construction of balconies with flat slabs, which is perfectly acceptable under the NCC. The floor slab is constructed as a single plane from the interior to the exterior of the building with the waterproof barrier at the balcony being provided by a masonry wall or a concrete ridge on top of the slab.

This design almost always leaks within a few years. The reliable solution is to cast the slab with a step, but this is more expensive and as a consequence is rare. Cut-price membranes under tiled terraces are also common, causing leaks, mould and misery, despite arguably complying with the provisions of the NCC.

Fortunately, there is plenty that government could do to improve quality of multi-unit construction without affecting prices much.

Five stars. Information could drive standards

One clear way forward is to make the construction quality of a building more transparent to buyers.

This could be achieved by introducing a similar sort of quality assurance scheme to the one government runs to improve safety in cars; a five-star rating.

People are free to buy a two-star car, but for obvious reasons, not many do, even if they are cheap. Similarly, it is unlikely that many people would buy a two-star unit.

It would be perfectly possible to star rate multi-unit housing for construction quality using an independent assessment body against a transparent set of criteria.

It’s been tried before

Such a quality assurance scheme was introduced by the now defunct Building and Construction Council (BACC) in NSW during the 1990s, but unfortunately foundered due to a lack of funding and will from Bob Carr’s government. This was a pity, as the scheme was designed to drive quality through the whole of the building process, from design to completion.

It still provides a perfectly valid model for a policy that would actually do something to improve multi-unit construction quality at a cost which is minimal in relation to the value of the benefits produced. If a building is built correctly in the first place, then owners will not need to rely on shonky fly-by-night builders and developers for rectification works nor need to claim against complex insurance policies.

If the NSW and Victorian governments are serious about having a greater proportion of people live in multi-unit developments, they have a responsibility to do something about their quality before we are left with a overhang of misery, leaks and failures. Just ask the residents and owners of Opal Tower.The Conversation

Labor’s housing pledge is welcome, but direct investment in social housing would improve it

Posted by on December 19th, 2018 · Affordability, Affordable housing, Finance, Government, Guest appearance, Housing, Housing supply

By Julie Lawson, RMIT University and Laurence Troy, UNSW. This article is republished from The Conversation under a Creative Commons license. Read the original article.

Despite recent falls in the housing market, housing costs and indebtedness bite deeply into household budgets, especially at Christmas time. Just over 433,000 households confront housing stress and homelessness every day across Australia. They represent the current shortfall of social housing.

If Christmas offers a moment for reflection, ask yourself what should our resolutions be for the housing market? What should we expect our governments to do about it?

In this article, we look at this week’s major statement on housing policy from a key contender to lead Australia’s next government – made by Bill Shorten at the ALP national conference.

We applaud the principle of fairness and the ambition of the ALP policy. We are less supportive of the reliance on for-profit investors, market rent mechanisms and land grabs. Our research shows direct government investment in social housing is ultimately far more efficient and effective than subsidising investors in the long term.

So what is Labor’s policy?

Shorten’s announcement also pledges reform of tax concessions that are driving inequality between households and investors. However, Labor recognises that this might not be enough to tilt the balance in favour of low-income households, and directing the savings from these changes into housing programs is a welcome move.

Labor proposes to subsidise investors in affordable rental housing, much like the Rudd government’s National Rental Affordability Scheme (NRAS). Labor would offer an $8,500-a-year subsidy over 15 years to investors who build new homes for low-income and middle-income households to rent at an “affordable” rate – 20% below market rent.

Starting modestly, the program aims to produce 20,000 affordable units over three years, building to a much larger target of 250,000 dwellings over ten years.

State governments would also be required to get on board through partnership agreements, as they have done in the past, providing land and other forms of co-investment. Hefty stamp duty revenues in recent years should make this easier for the states.

While Labor’s targets appear high by recent standards, Commonwealth and state governments directly funded the building of 9,000 public housing dwellings each year for the better half of the 20th century – until 1996. Annual production is now down to 3,000 dwellings. That’s not even enough to maintain the existing public share of housing.

Since the mid-1990s, a preference for outsourcing social responsibility through private rental providers and indirect rental support payments has dominated public policy. The ALP’s subsidy-based policy continues this trend.

The proposal centres on maintaining returns to investors at levels that encourage investment. As our previous research has shown, over the longer term this increases cost per dwelling. The question remains, as it did under the NRAS: who are we trying to subsidise here, the investors or the tenants, and is it really equitable and effective?

What are the alternatives?

Previous work has shown that NRAS-type schemes offer most benefit to new affordable housing developments when the funds are directed to not for profit organisations, rather than “leaking” out to the for-profit private sector. The advantages of this approach include:

  • subsidies are retained within the affordable housing system
  • benefits are directed to regulated not-for-profit developers with a social purpose
  • the benefit is stretched out over a longer time, meaning government investment does not expire after a set time.

In the UK, a lack of direct conditional investment and weak definitions of affordability led to an 80% decline in social housing production. Without public equity, recurrent operating subsidies have no influence on design quality or ongoing impact after the expiry of providers’ obligations – or their cancellation. Yes, they can be switched on and off like a tap – as happened in 2014 with the NRAS.

With good design, a new scheme could overcome some of these deficiencies. Labor promises to provide lower annual subsidies than NRAS but for longer – 15 rather than 10 years – adding up to at least $127,500 from the Commonwealth for a tenancy to be offered at below market rents. It’s a substantial commitment.

Yet if this level of support was invested up front to build dwellings, rather than provided as an annual operating subsidy, it would make a substantial and enduring contribution to Australia’s housing needs. This is not only socially responsible, it can drive green innovation and is also more financially responsible too.

The only thing that stands in the way is the narrow public accounting doctrine that privileges day-to-day expenditure over long-term investments. This is something that, in the UK, even the Treasury and the National Audit Office are learning to overcome after the painful experience of the Private Finance Initiative.

How much more cost-effective is direct investment?

If equity and fairness are to be the yardsticks of policy, age pensioners, people with disabilities and low-paid workers should be the focus of our deepest support. Our AHURI research has established the level, type and location of investment required to meet the needs of 433,000 low-income households in housing stress or homeless across Australia. The current market offers no affordable or secure options for them.

Our research also compared the cost of subsidising investors versus direct investment by government. Our modelling of costs and review of international experience provide evidence that direct investment is far more efficient and effective in the medium and long term.

Capital funding model.
Lawson et al, 2018, Author provided
Operating subsidy funding model.
Lawson et al, 2018, Author provided

Thus, we argue for more direct investment in social housing, strategic use of efficient mission-driven financing and retained investment via public equity and public land leases.

Recognition of the need for national leadership and policy reform is growing. After backpedalling, the Coalition government moved forward in 2018 to establish, with cross-party support, the National Housing Finance Corporation. This mission focused public corporation will soon channel lower-cost financing towards regulated not-for-profit housing. Of course, financing is debt and not quite the same as funding.

The Australian Greens have yet to announce their policy but an outline suggests a commitment to invest in social housing and establish a federal housing trust.

The ALP’s proposals are framed in line with the laudable principle of fairness and are a work in progress – rather than mission accomplished. Overcoming the shortfall of affordable and secure housing will require purposeful Commonwealth and state government funding, mission driven financing as well as land policies to make housing markets fairer for all.The Conversation

Julie Lawson, Honorary Associate Professor, Centre for Urban Research, RMIT University and Laurence Troy, Research Fellow, City Futures Research Centre, UNSW

 

Shorten places housing at the centre of the 2019 election

Posted by on December 18th, 2018 · Affordability, Affordable housing, Government, Housing, Housing supply

With his weekend announcement of a $6.6 billion affordable rental construction program, Bill Shorten has dramatically reinforced Labor’s emphasis on housing as central to the party’s 2019 election policy pitch. The initiative, Labor’s first significant housing investment pledge in four federal elections, aims to help qualifying low-to-moderate income earners increasingly squeezed out of urban housing markets. It builds on Chris Bowen’s vow, ahead of the last federal contest, to restrict landlord investor negative gearing tax handouts to those helping to expand supply through newly-built housing acquisition.

Now, Labor is re-committing to its 2016 investor landlord tax reform plan and to a rental supply program partly financed by the resulting tax savings. In combination, these moves start to redirect what is effectively a form of housing subsidy (negative gearing and Capital Gains Tax discount) towards a targeted and highly justifiable end: expanding the supply of good quality rental properties reserved for essential service workers and other similarly eligible applicants.

Importantly too, Shorten’s new housing program is far removed from the small-scale gimmick initiatives that have become so familiar in this policy area. His claim that this would be the largest national housing program since World War 2 is no exaggeration. Since public housing construction flatlined following 1997 Howard Government cuts the only measure at scale has been Kevin Rudd’s 2008 National Rental Affordability Scheme (NRAS). But, with its initial target of 50,000 units, NRAS was small beer compared with Shorten’s 250,000-in-a-decade pledge.

The need to crank such an operation into gear means it will necessarily start fairly small, generating a targeted 20,000 construction starts in the next parliamentary term. But this needs to be seen within the current context where annual public housebuilding (often involving the replacement of obsolete homes) equates to only around 3,000 dwellings.

With the aim of generating 250,000 homes over ten years the Shorten program will need to be delivering close to 30,000 annually by the time it really hits its stride in the mid-2020s. Justifying his rhetoric, this would far exceed the output achieved in the mid-twentieth century heyday of public housebuilding. Equally, though, in modern Australia it would represent only around 10-15% of total residential construction – proportionately similar to public housing in the early post-war period and well below the present-day subsidised rental output of some European countries (including the UK, Finland, France and Austria).

So, yes, this is a big program – but how far would it actually address need? In our recent research we estimated a current shortfall of over 400,000 homes affordable to very low-income Australians – people who are actually homeless or are low earners paying rents so expensive that they are forced to forgo basic necessities. Even with steadfast political will and commitment to the necessary social housing investment, resolution of this situation would take decades to achieve. The required program, must therefore also account for the newly arising need projected to emerge over such a period. On this basis we estimated that – without other major changes in market conditions or policy settings – this would call for a 20-year program to deliver over 700,000 social rental properties (over 350,000 in a decade).

While somewhat lower than our needs estimate, Shorten’s number is arguably getting close to the same ball park. The bigger question is exactly how ‘affordable’ the Labor program homes would be. On this, Shorten’s speech was explicit, designated federal funding will enable rents to be set at a 20% discount on market levels – or, as he put it, a saving for a family paying an average private sector rent of ‘up to $92 per week, every week of the year’. That will help in reducing rental stress (facing an unaffordable rent) that now affects 44% of low-income tenants (over 50% in NSW). But the new homes generated under the program will be affordable to very low-income earners only if construction and land costs are underpinned by additional subsidy beyond what would be federally supported.

This is where the states and territories must be incentivised and cajoled to come to the party. By matching Commonwealth support through discounted public land, through cash subsidies and through obligatory developer contributions (via the planning system), state and territory governments can enable Shorten program homes to be rented out at levels affordable to those reliant on minimum wage employment or welfare benefits. Indeed, these kinds of investment contribution are envisaged in the Labor statement. But unless they happen, to a much greater extent than achieved under the Rudd NRAS initiative, the program will be of only indirect assistance in tackling Australia’s growing homelessness problem and in cutting the huge queue of social housing applicants.

Referencing the current government’s – albeit modest – input in this space, Labor envisages its new initiative as complementing the low-cost financing recently enabled through the National Housing Finance and Investment Corporation (NHFIC). This facility, established under Scott Morrison in his Treasurer role, should channel private investment to not-for-profit housing providers otherwise reliant on higher cost bank finance. Unless complemented by government subsidy, however, the NHFIC is likely to be something of a white elephant. With Shorten’s speech, Labor has now upped the ante here. The challenge for Prime Minister Morrison is to respond with an election pitch of his own that includes an affordable rental funding commitment. Otherwise, his contribution to this policy area as Treasurer will have been futile.

Australia needs to triple its social housing by 2036. This is the best way to do it

Posted by on November 15th, 2018 · Affordable housing, Demographics, Finance, Government, Guest appearance, Housing, Housing supply, Social housing

By Julie Lawson, RMIT University; Hal Pawson, UNSW; Laurence Troy, UNSW, and Ryan van den Nouwelant, Western Sydney University. This article is republished from The Conversation under a Creative Commons license. Read the original article.

Australia needs to triple its small stock of social housing over the next 20 years to cover both the existing backlog and newly emerging need.

That is the central finding of our new research report on the housing infrastructure needs of low-income earners, published by the Australian Housing and Urban Research Institute (AHURI). By our reckoning, 25 years of inadequate investment has left Australia facing a shortfall of 433,000 social housing dwellings. The current construction rate – little more than 3,000 dwellings a year – does not even keep pace with rising need, let alone make inroads into today’s backlog.

The report also shows that Australia needs to avoid overly complex private financing “innovations”. These have proven ineffective elsewhere and were recently abolished by the UK Treasury.

Our modelling of household need and procurement costs shows that direct public investment, coupled with more efficient financing through the National Housing Finance Investment Corporation, is the best way to tackle this policy challenge. Compared with subsidising the operating income of a commercially financed program, the lifetime cost of the first year of house building is A$1.6 billion less. That’s a 24% saving to the public purse.

Lack of investment takes its toll

From 1945, state and territory governments, financially supported by Canberra, maintained public programs that built 8,000-14,000 dwellings a year for half a century.

From 1996, however, social housing largely slipped from the Australian government agenda. Dedicated ongoing funding to states and territories was at “starvation levels”. Public house building plunged to today’s residual output, except for a short-lived GFC-stimulus-funded recovery from 2008-11.

How do we estimate the level of need?

Our analysis quantifies both Australia’s housing need “backlog” and the “newly emerging” need from population growth over the next 20 years. It conservatively calculates backlog need as comprising two elements.

First, it considers those who are homeless now. The 2016 census counted 116,000 homeless people across Australia. Recognising that some would choose not to live alone, we estimate that our homeless population implies a need for about 47,000 extra dwellings.

Second, our analysis considers the group whose housing needs are not being met by the market. These households are on very low incomes (excluding student households), in private rental housing, and in rental stress – where rent is more than 30% of their earnings. If you are on a very low income, housing costs of this order mean going without other essentials.

 

Collectively, these components imply a current backlog of 433,000 social housing dwellings.

Newly emerging need will expand the shortfall to 727,000 dwellings by 2036. This factors in expected population growth and the current share of social housing. It assumes no improvement in private rental housing affordability.

How achievable is a building program of this scale?

Fixing this problem – both the backlog and newly emerging need – calls for a major program of social housing construction. This is needed to expand the national social housing stock to nearly three times its 2016 size by 2036.

Simply preventing the existing problem from getting worse calls for nearly 15,000 extra dwellings a year to be built. That’s a little over 290,000 homes over the next 20 years.

To eliminate the backlog as well would require an annual program averaging 36,000 units. This would need to begin gradually to build capacity and avoid inflating costs.

This would represent around a tenfold increase in current social housing construction rates. The output would be similar to the 14% public housing share of Australia’s total house building in the decade to 1955.

For comparison, housing providers with a social purpose today account for 20-31% of all house building in the UK, Finland, France and Austria, and much more in some Asian countries such as Singapore. England’s not-for-profit housing associations, for example, completed some 42,000 homes in 2017-18, out of 161,000 homes built in total.

What will this cost the government?

What would be the price tag for such a program? And what’s the best way for government to provide the necessary support?

To answer the first question, we identified both the social housing need, described above, and the land and construction costs across 88 regions of Australia. Different regions have different land costs and building forms, such as detached, medium and high-rise dwellings. Not surprisingly, the modelled unit procurement costs vary substantially, from A$146,000 in remote South Australia to A$614,000 in parts of Sydney. We then calculated the price tag across the country.

To work out the cost to government, and answer the second question, a couple of important assumptions are made.

The first is that social housing need should be met in (or near) the places where it arises. While skewing the building program towards less well-located places could accommodate the need more cheaply, it is in our view essential to avoid such a “ghettoisation” model.

Second, while tenants can help cover the costs through their rent, to be affordable that rent will service only a modest amount of debt. As the federal Treasurer’s own advisory committee acknowledges, therefore, the public purse must bear most of the development cost.

No amount of “innovative” procurement or financing will yield a government “free lunch” as the UK’s National Audit Office evaluation of private infrastructure financing experiments demonstrates.

The five investment scenarios

We examined five contrasting “investment pathways” for delivering a program that builds social housing on the required scale. The basic choice is between a capital grant model (subsidy paid up front) and a revenue subsidy model (annual payments underpin debt repayments and operating costs).

We calculate that the cost of the first year of the program would total A$5 billion under a capital grant approach. A private debt-financed approach, with government support through revenue subsidies, would cost A$6.6 billion. This is after discounting costs incurred in later years.

Thus, direct investment would save Australian governments 24% on average.

So while governments tend to favour “financial innovation” options that push costs into the future, capital grant funding is the rational investment pathway.

Providing enough housing for low-income earners is a growing policy challenge. With rising homelessness and housing stress in recent years, this research quantifies the scale of that challenge and identifies the most cost-effective investment pathway to its resolution.

The Conversation

 

Who wins and who loses when platforms like Airbnb disrupt housing? And how do you regulate it?

Posted by on November 8th, 2018 · Affordability, Airbnb, Cities, Government, Housing, Housing supply, International, Law, Marginal rental, Private rental, Sharing, Sydney

By Laura Crommelin, Chris Martin and Laurence Troy (City Futures Research Centre, UNSW Sydney) and Sharon Parkinson (Swinburne University of Technology). This article is republished from The Conversation under a Creative Commons license. Read the original article.

Short-term letting platforms like Airbnb are changing property owners’ and investors’ views and behaviour in the Sydney and Melbourne rental markets. These changes are directly affecting housing availability in localised areas, especially the inner city.

Our research for AHURI is the first major study to combine analyses of the geography of Airbnb in Australia’s two largest cities. This included detailed empirical research into Airbnb hosts’ motivations, and the regulation of short-term letting in Melbourne, Sydney and cities overseas.

Our findings suggest current owners are likely to benefit from the impacts of short-term letting platforms. Prospective owners and tenants may be disadvantaged.

Who feels the impacts of Airbnb?

Short-term letting is not a new economic activity. Hosts sharing their primary place of residence – such as taking in lodgers, offering bed and breakfast, and so on – have long been a feature of urban housing markets.

However, short-term letting platforms have fundamentally changed the scale of this activity. These platforms have made it more efficient and less risky, and greatly reduced the search costs.

Airbnb listings for Sydney and Melbourne (Aug 2015–Feb 2018)
Authors’ analysis based on AirDNA.co data

Existing research on these platforms and the “sharing economy” suggests the growth in short-term letting affects different housing market participants in very different ways.

Our research shows that existing owners will likely benefit over time from the rise of these platforms. That’s because these sites offer a flexible means of monetising housing wealth to allow further consumption.

For prospective home owners, however, entering the market may become more difficult, as short-term letting earnings may be capitalised into higher purchase prices.

For tenants, there are few benefits. The rise in short-term letting is likely to cause greater uncertainty for prospective tenants seeking long-term rentals. There are risks and restrictions that limit the ability of current tenants to use the platforms to sublet.

Where does Airbnb have the most impact?

Despite some growth in more suburban areas, the spatial impact of Airbnb in both Sydney and Melbourne remains concentrated in high-demand inner-city areas. In these areas, two factors – decreasing bond lodgement rates and increasing property vacancies – point to the likelihood that short-term letting is removing properties from the long-term rental market. This in turn is contributing to increasing unaffordability.

The impact of Airbnb listings on rental housing markets has been very localised in Sydney and Melbourne.

In Sydney, Darlinghurst, Manly and the eastern beach suburbs of Bondi, Tamarama and Bronte have been the focus of Airbnb activity. In these areas, Airbnb listings account for between 11.2% and 14.8% of rental housing stock.

Listings as a proportion of rental dwellings (ABS 2016) in Sydney.
AHURI, Author provided

In Melbourne, central Melbourne, Docklands, Southbank, Fitzroy and St Kilda have been the focus of Airbnb listings, accounting for between 8.6% and 15.3% of rental housing stock.

Listings as a proportion of rental dwellings in Melbourne.
AHURI, Author provided

However, the impacts of Airbnb on rental supply have been offset by:

  • substantial growth in dwelling numbers in key areas of Melbourne
  • large numbers of dwellings that are otherwise outside of long-term housing supply, including many unoccupied dwellings.

What motivates Airbnb hosts?

This research offers a new Australian perspective on Airbnb host motivations and decision-making, drawing on some of the most extensive empirical work to date.

Financial motivations were bolstered by the fact that hosting brings additional intrinsic benefits. These include the opportunity to connect with diverse people, and a sense of pride associated with being a good host. For many hosts, the flexibility to use the property occasionally, while also using it to earn money, was a significant advantage of short-term letting over long-term rental.The main motivation for hosting on Airbnb is to earn extra money from housing assets, in a way that is perceived to minimise risk. In some cases this income is tied to an immediate need for a buffer against housing insecurity. But this is not the case for many hosts.

Some hosts have converted long-term rental properties into permanent Airbnb listings. However, some of these will likely return over time due to a perception of declining profitability, a greater workload associated with short-term letting, and the professionalisation of Airbnb. On the other hand, some hosts are motivated to expand their Airbnb portfolios with new acquisitions.

For other hosts, flexibility is key. Without Airbnb they would prefer to keep dwellings vacant rather than rent out long term. This points to other motivations for owning investment property than achieving maximum rental income.

Approaches to regulation

We reviewed regulation in Melbourne, Sydney and nine cities overseas in which short-term letting is a significant issue. Our review found three broad approaches to regulation:

  • a permissive approach – short-term letting is mostly allowed without prior permission or notification
  • a notificatory approach – short-term letting is mostly allowed, provided the host first notifies an authority (that is, there is no specific decision by the authority).
  • a restrictive approach – short-term letting is mostly banned, or allowed only where an authority gives specific permission.

Melbourne and Sydney have both recently adopted a permissive approach, with some limitations. However, we believe the notificatory approach is best adapted to managing new aspects of short-term letting in the Airbnb era.

Policy implications

The research findings suggest four ways to strengthen policy responses to short-term letting:

  • a registration system for listings, to help with enforcement
  • additional localised strategies to limit short-term letting and ensure adequate affordable rental supply in areas of intense activity
  • the integration of measures to limit commercial-style short-term letting within a broad-ranging housing policy, which reflects the changing nature of housing markets and the complex drivers behind these shifts
  • an ongoing research agenda into short-term letting across our cities and regional areas and its impact on housing and urban planning outcomes, supported by access to detailed, up-to-date data.

This article has been updated to include additional graphics from the AHURI report.The Conversation

Laura Crommelin, Research Lecturer, City Futures Research Centre, UNSW; Chris Martin, Research Fellow, City Housing, UNSW; Laurence Troy, Research Fellow, City Futures Research Centre, UNSW, and Sharon Parkinson, Senior Research Fellow, Centre for Urban Transitions, Swinburne University of Technology

 

What we need for a national settlement strategy that works

Posted by on October 19th, 2018 · Cities, Demographics, Migration, Planning, Regions

There is a growing cacophony of calls for a national settlement strategy. What does that mean? Are we all over the exhaustion of daily congestion? Are we fed up with promises of infrastructure that fails to catch up with the growth of our cities? Is it about migrants and the number of those apparently crowding our cities? Or is it about a regional economic growth plan that guides new investment to places in Australia that want and need it?

This week the Planning Institute of Australia launched its most recent report, Through the lens – the tipping point at Parliament House. It joins a recent report by the Standing Committee on Infrastructure, Transport and Cities, Building Up and Moving Out, to advocate for a national settlement strategy. Both reports argue that it is time to look differently at how Australia will accommodate future population growth.  

Continuing as we have been doing, and allowing unmanaged growth to settle in our big cities is already diminishing our valued way of life. The debate may turn ugly if we don’t address these issues soon.

For some commentators, the only response to untrammelled growth is to stop it. The debate in Australia has frequently fallen back to that solution. Bob Carr, when premier,  famously announced that Sydney was full and closed for new migrants.  Even current premier Gladys Berejeklian has said “we need to take a breath” on such high numbers of migrants. 

Migrants critical to tax base to pay for health care and pensions

What we don’t talk about is how critical the taxation paid by new migrants is to government revenue needed to support an ageing population with health care and pensions. So the conversation should not be “no more migrants” but should be where can our population and new jobs be located in order to retain the liveability of our big cities? 

Recent political discussion has raised the option of “forcing” migrants to settle in small centres away from the big cities. 

Last year 140,000 new settlers arrived in Sydney. Even if half of them were encouraged to settle elsewhere, that still leaves a large number adding to the growth of Sydney.  

And 70,000 new settlers are unlikely to find employment in small inland centres without a significant program of employment development in those centres. 

And there’s the challenge, a vicious circle: settlers won’t happily go elsewhere without prospective jobs and jobs won’t go elsewhere without the potential of skilled employees.  

There’s another challenge with settling small towns. Work recently completed in the Orana region (Dubbo and surrounds) found that basic facilities were needed to make that centre settler ready. Priority issues were telecommunication connectivity, adequate hospital facilities, water for industry, road upgrades to get produce to market, and connectivity with Sydney. 

And the business case for supporting funding of those facilities is unable to compete with big city priorities due to the small number of businesses and residents benefiting. The very model built by Treasury is stacked against the small out of big city centres development.

If we all agree that the settlement of small towns and centres must be supported in order to relieve the population growth pressures in our major cities, then we need to shift priorities and help make those towns settler ready.  

It’s not about where but how

The Standing Committee’s report and the PIA report released this week call for a sensible discussion around a national settlement strategy. Both the Prime Minister and the Opposition Leader have flagged their partial support for such an idea. But, given the issues highlighted above, it’s not about where, it’s about how. 

To make small towns settler ready significant investment in all kinds of infrastructure is needed and a program of incentives to encourage businesses and industry to relocate and to grow must be undertaken. 

This can be matched with settlers from our migrant intake and our existing residents who wish more affordable housing, and a great community lifestyle. But to tie all that together, we need to create much better access between those centres and the big city. Nothing will transform that access better than a fast train service for both freight and passengers. 

Forcing any of our population to head away from the big city is doomed to failure. We must add quite a big carrot to the stick. It must have bi-partisan support to give business the long term confidence to locate and to create more jobs. 

And it must be supported with essential services and a fast train link back to the markets and ports in the big cities and to families and entertainment back in the city.

The sense of community and affordable lifestyles in smaller towns are often significantly better than in the big cities. But they must be supported by essential services, jobs and fast links back to the big smoke. 

We need a national settlement strategy, but we need that strategy to focus on “how” not “where”.  And we need it as soon as possible before the debate focuses on all the wrong issues. 

An open letter on rental housing reform

Posted by on September 25th, 2018 · Government, Guest appearance, Housing, Housing conditions, Law, Tenancy
File 20180924 85758 16rnxyf.jpg?ixlib=rb 1.1
The right of landlords to terminate a lease with no grounds is the most serious deficiency in residential tenancy laws in New South Wales.
Shutterstock

Following a review of the New South Wales Residential Tenancies Act 2010 in 2016 and extended consultations, the NSW government has introduced a number of reforms to parliament. Debate is expected to occur this week. However, without reform to current eviction proceedings, many housing advocates have expressed concern that these generally good proposals will have little effect. Today, 45 housing researchers from a range of disciplines have signed the following open letter.

*

We are academics who research and teach about housing. We come from a range of disciplines – for example law, economics, social sciences, planning – and many of us have worked variously with housing providers, tenants’ groups and government agencies on housing issues. We have in common commitment to the principle that everyone should have a secure, affordable home of decent standard, whether they own or rent.

Too often, however, our rental housing sector fails to deliver on this principle. There are numerous reasons for this; one of them is the legal insecurity of tenants under current New South Wales residential tenancy laws. In particular, the provision for landlords to give termination notices, with no grounds, at the end of a fixed-term tenancy or during a continuing tenancy is contrary to genuine security.

“No grounds” termination notices give cover for bad reasons for seeking termination, such as retaliation and discrimination. The prospect that a “no grounds” termination notice may be given hangs over all tenancies, discouraging tenants from raising concerns with agents and landlords and undermining the legal rights otherwise provided for by their leases and the legislation.

The deficiencies of our current laws are becoming worse, as more households rent, and rent for longer into their lives. About 32% of NSW households rent and this proportion is growing. Over the five years to 2016, 63% of the net growth in the number of NSW households was households in rental housing. And 42% of NSW renter households include children.

Our deficient current laws are also increasingly out of step with tenancy laws in comparable jurisdictions. Many European countries, as well as most of the Canadian provinces and the largest US cities, do not provide for “no grounds” terminations by landlords.

Last year, Scotland reformed its tenancy laws to remove provisions for “no grounds” terminations and replace them with prescribed reasonable grounds for termination. In Australia, Tasmania has for some years not allowed “no grounds” terminations of continuing tenancies. This month, the Victorian Parliament amended its residential tenancies legislation to remove provision for “no grounds” termination notices for continuing tenancies and for fixed-term tenancies, except at the end of the first fixed term.

We call on the NSW state government to improve security for renters, by legislating to end no-grounds termination by landlords and providing instead for a prescribed set of reasonable grounds for terminations.

These reasonable grounds would include grounds already in the legislation, such as rent arrears and other breaches by the tenant, and sale of the premises, as well as new grounds, such as where the landlord needs the premises for their own housing, and where the premises are to be renovated, demolished or changed to a non-residential use.

The prescribed reasonable grounds should have different notice periods, reflecting their different degrees of urgency and priority. Proceedings on notices should go, as they currently do, to the NSW Civil and Administrative Tribunal, and the tribunal should determine whether the ground exists and whether termination is justified in all the circumstances.

This reform would make all tenants feel more secure, without unduly restricting landlords in reasonable uses of their properties. The only inconvenience would be to the retaliators, the discriminators and those who cannot cope with even a modest level of accountability. If the reform prompted these landlords to leave the sector, they would sell to a new home owner or to a more professionally minded landlord – either of which is to the good.

There is more to be done across a range of policy areas to improve the functioning of all aspects of our housing system. We need more accessible home ownership, a differently structured and more professional market rental sector and a revitalised social housing sector. These changes require a comprehensive housing policy, coordinated across areas and levels of government and carried out over a long term.

But, in tenancy law, the single most important reform is ending “no grounds” termination by landlords. And the parliament could do it now.

Signatories

Dr Chris Martin, Research Fellow, Faculty of Built Environment, University of New South Wales

Professor Brendan Edgeworth, Faculty of Law, University of New South Wales

Professor Chris Gibson, Human Geography, University of Wollongong

Professor Keith Jacobs, Director, Housing Community Research Unit, University of Tasmania

Professor Alan Morris, Institute for Public Policy and Governance, University of Technology, Sydney

Professor Kath Hulse, Director Centre for Urban Transitions, Swinburne University of Technology

Professor Hal Pawson, Housing Research and Policy, University of New South Wales

Professor Pauline McGuirk, Director Australian Centre for Culture, Environment, Society and Space, Faculty of Social Sciences, University of Wollongong

Professor Peter Phibbs, Urban Planning, The University of Sydney

Professor Bill Randolph, Faculty of Built Environment, University of New South Wales

Professor Eileen Webb, Faculty of Business and Law, Curtin University

Adjunct Professor Michael Darcy, School of Social Sciences and Psychology, Western Sydney University

Associate Professor Hazel Easthope, Faculty of Built Environment, University of New South Wales

Associate Professor Daphne Habibis, School of Social Sciences, University of Tasmania

Associate Professor Kurt Iveson, Urban Geography, The University of Sydney

Associate Professor Kristian Ruming, Department of Geography and Planning, Macquarie University

Associate Professor Judith Yates, School of Economics, The University of Sydney

Dr Gareth Bryant, Political Economy, The University of Sydney

Dr Nicole Cook, Lecturer in Human Geography, University of Wollongong

Dr Louise Crabtree, Senior Research Fellow, Institute for Culture and Society, Western Sydney University

Dr Laura Crommelin, Research Lecturer, Faculty of Built Environment, University of New South Wales

Dr Tanja Dreher, Associate Professor, School of Arts and Media, University of New South Wales

Dr Christina Ho, Senior Lecturer, Social & Political Sciences, University of Technology, Sydney

Dr Justine Humphry, Lecturer in Digital Cultures, Department of Media and Communications, The University of Sydney

Dr Edgar Liu, Senior Research Fellow, Faculty of Built Environment, University of New South Wales

Dr Sophia Maalsen, IB Fell Post-Doctoral Research Fellow, Faculty of Architecture, Design and Planning, The University of Sydney

Dr Daniel Ooi, Research Fellow, Victoria University

Dr Justine Lloyd, Senior Lecturer, Department of Sociology, Macquarie University

Dr Jean Parker, Research Associate, Department of Gender and Culture Studies, The University of Sydney

Dr Madeleine Pill, Researcher, Department of Government and International Relations, The University of Sydney

Dr Emma Power, Senior Research Fellow, Institute for Culture and Society, Western Sydney University

Dr Dallas Rogers, Program Director, Master of Urbanism, The University of Sydney

Dr Ben Spies-Butcher, Senior Lecturer, Economy and Society, Macquarie University

Dr Adam Stebbing, Director of Bachelor of Social Science, Department of Sociology, Macquarie University

Dr Amanda Tattersall, Post-Doctoral Fellow, Henry Halloran Trust, The University of Sydney

Dr Lawrence Troy, Research Fellow, Faculty of Built Environment, University of New South Wales

Dr Robert Mowbray, Older Persons Project Officer, Tenants’ Union NSW

Deb Batterham, Researcher, Launch Housing

Zahra Nasreen, Researcher, Department of Geography and Planning, Macquarie University

Pratichi Chatterjee, PhD Candidate, Faculty of Science, The University of Sydney

Sophie-May Kerr, PhD Candidate, University of Wollongong

Craig Lyons, PhD Candidate, School of Geography and Sustainable Communities, University of Wollongong

Gemma McKinnon, Researcher, University of New South Wales

Bill Swannie, Academic, College of Law and Justice, Victoria University

Alistair Sisson, PhD Candidate & Research Assistant, School of Geosciences, The University of SydneyThe Conversation

John Watson, Section Editor: Cities + Policy, The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Lifting the energy efficiency standards of low-cost rentals

Posted by on September 19th, 2018 · Climate change, Government, Housing, Housing conditions, Sustainability, Tax, Wellbeing

By Edgar Liu, City Futures Research Centre.

The Australian Senate’s Environment and Communications References Committee recently published the Final Report of its Inquiry on current and future impacts of climate change on housing, buildings and infrastructure. This came about after extensive community consultation on the back of parliamentary flip-flopping regarding if and how Australia will meet our Paris Agreement obligations.

This Inquiry Report details the potential impacts that continued climate change may have on urban and coastal areas, on different socio-demographic groups, on our economy, on our health and wellbeing, and on the adaptability of our current homes and workplaces. Our submission to this Inquiry (#24) highlighted the findings of our CRC LCL-funded project, particularly the negative impacts lower income households will continue to endure if their access to energy efficient products and renewable energy sources remain price-prohibitive, when split incentives persist so that landlords remain reticent about performing sufficient upgrades, and worsening climate change means the poor quality housing that these families live in will get even more unbearable in extreme weather conditions.

Change, however, may be coming. Recently, Independent South Australian Senator, Tim Storer, proposed a new Treasury Law Amendment to the Australian Parliament, under which landlords of low-rent properties would be eligible for tax offset incentives to perform energy efficiency upgrades to their investment properties. A new Senate Inquiry is inviting public submissions to the Committee Secretary until close of business on 28 September 2018.

This proposed Bill and Senate Inquiry is a good first step to setting minimum standards for rental properties, standards that have been in place across the European Union for nearly a decade and strongly supported in Australia by advocacy groups like Environment Victoria. Our submission to the new Inquiry, however, highlights a few shortcomings in the proposal. These concern the proposed regulation’s ability to keep upgraded properties in the lower end of the rental market for vulnerable households—the very households that this Bill was designed to protect—to access; its ability to minimise disruptions to sitting tenants and avoid potential displacements; and how double-dipping by landlords may be avoided.

There is no doubt unaffordable energy and energy poverty is causing great grief to many families, and having a thermally comfortable home that is efficient to run is vital to overcoming that. As our research shows, having the political will to make that change—such as proposed in the latest Treasury Law Amendment—is an important step forward to making that a reality.

A dashboard for the GreenWay

Posted by on September 3rd, 2018 · Bikes, Data, Planning, Public space, Sydney, Transport, Wellbeing

By Alessandra Buxton, Ori Gudes, Chris Pettit and Vandana Mann, City Futures Research Centre.

Cycling around Sydney CBD and the surrounding suburbs has been dubbed a dangerous and difficult experience by Sydneysiders. Both Sydney and NSW are at the bottom of their classes in terms of cycling participation rates, with participation declining since 2015 in both greater Sydney and regional NSW to 10 per cent and 16 per cent respectively. Despite the City of Sydney’s encouragement to get more commuters using cycling as their mode of transport, the lack of cycling infrastructure is a sore point.

Residents and local councils have been eager to find a solution to make the overall experience safer for cyclists. One of the recommended solutions is the GreenWay corridor: a transport route containing footpaths, cycle-ways, parks, playgrounds, bush care sites, cafes, public art and community facilities. Funded by the NSW state government, the Inner West Council and the City of Canterbury Bankstown, the goal of the GreenWay is to increase the rate of active residents and cyclists for both commute and recreational purposes. The corridor follows a route of the Rozelle to Dulwich Hill freight rail corridor and connects two of Sydney’s major waterways, the Cooks River and the Parramatta River at Iron Cove Bay. Currently the corridor is half-way through construction and is missing many necessary links such as bridges and tunnels, but completion is expected in the next few years.

Research undertaken by UNSW City Futures funded by the National Heart Foundation on the GreenWay in the Inner West measures the active travel rates on the dashboard ‘Map Story’. The primary aim of the study being to develop a framework to measure the impact of active transport infrastructure and to address the gap in knowledge regarding the impact of new active transportation infrastructure. The study meets a core objective of the Heart Foundation which encourages active travel and an increase of infrastructure to support it. Through the research offered the data is designed to influence and support investment in infrastructure and make the city safer place to ride.

By measuring the current use of the GreenWay, researchers have provided a clear and accessible format on a Map Story for urban planners and local councils to view data and understand how effectively the infrastructure is being utilised. Through the collation of research from NSW Roads and Maritime Services, Inner West Council, the Super Sunday Report and crowd-sourced data, City Futures has produced an interactive map showing popular routes, peak hours and air quality along the GreenWay.

Along with assisting local governments in understanding the effectiveness of an active travel corridor, the study also provides important information and maintains the analysis of air quality using a mounted sensor.

Continuing to monitor the air quality will provide evidence of the role of urban green corridors in cooling the environment, educate the community on the value of green spaces, provide data that allows the public to avoid areas with poor air quality, expose school students to the value of good air quality and diversity in flora and fauna as well as providing cost effective evidence of air quality to the city council.

The in-depth data has pleased the Heart Foundation, which maintains the corridor is beneficial for the local community’s health. “We are very happy to support the GreenWay Dashboard project. It has the power to demonstrate in a very tangible form how thoughtful infrastructure can translate into increased physical activity and better public health outcomes.”