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Build to Rent tax re-set proposals raise wider questions

Posted by on April 23rd, 2024 · Government, Housing

By Hal Pawson

‘[T]he emergence of a domestic market for housing provided by institutional investors … would add to, and improve the quality and diversity of, Australia’s stock of … rental housing’. Backing the case for expanded Build-to-Rent (BTR) housing provision, this was the central conclusion of the first major report from the Commonwealth’s expert advisory body, the National Housing Supply and Affordability Council, back in September 2023.

While Government responses to the Council’s wide-ranging recommendations remain outstanding, Treasury has recently published detailed tax reform proposals that address part of the agenda. These advocate equalising the (overseas investor) Withholding Tax treatment of BTR housing with that for other asset classes, like office blocks and shopping centres. They also propose to bring the depreciation treatment of BTR developments into line with that for serviced apartments.

BTR potential to fulfil housing policy objectives

In my personal view, these are broadly reasonable proposals that could helpfully accelerate the expansion of a housing typology with the potential to fulfil several important housing policy objectives as argued in the Council’s 2023 report:

  1. Possible net addition to housing supply – conventional wisdom says will moderate both house prices and rents over time
  2. When rental income (not capital gain) is prime landlord motivation, the product is inherently more secure tenure from tenant perspective
  3. Multi-unit buildings commissioned for retention in single ownership should incentivise utility, durability and energy efficiency in design and construction
  4. Professional and customer-oriented management promised by BTR is potentially beneficial for BTR tenants and perhaps beyond – as ‘positive disrupter’ for private rental housing more broadly.
  5. As a new component of the rental market, BTR provision potentially broadens rental housing choice – albeit choice restricted to moderate to high income households
  6. Given investor intentions for a long term hold, BTR construction demand promises to moderate housebuilding industry volatility in response to short-lived market downturns.

Inclusion of affordable housing within market BTR developments

The proposal that BTR project eligibility for the new tax arrangements will depend on the inclusion of affordable housing units is also a laudable bid to satisfy another policy objective. The specified nature of the proposed affordable housing to be provided is, though, somewhat modest. It will be targeted to relatively high income households, and its affordable status will expire after 15 years. Even within this limited period, therefore, the measures will make little or no contribution to easing unmet housing need experienced by low income Australians.

Even so, there are questions on whether a BTR project’s associated loss of future revenue (through affordable housing regime compliance) may negate the advantage to a scheme proponent conferred by the tax changes as proposed. In our response to the government consultation on the proposals, we call for the publication of the underlying Treasury modelling to allay such concerns.

If there are well-grounded fears that the net viability impact of the proposed changes may be negligible – or even negative – there could be a case for legislating the introduction of the currently envisaged affordable housing requirement for activation at a future date – e.g. applicable to schemes starting on site five years after the tax change. One argument for this approach would be to support the objective of embedding BTR industry growth during the second half of the 2020s, particularly in support of the National Housing Accord 1.2 million homes new supply target.

But assuming that the net viability impact of the proposed reform package is in fact positive, the package deserves support as it stands. Beyond that, the legislation should also stipulate an independent review after five years to consider scope for strengthening the affordable housing requirement at that stage. This factors in the expectation that, as it becomes established, the sector will begin to overcome the disadvantages of ‘novelty’ which currently continue to dampen investor interest.

The illogicality of piecemeal housing reform

More broadly, though, it seems illogical that a policy seeking to generate (sub-market) affordable housing provision in the course of market housing development is restricted to only a very small niche within overall residential development industry output. It would apply to neither domestically-funded BTR projects, nor – more importantly – to build to sell projects. This seems particularly incongruous when the targeted niche is an industry sector already operating at a competitive disadvantage to other forms of residential development due to other property tax settings not slated for reform (negative gearing, Capital Gains Tax discount, GST).

In attempting to secure a small contribution of sub-market affordable rental housing as a routine spin-off from new market housing development, a more logical approach would be to:

  • Expand the scope of such a policy to all new BTS as well as BTR housebuilding projects above a given threshold size – other than in areas with low land value
  • Implement the policy via the landuse planning system rather than via the Federal tax system, through arrangements where development approval is conditional on pledged affordable housing contributions (sometimes termed ‘mandatory inclusionary zoning’).

All of this highlights the unsatisfactory nature of progressing housing reform in an unco-ordinated piecemeal manner, an approach certain to further add to regulatory complexity and cost. As already evident at the time of the 2010 Henry Tax Review, and as also exemplified in our Treasury submission, Australia’s existing residential property taxation regime is riddled with illogicalities and inconsistencies. These call for a root and branch review to inform a comprehensive housing reform strategy.

First home ownership assistance schemes: how does Australia compare with other countries?

Posted by on April 19th, 2024 · Government, Housing

By Chris Martin and Hal Pawson. This is an edited version of the abstract of our new article, Australian first home ownership assistance schemes: International comparison and assessment, published in Australian Economic Papers.

Australia, like most developed countries, has promoted homeownership as an express housing policy goal for many decades. Domestically and internationally, recent years have seen growing efforts to enhance access to owner-occupation for prospective first home buyers (FHBs).

FHB assistance takes many forms. Our new article, Australian first home ownership assistance schemes: International comparison and assessment, presents a new typology of FHB assistance measures from a multi-method study of current approaches in Australia and in seven high-income comparator countries. Australia stands out for its modern emphasis on demand-side assistance (e.g., grants and tax concessions), rather than supply-side measures (e.g., government-developed housing for low-cost sale).

Lately, several Australian governments (federal and state) have diversified approaches to FHB assistance, particularly via shared equity and low-deposit mortgage schemes, taking cues from international practice. While more administratively demanding, these types of assistance are considered attractive because they require little outlay or operate on a ‘revolving fund’ basis, with government potentially sharing capital gains. However, they potentially place governments even more among housing’s ‘insiders’, with a material interest in continually rising prices.

Our article, now published open access in Australian Economic Papers, will be part of a special issue dedicated to the memory of Hon Assoc Prof Judy Yates. Australia’s foremost academic housing economist, Judy was an incisive analyst of homeownership policy and its contradictions. Our work shows FHB assistance policy is still largely stuck in the contradictions Judy saw.

What is biophilic design? 3 ways ‘green’ buildings work better for neurodivergent people

Posted by on April 10th, 2024 · Cities, Wellbeing

By Fatemeh Aminpour, UNSW Sydney; Ilan Katz, UNSW Sydney, and Jennifer Skattebol, Western Sydney University. This article is republished from The Conversation under a Creative Commons license. Read the original article.

One in seven people worldwide are neurodivergent. They may have a diagnosis of a neurodevelopmental condition such as attention deficit hyperactivity disorder or autism – or traits that mean their thinking style differs from neurotypical patterns.

Yet in Australia, building accessibility requirements do not adequately address the needs of neurodivergent individuals.

Research shows neurodivergent people benefit emotionally and socially from exposure to nature. “Biophilic design” incorporates natural elements into the built environment, which can benefit neurodiverse users.

What is biophilic design?

The term “biophilia” combines two ancient Greek words which mean life (bio) and love (philia). The biophilia hypothesis is the idea humans have an innate need, desire or tendency to connect with life and living things.

The aim of biophilic design is to create buildings that continue human-nature connection in an urbanised world.

Biophilic design can take three forms, each of which can improve quality of life for neurodivergent people.

The external view of a building with curved walls
Curved lines can mimic those found in nature. Author provided.

1. Natural experiences

Direct experiences of nature can happen through sensory connections: things we see, hear, touch, smell or taste. Natural building elements such as water, plants or animals, natural lighting, and thermal and airflow variability can foster these experiences.

Neurodivergent people often experience sensory overload and feel overwhelmed by sound or other elements around them. But research shows nature can help children with autism tolerate and process information.

Neurodivergent people can have adaptive functioning difficulties, meaning they might struggle with the dynamic social, intellectual and practical demands of everyday life. But research shows the adaptive functioning of children with autism increases in the presence of animals compared to toys.

Natural lighting makes it possible to rely less on intense artificial lighting, which can create challenges for people with sensory differences. Research recommends high-level windows for natural light, with placement that avoids glare and silhouetting.

Internal area of a building with lots of greenery and skylight windows
Changi terminal in Singapore uses natural lighting with placement that avoids glare. Author provided.

2. Experiences like the real thing

Human-nature connection is not limited to being present in nature. Symbolic and metaphorical references to nature can be created through mimicking natural patterns, material, forms and elements in built environments.

Natural patterns can minimise visual discomfort for people who are hypersensitive. In contrast, the tessellated forms, bars, stripes and perforated materials usually found in the modern artificial world can cause visual stress to people with autism. These repetitive patterns can appear to move or shimmer when viewed.

Wavy columns outside a building. Square windows can be seen on neighbouring building
Bars with organic forms contrast with repetitive artificial patterns. Author provided.

Visual clutter can be distracting to autistic people. Natural materials such as wood, stone and natural fabrics are preferred for an autism-friendly design as they tend to have lower visual clutter. The same rule extends to colour choice, with natural and earth tones (such as browns, greens and blues) preferred.

3. Natural spaces

Built environments can be designed to create experiences similar to those found in nature. This means reflecting the potential for active play, transitional spaces, refuge and spatial organisation encountered in nature.

Some children with autism prefer more active play with varied sensory elements including jumping, running, swinging, sliding and climbing. Outdoor space typically provides the ability to move or fidget freely when the mood strikes. The unstructured nature of outdoor spaces, with fewer social expectations, allows children to release energy and tension.

People with autism need opportunities to regulate their movements between spaces that have different sensory experiences. Transitional spaces such as foyers or anterooms may help avoid sensory overload and support the processing and integration of sensory information.

Girls climb a tree at school
Outdoor spaces mean children can expel excess energy and connect with nature. Author provided.

The use of organic and flowing forms and curved walls or corners help improve transition from one place to another. Soft corners also allow for a preview of the approaching area. This can help reduce anxiety around entering an unfamiliar place or unexpectedly coming face-to-face with others.

Finally, neurodivergent people benefit from retreat spaces. Small spaces, corners, small terraces and calm rooms next to main spaces can help autistic children feel more calm and relaxed.

Co-designing buildings with neurodivergent people

We still have a lot to learn about creating built environments more suited to neurodivergent visitors.

Such designs will benefit from the involvement of people with neurodiverse sensitivities in the design process. All people have a human right to environments they can use and function well in.

Strategic approach to Australia’s housing problems long overdue

Posted by on April 5th, 2024 · Uncategorized

By Hal Pawson and Vivienne Milligan

In just four years since the advent of COVID-19, Australia’s house prices have climbed by a dizzying 50%. Defying orthodox expectations that property inflation would be quelled by rising interest rates, that upward trend has continued even since the RBA’s monetary tightening phase began in mid-2022, with prices up by 12% in that period alone.

And, with advertised rents also climbing by an extraordinary 50%, nationally, since March 2020 -vastly exceeding contemporary wage growth – it has become harder to contest the widespread claims that Australia is experiencing ‘housing crisis’.

But while dramatic in themselves, these are only the latest symptoms of a chronically under-performing housing system that increasingly weighs on Australia’s economic as well as social well-being. Young adult home ownership has been trending down for decades, while homelessness and rental stress have surged since the millennium.

In part, these developments reflect a deeply-embedded tradition of official complacency and neglect, as well as mistaken political choices. But, as we argue in a newly-published article, they also attest to a failure of policymaking due to a long-term degeneration in housing system governance and policymaking, bedevilled by the Commonwealth-state divide.

Clearly apparent since the late 1990s, this trajectory has seen a weakening sense of national direction on housing, increasing fragmentation of responsibilities and declining bureaucratic capacity. Over a longer timescale, the post-war era has seen Canberra’s explicit attention to housing being, at best, episodic. At worst, the direction of travel has represented a ‘long term abrogation of responsibility and narrowing of the [housing] policy agenda’.

Refuting the familiar excuses for Commonwealth inaction, especially a lack of constitutional license, we contend that national strategic leadership is essential to the fundamental policy re-set required.

Housing-related powers in the Australian Constitution

Despite the importance of the issue and its rising popular and electoral salience, a meaningful national housing policy or plan has been absent in Australia since the post-war reconstruction schemes of the Curtin Government in the 1940s. A central factor here is the status and positioning of housing within the governance and institutions of the Australian Federation.

True, Australia’s Constitution (Section 51) designates no powers to legislate on housing or urban issues, as such. Rather, the nation’s founding charter is conventionally understood as delegating housing and urban-related decision making to state governments. Nevertheless, the Commonwealth has regularly legislated on housing using the Constitution’s external affairs power or by agreement with the states and territories.

Moreover, there is in fact a range of constitutionally-prescribed Commonwealth policy responsibilities that hugely affect the housing system. Most importantly these include banking (e.g. housing finance regulation), taxation (including property-associated income tax settings), social security (e.g. housing-related transfer payments) and immigration (a crucial component of housing demand).

In other words, under a holistic conception of ‘housing policy’, many of the key levers are held at the national level, and not by the states.

And, as increasingly recognised, housing system outcomes can have damaging implications for the economy as well as for population well-being and social cohesion – all important objectives for Australia as a nation. Such concerns can hardly be dismissed as irrelevant to federal administrative obligations.

Even from a narrow ‘cost to government’ perspective, the Commonwealth cannot afford to disown an interest in the functioning of the housing system as seen under the Coalition governments of the 2010s. On the current trajectory of falling home ownership, for example, future budgetary challenges will arise in relation to outlays for rent assistance and for age pension expenditure, as Australia’s comparatively low age pension payment rate becomes hard to sustain in the face of more pensioners exposed to rising rents in retirement.

Therefore, on several levels, the Commonwealth’s Constitutional responsibilities and self-interest create rational imperatives for a proactive national government interest in housing.

The case for a national strategic approach in housing

Importantly, housing functions as a complex, inter-connected system in which multiple factors affect both demand and supply. Housing policy therefore extends well beyond those government departments with ‘housing’ in their name.

Without treating housing as a system, policy interventions are unlikely to be effective. Micro-measures targeted on select aspects of that system are liable to have minimal or even counter-productive impacts. Therefore, we argue that housing logically demands a strategic (rather than an incremental, reactive or piecemeal) policymaking approach.

Most state and territory governments have, over recent years, issued documents with ‘housing strategy’ in their title or strapline. Unfortunately, though, these often fail to fulfil basic criteria for strategic utility which, we would argue, must include (a) analysis of problems to be tackled, (b) clear and measurable goals, (c) identified actions to achieve goals, and (d) a costed and resourced action plan.

Further, with key housing policy levers held by the Commonwealth, state-level ‘housing strategies’ are inherently highly constrained in their potency. This only goes to emphasise the rational case for a meaningful national housing strategy, not least as an overarching framework for state-specific plans.

A key role for such a document could be to specify national housing policy objectives that – it would be hoped – command wide support and build consensus. We suggest aiming to facilitate a system in which:

1. The market functions more smoothly; housing stock is used more efficiently

2. The energy and environmental performance of the housing stock is enhanced

3. Housing tax settings are transitioned towards tenure-neutrality

4. A more diverse range of housing forms enhances consumer choice

5. Historically rising levels of housing affordability stress and homelessness are reversed.

Prospects under the Albanese Government

In its first two years of existence, the Albanese Government has rolled out a wide-ranging array of housing initiatives. Rebuking her Coalition predecessors, Housing Minister Julie Collins has explicitly owned the role of national policy leadership. Potentially the most significant aspect of this could be the national housing and homelessness plan pledged as part of the ALP’s 2022 election platform.

On the up-side, this is envisaged by the Minister as setting out ‘a 10-year national vision [that] will consider the full spectrum of housing and homelessness challenges, from homelessness to home ownership’.

On the down-side, though, the Plan’s sluggish and low-profile development so far highlights its modest standing among official priorities. Beyond this, the mistaken delegation of Plan development to the Department of Social Services instead of Housing Australia has become glaringly evident in the platitudinous ‘issues paper’ published in 2023 as the declared foundation for the project, and in the similarly anodyne summary of consultation responses issued earlier this year.

It is expected that the Plan will be published shortly. It may be that the best that can be hoped for is that the document can be treated as a provisional output; a stepping-stone to a more substantive and ambitious effort to be produced in the next term of government.

Albeit with some discontinuities, the past 75 years have seen the opposite of a trajectory towards a national housing policy. That must be reversed. While recent decades have seen immense economic, social and demographic changes, the vast bulk of Australia’s key housing system settings (e.g. on tax and social security) have remained essentially frozen since the last century, and devolution of housing policymaking to the states and territories has failed. A fundamental overhaul is well overdue.

The case that a national housing policy is ruled out by the Australian Constitution is overstated. In delivering some of its key constitutionally-assigned responsibilities, the Commonwealth is heavily invested in the effective operation of the housing system over which it – and not the states – in fact wields greatest influence.

Only through a nationally-co-ordinated approach can Australia begin to redress the damaging social and economic impacts of housing stress and inequality that are continuing to grow.

‘Towards a national housing policy for the 2020s’ by Hal Pawson and Vivienne Milligan is a published as a (free to download) chapter in the newly-released book ‘Australian Urban Policy: Prospects and Pathways’, edited by Rob Freestone, Bill Randolph and Wendy Steele (ANU Press)

This story was first published in John Menadue’s Pearls and Irritations. Read the original story here.

Housing battle lines for Election 2025 begin to emerge

Posted by on March 12th, 2024 · Uncategorized

By Hal Pawson

With this week’s announcements from the Coalition and Australian Greens, the contours of next year’s election housing debate have begun to take shape. It’s pretty clear that, as in four of the past six national polls, this policy area will be a flashpoint of the coming contest.

While not laying out any policy measures, as such, Peter Dutton’s creation of a new position ‘Shadow Assistant Minister for Home Ownership’ suggests the Coalition will once again concentrate on first home buyer assistance, probably to the exclusion of other housing challenges.

This would keep faith with the general stance of previous Coalition governments that rental stress, social housing and homelessness are of no direct federal concern. And that, similarly, the lack of any constitutional obligation absolves the Commonwealth from shouldering any national housing leadership role.

We can also expect that the new Shadow Minister will redouble the Opposition’s commitment to boost first home buyers’ prospects through ‘unlocking super’ for this purpose, as proposed by Scott Morrison in the 2022 campaign. This plan envisaged enabling mortgage downpayment contributions from superannuation accounts through withdrawals of up to $50,000 – an upper limit that might now be increased.

While this is only one among several competing ‘super for housing’ proposals, the associated risks to retirement income are sure to prompt heated exchanges ahead of next year’s poll.

The Greens housing plan

Meanwhile, elsewhere in Canberra, the Australian Greens party upped the housing stakes with its far-reaching blueprint to tackle the national affordability challenge. This would see a newly-created federal department commissioning 360,000 homes over five years; 70 per cent for rent at administratively-set prices, and 30 per cent for sale at ‘just over the cost of construction’.

To say that the program’s overall scale of ambition puts the Albanese Government’s housing initiatives in the shade would be quite an understatement. The annual new housing output envisaged would equate to around 43 per cent of Australia’s total housing output as recorded over the past 12 months.

Considering existing supply chain and workforce stresses in the construction sector, this would clearly call for a solid plan to boost industry capacity – and, alongside that, to bolster the capacity of state and local government land-use planning departments.

In principle, though, large-scale government-commissioned housebuilding for sale and rent is not unknown in Australia. State governments indeed participated as major players in the housing system of the 1940s, 50s and 60s; building homes for cost-price sale as well as for rent. Such development contributed 16 per cent of all housebuilding during this period. Over the past decade by contrast, public and community housing construction has been running at under 2 per cent.

Funding for the Greens plan would be sourced in part from ‘scrap[ping] the tax handouts for property investors’ says Max Chandler-Mather, Greens Housing Spokesperson, referencing negative gearing and the Capital Gains Tax discount.

Many affordable housing advocates would rightly applaud the principle of equitably re-directing the effective government spending represented by these concessions, within the housing system. But the language here suggests a notably robust approach to tax break reform that could extend far beyond the ‘phasing down’ pathways that may be more politically feasible (or less politically unfeasible).

Based on calculations by the Parliamentary Budget Office, the Greens put the overall net cost of their program at a surprisingly modest $12.5 billion. But part of the explanation seems to be that only a relatively small part of the program is planned to be targeted to low income earners – an objective that calls for substantial subsidies to enable affordability.

Since rental homes are to form 70 per cent of the program that suggests 252,000 units in total – or around 50,000 per year. If a fifth of these are to be ‘allocated towards the bottom 20% of earners’ that suggests a social housing component of 10,000 per year. For comparison, Labor’s Housing Australia Future Fund envisages 4,000 homes annually for five years from 2024-25.

Perhaps by design, this aspect of the Greens plan coincides exactly with a recent estimate of the minimum level of social housing construction needed to simply maintain the current size of the national social housing portfolio, relative to all housing stock.

So this part of the Greens plan would halt, but not reverse, the decline of social housing as a proportion of all housing which has seen the sector shrink from 6 per cent to only around 4 per cent of total occupied dwellings over the past 30 years. Perhaps surprisingly, therefore, the plan would see social housing provision treading water but with no inroads being made into the accumulated backlog of unmet need.

These relatively modest ambitions for this part of the housing system perhaps reflect the electoral constituency of the Australian Greens party, with their parliamentary cadre substantially representing middle income renters in inner urban areas.

These observations might place in question the radicalism of the party’s self image. Equally, though, in reviving the vision of government as an active player in housing production at scale, developing homes that can be sold or rented at a price which does not need to factor in developer profits, the Greens plan refreshingly challenges an orthodoxy of decades.

And Labor…?

It can only be hoped that the level of ambition in the Greens proposals serves as a spur for Labor in its deliberations on a second term housing pitch.

You might well imagine that the logical setting for this would be the Government’s long-awaited National Housing and Homelessness Plan. Unfortunately, though, the signs are that this will prove an extremely underwhelming product.

Although its housing initiatives to date have been relatively small in scale and somewhat disparate, the Albanese Government cannot be criticised for inactivity in this area. What it now needs is a unifying rationale for these measures and a clearly stated declaration that they are to serve as a platform for second term ambition of a substantially higher order.

First published on John Menadue’s Pearls and Irritations. Read the original article here.

The Albanese Government and housing: a mid-term report card

Posted by on December 18th, 2023 · Government, Housing

Image credit: Tatyana Kozlova

The Albanese government can justly claim to have reasserted Commonwealth leadership on housing since its election in 2022. Media attention has focused mainly on the legislative stoush with the Greens over the Housing Australia Future Fund. But that’s only one element of a raft of initiatives pumped out from Canberra over this time.

Many Australians have recently felt the impact of sharply rising rent and mortgage payments as household numbers and interest rates surged in the post-COVID period. However, several fundamental and enduring housing problems have been escalating for decades. These include:

To seriously confront these challenges, the government will need to expand its initiatives and tackle reforms of taxes and regulations, which it has avoided to date.

Tackling housing on four fronts

The government’s commitments so far can be largely broken down into four policy themes.

1. Direct assistance for low-income groups

The Housing Australia Future Fund is the largest initiative in this area. The goal is to fund 30,000 new social and affordable homes over five years.

Under the National Housing Accord, another 10,000 affordable rental homes are funded over this period.

However, the unmet need for social and affordable housing exceeds 600,000 units, so these targets remain modest.

Also in the direct assistance category is the May budget’s one-off 15% boost to Commonwealth Rent Assistance. While accurately claimed as “the largest increase in more than 30 years”, maximum payments remain far below market rents. As economist Bruce Bradbury argued, the increase should have been 100%.

These initiatives are significant contributions to relieving rental stress when compared to the previous decade of federal inaction. However, that is a low bar.

2. Direct assistance to first-home buyers

This batch of measures includes expansion of the Coalition-established low-deposit mortgage scheme, now branded the First Home Guarantee. Qualifying first-home buyers can secure a home loan with a down-payment of only 5% of property value – rather than the standard 20% deposit.

There’s also the government’s Help to Buy proposal. Under this shared-equity model, government takes a 30-40% interest in a dwelling acquired by a qualifying home buyer. The buyer’s home loan and equity contribution are much smaller as a result.

But the government may battle to secure Senate approval for this scheme. The Coalition opposes it, saying first-home buyers will dislike the idea of “[having Anthony] Albanese at the kitchen table with you, owning part of your home”. The Greens have queried the workability of proposed scheme rules.

3. Boosting housing supply

The main push here has been the National Housing Accord agreed with state governments and others in late 2022. Signatories must do their best to enable construction of at least 1 million homes – and up to 1.2 million – from 2024 to 2029. This would increase current construction rates by about a third, so it’s a challenging target.

The modest federal investment in social and affordable homes supports the accord aspirations.

More importantly, A$3 billion in new federal funding for the New Home Bonus aims to “incentivise states and territories to undertake the reforms necessary to boost housing supply and increase housing affordability”. This approach appears to emulate recent efforts in the UK and Canada.

It remains to be seen if this will work in Australia. There is reason to be sceptical about any strategy to make housing more affordable based on the belief that “inadequate” supply is largely due to planning restrictions. The main consideration for private developers and their financial backers is expected market conditions when newly built homes are to be sold.

If the prime minister is serious about achieving his government’s targets, he may need to consider more direct government involvement in housing production. Much greater social housing investment would be needed in any case to genuinely address the scale of unmet need. He might even contemplate a union-sponsored proposal to use a corporate super-profits tax to fund massively stepped-up social housing construction.

Equally, state and territory governments could look to revive the state-commissioned build-for-sale programs of the 1950s and 1960s. That is, homes built for sale at cost price on land owned by government or acquired for the purpose under compulsory powers.

4. Institutional reform

Fragmented and inadequate policymaking capacity bears much of the blame for Australia’s weak record on housing in recent decades.

In response, the Albanese government has to its credit set up an expert panel, the National Housing Supply and Affordability Council, and a national housing agency, Housing Australia. However, Housing Australia has been designated as purely a delivery agency with no policymaking remit. This seems highly questionable – especially as the housing minister lacks her own department of government.

Even more concerning are indications that the proposed National Housing and Homelessness Plan may fall far short of providing a fit-for-purpose rationale for the government’s post-2022 initiatives and, more importantly, a meaningful framework for the much more ambitious reforms Australia badly needs.

A promising start, but can do better

In the first half of its term, the Albanese government made progress on almost all its election pledges on housing. It also brought forward other notable initiatives. This activity corresponds quite well with key dimensions of Australia’s multi-faceted housing challenge.

At the same time, announced measures are somewhat disparate and many are extremely modest alongside the scale of these problems. To make a real difference, they will need to be expanded and extended over a longer time. They must be complemented by tax and regulatory reforms as yet eschewed.

If the measures to date prove to be a down payment on ambitious and purposeful future action, they may come to be seen as significant. If not, policy analysts of the 2030s will deem them of little importance.

This article draws on a fuller housing policy paper published in a special issue of the Journal of Australian Political Economy along with mid-term assessments of the Albanese government’s performance across a range of other policy areas.

This article was first published by The Conversation – read the original article here

Rising house prices are no cause for celebration

Posted by on November 7th, 2023 · Uncategorized

Last week’s news of Australian house prices rising to a new record this month is notable, although with significant inflation affecting the country for the past 18 months, that won’t be a new peak in real terms. Even so, a 7.6% since January 2023 means a resumption of real terms price growth. That seems surprising at a time when interest rates have been rising and could rise further, and many recent FHBs are under severe financial pressure as a result.

Latest ABS data shows investor landlords coming back into the market. But first home buyer demand has dropped to the low level seen for most of the past decade and is unlikely to rise again in the near future – especially if prices continue to rise and/or interest rates remain around the current level.

Most famously personified in comments by former prime minister John Howard, Australian governments have historically tended to welcome rising house prices as signifying consumer confidence. Even academic researchers and government analysts have cited house prices as a sign of the regional economic ‘success’.

Nowadays, though, as demonstrated in our 2021 research, most economists in the field would say that rising house prices are not something to celebrate. Not only are they a problem because they lock more young people out of home ownership, but because of their damaging economic effects for Australia as a whole. This is an issue for everyone, not only for those hoping to grab onto the bottom of the property ownership ladder.

As explored in depth as part of City Futures Research Centre work led by Visiting Professor Duncan Maclennan, there are three key issues:

Inequality – disproportionate house price inflation has been a key driver of rising wealth inequality in Australia over recent decades.

People owning property, and people whose parents own property have gained – with the biggest gainers being those with the most expensive homes or the most valuable rental housing portfolios. Young people without home owning parents are increasingly disadvantaged in their chances of ever achieving this status themselves.

Rising inequality is also damaging to economic productivity – so say the OECD, the IMF and many leading economists.

Indebtedness and financial stability: Australia is one of the most mortgage indebted countries in the world. Measured according to mortgage debt to GDP. This makes our economy vulnerable to financial instability. Reserve Bank wariness about house price booms is motivated by this concern.

Diversion of investment away from productive activity: over-expensive housing – both house prices and rents – swallows up too much household income, crowding out scope for spending on goods and services that generate more of an economic return. The result is a hit to GDP, and therefore population welfare.

For all these reasons, it’s essential that the Commonwealth Government’s forthcoming National Housing and Homelessness Plan calls out excessively expensive housing as a problem to be tackled head on; committing to the fundamental reforms needed to address the issue. And, while these must include measures to enable expanded housing supply to parallel population growth, more affordable prices and rents cannot be simply achieved by ‘de-regulating planning’.

Given the complexity of Australia’s housing affordability challenge, a much wider range of actions will be needed, actions that also encompass tax and other changes that similarly call for visionary national leadership.

As emphasized by City Futures colleague, Dr Chris Martin, for the NHHP we need, fixing market failures and filling unprofitable gaps in the market will be insufficient. Rather, the Plan must break with neo-liberal orthodoxy by embracing the need for a stronger market-shaping and market-participating role for government itself.

This post was originally published by The Fifth Estate. Read the original post here.

Weighing the significance of Labor’s social housing investment fund

Posted by on September 22nd, 2023 · Uncategorized

By Hal Pawson

After more than six months of Parliamentary wrangling, the ALP’s flagship housing future fund bill finally cleared the Senate last week. For Australia’s neglected social housing sector, this presages a welcome revival of federally-supported capital investment, absent for most of the past quarter century. But, in a longer-term perspective, the resulting program will be significant only if it forms an initial downpayment on a much larger and broader housing reform and investment program.

How far will $10 billion stretch?

Under the Housing Australia Future Fund (HAFF), government will invest $10 billion on the capital markets to generate income hypothecated to social and affordable housing development subsidy. Resulting expenditures are officially anticipated as enabling construction of ‘30,000 new social and affordable houses in [the HAFF’s] first five years’.

Thanks to Senate crossbench advocacy, any shortfall in fund earnings due to capital market volatility will be topped-up from general revenue to guarantee $500 million in annual disbursements.

I’ve attempted elsewhere to explain simply how the HAFF model may work in practice. I say ‘may work’ because, while initially unveiled in 2021, Labor has remained coy on the scheme’s costings and mechanics. Therefore, a degree of speculation is unavoidable.

As Peter Mares has suggested, official reticence here probably reflects reluctance to expose the reality that the HAFF model, as inferred, will quickly exhaust its capacity to underpin new development dedications. Having committed to the initial tranche of investment contracts with housing providers (summing to 30,000 new units), program expansion will be therefore halted.

Only after HAFF-generated annual housing subsidy payments pledged in years 1-5 (but ongoing beyond that) have enabled the full repayment of construction debt by contracted housing providers will it be possible for government to dedicate subsequent HAFF returns to a follow-on tranche of newly contracted projects.

Under the small-scale NSW housing future fund, believed to have inspired the HAFF, standard contract terms are 25 years. However, according to the Grattan Institute’s Brendan Coates, it might be possible for subsidy-recipient housing providers to extinguish construction debt in as little as 15 years, implying that a new round of social and affordable development contracts could be struck from year 16.

Equally, IF 6,000 homes per year is what can be supported by a capital stake of $10 billion, IF government believes this an appropriate annual scale of construction, and IF ministers insist on funding social and affordable construction under this model, government would need to commit at least another $20 billion to the HAFF to enable a continuation in the initial flow of new development commitments in years 6-15. If subsidy contracts, in fact, need to run for 25 years, the ‘gap’ would implicitly call for a $40 billion HAFF top-up (i.e. $10 billion more every five years).

Why does all this matter?

All of this matters because, as many have rightly noted, the HAFF subsidy commitment as announced will underpin a program equating to only a very small fraction of Australia’s total unmet need for social and affordable housing.

Even if re-funded to form a continuous program of new commitments extending beyond year 5, the scale of activity envisaged under current HAFF plans is modest relative to, for example, the 175,000 qualifying households registered on state/territory public housing waiting lists. And our own census-based estimate that also factors in households on slightly higher incomes but still in rental stress puts total unmet need for social and affordable housing at 640,000 units.

Therefore, a 30,000 program (of which only 20,000 will be social housing affordable to those on the lowest incomes) is going to make only a small dent in the problem. And that’s before you factor in the growing housing need that accompanies a growing population.

These are the reasons that some advocates call for 25,000 new social housing units per year. Beyond this, one of Australia’s largest unions has recently put forward a reasoned – and funded – case for an annual program of 53,000 homes.

Even the smaller of these numbers appears huge relative to the current HAFF plan but, for context, it would account for around 12-13% of Australia’s total housebuilding – somewhat below the 16% represented by public housing construction in the period 1945-70. In England, meanwhile, not-for-profit housing associations today contribute around 25% of total housebuilding, albeit that this includes homes for market sale as well as for social rent.

What else is Labor offering – and where is it falling short?

To be fair, the Albanese government has also committed to several initiatives directly relevant to social and affordable housing supply over and above the HAFF. Firstly, under the National Housing Accord, mainly concerned with enabling expansion of overall housebuilding, the Commonwealth is pledged to fund 10,000 new affordable rental homes in addition to the HAFF 10,000.

Secondly, apparently thanks to pressure exerted by the Senate crossbench, Minister Collins in June committed to a $2 billion social housing accelerator fund directly funded from general revenue. This might generate 5,000 additional new dwellings over a couple of years.

Thirdly, as part of the parliamentary deal that eventually secured the passage of the bills through the Senate last week, government pledged another $1 billion to supplement the existing National Housing Infrastructure Facility. However, while NHIF assistance may be provided via grant, it is largely a financing and not a funding vehicle – i.e. a source of cheap debt to enable social and affordable housing development.

More broadly, delivering on other elements of its 2022 election platform, Labor has also implemented significant enhancements to national housing policy architecture; in particular, the re-establishment of a National Housing Supply and Affordability Council and the upgrading of a national housing delivery agency, Housing Australia.

What is badly needed at this point is a framework to lend coherence to the initiatives already delivered since the election and – more importantly – to provide a roadmap for the much wider and more ambitious housing reforms Australia badly needs.

Being already committed to a 10-year national housing and homelessness plan (NHHP), it would be hoped that this kind of framework is something Government already has in hand. However, while its development process is still at a relatively early stage, there are serious concerns that the NHHP could fall far short of what’s needed. To consolidate its housing policy progress to date, and to lock in a positive trajectory for the future it’s vital that this process is put back on track.

This story was first published by John Menadue’s Pearls and Irritations. Read the original story here.

How does the HAFF add up? Unpacking Labor’s $10 billion Housing Australia Future Fund

Posted by on September 14th, 2023 · Uncategorized

By Ben Knight, UNSW Media

Social housing in Australia has been in neglect for more than two decades. With a growing shortfall, ballooning waitlists and exploding queueing times across the country from minimal investment, the sector desperately needs a way to fund the construction of new below-market rent dwellings, and quickly.

With Federal Parliament sitting once more  after winter recess, the Housing Australia Future Fund (HAFF) has finally passed the Senate. This will usher in a new funding mechanism enabling publicly subsidised, privately financed, social and affordable housing development.

“Superfunds and other institutional players are looking for new investment opportunities, and governments are looking for to boost social housing construction while minimising new debt on the public balance sheet,” says Professor Hal Pawson, Associate Director at UNSW’s City Futures Research Centre. “With the HAFF framework legislated at last, Australia has a new national match-funding mechanism to enable institutional investment, which will help expand much-needed social housing production.”

How will the HAFF enable social housing investment?

Under the HAFF, the Australian Government plans to borrow A$10 billion to invest in equity markets, generating an estimated $500M annual return to subsidise housing development that, being backed by investment income, will be accounted as ‘off balance sheet’ expenditure. That is, formally sitting outside of the annual budget. 

Emulating similar, but much smaller frameworks established by several states including NSW, it is understood that community housing organisations will then secure private (debt) finance from institutional investors like superannuation funds to develop 30,000 units in the program’s first five years, underpinned by government contracts for annual subsidy payments for 25 years.

“Crudely ignoring inflation, the maths of this will see subsidy paid out at $500 million a year for 25 years, summing to $12.5 billion over the period, and therefore implying a per dwelling subsidy totalling $417,000 across the 30,000 unit program,” Prof. Pawson says.

Along with tenants’ rents, these subsidy payments will enable the housing providers to meet finance costs – interest and repayment on institutional debt – as well as ongoing housing management and maintenance. In other words, institutional investors will be financing a program, ultimately largely funded by government subsidy.

“The upside of this mechanism is that, for a given annual amount of public subsidy, it effectively enables government to bring forward social housing investment,” Prof. Pawson says.

Expended more conventionally, through capital grants, a given annual subsidy spend (say $500 million per year) would generate far fewer dwellings over the first few years of a program, Prof. Pawson says.

“If the subsidy needed to build each new social housing unit is $417,000, a $500 million capital grant program would give you only about 6,000 in the first five years, not 30,000,” Prof. Pawson says.

As Prof Pawson explains, however, there is also a HAFF downside. “Once the 30,000 homes have been contracted near the start of the program, the income stream generated by the $10 billion HAFF investment is fully committed for the next 25 years”.

“In isolation, 30,000 new units will make only a very modest start towards redressing Australia’s far greater social and affordable housing shortage. But if governments insist on this form of procurement, extending and expanding the program beyond this tranche will be possible only by boosting the value of the HAFF itself – for example by pledging another $10 billion equity investment stake,” Prof. Pawson says.

Leveraging institutional investment

Institutional investors, like Australia’s superannuation funds, regularly invest in infrastructure assets, like roads, ports and tunnels, but few have a direct stake in social housing – or, indeed, in any form of rental housing.

“There’s potential for social housing to attract institutional investors like superannuation funds, but up until now, Australia has generally lacked the right government policy settings to ensure the returns are comparable with competing risk-adjusted investment options,” Prof. Pawson says.

Importantly, the returns on social housing as an asset class are predicated not on capital gains via property sales, but a steady cashflow from rent revenue ensured via long-term government contracts, such as those expected to be struck under the HAFF. From the investor perspective, it’s a low-yield, low-risk stake that can form part of a diverse, balanced fund portfolio.

“In this model, the institutional investor is providing debt, not equity. Their financial input doesn’t buy them an equity stake in the building,” Prof. Pawson says. “Instead, with debt repaid after, say, 25 years, the properties are eventually outright owned by the community housing organisation for retention as low-rent homes in perpetuity.”

Large corporations having a stake in social housing might prompt anxieties, but if structured in this way, should be benign. Indeed, as Prof Pawson argues, this arrangement could in fact bring added benefits. 

“For the ‘big end of town’, it would give them some skin in the game, in a part of the housing market they haven’t had much interaction with before,” Prof. Pawson says. “From a strategic point of view, it means those companies will have a vested interest in the vitality and sustainability of social housing and will be motivated to protect and defend it into the future.” 

This story was first published by UNSW Newsroom here.

Embedding Indigenous advice in government policy key to real change

Posted by on September 8th, 2023 · Government, Housing, Indigenous

By Hon Prof Vivienne Milligan, City Futures Research Centre. Originally published at Pearls and Irritations, John Menadure’s Public Policy Journal.
In discussions of the upcoming referendum on establishing an Aboriginal and Torres Strait Islander Voice, a question often raised is how will it make a difference? This has been difficult for advocates to address because instances of governments’ empowering First Nations peoples are few and far between.

There is, however, a valuable example in NSW of the demonstrable benefits of having Aboriginal advisers working closely with government. This year marks 25 years since the Aboriginal Housing Office (AHO) took control of the provision of social housing for Aboriginal people in NSW.

The AHO model is not the same as the proposed model for the Voice, but it offers some relevant insights into the value to be gained from governments’ tapping into Indigenous knowledge and understanding. It has shown that having Aboriginal guidance at a high level in government (as well as regionally and locally), can provide many practical, often nuanced, benefits.

The AHO and its all-Aboriginal Board were established by an Act of the NSW Parliament in 1998. The AHO’s main roles include funding new housing, developing culturally appropriate housing services, building the capacity of Aboriginal organisations to deliver and maintain rental housing (with wrap-around support where needed), and improving tenant pathways to home ownership.

Under the Act, Aboriginal Regional Housing Advisory Committees also provide an effective means to pinpoint different needs and priorities between and within regions, to forge links between local service agencies, and to promote accountability to local communities.

The AHO came into being at a time when Indigenous housing policy was failing. Multiple Commonwealth and State-funded programs operated in different and confusing ways in local communities, new housing was being built to general standards that were not fit-for-purpose, rent collection rates were poor adversely impacting housing maintenance, and under-resourced local organisations were struggling to support their tenants and prevent tenancy failures. There was also poor transparency around the use of Aboriginal housing funding – the NSW Government had been sanctioned for failing to comply with funding requirements in the early 1990s.

Under the 1998 reform in NSW, Commonwealth and state funding was pooled and the AHO was given overall responsibility for managing Aboriginal housing policy, resource allocation, asset management and service standards. The AHO’s governance means that AHO Directors and staff, through their Aboriginal Chief Executive, are directly accountable to the Minister for Housing, who in turn is accountable to the NSW Parliament for meeting the objects of the Act. This approach illustrates a point made recently by Noel Pearson: that partnership models involve First Nations people sharing responsibility with government.

In June 2022 the AHO had a property portfolio of over 6,000 dwellings valued at $2.8bn. In 2021-22, 87 new homes were built (a 13% growth rate) and over 6,300 AHO- and community-owned properties were upgraded. While there is a lot more to be done, much has already been achieved under the AHO’s authority and impetus.

When most other jurisdictions went backwards, over the last 25 years NSW has retained a strong network of regulated Aboriginal housing organisations. This has averted the mainstreaming of all housing service delivery, providing more options for Aboriginal people. Today around 40% of all Aboriginal social housing tenant households in NSW live in Aboriginal-run housing.

Aboriginal employment has been strongly enhanced. The AHO has consistently maintained high numbers of Aboriginal employees: currently over 60% of its staff identify as Aboriginal. This helps to ensure that culture and lived experience shape programs and services and strengthens the relationship between officials and the communities they serve. AHO-funded programs have enabled economic development through engagement of Aboriginal businesses and tradespeople, especially in the fields of housing construction, maintenance and upgrading, and tenancy management. Today around 30% of all jobs created through AHO investment are going to Aboriginal people.

The work of the AHO includes many examples of service innovation that may not have arisen in a normal bureaucratic environment where a ‘one-size-fits-all’ model tends to dominate, and new ideas are too risky or too expensive to pursue at scale. Examples include the AHO’s award winning program to install hydro-panels that supply in-home pure drinking water in remote towns and their use of prefabricated housing pods as a rapid response to overcrowding and homelessness. In Western NSW, to reduce tenant electricity costs, 970 AHO properties have recently been fitted with solar panels delivered by two Aboriginal-owned companies.

The AHO model has demonstrated how embedding advice from Indigenous Australians in government processes can make a real difference – in this case to address distinct housing needs and to reduce homelessness. It has also facilitated long-term cultural learning and adaptation within the public service.

As a senior AHO official once put it, ‘why wouldn’t governments want Indigenous knowledge and advice close at hand?’