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NSW housing strategy: challenges to be faced, objectives to be owned

Posted by on July 24th, 2020 · Uncategorized

The NSW Government plans to publish a comprehensive housing strategy. This is the Executive Summary of the full CFRC submission to the strategy’s formulation.

Three components are fundamental to any strategy: the setting of goals, the identification of actions to achieve those goals, and a plan for the mobilisation of resources to implement the specified actions. In this submission we summarise:

  • The housing challenges we believe the 2020 Strategy should address
  • The primary policy objectives the Strategy should adopt, and
  • The powers and policy levers the Government could wield in pursuit of such objectives.

Strategy challenges

Challenge 1: Expanding housing stock to meet future needs

In expanding housing stock to meet future needs, the 2020 Strategy needs to recognise and address the changing size and profile of the state’s population. In doing so, it will need to set out population and household projections more fully than in the Discussion Paper. In the light of the COVID-19 impact on international migration, this analysis will need to incorporate scenarios that allow for the possibility that future flows will be lower than previously forecast.

Beyond this, the strategy should also contemplate the possibility that future population growth might be partially accommodated by making more effective use of currently under-utilised housing stock. With these points in mind the Strategy should extend beyond the Discussion Paper in making a reasoned case for the scale of additions to the dwelling stock considered essential in gross numerical terms.

Similarly, by comparison with the Discussion Paper, the Strategy will need to lay greater emphasis on the housing provision implications of population ageing, recognising that older Australians are a cohort whose growth rate is over three times that for either children or young people. The Strategy must also take a view about the expected geography of future dwelling growth in terms of housing need and requirements across the state, underpinned by an analysis of the spatial structure and dynamics of the housing market as well as recent changes in the geography of employment and projections for the strategy period.

In advocating measures to shape new housebuilding, the Strategy will also need to address concerns arising from ongoing contraction of home ownership and to factor in changing consumer preferences related to housing.

Challenge 2: Addressing existing housing needs

The Discussion Paper appropriately acknowledges that rental stress, homelessness and the undersupply of affordable housing pose critical challenges for government. The Strategy itself will need to spell out the associated implications for the planning and funding of future housing provision much more cogently and specifically. The Paper’s silence on the extent of the state-wide shortfall in social and affordable rental housing is a fundamental weakness. In gauging the necessary scale of required action to address this issue, the Strategy will need to quantify recent social/affordable housing construction, and to project likely completions that can be expected in coming years – e.g. anticipated output from the Communities Plus program.  This must, of necessity, include strategies and polices to address the affordability shortfall among lower income households, measures that extend beyond current housing policy and planning frameworks.  

From the housing portfolio management perspective, the Discussion Paper devotes remarkably little attention to the state’s existing social housing sector and – in particular – the undoubted challenge this presents in terms of managing and maintaining (let alone expanding) an ageing body of stock. As a major ongoing renovation program, Communities Plus is again relevant here. Considering its importance, the Housing Strategy would be expected to focus substantial attention on the program’s progress and prospects for delivering both replacement and additional social housing – benchmarked against program aspirations as originally stated in 2016. More broadly, the Strategy will need to include a comprehensive analysis of public housing property condition that quantifies the existing works backlog in dollar terms – or, at the very least, commits to a time-specific program to develop such an assessment and to devise associated options for addressing the issue.

In recognition of mounting climate challenges, the Strategy should also explicitly consider the quality and performance of new and existing housing. This should extend beyond recognition of the problems of building defects to consider how buildings can be designed, built and managed to prolong their functional life. It should consider how new housing can deliver longer term utility cost reductions for householders while minimising consumption/ waste and maximising energy efficiencies and energy management, both in their construction and throughout their lifecycle (including through adoption of renewable energy technologies), for example, through a thorough review end extension of BASIX.  These policies also need to be extended to include existing dwellings so that the entire housing stock can be made compliant with modern standards.

Improving housing quality and performance will require explicit consideration of asset management and building maintenance practices. This is especially important in multi-unit (apartment) housing across both the private and social housing stock.

Challenge 3: Inequality and economic productivity

In its ongoing evolution over the past 20-30 years, Australia’s housing system has been increasingly contributing to inequality in living standards as well as in wealth distribution. Moreover, there is growing evidence that aspects of housing market operation are impairing overall long-term economic productivity, most noticeably in the formation of human capital and especially with regards to the perceived benefits of greater agglomeration through increased urban density. This implies a much greater recognition of the need to integrate housing, planning and infrastructure policy than has been achieved to date, to ensure that public investment and intervention in the housing system maximises ‘whole of economy’ productivity gains.  While some policy levers may lie with the Commonwealth Government, the 2020 Strategy should contemplate what actions could be within state government powers to achieve a more holistic approach to future housing development that builds productivity. 

Strategy objectives

Crucial in the 2020 Strategy will be the adoption of high-level objectives that logically flow from the strategic housing challenges as identified and defined. As acknowledged in the Discussion Paper (p5) the Strategy will ‘set an overarching 20-year vision for housing in NSW’. If the elements of this vision are to have any meaning, they will need to be specified in clear and ambitious terms. Although by no means an exhaustive list, this submission proposes five possible objectives that the Strategy could embrace as follows.

Objective 1: The market functions more smoothly and housing stock is used more efficiently

Crucially, this includes the need to minimise the market volatility so strongly embedded within the system as it currently operates. This results in the construction industry wastefully and inefficiently gearing up and winding down in response. It also gives rise to developer business management practices that problematically under-invest in skills and technology development and embody short-term approaches to dwelling design and construction. While new policy are being implemented in NSW to deal with aspects of building quality, governments can further counter these problems by discouraging property and land speculation – e.g. through land tax reforms and/or planning system adjustments, including greater intervention to manage planned precinct outcomes and value-sharing arrangements. Greater market stability would also be served through diversifying the housing supply system to enhance representation of not-for-profit providers and institutional investors.

Objective 2: Housing system impairment of economic productivity and equity is reduced

As advocated above, there is a case for government to include a strategic priority to reshape the housing system to minimise impairment of economic productivity. Again, this is compatible with current political orthodoxy. Since rising spatial inequality is increasingly viewed as antithetical to economic growth, these two issues are logically interconnected. Although, as acknowledged above, the relevant tax policy levers are primarily held by the Commonwealth Government, this should present no bar to a state or territory government advocating for their reform.

Objective 3: A more diverse range of housing forms enhances consumer choice

Australia has seen a growing polarisation between high density development – primarily but not exclusively in designated centres and corridors – and 1-2 storey detached suburban housing on the urban fringe with little change in the proportion of medium density options. Probably as much or more than any other city, Sydney would benefit from increased provision of medium density townhouse or mansion house style development to increase choice in terms of both housing type and location.  Both planning and housing policy adjustments are needed to stimulate medium density development in appropriate locations, especially for affordable housing.  In addition, the Affordable Housing SEPP should be replaced with a suite of tailored policies specifically formulated to address the multiple shortfalls in this well-intentioned, but poorly implemented, policy.

Objective 4: Historically rising levels of housing affordability stress are reversed

This objective flows from the case made above. It could be addressed partly through a greatly expanded program of new social and affordable housing provision. It is accepted that this could probably be actioned only with Commonwealth Government support. The same would be true for other policy adjustments that could assist in addressing this objective: namely property tax reforms and uprating of social security benefits, especially Rent Assistance. At the same time, as discussed below, a state government has significant powers and resources at its disposal that can and should be deployed to this end, such as routinely providing discounted public land for social and affordable housing development to permit much greater supply levels than hitherto generated.

Objective 5: The interests of landlords and tenants are appropriately balanced

Australia’s private rental sector continues to expand. More people are renting their home from a private landlord than at any time in the past 70 years and more of them are remaining in this housing situation for longer than ever before. In law, however, the balance between landlord and tenant interests has remained fundamentally unchanged for decades, a status quo described by highly respected Professor Terry Burke as ‘heavily weighted in favour of landlords and against the interests of tenants’. We believe that the recent statutory review of the NSW Residential Tenancies Act missed a significant opportunity to improve tenants rights, and that it should be revisited as a priority under the Housing Strategy.

Policy levers available

Lever 1: Tax settings

Wielding tax powers held at this level of government it is open to state/territory authorities to follow a reform path widely advocated by economists, whereby property taxes are re-configured to discourage speculation and enhance owner occupier mobility – where such a move would be to their advantage – e.g. in terms of work opportunities or work travel times, or up- or downsizing.

Lever 2: Regulation

State governments enjoy important regulatory powers with a bearing on housing – in particular, land-use planning measures governing development, and legal powers framing relations between landlords and tenants. In relation to planning, it is open to states to use approval procedures to mandate private developer production of social or affordable rental housing. Likewise, regarding the regulation of landlord-tenant relations, state governments have substantial freedom to adjust tenant rights and landlord obligations in line with changing housing systems and public expectations.

Lever 3: Expenditure and other use of resources

Even without committing significant amounts of taxpayer-funded expenditure, a state government like NSW has substantial scope to deploy resources in the interests of housing strategy objectives. Most importantly, as owner of the public housing portfolio it has asset management options that could help fulfil desirable policy objectives. For example, through additional public housing property transfers it could facilitate leveraging of privately funded investment in the social housing stock. Moreover, in relation to surplus land disposals outside of the public housing estate context, it could choose to comply with stakeholder calls to impose on acquiring developers a standard expectation that a minimum 30% of resulting residential development is reserved for social/affordable housing.

Using land ownership powers to enable forms of ‘affordable home ownership’, there could be a commitment to government-seeded initiatives such as Community Land Trusts, shared home ownership schemes, rent-to-buy options and equity cooperatives.

Strategy governance

The NSW housing system is complex and shaped by multiple policy levers, both those that are housing system-specific and by broader economic, fiscal, social and environmental policy settings. This raises crucial questions on how the proposed strategy will be governed and how ‘shared responsibility’ will be realised. In our view this will call for a range of institutional reforms, especially:

  • Raising the seniority of the Ministerial housing portfolio
  • Releasing an annual Housing Budget that identifies all the government’s outlays and their intended outcomes in terms of meeting given goals for supply and affordability of housing  
  • Creating an enduring high-level State Housing Council (or similar)
  • Proactive development of a NSW Government position on future national housing policy.

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