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 insecurity of private renters – how do they manage it?

Posted by on May 24th, 2017 · Affordability, Guest appearance, Law, Sydney, Tenancy, Wellbeing

Alan Morris, University of Technology Sydney; Hal Pawson, UNSW, and Kath Hulse, Swinburne University of Technology. This article was originally published on The Conversation. 

A growing proportion of Australian households depend on the private rental sector for accommodation. This growth has occurred despite substantial insecurity of tenure under the law, unlike other countries with high private rental rates, such as Germany. The Conversation

Our newly published research on the impacts of long-term or even lifelong insecurity on Australian private renters found their responses range from lack of concern to constant fear and anxiety.

So, how many people are affected? Back in the 1990s about one-fifth of us rented our homes from private landlords. Now this has swelled to more than one-quarter.

Historically, renting was usually a transitional step in the life cycle. Most people rented for a while and eventually bought a home.

While this housing pathway is still dominant, a growing number of Australians cannot make this transition. At least one in three private renters are long-term private renters (ten years or more). This equates to at least one in 12 households.

Australian households rent accommodation under a regulatory framework that provides little protection against landlord-instigated “forced moves” or untenable rent increases. The initial written agreement/lease rarely extends beyond a year. Once it ends, the tenancy typically shifts to a “periodic” basis, and notice to vacate can be given without reasons.

The period of notice ranges from 42 days to 26 weeks – depending on the state or territory. Thus, beyond the initial lease, all private tenants are subject under the law to ongoing insecurity.

Drawing on 60 in-depth interviews, we explored the impacts of this de jure housing insecurity on long-term private renters in different housing markets (low, medium and high rent, with 20 interviews in each) in Sydney and Melbourne. We identified three typical responses to ongoing insecurity:

  • incessant anxiety and fear;
  • lack of concern; and
  • concern offset to an extent by economic/social capital, with renting sometimes seen as the only means of living in a desired area.

We discuss these responses in turn.

Incessant anxiety and fear

For one group of interviewees, the insecurity was a persistent source of stress. They were constantly anxious about the possibility of being asked to leave their homes or incurring an untenable rent increase.

Low-income interviewees in the low-rent outer suburban areas had limited economic and sometimes social capital. A notice to vacate invariably caused great anxiety as they had minimal resources to find alternative accommodation.

Interviewees solely reliant on government benefits for their income were especially vulnerable. Frieda, 40, a single parent with five children, described her perceptions and experiences:

At any minute I can get the letter to say, ‘Sorry, but you’ve got to move’ … The last house before this one … was supposed to be a long-term but he decided to sell that house. And then we got [another] one … and then [the owners] wanted the house back … We got notice [to vacate] but [were] still trying to, you know, find somewhere … For a while there, I was thinking we’ll be out on the street.

Nigel, 35, lived alone in a low-rent area in outer western Sydney. He had been receiving workers’ compensation, but when interviewed relied entirely on Newstart for his income. He was confident that his landlord would not ask him to leave, but needed all his income to pay his rent. This was a source of intense insecurity and he was not coping.

I’m getting $661 a fortnight, my rent is $660 [a fortnight], so if it wasn’t for friends, you know … Stress is gone beyond a joke … You don’t know what you’re going to do the next day.

Christine, 57, also depended on Newstart for her income. She had lost her job a couple of years earlier after falling ill. Fear and anxiety were woven into her comments:

A renter – you’ve always got that fear that you’re not going to have a roof over your head … Yes, I’ve been here 16 years, but you never know. The house can be sold and new owners can say, ‘No, we want you to go.’ You don’t have money for a bond for another premises or, you know, Housing Department can’t help you because you’re not what they consider to be [in] an urgent, desperate situation.

Not a concern

At the opposite end of the spectrum were interviewees who had deliberately chosen long-term private renting and were unconcerned about the possibility of a landlord-instigated forced move. “Renters by choice” tended to be single people or couples without children who lived in high-rent areas. They usually had ample economic and social capital and saw the flexibility associated with renting as an advantage.

Sarah was living in a high-rent area in inner Melbourne:

And I do have enough money to buy quite a nice apartment, but I’d rather use the interest and the share money [dividends from shares] and stuff to travel.

Angela and her partner lived in the same area. They had no children and preferred not having a lease:

So the insecurity doesn’t bother me … It’s more to do with my freedom within that. It means that I can just leave whenever I want if I want to.

Astrid felt totally at ease with her long-term renter status in high-rent inner Sydney. In her late 30s and single, she had a reasonable income and strong social capital. She had rented for all her adult life:

It doesn’t bother me [being asked to vacate] … If they come and say they’re going to sell, well, there’s a reason. It was meant to be, so yeah … There’s always somewhere to stay. So it suits my lifestyle. I wouldn’t want to buy anything even if I had the money.

Moderate concern

Interviewees in high and medium-rent areas were typically in a different position to tenants in low-rent areas. Their economic capital enabled them to rent (but not buy) in an area with good public schools and amenities, and to move if need be.

However, they were reluctant long-term renters and troubled by their housing insecurity. This was especially so if they had school-going children.

Moira (high-rent area, Sydney), married with two children and in her mid-40s, was pleased with her rental situation. She paid an unusually low rent for her three-bedroom apartment. Alongside the area’s high-quality amenities, the quality of the public schools was a major drawcard.

However, the ever-present possibility of having to vacate was a concern:

The fact that you don’t know how long you’re going to be there for and, you know, that was a massive thing when we were choosing a school … If we have to move, are we going to be able to be within distance … to keep him there? … And it [the lack of security] is a cloud that’s there always.

The main reason Glenn and his partner rented a small semi-detached house in a high-rent area in Sydney was to ensure their son had a good schooling:

We need to stay in the area for our son and we balanced that against sending him to a private school, so in that way it’s cheaper to live here even though the rent’s high.

A crisis of affordability and insecurity

The interviews indicated that the de jure insecurity associated with private renting in Australia doesn’t necessarily translate into de facto insecurity.

However, for at least one in four of our interviewees, the chronic de jure insecurity associated with private renting imbued everyday life with ongoing anxiety and stress.

The intensifying crisis of rental affordability in Australia’s major cities means these negative outcomes of long-term private renting are likely to affect growing numbers in the years ahead.

* Pseudonyms are used to protect the confidentiality of survey respondents.

Alan Morris, Research professor, University of Technology Sydney; Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW, and Kath Hulse, Research Professor, Swinburne University of Technology

Read the original article.

Two pictures of rental housing stress and vulnerability zero in on areas of need

Posted by on May 18th, 2017 · Affordability, Cities, Government, Housing, Housing supply, Regions
File 20170516 11937 1fbeep8
The Rental Vulnerability Index for Queensland shows the cumulative impact of factors affecting renters across the state.
City Futures Research Centre

By Chris Martin, UNSW and Laurence Troy, UNSW. Originally published on The Conversation.

Two new tools for measuring and visualising problems in our rental housing system are in the media this week. They have similar names – the Rental Affordability Index (RAI) and the Rental Vulnerability Index (RVI) – but use different methods to offer distinct but complementary perspectives. Together they reveal that almost nowhere in our capital cities can low-income households – and those on average incomes in Sydney – afford the median rent. Mapping rental vulnerability reveals households in regional areas are struggling too. The Conversation

The RAI is a project of National Shelter, the peak housing NGO, and SGS Economics and Planning. It gives us a bird’s-eye view of rental housing costs over most of Australia. It does this by showing how affordable the median rent (the midpoint of all rents) is – or isn’t – relative to incomes in each postcode.

An alternative approach considers where and in what proportion renters are actually in stress. We might also consider a range of other factors that indicate where and in what proportion renters are vulnerable to problems in accessing and keeping decent, secure housing. This is the approach we’ve taken with the RVI.

What does the RAI tell us?

Affordability is a relative concept – it is about costs relative to incomes. The RAI considers median rents higher than 30% of a household’s income to be unaffordable. The index shows other grades either side of this benchmark (very affordable, very unaffordable) too.

The Rental Affordability Index web tool zoomed in on Queensland.
SGS Economics and Planning

This is consistent with a widely used benchmark in housing policy, often known as the “30/40 rule”: housing costs should not exceed 30% of income for households in the lowest 40% of incomes.

The rationale is that when low-income households have to spend more than that on housing, they start to go without other things – meals, health care, outings – that they reasonably ought to have. For this reason, low-income households in unaffordable housing are said to be in “housing stress” or “rental stress”.

The RAI looks at median rents, not the rents individual households are paying. This means it doesn’t tell us where or how many households are actually in rental stress. But it does indicate where renters face different degrees of pressure, in terms of either rents or constraints on the size, quality or location of dwellings.

So, looking at the affordability of median rents for a number of typical low-income households – single and couple pensioners, single people on benefits, single-parent part-time workers – the RAI shows that almost nowhere in Australia’s capital cities is the median rent affordable for them.

The RAI also applies the 30% benchmark higher up the income scale. Even for average-income renters, all Sydney postcodes – except for Mt Druitt and in the Blue Mountains – have median rents that are unaffordable or worse.

Of the capitals, Sydney’s affordability problems are deepest and spread furthest, but much of Melbourne and Brisbane is unaffordable to average renters too. Outside the capitals, most of the regions are affordable.

The quick takeaway from this perspective would be support for policies to increase the supply of affordable rental housing, particularly in our capital cities. These measures would include:

  • building more social housing
  • changing planning rules to allow more residential development
  • using inclusionary zoning to ensure a proportion of new development is kept as affordable rental
  • making greater use of land tax, including on owner-occupied housing, to ensure land owners don’t speculatively sit on development opportunities.

What does the RVI tell us?

For a different perspective, the City Futures Research Centre produced the Rental Vulnerability Index (RVI) for Tenants Queensland. This shows (only for Queensland, at this stage) a range of “housing system” and “personal” factors that we know, based on a wider body of research on housing and legal needs, indicate vulnerability to housing problems.

The housing system indicators include: rental stress, availability of rental housing that is affordable on local incomes, social housing and marginal tenures such as boarding houses, as well as personal indicators including unemployment, low education, disability, single-parent households and both young and elderly renters.

As well as mapping each of these indicators, the RVI uses principal component analysis. This enables us to look across the indicators to see where they cluster together as a generalised “rental vulnerability”.

The Rental Vulnerability Index web tool.
City Futures Research Centre

Mapping this out we see that rental vulnerability in Queensland is highest in the regions. In particular, it is high around Bundaberg, Fraser Coast and Gympie, with a band of vulnerability skirting the regions west and south of Brisbane. Cairns also has several highly vulnerable postcodes.

These places have high rates of unemployment, disability, low education and older people in rental housing. They also have high incidence of rental stress – even though median rents are low compared to Brisbane.

By contrast, Brisbane generally scores quite low on rental vulnerability. This isn’t because there aren’t any vulnerable households there – there are. But their presence is masked by renter households who are doing well in terms of income, employment, education and other indicators.

There is a substantial body of research on the “suburbanisation of disadvantage”. This is the phenomenon of high housing costs pushing out, and shutting out, low-income and otherwise disadvantaged households from city centres. The RVI indicates that this process, at least in Queensland, is extending into a “regionalisation of disadvantage”.

So what can we do about this?

The takeaway from this? Housing problems are multidimensional and extend beyond the capital cities.

Regional areas have a pressing need for services – such as tenants advice services – that give vulnerable households material assistance in dealing with housing problems.

But more than that, we need to build up the economic and social capital of these places – so that they offer greater opportunities for the vulnerable households who are concentrated there – just as we need policies to increase affordable housing opportunities in our cities.

Chris Martin, Research Fellow, City Housing, UNSW and Laurence Troy, Research Fellow – City Futures Research Centre, UNSW

This article was originally published on The Conversation. Read the original article.

Budget 2017 charts new social and affordable housing reform agenda

Posted by on May 12th, 2017 · Finance, Government, Housing, Housing supply, urban renewal

By Chris Martin, UNSW and Hal Pawson, UNSW. Originally published on The Conversation.

Under pressure to tackle deepening housing affordability problems, Treasurer Scott Morrison has included various housing policy measures in his budget, some relating to Australia’s small sector of social and affordable housing. The Conversation

One headline-grabber is the creation of a new entity, the National Housing Finance and Investment Corporation (NHFIC). This will source private funds for on-lending to affordable housing providers to finance rental housing development. However, the bigger issue for the sector remains federal and state funding.

This public funding is the money that, along with tenants’ rents, co-funds state and territory housing and homelessness services. Here too Morrison is proposing reform, particularly to the primary federal-state funding arrangement for social and affordable housing, the National Affordable Housing Agreement (NAHA).

A couple of months ago we suggested the NAHA needed a reboot. Recognising the seriously run-down state of the system, we argued for an increase in funding from its present starvation level. Morrison now proposes a new federal-state funding agreement, the National Housing and Homelessness Agreement (NHHA).

The level of federal funding will be the same as under the old NAHA. But the Commonwealth will press states and territories for action in defined “priority areas”. In effect, this looks like a return to a Canberra-led reform agenda for social and affordable housing unseen since the early Rudd government.

Setting aggregate supply targets

In what appears a significant passage, the budget papers reveal the government’s “priority areas” for the NHHA. We’ll consider these in turn, and then the recurring issue of inadequate funding.

Lack of transparency on the costs incurred by state and territory housing authorities in operating their social housing portfolios has been a particular problem under the NAHA. This is an area where federal engagement is welcome.

All levels of government should be pressed to quantify the level and type of need for housing in the community. And they should be made to set clear “new supply” targets for meeting that need.

That said, the federal government should stop pretending to be shocked at the lack of new social housing delivered by those authorities under the NAHA. The shortfall in NAHA funding has been obvious for years. It simply is too low to bridge the gap between the rents low-income public housing tenants can afford to pay and the costs of properly maintaining the system, let alone growing it to keep pace with rising need.

Residential land development

The stress laid on this issue within the budget policy statement reflects the federal government’s stated concern about “the supply side” of the housing affordability problem. It has framed state government planning controls as an impediment to new housing development.

However, merely loosening requirements and offering existing land owners the prospect of greater development does not ensure it will actually happen.

To ensure land owners don’t just sit on development opportunities speculatively, the federal government should use its NHHA leverage. This could include pushing the states and territories to make greater use of land tax, which would spur development and bring under-utilised land and housing to market.

Inclusionary zoning

Inclusionary zoning is a specific type of planning mechanism. It requires housing developments (above a certain size) to include some proportion of dedicated affordable housing. Ideally, this should be rental housing preserved as “affordable” in perpetuity.

Inclusionary zoning is long established in other countries and has long been demanded by housing advocates in Australia. It is now the subject of increasing interest from planning authorities – for example, the Greater Sydney Commission.

The co-financing arrangements for the NHFIC could incorporate active use of land-use planning powers for inclusionary zoning. Development sites – or developer levy proceeds – could be part of state and territory contributions to funding affordable housing development.

A commitment to build into the NHHA incentives for stepped-up use of inclusionary zoning by state governments is, therefore, very welcome.

However, the budget papers indicate that state compliance with this NHHA expectation might involve not only housing dedicated to affordable rental housing, but also “dedicated first home buyer stock”. This seems to raise the prospect of developers meeting inclusionary zoning requirements simply by reserving some newly built units for first home buyers rather than investors.

The best way to enhance first home buyer prospects vis a vis investor landlords would be to level the playing field by winding back investor negative gearing and capital gains tax concessions, not through this kind of tinkering. And to cast such “FHB reservation” initiatives as in any way equivalent to inclusionary zoning for affordable rental housing would be a highly retrograde step.

Renewing affordable housing stock

An interesting inclusion in the proposed terms of the NHHA is a clause about renewing affordable housing stock.

First, it appears positive in acknowledging the need for a public housing overhaul and indicating a new level of federal government interest in making this happen.

At a minimum, states and territories should be required to undertake a comprehensive audit of their existing portfolios. The level of outstanding disrepair has to be costed. They also should identify where renewal can best take place, balancing need for expanded and upgraded housing with sensitive treatment of existing communities.

Second, it indicates federal backing for further transfers of public housing as a growth path for the affordable housing industry. However, as our recent research for AHURI shows, this is feasible only if the operating cost gap is funded.

Past community housing growth through transfers, particularly following the 2009 housing ministers’ commitment to expand community housing to 35% of all social housing, involved an understanding that Commonwealth Rent Assistance, paid through Centrelink to transferred tenants, would help cover that gap.

Without additional funding in the NHHA, a new phase of growth through transfers requires a recommitment by governments to use rent assistance as an effective operational subsidy to community housing providers. A new target and timeframe to replace the 35% benchmark also need to be considered.

Homelessness services

Previously the subject of a separate funding agreement (the National Partnership Agreement on Homelessness), homelessness services have struggled for years in the face of that agreement’s pending expiry and short-term extensions.

The NHHA will fund homelessness services on an ongoing basis, which the sector has welcomed.

Funding shortfall remains

As we’ve indicated throughout, the objectives of the NHHA – and of the social and affordable housing system generally – will continue to run up against the reality that decent housing of this kind costs more than low-income households can afford to pay.

This applies especially to people living on the miserable level of benefits such as Newstart. A subsidy is required, both to build up the stock and to keep it in good order.

Clearer targets, more transparent cost accounting, and innovations like NHFIC finance won’t bridge the gap. On the contrary, to successfully use those initiatives to build more stock, both state and territory housing authorities and non-government affordable housing providers need a larger subsidy than present funding provides.

The budget has indexed NHHA funding to wages. It would be nice to think that land and housing prices will increase only in line with wages.

In reality, properly funding the growth and maintenance of our social and affordable housing stock will require more than what the federal government is offering.

Chris Martin, Research Fellow, Housing Policy and Practice, UNSW and Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW

This article was originally published on The Conversation. Read the original article.

New to Australia? Good luck! Migrants can no longer afford ‘gateway’ suburbs

Posted by on May 5th, 2017 · Affordability, Cities, Demographics, Guest appearance, Housing, Migration, Sydney, Wellbeing

Image 20170403 19423 1at37x3

Jack Wright/flickr, CC BY-NC

 

By Hazel Easthope, UNSW and Wendy Stone, Swinburne University of Technology. Originally published on The Conversation.

The concentration of disadvantaged people in certain parts of cities is almost always seen as undesirable by urban researchers and policymakers. But is this always the case? The Conversation

Our research demonstrates that it isn’t. Concentrations of people who are often classified as “disadvantaged” – namely newly arrived humanitarian refugees and their families – can have significant positive outcomes. This is because such “gateway suburbs”, while housing large numbers of disadvantaged people, are not disadvantaged places.

As part of a broader research project, we chose two suburbs that were identified as disadvantaged and characterised by high numbers of immigrants. We spoke with residents and local service providers about their experiences, place changes over time and current settlement opportunities for newly arriving migrants. The suburbs we chose were Auburn in Sydney and Springvale in Melbourne.

Springvale is 23km south-east of the Melbourne CBD.

Auburn is 19km west of the Sydney CBD

Auburn and Springvale may have high concentrations of disadvantaged people, as defined by Australian Bureau of Statistics data (in terms of income, employment and language proficiency in particular). But they are not disadvantaged places.

These suburbs are well serviced by public transport and are within reasonable commuting distance of their cities’ CBDs. They have a plethora of social and community services, along with a good selection of shops and services catering to the local community.

Historically, these suburbs have been major hubs for providing resources and support to new and established migrant communities.

A bottom-up community structure

In both suburbs, the presence of “first-wave” migrant groups during years of intensive manufacturing after the second world war, and the immigration encouraged to support this, promoted the development of migrant support services. Government subsidised some of these. Many grew more organically through community relationships and support needs.

With the decline of manufacturing from the late 1970s and changing immigration policies, government support has retracted in these areas. This has been accompanied by a winding back of government support for housing and a rapidly changing housing market.

The legacy of these areas has meant that both Auburn and Springvale continue to have high degrees of amenity and social and economic infrastructure. This includes a high concentration of grassroots community groups. These provide support to recent immigrants in general and refugees in particular.

‘There is a fantastic array of support services out there.’ – Auburn interviewee.
Author provided

These are good places to live. But there are signs this is changing.

Broader changes in urban housing markets and migration policies, and economic and labour market restructuring, are beginning to undermine the benefits for immigrants settling in these areas. Increasingly unaffordable housing, reduced employment opportunities in low-skilled jobs and the erosion of government support for newly arrived immigrants mean migrants are at risk of greater disadvantage than in the past.

In particular, housing costs are increasing rapidly in Auburn and Springvale. While private market housing has successfully housed new migrants in the past, this is no longer the case. Many migrants can no longer afford to live in these areas, except in overcrowded or otherwise unsatisfactory living conditions.

Rental stock is in bad disrepair. Refugees and recent arrivals go into these houses and real estate agents are slow to act on people living in substandard conditions and are reluctant to do anything about it. – Springvale interviewee

Today, the choice new migrants face is whether to live in unsatisfactory conditions in these areas, or to move to more affordable areas with fewer facilities and support services.

If similar processes are at play in other migrant gateway suburbs, and we suspect they are, this has important implications for Australia’s ability to continue its role as an immigrant destination country.

In the context of recent shifts in Australian immigration policy away from humanitarian and family migrants and towards skilled and student migrants, this is perhaps not a government priority. But it should be.

Left to fend for yourself

Far from being something to celebrate, that new “disadvantaged” migrants are finding it increasingly difficult to live together in places like Auburn and Springvale is something we should be worried about.

As they are pushed out into more dispersed areas with more insecure housing, recent arrivals are also pushed away from areas with the services and amenities that might help them leave the ranks of the “disadvantaged” and become the “new Australians” who have, until recently at least, been much celebrated.

We have been replacing housing, employment and migrant settlement policy supports with a fend-for-yourself “good luck!” approach in an unaffordable housing market.

In a market dominated by more than 95% private ownership or rental, this poses new risks for those choosing Australia as their home. It introduces further complexity for organisations trying to support successful integration as they work across dispersed locations.

Ultimately, these developments create the risk that Australian society will miss out on the enduring cultural, social and economic contributions made by migrants who choose to call Australia home.

Hazel Easthope, Senior Research Fellow, City Futures Research Centre, UNSW and Wendy Stone, Associate Professor; Director, Australian Housing and Urban Research Institute, Swinburne University of Technology

This article was originally published on The Conversation. Read the original article.

Can Institutional Funding be Channelled into Rental Housing?

Posted by on May 3rd, 2017 · Finance, Government, Housing supply, Tenancy

By Hal Pawson, City Futures Research Centre. Originally published at John Menadue’s Pearls and Irritations.

Channelling institutional finance into affordable rental housing has long been a ‘holy grail’ urban policy aspiration. Recent developments suggest that this may be edging towards reality.  

Scott Morrison last month re-stated the long-professed ‘holy grail’ ambition to engage institutional investment with rental housing. ‘Institutional investment’ here refers to capital finance provided at scale by super funds, insurance companies, sovereign wealth vehicles and the like. Such a model differs fundamentally from the small-scale ‘mum and dad investor’ landlordism that remains overwhelmingly dominant in Australia’s private rental market, just as in most other comparable countries such as the UK.

Ramping up investment scale

In part, the ambition to draw on institutional investment here is simply a matter of scale. Certainly all too plain is that government appetite to invest directly in expanding affordable rental housing is greatly diminished, if not entirely extinguished. More broadly, regarding the wider rental market, it has been argued in the UK context that harnessing extensive institutional investment will be essential in enabling private rented sector (PRS) expansion to continue along its recent growth path. Similarly, in Australia, the leading contention is that a large volume of preferably long-term finance will be needed to meet forecast demand for additional rental housing of over 50,000 dwellings per annum – a target unlikely to be met by existing suppliers.

While Australia’s superfunds alone now control over $2 trillion in invested funds – including appreciable interests in infrastructure facilities like road tunnels and ports – there is as yet little if any input to rental housing provision. However, it is not only the potentially available quantum of funds that makes this a matter of interest. It is also the possibility that diversifying the ownership structure of our private rental market towards institutional funders could better match the quality of the ‘tenancy offer’ to the sector’s changing role and demographic profile.

Re-shaping the private rental tenancy offer

This refers to the fact that – as shown by our recent research – the PRS now houses a growing cohort of long-term tenants and, among them, a rising number of families and older people. Especially for these kinds of households, the very limited security afforded to private tenants under Australia’s rental laws is made particularly unsuitable by the standard ‘mum and dad investor landlord’ priority on capital appreciation. Maximising the ‘tradeability’ of the asset (the ability to sell at short notice, and into the owner-occupier market) is therefore paramount for these investors.

This is in marked contrast to the way that rental housing investment would likely be viewed by institutions looking for long-term, low-risk rental returns. Within this context, as seen by one UK commentator, ‘Institutions could [not only] support the necessary expansion of the sector …[but also] shift the nature of the product the sector is able to provide because long-term security for tenants translates into predictable returns for investors’.

In a similar pitch, the Treasurer’s 10 April housing policy statement noted that ‘as institutional investors tend to take a longer-term position on their holdings, this would create greater scope for longer-term leases’. Less palatable to Mr Morrison as a case for reducing reliance on ‘mum and dad investor’ provision is that the generous tax breaks which currently incentivise this activity represent an entirely untargeted – and in that sense wasteful – subsidy. If you’re going to ‘spend’ $12billion a year on supporting rental housing supply, far more effective ways could be devised to do so.

A move by institutions into holding large rental property portfolios could also be expected to give rise to new professional housing management services once a market develops.

The Build-to-Rent phenomenon

Arguments of the kind rehearsed above have been increasingly to the fore in post-GFC Australian housing policy debates. As yet, however, the only significant institutional investor moves into our rental market have involved student housing (e.g. Unilodge with over 10,000 units) and a few developer builders (e.g. Meriton reportedly now leasing out some 5,000 apartments in Sydney alone, while Mirvac has recently announced plans to enter the ‘build to rent’ market). In the UK, by contrast, recent years have seen a dramatic take-off in so-called ‘build to rent’ schemes such that BTR projects recently completed or in the pipeline are now said to total nearly 70,000 homes.

In summary, institutional investor engagement with market rental housing would be desirable for a number of reasons, including:

  • Directly adding to supply (and thus dampening price effects)
  • Facilitating a new long-term rental product suited to many who can’t afford home ownership and to those who prefer to rent in well-located areas
  • Encouraging stable long-term investment, unlike the existing speculative investment regime, and
  • Encouraging a more efficient and professionally managed rental sector. 

Engaging institutional investment in affordable rental housing – no free lunch to be had

Beyond this, however, a far more important policymaker ambition is the goal of channelling large-scale private capital into the affordable rental sector, which has been in long term decline as a result of dwindling public and private investment. Indeed, we have been here before – and not so very long ago. Achieving just such an outcome was a central aim of the National Rental Affordability Scheme (NRAS) launched by Kevin Rudd in 2008. While de-funded short of its original 50,000 target, NRAS remains on track to generate a not inconsiderable 38,000 new affordable rental homes across Australia. Damagingly, however, at the very point where engagement with large-scale institutional investment was on the verge of success the scheme was abruptly terminated by the Abbott government in 2014.

Crucially, NRAS incorporated a government subsidy stream to bridge the ‘funding gap’ inherent in the economics of affordable housing – that is, the difference between the returns needed to attract private finance and the amount that low-income tenants can affordably pay in rent. As Mr Morrison’s own Affordable Housing Working Group made crystal clear in their 2016 report, ministers cannot pretend that there is any free lunch here. Only if aided by NRAS-style or other government support is there any realistic prospect that institutional financing of affordable rental housing can be made a reality.

Our 2014 research demonstrated that, with the right policy support, super funds and other large scale investors remained willing to invest in much-needed new supplies of rental housing – by offering a mix of market rentals and (subsidised) affordable rentals provided key conditions were met as follows:

  • Yields comparable with competing (risk-matched) investment options
  • Improved industry data on rental housing performance
  • Larger scale ‘infrastructure style’ deals, and
  • Predictable and enduring government policy settings.

In addressing these issues, we called at that time for renewed Federal Government leadership and set out some essential steps needed for decisive progress. Crucially, these included:

  • The establishment of an industry-government expert Task Force to shape a long-term rental investment strategy suited to different classes of investors
  • Replacement of NRAS with a new incentive scheme designed specifically for institutional players.
  • Dedicating a share of public land sales and windfall gains from residential rezoning for affordable housing developments.

In the shape of his Affordable Housing Working Group the Treasurer has arguably already fulfilled the first of these key recommendations. Last month’s speech moreover saw him creditably backing the AHWG’s central proposal for the setting up of a government-backed financial intermediary to channel cost-effective private finance into affordable rental housing. More recently, in a welcome but all-too-rare instance of bi-partisanship, Chris Bowen has lent Labor’s backing to this plan. However, only if the other essential steps highlighted above are meaningfully addressed is a genuine policy breakthrough possible. Given the government’s fiscal constraints and with better targeting of housing tax expenditures apparently ruled out, an adequate funding source remains to be revealed.

What explains the rise of long-term private renting in Australia?

Posted by on April 27th, 2017 · Affordability, Housing, Tenancy

By Hal Pawson, City Futures Research Centre.

The ongoing expansion of Australia’s private rental market is well-known. Even at the time of the 2011 census, more than one in four properties was a home rented from a private landlord either directly or through an agent. But for increasing numbers of people this is a long-term or even lifelong situation. We estimate that as many as one household in ten is now a long-term (private) renter (LTR) – living in a landlord-owned home (or a succession of such homes) for at least 10 years.

As shown by our newly published research, a number of factors underlie this rising trend. Our fieldwork, covering six suburbs in Sydney and Melbourne’s inner, middle and outer suburbs, reveals that there’s a contingent of private renters in the more expensive districts of our major cities who have actively chosen to trade-off the supposed attractions of owner occupation so as to give them easy access to ‘urban amenities’. That is, a lifestyle choice that prioritises proximity to jobs, transport, arts, culture and entertainment even at the expense of remaining outside the owner occupier mainstream. These are people choosing to rent in areas in which home ownership would be beyond their means.

‘…for my head space I want to live where I want to live not where I can afford [to buy], so that’s the big driver’. [Sydney LTR, high rent area]

Long-term renters in this bracket and interviewed in our research explained their thinking with statements such as:

‘I just don’t do the suburbs.  I’ve lived in Melbourne for like 23 years and I’ve never gone out, you know, [past] sort of Richmond, Toorak, South Yarra, North Melbourne … I’m not prepared to live any further out of the city than that’. [Melbourne LTR, high rent area]

 ‘…that [moving far enough from the city centre to afford home ownership] is an untenable situation for us … Holy crap, we’d be commuting for like two hours a day’. [Melbourne LTR high rent area)]

This life-style choice is perhaps quite surprising given that Australia’s weak tenancy laws means little legal security and facing the prospect of having to move. And also the fact that (except for the minority who are ‘rentvestors’[i]) tenant status means exclusion from the tax system benefits of home ownership.

A second group is the families who choose to continue renting in expensive areas (where they couldn’t afford to buy) so that their children can attend favoured local schools.

‘… we need to stay in the area for our son and we balanced that against sending him to a private school so in that way it’s cheaper to live here even though the rent’s reasonably expensive … We can afford to rent here but we can’t afford to buy here, so that’s the pay off …’ [Sydney LTR, high rent area]

Long-term (or lifelong) low income private renters in outer suburbs have a very different perspective. For most of these tenants, their housing situation was purely a result of constraint – permanent exclusion from homeownership – not choice. While the prospect of living out retirement in this housing situation will be unenviable for anyone dependent on the age pension, one of the most commonly stated regrets for this group is the inability to hand on a housing asset to their children.

Interviewer:  ‘So do you feel that you’re locked out of the housing market now?’ Respondent:  ‘Yeah, definitely.  Like we had friends that are the same age as us…They were renting. They moved back home with their mum and dad for two years to save money. They ended up saving I think $30,000 …  So they moved out and they still couldn’t afford to buy a home. Like with $30,000…they still couldn’t afford to do it so you just think …[Sydney LTR, low rent area]

None of the low rent area interviewees could be said to be renting ‘by choice’, in terms of deliberately opting to rent despite having the financial means to buy. For many, a lifetime of rental insecurity looked certain.

More broadly, even for renters earning enough to cover mortgage repayments, the escalating years of deposit-saving required for a typical income earner to access a homeloan makes an increasingly lengthy stay in private rental unavoidable for any aspirant purchaser lacking access to ‘the bank of mum and dad’. This rising ‘deposit hurdle’ is one of the factors inexorably expanding Australia’s LTR population.

Our findings are consistent with those of previous studies which show that insecurity is seen as more problematic by low income tenants for whom a landlord-instigated move or rent increase poses the greatest risk. For many higher income tenants it is of relatively little concern – either it is assumed that the landlord intends to retain the property for the foreseeable future, or there is a confidence that – thanks to material and social resources, finding an alternative tenancy would be unproblematic if required due to a ‘forced move’.

Policy-wise, our findings lend support to the familiar contention that expanded provision of (more) secure rental housing for low income groups would be highly desirable. This could include more government-funded ‘social housing’ and changes to regulation of the private rental sector to enable more secure tenancies over the longer term.

Another option is to restructure market rental provision through tax concessions and other measures favouring institutional investors rather than the small-scale amateur landlords who currently dominate provision in most high-income countries just as in Australia. A key argument for this strategy is the likelihood that insurance companies, pension funds and the like would preference long-term rental returns over short-term capital gains and would therefore prioritise long-term tenancies. Indeed, the British Property Federation which represents such interests in the UK has only recently issued a policy statement backing 3-year tenancies (binding on the landlord but not the tenant). In order to make resulting tenancies affordable to low income tenants, however, substantive government support would of course be necessary. A cash-backed recognition of this reality is something we would hope to be revealed in next month’s Federal budget. But we are not placing bets.

 

Reference:

Hal Pawson, Kath Hulse and Alan Morris; Interpreting the rise of long-term private renting in a liberal welfare regime context; Housing Studies; Online first publication

[i] ‘Rentvestor’ is a term coined by L J Hooker to apply to under 30s who rent their current housing whilst buying an investment property.

Ready for growth? Has Australia’s affordable housing industry got what it takes?

Posted by on April 20th, 2017 · Finance, Government, Housing

By Vivienne Milligan and Hal Pawson, City Futures Research Centre.

With a shortfall of affordable rental homes that reached 271,000 in 2011 and a crumbling public housing system, it’s encouraging to note Scott Morrison’s recent recognition that private investment in low cost rental provision must be stepped up and that government can help to make this happen. Albeit amid many contradictory housing policy signals from Canberra, hopes are rising that the May budget could include meaningful steps towards making this a reality.

But any new framework for stepped-up private investment in low-cost rental provision will likely re-awaken questions about the capacity of Australia’s affordable housing industry to provide an effective delivery vehicle for such a push.

The past decade has, in fact, seen our not-for-profit (NFP) housing sector experiencing rapid growth and somewhat greater public visibility. But by comparison with international benchmarks, the sector remains relatively small and asset-poor. And longstanding questions about the NFP sector’s ability to further expand its role – such as through taking responsibility for restoring public housing at scale – were restated only in 2016 by the Treasurer’s Affordable Housing Working Group report. With such concerns in mind, AHURI-funded researchers (led by UNSW and also involving Swinburne University, RMIT, the University of Tasmania and the University of Queensland) have been investigating the affordable housing industry’s capacity to take on such challenges and looking to identify the ways that governments and industry players can best assist in overcoming existing constraints.

What is the affordable housing industry?

The affordable housing industry can be thought of as a government-enabled system providing for low to moderate income households inadequately served by the mainstream market. Importantly, this system-wide conception of the industry broadens the gaze beyond the organisations directly responsible for providing low-cost rental accommodation (mainly NFP community and Indigenous housing providers, but also a few for-profit firms) to also include the supporting entities and institutions that assist providers in their effective operation. Involved in this way are a wide variety of service delivery partners, lenders, professional support services, specialist trainers and peak and trade bodies. Importantly, this ‘supporting cast’ also encompasses government players including policymakers, program managers and regulators.

Critically, as our preliminary 2016 report contends, since the industry exists to provide non-market products and services, it can do so only to the extent that official policy, resourcing and regulatory frameworks enable its work. At its broadest, therefore, these frameworks are part and parcel of the affordable housing industry itself.

What is capacity?

Capacity, as we define it, is the industry’s ability to perform the work and achieve the goals that governments and industry stakeholders envisage for it. Capacity questions concern various aspects. Often first to mind would be whether provider organisations have the governance, people skills and business systems to fulfil their current responsibilities and, ideally, to expand their role.

Under our conception of the ‘affordable housing industry’, capacity within government is another highly relevant dimension. Here we are talking about not only the political leadership and stability needed to champion and foster a new industry (think renewable energy or disability services) but also the enduring administrative capacity to carry through reforms and successfully implement and regulate intended policy directions.

Also in play is the ability of the industry as a whole to operate cohesively in promoting its goals, in developing industry skills and capacity, and in maintaining effective influence with an ever-changing cast of politicians and higher order policymakers.

For a subsidised industry like affordable housing, however, perhaps the foremost issue is the adequacy of the policy and resourcing framework. The standard business model is built on blending private finance (debt and equity) with public subsidies (in various forms) to produce long term housing affordable for lower income households. The adequacy and surety of the government subsidy component therefore, is central to the industry’s prospects.

Current capacity shortcomings

As detailed in our newly-published final report, the greatest capacity constraints lie in four areas.

Firstly, and above all, Australia lacks any enumerated and resourced plan for expanding affordable housing. Recent growth opportunities in this industry have largely been small-scale, fragmented and ad hoc. As a result, providers have been highly constrained in their ability to predict and plan for growth. This has disrupted capacity-building and undermined capacity-retention.

Secondly, albeit in common with some other areas of government, housing policy has suffered a major erosion of policymaker expertise over the past 10-20 years. Partly associated with this problem has been the disappointing failure to fulfill the 2010 aspiration for consistent national industry regulation. Following the collapse of Commonwealth leadership here, many of the foreshadowed benefits (such as a single national market and standardised performance data) have failed to materialise.

Thirdly, there is a need for much stronger and more enduring government and industry leadership On the provider side, the industry has yet to recover from the 2014 de-funding of its national peak body. Recent leadership has been fragmented and representations by the industry have not had the necessary power and influence to shape future directions. Across governments, political and bureaucratic leadership in this policy realm has been at best sporadic and, at worst, absent.

Last, but by no means least, is the necessity to address capacity issues affecting the Indigenous housing sector. With low rates of home ownership, Indigenous households rely disproportionately on the provision of forms of affordable housing. Hundreds of Indigenous organisations (IHOs) play important roles within the industry – e.g. by acting as a gateway to the broader housing system for Indigenous clients, as well as providing culturally appropriate housing. Support for this segment of the industry has generally lagged behind that for mainstream providers and many IHOs are small and face an uncertain future.

Implications for Australia’s affordable housing industry development

Underpinned by extensive research evidence, we advocate industry development directions including:

  • The Council of Australian Governments (COAG) should recognise affordable housing as a long-term national policy goal
  • National regulation of affordable housing providers should be completed and revitalised as a matter of urgency
  • A joint government-industry Affordable Housing Industry Council should be established to direct and oversee industry development
  • A national strategy for transforming the public housing system should be developed
  • A public co-financing strategy to attract private investment into affordable housing supply at scale should be developed and instituted
  • Future commitment to addressing Indigenous needs for affordable housing should acknowledge the centrality of Indigenous-controlled and culturally appropriate service models.

Growth and development of industry capacity go hand-in-hand. Thus market expansion and further capacity-building can be expected to follow from establishing a clearly defined role and purpose for the industry, along with national and state governments committing to firm targets that will enable steady growth in the supply of affordable housing.

Australia’s leading affordable housing providers are, in our judgement, ready for further growth. This would more fully exploit what is, for at least some organisations, under-utilised internal capacity. With the right leadership, resourcing and regulatory accountability, they have what it takes to deliver and manage significantly expanded portfolios. Government direction and impetus for growth are the essential ingredients now required to enable this emerging industry to progressively expand the affordable housing provision that the country manifestly needs.

Health infrastructure is what planners do!

Posted by on April 11th, 2017 · Sydney, Wellbeing

By Susan Thompson, City Futures Research Centre, and Peter McCue, NSW Office of Sport. This is an edited version of the authors’ column in New Planner.

When we think about health infrastructure we generally focus on hospitals, ambulance stations, the flying doctor (in regional and remote centres), clinics and medical centres – the facilities that are essential for getting us through illness and accidents, making us well again.  It’s somewhat ironic that the major focus of the ‘health’ sector is sick care, rather than preventing illness in the first place.

So it’s not too much of a stretch to declare that what many planners do is health infrastructure!  Providing the spaces and places that support good health and wellbeing as part of everyday life.  This is the infrastructure that helps to keep people physically active, socially connected to each other, and able to access fresh, nutritious and culturally appropriate food in environmentally sustainable ways.  As regular readers of our column are well aware, such behaviour builds the foundations for good health, reducing the risk factors for the chronic diseases that plague modern society.

The GreenWay is a fabulous piece of green infrastructure for healthy and environmentally sustainable living.  Recently identified in the Central Sydney District Plan as the number one priority for Sydney’s Green Grid, the GreenWay connects two of Sydney’s most important waterways – the Parramatta and Cooks Rivers – via a 5 kilometre light rail, active transport and urban environmental corridor in the city’s Inner West.  It was originally an initiative involving four adjoining local councils, bringing local government professionals from disparate disciplinary backgrounds together to work collaboratively with the community and intermittently, state government.  Today the GreenWay is a work in progress.  The next four years will see its completion with the construction of a further 3.2 kilometres using $20 million of funding committed by local and state governments.  The green corridor follows the route of Sydney’s newest completed light rail service from Rozelle to Dulwich Hill (converted from the former freight rail line), integrating cycling, walking and public transport.  It is a significant community hub for the arts and bushcare, as well as connecting to significant recreational facilities including outdoor gyms, sporting fields, children’s playgrounds, a dog park with café, and picnic areas.

The GreenWay serves as a local outdoor classroom modelling urban sustainability for school and university students.  An extensive educational program of resources, developed for primary schools, is now recommended as best practice for geography studies by the NSW Department of Education.  UNSW and UTS run multi-disciplinary classes involving students from the built environment and health.  They research different aspects of the GreenWay, experiencing complex, real-world, urban sustainability and health issues in holistic and integrated ways.  Over the last few years, students have put a raft of different issues under the microscope, making recommendations about light rail accessibility, pedestrian safety, disabled access, lighting, and shared walking and cycling paths.  The projects are presented to GreenWay council officers and accompanying posters displayed at the annual GreenWay Art Exhibition.

Although an example of urban infrastructure, many of the features of the GreenWay and the activities that occur along its length and immediate vicinity have relevance for regional locations.  The GreenWay demonstrates how green corridors with shared cycling and walking paths can encourage much more than just physical activity.  Community members from different generations, socio-economic backgrounds and cultures are connected in a sustainable environmental setting which is supportive of their physical and mental health.

Unpacking Urban Renewal in Australia: politics, policies…and polarisation?

Posted by on April 5th, 2017 · Government, Housing, Sydney, urban renewal

By Laura Crommelin, City Futures Research Centre.

A trio of new research papers from the City Futures team are now available online, each of which sheds light on a different aspect of the complex process of urban renewal. Together the papers identify the politics that drive urban renewal, examine the policies used to implement it, and explore the prospects for residents excluded from the high value inner city areas undergoing renewal. It is clear from this research that higher-density urban renewal is reshaping our cities in profound ways – both in neighbourhoods undergoing or destined for redevelopment, and those feeling the flow-on effects of urban renewal’s impact on housing market dynamics.

In Urban Studies, Laurence Troy examines the drivers behind the renewal of the inner-city Sydney suburb of Pyrmont-Ultimo during the 1990s and 2000s. Laurence argues that flexible planning regulations, coupled with a focus on design rather than equity, resulted in a range of outcomes driving new forms of inequality. On one hand, high-end developers produced expensive, high-quality apartments for owner-occupiers, eventually gaining approval for far taller towers than originally planned. On the other, budget developers produced more affordable apartments by sacrificing build quality and selling them to investors to rent out. In both cases, the regulatory approach adopted allowed developers’ profit agendas to shape the outcomes far more than the needs of the area’s 14,000 new residents. This tension between profit and amenity still informs urban renewal outcomes today, despite subsequent interventions like SEPP 65.

Stepping back to the metropolitan scale, the second paper identifies similar tensions underpinning the push to make Sydney and Perth more compact cities, including through higher density urban renewal. Writing for International Planning Studies, the Planning in a Market Economy research team identifies an eclectic mix of policy tools used to achieve higher density development, including metro strategies, transport plans, and development corporations. Despite some notable differences between Sydney and Perth’s governance and policy frameworks, there are also significant similarities in the way these policies are reshaping the two places. In both cases the push for more compact cities has coincided with increasingly contentious development control debates, growing executive power, greater government engagement with industry lobby groups, and increased inequality. The team concludes that if compact city planning is to remain the model for Australia’s cities, governments must find more equitable and efficient ways to implement urban renewal.

The issue of urban inequality is also the focus of a third new paper, which examines the impact of disadvantaged areas on residents’ future prospects. In Urban Policy and Research, Hal Pawson and Shanaka Herath (a former City Futures colleague) draw on their research for AHURI to contemplate whether disadvantaged neighbourhoods act as ‘flypaper’, trapping residents in poor socio-economic circumstances, or as ‘springboards’, with affordable options providing a stepping stone to improved housing outcomes.  Importantly, the paper suggests that these neighbourhoods are “substantially integrated with wider housing markets”, and can therefore act as springboards – although this effect may not extend to the poorest residents (particularly private renters). Furthermore, Hal and Shanaka note how these neighbourhood dynamics are linked to the outcomes of compact city planning, as renewal of inner-city areas contributes to the suburbanisation of disadvantage in Australia’s cities. As the market pushes affordable neighbourhoods further away from transport and jobs, policy responses need to prevent these areas from becoming traps for an increasing number of disadvantaged residents.

I’m forever blowing bubbles: Has the Sydney apartment market finally burst?

Posted by on March 30th, 2017 · Affordability, Construction, Housing, Housing supply, Sydney

By Bill Randolph, Director, City Futures Research Centre. Originally published in Around the House, newsletter of Shelter NSW.

Much speculation in the property press in recent months has centred on the question of the supposed ‘housing bubble’ (is there one?) and, if so, what is its likely trajectory (will it burst?).  Pundits have vied for position on this, presenting copious charts and tables to divine the truth in the entrails – sceptics denying the very idea of a property bubble while others anticipate its imminent demise.  The impact on property prices – if not affordability – is an over-riding concern.  And its the high-density apartment market that is the focus of most concern particularly central city locations in Brisbane, Melbourne and Sydney.  So has the development industry overshot in its ‘dash for density’, and if so, how far would the market fall?  And will this have an impact on affordability?

That property markets have cycles of boom and bust is hardly news.  It’s the nature of the beast.  In many respects, we should expect there to be a down turn if supply over-reaches demand or economic or political circumstance change to the detriment of profitability.  Successful developers, like successful surfers, have to judge when to get into and out of the property wave – the trick is to judge when to take the drop and then when to bail.

However, in the case of the Australian apartment market, we may be in uncharted waters.  Once upon a time, building and selling homes was pretty straightforward.  You found a field, got a development approval, cleared the cows away, built a line of houses and sold them to local buyers.  The market was susceptible to the vagaries of interest rates, employment trends or policy interventions by government.  But it was a market which responded to local and national demand and supply factors.

The problem is that the contemporary high density apartment market in Australia simply does not work like the old style suburban house market.  The overwhelming impact of investor buying has re-written the rulebook, which means that it is becoming more difficult to spot the obvious movements in demand and supply patterns.  In fact, the apartment market has always been dominated by investors – the strata laws brought in during the early 1960s were explicitly tailored to allow investors to buy single apartments, rather than having to buy a whole block.  But the contemporary apartment market has now entered an altogether different phase.

Why is this?  Well, apartments have become the new Krugerrands – objects of pure speculative desire.  With the yields on competing investments at historic lows, property, and the capital gains that can be made from owning it, has become an accepted form of personal wealth creation.  There is no need to rehearse the debates about why this is – forests have been felled rehashing the argument for and against the current tax and subsidy incentives for investors and the financial circumstances driving their behaviour.  But importantly, this is no longer a solely domestic matter.  The conditions driving investment in rental property are now global, drawing in increasing amounts of money from overseas to take advantage of the spectacular property price values that have become the norm in Australia cities.

But here’s where it gets interesting.  Usually in speculative bubbles, the investment frenzy feeds on itself and then, eventually, something triggers a reverse with an inevitable price correction (think tulips in 17th century Holland).  But the signs of a price reversal in the Sydney apartment market are not altogether evident just yet, despite the record breaking supply levels.  When the Federal Reserve Bank moved to restrict funding to domestic investors and developers in mid-2015, the apartment market paused a little, but then continued apace, at least in the twin epicentres of the market – Sydney and Melbourne. Someone, or something, was pushing it forward.  While evidence as to exactly who/what is responsible is hotly contested, all the data point to the residential investor, especially given the historic low proportion of first homebuyers now entering the market.  Traditional ‘mums and dads’ as well as self-managed pension funds – the Boomers who are stealing their children’s housing – have played their part.   On the other side of the equation, finance for apartment development, once dominated by the big banks, has now become highly fluid, with a wide range of secondary banks and private equity funders now putting money into the sector.

But arguably, the big kicker in recent years has been the rise of the overseas investment.  This has powered the Australian apartment market on both the consumer and the developer sides.  The entry into the Australian housing market by the overseas development sector seeking more stable conditions to undertake their business, supported by a relaxed foreign investment policies and our increasingly permissive planning framework, is a new addition to our housing market.  They come already cashed up and with access to substantial funds able to outbid even local developers.  This further bids up land values and final costs.  While the Chinese government has moved to control the transfer of funds overseas for property speculation, this is a growing source of new funding on the development side.  One recent estimate puts Chinese companies buying 75% of all development sites in Melbourne in the last half of 2016.  But the Chinese are joined by a roster of other nationalities – Malaysia, Singapore and others – all cashing in on our property markets.

On the demand side, the imposition of higher stamp duties and other restrictions on overseas buyers may have lessened the immediate appeal of Australian property, but there are few signs yet that this demand is faltering.  With foreign buyers accounting for 11 percent all homes purchased in NSW between July and September last year, the majority from Asia and the sub-continent , this is clearly a very active market.  In the process, they raised $115 million in stamp duty.  With this kind of pay-off, there is little reason to believe State Treasuries will want to turn off this particular revenue tap too quickly.  And with Alibaba, the Chinese owned global e-commerce platform, now talking about marketing Australian apartments, there is likely to be no let-up in the pressure from this quarter.  There is little doubt, however, that demand from investors from all directions – home and abroad – is at an unprecedented high in the Sydney apartment market.  By the 4th quarter 2016, NSW alone accounted for half of all national investor finance for housing consumption, the vast majority focused on Sydney.

Everyone, it seems, wants a slice of the action.  The extent to which this market is also driven by ‘hot’ money – property is as good, if not better, a way of laundering illicit money than gambling – is, of course another matter.  Interestingly, the Mayor of London, Sadiq Khan, has just announced a major enquiry into the foreign speculative apartment market in London in order to get to the bottom of where all this money is coming from.  But this will be a difficult task.  With multiple global influences, the financial flows coming into our apartment market are becoming too complex to be easily identified, shielded by convoluted company structures and off-shore tax havens.  No one can be entirely sure where the money is coming from.

So is there an oversupply of apartments in Sydney?  Probably not, so long as off-the-plan overseas investors sales can be maintained, although what contribution these are making to meet domestic housing demand is another matter.  As for local investors, the data suggest the party is still in full swing (Figure 2).  While investor lending dipped for existing property after the Reserve Bank tightened controls in mid-2015, lending for new build powered ahead.

Figure 1: Lending for Rental Properties – NSW

Source:  Source: HIA Residential Construction Outlook – NSW (2017). 

But there are signs the market itself is starting to pull back from the brink.  Latest data from the Housing Industry Association suggest we are approaching peak supply of apartments in NSW (Figure 2).  Why there will be a downturn is difficult to say, given the continued strength of the investment market.  Capacity issues may be part of the answer – just how many flats can the Sydney housing industry build when output is already at an all-time high?  There may well be a shortage of sites – unless major releases are about to happen on the fringe or the large renewal areas.  But then there’s the age-old way the development industry carefully manages the development of their land banks or sites on which they have development options to better control prices.  Or the figures could reflect the need for the industry to make out that supply will fall off in order to maintain pressure on government not to act on the tax and other arrangements that have created the boom in the first place.

Figure 2: NSW Housing Starts Forecast to 2018/19

Source: HIA Residential Construction Outlook – NSW(2017). 

Given the almost complete disregard that property prices have paid to housing supply trends in the recent past (see Figure 3), there is no easy way to predict the outcome of a falling apartment supply pipeline in this market.  Perhaps the least likely outcome is a widespread return for more affordable homes – the market simply does not seem to have a capacity to do this on current settings.

Figure 3: House prices (RHS) and dwelling completions (LHS), Greater Sydney 1991 – 2015

Source:  Inga Ting, SMH 5 Sept 2016.

So, has the Sydney apartment boom – or bubble – about to burst?  The Australian housing market has been almost alone among comparable economies in not witnessing a major residential property price correction over the last twenty years.  But given historically high – and some say unsustainable – personal debt levels and an unquestionably unaffordable housing market that is eating away at domestic demand, can the investors keep the party going?  After you with the crystal ball!