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

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New housing ministers – new housing policies?

Posted by on January 30th, 2017 · Affordability, Government, Housing

Congratulations to Anthony Roberts, the Minister for Housing, and Pru Goward, the Minister for Social Housing, on their appointments to NSW Premier Gladys Berejiklian’s new Cabinet. Congratulations too to Matt Kean, Minister for Fair Trading, whose housing-related portfolio includes residential tenancies.

This is the first time New South Wales has had two housing ministers.  From the Second World War, ‘housing’ was a discrete ministry in New South Wales for almost 70 years, until the State Coalition, upon coming to office in 2011, dropped it, and later replaced it with a ‘social housing’ ministry. Arguably the new arrangement reflects the prominence given by the Premier to housing affordability policy; it may also be a way of avoiding the curse of previous housing ministers who, after promising to prosecute policies for the whole of the housing system, inevitably became caught up in the administrative apparatus of social housing. (The two-minister arrangement is also unusual, but not unique, amongst other Australian jurisdictions: South Australia currently has separate ministries for ‘social housing’, and ‘housing and urban development’. The Federal Government still does not have either.)

Minister Roberts takes on the new portfolio in the absence of an existing formal State Government policy for housing affordability. The Government’s Affordable Housing Taskforce, established 2011, did not produce a final report, and other policy actions flagged by the taskforce did not eventuate. Recent initiatives such as the establishment of the Social and Affordable Housing Fund  and the Greater Sydney Commission’s adoption of inclusionary zoning are promising, but lack a clear overarching strategy that sets out the housing outcomes to be achieved and how different instruments of government will be coordinated to achieve them. As City Futures’ Hal Pawson wrote last week, setting this strategy must be a priority for the State Government – and the new Minister.

For Minister Goward, the social housing portfolio is not quite as ‘greenfield’, with the State Government’s ‘Future Directions for Social Housing‘ agenda published one year ago, and a review of social housing rent models by the Independent Pricing and Regulatory Tribunal (IPART) currently underway. Both these developments, however, show how much more needs to be done to place social housing on a sustainable footing.

As City Futures observed when it was published, ‘Future Directions’ commits to new social housing construction, but is vague as to how all the resources for developing and maintaining this stock will be put together. It also doubles down on tightly rationing social housing, out of which tenants can be made to ‘transition’ as their circumstances improve – despite 10 years of this approach making work disincentives and poverty traps worse, and doing nothing for applicants on the waiting list. What’s needed is a more detailed strategy that proceeds from an rigorous assessment of the extent of housing need that should be served by non-market housing, and makes firm commitments of resources – cash subsidies for ongoing operations, land for development, government backing for bond financing – to social landlords to meet that need.

This also goes beyond what’s being considered in IPART’s review of rent models. As we said in the City Futures submission to IPART (now published by IPART), the question of how rents are set in social housing is important in terms of equity of assistance between households, affordability outcomes, work disincentives and simplicity and ease of administration; however, no changes to rent settings on the present stock of social housing, with its present clientele, can generate revenues that are sufficient to sustainably grow and maintain the stock to meet future needs.

To address the question of the sufficiency of social housing system revenues, the Commonwealth Government will have to be joined in any reforms, to overcome the present problem of States being discouraged from bringing on much-needed additional stock, because of the ‘loss’ each new dwelling represents, and to ensure that changes to welfare payments do not undermine social landlords’ revenue base.

And in order to properly address the objectives of improved equity of assistance, reduced work disincentives and ease of administration, the review should challenge the idea from ‘Future Directions’ that tenants must be categorised into ‘safety net’ and ‘opportunity’ classes (with the latter expected to ‘transition’ out of social housing), and the associated idea that social housing equals ‘dependence’ while private market housing means ‘independence’. This demeans social housing tenants and ignores the subsidies – greater, in dollar terms – delivered through our tax and transfer settings to owner-occupiers. It also ignores how the present system of income-related rents in social housing actually allows households whose incomes improve to ‘transition’ out of deep housing subsidy into lighter subsidy – or even into being a net provider of subsidy to others – without having to move out of their homes.

The real challenge for the IPART review will be to identify where the present system of income-related rents, which is strong on affordability and targeting assistance to need, can be adjusted to achieve greater equity between tenants in dwellings and locations of different amenity, and a greater degree of choice, such that tenants can respond to any trade-offs between amenity and subsidy. The challenge for both new Ministers goes further than that.

 

If you’re serious about affordable Sydney housing, Premier, here’s a must-do list

Posted by on January 24th, 2017 · Affordability, Cities, Finance, Government, Housing supply

By Hal Pawson, UNSW Australia. Originally published on The Conversation.

So “fixing housing affordability” in Sydney is one of three top priorities for the new premier of New South Wales, Gladys Berejiklian. It’s good that the state’s new leader recognises this as an intensifying problem that can’t be ignored.

Berejiklian will appreciate the electoral importance of this issue. It’s an especially sensitive topic in western Sydney, which no longer provides Sydney with the large reserve of less-expensive property that it once did. Unless they can draw on family wealth, even middle-income first-home-buyers are now locked out of huge swathes of Sydney – including areas far from the inner city.

But given she came to the top job from the Treasury portfolio, Berejiklian would also be expected to have a clear understanding that the lack of well-located affordable housing is an economic productivity concern as well as a social problem.

One aspect of this, as shown by our recent research, is that central Sydney’s booming hospitality sector is facing growing pressure to find and retain suitable employees. This is because of workers’ limited ability to find affordable housing within a reasonable distance. To work in the inner city they must weigh up other compromises – such as living in shared housing, or paying a very high proportion of income in rent.

Relying on backpacker labour supply isn’t an ideal business strategy. And, as inner Sydney housing affordability deteriorates further, there’s every possibility other CBD industries will see their lower-income labour market thinning out.

The broader issue is the growing stress caused by the continuing focus of employment creation in inner-city areas. This applies especially to the so-called “global arc” stretching from the airport in the south to Macquarie Park in the north.

In the last few years annual job growth here has been running at more than 2%, but only 0.5% in western Sydney. At the same time, housing market pressures mean more and more people needed to fill these new jobs are having to live in outer western Sydney. The resulting traffic congestion is damaging Sydney’s economy.

Nationally, the cost of congestion in 2015 was A$16.5 billion – up by 30% on 2010. Anyone who commutes by car in Sydney will know it is a major part of this problem. Ultimately, some companies may choose to relocate to places where these problems are less severe.

Housing supply is only part of the solution

On the other hand, it must be hoped that Berejiklian will leave behind at Treasury the flawed analysis that fixing Sydney’s housing problems is simply a matter of increasing housing supply.

No-one disputes that, with continued population growth, maximising new house-building must be part of the policy mix. But the idea that this can provide any kind of silver bullet for housing unaffordability is shot dead by the experience of the past few years. Record construction rates have co-existed with unprecedented and ongoing property price hikes.

As premier, Berejiklian should therefore lend support to her ministerial colleague, Rob Stokes, who called it right by arguing recently that Sydney’s housing problems partly result from a market pumped up by excessive tax concessions for landlord investors.

These powers are held at the federal level, not with the states. So Berejiklian can do little more than lobby for such reform.

Adopt the best policies from others

And yet the premier does have important powers of her own that can make a difference.

Recognising that even a moderation of property prices isn’t going to provide relief for tens of thousands of hard-pressed renters, the NSW government must take a leaf out of the book of cities like London and New York by using its planning muscle to ensure the inclusion of affordable rental housing in all major new housing developments.

Under the former premier, Mike Baird, a promising initiative in this arena was the recent proposal by the Greater Sydney Commission to introduce a scheme of this kind. Private housing developments on sites “upzoned” under the planning system should include 5-10% affordable rental housing.

If she is serious about this issue, Berejiklian should back the commission’s move. She can prove her commitment to finding solutions by setting a much higher affordable rental housing target for development on government-owned land. This would ensure that a significant affordable component is locked in for flagship projects such as the Central to Eveleigh and Bays Precinct urban renewal schemes. This is a one-off opportunity that must not be squandered.

The new premier should also recommit to the innovative Social and Affordable Housing Fund (SAHF) created under her predecessor, following his 2015 commitment to a “billion-dollar fund” for affordable housing.

An announcement on the promised second phase of the SAHF has been long-awaited. Perhaps Berejiklian can pledge to underwrite this by dipping into the huge stamp-duty bonanza the government has reaped in recent years.

Above all, NSW needs an overarching housing strategy that encompasses much more than just the social end of the spectrum. Recognising the urgency of the problem, Berejiklian should pledge that her officials will get to work on this right away.

The Conversation

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

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

Public housing transfers move to a new level

Posted by on January 23rd, 2017 · Government, Housing supply

By Hal Pawson, Associate Director, City Futures Research Centre

With the New South Wales Government’s recently announced tranche of public housing transfers to not-for-profit providers, Australia’s community housing sector is set for a new growth spurt. The addition of the 14,700 former Housing NSW properties – the largest transfer program yet – will expand existing national community housing provider (CHP) holdings by almost a quarter to over 90,000. The program’s main stated motivation is the commitment to build CHP capacity – to foster a more ‘diverse’ (and therefore contestable) social housing system. However, it takes place within the context of CHP tenant satisfaction ratings substantially higher than those for public housing and is also undoubtedly inspired by financial considerations – see below. The initiative will complement recent smaller-scale transfer programs in South Australia and Tasmania completed since 2013.

Long term contracts versus title transfer

While small-scale public housing transfers are nothing new, our just-published AHURI research report on recent programs highlights a number of significant departures from previous practice. In particular, contrasting with earlier handovers which often involved 3-year leases, these generally incorporate long-term (typically 20-year) management contracts between the relevant state government and the chosen CHP. Importantly, as confirmed by banker interviewees, this type of deal has the potential to enable recipient CHPs to ‘leverage’ additional housing investment on the back of the projected long-term revenue stream. Previously it had been widely believed that such leveraging would be impossible without full transfer of title – the standard approach to UK council housing transfers, but an approach rarely adopted in Australia.

However, for potential transfer benefits to be fully realised, CHPs need adequate certainty and security in their transfer project dealings. As highlighted in our report, seeking to partner with state governments in such programs remains risky for CHPs. Even where long duration contracts are involved, the terms of recent transfer deals arguably allow these to be too easily revoked by governments. The ‘political risk’ involved in such collaborations has also been starkly highlighted by the recent Queensland Logan transfer cancellation where extensive and costly preparatory work over nearly four years consequently came to nought. Reportedly, the losses incurred by the CHP consortium bidding to take on the transfer amounted to $8–10 million.

Partly for the reasons discussed above many CHPs may well remain convinced that the ‘irreversibility’ of title transfer means that it remains a far more attractive option than a management contract of any fixed duration. And, while most governments are still reluctant to countenance this model, the report details two recent Australian instances where full ownership handovers of former public housing are currently being progressed – in Victoria and Tasmania. Notably, as far as NSW is concerned, full title transfer of the entire public housing stock is also advocated by State Opposition leader, Labor’s Luke Foley.

Transfer impacts on state government accounts

Historically, a key reason given for state government reluctance to contemplate large-scale title transfer has been the mistaken claim that the budgetary impact would imperil a state’s credit rating. This refers to the fact that, under standard accounting practice (a) public housing is valued as if it were a saleable asset unencumbered by its current use, and (b) the full value of any such asset is recorded on a state’s balance sheet and, in the event of disposal, this value is logged on the profit and loss account for the year in question. However, as demonstrated by recent transfer practice – as detailed in our report – proper accounting practice also requires that ‘long lease’ transfers are recorded on state accounts as if they are full disposals.

Thus, the Tasmanian Government’s 2012/13 financial statement recorded the state’s 10-year management transfer contract with Mission Australia Housing transfer as involving a ‘grant’ to the recipient CHP equating to the book value of the properties concerned: $62 million. This is on the stated grounds that, despite ongoing state government ownership of the homes concerned, control of the economic flows from the asset have been ceded to the recipient CHP for 10 years. Following its subsequent – and larger – transfer program similar practice was observed. The overall accounting ‘write-down’ totalled $485 million. Interviews with senior policy-makers conducted as part of the current research established that this was not of concern to the Tasmanian Treasury in terms of any credit rating implications. Credit rating agencies were understood to regard public housing portfolio as an encumbered asset due to its dedicated function as low-cost housing and therefore incapable of realising open market book value.

Scope for leveraging additional housing investment

With assistance from finance expert, Emilio Ferrer of the Sphere Company, our research also modelled four transfer scenarios to assess their long-term viability and investment leveraging potential. Factoring in CHPs’ ability to capture Commonwealth Rent Assistance (for which public housing tenants are ineligible), and subject to certain other key assumptions, this confirmed the scope for transfers to generate a modest operational surplus—sufficient to eliminate moderate maintenance shortfalls and to underpin construction of new affordable rental homes on a limited scale. For example, in a scenario involving transfer of 1,000 tenanted properties carrying a backlog maintenance liability averaging $15,000 per dwelling, the model suggests the capacity to build 113 new homes over 30 years, with 29 of the transferred properties being replaced as part of this program and the remainder being brought ‘up to standard’. However, if maintenance liability in fact averaged $30,000, new dwelling output would be cut by more than half.

Furthermore, if – as required by the NSW Government in its new program – transfer recipient CHPs are required to fund substantial non-landlord activities (e.g. assistance to housing applicants, housing register management) from rental income, then the scope to generate new affordable rental housing is quickly reduced or eliminated.

As seen by those working in the business or living in the sector, fundamental reform of public housing in Australia is long overdue; as quipped by some interviewees, the system is currently on life support. Given the lack of any indication that governments will regain the political will to directly finance the sector’s restoration, a well-designed and planned diversification of the public housing system incorporating the community housing sector has the potential to form part of the solution. In the process, this could possibly generate benefits through contestability, and a more responsive management service, while ensuring public accountability through effective national regulation.

 

The final report from the research is available to download at:

Pawson, H., Martin, C., Flanagan, K. and Phillips, R. (2016) Recent housing transfer experience in Australia: implications for affordable housing industry development, Final Report no 273; Melbourne: AHURI

 

Housing the dead: what happens when a city runs out of space?

Posted by on January 9th, 2017 · Cities, Demographics

By Kate Ryan, UNSW Australia and Christine Steinmetz, UNSW Australia

Do you know where and how you want to be buried?

Will you choose an elaborate Victorian-style headstone, or do you prefer a “green” burial, with only a GPS tracking signal indicating your location? Or you may elect to purchase a Bios Urn, a 100% biodegradable capsule you plant in the ground with cremated ashes and a seed of your choice which will one day grow into a tree.

Issues of mortality and access to burial space are not typically dinner party conversations or at the top of government agendas. And, until recently, its priority as a future challenge in planning has been virtually non-existent.

Sydney’s 2014 strategic plan, A Plan for Growing Sydney, recognises the need for studies of cemetery capacity and demand to identify future land requirements. Such studies are likely to reveal spatial variances across larger cities due to differences in age and religious and cultural communities.

The last major changes to the cemetery landscape in Australian cities occurred in the late 1800s. At this time, the crowded and unsanitary conditions of churchyard burial grounds required the dedication of considerable burial land on what was once the urban fringe.

Many of these cemeteries continue to serve society’s burial needs. For the past century, there has been no pressing need to plan cities for the dead. It therefore comes as no surprise that consideration of a cemetery as essential public infrastructure has fallen through the cracks.

We have reached a point where this must change. The lifespans of existing cemeteries in major Australian cities are severely limited. In Sydney, according to the NSW Department of Planning and Environment, the metropolitan region’s 310,000 to 330,000 available plots will likely be exhausted by 2050.

Annual numbers of deaths are predicted to double between 2011 and 2051. Despite a shift towards cremations over the last century (Sydney’s cremation rate is 66%), our cities’ diverse religious and cultural communities will always require space for burial.

This issue raises two important considerations. Where will we bury? And how will we bury?

Where will we bury?

At some 280 hectares, Sydney’s Rookwood Cemetery is the largest cemetery in the southern hemisphere. The allocation of such sizeable land only 15 kilometres from the CBD is unimaginable today. Equally as inconceivable is the location of Waverley Cemetery, which clings to the ocean cliffs of Sydney’s eastern suburbs.

Waverley Cemetery occupies a coastal site in Sydney’s eastern suburbs, the sort of location that simply isn’t available for a new cemetery today.
Kate Ryan, Author provided

Significant barriers to cemetery development in urban areas include high land values, limited available land, restrictive zoning and a more pressing need to house the living. The landlocked nature of many existing cemeteries suggests no choice except for the dedication of additional land on the urban fringe.

Sydney has changed considerably since Rookwood Cemetery was established in 1868. While planners are continually rethinking how we design for housing, transport and employment to meet changing needs, we are yet to contemplate a new life for the cemetery landscape.

How will we bury?

The need to plan for the shortage of burial space presents a timely opportunity to reconsider how we bury. Recent legislative changes in NSW introduced provisions for the re-use of an older grave once the tenure period expires. Renewable tenure creates the opportunity to provide ongoing cemetery capacity.

Renewable tenure is uncommon in Australia. The majority of burial plots are still sold in perpetuity, meaning a grave remains untouched forever.

Have you ever considered that your grave could later become someone else’s? Would you buy a grave for you parents for a limited number of years, or would you choose a grave that you could visit for the rest of your life and your children’s lives?

These are difficult questions to ponder. Additionally, disturbing a personal and sacred space for the dead typically does not sit well with the public. A grave is often thought of as a “final resting place”.

An important question is whether the bereaved seek comfort in memorialising the deceased in perpetuity, or is a physical space for mourning only required for an initial period of time. Considering that grave visitations often cease after 40 to 50 years, is it reasonable to assume that the significance of a grave varies over time?

When the opinions of younger adults (aged 20-30) on grave re-use were surveyed by one of the authors, 72% of respondents indicated that they were unaware of this practice. However, respondents recognised links to several urban issues, including sustainable land consumption and growth pressures in cities.

A natural burial park has been established in the grounds of the Catholic Kemps Creek Cemetery in Sydney’s west.
Sydney Natural Burial Park/Catholic Cemeteries and Crematoria

Respondents also expressed interest in other burial trends, such as natural burial parks, where physical memorials are limited and the natural environment remains largely unaltered. Despite a discussion on burial practices, 68% said they wanted to be cremated. If cremation rates do rise in the future, this could essentially mean less urban land is needed for burials.

A conversation about burial preferences and new burial trends will improve understanding and provide direction on the future demand for burial land and the future form of the cemetery landscape.

The Conversation

Kate Ryan, Researcher, UNSW Australia and Christine Steinmetz, Senior Lecturer in Built Environment, UNSW Australia

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

 

‘Scott Morrison’s Finest Achievement (to date)’?

Posted by on December 12th, 2016 · Finance, Government, Housing

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By Professor Hal Pawson, Associate Director, City Futures Research Centre

The SMH’s star economics correspondent, Jessica Irvine appeared to be heaping high praise on the nation’s Treasurer in her recent commentary. Her ‘finest achievement’ assessment commended Mr Morrison’s backing for proposals to open up access to more cost-effective private finance for affordable rental housing, as announced earlier this month.

All of this stems from the Treasurer’s late 2015 decision to initiate a high-powered group to investigate ‘ways to boost the supply of affordable rental housing through innovative financing models’. The significant event that took place on 2 December this year was Mr Morrison’s decision to publish his Affordable Housing Working Group’s report and recommendations.

For affordable housing advocates, the Working Group’s report certainly makes for encouraging reading. Squarely reflecting the conclusions of numerous AHURI studies and industry reports, its central finding is that ‘the establishment of a financial intermediary to aggregate the borrowing requirements of affordable housing providers and issue bonds on their behalf (‘the bond aggregator model’) offers the best chance of facilitating institutional investment into affordable housing at scale, subject to the provision of additional government funding’ (p1).

The purpose of such an entity would be to act as a ‘clearing house’ for loan finance provided by institutional investors to part-fund the capital cost of affordable housing projects. More specifically, the intermediary agency would ‘liaise with affordable housing providers to determine the amount of debt they are seeking to raise …[and] source these funds in aggregate from wholesale markets by issuing bonds to investors. The funds generated would then be loaned to the relevant housing providers in return for ongoing interest payments’ (p24).

As the AHWG report makes clear, the Group’s financial intermediary proposal is strongly inspired by UK experience with The Housing Finance Corporation (THFC), a body established back in the 1980s and which has subsequently channelled billions of pounds in private finance into UK social and affordable housing.

Like THFC, the proposed Australian equivalent organisation should enable community housing providers (CHPs) to borrow funds at lower rates of interest and over longer terms than has been possible through reliance on bank loans, as at present.

In terms of concrete benefits, the report notes that the refinancing of currently outstanding CHP loans is likely to constitute the ‘lowest hanging fruit’ for a newly-established intermediary body. In other words, through sourcing cost-effective finance via the new entity, CHPs could pay off expensive existing debt, thereby freeing up capital for new affordable housing construction. With existing CHP debt totalling around $1 billion this ‘could result in an increase in [CHPs’] borrowing capacity by over 65 per cent or an additional $765 million’, potentially funding the (one-off) construction of ‘up to 2,200 new dwellings’ (p39).

The main game, however, is expanding the sector’s financial capacity to fund the ongoing expansion of affordable housing provision. Crucially, the report does not pretend that sourcing cheaper private finance will – of itself – enable this. It recognises that, given the income profile of the tenant population, the rental revenue that can be generated by social and affordable housing is inherently insufficient to fully underpin management and maintenance costs, even when financed at the most cost-effective rates. Thus ‘…the Working Group finds that the major barrier to the supply of affordable housing is the “financing gap” – that is, the difference between the rates of return available in affordable housing compared with the market rates of return available in other private developments’ (p2).

Following from this, as the report states quite bluntly, ‘No innovative financing model will close this gap and a sustained increase in the investment by governments is required to stimulate affordable housing production and attract private and institutional investment’ (p2).

In moving this agenda forward, the AHWG’s main recommendation was the setting up of an expert Task Force mandated to report on more specific proposals for the financial intermediary – its form, constitution, and governance – by mid-2017. To his credit, the Treasurer has backed this plan. But the inescapable implication is that he also recognises that creating such an entity is a worthwhile enterprise only if governments commit to co-funding the social and affordable housing projects that are envisaged as being enabled through the intermediary’s input.

State and territory governments could potentially make an effective contribution to bridging the financing gap through mandating private developer contributions via the land-use planning system. While arguably incorporating rather unambitious targets, the NSW government (via the Greater Sydney Commission) may have already pointed the way forward here.

As the AHWG suggests, there could also be some scope for states and territories to leverage new affordable housing investment via public housing transfers. The handover of state-built homes funded through the 2008 Nation Building Economic Stimulus package in NSW, for example, resulted in recipient CHPs leveraging additional affordable housing equating to around 20 per cent of the transferred portfolios. However, it is unlikely that the handover of run-down existing public housing properties will yield substantial gains in this respect – especially if governments (e.g. as in the current NSW transfer program) also require recipient CHPs to fund extensive non-landlord services as part of the package.

Going beyond these limited forms of effective subsidy, the NSW Government has also put itself out ahead of the other states and territories by funding the Social and Affordable Housing Fund – a creditable initiative which properly allows for ‘financing gap’ revenue payments. However, the SAHF has so far been bankrolled through electricity privatisation proceeds, inherently a one-off source of funds. And while further SAHF rounds have been intimated, making these a reality will present a major challenge for government if they can be funded only through dipping into general revenue.

At the national level, and considering the Federal Government’s anxiety about constraining its spending, it seems realistic to imagine that public funding to bridge the affordable housing financing gap can be made available only through the re-direction of existing housing subsidies. And where would one look for the lowest hanging fruit in that regard? Surely, no further than the current annual private landlord subsidy of $11.7 billion on negative gearing and Capital Gains Tax concessions. If the Treasurer can possibly find a way to live down his recent stonewalling rhetoric on this topic and channel released funds into affordable housing, he really will deserve Jessica Irvine’s accolade.

Social money for social housing (part 1)

Posted by on December 7th, 2016 · Government, Money

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Recently the industry group Infrastructure Partnerships Australia made a proposal  to ‘fix Australia’s social housing system’. State Governments, said IPA, should sell off their public housing properties over a twenty year period, and place the proceeds  in ‘Social Housing Future Funds’. Income from fund investments (reckoned by IPA at the rate of the CPI + 4.5 per cent) could then be used to pay community housing providers to deliver housing services to eligible persons.

This proposal – the complete liquidation of the national public housing stock – may seem a bit ‘out there’, but IPA’s diagnosis of the basic problem facing our social housing system is a familiar one. As the IPA puts it:

Unsustainable public funding – a raw lack of available dollars to spend – is the principal problem facing Australia’s social housing system.

And IPA’s solution of investment-generated funding – and particularly the prospect, highlighted by IPA, of it replacing all Australian Government funding for social housing within 10 years – will be beguiling to some in government.

But this way of thinking about social housing’s ‘principal problem’  – a ‘raw lack of dollars’ – misconceives of the potential of public funding, and even of the nature of money itself. If we rethink the conventional wisdom about money and about government spending, we’ll find that there’s a much more straightforward and sound way of addressing unmet housing needs: governments – particularly the Australian Government – should spend money to get more and better social housing.

In their chapter in the new edited collection by Michael Jacobs and Mariana Mazzucato, Rethinking Capitalism, Randy Wray and Yeva Nersisyan summarise the rethinking about money that has taken place in recent years under the banner of modern monetary theory, what it reveals of the way money actually works, and its implications for policy. Below we’ll illustrate Wray and Nersisyan’s general explanation of modern money with some Australia-specific examples.

Money, in this view, is an amazing social technology: a system of universally transferrable credit. It allows person A to contract for goods and services from person B, who in return gets a credit from A, and for B to use this credit to receive other goods or services from C, all according to a common unit of value and in a systematic accounting of individuals’ credits and debts. We all participate in this social technology, and the national government has a crucial role in making it work.

Where A pays B for goods and services, the dollars that B receives will come from a deposit in A’s favour at their bank. This deposit  is the result of the bank making a loan to A, or of A receiving a payment from some other person (C, D, etc) who got a loan from a bank. Whatever the trail of transactions, the starting point is the same: money is loaned into existence by a bank. A creditworthy person applies for a loan, gives the bank a promise that they will pay the money back with interest, and the bank creates the money out of nothing more than the keystrokes of a clerk working in its electronic books. There it stands as a deposit  in the person’s favour – and hence a liability of the bank. With this money to their name, the person can direct the bank to dispose of it in transactions with other persons, making corresponding credits and debits to their respective accounts, including accounts at other banks.

This is done through the payments system maintained by an instrument of the Australian Government, the Reserve Bank. At the Reserve Bank, banks themselves have accounts – ‘exchange settlement accounts‘ – which are used to settle the balance of liabilities between banks arising from all those transactions they’re involved in everyday. The dollars in the exchange settlement accounts are keystroked into existence by the RBA (in return for bank assets – bonds and other creditable promises to pay). Should a bank need more of these reserve dollars in order to settle its liabilities at the end of the day, it can borrow them from another bank with reserves to spare (in return for a promise to pay back with interest) or it can apply for more from the RBA’s standing facilities (which, again, keystrokes them into existence, in return for bonds and other creditable promises to pay). Should a bank in need of reserves not be able to convince another bank or the RBA to advance them, the bank goes out of business, and persons with deposits may lose their money (in which case, they may make a claim under the Australian Government’s deposit guarantee, which will keystroke up some replacement dollars).

The lending of reserves between banks is of utmost concern to the RBA: it is the interest rate on these loans (the ‘cash rate’, or ‘overnight money market rate’) that the RBA discusses and makes announcements about every month, and it tries to get the rate it wants by working on the supply of surplus reserve dollars. It does so by transacting with banks (‘open market operations‘): if it wants the interest rate to go down, the RBA pays out additional dollars (more keystrokes) in return for bank assets; if it wants the interest rate to go up, it draws in dollars (by selling assets). In another support to interest rate policy, the RBA pays interest to banks with unlent surplus reserves, at a little below the target rate. Again, those interest dollars are keystroked into existence by the RBA.

As well as operating the payments system and interest rate policy, the RBA is also the Australian Government’s bank, where it has accounts for transacting with individuals and other entities. To make a payment to a person, the RBA keystrokes a credit to the reserve accounts of their bank (with corresponding credit to stand in the person’s own account with their bank), and to receive payments from a person (for taxes, bonds, fines, etc) it debits the reserve account of the bank where the person had arranged for the payment money to stand as a deposit.

This rethinking of money has a number of implications for policy generally:

  1. The Australian Government can never lack Australian dollars. It issues the national currency through which the national payment system works. Private sector entities – persons, businesses, banks – may experience a ‘raw lack of dollars’, if no-one will transact with them or they cannot get loans (because they cannot make convincing promises to repay). It also goes for state and territory governments, which use, not issue, the national currency. But not the Australian Government. There is a strain of conventional wisdom that holds that the Government can run out of money, as if there’s a finite amount of it like gold or silver. But gold and silver aren’t money. The Australian Government can no more run out of money than it can run out of keystrokes.
  2. Although it cannot run out of money, the Australian Government doesn’t set the amount of money in the system. Instead, that’s determined by the demand for it by everyone who uses it, and the credibility of the promises of private sector entities to pay the banks who lend it into existence that much and more in interest. The conventional wisdom worries about the potential for governments to ‘print money’ and upset its proper supply, causing inflation. But really, the supply of money depends on the demand for deposits, which may be susceptible to interest rates (ie both the bank and its customer will be thinking: can they really promise to pay back at this rate of interest?). That’s why the Reserve Bank pursues a cash rate target, and in doing engages in open market operations or reserve interest payments that essentially involve printing money. It is not the stock of money, but the spending of it, that it important to prices.
  3. Because it can never lack money, the Australian Government’s ability to spend money is not constrained by tax or bond issue receipts. It does not need to tax or borrow before it can spend; if anything, government spending (payments in the reserve accounts of banks) has to come first, in order for private sector entities to get the money that they will use to pay taxes or buy bonds. Nor does government spending necessarily have to be matched by taxes and bond receipts (ie ‘balancing the budget’) over a given period: indeed, government deficits are necessary if the private sector wants both to save some of its income, and maintain its production of goods and services. Taxes knock out some of the purchasing power private sector entities have, and so clears some space for the Australian Government to spend on goods and services without undue inflation. The tax burden can be distributed differently over the population, in the name of fairness; and activities may be taxed differently, to shape behaviour. Bonds are important for private sector entities, as a secure savings vehicle that yields a stream of income dollars and be pledged for loans, more than for the Government.
  4. The Australian Government’s spending is constrained not by finances, but by the economy’s real resources. If the Government spends on goods and services that are in short supply, it will tend to bid up their price. Whether the availability of these resources can be increased will depend on the productive capacity of the economy: whether there’s unemployed labour or unused equipment that can be drawn into use; whether there is otherwise engaged labour and equipment that can substitute – at the expense of the uses to which they are currently engaged. This is, in part, a technical question of capacities; it is also a political question of the ends to which resources are put. We can question whether the purposes pursued by the Government when it spends are really worthwhile ones, and whether the way the resources are being used gets the best and most out of them – and we can pose the same questions about the purposes and results of private sector spending. But the Australian Government can always ‘afford it’ in a financial sense – it can buy anything that is for sale in Australian dollars, and meet any liability denominated in Australian dollars.

So, the Government can always afford to spend money in the form of social security payments to non-workers that enable them to buy a share of the goods and services produced by others (the real question is about the fairness of the redistribution of purchasing power over the goods and services). It can also afford to spend money in wages to engage otherwise unemployed labour in the production of goods and services that the private sector isn’t spending on. And if it determines that the overall public good is served by committing resources to particular ends – building, say, a submarine factory, or a social housing estate – the Australian Government can always afford to pay private sector entities for the resources necessary to achieve it.

The IPA paper actually does a very good job of stating some ‘first principles of social housing’, the very first of which is ‘housing should be provided to those who cannot provide it for themselves’.  It is proper to meet this principle in a straightforward way: by spending government money – ‘social money’ – to purchase the resources – the land, the bricks, the tins of paint, the labour of tradespersons and tenancy managers – needed to make it happen. We don’t need to liquidate resources already in government hands; nor do we need to promise to send a stream of dollars (fees and interest) to private sector finance institutions for the use of their money.

The real problem is not a lack of dollars, but a lack within government of a sense of its real role and power in relation to money, and perhaps a lack of political will.

In a second post we’ll consider the respective roles of the Australian Government, state governments and community housing providers in a social housing system informed and vitalised by modern money.

 

Neighbours’ fears about affordable housing are worse than any impacts

Posted by on December 5th, 2016 · Affordability, Housing, Housing supply

This article, co-written with Dr Gethin Davison, was originally published on The Conversation. Read the original article here.

 

Housing affordability is a hot topic in Australia. Governments are increasingly recognising that more needs to be done to provide a greater range of affordable housing options, especially in the major cities. It is well documented, however, that proposals for affordable housing development often encounter opposition from host community members.

These community concerns tend to focus on the potentially damaging effects of such projects on property values and quality of life for existing residents. This is despite the public being generally supportive of affordable housing in principle. They would just prefer it wasn’t sited in their local area.

In reality, though, do the concerns that people have about affordable housing development materialise? Do property values go down? Does neighbours’ quality of life suffer?

Our case studies in Brisbane and Sydney provide evidence that, in most cases, they do not. [Read more →]

Too little…but not too late?

Posted by on November 29th, 2016 · Cities, Housing supply, Planning reform, urban renewal

by Judy Stubbs, Judith Stubbs Associates

Like most public policy announcements, the Greater Sydney Commission’s recent release of its six Draft District Plans has some good news, and some news that housing researchers and public interest bodies would likely regard as not so good.

GSC District Plans – two steps forward

In many ways, the policy directions flagged in the District Plans represent a ‘first’ for affordable housing in strategic documents of this kind – not only for NSW, but also for Australia. The Plans contain important policy directions long supported by housing researchers and advocates.

Arguably, the elevation of ‘Affordable Rental Housing’ as a vital part of Sydney’s ‘liveability and productivity’ far exceeds the importance given to this policy area in previous NSW metropolitan plans where, historically, vague references to ‘housing affordability’ have been accompanied by exhortations to increase ‘housing diversity’ and speed up approvals (e.g. in the 2005 ‘City of Cities’ strategy). On this, the Plans should be commended.

The setting of ’Affordable Rental Housing Targets’ in each of the District Plans, and putting a ‘number’ on the target (5-10% of additional floor area) is also positive. It acknowledges that there is a city-wide problem, and has the potential to provide a consistent policy framework for councils, and a degree of certainty for the development industry. This is something that developers knowledgeable on these issues are likely to welcome.

Also positive is that the District Plans clearly define ‘Affordable Rental Housing’. Importantly, groups most seriously affected by housing unaffordability in Sydney – very low and low income renters – are prioritised, and specific income and housing cost benchmarks are set out in accordance with the EP&A Act.

Imperatives for government to take the issue seriously are also crucially included in the District Plans. A case in point is the requirement for State and local government to include Affordable Rental Housing Targets in planning proposals and strategic plans as a form of inclusionary zoning for new urban renewal and greenfield areas.

Finally, flagging the potential extension of SEPP 70 – Affordable Housing beyond the very few inner city areas where it currently operates could be a real boon. It has the potential to create the support and the legal architecture that many councils have sought without success since the SEPP was introduced in the early 2000s. The scope for it to operate in tandem with other local government affordable housing initiatives is also positive.

These are some of the more encouraging signs that affordable housing may finally be getting the profile and priority it deserves in the NSW planning system.

GSC District Plans – punches pulled?

In the end, however, the District Plans fall far short of what is urgently needed to make real inroads in tackling Sydney’s growing affordable housing shortage.

First, the Targets are ‘subject to development feasibility at a precinct scale’. This opens them up to horse-trading by developers and dilution by government before a final number is decided. The published targets are likely to become a starting point for negotiation with developers, some of whom will inevitably come with their feasibility analysis to demonstrate that such inclusionary aspirations will stymy development.

The Affordable Rental Housing Targets otherwise take no account of Sydney’s highly differentiated housing markets, in particular the rapidly gentrifying inner and middle ring suburbs. Instead, they set an upper limit of 10%, regardless of the market, remembering that this is taken as a proportion of additional gross floor area (GFA) created through re/up-zoning, and not the total GFA for the development. As noted by others, in reality this could result in low affordable housing yields, especially in areas already zoned for commercial or residential use.

More importantly, the District Plans provide no evidence base for the target range nominated. Analysing development feasibility in advance of setting targets range would have been prudent, and could avoid the risk of targets being significantly watered down later.

Finally, the GSC targets fail to reflect the mounting evidence on feasibility, and disregard the calls from local government, researchers and public interest groups for more ambitious targets. Evidence from other similar jurisdictions is noted, but largely ignored.

The case for higher targets

Crucially, the starting point for what is likely to be the ‘negotiation’ of targets is far too low.

Separate studies conducted recently by this author for the NSW Federation of Housing Associations, the Southern Sydney Region of Councils and the Inner West Council each provide evidence for the setting of considerably higher targets in many local council areas and urban renewal precincts in terms of need, reasonableness and feasibility.

The rapidly gentrifying Inner West (formerly Marrickville, Ashfield and Leichhardt councils) is a case in point. Across this new jurisdiction, massive displacement of low income households has occurred and is continuing. Even for moderate income earners, virtually no housing provided through the market is affordable.

And the situation is worsening. Our research (forthcoming) indicates that virtually nothing created through the market in the future will be affordable to very low or low income renters, or to moderate income families, even if the size of strata dwellings and requirements for parking were to be driven down even further, and smaller dwellings were mandated through ‘housing diversity’ planning requirements.

Quite simply, reliance on the market is totally unrealistic if we have any intention of housing low income people, and even moderate income households, in most areas of Sydney in the future. Only strong action through the planning system and use of government land remain as viable options – anything else is fiddling around the edges.

The feasibility of higher targets

As for feasibility – or the quantum of Affordable Rental housing that could be mandated without unduly restricting development – our research shows that targets of 10-15% of total GFA would be feasible throughout most of Sydney’s Central and South Districts. This includes many private sites in the renewal precincts of Parramatta Rd Urban Transformation Area, the Sydenham to Bankstown Urban Renewal Corridor and The Bays Precinct. Higher targets should be possible on government-owned land.

In the Inner West, our modelling demonstrates that Affordable Rental Housing Targets of 15% of total GFA would be reasonable without unduly affecting development feasibility in most precincts, including those associated with the government renewal areas. The situation is similar in many other areas of the Central and South Districts.

The calculations underpinning the assessment use a ‘residual land value’ analysis. This estimates the future value of the rezoned land under different development scenarios, referencing the sale price of all new units in surrounding areas over the past 2 years to estimate the value of the completed development, and then subtracts the existing value of the unzoned land, a conservative allowance for development costs (building in a risk margin), and ‘normal’ development profit for the construction industry. The residual land value is then assessed, and the rezoning land value uplift shared equally (50/50) between the developer and the council, with the community’s share used for Affordable Rental Housing in perpetuity.

The preferred position is a single target value across the LGA to avoid horse-trading, and to provide certainty to developers. Such a value, notified at the earliest opportunity, is also the preferred position of responsible developers who recognise the seriousness of the situation and accept that a ‘level playing field’ would provide the fairest development context.

Further analysis by this author indicates that a 15% levy on all GFA is both reasonable and feasible in most development scenarios and contexts across the Inner West Council area. And this feasibility analysis has been carried out in today’s market. If increases in the real value of sales and rents continue at the rates experienced over recent years, the limited number of areas with more marginal development prospects will look at least as favourable before long.

Basically, if we are planning for the future, the progressive renewal of our city will involve the stepwise progress of (re)development as land values make it sufficiently attractive. This is all too apparent when looking at the tsunami of gentrification as it rolls across Sydney and into economically linked regions like the Illawarra. Simply put, if a more robust target delays development in a few areas, the impact is likely to be short-term, and the project is more likely to be marginal in the current market in any case.

What is a ‘reasonable’ target?

It is important to remember that we do not operate in a legal environment of unfettered property rights. The decision by government to rezone one piece of land and not another often results in massive land value uplift in the former, and the status quo or losses in the latter. In the case of the rezoned land, the land owner has done nothing to earn the land value uplift and resulting windfall profit. It is reasonable for the community – who must incur the ‘cost’ of reduced amenity – to share in the benefit that arises from the rezoning. In areas where affordable housing is virtually non-existent and the consequences so great, it is again reasonable that the lion’s share goes to affordable housing.

A recent visit to the UK highlighted the policy disparity between NSW and that country. Renewal schemes in Greater London typically set affordable targets of 35-50% for both private developers and housing associations throughout the City, on both public and private land. Remembering that 60% of households are on a very low, low or moderate income, and would likely be excluded in London as they are in Sydney, this seems sensible and reasonable.

Some difference in the makeup of ‘affordable housing’ in London are relevant – with a mixture of assisted purchase and intermediate rental as well as social housing, although the vast majority of mandated ‘affordable housing’ created in the London context over the past 10-20 years falls into what the Greater Sydney Commission terms ‘Affordable Rental Housing’. Although the inclusion of such housing in renewal projects is often greater than 30%, a mixture of policy levers and funding sources including subsidised land and grant funding have generally been made available in the UK context. Again this signals a much greater political commitment to the creation of affordable housing for those who need it most than we have generally witnessed in NSW. One important conclusion is that, recognising the scale of need for affordable rental housing, governments cannot reasonably place total reliance on meeting all of this need through the planning system – other forms of support must also be provided.

Nevertheless, it would be hard to conclude that, as a planning system contribution to addressing the problem, the GSC’s Affordable Rental Housing Targets are sufficiently ambitious – particularly in gentrifying areas of Sydney with major land value uplift potential. But there may still be time to push for higher figures, based on the evidence. And it will require strong political will.

The District Plans are out for comment, and the Commission says that ‘further research’ will be done. It remains to be seen whether this research will end up supporting a more reasonable position on Affordable Rental Housing Targets for the people of Sydney, and if flexibility will be allowed for councils that propose higher local targets in policies and strategies, based on their evidence.

Why adult children stay at home: looking beyond the myths of kidults, kippers and gestaters

Posted by on November 28th, 2016 · Cities, Demographics, Housing, Migration

This article was originally published on The Conversation. Read the original article (co-written with with Dr Hazel Easthope) here.

 

We’ve all seen it in the movies: overgrown “kidults” living at home while their parents pick up their dirty laundry, cook their meals and vacuum around their unmade bed.

This narrow portrayal of what modern-day multigenerational households look like is also found in newspapers worldwide. Names like “mummy’s boys”, “gen why bother moving out”, “kippers” and “gestaters” are used to describe this supposedly dependent generation who won’t leave the comfort of the family home.

Since we began our research four years ago, however, we have found that different generations of the same family live together in one household for a whole range of reasons. This results in a great diversity of outcomes.

These stories of different drivers and outcomes, along with findings from several related Australian studies, are retold in our new book, Multigenerational Family Living.

In the book, we debunk a series of myths about multigenerational households. With around one in five Australians living in multigenerational households since at least the mid-1980s, it’s about time we moved beyond the stereotypes.

[Read more →]

Sydney needs higher affordable housing targets

Posted by on November 24th, 2016 · Affordability, Housing, urban renewal

Laurence Troy, UNSW Australia; Dallas Rogers, Western Sydney University; Emma Power, Western Sydney University; Hal Pawson, UNSW Australia; Kurt Iveson, University of Sydney; Louise Crabtree, Western Sydney University; Michael Darcy, Western Sydney University, and Peter Phibbs, University of Sydney

The release this week by the Greater Sydney Commission of city-wide draft plans mandating some measure of affordable housing in new developments is a step in the right direction. However, the target of 5-10% on rezoned land is too low to make a serious impact on the city’s affordable housing shortage. It must be more ambitious.

Research highlights the central importance of affordable, stable housing to economic and social wellbeing. Yet, in Sydney, the lack of affordable housing has reached crisis point. Everyone from community housing providers to Commonwealth Treasury secretary John Fraser is pointing out that rising house prices are creating massive social and economic problems.

Housing researchers and academic housing economists across Australia agree that an essential part of the policy mix is to mandate a significant percentage of affordable homes in all new housing developments. This is known as “inclusionary zoning”.

Other global cities such as New York and London have recognised the important role of housing in their economies and have inclusionary zoning policies. Other states in Australia have also set affordable housing targets. These have not had harmful impacts on housing investment.

Fighting to keep windfall profits

Predictably, parts of the property industry are already resisting any level of inclusionary zoning. Some developers claim that affordable housing targets will increase housing costs for the majority. They argue that profits lost on affordable housing will have to be recouped elsewhere.

While we can expect this line of argument from those who profit from the status quo, it is fundamentally wrong for a simple reason. Housing developers will not bear the burden of these targets. Rather, it will be borne by land holders who currently make large windfall gains from selling land for development.

When land has been zoned to enable higher-density development, landholders reap these windfall profits without actually delivering any new housing or infrastructure.

For example, the site of a recently completed development in Sydney’s inner west was first purchased by a property company as industrial land for around A$8.5 million. Following a rezoning to higher-density residential, the site was sold again for A$48.5 million. In this case, the first buyer made a 471% windfall profit without building anything on the site.

If a fixed percentage of affordable housing becomes a condition of rezoning such sites, this will only affect the size of the landholder’s windfall gain. Developers will offer lower prices for the land, based on the mandated requirements for affordable housing.

Remember that the uplift in land value results from public policy changes that allow for housing development or higher-density housing. It is not unreasonable, then, that landowner windfalls should be limited to achieve the important public policy outcome of housing affordability.

This is why some property developers do not object to inclusionary zoning. Indeed, some have been part of the push for inclusionary zoning, through their membership of the Committee for Sydney. They recognise that so long as the “playing field” is level for all, mandatory targets for affordable housing can be achieved without making development unprofitable or housing more expensive.

Government is conflicted

The New South Wales government has been reluctant to set significant inclusionary zoning requirements for new developments in several important parts of the city. One possible reason is that the government itself stands to reap revenue from rezoning and/or redevelopment of government-owned land.

It is especially inappropriate that government-owned land should be exploited in this way. In big development schemes where government is the major landowner, such as Central-Eveleigh, the Bays Precinct and Olympic Park, public good should trump Treasury “profits” on land release. Government should not be in the business of extracting its own windfall at the cost of housing affordability.

Inclusionary zoning targets should therefore be much higher for housing developments on government-owned land, especially in major renewal precincts. Not only would developments on such sites still yield a “profit” for the taxpayer, they would deliver a social benefit to the wider community at no real cost and without impacting feasibility.

What targets should be set?

We join those in the housing sector who believe that at least 15% of housing in new private developments should be affordable. On publicly owned land, at least 30% of new housing developments should be affordable.

Of course, the details of land zoning matter. If targets are set, we must ensure the definition of “affordable” actually achieves the goal of reducing housing stress for people on low and moderate incomes while maintaining housing quality.

Substantial inclusionary zoning requirements will not make development more expensive. They will make it harder for land speculators to make large profits while making no contribution to the social and economic future of New South Wales. It is high time the foxes in the henhouse were called to account.

The Conversation

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