By Hal Pawson

A housing policy bonanza it most certainly was not, but related announcements in Budget 2023 included some modestly positive steps that supplement the Albanese Government’s existing array of housing initiatives. These included pledged new spending to ease cost of living pressures for hard-pressed renters, and to fund dwelling energy efficiency upgrades in social housing. On the tax side, there was a potentially significant move to encourage institutional investment in purpose-built rental housing.

A boost to Rent Assistance

The most substantial housing-related announcement was the pledge to boost the maximum rate of Commonwealth Rent Assistance (CRA) by 15%, a measure that will benefit 1.1 million claimants at an annual cost of more than $500 million over the next five years, rising to $700 million beyond that.

CRA supplements other social security payments. Therefore, many recipients will be also beneficiaries of other moderately bumped-up benefits including Jobseeker and Youth Allowance, as also announced in the Budget. So all well and good for those in that situation. Resulting relief for domestic budgets should leave these households slightly less hard-pressed, with more after-rent income remaining to fund food, clothing and other essentials.

But while the Government states that the prospective CRA boost represents the largest such increase in 30 years that is not saying much; especially within the context of calls by organisations such as the Grattan Institute and ACOSS for the maximum rate to be lifted by at least 40%.

Even when the new rules take effect, single person payments will remain capped at $90 per week. That in a market where the median weekly rent for advertised units has now reached $550 across the capital cities, and with a NSW lower quartile weekly value of $375 for a 1-bedroom dwelling.

A fundamental problem with CRA – and a reason that even the Productivity Commission has advocated enhancement – is its annual up-rating according to CPI rather than actual rents. When, as is generally the case, market rents run ahead of general inflation, the payment is effectively devalued.

For example, while CPI is currently running at 7%, advertised rents are continuing to escalate at over 10% per year. In Australia’s lightly regulated and fluid rental sector, these increases will wash through the whole market fairly quickly. It is the cumulative effect of under-indexation that has produced CRA’s inadequacy today.

But in reality the scheme has many other structural flaws that call for more fundamental reform. These include the nationally invariant maximum payment rates that ignore huge housing market disparities across the country, and the omission of the working poor, excluded by their ineligibility for other social security benefits to which CRA is tied.

Home energy performance initiative

A second new and notable spending pledge in the social housing arena was the creation of a $300 million fund for energy efficiency investment in public and community housing over four years. With the kinds of works envisaged estimated as costing $5,000 per dwelling, this is expected to fund such upgrades to 60,000 units – or around 14% of all social housing. However, there is also a suggestion that the scheme could be expanded via match funding from state/territory governments.

This is part of a larger Budget-announced scheme to promote residential energy efficiency, the Household Energy Upgrades Fund. The greater part of this is a $1 billion low-cost loan facility to be managed by the Clean Energy Finance Corporation and, according to Treasury, set to benefit 110,000 households.

While these measures have a somewhat progressive flavour, their scale once again appears extremely modest. And a huge strategic problem that remains seemingly unacknowledged and unaddressed is the absence of reliable national data to inform a baseline assessment of housing energy (in)efficiency across all sectors.

One other apparent ‘social and affordable housing investment’ measure featured in the Budget was the ‘$2 billion financing boost [to] support the Government’s commitment to deliver more social and affordable rental homes’ as phrased in a Treasury media release. This extends the existing Government guarantee that enables community housing providers to access low price debt. While it can be welcomed as a useful enabling measure, this is very much a financing initiative that comes at a negligible cost to government and provides no additional funding as such.

Build to rent investment tax adjustment

On the revenue side, perhaps the most significant Budget housing announcements were the technical tax changes to encourage investment in so-called build to rent (BtR) developments. This refers to apartment blocks designed and constructed to be held in single ownership for long term rental use.

Although as yet almost absent in Australia, BtR housing forms a substantial part of the rental sector in North America, in the UK and elsewhere. Being funded by institutional investors to generate a long-term rental income stream, it is arguably likely to provide relatively secure tenure, since – by comparison with renting from a mum-and-dad landlord – there is relatively little risk of eviction due to property sale.

BtR apartments are built to be rented out at market rates and do not contribute directly to affordable housing. But BtR may fulfil other housing policy objectives including well-designed, good quality buildings, as well as extending consumer choice and expanding overall housing supply, to the benefit of housing affordability more broadly. Indeed, a growing BtR sector could help the Commonwealth in meeting its self-imposed target of enabling the construction of 1 million homes over five years.

Perhaps partly motivated by this aspect, the Budget included a pledge to equalise the tax treatment for overseas funds investing via Managed Investment Trusts in BtR projects, relative to MIT investments in assets such as student housing and other commercial property. Applying to schemes of 50 or more units, and subject to blocks being retained under single ownership for at least 10 years, the new rules also require that apartments are rented out on lease terms of at least three years.

This move may be seen within the context of a recent estimate that, subject to the now-announced MIT tax change, the supply of new BtR units over the next decade could triple from the 50,000 currently forecast.

The real housing policy action is – we would hope – elsewhere

While a positive case can be made for all of these moves, they were also ‘of a piece’ with the Budget’s overall caution. Regrettably, although probably not surprisingly, there was no new social housing ‘rabbit from the hat’ investment pledge of the kind that might have proved a game-changer in luring the Senate crossbench to pass the Government’s stalled housing bills. That – along with the still to be revealed National Housing and Homelessness Plan – is where we would hope the action of greater substance will be.

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

By Hal Pawson

The Albanese Government’s flagship housing legislation has stalled in the Senate, with the PM alarmingly flagging a risk that the package might be abandoned until the next election.

To understand what’s going on here we need to wind the clock back to the ALP’s platform taken to the 2022 election. Let’s remember that, when it comes to social and affordable housing, the backdrop to that contest was a decade of federal inaction. Granted, the action of then Treasurer Scott Morrison in setting up the National Housing Finance and Investment Corporation (NHFIC) to provide ‘cheaper debt finance’ for low-cost housing providers had been a positive move. But there was no serious government money behind this, nor any real ambition.

In 2022 Federal Labor, still reeling from its 2019 election defeat, had walked away from the modest landlord tax reform proposals Bill Shorten had taken to that contest. Albanese’s 2022 housing platform was, nevertheless, a reasonably broad ranging bundle.

The centrepiece was the Housing Australia Future Fund (HAFF), a plan for a $10 billion equity investment, with estimated annual returns of $500 million to be channelled into social and affordable housing construction subsidy. By this means, it was promised, the Albanese Government would build 30,000 social and affordable homes in five years – a pledge later expanded to 40,000 under the Treasurer’s National Housing Accord unveiled at the October budget.

This breaks down as 20,000 social housing dwellings, homes targeted at social security recipients and other very low income earners; plus 20,000 affordable rental homes – more modestly discounted tenancies aimed at low income workers.

Although there’s little published detail on how this might work, it’s understood that the HAFF was modelled on the NSW Government’s $1 billion Social and Affordable Housing Fund. Set up in 2016, this saw 3,500 social and affordable homes being built or acquired by community housing organisations (CHOs). Government enabled this by contracting with CHOs to pay them an annual subsidy over 25 years to bridge the gap between their rental income and their management, maintenance and finance costs over this period.

The HAFF hits trouble

The HAFF legislation has hit trouble in the Senate for several reasons. With the Coalition rejecting the bill in keeping with Peter Dutton’s general default stance, crossbench critics have leveraged their ‘casting vote’ position by pushing for more ambitious and ‘more reliable’ commitments. This has brought together the Greens, the Jackie Lambie Network and Senator David Pocock.

Their main complaint is that the HAFF financial commitment is inadequate. There are two aspects to this. The first – probably shared by the government – is that the Fund’s expected annual yield may be no longer sufficient to underwrite the promised investment program. Soaring construction cost inflation over the past year has raised serious doubts on whether the pledged program remains deliverable without a significant funding top-up over and above the $10 billion commitment.

A second, and more strongly voiced criticism is that – even at the promised size – the construction program itself remains far too small to make any serious dent in the scale of social and affordable housing need. Considering that there are over 160,000 very low income households on waiting lists across Australia, and over 400,000 currently experiencing unmet need for social housing, this criticism is well-founded. On this basis, the Greens are advocating for annual investment of $5 billion – ten times the pledged amount.

At the same time, of course, 40,000 new social and affordable homes enabled through federal funding over coming years would be 40,000 more than Australia has seen over the past decade, so there’s also a need to recognise that – even on its currently proposed scale – this is a significant commitment.

The critics might be more willing to adopt this ‘glass half full’ perspective if there was an explicit assurance from Housing Minister Julie Collins that the current HAFF proposal must represent only a first step towards a more ambitious longer-term program. A program that, it would be hoped, would be underpinned by the government’s forthcoming National Housing and Homelessness Plan.

Reliability concerns

A third objection to the HAFF voiced by the Greens is that the Future Fund model is in any case too risky, since investment returns will naturally vary from one year to the next. It seems that the model’s appeal to officialdom is that, being backed by income, funds generated in this way can be logged as ‘off balance sheet’ expenditure that is more palatable for the government accounts.

In practice, it’s hard to see how government could avoid at least implicitly guaranteeing future expenditure on HAFF projects irrespective of variable Fund returns, having signed long-term subsidy contracts with housing providers (or possibly with super funds pledging low-rate lending). With this in mind, it is also difficult to understand why the Minister avoids the explicit assurance that could at least help to calm this aspect of the debate.

With Minister Collins having failed to satisfy her Senate critics, the HAFF debate has now been paused until Parliamentary sittings resume next month. In the meantime, it will be hoped that the Budget will provide an opportunity for an official pledge to top up investment commitments to assuage the government’s progressive critics.

The bigger picture

Beyond all this, it’s important to emphasise that the HAFF is only one element of Labor’s housing policy package. Complementary reforms in the governance of housing policy show welcome recognition that beefing up social and affordable housing investment is far from a cure-all for Australia’s housing affordability challenge.

Alongside the National Housing and Homelessness Plan, the re-establishment of the National Housing Supply and Affordability Council, and the creation of Housing Australia as a national housing agency help to fashion conditions for more significant progress.

But if such is to be achieved, a far wider set of reforms will be needed. Within this, Albanese will have to face up to revisiting the Shorten manifesto’s landlord tax reform plans. Perhaps, in the light of dawning recognition that Australia’s tax system needs to focus more on wealth and less on income, that will even chime with evolving official thinking.

This post was first published on John Menadue’s Pearls and Irritations site. Read the original version here.

By Hal Pawson, UNSW Sydney. This article is republished from The Conversation under a Creative Commons license. Read the original article.

Whatever the result of the New South Wales election on March 25, rising housing stress is a problem the new state government will have to confront.

Soaring rents and an extraordinary lack of rental vacancies are intensifying housing stress in Sydney and elsewhere. Many low-income households are spending well over 30% of their income on housing costs.

The numbers of people seeking help are pushing social housing and homelessness systems to the brink.

But how did these sectors end up in such a vulnerable place? And why are some of their problems worse than in other states?

Population has outpaced social housing supply

The stock of social housing in Australia has hardly changed in 25 years. It has fallen further and further behind the supply needed to keep pace with population growth.

Social housing accounted for more than 6% of occupied dwellings in 1996. By 2021, it was barely above 4%. Rather than reflecting active policy – such as large-scale privatisation or demolition – this is mainly a case of simple neglect.

At first sight, NSW did relatively well during the 2010s. Social housing stock apparently rose by 9% compared with 12% for population.

Unfortunately, this is a somewhat misleading impression. It reflects the NSW government’s 2016 decision to widen its definition of social housing to include less-subsidised affordable rental housing managed by community housing providers. While this housing meets an important need for low-paid “essential workers”, it is no substitute for housing that very low-income earners can afford.

If not for this redefinition, the NSW chart would more closely resemble the national post-1996 picture.

Social housing supply

Social housing construction numbers aren’t directly published in any official series but can be estimated from Australian Bureau of Statistics data on housing commencements. The 2010s began with a dramatic spike as the federal Rudd government invested in social housing as part of its emergency response to the Global Financial Crisis.

But then national and state governments largely stepped back from new social housing investment. NSW annual commencements ran at only 500-1,000 for most of the 2010s. This is less than half the minimum number needed to maintain social housing’s share of all housing.

Unlike other states such as Victoria and Queensland, the NSW government resisted calls for state-funded social housing investment as part of pandemic recovery plans in 2020 and 2021. In contrast with those states, NSW expects to achieve only a minimal net increase in social housing in the first half of the 2020s.

Not only is expected construction modest in scale, it is mainly associated with large-scale demolition of “obsolete” public housing to liberate land. Some is then sold to generate investment funds.

Unlike Victoria, the NSW government has continued to insist new social housing cannot be funded from general government revenue.

The trends are even more problematic than stock numbers suggest, because the system’s capacity to generate lettable vacancies continues to decline. Very few newly built properties are coming up for let. And the flow of existing tenancies being ended has dwindled as tenants struggle to find alternatives in the private rental market.

Social housing lettings in 2021-22 were down 13% compared with 2014-15. And a growing share of scarce lettings has to be devoted to priority applicants – those with the most urgent and severe needs. Priority lets grew by 37% over the past four years and made up nearly two-thirds of all lettings (64%) by 2021-22.

Vacancies remaining for non-priority applicants have almost halved since 2014-15 – down 47%.

Homelessness

Many of those assigned priority status are homeless or at imminent risk of becoming homeless. The latest official statistics that directly measure homelessness are from the 2016 census when 38,000 people were homeless in NSW. Relative to population, homelessness was higher than in any other mainland state.

Measured by the average monthly caseload of specialist homelessness services agencies, homelessness has more recently been rising relatively slowly in NSW. It was up 5% in the four years to 2021-22 compared with 8% nationally.

But rising numbers are being turned away – nearly 10,000 people in 2021-22 – up by 22% in three years. This suggests the system is increasingly overloaded.

The wider point is that homelessness is rising while social housing capacity is shrinking.

After several years of stability or slight reductions, the social housing waiting list (excluding existing tenants) grew by 15% in 2021-22 to 52,000 households. But annual snapshot statistics mask large numbers joining and leaving the list each year.

By our calculations, 17,000 households newly enrolled on the NSW social housing register in 2020-21, nearly double the number given a tenancy. That’s another powerful measure of shortage.

Note that the rules on waiting list eligibility are strict. The weekly household income limit in 2022 was $690 – well below the full-time minimum wage of $812.60.

Far greater numbers of people are homeless or living with rental stress than are on the list. Many people who could qualify realise their chances are so slim it isn’t worth the trouble. Others drop off when they realise they face a wait of years or even decades.

Our recent census-based analysis shows there were well over 200,000 NSW households with an unmet need for social or affordable housing in 2021. Some 144,000 of them would probably qualify for social housing.

True, some of these needs could be met in other ways, such as a major increase in rent assistance. But even if that happened and if no-grounds evictions were outlawed in NSW, private tenancies will remain far less secure than social housing. Arguably, that makes them fundamentally unsuitable for vulnerable people and low-income families.

What lies ahead?

The extraordinary rent spike of 2021-2022 has been the main cause of rising housing need. This happened while immigration all but stopped during the pandemic.

With migration rebounding, there is a serious worry rent inflation will continue to rage, placing even more low-income Australians in financial stress.

Somewhere on the horizon is modest help via the Albanese government’s Housing Australia Future Fund. The target is 30,000 new social and affordable dwellings over five years, with NSW likely to get a large share.

However, the HAFF legislation remains under review. Even when new homes begin to flow through, numbers will be quite small relative to need.

In NSW, party leaders are touting rival plans to assist first home buyers, but have long neglected arguably more serious policy challenges at the lower end of the housing market. Hundreds of thousands of households are struggling as a result.

On 15 March Prof Hal Pawson appeared at the Senate Economics Committee Inquiry on the Albanese Government’s package of housing legislation, entered into Parliament in February 2023. Reproduced below is his opening statement to the hearing. This draws on the Centre’s submission to the Australian Government on the draft bills as published in December 2022. The testimony itself can be viewed here.

After a decade of minimal additions to Australia’s social and affordable housing portfolio, the new government’s commitment to initiate a national investment program is greatly to be welcomed.

Rental housing market pressures have been recently compounded by the pandemic. But the need for stepped-up social and affordable housing construction long pre-dates COVID-19. The private rental market’s efficacy in generating housing suitable for low income Australians has been in steady decline over more than 25 years. Census-based research shows that since 1996 the shortfall in the number of private rental dwellings affordable to this group has increased from 48,000 to 212,000.

Beyond the inadequate levels of government investment seen in the recent past, the declining performance of Australia’s housing system also results from a policymaking failure due to a long-term erosion and fragmentation of governmental capacity.

Both at federal and state levels, the past 25 years have seen the progressive disappearance and/or downgrading of ministerial housing portfolios and associated departments. Aspects of housing policy been increasingly split across departments and there has been little effort to foster system-wide analysis or coordinated policy development. These aspects are crucial for a policy area of such complexity and breadth.

Although the hollowing out of governmental capacity has affected many policy areas, it has been especially damaging for housing. It has diminished official housing policy domain knowledge and policymaking capacity. The process has also proceeded in parallel with an increasing tendency to view housing policy as a narrowly defined subset of welfare policy.

Re-establishing a housing minister post within cabinet was an immediate and welcome step taken by the Albanese government that began the task of addressing these problems. The institutional reform proposals in the current legislative package seek to build on this. Again, all this is positive.

However, it is essential to overcome the administrative fragmentation that is a distinct source of recent housing policymaking failure. We also need to ensure that the renewed impetus for national action on housing has an enduring impact. Evidence from other countries provides inspiration on the potentially crucial contribution of a strong national housing agency in these respects.

We therefore argue that the current legislative proposals need to be strengthened in several ways:

• Housing Australia should be accorded a wider analytical and research role to inform policymaking and to support the NHSAC
• Formulation of the NHHP should be re-assigned from DSS to Housing Australia, as should the co-ordination of NHHP implementation and review
• Housing Australia should be charged with developing as well as implementing the National Housing Accord, and with informing re-negotiation of the National Housing and Homelessness Agreement
• NHSAC functions should include an oversight/advisory role on the NHHP
• The NHHP should be ambitiously scoped as well as legislated.

By Dr Rupa Ganguli, City Futures Research Centre. Originally published by The Fifth Estate.

In NSW, the Opal and Mascot Towers defects scandals have galvanised a wide ranging response on the issue of quality in apartment building. Together with the tragic fire in London’s Grenfell Tower, the shine has most certainly come off the so-called swing to urban living typified by high rise apartment buildings. 

The overwhelming focus in this reaction has been on exposing the failure of the apartment developers and builders, together with allied professions – engineers, architects, certifiers – to ensure build quality. But critical though these professions are, surprisingly little attention has been paid to the role of another major actor in the apartment market: the sales agents.  

This is all the more surprising given the central role sales agents – called project marketers in the jargon – play in the whole high rise apartment development process. These are the people who convince buyers to take the plunge to commit to buying into the developer’s vision of a new home, in most cases off-the-plan before anything has actually been built. 

But rather than being passive players in this transaction, new research – based on interviews in mid-2020 with over 30 professionals involved in the apartment development and sales sectors – has exposed the highly active role these sales agents play in mediating the process. In many ways, understanding their role also helps explain why it is possible to sell a lemon to so many consumers.  

While their fundamental purpose is to maximise sales rates and prices on behalf of the developer and the project’s financier, project marketers play multiple roles beyond just the sales process, acting as market matchers, information providers, and price influencers, constantly adapting to market volatility. This makes them a key institution in the apartment delivery process, influencing the prices paid and who gets to live in the apartment sector.

These findings are part of my recent doctoral thesis titled, Chameleons in the city: An institutional analysis of sales agents in Sydney’s new apartment market, completed at the University of New South Wales under the supervision of Professor Bill Randolph and Professor Hal Pawson. 

Market matchers

So, what are the key roles of the project marketer?

Firstly, the market matcher role involves convincing buyers to purchase off-the-plan using face-to-face or on-line communication and creating hype and FOMO (or a fear of missing out), when the apartment exists only as a display suite or computer generated image. 

Well-established views on buyer typologies and pre-sales success underpins their approach to buyers. For example, investor purchasers are believed to be more common in a market boom and viewed as an easier target buyer group. They are seen as quick decision makers, often relatively well-placed to obtain a purchase deposit from financiers, making them less risky for a developer. Advertising and marketing costs were considered to be minimal in a market dominated by investor buyers, a positive for maximising sales revenue from the perspective of project marketers and their fee-paying developer clients. 

In contrast, the downsizers or empty nesters among the owner-occupier buyer groups who became more dominant in the bust are perceived to be a more challenging target group, in need of more hand holding in the sales journey.

This means more expensive advertising and marketing campaigns, including high-quality computer generated imagery, drone photography, and display suites. This could be offset by this buyer group’s ability to pay high prices compared with the first home buyers or investors.  

In this way, marketers become a gatekeeper by enabling or constraining purchase opportunities to certain buyer groups and in doing so controlling access to apartment ownership. 

Information providers

Project marketers are also information providers to developers, architects, and consultants, which can affect what is eventually built and sold.

The information includes advice on the target buyer market at the land purchase and project feasibility stage, as well as asking prices and sale rates, design features, and competing projects. 

But they also provide information to buyers. When advising off-the-plan buyers, research participants spoke about different types of information shared between investors and owner-occupiers. For example, investors were seen to be more interested in characteristics which positively affected capital appreciation and rental yield prospects. 

There was no connection made to the issue of poor construction quality and this sales mindset. During the boom of 2012 to 2018, few buyers asked about the profile and track record of the developer or builder. But these questions have become more frequently asked following the defect scandals with marketers adopting a quality assurance role to reassure buyers of product quality.

In contrast, there was little mention of information being requested or shared with buyers on the environmental sustainability of projects. This issue had clearly not filtered through to developers or their project marketers.

Price influencers

Thirdly, the price influencer role involves advising developers on expected off-the-plan sales prices. 

Importantly, these may be incorporated into project feasibility, informing the price payable for the land and eventual sales goals, and asking prices. This role is performed within the context of limited information transparency for buyers, with marketers employing different off-the-plan sales strategies for investors versus owner-occupiers. 

In one reported instance, pre-sale prices were kept five per cent below the market level for the first third of the stock released for sale, with prices ratcheted up as sales continued until a target pre-sale rate was reached. Thereafter, prices were kept to five per cent above market for the last third of sales stock. The objective here was to attract investor purchasers in the initial stages and owner-occupying downsizers in later stages as the latter were keener to see a project’s physical progress. Of course, buyers remain completely unaware of such price manipulation.

Implications for cities 

These research findings have global implications for all urban centres experiencing rising housing density. 

Far from responding to a hidden hand, the high rise apartment market is actively shaped by project marketers whose job it is to maximise returns and sales rates. 

In a hyper-commodified market context, the project marketer acts as a central conduit through which information on new apartments reaches potential buyers. In this process, they actively manage to whom pre-sales are targeted and at what price. 

In such a one-sided transaction, the possibility of on-selling a product of inferior quality becomes not only possible, but compelling.