Adequate affordable housing with good amenity is fundamental to the sustainability of Australian communities. As PwC noted, ‘the quality of life for our citizens is deeply defined by the quality of their homes’.
There is no universal definition of affordable housing. Professor Jago Dodson, Director of the Centre for Urban Research at RMIT University suggested that a good measure is the percentage of income spent on housing:
… a standard that is often used is housing which results in no more than 33 per cent of income being paid in rent or mortgage by households in the bottom two quintiles.
Adequate amenity is also hard to define. Stakeholders suggested that best practice residential development:
incorporates a variety of housing types to accommodate residents of different socio-economic circumstances and abilities;
is high density to support the viability of essential services such as health, education and other community services;
provides good connectivity to the rest of the city; and
is located close to employment opportunities.
Evidence to the inquiry suggested that rapid population growth—decoupled from land release, housing construction and job creation—is jeopardising Australians’ access to appropriate and affordable housing. PwC submitted:
With the rapidly growing population of our major cities, there is an increased pressure on our housing from supply and affordability through to proximity and amenity… And we are continuing to see families and individuals struggling to attain secure housing of high amenity .
The Committee heard that Australia’s largest two cities, Sydney and Melbourne, are now experiencing a ‘housing crisis’ threatening their social sustainability and increasing inequality. The University of Technology Sydney claimed:
At present, the housing crisis in Australia’s major cities is entrenching social inequality, making life in our cities increasingly untenable for many citizens. If our cities are to become sustainable systems, they must provide suitable, affordable accommodation for our citizens, and in particular for our most marginalised communities.
This chapter begins by describing the housing crisis being experienced by Australia’s capital cities and examines its causes. It concludes by considering possible solutions to address affordability issues, including:
national oversight of housing;
opportunities to expand and streamline housing supply; and
strategies to rebalance demand for housing.
Capital cities housing affordability crisis
The Committee heard that the purchase price of housing has increased in most capital cities and rental costs remain high in some Australian states.
The Housing Industry Association (HIA) reported house purchase price growth in all capital cities except Perth:
Sydney dwelling prices are estimated to have increased by 74.9 per cent since bottoming out in May 2012 – detached house prices in the city saw even stronger growth over the same period (+81.4 per cent). Over the year to May 2017, dwelling prices (both houses and units) in Sydney rose by 11.1 per cent…
Melbourne dwellings actually saw the strongest price growth over the past year (+11.5 per cent). There was considerable variation in the market here - detached house prices increased by some 12.8 per cent while unit prices declined by 0.3 per cent over the year to May 2017.
In Brisbane, the market is very mixed. Overall dwelling prices were up by 2.3 per cent over the year to May 2017…
Adelaide prices are struggling to gain traction. Over the year to May 2017, dwelling price growth was 2.9 per cent…
In Perth, dwelling prices continue to fall as the mining investment downturn still waits to find a floor. In the 12 months to May 2017, dwelling prices declined by 3.8 per cent and have lost just over 10 per cent since their peak at the end of 2014.
According to the Australian Bureau of Statistics the average cost to rent a home hasn’t risen significantly since 2013-14:
Households renting from private landlords paid an average of $381 a week. This has not changed significantly from 2013–14 in real terms.
Households renting from state and territory housing authorities paid an average of $167 per week, an increase of $15 per week from 2013–14 in real terms.
Nonetheless, the mean weekly cost for a private rental home in the Northern Territory, New South Wales and the Australian Capital Territory remains significantly higher than the national average:
Mean weekly housing costs for renters with a private landlord in the Northern Territory ($535), New South Wales ($440), and the Australian Capital Territory ($424) were significantly higher than the national average ($381) whereas those in Tasmania ($253), South Australia ($295), Queensland ($346), and Victoria ($359) were significantly lower.
Professor Carolyn Whitzman of the Faculty of Architecture, Building and Planning at the University of Melbourne suggested the cost of renting in cities like Melbourne prevents renters from becoming home owners:
Turning to renters, who are a growing proportion of the population, a little less than 15 per cent or 45,000 private market renter households in Greater Melbourne are earning less than 35 per cent of area median income. An additional one-third or 100,000 renter households in the private market are in between 35 and 80 per cent of area median income. Those 145,000 households are effectively locked out of the home ownership market.
Housing costs have not risen uniformly across Australian cities. Witnesses suggested that a price gradient from expensive inner city locations to the more affordable city fringes has reshaped cities’ demographics. Associate Professor Matthew Burke explained:
The rich reclaimed the inner-suburbs and have benefited from traditional pre-war urbanism. They enjoy the more transit-oriented urban forms that exist in these locations, with proximity to the knowledge centres of the CBDs. Households in other social strata have been increasingly displaced to less well-to-do middle ring suburbs and the periphery. Two Australias emerged, one clustered around the cones of wealth in the city centres where opportunities are abundant and land rents high; and, one spread out in the suburban ‘heartlands’, where knowledge jobs are few, travel costs high, and for whom journeys to the central areas are increasingly long and stressful.
The University of Melbourne claimed that, in Melbourne, there is growing spatial segregation between higher and lower income households:
High housing costs are creating a spatial mismatch between jobs, amenities, and services, as well as the households most in need of accessing these opportunities. This is reflected in the growing segregation of high income earners in the core of Melbourne and dispersion of lower income households around its periphery.
The Committee heard that the shift in demographics is threatening the social sustainability of Australian cities. Professor Dodson pointed out that higher housing costs are excluding key service workers from the inner city where they are needed:
People like key workers, which is a term that is used for public sector workers who are not on high incomes but can be excluded from metropolitan housing markets, particularly the city centres. You would ideally have your nurses, police, fire officers and so on not having to live way out on the fringe but close to where they are needed. It is a challenge that we face in very fast-growing cities.
The congregation of lower income households in the city fringes may also be compounding social disadvantage. The National Growth Areas Alliance (NGAA) suggested that, although houses are more affordable on the city fringes, access to critical services and good employment opportunities is poorer, further disadvantaging the lower income households settling there:
Policy has been focussed on CBD’s and inner cities on the one hand and the regions on the other… there has been no commensurate policy attention given to the areas housing the majority of population growth – the outer suburbs. This has led to a massive infrastructure deficit, congestion, health and cost of living impacts resulting in increasing inequality.
In a speech in 2015, Lucy Turnbull, then Chair of the Committee for Sydney said that since the Whitlam and Hamer years of government in the 1960s and 1970s, the location of social disadvantage within cities has switched from the inner city to the outer suburbs. She said decision-makers needed to reshape and reimagine Australian suburbs so this concentration of disadvantage could be addressed.
“Sustainability today means tackling the suburbanisation of poverty. Not everyone can live inner-city, so we need to try to create inner-city characteristics in areas on city fringes”, she said.
Even the more affordable housing in suburban fringes of Australian cities is too expensive for some lower income households, and those receiving welfare. Professor Whitzman cited research indicating that there is a shortfall of approximately 271 000 homes for the lowest earning quintile of Australian workers:
In 2011 the Australian Housing and Urban Research Institute calculated a shortfall of 271 000 affordable and available homes for the lowest quintile of households across the country.
Professor Whitzman suggested that there is no affordable housing in Melbourne for Australians on a median income, let alone a low income:
…the current affordable housing crisis is untenable. The median household income in Melbourne, according to 2016 Census data, is $1,750 a week. Using the standard safe mortgage calculation of three times gross annual household income… would mean an affordable home purchase price for a median income household in Melbourne would be $273,000. According to background research for a recent metropolitan strategy plan in Melbourne the only substantial clusters of housing for purchase at $415,000 or less—and that is the lowest quartile of housing price—are in areas well outside the urban growth boundary. Those include Koo Wee Rup, the capital of asparagus farming, which is deep in Gippsland, over 70 kilometres south-east of Melbourne, and Bacchus Marsh, which is the equivalent farming area to the west. You would need to earn well over median income to securely purchase a first home in those areas, which are not serviced by public transport or nearby non-agricultural employment.
Homelessness NSW submitted that on a given weekend, fewer than 30 Sydney properties were affordable for households receiving income support:
Each year Anglicare conducts a rental affordability snapshot for New South Wales. In 2017, on the Snapshot weekend, 13,447 private rentals were advertised for rent in Greater Sydney and the Illawarra. There were only 26 unique properties affordable and appropriate for people living on income support payments without placing them in housing stress and only 625 unique properties that were affordable and appropriate for people living on the minimum wage without placing them in housing stress.
As a result, lower income households and those receiving welfare are increasingly vulnerable to homelessness. The Australian Bureau of Statistics defines homelessness as:
… people who are rough sleeping, that is people who are in homeless accommodation, people in boarding houses, and also—and the fastest growing group—people in severely overcrowded dwellings. That is four or more bedrooms short, so 14 or 15 people in a two-bedroom apartment.
Mr Digby Hughes, Senior Policy and Research Officer at Homelessness NSW said:
The level of housing affordability is one of the major drivers of homelessness, if not the major driver. As we put in our submission, just on two years ago we interviewed 516 people in the Sydney CBD who were homeless. Of those, every one of them—100 per cent—had an income less than $400 per week. You cannot find a place to live in Sydney on less than $400 a week. And that's the maximum. We have people on $10, $20 and $40 per week. We know there's a major problem out there.
Mr Hughes noted that poor housing affordability is causing a broader group of Australians to experience homelessness, including older women and families:
We have about 120 members, from the large and small state based Vinnies and Sallies through to small regional ones, and consistently they've been telling us, for the last four of five years, that they're getting two new groups of homeless people coming in, who have been entirely driven by housing unaffordability. They are older single women, who are now well and truly on the radar, and families—a parent or two and children. Again, it's just the lack of a place that they can afford to rent.
Mr Hughes said the number of rough sleepers in Sydney rose by 28 per cent between 2011 and 2016, and this is likely to be replicated across NSW:
The City of Sydney are doing their street count: the increase—between census time 2011 and census time 2016, it went up 28 per cent in the City of Sydney, rough sleepers only…
So if that's replicated across New South Wales—and we think it could be close to that, just talking to our services—we are looking at 35,000. That would be depressing but it would not surprise us. Every time the City of Sydney does a street count, they also look at the numbers of people who are in the homeless shelters, and the homeless shelters are full. They're sitting at 95 to 100 per cent capacity. There is no room there.
The Committee heard that the decline of social and public housing in Australia is also contributing to higher rates of homelessness. Professor Dodson claimed that public housing stock in Australia is so inadequate that only those with ‘special needs’ are eligible:
In Australia, we have public housing, which has now been so residualised that you have to have very high special needs in order to be eligible for public housing.
Professor Dodson suggested that government support of public housing has declined over the last 40 years:
… in Australia have tended to over the past 40 years to be reducing the extent to which we have mechanisms in place to provide affordable and social housing. In particular, our public rental stock has been run down and there has been disinvestment effectively. Most of the money that goes into public housing now goes into maintenance of the existing stock rather than production of new stock.
Similarly, Professor Whitzman reported that the market share of public and not-for-profit housing in Victoria is the lowest it has been for decades:
The combined public and non-profit housing market share is now the lowest it has been for decades with 2.5 per cent of the housing stock in Victoria, which is the lowest in the country, and about 10,000 of those units are nearing obsolescence. These are the vulnerable households that are most at risk of homelessness.
Causes of poor housing affordability
A range of supply and demand factors may be contributing to the poor affordability of housing in Australian capital cities, namely:
rapid population growth increasing the demand for housing;
insufficient and slow land supply for the construction of new housing;
onerous planning regulation slowing the supply of housing and contributing to price rises; and
culture and taxation policies supporting demand for housing as an investment asset, rather than as a place to live.
These factors are considered in greater detail below.
Rapid population growth
In recent years, rapid population growth has meant that housing supply has not kept up with demand. Mr Matthew Pollock, National Manager, Economics and Housing, at Master Builders Australia (MBA), suggested that the imbalance has pushed up prices:
We do know that there has been an underinvestment in housing over the last decade, the degree of which is up for contention. I think we say in our report that we believe it is around $83 billion equal to about 165,000 houses over a 10-year period. So that has certainly pushed up prices.
Expanding demand for housing is likely to continue to put upward pressure on prices with population growth forecast to continue. Professor Whitzman noted that over 1.5 million new homes needed over the next 30 years to accommodate population growth in Sydney and Melbourne alone:
Metropolitan Melbourne, which is 80 per cent of Victoria's population, is expected to double in population between 2010 and 2050 and the growth has been estimated as requiring 1.6 million additional housing units in 30 years, half of which would logically [need to] be affordable to those earning a median income and below.
She noted that not only is more housing needed, but it must include affordable rental housing, social housing and public housing, to meet the needs of the expanding population:
Essentially Melbourne—and this is true of Sydney as well as other capital cities—needs a sustainable stream of about 60,000 units per year of an asset class that does not presently exist in Australia, which is low-income market rental housing, as well as about 6,000 units per year of public and non-profit social housing.
Inadequate land supply
The Committee heard that insufficient ‘shovel ready’ land for housing construction is slowing housing supply and contributing to higher purchase and rental prices. Mrs Denita Wawn, CEO of MBA, observed the purchase price of land has increased and costs are being passed onto home buyers:
Fundamentally, though, we think the significant driver of the cost of housing at the moment is a lack of supply and the increasing costs of land. It has not been a construction cost increase. It has been a significant land cost increase. That has been identified by the RBA.
MBA cited research by Nobel Laureate, Robert Shiller which suggested barriers to housing construction, such as inadequate land supply, are the predominant reason for housing price increases:
The research finds barriers to housing construction as the predominant reason for high house prices, but more importantly it also finds that once a city runs out of available building sites (or these available sites are restricted through regulation) its continued growth must be accommodated by the departure of low income people.
Onerous planning regulation
Onerous planning regulation may also be slowing housing supply and increasing costs. MBA suggested that planning delays and developer contributions are a major contributor to the cost of new housing:
Traditionally, the cost of developing supporting infrastructure was paid for by Governments. However, these charges are now largely passed onto new perspective home owners [via residential developers through the developer contributions required by local government]. As a result, land prices have grown by a rate almost four times faster than the cost of construction... In turn, growth in the price of land has been the single biggest contributor to the rising costs of new housing developments.
In Sydney it is estimated that government infrastructure charges alone contribute 12 per cent to the cost of a greenfield new housing development and 5 per cent to an infill two bedroom apartment, while the average across Sydney, Melbourne, Brisbane and Perth is 7 per cent and 4 per cent respectively.
Mr Graham Wolfe, Deputy Managing Director of HIA suggested that local government requirements for landscaping and driveways are adding thousands of dollars onto purchase prices:
The construction of the house can be as simple as building a house and providing, if you like, a gravel driveway. Council are now imposing conditions on the completion of the home. The driveway has to be paved and to be paved with a certain type of material, and there is certain fencing and landscaping and whatever. That can add many thousands of dollars. From a builder's point of view, quite often that needs to be built into the contract price. The contract price then becomes the price about which the consumer, the client, has to go to the bank and say, 'Well, I need some money. Can you fund me this?' People are struggling to get across the line to purchase sometimes on these homes. If we put another $20,000, for example, on the price, it might take them above an LVR where the bank cannot actually lend them that much money.
Housing as an asset for investment
On the demand side, submitters suggested that Australians’ view of housing as an investment asset class, as opposed to a home, contributes to demand for housing and therefore supports higher prices. Mr Brendan Nelson noted that viewing property as a stable investment to fund retirement is unique to Australia:
If you think about the Australian investment model, the biggest investment is in property and people continue to put all their money into property. It's not the case in other parts of the world. People don't necessarily do that—of course there are small pockets and there are some people who own large amounts—but if I was to go to New York, for example, or London, I wouldn't necessarily have the view that I was going to buy three or four properties and use that to help fund my retirement.
The Centre for Urban Research at RMIT University suggested that Australian Government taxation policy, such as negative gearing, supports investor activity in housing markets and contributes to affordability issues:
The Australian Government has a crucial role to play in urban housing and land inequality through taxation systems particularly negative gearing and other policy mechanisms that encourage rather than dampen speculation, land banking and rapidly rising house values.
However, HIA noted that the Australian Prudential Regulation Authority (APRA) has already successfully acted to curb investor activity in the housing market:
On the investor side, developments in lending finance have been strongly influenced by the introduction of APRA’s 10 per cent ‘speed limit’ to growth in lending announced at the end of 2014. This has had the effect of reversing growth in loans to investors over this period. Accordingly, the value of lending to investors peaked over the year to July 2015 just short of $163 billion. During the year to March 2017, the value of investor lending had fallen to $149.1 billion – down 8.5 per cent down from its peak.
Professor Whitzman suggested that international investment in Australian housing is also inflating purchase prices:
So we have internationally mobile capital and a large number of people—and it is fantastic—who want to invest in Australian goods because it is a stable place to invest in Australian goods. That is awesome but the problem is that when so much of it goes into housing units it takes already very high land and housing values and shoots them out of the grasp of ordinary Australians.
However, the Australian Government did act to curtail international investment in housing by introducing a 50 per cent cap on foreign ownership in new developments as part of the 2017-18 Budget. The cap is applied through New Dwelling Exemption Certificates, which are granted to property developers and act as preapproval allowing the sale of dwellings in a specified development to foreign purchasers.
Addressing poor affordability
There was broad recognition amongst stakeholders that Australian Government leadership is critical to addressing housing affordability issues. A nuanced and multifaceted response was recommended, including:
national oversight of housing supply and affordability;
supply side interventions including:
reforming planning and development approval processes;
prioritising infrastructure projects that increase land supply for housing; and
better utilising Commonwealth land.
demand side interventions including:
rebalancing tax relief for investors and first home buyers;
increasing certainty for renters;
addressing homelessness; and
incentivising pensioners to lease vacant rooms.
These strategies to improve housing affordability are considered in more detail below.
National oversight of housing
Witnesses advocated for Australian Government oversight of housing to actively manage supply and affordability.
HIA advocated for the appointment of a federal Minister for Housing with ‘specific responsibility for promoting investment in housing delivery, land supply and improving housing affordability’. It claimed that a dedicated Minister would assist in aligning all levels of government to tackle affordability:
The Commonwealth Government has a key leadership role in the coordination and support of the states and territories to deliver land for residential developments in a manner which improves housing affordability. By supporting programs and initiatives that increase the supply of affordable new housing, the Commonwealth government will assist all Australians to find suitable accommodation, whether through increased public housing stock or private rental or owner occupied accommodation.
Professor Dodson also supported the appointment of a Minister for Housing. He suggested that a Minister is needed to coordinate the multitude of government agencies which impact housing outcomes and to ensure that one of Australia’s most valuable asset classes is managed strategically:
… national housing stock is worth $6 trillion, yet we do not have a dedicated, identified policy development capacity within our federal government to specifically focus on how we manage that huge national asset. The responsibility for housing across all the different parts of the housing system is split between Treasury and the Department of Human Services. Plus, there are other parts of housing policy that are influenced within the ATO, the Reserve Bank and so on through their responsibilities…
…the total value of Australia's housing stock is around $6 trillion. That is very significant when you compare it to about $1.5 trillion in the share market and about $1.6 trillion in superannuation funds, many of which are also invested in the share market. Our housing stock is a huge national asset. We have an Assistant Minister. We do not have a portfolio, though, in terms of an agency with responsibility for understanding simply how that housing stock contributes to productivity and the functioning of our economy.
Professor Whitzman agreed:
It makes sense, from a governance perspective, to have a Minister for Housing to bring together the various arms of housing...
HIA recommended that the Minister for Housing’s portfolio encompass a new Land Planning Council, ‘to provide national monitoring and reporting of land supply’:
As a first step, establish a mandatory national reporting framework for states and territories to identify the current and predicted supply of unzoned, zoned, approved and completed residential land…
The collection of accurate and timely data on land supply which predicates new housing supply is a fundamental element in managing the growth of our cities. The Commonwealth government needs to lead a process to ensure there is a consistent approach to land supply monitoring and reporting, addressing every step in the land supply pipeline.
Professor Dodson noted the previous existence of a National Housing Supply Council. This council monitored trends in the housing market and provided policy advised government on managing challenges:
We had a National Housing Supply Council, but that was closed down in 2013. Although it did not have complete systematic policy responsibility, it was a dedicated element within the federal government that monitored trends in the housing market, the housing system around affordability and so on, and then provided a degree of policy advice to the government about how to respond to pressures and challenges.
Increasing housing supply
Some witnesses suggested that improving the supply of housing will provide greater price relief than interventions to curb demand. They recommended that the Australian Government:
reform planning and development approval processes;
prioritise infrastructure projects that increase land supply for housing; and
better utilise Commonwealth land.
The Planning Institute of Australia (PIA), Master Builders Australia and the HIA all recommended streamlining planning and development approval processes for residential development. Master Builders Australia claimed that speeding up planning processes for new housing developments by one month has the potential to reduce housing prices by 0.5 per cent.
Two approaches were suggested, namely:
refining the existing National Affordable Housing Agreement (NAHA) to require states and territories to reform residential planning and approval processes; and
introducing a joint Commonwealth and state body, modelled on the Australian Building Codes Board (ABC Board) to nationalise residential planning and approval processes.
The NAHA is an agreement by the Council of Australian Governments that commenced in 2009, coordinating a whole-of-government response to improving housing affordability. Ms Kristin Brookfield, Chief Executive of Industry Policy at HIA suggested that the Australian Government could require the states to streamline planning processes in order to access funding under the agreement:
… [the NAHA] is an existing agreement between states and the Commonwealth with funding attached to it. Having the sorts of things we mention here about planning reform and land supply attached to the existing agreement is one mechanism.
However, the Committee notes that work is already underway to refine and extend the NAHA, including incorporating planning and zoning reform:
The Commonwealth Government is working with the states and territories to reform the National Affordable Housing Agreement (NAHA) and provide ongoing, indexed funding for a new National Housing and Homelessness Agreement (NHHA) from 2018-19, to improve the supply of new housing and improve housing and homelessness outcomes for all Australians across the housing spectrum…
Under the NHHA, funding to state and territory governments will target jurisdiction specific priorities including supply targets, planning and zoning reforms and renewal of public housing stock while also supporting the delivery of frontline homelessness services.
Mr Brendan Nelson, President of PIA suggested that a national planning instrument, modelled on the ABC Board would bring greater clarity to residential planning in Australia without preventing necessary jurisdictional specialisation:
I would love to see a national planning instrument. I would love to see a single definition of a house in this country, and I hope, before my time as a planner is done, that we can have one definition of a house. I look at the model that operates with building in this country through the Australian Building Codes Board, who worked quite effectively to develop a National Construction Code, which gives greater clarity. It does allow for jurisdictional elements to be factored in. But we're not talking about anything that's so far removed from that in terms of coming together, facilitating it. It is probably not dissimilar to the ABCB to be fair. I think that at that higher level it would give greater clarity.
Ms Kristin Brookfield also advocated for a national planning body to streamline and nationalise planning and approvals, suggesting that it would foster a more functional, national system:
An alternative model is what we see with the Australian Building Codes Board, which is where everyone has some skin in the game. So the Australian Building Codes Board is 50 per cent funded by the Commonwealth and 50 per cent funded by the states and territories collectively. So that funding then goes to the writing of the national building code and the administration of it. If that model could be used in the planning system for land supply, planning approvals et cetera, it may be a more functional way to truly get a national approach to planning reform.
Master Builders Australia recommended improving the transparency of the developer contributions required by local governments. Developer contributions are fees paid by residential developers to local governments to support the provision of essential infrastructure in new residential developments. Master Builders Australia advocated for the annual publication of the developer contributions required by local governments to expose councils which may be overcharging, reducing the affordability of new homes.
Prioritising infrastructure to increase land supply
Witnesses suggested that expanding the public transport networks of cities would relieve upwards pressure on housing prices and increase the amenity of existing houses in the city fringes. Mr Ashley Brinson, Executive Director of the Warren Centre for Advanced Engineering said better public transport connectivity brings homes closer to services and employment in real terms:
Public transport infrastructure investment—high-speed rail—actually picks up the map and folds it so that two points are closer together… That kind of transport expansion in the major cities will help with housing prices because there's not such pressure for workers to be immediately in the city.
Mr Matthew Pollock, National Manager of Economics and Housing at Master Builders Australia argued that strengthening transport links releases new land for development, increasing housing supply:
… better transport links are perhaps the best way to increase land supply. Not only do they increase land supply but they reduce the costs of land and housing across a city.
Master Builders Australia recommended that the Australian Government prioritise infrastructure projects which unlock new land for residential development, particularly within city boundaries and high demand areas:
This should, if possible, focus on greenfield developments inside existing city boundaries and seek to provide additional residential land in high demand areas. Unlocking more affordable land for residential development is the first step in developing a more sustainable housing stock in the long run.
Better utilisation of Commonwealth land
Other submitters called on the Commonwealth to better utilise its own land holdings to tackle poor housing affordability. The Committee for Sydney suggested that, rather than seeking to maximise purchase prices when disposing of Commonwealth land, governments could incentivise the development of affordable housing:
Where government is disposing of its own land, it can of course incentivise the development of affordable housing by not insisting on highest and best value. When disposing to an appropriate developer and/or [community housing provider], reducing the cost of the land can offset any losses on market value that the development of affordable housing will result in.
It described mechanisms that governments can use to maximise the delivery of affordable housing on government land, such as outcomes-based auctioning:
Another opportunity exists for government to partner with developers to prioritise affordability outcomes, rather than to maximise the sale or lease price. In other jurisdictions, governments auction land for mixed market and affordable housing development with a pre-determined maximum price for the land: beyond the maximum, bidders compete not on price but on the proportion of affordable housing they will deliver as part of the development. The Committee [for Sydney] believes this type of process would send a strong signal of prioritising affordable housing over other land uses, as well as providing the impetus to the private sector to respond innovatively to maximise the amount of new affordable housing.
The Committee for Sydney also noted that government land does not necessarily need to be sold off in order to be developed:
Importantly, government does not need to sell land in order to maximise its use for affordable housing. While it may be most effective to dispose of some sites, there is also a community expectation that public assets are not sold unnecessarily. The Committee [for Sydney] encourages the government to develop new models for partnering with the private and not for profit sectors. This will allow government to retain ownership of land, while unlocking it for productive purposes.
In 2017, the Australian Government did announce the establishment of a ‘National Housing Finance and Investment Corporation (NHFIC) to operate an affordable housing bond aggregator to encourage greater private and institutional investment and provide cheaper and longer-term finance to registered providers of affordable housing’. The establishment of the NHFIC was supported by the Centre for Urban Research at RMIT.
In its submission, PwC also supported the policy, stating:
We believe the Federal Government should consider mechanisms to support policy initiatives at the State and Local levels, as intended by the housing bond aggregator. While this proposed aggregator will give social and affordable housing providers access to cheaper and longer tenor debt for the construction of new homes, it will not solve the funding issues when it comes to social housing. The rent currently received does not cover operating costs, or fund new supply. The Federal Government will need to continue initiatives that pertain to funding -for example, title transfers to Community Housing Providers (CHPs), thereby mobilising Commonwealth Rental Assistance.
We recognise that the bond aggregator demonstrates the Federal Government’s priority to assist in the supply of affordable housing, of which we support.
We recommend that the Government leads the way in establishing affordable housing as essential infrastructure and prioritising this within infrastructure strategies and funding.
We recommend the Federal Government consider further funding mechanisms for affordable housing to enhance liveability and quality of life.
We recommend and support title transfers to Community Housing Providers as a mechanism.
We recommend the Federal Government consider tax concessions and incentives for the development of large-scale affordable housing and build to rent developments including working with State Governments to improve the tenancy provisions in each state to increase rental stock.
In June 2018, the Australian Government enacted legislation providing for the creation of the NHFIC to administer the National Housing Infrastructure Facility (NHIF) and the Affordable Housing Bond Aggregator for Community Housing Providers (CHPs):
The $1 billion NHIF will help to finance critical infrastructure to increase the stock of housing, particularly affordable housing, and to bring forward the supply of such housing. Through the NHIF, the Government will seek to address impediments in building the infrastructure that is critical to unlocking new housing supply. These can take the form of financial constraints — such as mismatches between future revenue streams and the upfront costs of infrastructure — and coordination issues relating to the different stakeholders and different layers of government regulation and responsibilities.
The Bond Aggregator will improve the efficiency of financing for CHPs by aggregating the lending requirements of multiple CHPs and financing those requirements by issuing bonds to institutional investors. The Bond Aggregator will build capacity of the sector and improve housing outcomes by providing CHPs with a more efficient source of funds, reducing the refinancing risk faced by CHPs and reducing borrowing costs.
Rebalancing demand for housing
Witnesses suggested that the Australian Government could lead a repositioning of housing as a place to live as opposed to an asset for investment. Some witnesses suggested that dampening investor demand for housing could improve affordability.
Mr John Archer, Chief Executive Officer of the Regional Australia Institute, highlighted the impact of national taxation policy on the property sector. He suggested that taxation policy should be reviewed to ensure it supports desirable outcomes:
So, there's a whole package of taxes [land duty, stamp tax and negative gearing] that sit around the property and housing sector, and I think it's important that when we're thinking about this settlement pattern we're open-minded about whether they're playing a role in reinforcing what we've got now and whether they need to be changed to reinforce something different…
I think the tax breaks are for productive investment—investment that creates new wealth, new productivity for the nation. In fact, there's always a question you could ask about every tax, about whether they're doing that.
The Planning Institute of Australia (PIA) submitted that Australian Government taxation and investment policy is formulated without sufficient regard for its spatial impact:
That Commonwealth tax and investment policy has a real impact on places – but is conceived without sufficient regard for its spatial impact. It needs to work towards achieving outcomes adopted for cities involving all levels of Government.
It noted that its members believed that the Australian Government should actively manage demand for housing by reducing tax incentives to invest in residential properties:
Positive comments on what the Commonwealth could do to improve city performance: included: …managing the growth of housing demand as an asset class by reducing tax incentives due to negative gearing and CGT discounts and exemptions.
However, Master Builders Australia argued that reducing tax incentives for investment in housing, such as negative gearing, would constitute ‘unfair treatment’ of property investors:
Master Builders urges the Government to maintain its policy to keep negative gearing rules for property investment unchanged and intact. Removing negative gearing rules from property investment, but not other types of investments would constitute unfair treatment of property investors and cause a greater variation in the treatment of debt financed versus equity finance.
Keeping negative gearing on property investments would ensure capital investment into property is treated equitably compared to other types of capital investments like stock, or investment into capital used in the generation of personal income, such as tools for trade workers.
The Committee heard that the Australian Government could also reduce demand for rental properties by legislating for longer term housing leases. Mr Hughes suggested that Homelessness NSW has been advocating for the introduction of five to ten year leases to improve housing security:
We think they can be a very good thing for both the landlord and the tenant. The landlord has a guarantee—especially with a good tenant.
During a hearing in Parramatta, the Committee raised the prospect of incentives for pensioners to lease vacant rooms in their homes to better use existing housing stock. Mr Hughes was supportive, suggesting that the Council on the Ageing NSW (COTA NSW) has already considered a similar scheme:
COTA New South Wales has done some work on that with Youth Action to try to get the two cohorts involved, youth and older people. It doesn't take off as much as I think it probably could—I think there is a need for some taxation incentive because if it is an income they'll be paying tax on it…
For certain cohorts I think it's a great solution. It could be a great solution for older single women—people without major support needs.
Evidence was also presented regarding the Australian Government’s role in ensuring welfare recipients can afford housing. Mr Ben Rimmer, Chief Executive Officer of the City of Melbourne suggested that the Australian Government has a major role in reducing homelessness:
It is frequently forgotten that the Commonwealth government's role in acute homelessness is incredibly significant through the operation of welfare policies, Centrelink's operation and other related matters...
It is clear to the Committee that high house purchase and rental costs are adversely impacting Australian cities, particularly the metropolitan capitals of Melbourne and Sydney. This will continue even with a softening of conditions in the capital city property markets, as affordability is also being impacted by low wage growth, structural shifts in the employment market and high levels of household debt. Even with downward fluctuations in housing prices and rents, the disparity between real estate prices and individual incomes is likely to make housing affordability an issue for years to come.
Average and lower income households are being pushed to the city fringes where poor access to employment, critical infrastructure and services reduces quality of life and contributes to social disadvantage. Key workers, such as paramedics, teachers and nurses now struggle to secure quality housing in the inner city jeopardising the resilience of these communities. Inadequate social and public housing stock is contributing to higher instances of homelessness, with single women and families now at risk of poor housing security.
Rising spatial inequality and increasing housing insecurity cannot be allowed to continue. The Committee believes that all Australians should have access to high-amenity affordable housing no matter where they live.
The Committee notes the complexity of supply and demand factors contributing to higher housing costs and urges the Australian Government to adopt a nuanced and multifaceted response. A senior Minister with responsibility for housing should be appointed to coordinate this response, across Commonwealth government portfolios and throughout levels of government (see Chapter 11 for more details on governance arrangements at the Commonwealth level).
The Committee recommends that the Prime Minister appoint a senior Minister with responsibility for housing to:
monitor housing affordability issues and lead a joint federal, state and local government response;
ensure all policies considered by cabinet support the provision of more affordable quality housing and strike the right balance between investors and home buyers;
coordinate all government agencies with a role in implementing housing outcomes;
identify and strategically develop Commonwealth land holdings to address housing affordability and amenity issues; and
investigate viability of nationalising and streamlining planning regulation similar to the Australian Building Codes Board model.
In doing so the Committee urges the Australian Government to be mindful that housing remains affordable in some regional areas and responses must give consideration to different regional impacts.