Until 2011, any mention of a “carbon tax” invariably meant a consumption tax on specific goods. John Howard swore off a “carbon tax” before he lost government in 2007 but promised an “emissions trading scheme,” as did Labor. Like “carbon pollution reduction scheme,” it sounded like a cure for insomnia. But shorten it and add the “t” word, and you’ve got a potentially powerful stress inducer. Ferociously attacked by Tony Abbott’s opposition, Gillard’s scheme was indeed widely loathed and feared — until it came into operation in mid-2012 and not much changed for most people.

In 2014 the Labor opposition attempted to return the favour by labelling the Abbott government’s proposed-but-never-legislated general practitioner co-payment a “GP tax.” It didn’t catch on. The trick to getting the media to adopt these terms is to make them shorter and snappier than the official name. Abbott’s 2010 “great big new tax on everything!” (Rudd’s CPRS) didn’t become media shorthand; and four years later, “GP co-payment” was already short enough.

Bill Shorten learnt to appreciate the power of tax slogans: most powerfully when his 2019 franking credits policy was labelled the “retiree tax.” (There was also his “death tax,” which was as fictional as Labor’s “the Turnbull government will privatise Medicare!” messaging in 2016.) The “retiree tax” phrasing was parroted not just by the usual suspects at News Corp and 2GB radio but also, with little apparent thought, by the ABC and other straight news outlets.

These short, sharp labels just “work” for the news practitioners, and then can be devastatingly effective because many, perhaps most, Australians really don’t understand the policy but retain the shorthand — especially when it contains the “t” word. What sort of party wants to levy a tax on people simply because they are old and no longer able to work!

So it’s no surprise the Coalition has rolled out a couple of “taxes” since the May budget. First the “death tax” was resurrected, but this time rooted somewhat in reality: the planned changes to trusts would indeed affect some inheritances. The government wisely dropped the idea last month, and while most commentators correctly noted the potential toxicity of the opposition’s framing, they missed another crucial element: the timing of the plan’s introduction.

The headline changes — to the capital gains tax and negative gearing — come into effect this time next year. But the ones affecting trusts begin on 1 July 2028 — that is, after the next federal election. So the government would effectively have been taking the “death tax” to the election.

Labor’s capital gains and negative gearing changes, by contrast, will be in operation by the time we vote and (at least on their current stated intentions) the Coalition (and perhaps One Nation) will be one under scrutiny for their promises to reverse them and to index income-tax thresholds. All of which would cost the budget a lot of money.

It’s one thing for an opposition to promise to kill a government proposal before it’s enacted; it’s another to promise to unscramble a policy already in operation.

The other, more recent post-budget label is the “widows tax!” — in reality, the plan to end the “grandfathering” of joint ownership of property in cases of death or divorce, which would deprive people who co-owned investment properties before 12 May this year of the right to continue negative gearing after 1 July 2027. A splendid bit of creative communication, “widow’s tax” rapidly did the rounds of the media.

The government backflipped pretty quickly on this one as well, either to avoid being seen as picking on widows or because they decided it was undesirable, or a bit of both. They’ve acknowledged quite a few errors and unintended consequences in their bill and hopefully will change some more.

Reports suggest that Anthony Albanese believes the government’s vulnerability to fear and loathing will die down now the main budget bill has been passed (with more amending legislation to come later in the year). I don’t agree. The crucial date will be 1 July 2027, when the changes become reality and the sky doesn’t fall.

Still, there’s a remote chance of animal spirits raining on the parade. While experts say the capital gains and negative gearing changes, in themselves, should have only a modest impact on house prices, the reaction of would-be buyers so far has been to sit on their hands in case prices drop, which has naturally caused just that to happen. It’s a kind of “nothing to fear but fear itself” spiral the government must at least be a tiny bit worried about. A housing crash would be terrible in many ways, including for the government’s standing.

But the most substantial criticism of the budget measures, as opposed to point-scoring, goes to what they will mean for non-housing investments. Applying the capital gains changes to all investments does go against the government’s purported aim of making housing less attractive than other investments. The negative gearing changes at least do that.

What will all this mean when the next election is held in a little under two years? All our crystal balls are too foggy to anticipate the pleasures Australian politics will be inflicting on us (or perhaps voters will be inflicting on Australian politics). This time last year no one dreamed One Nation would be riding so high.

But one thing is close to certain: Angus Taylor won’t be Liberal leader. Andrew Hastie, whose policy preferences and even rhetoric very much resemble One Nation’s, would trigger a leap in the Coalition’s polled numbers, mostly the expense of the far-right party. But eventually, as the date with the ballot box approaches, his intentions could induce stress in the more progressive end of the Liberal Party, its (remaining) supporters and even the politically uninterested middle. Opposition leaders who set themselves up as “conviction politicians” tend to worry voters.

Still, if most of the electorate reviles an incumbent enough they’ll kick them out regardless.

Times are hard across the developed world, at least by past standards, with Australia among the lagging countries in per-capita performance.

The opposition parties will blame bad economic times on the 2026 budget — along with reliable old Labor economic incompetence — while trying not to explain how they will pay for their promises to undo it all and index income tax thresholds (if those promises are still Coalition policy). They’ll warn of the future, that deep down Labor still wants to levy a tax on death — and perhaps even “widows.”

But the government’s capital gains tax and negative gearing changes as big issues as the next election? Nah, they’ll be in place and part of the furniture. •

The post Great big tax scares appeared first on Inside Story.

Observing China’s slower growth in recent years, Wright argues the country’s financial system and fiscal arrangements can only be repaired at a significant risk to the Chinese leadership. President Xi Jinping’s headline efforts to rejuvenate the economy with technological advancement might achieve its aims, but the fundamental economic imbalance would remain. Wright says why in his new book, Broken China.

China’s well-known over-investment in property and construction are the exemplars of a financial system that pursued politically motivated objectives rather than sustainable investment. Provincial governments chased growth targets by drawing on a magic pudding — sales of public land — and large-scale construction was backed by banks that often had strong local political links.

Revenue from land sales helped fund infrastructure projects, further boosting growth targets, a top-line metric for advancement within the Communist Party. Citizens, who typically only had access to low-yielding bank deposits, favoured property for its rapid capital gains, thereby fuelling a speculative bubble. (After the bubble burst in 2020, Wright notes, housing starts collapsed 69 per cent by 2024.)

On the fiscal side, Beijing initially loosened controls on local government to allow special-purpose financing vehicles for strategic projects. This fuelled a rash of local government initiatives, many of which ultimately relied on the logic of the bubble. Those pools of debt have increasingly weighed on the national economy, forcing Beijing to juggle, prop up and consolidate debt. Banks are caught in the middle, with dubious financing putting serious pressure on both their earnings and their ability to finance new activity.

As the complexity of China’s economic renovation and export-weighted trade has grown, analysts have focused on trends in finance. The April 2026 central bank data was another red flag, signalling severe economic contraction. An outright fall in bank lending was the headline, with new loans contracting by RMB 10 billion (A$2.1 billion). That is, more money was repaid to banks than was lent to the real economy. Year on year, credit growth fell by almost half.

The latest budgets released by thirty-one provinces showed a marginal gain in revenues but a steep, continuing decline in land sales income, which was down by roughly two-thirds on five years ago. Provinces are filling the gaps by “monetising” state assets: bundling them up to create an income stream to be sold to investors. In principle, this might a sensible way of cutting excessive debt. In practice, reports of individual cases — loss-making bus fleets and bundles of rental property — suggest the debt is simply being shifted to banks or other public financial institutions.

Optimists believe this is a period of transition for the Chinese economy. Credit growth is slowing because local government debt is being refinanced, consumers have become more conservative, more business growth is financed by equity, and large companies are using bond markets — rather than banks — to finance their activities. That view assumes the restructuring will absorb the financial baggage of past indiscipline and growth will be delivered by technology and manufacturing. Optimists think the system is working.

For Wright, the problem is systemic. Any solution — like who gets loans and how they are priced — will challenge system fundamentals. Repairing public finances requires higher and different taxes as well as larger government transfers to households. The problem is intensely political because effective changes would lower economic growth even more. “The key questions facing Beijing at present,”   Wright says, “concern which types of political costs China’s leaders are willing to bear.”

Just ahead of Xi Jinping’s elevation in 2012, China’s leadership flagged what Wright identifies as a fundamental course correction. The 2013 Third Plenum of the Communist Party, a forum often associated with significant economic policy shifts, adopted a range of steps designed to fix the systemic flaws that had built up into substantial risk. China would allow markets, enforced with better regulation, to have a decisive role in resource allocation; excessive government intervention would be rolled back.

The extent of the challenges and the powerful vested interests meant it was no surprise Xi was given a degree of power unthinkable since Mao’s demise. But while he flexed his muscles on a range of issues, notably endemic corruption, the critical economic problems went untackled.

Contrary to widely held perceptions, Wright believes China’s economy is being driven by its financial system rather than central planning. The failure to follow through on vital financial reforms has allowed its decay to reach debilitating proportions.

“The rise and the eventual stagnation of China’s financial system,” he writes, “is a story of multiple rounds of unintended economic consequences of Beijing’s policy choices, with little evidence of long-term design or strategy. Policymakers were slow to correct obvious policy excesses within the financial system, forcing them to use increasingly blunt and costly measures when they finally responded. Those excesses in credit expansion and the policies used to correct them produced the economic slowdown China is facing today.”

The critical period started in 2008 and culminated in 2018, Wright argues. The massive Chinese credit expansion (which incidentally buffered the global economy) in response to the 2008 US sub-prime crisis initiated financial ill-discipline and a blowout in debt. Beijing’s response — its “deleveraging” campaign from 2016 to 2018 — crystallised a debt burden that now weighs heavily. Official provincial government debt rose from less than RMB 20 trillion in 2018 to RMB 54.8 trillion by December 2025, and “unofficial” local government debt also remains a problem.

One important factor that went missing was the growth of “shadow” banking and peer-to-peer lending, which had been allowed to fill the gaps left by staid official banks. (According to business journal Caixin, another RMB 15 trillion of operational debt owed by local financing vehicles derives from expensive unofficial loans with a limited likelihood of being repaid.) While unofficial financiers were inevitably risky in what was already an excessively risk-prone market, sometimes playing a role that allowed official lenders to get around regulations, they did reflect a reforming shift toward market-based lending.

In any case, the “deleveraging” brakes sharply curtailed activity. And, as Wright says, investors who were used to very little risk were suddenly confronted with collapsing asset values and failed investment vehicles. Then, in the 2020s, came the crash of the property market, a massive driver of economic activity and household investment. With the tide of credit receding, more and more of China’s borrowers were revealed to have been (in Warren Buffet’s colourful phrase) swimming naked.

Wright explains that while regulators tried to tighten credit growth as early as 2011, the political culture of the period meant nothing effective occurred until a huge amount of damage had been done. The “shadow” financial system allowed regional banks to grow outside their borders with transactions that were at best opaque. Depositors, assuming any bank offering was state guaranteed, poured money into “wealth management products” that fuelled rampant speculation in everything from property to commodities and provided the illusion of liquidity in otherwise moribund investments. (Not a very different formulation, as Wright notes, to that which in 2008 brought the US sub-prime market to its explosive end.)

Households were bound to the game by their unusually large savings, which financed the lending, and by their exposure to a property market that became, over time, almost Ponzi-like, with home buyers paying upfront and the cash fuelling ever-greater rates of dubious construction. Businesses were tied in by demands for ever-greater investment.

At the core were provincial governments, pushing both housing and infrastructure construction — and later, new technology industries like photovoltaics and electric vehicles — to levels that could only be sustained by dubious borrowing. All of which is relatively familiar to anyone who has observed the bubbles typical of overheated investment markets everywhere.

Inexplicably, China’s leaders added an extra dimension. Just as the “deleveraging” strictures were biting, Beijing decided to sharply rein in some of the country’s booming commercial sectors. Alibaba’s Jack Ma, shortly after giving a provocative speech about China’s moribund financial services sector, was told that the New York IPO of Ali Pay, his digital payments platform, was canned. Ma disappeared from view for some time and a range of other high-profile digital ventures were similarly handicapped.

Even more shocking was the announcement on 24 July 2021 that private tutoring businesses — which Wright says had attracted about US$120 billion of foreign investment — could no longer operate on a for-profit basis or attract foreign capital.

As Wright highlights, e-commerce, education and digital services businesses had been growth sectors for young, educated workers. Their sudden curbing by administrative fiat had so dramatic an effect that the national statistical bureau suspended publication of youth unemployment figures. Having curtailed debt funding, Xi Jinping piled on a sharp reversal of fortunes for growth areas that were both productivity enhancing and large employers of university graduates.

Then came Covid. While China’s initial response was ostensibly effective, Beijing saw the emergence of the Omicron variant in 2022 as such a threat that it imposed notoriously harsh limitations on movement. The economy effectively stalled. The economic costs were “astronomical,” says Wright, and they continue to affect consumer and business sentiment today.

“Overall,” Wright concludes, “China’s leadership appears highly reactive and reluctant to confront China’s most pressing economic problems, including slowing productivity growth, persistently weak domestic demand, deflationary pressures, weaker household consumption, and ongoing capital outflows… The question that now confronts analysts of China’s economy is to what extent Xi Jinping acknowledges the problems in the economy, or whether he is no longer concerned with the rate of China’s economic growth.”

China’s leadership obviously knows more than Wright knows, which he acknowledges. So why have they not changed course? Why doesn’t Beijing use its financial power and command of the economy to clean out the rotting stock of debt? Because, he says, “Beijing has now lost control over its primary policy tools for directing China’s economy: the financial system and fiscal policy.”

Like most observers of China’s economic outlook, Wright believes fundamental change is required to lift consumption — partly by shifting the basis of taxation and partly by providing direct transfers to households. His notable focus, however, is on the accumulated weight of ill-advised or plainly indulgent investment and its associated debt.

“The most important policy choice China’s leaders will be forced to consider concerns the difficult question of whose debts should be repaid, and whose will face default, with all of the associated implications for China’s future economic development” Wright says. “These are intensely political questions, and they help to explain why fundamental reforms are so difficult. While China’s fiscal and financial systems are decaying, the process of decay generates no immediate pressures or crises for Beijing.”

Ironically, he adds, “China’s system is most vulnerable to systemic crisis when reform becomes a realistic possibility, because government guarantees are then reconsidered quickly among lenders and investors. This dilemma — ongoing decay is debilitating but reform is acutely dangerous — highlights the limited but stark economic policy choices currently available to Beijing.”

Wright’s point about the politics of realising losses is not idle. Back in the 1990s the economic agency in one large province, Guangzhou, was unable to meet its debts. Regulators called the banks — many from Hong Kong — to a meeting in which they casually announced that the agency had no government guarantee. Losses were massive for those lenders who had assumed, not unreasonably, that China would not allow a key development agency to fail.

More recently, the tightening of bank regulations after 2018 curtailed unofficial “wealth management products.” When a bank in Henan defaulted on these products, depositors rioted. They believed, not unreasonably, that a publicly owned bank would back its products.

This all leaves China with a dilemma. Excess investment by the provinces in everything from cement and steel plants to shiny new photovoltaic and electric vehicle plants is depressing prices and piling more debt on local government. Closing uneconomic production would hit local economies hardest, and the cumulative impact would be widespread. Local governments, which account for almost 90 per cent of the activity that drives China’s economy, are meanwhile under increasing pressure to reduce the burden of debt while continuing to drive investment for growth.

Any serious effort to rebalance the economy would involve significant disruption, since a large share of employment is in activities that wouldn’t survive the withdrawal of political financing. Forcing banks — or Beijing — to absorb massive losses isn’t a simple matter of issuing an edict either. Someone has to pay, and either option would still require funding that would burden households — or worse, cause bank failures.

And perhaps the consistent pursuit of investment — and the failure to reach a consumption-led economic maturity — is integral to the China’s political system. As manifested in Xi’s Made in China 2025 policy, Beijing’s ambition is essentially hegemonic. China should dominate in a technological and industrial sense and the way to do that is via strong, state-directed investment. The financing of that agenda demands that household savings are essentially conscripted rather than allowed to fuel domestic consumption.

On balance, Beijing’s dilemma has been in sustaining the primacy of its political system while delivering on its core promise of ever-rising levels of what Xi calls “common prosperity.” Right now, the young graduates flooding onto China’s job market are encountering diminishing opportunities. China’s dynamic private sector is suppressed and the economy is over-reliant on exports running up against rising international resistance.

Wright makes a compelling case that something has to give. How Beijing finds its way through this period seems likely to have serious consequences, not least for an economy like Australia’s that has been an enormous beneficiary of China’s growth. •

Broken China: How the Economic Miracle Shattered and What It Means for the World
By Logan Wright | Polity Press | $51.95 | 272 pages

The post Is China’s economic model broken? appeared first on Inside Story.

Chalmers’s centrepiece tax reforms are of course nowhere near as comprehensive as those introduced by Bob Hawke and Paul Keating in the mid-1980s or by John Howard and Peter Costello in 2000, and they don’t involve as many dollars as Scott Morrison’s three-stage tax reforms of the late 2010s and early 2020s. But they represent the most adventurous set of tax reforms seen so far this century.

For all that, there were almost no surprises in the treasurer’s speech last night. To a greater extent than in any recent budget, almost all of the “announceables” had been leaked — intentionally or otherwise — in the preceding weeks. That’s given both supporters and opponents plenty of time to construct and hone their arguments for or against the major measures.

Needless to say, the most attention-grabbing elements — and rightly so — were the changes to income tax. As widely foreshadowed, the government will prevent purchasers of established residential properties from offsetting net losses on their investment against other income after 1 July next year. This “negative gearing” will be retained, however, for purchases of new dwellings (and for shares and other assets), and existing property investments will be grandfathered.

Capital gains accruing after 1 July next year will no longer be taxed at half the applicable marginal rate (as has been the case since 1999) but instead subjected to the full marginal rate less an allowance for the impact of CPI-measured inflation on the cost base of the asset (the system that applied between 1985 and 1999). This change will apply to existing investments, including those acquired before the capital gains tax was first introduced in 1985, though only to capital gains accruing from July 2027. But investors in new residential properties will still be able to access the 50 per cent discount on nominal gains if they prefer.

Capital gains will also be subject to a minimum tax rate of 30 per cent to prevent investors from reducing their tax by crystallising gains in years when their marginal rate would otherwise be less than that figure.

The government says these measures will improve the prospects of younger Australians seeking to own their own home — a goal that has become significantly more difficult over the past thirty years as prices have increased at multiples of the growth rate of incomes.

Treasury modelling suggests these measures will slow the rate of house price increases by around two percentage points a year and enable around 75,000 more Australians to buy their own home over the next decade. But it also suggests the slower rate of increase in house prices will result in 35,000 fewer homes being built than would otherwise be the case — although it asserts that this will be more than offset by the budget’s additional funding for infrastructure in new housing estates.

The opposition will no doubt seize on this latter element of Treasury’s modelling to support its assertion that “if you tax something more you will get less of it.” In one sense they’re right — the budget measures do represent an increase in the tax on (prospective) investors in existing residential property. But getting less of that would actually be a good thing. That’s because investments in established properties (which account for over 80 per cent of the money lent to property investors) do nothing to increase the supply of housing. All they do is add to upward pressure on housing prices and on the demand for rental housing (by out-bidding would-be home buyers).

Although it’s not guaranteed, there’s a reasonable chance that restricting tax breaks for investors in established housing while retaining them for investors in new housing will encourage new builds, which would also be a good thing. And I’m not persuaded that the prospect of slower price rises will dampen the demand from owner-occupiers — who account for almost 60 per cent of lending for new builds — in the way Treasury seems to assume.

So although the budget’s tax changes won’t solve Australia’s housing crisis on their own, over time they will make a meaningful contribution towards solving it.

Combined with the proposed 30 per cent minimum tax to be imposed on distributions from discretionary trusts, the tax changes also have an inter-generational dimension. According to the latest available statistics from the Australian Taxation Office, only 4.4 per cent of taxpayers under thirty-five report capital gains, compared with 8.6 per cent of fifty-five to sixty-fives and 14.3 per cent of those aged sixty-five or over. That latter group — the sixty-fives and over — accounts for 62 per cent of all capital gains, compared with only 4.2 per cent for the under thirty-fives.

In fact, just 3 per cent of taxpayers aged under thirty-five are negatively geared property investors, compared with 10 per cent of those aged between forty-five and sixty-four, who account for almost half of all reported net rental losses. And almost 19 per cent of taxpayers in the top tax bracket are negatively geared property investors, compared with just over 6 per cent of those who are not in the top tax bracket.

The budget also introduces two small tax breaks directed at people earning wages and salaries: the working Australians tax offset and the $1000 instant tax deduction (in lieu of documented claims for work-related expenses). In no way do these represent a substitute for the indexation of the tax thresholds, which many observers have called for, although the first of these measures is likely to be the primary vehicle for delivering future income tax cuts. But they do represent an attempt to narrow the differences between the way income from labour and capital are taxed.

The government may well pay a political price for breaking its promise not to make changes to negative gearing or the capital gains tax. But if it can convincingly articulate the strong arguments for these changes — as they did when they re-jigged the Morrison government’s “stage three” tax cuts despite having promised to “deliver them in full” — then that price may turn out to be both small and ephemeral.

If this turns out to be the case, then I’d like to think the government will feel emboldened to break another promise it should never have made — to keep giving Western Australia up to $7 billion a year of GST revenue more than its government needs to provide its population with the national average level of public services while levying the average level of state taxes. That’s something a government professing a commitment to equity and responsible fiscal management shouldn’t be doing. •

The post Why Labor is right about tax and housing appeared first on Inside Story.

When Victoria’s new opposition leader Jess Wilson set about meeting business types, she says she heard the phrase anywhere but Melbourne three times in three days. One of Wilson’s first pledges was to make housing more affordable by addressing “all the taxes that sit on property.”

It’s true: Victoria’s taxing of property investments does stand apart from other states. In the 2023 budget the state government not only increased the rate of land tax but also dropped the threshold at which it kicks in. The Parliamentary Budget Office calculated that 380,000 Victorian property investors and holiday home owners would pay land tax for the first time, at an average of almost $900 each, and 480,000 existing tax payers would see their annual land tax bill rise by more than $2000.

Since the start of 2025, Victoria has also levied a tax on vacant residential land in swathes of inner and middle Melbourne. It’s payable on homes vacant for more than six months in the previous year, and on land where homes have been under construction, in the process of renovation or uninhabitable for more than two years. If homes remain empty for a second year, the tax rate goes up. From this month the levy also applies to residential land in the rest of metropolitan Melbourne that has remained undeveloped for more than five years.

Victoria also applies a windfall gains tax of 62.5 per cent if government rezoning results in land increasing in value by between $100,000 and $499,999, with larger gains taxed at 50 per cent. Foreign property owners pay surcharges and extra duties, and a levy applies to short-stay rentals.

The Property Council says this all makes Victoria incredibly difficult for domestic and global investors. Its research, commissioned from Mandala Partners, shows that Victoria attracted 40 per cent less global institutional property investment per capita than New South Wales between 2023 and 2025.

But are state taxes and charges really to blame here? The data also shows that per capita foreign investment in property was much lower than Victoria in smaller states with more generous tax regimes — 46 per cent lower in South Australia and 70 per cent lower in Western Australia. Mandala’s snapshot of institutional investment may tell us more about market size and market conditions than tax settings as drivers of boardroom decisions.

The Mandala report also showed that apartment projects accounted for only 6 per cent of all global institutional investment in Australian property between 2011 and 2025. The vast bulk of foreign investment flowed to commercial projects, particularly office buildings in New South Wales. Given that apartments are a subset of all housing, the impact of new taxes on international investment in Victoria’s overall residential property market is likely to be modest.

Another reason big players may be reluctant to commit to major residential projects Melbourne is the thousands of brand new apartments already on the market. In March last year the property advisory firm Charter Keck Cramer reported 8000 unsold apartments — or about one in every six units completed between 2020 and 2024. In November the firm cautioned that “it will be challenging to deliver new supply” as long as the current stock remains unsold. Apartment prices, it said, would need to rise by about 30 per cent before new projects stack up. In other words, apartments need to get pricier before developers will build more of them.

Of course, if the Victorian government cut  its taxes and charges that could make apartment projects more viable, but a more significant factor undermining commercial profitability is the rising cost of construction, up 40 per cent since the pandemic.

Victoria is also ahead of other states in regulating the private rental market and protecting tenants. It led the way in important ways: ending no-fault evictions; allowing tenants to have pets and make minor modifications; banning rent bidding; and introducing minimum standards for heating, cooling, ventilation and locks. Recent amendments have made it harder for landlords to withhold a tenant’s bond without good reason when leases end.

The latest Homes Victoria rental report shows the number of active bonds fell by 1.5 per cent last financial year, which suggests that more investors are leaving the rental market than entering it. The Real Estate Institute of Victoria says excessive burdens on landlords and property managers are shrinking the pool of rental properties, with claims that there are now 10,000 fewer homes available for rent.

Given all this doomsaying, and the usual linking of supply and demand, you would expect Melbourne’s property market would be particularly tight. If fewer homes are available to let, then surely rents must be going up and vacancy rates going down? If higher taxes have stalled home building, then presumably a shortage of supply should be driving up prices. Yet property industry data suggests that Melbourne is the best state capital to be a tenant and one of the best to buy a home.

While the recent statistics from property analysts SQM and Domain differ, both find that Melbourne has the largest share of properties available for rent of any capital city in Australia. SQM puts Melbourne’s vacancy rate at 2 per cent and Domain has it at 1.6 per cent.

That doesn’t make it easy to find an affordable place to live in Melbourne — far from it. In a market with a reasonable balance between supply and demand the vacancy rate would be 3 per cent. (In other words, at any time, three in every 100 rental properties would be empty and listed for rent.) Yet dire as the situation in Melbourne may be, it is significantly better than in other state capitals, where vacancy rates are much lower.

The weekly asking rent for a house in Melbourne is lower than in all state capitals too (at least on Domain’s data), while rents for units are significantly cheaper than in Sydney, Brisbane or Perth.

Every year, SGS Economics and Planning, Melbourne develops a rental affordability index based on comparing household incomes and median rents. In 2025, Greater Melbourne’s rating was 118, which put it in the category of “moderately unaffordable” (which would translate to very unaffordable for people on low incomes). This is bad, but the scores for other state capitals were even worse. The next best was Greater Hobart with an RAI of 106. Greater Sydney came in at 100 and Greater Perth at 94

When it comes to buying a house, Melbourne is cheaper than Sydney and Brisbane but a bit pricier than Perth and Adelaide, while for apartments, Melbourne is cheaper than any city except Hobart.

How do we square these two things: property industry claims that Victorian government taxes and tenancy regulations are wreaking havoc on the housing market, and data that suggests Melbourne performs relatively well as a place to rent or buy?

The first thing to note is that a review of basic census data shows Victoria has consistently out-performed other states in building homes. In the two decades from 2001 to 2021, the number of residents per dwelling in greater Melbourne fell significantly, down from 2.48 to 2.39 people per dwelling. The ratio fell marginally in Sydney and Brisbane, stagnated in Perth and rose slightly in Adelaide and Hobart.  This suggests that Victoria outperformed other states in housing a growing population over those two decades.

More recent data confirms this trend. Between September 2021 and March 2025, Victoria completed around 220,000 new dwellings, one for every 2.3 additional residents. NSW completed only 173,000 dwellings, or one for every 2.8 extra residents, while Queensland and WA built even fewer homes per capita.

Only Tasmania did better than Victoria, which means, according to the standard supply-and-demand theory, property prices and rents should have risen less. The fact that they rose more suggests demand for housing is not driven just by Tasmanians looking for a place to live. Other factors could include locals and mainlanders building holiday homes or properties to let to tourists as short-term rentals.

The second thing to note is that while higher land taxes and better protections for tenants may make the business of being a landlord more challenging in Victoria, when property investors quit the market, the homes they sell don’t disappear. They are either sold to other investors, who will rent them out, or to owner-occupiers who will live in them. And when people sell holiday houses or other underused dwellings to avoid higher land taxes or vacancy levies, it’s likely that the purchasers will use those homes more intensively, resulting in a more efficient allocation of the scarce resource that is housing.

Lending data suggests that first home buyers are the winners from Victoria’s higher taxes and stricter tenancy rules. In every mainland state except Victoria, the ratio of new loans going to investors and new loans going to first home buyers is about 70–30. In Victoria it is 60–40. (This applies whether assessing loans by number or by value.) This ratio held steady in Victoria over the past three years as new tax settings and tenancy laws took effect, whereas in other mainland states it shifted markedly in favour of investors.

If the primary aim of housing policy is to help more people realise the great Australian dream of home ownership, then it looks like Victoria is leading the pack.

Melbourne remains an extraordinarily expensive city in which to buy or rent a home, especially for people on modest incomes. The fact that it outperforms other Australian capitals, though, suggests that alongside greater housing supply, higher property taxes and more stringent tenancy regulations can help to constrain house price inflation and rent increases. And surely that’s a good thing, even if investors aren’t happy. •

The post Anywhere but Melbourne? appeared first on Inside Story.

This is the dominant view of Australia’s housing challenge — homes are too expensive to rent and buy because we don’t build enough of them, and we don’t build enough of them because there’s too much regulation. The proposed solution is to reform zoning, planning and building rules to unlock more supply.

While it’s beyond argument that Australia needs more housing to meet the needs of a growing population, the proposition that we can build our way to affordability is open to challenge — at least if affordability means the price of housing relative to incomes.

Our housing sector relies almost entirely on private sector residential development, which is characterised by upswings and downturns, and experience suggests that we are unlikely to build significantly more housing over a sustained period.

Bursts of rapid construction are followed by dips, with the average number of new dwellings rising relatively slowly over the longer term. In the two decades to 2004, about 36,000 dwellings were completed every quarter in Australia. In the ten years to 2014 the average rose to 38,000, and in the most recent decade it jumped to 48,000 thanks to a spike in apartment building between 2015 and 2019. Over the past two years, though, the average has fallen back to 44,000. (The increase in overall housing supply is less since many homes are demolished to make way for new builds.)

But even if we could sustain housing production at a level significantly above the long-term trend, property prices are likely to keep rising. This seems to defy logic — surely if we build homes faster than the population grows then prices should stabilise or fall? That would certainly be true if the number of extra people — or more correctly, the number of extra households — was the sole driver of housing demand. But there are other drivers too, including interest rates, lending rules, tax incentives and incomes.

The laws of supply and demand operate with housing, as with most other goods, to the extent that prices go up when demand exceeds supply. People respond to rising prices in a variety of ways, depending on their situation. Some pay more for their housing, some use their housing more intensively (with adult children remaining in the parental home, for example) and some end up with no housing at all. Higher prices also give developers an incentive to build more, but the relationship between rising prices and increased housing construction is weak in Australia. And, as we’ve seen recently, even when property prices go up, new building can be constrained by shortages of labour and materials, rising construction and finance costs and other factors. Rather than building more, developers can also respond to increased demand by increasing their profit margins.

While higher property prices don’t necessarily drive more construction, increases in income do swiftly lift housing demand: when we get extra money, we generally spend it on more and better housing. This is also the case with increased productivity, the holy grail of economic policy. My research shows that when low-income households benefit from greater productivity, they tend to spend the financial gains almost entirely on housing.

Even in higher-income households, some 40 to 50 per cent of extra productivity-related income will be spent on housing. Some of this will stimulate additional housing supply as people purchase new dwellings, but much of that extra spending helps purchase, extend or renovate existing homes, or buy holiday houses. Higher incomes can drive up prices and worsen affordability even if the population is falling or stagnant (as happened during Covid).

The upshot is that if we bank everything on a strategy of fixing housing affordability by adding to supply, we could end up chasing our own tails, at least if incomes keep rising too.

In a recent working paper, I showed that if real per capita disposable income rises by 1.5 per cent annually, then the number of new dwellings must exceed the number of new households by 0.55 per cent for affordability to remain constant (that is, to maintain the current ratio of houses prices to incomes.) So, even if we build enough new dwellings to accommodate every new household, prices will still go up if incomes rise too. Adding an additional 0.55 per cent to dwelling supply might not sound much, but Australia’s record of residential construction shows it would be difficult to achieve.

Under the National Housing Accord, governments have set an aspirational target of building 1.2 million new dwellings by 2029. In its 2025 report on the State of the Housing System, the National Housing Supply and Affordability Council, or NHSAC, forecast that only 938,000 will be completed.

For illustrative purposes, though, let’s see what would happen if the aspirational target were met. If income growth mirrored the five years leading up to Covid in 2020, when real disposable incomes rose by only about 0.5 per cent per annum, then housing affordability — the ratio of house prices to incomes — would decline by 0.7 per cent per annum.

But if government were to achieve its aim of boosting productivity and incomes grew 1.2 per cent per year (in line with historic averages), then the effect on affordability of building 1.2 million new homes by 2029 would be considerably less — only 0.3 per cent per annum — and even less if the number of households grew at the higher end of expectations. The lower the rate of household growth, the greater the affordability gains. But also, the lower the income growth, the greater the affordability gains.

This assumes not only that we succeed in building 1.2 million dwellings but also that the other factors that influence demand — like interest rates, lending rules and tax settings — don’t change. Lower interest rates, for example, would increase buyers’ capacity to borrow, which would increase demand and prices. Tighter lending rules would have the opposite effect.

What is more, to substantially improve the ratio of house prices to incomes, the aspirational target of 1.2 million new homes over five years would need to be met not just once but sustained into the future.

Here we confront another problem. Again, for the purposes of illustration, let’s assume that a building boom is sustained long enough to substantially bring down house prices. That would require developers to keep building at record rates even in the face of falling prices. A more realistic response would be for them to slow development until prices recovered. After all, experience shows that when dwelling prices decline, the rate of construction falls too.

If boosting supply alone is not enough to make housing more affordable, what else could governments do?

One option would be to reduce demand by slowing population growth, which means, in effect, cutting immigration. Again, the matter is not so straightforward: with fewer new households looking for a place to live, new construction will slow accordingly.

Governments could reduce demand by restricting income growth, leaving people with less money to spend on housing, but that is hardly a winning economic or political strategy.

Any serious effort to improve housing affordability means thinking differently about how the housing system works and addressing drivers of demand beyond population growth. It means seeing the housing challenge as a question not just of supply but also of distribution.

For now, most policy effort is focused on pulling the single lever of increased residential construction. In a market economy, though, where the bulk of building is done by private industry, the impact of government action is indirect at best. Planning and zoning reform can make it easier to get projects approved, or to build at higher densities, but these are only two factors influencing investment decisions and profitability. Planning and zoning reform change what can get built but are not enough to determine what does get built.

To be fair, the Albanese government is trying to boost housing supply in other ways too, such as training more skilled workers and encouraging greater productivity through innovative construction techniques. These are worthwhile measures, but they are still indirect and will take time to have an impact.

Since taking office in 2022, the government has also joined the states in investing billions in social and affordable housing. Social housing has declined steadily as a proportion of total housing over four decades and by the last Census, in 2021, it was below 4 per cent. The total of 55,000 new social and affordable homes anticipated by 2029 under the National Housing Accord is a massive turnaround, but still not enough to reverse the long-term decline, let alone restore it to previous levels. The NHSAC has called for government investment to increase the share to 6 per cent in the medium term, and 10 per cent in the long term. This is bold and welcome advice, but there is, as yet, no indication of the government acting.

If 10 per cent of all dwellings were social and affordable housing, this would constitute a substantial non-market sector alongside the two private markets that currently dominate housing provision in Australia — the owner-occupier market and the private rental market.

Boosting the role of non-market housing would ensure that more dwellings went to the individuals and families who need them most: not only those at imminent risk of homelessness but also households pushed into poverty because they shell out so much of their income on rent.  Many rental properties that would be affordable to households with modest means are currently occupied by people who could, in principle, pay more for housing without falling into financial stress. If the non-market sector was large enough to give low- and moderate-income earners real choice, this could put downward pressure on property prices and private rents.

But there is no vision at state and federal level to dramatically expand the size of the non-market housing sector. Instead, governments seem to assume that an unshackled private sector can generate affordability on its own. Non-market housing is consigned to the role of a safety net rather than a competitor on quality and price.

The public investment required to build a large non-market sector would be huge, but the payoff would be enormous too. Adequate housing would generate a range of other benefits, including better health, higher economic growth fuelled by higher consumer spending, greater labour market flexibility and, for some, increased productivity.

With its narrow focus on supply, the government has all but ruled out changes to tax policy. The primary residence is completely exempt from capital gains tax, property investments benefit from a 50 per cent discount on that tax, and negative gearing enables investors to claim rental losses as a tax deduction against their other income. This generous tax treatment of housing encourages over-investment as a store of wealth, inflating property prices. As NHSAC chair Susan Lloyd Hurwitz said recently, tax settings incentivise us to maximise the amount we invest in housing. The logic of the system, she said, is that you should put every dollar you can into housing, which contributes to the situation we’re in.

In tandem with a focus on increasing supply, government could dampen demand by reducing the returns to housing investment through the tax system. It would make sense to target speculative investments — those fuelled by expectations of capital gains, which drive up the price of existing dwellings — while providing tax incentives to construct new homes.

In its 2025 report on the state of the housing system, the NHSAC set out five priorities for action.

1. Increasing investment in social and affordable housing

2. Improving construction sector capacity and productivity

3. Applying best practice principles to planning systems and making more land available

4. Supporting better outcomes for renters

5. Ensuring the tax system supports housing supply and affordability.

The Albanese government has gone further than any government in recent decades on the first of these aims, but the promised funding will all be committed within a few years, when what is needed is sustained funding across decades.

To a greater or less degree, the government is also tackling the next three priorities. But housing tax reform is only on the agenda when it is being ruled out.

Without more far-reaching change, Australia can only hope to make housing more affordable by generating unprecedented levels of dwelling construction. Experience and analysis tell us that such targets are unrealistic. Broadscale planning and zoning reform and greater productivity in the construction sector may get us part of the way there, but to focus on supply as the only cure is to misdiagnose the disease.

Without housing tax reform and sustained investment in non-market housing to complement increased housing supply, it’s likely we’ll keep chasing our tails. •

The post We can’t just build our way out of Australia’s housing problems appeared first on Inside Story.

International institutions including the IMF and the OECD — traditionally bastions of pro-market economic policies — have come to recognise that increasing inequality has  adverse economic and political consequences. It has undoubtedly been a contributor to some of the uglier political developments over the past decade in the United States and Europe. And it has also been a factor in the increasing difficulty of building public support for (or even acceptance of) the sort of policies mainstream economists typically advocate in order to reverse the slide in Australian productivity growth — policies often widely seen as having contributed to increasing inequality.

By comparison with most other advanced economies, Australia has done a reasonably good job of preventing the distribution of income (as opposed to wealth) from becoming more unequal. Indeed, the share of total household income accruing to the top 1 per cent, or even the top 10 per cent, of households has actually declined over the past fifteen or so years after rising steadily from the early 1980s until the mid-2000s.

Source: World Inequality Database.

That’s in no small part because, as the ANU’s Peter Whiteford has long argued, Australia’s comparatively progressive taxation of income, its means-tested social security system and its relatively high minimum wages have done a good job, by international standards, of moderating the impact of global and domestic market forces tending to make the distribution of income more unequal.

The share of income accruing to both the top 1 per cent and top 10 per cent of Australian households is less than that in any other Anglo country — New Zealand, Canada, Britain or the United States — and less than in Spain, France, Germany or Japan. Indeed the top 1 per cent’s share of Australian household income is less than in ostensibly more egalitarian Sweden, according to the World Inequality Database.

But the distribution of wealth is not only much more unequal than that of income — in Australia as in every other country — but has become more so in Australia over the past three decades (apart from some temporary dips in the late 2010s and early 2020s), as shown in Chart 2.

Source: World Inequality Database.

Data from the ABS’s Survey of Income and Housing — which is normally conducted every two years, though the latest was in 2019–20 — shows that the share of “total household net worth” owned by the top “quintile” (20 per cent) of households rose from 59.0 per cent in 2003–04 to 62.8 per cent in 2019–20, or 3.8 percentage points, while the shares owned by the other four quintiles all declined (see Chart 3).

That may seem to be a rather small shift over a period of sixteen years. But it is much more dramatic if viewed through an intergenerational lens — that is, by age group rather than the more traditional net worth quintiles.

As Chart 4 shows, the share of household wealth owned by households where the “reference person” (the ABS’s update of the outmoded “head”) is sixty-five or older rose from 24.8 per cent in 2003–04 to 35.6 per cent in 2019–20 — an increase of 10.8 percentage points — while the share of wealth owned by households aged fifty-five to sixty-four rose by 2.7 percentage points. These gains were at the expense of younger households: the shares of total household wealth owned by households aged fifteen to thirty-four, thirty-five to forty-four and forty-five to fifty-four fell by 1.7, 5.9 and 4.6 percentage points respectively between 2003–04 and 2019–20.

Source: World Inequality Database.

Source: ABS, Household Income and Wealth, Australia, 2019–20 and previous issues.

It is to be expected, of course, that older households will be richer than younger ones on average, since they have had longer to accumulate income and generate wealth. And it would be surprising if the share of household wealth owned by older households hadn’t risen to at least some extent over the past two decades, given that older households account for a greater share of the population.

But the ageing of Australia’s population doesn’t go anywhere near fully accounting for the extraordinary increase in the share of household wealth owned by older households over the past two decades. As shown in Chart 5, the proportion of Australian households where the reference person is sixty-five or older rose by 5.6 percentage points between 2003–04 and 2019–20 — barely more than half the increase in the share of household wealth owned by those households.

Source: ABS, Household Income and Wealth, Australia, 2019–20 and previous issues.

Rather, the main reason for the striking increase in the inequality of wealth holdings across age groups has been that older households own a rising share of the two assets that account for most household wealth — property (56 per cent of total household assets) and superannuation (33 per cent) — which have been growing in value. Younger households, meanwhile, owe most of the liabilities that are offsets to wealth — mortgages (90 per cent of total household liabilities) and student debt (3 per cent) — which have grown at a faster rate than assets over the past two decades.

A particularly important contributor to increasing wealth inequality across age groups has been the decline in home ownership rates among younger households. Australia’s home ownership rate declined by 6.6 percentage points from its peak at the census of 1966 to 65.9 per cent at the most recent census, in August 2021.

But that conceals very different trajectories across different age groups. As shown in Chart 6, the home ownership rate among people aged between twenty-five and thirty-four fell from a peak of 61 per cent at the 1981 census to 43 per cent in 2021, only one percentage point above where it had been at the first postwar census in 1947. The home-ownership rate among thirty-five to forty-four year-olds fell from 75 per cent in 1981 to 61 per cent in 2021, eleven percentage points lower than it had been at the census of 1954. Even among forty-five to fifty-four year-olds, the home ownership rate of 70 per cent at the 2021 census was down by eleven percentage points from its peak thirty years earlier, and five percentage points lower than it had been sixty years previously.

Sources: ABS, Housing: Census, 2021 and previous issues;  Judy Yates, Submission to the Senate Economic References Committee on Affordable Housing, 2015; Rachel Clun, “Mortgages in Retirement Triple, Outright Ownership Halves for Most Age Groups,” Age, 17 July 2022.

To some degree, the decline in home-ownership rates among people in their twenties and thirties compared with people at a similar stage of their lives in the immediate postwar decades reflects differences in lifestyle and career choices between Generations Y and Z and their Baby Boomer parents or grandparents. Not too many of the former are getting married and having children, as the overwhelming majority of their parents and grandparents did at similar ages; and most of them have spent longer in the education system and thus started working, earning and saving later in life than their parents and grandparents.

But a far more important factor has been the decline in housing affordability, as encapsulated by the dramatic increase in dwelling prices as a multiple of whatever measure of income you choose to use, or the fact that it now takes someone on the median household income almost eleven years to accumulate a 20 per cent deposit on a median-priced dwelling, almost three times as long as in 1984.

Another important factor has been the series of conscious decisions by successive Australian governments to allow older people to pay less tax than younger people, either explicitly on the basis of age (as with the Senior Australians’ and Mature Age Workers’ Tax Offsets introduced by the Howard government in 2001 and 2005 respectively) or as a result of taxing particular forms of income (such as capital gains and superannuation dividends and payments, which account for a much larger share of older people’s income) at lower rates than equivalent amounts of income from wages and salaries, which make up the bulk of younger people’s incomes.

Thus, in 2019–20, households where the reference person was sixty-five or older made up 25.5 per cent of the number of households, earned 16.7 per cent of total household income and owned 43.4 per cent of total household wealth — but paid just 7.4 per cent of total personal income tax (Chart 7).

Source: ABS, Household Income and Wealth, Australia, 2019-20 and previous issues.

What could be done to reverse this trend?

Given the role home ownership traditionally played in allowing a broad spectrum of the population to accumulate wealth and, in particular, secure some degree of security in retirement, the most important thing would be to reverse the slide in home ownership among younger age groups.

In recent years governments of both major political persuasions have adopted the view that the best way of reversing the deterioration in housing affordability is by boosting the supply of housing. Yet both major parties have been extraordinarily reluctant to back away from policies that inflate the demand for housing.

Cash grants and stamp duty concessions to first-home buyers, shared equity schemes and deposit guarantee schemes have continued to increase — notwithstanding more than sixty years of evidence that such programs serve only further to inflate house prices. Indeed, the leaders of both major political parties made their attitude clear during the federal election campaign when they proposed policies that would boost housing demand and stated that they wanted housing prices to “keep going up” (at least they were both being honest about that!).

To curb increasing wealth inequality across age groups, governments should also reduce the concessional tax treatment of the types of income that disproportionately accrue to older and wealthier taxpayers — particularly the treatment of capital gains, dividends and superannuation earnings and payments.

Finally, governments could consider reintroducing some form of taxation of inheritances or bequests — especially given the scale of wealth likely to be bequeathed to their children by Baby Boomers, which some estimates put at almost $5.5 trillion.

Although such a tax would inevitably be depicted as “socialism” (or worse) by politicians and commentators across the spectrum, Australia is actually something of an outlier among OECD countries in not having any form of inheritance taxation.

In particular, both the United States and Britain — whose tax systems are commonly used as points of comparison for Australia’s — do both levy taxes on large estates; and neither Ronald Reagan nor Margaret Thatcher, both of whom undertook significant tax reforms, saw fit to abolish them. Nor, for that matter, did Sir Robert Menzies during his nineteen years as prime minister of Australia.

Ironically, the abolition of Australia’s federal death duties was precipitated by Labor icon Gough Whitlam, who promised to do so in his doomed 1975 election campaign (echoing a similar move begun at the state level  by Queensland’s Joh Bjelke-Petersen) — prompting Liberal leader Malcolm Fraser to make a similar promise ahead of the 1977 election, which he implemented after winning by a similar landslide to his victory in 1975.

The US federal government collected US$32 billion in revenue in 2023–24 from estate taxes levied on estates valued at more than US$13.6 million (the threshold is indexed annually for inflation), or about 0.2 per cent of all estates; the British government collected £7.5 billion from inheritance taxes levied on estates valued at over £325,000 in 2023–24 (the Office for Budget Responsibility expects this revenue to double by 2029-30).

Given that some 64 per cent of inheritances in Australia go to people aged fifty-five or over, most of whom are already in the upper half of the wealth distribution, a tax on inheritances of more than (say) $3 million — with an exemption for surviving spouses or partners, and perhaps with some incentives for bequests to registered charities — would likely make a useful contribution to curbing the seemingly inexorable upward trend in the concentration of wealth in older and wealthier hands.

Increasing inequality in the distribution of income and wealth has adverse economic and political consequences. Economists should be doing more to bring those to the attention of the Australian public, and to propose politically workable solutions. •

This article is based on a talk given by Saul Eslake to a Business Breakfast in Hobart on 16 May 2025 hosted by the Tasmanian Division of the Salvation Army for the launch of their annual Red Shield Appeal. A podcast of that talk, and a copy of the slides accompanying it, can be viewed here.

The post Australia’s widening wealth gap, and what to do about it appeared first on Inside Story.

O’Neil’s enhanced control of the policy levers was laid down in the latest administrative arrangement orders, which are issued at the start of each government term. “It’s an absolutely vital document,” says Stephen Bartos, professor of government at the University of Canberra and a former a deputy secretary in the Department of Finance. “Public servants pay close attention to these orders, which set out departmental responsibilities.”

With no department of housing at the federal level, key responsibilities were previously scattered across different portfolios. The result, according to Australian Housing and Urban Research Institute researchers, has been “fragmented and fractured” housing policy.

Housing, rental and homelessness policy were the remit of the Department of Social Services; responsibility for building and construction lay with the Department of Industry, Science and Resources; the Department of Infrastructure, Transport, Regional Development, Communications and the Arts had carriage of cities.

All these responsibilities have been brought into Treasury, the powerful central agency where Clare O’Neil sits as minister.

The new administration arrangements also add land and planning policy to Treasury’s responsibilities. This is a surprise, given that neither was mentioned in previous administrative orders and both are generally state matters. As before, Treasury retains responsibility for population policy.

The new orders reinforce a trend, apparent in Labor’s first term, of positioning Treasury at the centre of housing policy and its implementation. With a growing team of dedicated housing staff, the department already had oversight of Housing Australia, the independent agency created to replace the National Housing Finance and Investment Corporation.

A comparison between Treasury’s pre- and post-election organisational charts shows housing will gain even greater prominence in the portfolio this term. A separate housing group led by a deputy secretary now reports directly to Treasury secretary Stephen Kennedy. Before, housing came under a deputy secretary who also looked after small business, corporate and law.

Hal Pawson from the City Futures Research Centre at UNSW hopes the revised arrangements indicate a new level of seriousness from the Albanese government. “It certainly opens the way for a more purposeful approach to housing policy,” he says.

Bartos agrees. He welcomes the shift of homelessness out of the social security portfolio. Locating it there, he says, suggested it was primarily a welfare issue. “That misses the point. The best way to fix homelessness is not through the welfare system but by giving people houses.”

The division of powers in Australia’s constitution still constrains Canberra’s sway over housing. “Putting Commonwealth responsibilities together is highly desirable, but housing is always difficult because the Commonwealth can only do so much,” says Bartos. “It’s up to the states to do a lot more as well.”

In its first term, Labor reinvigorated dialogue with state and territory housing ministers as Treasury led the development of the National Housing Accord and its “aspirational” target of 1.2 million well-located new homes by 2029. Canberra eventually committed a total of $4.5 billion to support this target in return for the states and territories expediting zoning, planning and land release. With land and planning policy now formally part of her portfolio, Clare O’Neil has the authority to push even harder on this.

Bringing the construction industry into the Treasury portfolio gives O’Neil scope to accelerate innovation — and hence productivity — in building. The Productivity Commission recently flagged stagnant productivity as a key contributor to the rising cost of residential construction.

No longer just minister for housing and homelessness, O’Neil is also minister for cities. “The last Commonwealth minister who made a substantial difference on cities was Tom Uren back in the days of [the Department of] Housing and Urban Development,” says Bartos. A minister in the Whitlam government, Uren was Albanese’s political mentor, and the prime minster acknowledges him as a father figure.

Cities are also primarily a state matter, though, so if Albanese and O’Neil plan to play a strong hand, Canberra must back up its initiatives with significant funding. “If they are prepared to put some serious money on the table, it’s possible they can make headway with the states,” says Bartos.

O’Neil, an energetic and articulate minister, now has a larger set of tools for repairing Australia’s housing system, and we can expect to hear more about her plans in a speech to the Property Council later this week. Hal Pawson hopes she will return to the task of crafting a national housing and homelessness strategy — one that would ideally be embedded in legislation. Despite nationwide consultations, the results of Labor’s first-term effort to develop a housing plan were underwhelming — not least because any discussion of tax reform was implicitly ruled out of bounds. Pawson says the government should revive the development of a national strategy by establishing an expert review under the Council on Federal Financial Relations. He sees this as a way of tying in the states and territories. And this time, he adds, property taxation must be on the agenda too.

Labor has been gun-shy on housing tax reform since suffering narrow electoral losses in 2016 and 2019 when leader Bill Shorten campaigned on a promise of change. It may have little room to move on the totemic issue of negative gearing, given repeated promises not to reopen the question. But Bartos thinks changes to capital gains tax on investment housing could be possible as part of a more comprehensive tax review.

Like many analysts, he thinks the generous 50 per cent capital gains tax discount encourages speculative investment in housing that drives up prices. Reducing the rate, he says, would “make huge inroads into making housing more affordable.” •

The post Treasury tools up for housing appeared first on Inside Story.

The prevalence of this view explains the near-universal condemnation of the Coalition’s election policies. Peter Dutton’s promise to let first home buyers raid their super balances and deduct mortgage interest from their tax would have increased demand without increasing supply, pushing prices even higher. His plan to relax the tests banks must apply when they assess a purchaser’s capacity to cope with interest rate hikes would have done the same while raising financial risk.

Labor’s pledge to expand two programs that encourage home ownership can be criticised on similar grounds. One enables first-time buyers to secure a mortgage with only a 5 per cent deposit. The other facilitates “co-buying” with the government. While less inflationary than the Coalition’s offerings, both schemes would increase demand rather than expanding supply.

But Labor is building dwellings too. In its first term it established the Housing Australia Future Fund to finance 30,000 new social and affordable homes over five years. The Coalition would have scrapped the fund if it had won office and most of those urgently needed homes would never have been built. Labor’s $2 billion social housing accelerator program will provide another 4000 homes for people in urgent need of housing, and a further 10,000 affordable dwellings are promised under the National Housing Accord with the states and territories.

During the campaign, Labor also announced a $10 billion build-to-sell initiative. In a scheme harking back to the postwar decades, Canberra will provide concessional loans and grants to help the states and territories build 100,000 lower-priced dwellings for sale to first home buyers. This is a cautious, toe-in-the-water version of the Greens’ pitch to turn the federal government into a property developer. Hal Pawson from the City Futures Research Centre at UNSW describes Labor’s plan as “a bold initiative” that challenges conventional views about the limits of government involvement in housing.

Labor has also introduced tax concessions for build-to-rent projects with fifty or more apartments. To qualify, developers must provide five-year leases and offer at least one-in-ten dwellings at a significant discount. Labor claims the measure will support the construction of around 80,000 homes. The Coalition and the Greens attacked the move — the Coalition arguing it did nothing to advance the dream of home ownership, the Greens blasting it as corporate welfare. But experience overseas suggests a bigger build-to-rent sector can increase the supply of apartments while also moderating the boom–bust nature of higher density building.

Pawson’s research shows that Canada’s “mature and thriving” build-to-rent sector, for example, generates a steadier flow of apartment construction than in Australia. Here, the focus is on building units for sale, a market subject to dramatic ups and downs.

The difference lies in the financing. Funds for large build-for-sale projects are contingent on most units being pre-sold. But owner-occupiers generally prefer to see a finished product before buying, which means that developers are reliant on the willingness of investors — often from offshore — to purchase off the plan. Finance for build-to-rent projects, by contrast, is based on long-term rental returns rather than short-term gains; and this, says Pawson, brings greater immunity to market fluctuations.

Promoting build-to-rent breaks with the Australian preoccupation on home ownership as the primary goal of housing policy. It still conforms, though, to the conventional view that private investment rather than public funds should deliver the vast bulk of new homes. Since it’s more profitable for private developers to build the housing that wealthier people desire than to build the housing poorer people need, this strategy will perpetuate current inequalities: many Australians don’t have enough housing while others have too much. Australia’s tax settings contribute to the problem; by protecting housing as a store of wealth, they encourage overinvestment. This is both unfair and inefficient, as the number of spare bedrooms around the country shows.

An overwhelming focus on supply tends to push these concerns about distribution to one side. Yet they should share centre stage, because the dominant view — that a lack of housing explains Australia accelerating rents and prices — doesn’t tell the whole story.

The Grattan Institute, a leading proponent of the lack-of-supply view, argues that “construction in recent years hasn’t kept up with increasing demand.” But the relationship between population growth and dwelling growth is beset by chronic volatility rather than a persistent pattern of undersupply. The peaks and troughs shown in this Reserve Bank chart (released in April 2023) suggest that business cycles, interest rates and external shocks like the Covid pandemic play a bigger role than planning rules in determining how many new homes get built each year.

To back up its lack-of-supply argument, Grattan published a league table of thirty OECD nations showing that “Australia has less housing per person than most other countries.” I’ve confirmed that’s the case in my own table, which uses the same dataset but limits the comparison to twenty countries that share with Australia a long-established market economy and democratic electoral system.

With only 420 dwellings for every 1000 inhabitants, Australia languishes at the bottom of the table together with five other nations notorious for failing housing markets and severe homelessness — England, the United States, Canada, Ireland and New Zealand. The top-ranking nations — Italy, France, Portugal, Finland and Spain — all have more than 560 dwellings per 1000 people.

It seems like an open-and-shut case: too few houses, too much unmet demand. But a closer look reveals a more complicated picture.

With an average floorspace of eighty-four square metres per person, Australia builds much larger homes than most other countries. The average home in Germany has less than fifty square metres person and in Japan it’s less than forty. If we revised the table to show the amount of living space per 1000 inhabitants, Australia would undoubtedly climb the rankings.

Other factors muddy the picture further. Spain, for example, sits near the top of the OECD table, with 563 dwellings for every 1000 people. According to the supply theory, its housing market should be relatively benign. Yet, like Australia, it is gripped by a housing crisis. Rents have risen by 80 per cent over the past decade, resulting in mass demonstrations and rent strikes that have made housing a top political concern. Tourism has been blamed for converting apartments from long-term rentals into short-stay accommodation.

Italy also appears to have plenty of housing to go around, but there, too, young adults complain of being forced to stay in the family home because they can’t find affordable rentals. Tourism, high rates of youth unemployment and a lack of dedicated student accommodation contribute to Italy’s challenges.

Meanwhile, there are many empty houses in Italian villages, something that is also true of Portugal and Japan. Declining rural populations inflate the national ratio of dwellings to population without adding to housing supply in a meaningful sense.

Demography is at play in other ways. Countries towards the top of the OECD league table generally have much older populations than countries near the bottom. In Italy, the median age is 48.4, in France 42.6 and in Spain 46.8. In Australia, meanwhile, the median age is 38.1, in New Zealand 37.9, and in the United States 38.9.

In a country with an older age profile, more people are likely to live alone or in couple-only households, which increases the number of houses needed to put roofs over everyone’s heads. Younger countries like Australia need fewer dwellings per person because more people, including families with dependent children, live in larger households.

As this scatter plot shows, median age correlates clearly, if imperfectly, with number of dwellings per head. Australia and other laggards in the OECD housing supply stakes — with their relatively youthful populations living in larger households — are clustered towards the bottom left-hand corner of the chart. Countries with higher median ages sit further to the right because they need more dwellings to accommodate the same number of inhabitants. This adds up to a plausible alternative explanation of Australia’s low ranking in the OECD housing table.

Other OECD data raises more questions about Australia’s reputation as a home-building laggard. If we compare the share of new dwellings added to existing housing stock over the past decade or so, Australia sits second from the top.

A Financial Times analysis also ranked Australia second (behind Switzerland) according to the number of new homes built per 1000 inhabitants over the past decade.

Government’s role in housing also varies greatly between countries, whether as a direct provider of homes or a facilitator through not-for-profit associations, collectives, land trusts and other non-market mechanisms.

The countries generally considered to do the best job of housing their populations, many of them in northern Europe, have more interventionist policies and a larger share of non-market homes. Countries that struggle with the cost, quality and availability of low-income housing — Australia, the United States, Italy and Spain, for example — rely more heavily on the private market.

None of this data contradicts the case for building more homes or streamlining planning rules, especially to encourage medium-rise apartment blocks in established suburbs. But it does highlight the complexity of the problem and the pitfalls of simple dwelling-to-population ratios. Australia’s housing challenge is not as simple as building more houses.

And building more houses is not so simple either. The Financial Review reports that more than 35,000 apartments and townhouses in western Sydney are “sitting unbuilt” despite having been approved by planning bodies. The blockage is not bureaucracy or “land banking” by developers but “material and construction costs, land prices, finance fees and more competition for a limited number of qualified trades.” Across greater Sydney, building has yet to commence on more than 75,000 approved homes. As Pawson’s colleague Peter Phibbs told the Sydney Morning Herald, the market, not the planning system, increasingly determines what gets built. In current business conditions, building those homes isn’t commercially viable.

This is evident in Melbourne too. About 8000 of the city’s apartments completed between 2020 and 2024 are still unsold. That means roughly one-in-six of the apartments finished over the past four years are yet to find buyers even though countless Victorians are desperate to get a foot in the door.

Richard Temlett from property advisory firm Charter Keck Cramer told the Age that recently built apartments sell for between $8000 and $10,000 per square metre but future projects would need to sell for about 50 per cent more to be profitable. New developments are unlikely until existing stock is cleared.

Long term, Labor hopes to cut the cost of construction by spending $78 million to fast-track trade skills and $54 million to encourage innovative building techniques like prefabricated housing. In the short term, lower interest rates will reduce developers’ financing costs — but they will  push up property prices at the same time. And the tragic irony is that prices will need to go up, not down, to pull construction out of its current slump.

The market approach has run aground on a contradiction — housing will only become more affordable if developers build more of it, yet developers will only build more of it if housing becomes more expensive.

In the meantime, home ownership rates fall and the number of renters rises. Existing homeowners and landlords, who can borrow against their existing holdings to invest, and benefit from tax breaks, accumulate a growing share of the value of all residential property, transferring wealth from bottom to the top, with renters helping investors to pay off their loans and accumulate capital.

This trend is often seen in generational terms — as a contest between baby boomers and Gen-Y — but it is better understood as a class divide that will intensify as wealth passes down through families. Renters will beget renters and property owners will beget property owners.

What of that other element of Labor’s housing program: its decision to make social housing a federal priority again after a decade of inaction under the Coalition government? The renewed emphasis is welcome, of course, but its limits are clear. Returns from its bespoke financing mechanism, the $10 billion Housing Australia Future Fund, or HAFF, seem likely to be fully committed by 2028, and by then the other one-off injections of funding from Labor’s first term will also have been expended.

A key question facing the re-elected government is how to finance a steadily growing supply of social housing through the 2030s. Recapitalising the HAFF is one option, but there are better models, including direct investment or a revolving credit fund that ploughs rental income from affordable housing back into further building. Europe-based Australian housing expert Julie Lawson argues the latter mechanism, more efficient and less complex, works well in Austria, Denmark and Finland.

Longer-term measures to make housing fairer must also include tax reform. Labor has painted itself into a political corner on negative gearing, but it has other options. As tax expert Helen Hodgson argues, reforming capital gains tax would better deal with escalating house prices. Under current rules, investors who profit from selling an asset only pay tax on half their gain. It’s the expectation of this lightly taxed windfall that makes rental losses bearable, so reducing the capital gains tax discount would defang negative gearing too. Changes to capital gains tax are not as strongly linked as negative gearing to past Labor promises and will need to be considered as part of a comprehensive tax reform package that must be a priority for the current parliament.

A shift from stamp duty to a broad-based property tax would also improve housing outcomes. First home buyers stand to gain: instead of incurring stamp duty up front, when they can least afford it, their payments would be spread over time. By making it cheaper to buy and sell, a switch to property taxes would encourage more efficient use of housing. Empty nesters in large homes, for example, would have a tax incentive to downsize, especially given that buying a smaller place would not cost an arm and a leg in stamp duty.

Switching from stamp duty to land tax is tricky and must be done at state and territory level, but the federal government could facilitate the transition. The ACT has paved the way, and the shift is backed by most economists and by the property industry.

In the final episode of his informative podcast series Housing Hostages, ABC business editor Michael Janda asks us to imagine an Australian city where house prices have risen less than incomes over the past five years and apartment prices have not gone up at all. A city, in short, where homes have become more affordable.

That city exists, Janda says, and its name is Melbourne. In March, the median price of a house in the Victorian capital was $600,000 below Sydney, and the median price for a unit was $270,000 less, making it cheaper to buy a unit in Melbourne than in either Adelaide or Hobart. Janda says Melbourne has more first home buyers entering the market than any other capital except Canberra.

Renters are generally better off too. While it’s difficult to find an affordable rental anywhere in Australia, Melbourne’s vacancy rate is equal with Canberra’s as the highest of any city. Median house rents are lower than in any other mainland capital, while unit rents are cheaper than Sydney, Brisbane and Perth.

Many factors are at work here, but Janda attributes some of the difference to state government efforts to change the way housing is used. Examples include a levy on vacant properties, a levy on short-term accommodation, and a steep increase in land tax on investor properties. Victoria has also led the way in tenancy law reform to enhance the rights of renters and increase landlords’ obligations to provide decent homes. This combination of measures has prompted some property investors to sell up or to shift from short-stay bookings to long-term leases. It’s had the same effect on the owners of holiday homes. Both actions help to make housing more affordable to buy or rent.

That’s what one state can do with some of the limited mechanisms at its disposal. Nationally, though, housing policy during Albanese’s first term was “hyperactivity without a plan,” in Hal Pawson’s words. While there were several welcome initiatives, deeper reforms — especially tax reforms — were lacking. Australia’s housing system, he says, operates in “fossilised policy architecture” dating from the 1980s and 1990s. Yet recent decades have brought immense changes to the economic and financial environment “especially the flood of money that has cascaded into real estate.”

With responsibility for housing policy scattered across different departments and levels of government, Pawson says “a fit-for-purpose overarching strategy is a fundamentally necessary foundation for progress.” That’s a reminder that Labor’s first term pledge to deliver a national housing and homelessness plan remains unfinished business. Last time, the process was deeply flawed; this time, the government needs to bring together a plan for recasting Australia’s housing system that reflects the best evidence.

With a bigger majority and strong prospects of a third term in office, Labor can be bold. Let’s hope it seizes the opportunity. •

The post It’s not as simple as building more houses appeared first on Inside Story.

“Jacinta Allan’s Undemocratic Plan to Destroy Melbourne’s Liveability and Quality of Life” was the title Victorian Liberal MPs’ gave to their chapter of a newly released report on planning reform. Their comments were adorned with a photo of a crowded, treeless metropolis. (A reverse image search suggests it was cropped from an unflattering picture of suburban Athens.)

Liberal upper house leader David Davis took up the theme when the report was tabled in the Legislative Council, predicting “the destruction of large parts of our Melbourne suburbs, our beautiful suburbs on which the ambience and history of our city is built.”

At issue are three amendments to Victoria’s planning scheme that go by the prosaic names VC257, VC267 and VC274. The first facilitates higher-density residential development around public transport hubs. The second codifies rules for multiple dwellings up to three storeys high on single lots and requires councils to approve compliant projects while denying nearby residents any right to object. The third creates a new “precinct zone” to streamline planning applications in priority areas, including around the stations on the Labor government’s suburban rail loop — a multi-billion dollar project to fundamentally reshape Melbourne for nine million residents by 2050.

Over the past month, a parliamentary committee dominated by non-government MPs has conducted a rapid inquiry into the amendments, with the Liberals hoping to convince the Greens to join them in disallowing the regulations in upper house. The attempt failed.

Not that the Greens are enamoured of the planning amendments either. They lament that higher densities were permitted without any trade-offs — especially any requirement to set aside a share of new dwellings for public housing or other “genuinely affordable” homes. And they say the amendments will reduce tree canopies and lower sustainable design standards across twenty-seven local government areas.

The planning amendments have ardent backers too. Researchers from the Grattan Institute warned that the Liberal bid to reverse the changes would be “a disaster for housing affordability.” Victoria, they said, would end up with fewer, more expensive homes, locking more Melburnians out of home ownership.

That argument rests on the proposition that planning constraints prevent developers from building enough homes. According to Grattan’s research, more than 40 per cent of residential land within ten kilometres of the CBD is zoned at the most restrictive level — the Neighbourhood Residential Zone — making it very difficult to build townhouses and apartments in the most desirable parts of the city. The result, according to the institute’s submission to the inquiry, is that population numbers are falling in “swathes of suburbs in Melbourne’s affluent east and bayside areas, precisely the places so many Victorians want to live, but can’t afford to.”

Grattan’s view that Victoria’s new planning rules “promise a bigger boost to the housing aspirations of younger generations than anything that occurs in the federal parliament” aligns with the “abundant housing” theory that inspires the lobby group YIMBY Melbourne. YIMBY (Yes in My Backyard) told the committee that the three planning amendments reflect best practice nationally and internationally and will “overwhelmingly benefit younger, poorer Victorians — particularly renters.”

The Liberal, Green and Legalise Cannabis MPs — a majority of the committee — were not convinced. The government, they found, failed to show that the planning amendments would increase the supply of housing, let alone make it more affordable. Indeed, they found it curious that one of the research papers provided by the Department of Transport and Planning revealed a lack of evidence that planning is what prevents housing getting built or that additional market-rate housing significantly affects affordability.

Local governments insist they are not holding back development, since they approve most planning applications within statutory time frames. Evidence that construction is yet to commence on tens of thousands of approved dwellings across Melbourne suggests home building is constrained by factors outside the planning system, including labour shortages, construction costs and high interest rates.

Abundant housing theorists would say this misses the point. While speedier approvals save time and money, the most important effect of Victoria’s three planning amendments is, as Grattan says, to “permit more housing where demand is highest.” This means more townhouses, apartments and other higher-density dwellings in suburbs currently dominated by low-rise detached homes. Before the amendments, Victoria’s planning rules blocked such change, and prioritised established residents and over future ones. The planning amendments don’t “dictate where housing must be built” but will, presumably, enable higher-density development to take off in Melbourne’s middle-ring suburbs once business conditions improve.

The committee reported that all the witnesses to the inquiry supported the Victorian government’s aim of building more well-located housing in Melbourne. Many, though, were concerned to protect heritage values and prevent the city’s urban fabric being overwhelmed by poorly designed, shoddily constructed apartment blocks. And many wanted the state to do more than rely on market forces to make housing more affordable.

There was a strong view among witnesses that the Victorian government had acted imperiously, failing to engage urban planners, design experts, local government officials and residents in meaningful consultation before making far-reaching amendments to the planning scheme. Charter 29, a group of professional planners, accused the Victorian government of conducting, “by stealth,” the most radical redrafting of planning in Australia’s history. Member Michael Buxton, emeritus professor of planning at RMIT, says the changes represent the capture of government by powerful property interests. Contrary to established practice, the amendments were not exhibited for public comment and expert review.

The committee found that planning minister Sonya Kilkenny “inappropriately exempted herself from expected consultation” (Kilkenny derided the inquiry as “a bit of a sham” and knocked back a request to appear without giving reasons) and that the Department of Transport and Planning failed to provide requested materials and background documents.

Rather than back the Liberal motion to disallow the amendments, the committee called for the impact of planning provisions to be monitored and constantly improved. This is in line with previous recommendations from the Victorian auditor-general — recommendations that have not been implemented.

The issues under scrutiny in the Victorian parliament are not specific to Melbourne. They bring to the surface tensions underlying the housing debates in all Australia’s capital cities — between present and future residents, between home owners and renters, between heritage and new housing, between building homes quickly and building homes well, between cost-cutting and community consultation, between neighbourhood concerns and metropolitan-wide interests, between the role of the market and the role of the state, between profit and public interest.

Committee chair David Ettershank, a Legalise Cannabis Victoria MLA, gave expression to these dilemmas in parliament: “It is abundantly clear that Victoria needs many more homes, especially more genuinely affordable homes, in well-located areas near public transport, jobs and services,” he said. “None of the committee members or indeed any of the witnesses who gave evidence to the inquiry dispute this cruel and pressing reality.”

Yet, he added, the “dramatic scope” of the planning amendments would have “many unintended consequences.” They were made on the promise of certainty and speed at the expense of the right of the community and local councils to have a say. “I do worry that the government is overlooking the benefits of consultative and collaborative engagement with councils and communities.”

“As one witness put to us, this is a once-in-a-generation opportunity to get it right; we must ensure that we do.” •

The post The battle for Melbourne appeared first on Inside Story.

In my experience, these discussions are usually pretty vague and confused, jumping back and forth between architecture, transportation, consumer technology, production technology, art, pop culture, soft power, urban design, and a bunch of other topics. That doesn’t mean I think the topic is worthless; vague and confused discussions can be fun! But I thought I’d try to think about Sinofuturism a little more systematically.

As far as I can tell, the recent burst of Sinofuturism seems to come from four main sources:

• China’s new high-tech industrial model
• The legacy of China’s real estate boom
• A charm offensive by China
• The election of Donald Trump

In the early 2020s, the economic model that had sustained Chinese economic growth since 2008 basically collapsed. This model was based on massive real estate investment — the biggest development boom in the history of the world. Real estate sales funded local governments, so local governments basically approved and supported any and all development that would increase the value of land. Meanwhile the Chinese central government encouraged banks to lend to developers as a way of sustaining the macroeconomy through a series of shocks. This predictably led to an eventual financial bubble and crash when the loans used to finance this incredible development boom outran the ability of real estate to generate economic returns. There was a big bust in 2021–23, and growth slowed down.

China’s leadership responded to this slowdown by going all-in on high-tech manufacturing. At Xi Jinping’s behest, the country’s banks poured untold amounts of money into sectors like autos, semiconductors, machine tools, robots, electronics, batteries, aircraft and all kinds of other stuff. The government supported the boom with subsidies as well, though I think we often tend to overemphasise its role relative to the private initiative of companies like BYD, Xiaomi and DJI.

That lending boom has since cooled off a bit, but it was enormous during 2021–23, and industrial loans continue to grow at a fairly rapid clip. All that lending fuelled a wave of investment in the “technologies of the future.” Many of those were production technologies — the machine tools and robots in the highly automated Chinese factories that you can see in videos like this one. And some are consumption technologies, like the high-speed rail network that’s bigger than all the networks in the rest of the world combined.

This tech boom won’t be enough to return the country to pre-Covid levels of growth. But it has transformed Chinese cities, filling them with futuristic stuff like delivery drones, drone shows, delivery robots, air taxis, high-speed trains, face-recognition payment systems, electric cars with fancy screens inside, skyscraper-building machines and so on.

China’s lax regulatory climate — partly a result of cosy relations between local government and corporations, partly an intentional result of the central government’s high-tech push — has made the rollouts of these technologies faster and more widespread than in developed countries, where things like noise complaints and safety concerns predominate.

The electronics manufacturing boom (which actually predates the more recent high-tech push) has also resulted in a glut of cheap LEDs, which many Chinese developers have plastered all over their high-rise buildings and malls. This might be partly cultural and aesthetic, but it’s largely an attempt by cities and companies to advertise themselves to businesses and consumers both at home and overseas. Videos of these “cyberpunk” nighttime cityscapes have proliferated across the internet.

The second big reason for the boom in Sinofuturism is a government charm offensive. A number of aggressive Chinese actions in the late 2010s and early 2020s — the claiming of the South China Sea and pieces of Indian territory, the crushing of Hong Kong, the rise of “wolf warrior” diplomats, China’s soft support for the Russian invasion of Ukraine — led to a rise in negative perceptions of China throughout the world, in both developed and developing countries. This probably contributed to a massive exodus of foreign capital from the country, as multinational corporations scrambled to diversify and de-risk themselves.

China’s government has responded with a series of “charm offensives” to increase the country’s “soft power” around the world. Part of the message is that China is a positive force in the global economy, promoting free trade, fighting climate change, spreading high technology and offering infrastructure investment to developing nations. And part of the message is that China is the country of the future — a technological and economic powerhouse whose rise is inevitable and should be admired rather than resisted.

This charm offensive is now getting a boost from a flood of pro-China content by Western influencers. Fewer foreigners are living in China and the number of tourists visiting the country has returned to near its pre-pandemic level. Yet there has been a massive proliferation of videos, mostly by foreigners, saying “I visited China, and it wasn’t what I expected at all!” or “I visited China, and America is COOKED!” The most famous of these, by far, is the recent series of videos by the popular internet personality Darren Watkins, better known as iShowSpeed.

An obvious question is whether these folks are getting paid by the Chinese government to make videos that support a Sinofuturist narrative. In fact, some are, especially the ones made by Western expats living in China. The New York Times reported on this phenomenon back in 2021:

The videos have a casual, homespun feel. But on the other side of the camera often stands a large apparatus of government organisers, state-controlled news media and other official amplifiers… State-run news outlets and local governments have organised and funded pro-Beijing influencers’ travel, according to government documents and the creators themselves. They have paid or offered to pay the creators. They have generated lucrative traffic for the influencers by sharing videos with millions of followers on YouTube, Twitter and Facebook… With official media outlets’ backing, the creators can visit and film in parts of China where the authorities have obstructed foreign journalists’ reporting.

In addition, it’s possible that China is using its control of the TikTok algorithm to promote videos like this — or, more likely, that would-be influencers hoping to go viral simply think TikTok will promote them if they spout a bunch of wide-eyed Sinofuturism.

But government propaganda is highly unlikely to explain all, or even most, of the boom in Sinofuturist videos. It’s likely that these videos are just a meme, much like travel to Japan became a meme in the 2010s.

China’s big tech push helps the meme, since all those futuristic cars and robots and drones give foreigners more to fawn over. But the sudden perception of China as the “country of the future” probably owes even more to the property and infrastructure booms that just ended. Neither the forests of LED-covered skyscrapers, nor the endless miles of high-speed rail, nor the vast shiny new malls that dot China’s city centres would exist if China’s banks hadn’t gone on the mother of all lending binges after 2008. Robots and drones are cool, but the built environment is what dominates travellers’ impressions of any country.

In other words, China’s real estate era may have ended in tears for some developers and local governments but it left behind the physical edifice of a very futuristic-looking country. When people go to China and see the future, what they’re really seeing is the country’s recent past.

The final tailwind for Sinofuturism is the election of Donald Trump, and the geopolitical ructions that have resulted. Trump has very loudly and flamboyantly turned America against Europe — bashing European countries in his rhetoric, hitting them with tariffs and tariff threats, threatening to pull out of NATO, supporting right-wing opposition parties, cosying up to Russia, and so on.

A few European leaders have responded by trying to get closer to China instead, but most are still too wary of the Communist Party. But European intellectuals are a different story. Some European thinkers resent the smug American superiority that resulted from decades of cold war patronage, and are overjoyed to see America eclipsed. That geopolitical backdrop can easily colour perceptions of a country, making even the pedestrian seem sublime.

In turbulent and troubling times, people instinctively grasp for some sort of future to believe in — some positive vision to hold on to. The United States and Europe right now don’t have much of a futuristic vision to offer; America continues to inflict wound after wound on itself due to its intractable cultural and partisan divides, while Europe is mired in economic stagnation and is struggling to defend itself against a much smaller, poorer Russia. Sinofuturism might not have been Western intellectuals’ first choice for an alternative, but if it’s a choice between Sinofuturism and bleak nihilism/pessimism, some will choose the former.

But what will this Chinese future actually look like, two decades or four decades from now? Here, I think there’s less than meets the eye.

First, let’s talk about Chinese urbanism. Westerners who go to Asia and see a lot of high-rises and electric signs often simply assume that all Asian cities are basically the same. But the way China builds its cities is very different from how Japan does it. Japan’s cities are hyper-agglomerations of dense mixed-use neighbourhoods packed with small businesses. China’s cities sprawl much more. Here’s what urban designer Peter Calthorpe wrote in 2016, when China was still in the middle of its massive building spree:

One thinks of the high-rise, high-density buildings in many Chinese cities as inherently urban, but they are not. Smart growth and urbanism is more about connections, human scale, walkability and mixed uses than it is about gross density. China’s pattern of gated superblocks (often over forty acres, or sixteen hectares, each) and isolated uses is actually a high-rise version of the American suburb…

In China, single-use residential blocks of largely identical units are clustered in superblocks surrounded by major arterial roads. Vast distances separate everyday destinations and create environments hostile to pedestrians. Sidewalks rarely are lined with useful services, and crossing the street is death-defying. Job centres are distant and commutes are long, especially for lower-income groups. In major Chinese cities, the gridlock expands to all hours of the day…

In the last five years, China has built more than 30,000 kilometres of expressways… China’s love affair with the car has blossomed into a torrid romance… [L]ike the US cities of the 1950s and 1960s, Chinese cities are working to accommodate the explosive growth of automobile travel by building more highways, ring roads and parking lots.

And here’s how Dwarkesh Patel put it after a recent trip:

Outside of Beijing and Shanghai (and sometimes even within), you can tell that these skyscrapers were put up by a country with a GDP per capita of $10,000… These endless rows of skyscrapers, put up in the construction frenzy of the last few decades, are ugly — boxes of mostly concrete with visible blight and discolouration all over them. If the great construction binge is indeed over, it’ll be a shame that China’s infrastructure was built out during a period of particularly uninspired architecture… The city is dominated by these enormous apartment complexes — blocks of ten adjacent thirty-storey buildings demarcated by eight-lane roads… This layout seems designed partly for social control.

A recent article by the ever-excellent Alfred Twu explains China’s urban layout in more detail:

Despite their strong visual dissimilarities, new construction in China and the US share one basic feature: they each support roughly the same population density, as their floor area ratio is similar.

… In contrast to the mid-rises that abound in US cities today, Chinese cities favour what is known as the 小区 (xiaoqu) or microdistrict. These tower-in-the-park-style residential developments comprise several high-rises on roughly fifteen to twenty acres, surrounded by wide arterial roads… [X]iaoqus are built as gated communities. While primarily residential, the microdistricts also provide stores and services for residents, including schools… However, they do not contain offices or industry, and retail is limited to neighbourhood-serving services, such as convenience stores and restaurants…

The sunlight requirement results in large spaces between buildings, limiting the floor area ratio to around 2.0 to 4.0, even for high-rises… closer to 2.0 than to 4.0 once internal roads are factored in… [T]hese buildings are unique to the People’s Republic.

Twu points out that since this urban form is the result of regulation rather than culture, China could theoretically revamp its cities into something denser, more mixed-use and more walkable, like Tokyo, Hong Kong or Singapore. (We know it’s not culture because China’s unregulated “urban villages” and Chinese-descended places like Hong Kong, Taiwan, and Singapore all build much higher density and much more mixed-use spaces, while relying less on cars.) But since the big real estate boom is over, the financing or political will for such redevelopment is unlikely to appear. China has already built itself. And even more than the United States, China has built itself into a highly suboptimal configuration.

America’s sprawling suburbs are the target of much derision from urbanists worldwide, but they have a charm that’s all their own — huge luxurious houses serve as social gathering places, cars provide mobility, lawns and parks provide the illusion of living close to nature. That lifestyle exerts a magnetic pull; Americans of all races and social classes still want to move (and are actually moving) out to the ’burbs. And this pull is worldwide — newly developed outlying areas of Europe, Asia, the Middle East and everywhere else look a lot more like American suburbs than they look like Tokyo or Paris. Like it or not, twentieth-century America invented an urban future that came to dominate the world.

But China will not do the same. Who wants to live in a xiaoqu? You live in a smallish apartment, like you would in New York or Tokyo, but instead of being within walking distance of some of the world’s most vibrant shopping and entertainment districts, you’re in a gated community. The only things close to you are a sanitised communal lawn and a couple of boring stores for basic necessities. To get to anything remotely interesting — which in China generally just means a shopping mall — requires walking long distances over huge arterial roads to a train station, or taking your car. You get all of the isolation of the American suburbs with none of the luxury. You’re basically in Cabrini-Green but without the crime.

I suspect that very few people around the world are going to want to live in Chinese-style microdistricts. And I suspect that in twenty years or so the children of the current Chinese generation will see this urban form as sterile, cramped and confining. Except it will be very hard to rebuild Chinese cities into either the American or the Japanese model.

As for the spectacular beauty of Chinese downtowns, I suspect that Chinese people themselves are going to get tired of the light pollution that wows the tourists. Already, residents of Shanghai, Chongqing and other cities have begun to express a preference for fewer gratuitous displays of garish illumination.

China’s building boom will certainly leave behind plenty of interesting structures. But because the boom was driven by overabundant capital, many of these designs were created more as advertisements for the developers than as places that are actually nice to walk around in.

And the buildings themselves won’t always look as nice as they do now, either. I’m no Brian Potter, but even I know that over the course of about thirty or forty years, reinforced concrete tends to weather, crack and spall. Most of urban China is very humid and pollution levels are still fairly high; this will damage many of the nice new surfaces of China’s buildings, most of which were built in the last two decades. Buildings that turn out to have been built with substandard materials — and there are some of those out there — will go downhill earlier.

At that point, China will have to choose between (a) expensive upkeep and redevelopment to keep cities looking new, or (b) patching up and painting over old buildings to save money. Japan actually chooses the former, which is why it still looks nice — but this eternal construction and beautification costs a lot of society’s resources. Hong Kong and Taiwan have chosen the latter, and as a result, people gush a lot less about the built environment when they visit those cities these days.

I know it’s fun to go to a foreign city, look around at the buildings, and make grand sweeping judgements about the relative strength of civilisations over the next thousand years. But next time you find yourself gaping at a sparkling new high-rise in Shenzhen or Chongqing or Dubai, remind yourself: “This too shall spall.” (China’s massive high-speed rail network will also be an incredible challenge to maintain — read this Casey Handmer blog post to understand the details. Unless ridership stays very, very high even on the secondary lines, China’s HSR will probably end up being a significant fiscal drag.)

As for transforming global culture — a key part of soft power — China has yet to really do this. Its censorship regime — an inescapable part of their authoritarian system — is constantly hamstringing or deterring Chinese creatives. As China gets richer, its people will spend more on entertainment, and entertainment industries will emerge. But I suspect this censoriousness will hamper the emergence not only of truly deep and creative works of art, but also of creative new forms of popular entertainment.

Twentieth-century America invented 3D animated children’s movies and third-person action-adventure video games; China’s two most celebrated hit cultural products over the past few years have been a 3D animated children’s movie and a third-person action-adventure video game. And so far, global appeal has been elusive; Sinofuturists who trumpeted the fact that Ne Zha 2 earned more at the box office than any Disney movie failed to mention that over 98 per cent of that revenue was earned inside China.

As for China’s technological futurism, there I have more confidence. China’s mastery of the core technologies of the electrical age — batteries and motors — will continue to produce wonders, especially because America has voluntarily forfeited leadership in these technologies for cultural reasons. Personal air taxis, ultra-fast car chargers and humanoid robots that can do flips are not the last whiz-bang gadgets you’ll see come out of China. Nor will China’s innovation be limited to the electrical sphere. And China’s massive research spending spree, together with Trump’s deep cuts to American science funding, mean that the future has never looked brighter for Chinese scientific supremacy.

But here, too, I would be cautious about projecting out more than a decade or two. To the degree that scientific progress relies on human capital, China is going to start having a tough time in the late 2040s. After the big “Alpha” generation works its way through the system, population will relentlessly decline. (Of course, AI researchers may replace human ones, but at that point China’s fundamental advantage — its incredibly huge population of talented engineers and scientists — starts to become less important.)

Also, much of China’s technological leadership has a darker side. All the tourists love the electric cars and the high-speed trains. But China is also the global leader in electronic surveillance, to the point where they’ve basically turned their whole country into a panopticon. China uses the internet to repress dissent, and AI will make that task easier. China’s government has also shown an eagerness to use the internet to spread dissension and stir up hatred in other societies around the world, I expect AI to make that much easier as well.

Is that a future worth putting our hopes in? Would we really trade our right to dissent and our last shreds of privacy for a ride in an air taxi and a delivery robot at our door? Why should we look forward to the march of science and technology if it doesn’t promise to empower the mass of humanity to live their lives as they see fit? Technological contrivances whose purpose is to enslave me, my family and my friends do admittedly inspire a certain kind of dreadful awe, but I would rather read that science fiction novel than live in it.

This, ultimately, is what Sinofuturism is lacking — the promise of ennoblement. People now make fun of the American suburbs of the 1950s, or use them as an object of misplaced nostalgia. But if you were to look at that lifestyle — the house, the car, the TV, the telephone — you could see the seed of a way of life so appealing and so free that it would eventually become the global standard. Right now, China is a beautiful place to visit, but the Sinofuturists who gush about its neon cities and its magnificent technology demonstrate a notable reluctance to move there. •

The post Is China the future? appeared first on Inside Story.

In essence, this would extend negative gearing from property investors to new homeowners. Negative gearing allows landlords to offset interest payments on loans against tax liabilities, not just as a deduction from rental returns, but from all sources of income.

Dutton’s pledge flies in the face of countless declarations — from both sides of politics — that the primary cause of Australia’s housing woes is a lack of supply, and the only solution is to build more homes. Rather than increasing supply, mortgage tax-deductibility would boost demand by putting extra money in purchasers’ pockets. Saul Eslake and other economists say this will push house prices even higher, especially when it’s supercharged by the Coalition’s policy of allowing first home buyers to withdraw up to $50,000 from their superannuation.

Some buyers might feel like winners in the short term, but in the long run the scheme would make housing even less affordable than it is now.

The Coalition rejects the criticism by pointing to four ways it would restrict the tax-deductibility scheme.

First, the policy is limited to first home buyers.

Second, buyers can only deduct interest payments on borrowings up to $650,000, and only for the first five years of a loan. The Coalition calculates this would amount to an annual tax break of $11,000 for a household on an average income, or a total saving on mortgage repayments of $55,000.

Third, buyers only qualify for the deduction if their annual taxable income is below $175,000, or $250,000 for a couple. In theory, this “means test” targets the benefits at those households most needing help to get into the market.

But the thresholds are so generous they exclude almost no one. The Grattan Institute calculates that just 5 per cent of taxpayers have a taxable income above $181,000. Nor do the thresholds take account of whether purchasers are also getting a leg-up from rich parents. On top of that, people on higher salaries stand to gain more because they can claim larger deductions. Overall, the policy gives significantly more financial support to relatively well-off home buyers than to those on low and middle incomes.

Finally, and most importantly, the Coalition stresses that it would limit tax deductions to mortgages on newly built homes. Shadow treasurer Angus Taylor says this turns it into a supply-side measure to stimulate residential construction. He told Radio National Breakfast that developers are much more likely to build houses when they feel sure they have buyers.

The Housing Industry Association backs Taylor’s reasoning. In a media release welcoming the Coalition’s pledge, managing-director Jocelyn Martin claimed the Coalition’s policy “could see at least 30,000 new homes commence construction, as first home buyers move out of the established market to build new homes.”

HIA has a dog in this race of course, regardless of the impact of the Coalition’s policy. Its members stand to gain from increased construction, increased real estate prices or any combination of the two.

Still, if the HIA’s logic of limiting tax deductibility to new dwellings holds true for first home buyers, then surely it must hold true for property investors too. In other words, restricting negative gearing to landlords buying brand new homes would also boost supply and help make housing more affordable.

Indeed, this is the argument Labor took to two elections when Bill Shorten was opposition leader. In 2016 and 2019, the party promised to limit negative gearing to new dwellings while grandfathering existing investments. In 2016, shadow treasurer Chris Bowen claimed that the tax break was helping to fund the purchase of new dwellings in only 7 per cent of cases. If the aim of negative gearing is to increase supply, he concluded, “you’ve got a failure rate of 93 per cent.”

Senior Coalition figures have also made this argument about negative gearing over the years. In his 2015 valedictory speech to parliament, former treasurer Joe Hockey declared that “negative gearing should be skewed towards new housing so that there is an incentive to add to the housing stock rather than an incentive to speculate on existing property.” A few months later his successor as treasurer, Scott Morrison, toyed with the idea of reining in negative gearing’s “excesses” but dropped it when Labor made it a campaign policy.

At the 2019 election, the Parliamentary Budget Office estimated that Labor’s negative gearing reforms would increase government revenue by $4.5 billion in their first four years of operation and by more than $22 billion over a decade. Six years later, even larger gains may be on offer. The PBO estimates revenue forgone due to negative gearing at $6.9 billion dollars in 2024–25, while Treasury’s tax expenditure statement reveals that about three-quarters of the gains flow to the top 30 per cent of income earners.

In short, negative gearing costs billions and mostly benefits people who are already very well-off, yet — according to the Coalition’s own logic — fails to do anything to increase the supply of housing.

Given the opposition leader’s concern about Labor racking up “about $1.2 trillion of debt” and senator Jacinta Nampijinpa Price’s DOGE-like task of tackling wasteful spending and making better use of taxpayers’ money, now would be a good time for Dutton to pull another rabbit out of his hat and limit negative gearing to newly built homes.

It would make for more consistent policy, but that’s too much to hope for in an election campaign. •

The post The Coalition makes the case for negative gearing reform appeared first on Inside Story.

“We did whatever we could get away with within a very tight budget,” says architect Paul Karakusevic. He’s showing me the foyer of a new apartment block on the Kings Crescent Estate in the inner-London borough of Hackney. Outside, Karakusevic points to where the blonde Danish bricks of the new apartment blocks “kiss” the darker yellow bricks of retained council housing. Similar in bulk and height, they frame a landscaped courtyard.

The style, I read later, is “the new London vernacular” and aims to draw on the city’s built traditions. The Observer’s architecture critic, Rowan Moore, summed it up as “brick, rectangular, well-proportioned, unfussy — a kind of improved Georgian with better insulation, more generous windows and fewer twiddly bits.”

This is one of many municipal projects designed by Karakusevic’s practice, Karakusevic Carson Architects, which specialises in the regeneration of council housing. Its finish and features defy the clichéd crime show depictions of brutalist British council estates riven by grime, neglect and decay. There is no rubbish, graffiti or dumped furniture; no shadowy corners or dark underpasses.

Originally completed in 1971, Kings Crescent is undergoing a makeover with Hackney Council as developer. The first two phases of renewal finished in 2017 and phases three and four are just getting underway.

At the end of its transformation, the roughly four-hectare site will comprise 767 apartments. About two-thirds will be new, the rest substantially renovated. Half will be sold to private buyers at commercial prices; the other half are designated “affordable,” a term that includes shared-equity housing, rentals discounted 20 per cent or more, and deeply subsidised “social” homes with average weekly rents of £125 (A$250). The whole complex is designed to be “tenure blind,” making it impossible to tell owners from tenants.

With 182 dwellings per hectare — about ten times the density of new suburbs on Australia’s urban fringes — it’s a prime example of medium-rise, high-density housing. But Kings Crescent doesn’t feel crowded. The tallest two blocks on the site will be just twelve storeys high, the rest stop at six. Along with much-needed homes come medical facilities, a community centre, retail outlets, gardens and playgrounds.

I’ve come to see if there are lessons here for the renewal of Australia’s ageing public housing stock, especially in Victoria, where the government is determined to demolish all forty-four of the state’s public housing towers.

Behind green hoardings a giant jackhammer pounds the ground for the next phase of construction. On this icy February day, we’re almost alone on the street that intersects the Kings Crescent estate from east to west. Apartment blocks from the first two phases of the project line the north side, with space for new buildings and a large garden square to the south.

Delivery vehicles and taxis can enter the street at either end, but the urban design firm Muf has “interrupted” it with random boulders, piles of logs, an oversized hammock and a long communal table. This neighbourly space — a “playable street” — links the estate to surrounding suburbs, transport and the twenty-three-hectare grounds of Clissold Park, with its small herd of deer.

Like much of Britain’s postwar council housing, the original Kings Crescent estate looked inward, its central pedestrian zone intended to shield residents from city noise and traffic. In practice, it felt defensive and cut off: rather than encouraging social interaction, the ground-level areas seemed forlorn and abandoned. And by the mid 1990s the estate’s two dominant tower blocks had fallen into serious disrepair.

“They were poorly built in the first place,” says Karakusevic, “and no one wanted to live there.” Inner London’s population had almost halved in the postwar decades, reducing demand for council housing. From the 1980s, sell-offs under Margaret Thatcher’s right-to-buy scheme cut the council’s rental income, eroding its capacity to carry out essential maintenance. “Those who could afford to move out did,” says Karakusevic.

Just thirty years after they were built, the dilapidated towers were slated for demolition. In February 2000, Hackney Council organised a “net first” live stream of the implosion of the nineteen-storey Barkway Court. The twenty-storey Sandridge Court was brought down two years later, with an actor from the popular soap EastEnders pressing the plunger. The fact that it was the seventeenth council tower to be blown up in the borough shows how quickly high-rise flats went from innovation to eyesore in the popular mind and in planning circles.

“Dystopian”: the Kings Crescent estate in 2012. Karakusevic Carson Architects

But inner-London’s population had already begun to rise again, and local authorities lacked the resources to respond. Sitting tenants could buy their council homes at a massive discount but councils were forced to use that revenue to pay down debts rather than invest in new housing. Along with other restrictions, this made it all but impossible for local authorities to borrow. Municipal home-building ground to a halt.

Attempts to redevelop the Kings Crescent estate foundered. For more than a decade, residents in the remaining medium-rise council housing looked onto a wasteland of rubble. “It was real dereliction, and used as the backdrop for dystopian films,” says Karakusevic. “Residents wanted the council to make it good again.”

In 2007, Labour prime minister Gordon Brown eased council borrowing restrictions, opening a path to finance a rebuild. But then the global financial crisis hit, and austerity measures slashed grants to local government.

Late in his term, though, Brown had also launched a design competition to renew a neglected and maligned housing estate in Barking in East London. Karakusevic Carson won, giving the firm its first big public housing commission. Since then, the practice has grown to more than seventy architects and has been honoured with scores of prizes, including Royal Institute of British Architects awards for King’s Crescent. The practice is developing masterplans for fifteen London councils and has projects on the go in Toronto, Paris and Barcelona. Karakusevic hopes to work in New York and is consulting for Homes NSW in Sydney.

In recent years London boroughs were also encouraged back into the business of building by Labour mayor Sadiq Khan, who grew up on a council estate. In 2023–24, almost 13,000 affordable homes were completed in London, double the number when Boris Johnson was mayor eight years earlier.

Many more are under construction after Khan secured £4.8 billion to support his five-year Homes for Londoners program. City hall claims London started twice as many council homes in 2022–23 as the rest of the country combined, though to call this a “golden era” of council house building is a stretch. It may be a renaissance, but it’s of a different scale and character to municipal dreams of the past.

In the immediate postwar decades, councils had large design departments and half of all architects were public servants. During the 1970s, local authorities around England built about 200,000 council homes every year, with not-for-profit housing associations providing another 13,000 affordable dwellings. In the past five years, only about 60,000 affordable homes have been completed annually, and only about one in ten of them are council houses. Most were built by housing associations or by private developers required by planning rules to include affordable dwellings in major projects.

And while the general category of “affordable” housing has been growing, the subset of homes set aside for people in the most desperate circumstances has not. Last year fewer than 10,000 “social rent” homes were completed in England. By comparison, more than 50,000 dwellings were built in other “affordable” tenures (including 20,000 sold under shared equity schemes).

Given that the number of social homes lost to sales and demolitions is almost triple the number added, ever fewer homes are available for those who need them most. As other affordable options have spread, says a 2024 House of Commons briefing, the number homes for social rent has fallen.

Without enough social housing to go around, councils are forced to put people up in temporary accommodation — private rentals, spare rooms, bed and breakfasts or budget hotels. It’s meant to be a last resort, but in England almost 120,000 households, including more than 150,000 children, live in this precarious system. They can be stuck in temporary accommodation for years, forced to move frequently from one place to another. Conditions are generally abject — cramped, unhygienic and often without cooking or laundry facilities.

“Play Street”: a summer view of the main Kings Crescent thoroughfare. Karakusevic Carson Architects

Housing people this way costs about £75 per night, so London boroughs collectively spend £1 billion a year on temporary accommodation — roughly the same amount available to them under Sadiq Khan’s Homes for Londoners program. In Hackney alone, around 3500 households live in temporary accommodation, and the wait for a two-bedroom flat on council’s housing register is more than fifteen years.

In face of this acute distress, critics ask why the borough and its architects are not building more deeply subsidised social housing. At Kings Crescent Estate, 275 existing council homes have been retained and refurbished, but half of the 492 new apartments are for private sale and most of the rest are set aside for shared-equity schemes or less heavily discounted rentals.

This is not Karakusevic’s ideal world. “Cities have to provide truly affordable housing if they are to function,” he says. “The market will never provide truly affordable housing because private developers have no incentive to build it.”

As he points out, most government subsidies for housing flow to the private sector for things like for site remediation, infrastructure development and first-time buyer subsidies. And while the government budgets more than £30 billion for housing, the vast bulk goes on housing benefits — on helping tenants pay their rent, often to private landlords — leaving a tiny proportion devoted to new housing. As rents increase, government spending on benefits rises too, further constraining investment in building.

Under current financial models, councils and architects like Karakusevic have little room to move. “Council projects have to stand on their own feet,” he says, “so they have to cross-subsidise social housing with market rate rentals and private sales.” Revenue from commercial sales is what makes the Kings Crescent project viable; without that, there would be no refurbishment at all.

Claire Miller, CEO of the UK’s largest housing association, Clarion, laid out the stark calculations before a parliamentary committee. Building a new two-bedroom flat in London costs about £400,000, she said, but the average subsidy is just £60,000, and social rent returns revenue of £100,000 over thirty years. That leaves a funding gap of £240,000.

The gap is filled from two sources: private sales, and councils opting to supply more intermediate housing options like shared-equity schemes and discounted rents, often aimed at nurses, teachers and other key workers. These intermediate tenures are priced to be “as affordable as council can make them without going backward financially,” says Karakusevic.

In Hackney, households are eligible for these intermediate homes if their annual income is below £60,000. (The average nurse’s salary in London is around £40,000 a year.) Affordable rents are set at a third of average local incomes, but this could still be almost double the deeply subsidised rent for a social home.

The irony with projects like Kings Crescent is that the pot of money for social housing increases as the value of private sales rises, which runs counter to a wider aim of making housing more affordable overall. On the other hand, the need to attract private buyers pushes councils to carry out high-quality refurbishments on rundown estates that would otherwise deteriorate further. Social tenants then benefit from well-designed, well-constructed apartments and marked improvements in public amenity and shared open space.

For this cross-subsidy formula to succeed, Karakusevic cautions, designs must be worked out in collaboration with the estate’s existing residents. “Regeneration is problematic,” he says. “It has to be right for the people who are there, so they are not pissed off.”

Karakusevic was taken aback when he heard about Victoria’s decision to demolish all its public housing towers before engaging with residents. He sees top-down approaches as counterproductive and prefers to consider each redevelopment proposal separately. “Plan it carefully, each project individually, with urban designers and architects, working hand in hand with residents,” he says. “What can be retained? What needs replacing? What are the opportunities for tactical and strategic infill, for enhancing the public realm and landscaping, for greater density and public amenities?”

Through resident engagement at Kings Crescent, his practice won community approval to put more dwellings on the estate than were there in 1971. Previous attempts at redevelopment had been less ambitious.

“Early wins are really, really important,” adds Karakusevic. The community needs to see “a proof of concept” in the form of better housing, new facilities and an improved public realm. As examples, he shows me balconies glassed in to create “winter gardens,” adding space and warmth to older flats, and basement garages converted into apartments, transforming sites of anti-social behaviour into extra “hidden homes.” Muf founder Kath Shonfield calls this “premature gratification” — residents get tangible evidence that their concerns and interests are being taken seriously.

Another condition for successful redevelopment is that residents can remain in their homes. Ideally, new homes are built next door to existing ones and tenants move straight across when construction finishes. “A single move should be a key aim,” says Karakusevic.

Victoria’s state government has ruled out such an approach. Housing minister Harriet Shing rejected suggestions that new apartments could be built on open space nearby before existing towers are demolished, telling the Age that residents should not be forced to live on a construction site.

If residents do have to move, says Karakusevic, then they should be rehoused as close as possible to where they live, ideally across the road, and not “decanted” to some distant suburb.

Critics of Victoria’s plans for its public housing argue that demolition should be a last resort, with towers upgraded and refurbished instead. They reckon this would not only be cheaper and less disruptive, but would also have less impact on the climate given the amount of carbon embodied in the existing structures.

Karakusevic thinks such questions must be answered on a case-by-case basis. “Lots of housing built in the 1960s is junk,” he says. “Is there any point in patching up a building for twenty years when you can replace it with a building that will last 200 years?” Nor is refurbishment carbon-free, he points out, since it releases, on average, about two-thirds as much carbon as a rebuild.

He thinks the most important questions in public housing renewal are what structures get built and how long they endure. “A brick can last 1000 years,” he declares, reminding me of the Roman walls still visible in parts of London. Centuries from now, he hopes, people will still be living in his apartments on the Kings Crescent Estate.

Admirable as his architecture is, though, a big difference from the past era of public housing remains. Instead of Kings Crescent being made up of council homes as in its original incarnation, half the dwellings will be privately owned.

When I press Karakusevic on why more social housing wasn’t included, he tells me residents wouldn’t have accepted it. Matching the original number of council homes and funding the redevelopment with cross-subsidies from private sales would have meant squeezing 1200 flats onto the site and entailed building much higher.

“Towers are very unpopular,” he says, “and commercial viability doesn’t necessarily increase with height, because the higher you go more expensive it gets.”

Karakusevic is convinced that public agencies, rather than the private sector, should lead the renewal of public housing. And he thinks Australia’s state governments could get back into the game just as local councils like Hackney are doing in Britain. “It’s not that complicated,” he insists.

He is no fan of market-based approaches like “inclusionary zoning,” which force developers to include a share of affordable dwellings in their commercial housing projects. This compromises designs, he believes, potentially siting a stumpy “affordable” building next to a luxury tower, for example, or “bloating” apartment blocks with extra floors or, worse, creating separate entrances for different classes of residents.

Better, he thinks, to tax developers and funnel the revenue to public authorities to build social housing. “We can’t just fix the housing crisis by creating more supply,” he says. “We need the right housing, in the right places, for the right people, and it must be built to last.”

“If it is beautiful and elegant, people will want more of it in their neighbourhood,” he says as I admire his firm’s work. “If you just build junk, people will resist anything new. If it’s bad density, with a poor public realm and low levels of maintenance, people won’t like it. Stick to the right recipe and make it really good.”

Karakusevic is fond of a Dutch saying: “The bricks don’t make mistakes, people do.” It’s a caution to heed as we redevelop public housing in Australia. If we don’t get the quantity and quality of homes we need, there’ll be no one to blame but ourselves. •

The post A brick can last a thousand years appeared first on Inside Story.

It seems obvious that building more homes should moderate prices and rents and make it easier for Australians to keep a roof over their heads. This is the logic behind treasurer Jim Chalmers’ budget speech. As he put it, “More homes means more affordable homes.”

But the link is not as straightforward as it appears.

For a start, the growth in Australia’s housing stock has exceeded population increases for much of the past three decades. According to the “supply, supply, supply” theory, this flow of new dwellings should have held back prices. Why then, has the cost of housing been escalating so rapidly? In 2000, the median house price in Melbourne was less than $200,000. Now it’s more than $1 million.

Source: “Monetary Policy, Demand and Supply,” Reserve Bank, 5 April 2023. Dashed lines represent forecasts.

Part of the explanation lies in the fact that households are getting smaller. For decades, families have been having progressively fewer children; and, as the population ages, more people are living alone or in couple-only households.

This trend accelerated during Covid. As Reserve Bank assistant governor Sarah Hunter pointed out in a recent speech, many young people moved out of group houses to live alone or with their partners during the pandemic. When household size falls, the number of dwellings must increase faster than population growth to accommodate everyone.

Then there are cyclical factors. “It takes a long time for housing supply to respond fully to shifts in population growth,” former Reserve Bank Governor Philip Lowe pointed out in 2023. “In the previous episode of strong population growth, it took around five years.”

We are hitting once such lag right now. With immigration surging after borders reopened after the pandemic, population is growing strongly. International students and other temporary migrants returning to Australia initially seek to rent in the private market. In the short term, this can push down vacancy rates and push up prices, at least in areas close to universities.

Widely quoted research for the Property Council found that international students make up only 4 per cent of all renters overall, but this figure was based on the 2021 census when, thanks to Covid, international student numbers were unusually low. The proportion today is probably closer to 7 per cent. The research calculated that about 47,000 international students lived in purpose-built student accommodation in 2021, with others concentrated in suburbs close to educational institutions. So the sharp jump in arrivals has put added pressure on the rental market, though these temporary migrants can hardly be blamed for significant rent hikes before borders reopened.

Still, it will take time for construction to respond to population changes — more people and smaller households — especially as the industry has entered a downturn. Data compiled by the Reserve Bank shows housing investment is significantly lower than it was a few years ago. This may partly be a result of the Morrison government’s HomeBuilder scheme during pandemic. At a cost of $2.3 billion, it brought forward a lot of construction activity that would have happened anyway.

The government wants 1.2 million homes built over the next five years. In his budget speech, the treasurer said this ambitious goal was achievable “if we all work together and if we all do our bit.” In the prevailing market such optimism seems unwarranted and suggests a naive take on the hard-nosed business of residential construction.

People build new homes when they can afford to do so; developers construct apartments when they expect to sell at a profit. Current business conditions are not conducive to either private or corporate investment thanks to such factors as higher interest rates, labour shortages and the rising price of building materials. The RBA’s Sarah Hunter calls it a “perfect storm” of constraints.

Restrictive councils and objections from well-heeled NIMBYs often get the blame for the lack of new building, which is what the treasurer is hinting at when he says we wants everyone to pull together and do their bit. Veteran economic commentator Chris Richardson spoke more bluntly on ABC Radio, arguing that progress requires “the feds to kick the states to kick the councils.” True, planning regimes and zoning rules can impede residential development. But they are not the cause of the current downturn, and it would be wishful thinking to expect reform at the level of local government to solve all our housing problems.

Rather than simply repeating the motto, “supply, supply, supply” we need to dig a bit deeper. The question is not just “Are we building enough homes?” but also “What kinds of homes are we building and for whom?”

The trends in Australia are clear. Families are having fewer children and more people are living alone or as couples. According to the supply theory, the market should be meeting this demand by delivering homes with fewer bedrooms.

But my analysis of census data between 2006 and 2021 shows the opposite is happening.

In 2006, about 71 per cent of dwellings in Australia were “modest” homes with three or fewer bedrooms. The other 29 per cent, which I call “large,” had four or more bedrooms. Fast forward to 2021, and the share of modest homes has fallen significantly to 65 per cent and the share of large homes has grown strongly to 35 per cent.

Between 2006 and 2021, the number of dwellings grew at a slightly faster rate than the population — 29 per cent compared to 28 per cent — probably insufficient to offset the trend to smaller households. Yet we built enough bedrooms to comfortably accommodate everyone, with an overall increase of 34 per cent.

Chart excludes dwellings where the number of bedrooms was not stated or not applicable.

As a result, Australia has lots of underused housing. At the 2021 census, more than 4.3 million homes (44 per cent of all dwellings) had two or more spare bedrooms. More than a million of these, remarkably, had three or more bedrooms “in excess of need.” If the intention of housing policy is to put a roof over as many heads as possible, then we’re going about it in a very inefficient manner. The labour and resources we plough into building some of the biggest homes on earth should instead be directed into building more modest homes with fewer bedrooms.

This alerts us to three considerations that complicate the “supply, supply, supply” picture.

First, demand for housing is not driven just by demographic factors like population growth and declining household size. It is also driven by increased wealth. As people get richer they tend to “consume” more housing. This can take the form of holiday houses and other second dwellings, or extensions to existing properties. Rising incomes have also fuelled the tendency for developers to build “dream homes” with at least four bedrooms in greenfield estates on the edge of cities. The Morrison government could have countered this trend by investing in social housing during the pandemic; instead, its $25,000 grants to build or renovate favoured people on middle to high incomes.

Australia’s housing problem is not just a problem of supply but also one of distribution, and the inequalities will only get worse as the gap between rich and poor grows.

Second, the shift away from modest homes reflects tax settings that encourage Australians to over-invest in property. The primary residence is completely exempt from both capital gains tax and land tax and is not included in the assets test for assessing the age pension. Thanks to a generous capital gains tax discount, windfall gains on additional dwellings like holiday houses are taxed lightly compared to wages and other income. And since Australia abolished all state and federal inheritance taxes more than four decades ago, residential property has become the primary vehicle for transferring family wealth between generations.

With political will, we could adjust our tax settings to discourage over-investment in property. This would encourage the construction of more modest homes and dampen the speculation that fuels real estate prices. It could also have wider economic benefits as capital flowed into more productive sectors.

The third consideration is the role of government. In a market economy, investment is attracted by opportunities to maximise profits. As a result, the wants and needs of wealthier Australians overwhelmingly shape residential construction, leading to an over-production of large dwellings relative to modest ones. Government could moderate the mismatch between household size and dwelling type by adjusting market incentives.

Most importantly, governments could boost the supply of modest dwellings directly by funding the construction of more social housing — that is, homes low-income earners can afford because their rents are pegged to no more than 30 per cent of their incomes.

In 2001, more than 5 per cent of Australia households lived in social housing. By 2021, the share had fallen below 4 per cent. If state and federal governments had invested enough to keep the ratio stable, then we would have at least 120,000 more households living in social housing than we have today.

As Michael Pascoe has pointed out, in 1971, governments built almost 19,000 dwellings. If we’d kept building at that rate, we might not have a social housing waiting list today — it would certainly be a lot shorter. A substantial, steady and predictable flow of public investment in housing would also help to moderate the ups and downs that plague private residential construction.

After a decade of neglect, recent state and federal investments in housing, including those announced in the budget, are welcome. But they fall well short of what is needed. Labor recognises that Canberra must play a bigger play in the housing system. But if the Albanese government is serious about tackling Australia’s housing crisis then it’s going to have to do much more than kick the states to kick the councils and chant “supply, supply, supply.” •

The post Too many bedrooms, not enough homes appeared first on Inside Story.

Blakeway receives a lot of complaints. More than one in six people in England live in social rentals (compared to fewer than one in twenty in Australia). That’s about four million households, and Blakeway’s office is the place to go if they have a beef with their landlords, whether those institutions are not-for profit housing associations or local councils.

In 2022–23, the ombudsman made 6590 orders and recommendations designed to make things right for residents, including £1.1 million (A$2.1 million) in compensation. The call on Blakeway’s services is escalating at a phenomenal rate. “This financial year we’re up 91 per cent for formal investigations,” he tells me in an online interview. “We’re trending towards 10,000 formal investigations a year.”

Demand will grow even faster if the ombudsman is empowered to extend its services to another 4.4 million households in the private rental market, a change Blakeway would welcome. Most private tenants can’t currently access the free, independent, impartial redress his office provides, but a Renters Reform Bill could make his office the single venue for managing conflicts without the need to go to court.

Blakeway took up his role in 2019. His previous experience included serving as London’s deputy mayor for housing (when Boris Johnson was mayor) and as a director of the government housing agency, Homes England. Answering my questions, he is thoughtful and considered, and not prone to strong statements. In official verdicts on the failures of social housing providers, though, he is more direct.

Last July, for instance, he delivered a scathing judgement on the consistent failings of London’s largest social landlord, L&Q, which provides homes to a quarter of a million people. He found L&Q demonstrated little empathy in responding to residents’ complaints and in some cases was overtly dismissive, heavy-handed and lacking in respect. He ordered the organisation to pay £142,000 in compensation and apply 500 remedies including apologies and repairs. He has been equally critical of other big housing providers.

Resolving individual cases, though, only achieves so much. In a new report analysing complaints by vulnerable tenants, the ombudsman identifies patterns of landlord failure around attitudes, respect and rights. A fundamental reset is needed, he writes, and a royal commission into housing and health is the way to do it.

Remarkably, the ombudsman reaches back to the 1880s for inspiration. The Royal Commission on Housing of the Working Classes was, he writes, the “only inquiry of its kind to explore the relationship between housing and public health.” The commission was set up in 1884 by Conservative prime minister Lord Salisbury, who appointed himself — along with the Prince of Wales, former union leader Henry Broadhurst and several others — as one of its its members.

Salisbury believed that government-sponsored housing initiatives were vital to improve morality and health — a view criticised by the Manchester Guardian, among others, which described it as “state socialism pure and simple.” Despite the critics, the commission’s report produced “an explosion of transformative government-backed interventions, from council homes to garden suburbs.”

Britain’s subsequent tradition of regarding housing as a health issue saw significant housing developments led by health ministries. The ambitious 1919 Housing Act, for instance, which made housing a national responsibility, is generally called the Addison Act in reference to Dr Christopher Addison, the health minister who introduced it. After the second world war, Labour’s health minister Anuerin Bevan not only created the National Health Service but also, as minister responsible for housing, oversaw the construction of more than a million new dwellings in five years.

Public inquiries like Britain’s 1884 commission have also played an important role in Australia. Most notable is the Commonwealth Housing Commission initiated by postwar reconstruction minister Ben Chifley in 1943. Its report concluded that “a dwelling of good standard and equipment is not only the need, but the right of every citizen” and recommended that the national government “sponsor a government-financed housing programme.”

Up to that point, federal engagement in what was seen as a state issue had been limited. The commission provided the impetus for Commonwealth–state housing agreements over subsequent decades. While the scale of its ambition was never realised, more than 14 per cent of dwellings completed nationally between the end of the war and 1956 were built as public housing.

Richard Blakeway’s call for a royal commission “to reimagine the future of social housing” in the twenty-first century echoes similar calls in Australia. A 2021 report by the UNSW City Futures Research Centre argued for a royal commission to tackle “the scale and complexity” of the housing problem. More recently, the Centre for Equitable Housing urged the federal government to review its many and disparate housing-related outlays and bring them together in a single portfolio with clear objectives.

But both England and Australia are awash in reports from a succession of inquiries and housing research. Is the problem really a lack of data? Or is it a lack of political will?

One barrier in both countries is a basic disagreement about how to move forward. Proponents of the supply side argument say planning restrictions are limiting home building, driving up prices and rents. For them, the solution lies in looser planning and zoning rules to free up private development. Build more housing and rents will fall.

The contrary position is that market players have no incentive to build the type of homes that low-income earners can afford, especially when the tax system encourages investment in housing as an asset rather than a public good. The corollary of this critique is that government must reform taxation to reduce speculation and invest more public funds in low-rent housing.

These views are not mutually contradictory, and some action is happening on both fronts, but the supply-side argument seems to hold more sway with governments in both countries. In its 2019 election manifesto, Britain’s Conservative Party promised that it would lift residential construction to make sure 300,000 new homes are built annually in England. As parliament approaches the end of its term, completions are falling short of that figure, with about 234,000 new dwellings added to the housing stock in each of last two financial years. In a new initiative, secretary of state Michael Gove hopes to turbocharge development by compelling councils to speed up approvals for home building on former industrial or “brownfield” sites.

In Australia, the Albanese government aspires to deliver 1.2 million homes over five years, spurred by incentives to streamline planning and zoning rules at state and local levels. To hit this target developers would need to increase construction from 40,000 to 60,000 dwellings per quarter. Expert observers like Alan Kohler doubt the industry can build at such an unprecedented rate, particularly in current market conditions.

Investment in social housing has surged in Australia thanks to federal Labor’s Housing Australia Future Fund, or HAFF, and renewed state government initiatives. But after decades of neglect these projects won’t be enough to put roofs over the heads of Australians with unmet housing needs, including the 175,000 households on state and territory waiting lists for social housing.

In England, almost 1.3 million households are waiting for social housing, a dire statistic that manifests in clusters of tents pitched on the pavements of central London. In some parts of the city, more than one in ten children and teenagers live in temporary accommodation and are effectively homeless.

The Tory government says it has invested £11.5 billion since being elected to fund an affordable homes programme. It has just doubled a low-cost loan scheme from £3 billion to £6 billion to enable providers to build an extra 20,000 dwellings.

Historically, though, these numbers appear modest. In the thirty-five years after the second world war, local authorities and housing associations built 4.4 million dwellings; by 1981 almost a third of the English population lived in social housing. The share has halved in the decades since, not because demand has fallen but because there are far fewer socially provided homes. This month, the magazine Inside Housing reported that the number sold or demolished in England last year was nearly three times greater than the number completed.

An alliance of England’s largest housing associations has urged Michael Gove to invest £15 billion annually over the next decade to build 90,000 homes a year, a third of them in London. But having just lost two seats to Labour in recent by-elections and facing a wipe-out at the next election, prime minister Rishi Sunak is more inclined to woo voters by cutting taxes than by investing billions in public services.

Labour, meanwhile, is playing a cautious hand. It has promised the “biggest boost to affordable housing for a generation” but not the funding to match. Anxious to appear economically responsible, Labour has just scaled back the £28 billion green investment plan that was to be a central plank of its election manifesto. If Keir Starmer becomes prime minister, a big spend on housing looks unlikely.

As waiting lists for social housing grow, tenants lucky enough to have a subsidised roof over their heads can still find themselves in dire circumstances, reminiscent of the conditions that gave rise to Britain’s first housing inquiry in the 1880s.

In December 2020, in a case that’s become emblematic of the problem, two-year old Awaab Ishak died from a severe respiratory condition caused by persistent mould in the council home his family rented in Rochdale north of Manchester. Mould — one of the systemic problems identified in the ombudsman’s files — is also recognised as a major health threat to tenants in Australia.

Awaab’s parents had been complaining about the mould since 2017 but the local authority failed to act, saying the problem was caused by the family’s “lifestyle.” The ombudsman found many cases of social landlords adopting an accusatory approach rather than investigating other possible causes.

“Health and housing are closely aligned,” says Blakeway, “but the system doesn’t necessarily respond in that integrated way. There’s a real risk that complaints are treated in a kind of transactional way or become personalised. The risk is that they are treated in isolation, and you lose thematic qualities that complaints have, or you don’t do a root cause analysis.”

One housing worker told the ombudsman that tenants who challenge providers are “seen as troublemakers to be quashed.” This view gels with management’s dismissive response to Grenfell Tower residents who warned of urgent fire safety problems ahead of the 2017 inferno that killed seventy-two people.

Community outrage at Awaab’s death has prompted Michael Gove, the minister responsible for housing, to include Awaab’s Law in a new Social Housing Regulation Act. Landlords will now be required “to investigate and fix reported health hazards within specified timeframe.” But whether local authorities and housing associations have the resources to make quick repairs is another question.

More than one in ten dwellings in the social rented sector fail to live up to the Decent Homes Standard, the government benchmark for minimum housing conditions. And the English Housing Survey found that almost two-thirds of tenants who complain to their landlords are not happy with the response.

Tenants told the ombudsman that social landlords were quick to inform them about increased rents and service charges but poor in communicating about all other matters. Not surprisingly, this created a perception that social housing providers are “only interested in money, rather than the condition of their homes or the landlord/tenant relationship.”

An expert panel concluded that communication between tenants and their social landlords is hampered by the high turnover of stressed frontline housing workers. The panel’s Better Housing Review also found that tenants lack a strong voice and face-to-face contact with staff. Blakeway’s research confirms this finding: residents told his office that a simple knock at the door can help to maintain and improve the landlord/tenant relationship.

Funding shortfalls undoubtedly underpin these problems, and the housing crisis has been compounded by the perfect storm of Covid, Brexit, higher interest rates, labour shortages and supply chain bottlenecks. But Blakeway sees other factors at play too.

With around 2000 councils and not-for-profit associations providing social housing in England, a great variability is inevitable. Understandably, the providers’ focus has been on increasing housing supply, but Blakeway says that’s rarely balanced by consideration of what to do about ageing houses and flats in urgent need of upgrades.

He believes that providers hold to a fixed view that social housing is better than any alternative on offer to low-income tenants in the private rental market, which leads them to neglect residents’ needs.

Then there are long-term societal shifts. “If nothing else had changed,” says Blakeway, “the current population in social housing would have got older, above the national average.” That means more vulnerable residents, often concentrated coastal and rural areas.

Housing providers need to think about how to respond says Blakeway: “What does that mean for our services, for adaptations, for understanding of issues like dementia?”

This demographic transition has coincided with residents’ growing understanding of what they can demand under recent human rights, equality and care legislation. The ombudsman says housing providers haven’t done enough to modify residents’ homes in line with these laws. This has been exacerbated by cuts to other government supports. “Social landlords will very clearly say that they feel like they become a surrogate for social and health services,” says Blakeway. “That’s because they are one of the most visible and immediate touch points.”

To survive financially, housing associations are also compelled to become savvy commercial operators. Torus, for instance, claims not only to be the largest affordable housing provider in northwest England, but also “one of its biggest and fastest-growing developers and commercial contractors.” One Housing describes itself as “a group of complementary businesses driven by a clear social purpose, with a charitable housing association at its core.” Alongside social and affordable housing, it offers homes for private rent and private sale.

A lack of funding has forced providers to sweat their assets, a strategy the Better Housing Review panel said “is fast reaching its limits.” The expert panel worried that commercial considerations are distracting providers from their core purpose of providing “decent, safe homes for those who can’t afford the market.” It warns that mergers to achieve economies of scale run the risk of “working to KPIs more related to business efficiency” rather than “complex indicators such as tenant experience and satisfaction.”

Blakeway says consolidation in the social housing sector is driven by noble ambitions but notes organisations become more reliant on processes and systems as they grow. “If a resident doesn’t fit into the neat box or their issues are more complex than the system can cope with, that’s where we can see things being fractured and people through falling through gaps.”

In a 1942 pamphlet, Housing the Australian Nation, prominent Melbourne social reformers F. Oswald Barnett and W.O. Burt surveyed the appalling housing conditions experienced by Australia’s working classes and called for much greater government investment than previously imagined. Health was at the top of their concerns. Without better housing, they worried, efforts to improve health would be “seriously retarded.”

Today, the evidence is even more compelling. In England, the research group BRE calculates that it costs the National Health Service an annual £1.4 billion to treat people made sick by poor housing. Yet there are relatively inexpensive and cost-effective ways of dealing with the major risks: insulation to counter excessive cold, hard-wired smoke detectors to alert residents to fires, handrails to cut the risk of falls, ventilation to minimise mould and damp.

BRE estimates that spending to reduce these hazards would quickly pay for itself in savings to the NHS. In the private rental sector, the payback time would be between eight and nine years; in the social housing sector it would be twelve to thirteen years. (Social housing tales longer to generate a positive return because overcrowding is a major hazard and is more expensive to fix.)

The costs of poor housing go beyond healthcare to include such things as lost earnings for those who fall ill and those who must care for them. BRE calculates that total annual cost to society of leaving people living in poor housing is around £18.5 billion. As well as generating NHS savings, fixing housing hazards would create jobs, reduce energy costs, lower carbon emissions and improve property values.

Looked at this way, public investment in housing seems like a no-brainer, whether as a way of improving lives or as a prudent fiscal move. As the housing crisis deepens, the social and economic price we pay further outstrips the cost of action.

Australia is moving down a similar path to England where, in the 1980s, not-for-profit housing associations began taking on a role traditionally played by local government. Since 2006, the number of dwellings owned or managed by Australia’s not-for-profit providers has more than tripled, mostly thanks to stock being transfers from public housing authorities.

Funding from the HAFF and state programs to build new dwellings will increase the size of the not-for-profit sector and raise pressure on providers to consolidate to achieve efficiencies.But as in England, there is a risk that commercial imperatives could distract from the core business of providing decent homes for Australians priced out of the private market. This is more likely to happen in the absence of consistent public funding and clear government direction.

England has also had sixteen housing minsters in the fourteen years since the Conservatives took office. As the Better Housing Review panel commented, this revolving door means “a lack of consistent and strategic thinking and action.”  Yet the panel insists that government cannot outsources its obligations and must remain “fully accountable for the provision of decent housing nationally,” just as it remains responsible for health and education.

Like England, Australia lacks a coherent housing strategy and consultations to develop one have proved disappointing. For almost a decade, Coalition governments in Canberra insisted that housing was a state matter. While this has changed under Labor, we still have a housing minister with no housing department. As the Centre for Equitable Housing argues, the lack of a dedicated department or a consolidated housing budget statement makes impossible to properly shape or evaluate public policy.

Housing ombudsman Richard Blakeway thinks a royal commission could help solve England’s housing challenge and revive understanding of the close connection between decent homes and good health. Housing, he says, is a complex problem where solutions must be built on expertise, impartiality, independence and a long-term perspective — all things that a royal commission has the potential to deliver. Australia’s problems might be different, but they are just as serious. Perhaps here, too, it’s worth considering a public inquiry with the capacity to probe, publicise and make recommendations. •

The post Lord Salisbury’s message for the housing ombudsman appeared first on Inside Story.

The result of all that consulting has just been summarised in a thirteen-page report that shows respondents want governments to do much more than just “manage” homelessness. They want them to prevent and eliminate it by making sure “all Australians have access to safe and adequate housing.”

The summary identifies twelve principles to guide the plan towards this worthy outcome. The principles are sound, and include recognising housing as a basic human right, ensuring housing is accessible and sustainable, and engaging people who have experienced homelessness in designing programs and services. They also propose a “housing first” approach to homelessness that gives people a home before helping them to deal with challenges like mental illness, addiction and unemployment.

The report lists a few practical suggestions too, including stronger tenants’ rights and inclusionary zoning rules to guarantee new residential developments incorporate social and affordable housing.

Many of its key proposals, though, come down to money: building more social housing where it is most needed, for example, and providing sufficient homelessness services to meet demand.

Such aims can’t be achieved without a much higher level of dedicated, consistent government funding. Indeed, the report includes “secure funding and support” as one of its twelve guiding principles. Yet it offers no guidance as to how the necessary revenue might be raised. This is not because people engaged in the consultations failed to put forward ideas; rather, it’s because the most obvious way to secure funding for housing initiatives is to change the way housing is taxed and that’s something the government doesn’t want to talk about. Right from the start the consultation was framed to bracket out any such discussion.

Two new pieces of research reinforce just how glaring and regrettable this exclusion is.

The Centre for Equitable Housing has drawn together current and historical budget data from across different government portfolios to provide a comprehensive picture of federal housing expenditure over time. It found that tax concessions like negative gearing and the capital gains tax discount are eclipsing expenditure on other housing programs. The combined annual value of these tax breaks is more than ten times the sum Canberra disburses each year to the states and territories to build social housing and tackle homelessness. As a result, 43 per cent of federal government housing support is flowing to the top fifth of income earners, while just 23 per cent goes to the bottom fifth.

The report also found that the numerous but disparate housing-related measures in the federal budget lack clearly articulated objectives. In their absence, negative gearing and the capital gains tax discount operate as “a shadow housing policy” driving up prices by encouraging speculative investment in existing housing stock rather than new construction.

The Everybody’s Home campaign, meanwhile, has calculated that the revenue lost to investor tax breaks over the coming decade could fund 550,000 new homes for low-income households. That would be more than enough to eliminate social housing waiting lists around the country.

The single mention of tax in DSS’s summary of its consultations comes in this sentence: “Private investors and landlords need incentives like tax breaks and subsidies to provide more social and affordable housing.” It’s as if negative gearing and the capital gains tax discount are invisible, or don’t exist, and we’re being asked to invent a set of new industry supports to build affordable homes without any reference to the multibillion-dollar concessions already in place.

Again, this isn’t because participants in DSS’s consultations forgot to mention negative gearing and the capital gains discount. Both were raised at the “community conversation forum” I attended in Geelong (and not just by me). While DSS has yet to upload all 517 submissions to its Engage platform, many of those that are available raise tax reform as an essential consideration in the development of the national housing plan. These include submissions by local governments such as the City of Melbourne and Brimbank City Council, by housing providers and support services such as Mission Australia and the Western Homelessness Network, and by expert organisations such as RMIT’s Centre for Urban Research and SGS Economics and Planning.

In a joint submission, the peak industry bodies National Shelter and the Community Housing Industry Association state the problem clearly:

Currently the ability for housing markets to supply enough homes to meet the population’s needs is distorted by settings for capital gains tax and negative gearing that prioritise speculative housing acquisition for capital return over strategies that aim to ensure every household is able to meet their need for affordable housing. A key goal for the Plan should be to explore opportunities to apply taxation settings that support achievement of long-term housing outcomes over speculative investment returns.

True, statements like this go beyond the narrow focus areas offered up for discussion in the original DSS issues paper, and every page of the summary report includes a disclaimer that it “may not include all views presented by stakeholders.” Yet the same disclaimer says that the document doesn’t represent the views of the Australian government. So even though Labor finds it politically inconvenient to talk about negative gearing and capital gains tax, that’s no reason for the report to shy away from such topics.

To invite community members, housing practitioners and experts to engage in a national dialogue and then to ignore what they have to say makes a mockery of the process of consultation. The Albanese government said it wanted to hear ideas on how to tackle one of the most pressing social and economic issues confronting the nation. Many of us took that invitation at face value and went to considerable lengths to contribute. We can only feel let down. •

The post On housing, is Labor listening? appeared first on Inside Story.

Yet, having spent six months studying one of the nation’s most pressing issues, the committee failed to transcend the predictable ruts of partisan politics and reach shared conclusions.

At their best, parliamentary inquiries are powerful democratic instruments and an aid to good government. Inquiring minds delve into complex issues, build up an evidence base, interrogate expert witnesses and listen to the stories of those directly affected by the matter at hand. Rival parliamentarians with diverse convictions work collegially to piece together a coherent picture of a messy problem and then offer joint suggestions as to how it might be tackled. In the past, this has been particularly true of Senate committees, which are more likely to involve influential crossbenchers, and where major-party senators felt less constrained by party discipline than their colleagues in the lower chamber.

My first appearance before a Senate committee in 2006 strengthened my confidence in Australia’s democratic institutions and processes. The questioning was acute, engaged and nonpartisan. Committee members were well briefed and had read our submission carefully. Most impressively, the senators were genuinely interested in discussing novel approaches to a difficult policy area — in this case the future of the horticultural labour force — including proposals that sat in tension with their party platforms.

But my appearances before a few other committees since then have failed to match that experience. Most committee members appeared to listen attentively and grapple with issues in good faith, yet over the years I sensed a growing tendency for parliamentary inquiries to become venues for political theatre. Genuine engagement and collaboration are giving way to point scoring as committee members select evidence to confirm their established positions.

I can’t comment on the day-to-day conduct of the 2023 rental inquiry. I made a submission but wasn’t invited to appear, and I haven’t studied the transcripts of public hearings. But the final report is a missed opportunity that reaches no substantial conclusions.

The committee affirmed that “a dwelling of good standard and equipment is not only the need but the right of every citizen” — a view first articulated in 1944 by the Commonwealth Housing Commission and often honoured in the breach. The report, released on the last day of parliament for 2023, proposes no new measures to realise that failed wartime ambition, simply saying that “while the problems are significant and self-evident, the solutions are less clear.”

The report’s concluding comments include two recommendations carried over from September’s interim report and outline some other points of agreement that are too general to have policy impact. These are followed by three separate sets of recommendations — one from government senators, one from Coalition senators and one from committee chair, retiring Victorian Greens senator Janet Rice.

No one expected members of rival parties to find common ground on questions where battlelines are entrenched and heavily fortified. Labor and the Coalition were never going to back the Greens’ call for a two-year rent freeze or agree to reform negative gearing and other tax concessions and invest the extra revenue in social housing. But given the stakes, senators from all parties should have joined forces to make at least some constructive suggestions.

They had plenty of material to work with in the report itself, which is a concise and easy-to-read digest of some key drivers of our rental crisis that fairly canvasses competing views.

The report’s main sections focus on boosting the stock of social and affordable rental housing, immediate financial relief for renters, improving rental conditions and strengthening tenants’ rights. Along the way, it looks at the impact of short-stay accommodation like Airbnb (and options for its regulation), considers the potential of the build-to-rent sector, and examines arguments for planning reform and rent regulation.

But senators failed to make common cause on topics where evidence is overwhelming and uncontested. Take the lack of affordable homes for renters on very low incomes. Across the political spectrum, it’s generally agreed that providing homes for this group is the responsibility of governments, not private investors. A “conservative” official estimate is that 377,000 households need social and affordable housing today, and a statutory review of the National Housing Finance and Investment Corporation Act found that an extra 614,000 social housing dwellings are required by 2036.

Given such daunting numbers, the interim report’s joint recommendation that the Australian government “continue investment in public, social, community and genuinely affordable housing” is so vague as to be risible. There is no shared view on how much should be built or what proportion of Australia’s rental stock should be subsidised.

Committee chair Janet Rice called on the government to quantify the annual investment needed to meet the shortfall in public and community housing. But this was a step too far for Labor senators, whose additional comments at the conclusion of the report essentially rehash current policies, including the Housing Australia Future Fund, the $2 billion social housing accelerator, the $3 billion in incentives to build 1.2 million homes in five years and the 15 per cent increase in Commonwealth Rent Assistance.

Labor senators claim these measures constitute “the most significant investment in social and affordable housing in more than a decade.” True, but that’s not much of a claim since the Coalition abandoned the housing field almost entirely from 2013 to 2022. The Albanese government’s initiatives to date are welcome but fall far short of what is needed.

The second recommendation carried over from the interim report is for the federal government to take “a coordinating role to implement stronger rental rights.” Labor’s senators seem to feel this has already been achieved thanks to the “better deal for renters” struck at national cabinet in August. Their additional comments essentially reiterate what was agreed there, including better protecting tenants’ personal data, “phasing in” minimum standards for rental properties, establishing a nationally consistent policy on reasonable grounds for ending a lease, and making it illegal to solicit rent bids — that is, stopping agents from asking prospective tenants to pay more than the advertised rate. Such measures will improve the situation of tenants but are weak and short on detail.

The report warns, for example, that bans on “soliciting” rent bids fail because desperate prospective tenants will voluntarily offer higher amounts anyway. Widely used rental technology platforms also ask tenants to specify the amount of rent they are willing to pay, which essentially amounts to a blind auction.

In response to this evidence, the best the senators could agree on was that “further consideration of state tenancy regulation may be required to close this potential loophole.” To call this response wishy-washy would be too kind.

Is Labor so determined to distinguish itself from the Greens that it couldn’t sign on to Rice’s unremarkable proposal to ban unsolicited rent bidding, ensuring that the advertised rent matches the actual rent agreed in the lease?

Similarly, Labor could have found common cause with the Greens’ call for more specific minimum quality standards for rental properties, such as basic levels of energy efficiency and thermal comfort. The committee was told that Australia could borrow from New Zealand’s Healthy Homes standards for heating, insulation, ventilation, moisture, drainage and draught stopping.

Yet all Labor senators could come up with to improve renters’ welfare was a suggestion that “the contents of the committee report may be useful guidance” for the states and territories as they update tenancy regulations. Coalition senators, meanwhile, seem less concerned with helping tenants than with protecting the existing rights of property investors — those “overwhelmingly quiet, aspirational Australians looking to safeguard their retirement.”

Coalition senators see the best response to Australia’s rental crisis as an individual one — pay your own mortgage instead of someone else’s and avoid getting “stuck in a rent trap.” This rubs salt in the wounds of generations of Australians who’ve watched rising real estate values rapidly outstrip wages, mostly on the Coalition’s watch. For decades, the dogged support for first homebuyers offered by both major parties has coincided with falling rates of home ownership, the misguided subsidies simply making the problem worse by pushing up property prices. Yet the Coalition senators’ main recommendation is to “to revitalise the culture of home ownership” by letting first homebuyers access their super.

Senators could have made a united call for a review of Commonwealth Rent Assistance. The committee heard the scheme is ripe for reform because funds are flowing to some households that are relatively well off while others in dire need miss out. Research shows that reallocating rent assistance to better reflect housing need could have saved $1.2 billion in 2022 — or about a quarter of the annual cost to taxpayers in that budget cycle. Given that spending on rent assistance will rise to $5.5 billion this financial year, there is a compelling case to evaluate the program to see if money might be better targeted. Political rivalry seems to have overwhelmed any inclination to pursue such evidence-based initiatives.

The views of renters themselves might not have influenced the recommendations but they did make it into the interim report. With the first of its terms of reference referring to “the experience of renters and people seeking rental housing” the inquiry made a significant effort to hear directly from Australians struggling to keep or find a home.

Ada, a public servant in Canberra, described how, heavily pregnant, she holed up in the smallest room in her house in a desperate bid to keep warm. She blocked the vents, covered the windows in bubble wrap and only splashed out on heating her whole home after going into labour.

Amity in Sydney told the committee that her 11-year-old son had already moved house five times.

The last few years people have been asking me, “Which high school will he go to?” “I don’t know,” has been my reply because on a periodic lease I know that I can be evicted an any time for no reason with only ninety days’ notice.

Mark, a father in Brisbane, told the inquiry that rental stress prevents him and his partner from being their best selves:

The burden absorbs so much of our headspace. We have not been able to do our best as a spouse, a parent a friend or an employee… We have been left constantly worrying about where we are to live and how we are to pay our next bills. This is not healthy for us or our family or our child.

In their separate concluding comments and recommendations, Greens, Labor and Coalition senators thanked those who gave evidence to the committee. But if I were Ada, Amity or Mark I would feel let down by their failure to transcend party politics and agree on ways to jointly advance tenants’ cause.

The committee says it “heard a diversity of views on possible strategies and measures to address the crisis.” But their job was to do more than admire the problem; they needed to reach shared conclusions about how to fix it. •

The post Renters let down by partisan politics appeared first on Inside Story.

Initially, Menzies’s options were limited by the ten-year Commonwealth State Housing Agreement he inherited from Chifley. The 1945 agreement granted the states long-term loans to build homes for low-income families on the understanding that “a dwelling of good standard and equipment is not only the need, but the right of every citizen.” Its focus was on rental housing, with an option for sitting tenants to purchase their homes on favourable terms.

When the agreement came up for renegotiation, Menzies undermined its intent by encouraging middle-class families to buy public housing too, even though they didn’t live in it. Social affairs minister Bill Spooner argued that it was not “fair” to sell homes to working-class families with “no culture of thrift or sense of community obligation.” Not fair, it seems, to Menzies’s “forgotten people.”

To his credit, Menzies at least built lots of dwellings. Between 1947 and 1961, a period of mass migration, Australia’s housing stock grew about 10 per cent more than its population, with governments responsible for almost a quarter of new construction. Menzies also recognised that the state could play a fundamental role in stabilising a construction industry plagued by booms and busts. As he said in his 1949 campaign speech — the same “little capitalists” speech Kohler quotes — governments could plan public works “for periods when private building falls off.” Subsequent governments have forgotten this insight.

Home ownership rates jumped dramatically under Menzies — rising from about 50 per cent at the end of the war to over 70 per cent in 1966, largely due, claims Kohler, to the aggressive selling of public housing stock forced on the states. With their partisan bias towards home ownership, Menzies and Spooner “set the scene for decades of mistakes by their successors in the Coalition.”

Not that Labor hasn’t made its fair share of housing mistakes. It too failed to invest sufficiently in public housing: prior to the 1983 election, the party promised to double the proportion of public housing stock, but when Bob Hawke replaced Bill Hayden as leader the pledge was dropped.

Equally significant was Labor’s failure to stick to its guns on negative gearing. Treasurer Paul Keating eliminated negative gearing in 1985, arguing that allowing high-income earners to claim interest costs so they could trade forty-year-old Bondi flats “was not adding to the stock of housing or to the stock rental accommodation.” Keating was right, but the Hawke government buckled to the property industry and reinstated negative gearing two years later. If it had followed Keating’s logic and only restored the tax concession for new builds, then the trajectory of Australia’s housing might have been different. Nearly three decades later, having taken such a policy to election defeats in 2016 and 2019, Labor has abandoned it altogether.

Labor has also failed to restore housing to the political and administrative status it enjoyed federally in the postwar years. Chifley had a separate department for works and housing, but Menzies shifted housing to social services, where it sits today. The current deeply flawed development of the Albanese government’s promised national housing and homelessness plan is evidence for Kohler’s view that housing doesn’t belong in the Department of Social Services. Government comes at housing “as a welfare issue rather than an economic one,” he writes, yet housing is “almost everything” in the Australian economy.

Over the past two decades, rocketing real estate prices have taken household debt from 40 per cent to 120 per cent of GDP, tying up capital that could be used for far more productive purposes. Excessive housing costs dampen consumer spending and force families to delay having children. Long commutes in sprawling cities hamper productivity, harm health and worsen the climate catastrophe.

The Reserve Bank “manages the economy mainly through housing”— that is, by changing interest rates — which Kohler labels “a policy of cruelty” because the burden of economic adjustment is borne by those “who are already living on the edge.” Worst of all, Australia’s excessive housing costs drive inequality and erode social mobility. “Education and hard work are no longer the main social determinants of how wealthy you are; now it comes down to where you live and what sort of house you inherit from your parents.”

The most notable policy mistakes that made housing the driver of inequality were Coalition tax concessions. The first was the abolition of inheritance taxes in the 1970s and the second was the halving of the capital gains tax by treasurer Peter Costello in 1999. This was “kerosene on the smouldering coals of negative gearing and the lack of an inheritance tax, and turned property investment from a niche activity into the leaping flame of everybody’s tax avoidance scheme.”

This sets Australia apart: “whereas in the rest of the world investing in real estate is all about getting rental income from tenants, in Australia it’s about getting an income tax deduction and then a capital gain.” It helps explain why Australia’s rental market is dominated by small-scale landlords rather than institutional investors — it is small investors, not big ones, who benefit from tax concessions. Australia has virtually no “build to rent” projects because tax settings encourage developers to build to sell to “individual negative gearers” instead.

Coinciding with Costello’s halving of capital gains tax, which spurred real estate speculation, was a new migration boom that added to supply shortages. Unlike his hero Menzies, though, prime minister John Howard failed to use public investment to help housing keep pace with demand. The result was a two-decade-long price boom that saw the cost of housing diverge sharply from wages. Prior to 2000, the average home cost three or four times average annual earnings; now the multiple is seven or eight.

Kohler also has plenty to say about planning and zoning. He laments that Australia didn’t follow Britain’s postwar lead and standardise development controls across the nation, instead leaving them in the hands of state and local governments. This has created a fragmented, complicated system that not only impedes private construction but also hobbles public projects because state authorities must compete with developers to buy land at market rates. As a result, efforts to address housing need through the planning system are “piecemeal, local initiatives.”

Kohler identifies “two tribes” that dominate housing debates in Australia: “One tribe says the problem is tax breaks that boost demand too much and the other says it’s zoning and planning that restrict supply.”

He avoids taking sides, making clear that the fix for our housing mess will require action on a range of fronts — including not just tax reform and streamlined planning and zoning but also mechanisms to consolidate land in established suburbs. Consolidation would encourage the redevelopment of separate blocks with detached single houses as high-quality European-style medium-density apartments, along with a new vision for urban public transport.

But Kohler is not optimistic about the prospects for change. The politics of housing is “both simple and difficult,” he says. Australia is a “bankocracy” and thanks to Menzies’s legacy housing is “a cartel of the majority.” The most powerful players have good reason to want the cost of housing to keep going up. Those with less clout, like renters in the private market, have the odds stacked against them and will lose out. Ultimately, we’ll all be worse off. •

The Great Divide: Australia’s Housing Mess and How to Fix It
By Alan Kohler | Quarterly Essay | Black Inc. | $27.99 | 144 pages

The post And that’s housing appeared first on Inside Story.

She didn’t repeat that call in front of 1300 delegates at the National Housing Conference in Brisbane, but she came close, saying it should be possible to have a grown-up conversation about tax. She said Australia’s taxes encouraged property investors to focus on capital gains rather than a steady income from rents. A “healthy” housing market, she said, would prioritise “homes not assets.”

Lloyd-Hurwitz now chairs the interim National Housing Supply and Affordability Council, set up at the start of the year to advise the federal government on housing policy. In wide-ranging comments, she spoke passionately about the need to build a better and more secure rental sector, pointing out that more than 200,000 poor households hand over at least half their income to their landlords. She described housing as essential infrastructure akin to schools and hospitals, something that can’t be left to the private sector to sort out.

Yet a major thrust of the federal government’s response to the housing crisis does just that. In the updated National Housing Accord accepted by national cabinet, Labor wants the private sector to build 1.2 million “well-located” homes in five years, in the expectation that those new dwellings will bring down prices and make finding an affordable home easier.

Meeting this ambitious target would require an unprecedented rate of building: 60,000 new dwellings every quarter for five years straight. Steven Rowley from Curtin University told the conference that Australia has never achieved that level of residential construction, and only briefly approached it in early 2017. Currently, at just over 40,000 new homes a quarter, the industry is falling well short.

The federal government sees more efficient planning as the key to unlocking the residential construction boom required to meet its target. A blueprint adopted by national cabinet and supported by $500 million in competitive grants aims to streamline approvals, boost local decision-making capacity and fund essential infrastructure. Canberra is also holding out $3 billion worth of incentives to get the states and territories to improve planning systems. The money will flow as bonus payments once a threshold level of new dwellings is passed.

Rowley doubts such measures will be enough. While people love to blame the planning system for a lack of housing supply, he said, it’s market conditions that determine construction levels. And market conditions “just aren’t right.” “The last three years have seen unprecedented cost growth,” he added, “and that means development is unlikely outside the highest return areas.”

Tanya Steinbeck, chief executive of the Urban Development Institute of Australia WA, spoke about the situation in Perth, where construction costs render medium- and high-density residential projects unviable unless the underlying land values are already high. In other words, only upmarket developments in wealthy suburbs are likely to proceed.

According to Rowley, the only way we’ll get 1.2 million new homes is by dramatically rebalancing developers’ costs and the prices they can command. Construction stimulated by a sharp increase in property prices and rents would defeat the purpose of a scheme that aims to make housing more affordable.

Falling costs offer a more hopeful way forward, but Rowley believes costs have been driven up by factors that are largely beyond government control — labour shortages and the rising price of building materials, for example, and more expensive finance. Governments don’t set interest rates and have little influence over the cost of timber, bricks and steel. And while they can, over time, train more tradespeople, governments can’t stop qualified workers defecting to get better wages in the mining sector.

Even if costs moderate and supply chains flow more smoothly, it will take time for industry to respond to improved conditions. The construction tap can be turned off swiftly, said Rowley, but turning it on again is much slower.

Innovation holds out some promise. “We can do things faster without compromising quality,” said Lloyd-Hurwitz, describing an experiment carried out by Mirvac. Twelve terrace houses were built using traditional methods and twelve using a modular approach, with components of the houses made in factories and assembled on site. The modular homes were completed more quickly, with less waste and less neighbourhood disruption.

More generally, prefabrication is growing rapidly. It can help overcome skills shortages and the difficulty of getting workers and materials into remote locations like western Queensland.

But possible savings from innovation may be offset by other factors that make building more expensive. After all, we don’t just need more houses, we need better houses. From the floor of the conference, delegates called for homes that people with a disability can live in easily and homes that allow residents to “age in place.” Updated design standards often increase costs in the short term, even if prices come down again once economies of scale are achieved.

Extreme weather events, meanwhile, are prompting tighter planning controls over where homes can be located, and more stringent building codes in areas at risk from floods and fires. Energy-efficient homes are needed in greater numbers, built from materials with lower embodied emissions, but governments are dragging their feet.

In 2022, after years of negotiation, the states and territories agreed to making seven-star energy efficiency mandatory under the National Construction Code, with the changes to take effect in May this year. After industry lobbying, most states have delayed implementation, saying builders need more time to prepare. The result is grim: no improvement in housing efficiency standards since 2009. Ralph Horne from RMIT told the conference that if higher standards eventually take effect, they will only match ratings for new homes achieved twenty years ago in comparable nations.

The qualifier “well-located” poses another challenge to building 1.2 million homes. It’s code for increasing urban density in established suburbs using medium-rise developments to fill in the “missing middle” — a reference to both the lack of new homes in middle-ring suburbs and the lack of mid-rise apartment projects. A break with the pattern of going up in the centre and out at the edges has so far proved elusive.

More than two decades ago, the Victorian government’s Melbourne 2030 plan aimed to locate a “substantial proportion” of new housing in sites that had good access to services and transport, and to set “clear limits to metropolitan Melbourne’s outward development.” The aim has been partially met by high-rise inner-city towers sprouting up in the CBD, but greenfield estates on the urban fringe continue to accommodate most of Melbourne’s population growth. Some “transit oriented” residential development has sprung up around train stations — Box Hill is a notable example — but new housing in middle-ring suburbs is otherwise limited.

As Lloyd-Hurwitz pointed out, the average dwelling density of middle-ring suburbs is typically around 750 homes per square kilometre, whereas new greenfield estates now achieve densities of 2000 homes (thanks in part to smaller block sizes). Tanya Steinbeck said that while Perth’s established suburbs are dominated by freestanding houses with three to five bedrooms, the growing demand is for one-bedroom apartments, leading to massive underutilisation of existing housing stock.

Transformation of the urban landscape could be encouraged, Steinbeck said, by shifting from stamp duty paid on sales to a broad-based property tax, another long-sought policy reform. This would reduce the financial barrier to people “right sizing” their homes as their circumstances change. The ACT has gone done this path, but other states and territories are unlikely to follow unless the federal government plays a coordinating role. So far, it’s shown no inclination to do so.

There was talk of easier permitting for backyard granny flats, hardly a recipe for top-quality urban redevelopment. But Lloyd-Hurwitz also referred to Auckland’s 2016 “upzoning” to enable the conversion of family homes on suburban blocks into mid-rise developments without running the gauntlet of planning objections. This has been credited with precipitating a boom townhouse development that has slowed the increase in Auckland rents and real estate prices relative to other New Zealand cities (although causal link is disputed).

The aim, said Steinbeck, is not just density, but density done well. The risk of liberalising planning rules is that we’ll get what she called “dumb density” — small-scale developers replacing family homes on large blocks with two or three townhouses that lack energy efficiency and don’t make the best use of scarce land. Such piecemeal infill occurs without upgraded infrastructure and amenity to improve the neighbourhood for all residents.

My conversations with delegates during the conference breaks often came back to this challenge. Doing density well is hard because it means assembling fragmented housing blocks into parcels big enough to develop at scale — few developers have pockets deep enough to engage in such activity and there are few explicit incentives in planning schemes.

The National Housing Accord also includes an aspiration for 20,000 of the 1.2 million “well-located” new homes to be “affordable.” To put it kindly, this is a modest ambition, amounting to less than 2 per cent of all new dwellings over the next five years. If we include the 40,000 social and affordable homes that are supposed to be built with money flowing from the newly established Housing Australia Future Fund and the extra billions extracted by the Greens — and an extra 20,000 dwellings completed independently by state governments over the same time frame (a generous estimate) — that still amounts to only 80,000 “affordable” homes or less than 7 per cent of 1.2 million new dwellings.

Affordable is, in any case, a notoriously vague and contentious term. It’s usually taken to mean rents 20 per cent lower than the prevailing rate for a similar dwelling in the same area. But, as Lloyd-Hurwitz remarked, a discount in a high-priced market isn’t necessarily affordable, especially for tenants on low and moderate incomes.

Despite the challenges, the overall mood at the National Housing Conference was upbeat. As AHURI managing director Michael Fotheringham said in his welcoming remarks, housing has never been more prominent in public discussion than it is today. There was palpable excitement, especially among not-for-profit community housing providers, about bidding for a share of the new funds flowing in their direction. They want to get on with building homes for the people who most need them.

Delegates welcomed the federal government’s efforts to coordinate tenancy reforms via national cabinet so renters around the nation get a better deal, and they are encouraged by the new dynamism apparent at the state level. Since May, Queensland has a dedicated housing department for the first time, led by a minister, Meaghan Scanlon, whose parents both grew up in public housing. Rose Jackson, housing minister in the new NSW government, has launched herself into the job with energy and plain speaking, and Victoria has just released its long-anticipated housing statement.

If there was a general view of the five-year target of 1.2 million homes, it was probably that the ambition is welcome even if it’s unrealistic. Meeting the target would increase Australia’s total housing stock by about 2.4 per cent every year. Curtin University’s Steven Rowley said this could have a moderate impact on rents and house prices, but he doesn’t think it will make homes dramatically more affordable.

What’s needed, he thinks, is sustained public investment to build new social housing in perpetuity, allowing us to steadily build the stock of decent homes that are truly affordable for Australians on the lowest rungs of the income ladder. He worries that the current burst of new funding could again be short-lived. Like everyone else at the conference, I hope he’s wrong. •

Peter Mares facilitated a session at the National Housing Conference and AHURI paid for his travel from Melbourne to Brisbane.

The post Can we build them? appeared first on Inside Story.

In return for an extra $1 billion in social housing investment, the Greens dropped their demand that the bill include a two-year rent freeze, although housing spokesperson Max Chandler-Mather says the party is still committed to rent control and clearly sees this as a winning strategy in inner-urban seats.

“For us this fight has just started,” he told ABC Radio National Breakfast. “Nine months ago, no one cared about renters in the media and political establishment. Now they are a national news story.” The Greens had forced national cabinet to meet and discuss national renters’ rights, he said, referring to an August agreement by the states and territories to move towards a nationally consistent policy on tenancy laws.

National cabinet’s agreed measures would prevent landlords from terminating a lease without reasonable grounds or from raising rents more than once a year. They would also “phase in” minimum standards for rental properties — though the limp language doesn’t inspire great confidence that the lives of tenants will materially improve, especially given that the examples of “minimum standards” cited in the national cabinet communiqué are “stovetop in good working order, hot and cold running water.”

As well as setting up the HAFF, other bills before the Senate will create an independent body to provide housing research and advice to the federal government. The National Housing Supply and Affordability Council will fill an important gap created when the Abbott government abolished a similar body a decade ago.

Community housing activists have told me the Greens shouldn’t get all the credit for the progress, since the sector has also been lobbying hard, as has Labor for Housing and other ALP ginger groups. Other members of the Senate crossbench have been influential too.

Still, if the Greens hadn’t blocked the HAFF bill it’s hard to imagine that the government would have found an extra $3 billion to build homes for low-income Australians — the June commitment of a $2 billion social housing accelerator, and the additional $1 billion just announced. This new money will bolster the National Housing Infrastructure Facility and can be used to build new social and affordable homes or to pay for critical infrastructure needed to support them. The facility is administered by NHFIC, the National Housing Finance and Investment Corporation, which will become Housing Australia.

Under the original HAFF bill, the government set an annual cap of $500 million on disbursements from the fund to finance new homes. The Greens and other crossbench senators convinced the government to convert this ceiling into a floor — $500 million is now the minimum spend from the HAFF each year, rather than the maximum.

And independent senator David Pocock was also instrumental in getting these annual payouts indexed, which means their real value will be maintained over time rather than eroded by inflation.

The breakthrough on the HAFF is welcome news to not-for-profit housing providers. According to Wendy Hayhurst, chief executive of the Community Housing Industry Association, it will give the sector confidence to plan and deliver new homes.

Despite its designation as a “future fund,” though, the HAFF only offers five years of certainty. After that, there is no guarantee that more public funds will be available.

This isn’t the impression the government wants to give. In its issues paper promoting discussion of a new National Housing and Homelessness Plan it says the HAFF will “build 30,000 new social and affordable houses in its first five years” (my emphasis). Together with the name, this gives the impression that another 30,000 houses could be built in each of the subsequent five-year periods.

Housing minister Julie Collins has allowed this misapprehension to take hold by saying, for example, that “we’re talking about… a fund that in perpetuity each and every year would be delivering at least $500 million into social and affordable rental homes in Australia.”

At first glance, you might think that $500 million will be spent on new homes in every year of the fund’s twenty-five-year life. But that’s not how it works. Proceeds from the fund won’t provide up-front capital to finance new construction but will instead cover providers’ recurrent costs after the housing is built.

This is sometimes referred to as an “availability payment.” It’s essentially a subsidy to not-for-profit housing providers to bridge the gap between the cost of building and operating new homes and the low rents paid by social housing tenants. As a guaranteed future income flow it enables community housing organisations to raise commercial finance to build new dwellings. After five years almost all proceeds from the HAFF will be fully committed to covering the gap between housing providers’ costs and their rental income (at least until 2050).

The benefit of the model is that the HAFF leverages a modest amount of public money into larger sums of private capital. And once the funds are committed, it will be hard for the scheme to be undone by an incoming Coalition government: abolishing the scheme would mean interfering with commercial contracts.

But the HAFF is a complex way to fund housing. As business journalist Michael West writes, the biggest winners could be whoever manages the government’s investment. There’s a simpler alternative: as an analysis for the Australian Housing and Urban Research Institute concluded, “the cheapest and most efficient way to fund new social housing is direct public investment.” That’s why the Greens are crowing about directing an extra $3 billion from the government — six times the amount the HAFF will generate annually — straight into building new homes.

It’s certainly a good time to get money out the door. With the volatile construction sector heading for a downturn, this counter-cyclical release of new investment will help keep workers employed and firms afloat.

But all the extra investment will barely make a dent in the lack of rental homes for households on very low incomes. What is still sorely needed is a bipartisan commitment to financing new social housing for decades into the future.

The chances of that happening are slim. Shadow housing minister Michael Sukkar accused the government of waving the white flag on the great Australian dream because the HAFF does nothing for Australians who want to buy a home. In refusing to countenance support for the government’s social housing initiatives or engage with the struggles of renters, the opposition has dealt itself out of any role in tackling one of the nation’s most urgent challenges.

This leaves the Greens with a powerful hand in negotiations over other looming housing bills, including federal and state legislation to underpin Labor’s Help to Buy shared equity scheme, which is designed to help people into home ownership with a 2 per cent deposit.

The Greens demonstrated a tough pragmatism in the HAFF negotiations. As Chandler-Mather says, the media, the community housing sector and their fellow crossbenchers pressured the Greens for months to pass the bill without seeking further concessions. “We were told when we started this, that we were absurd and crazy, for pushing for more funding for public housing,” he said. “And look how far the debate has shifted.”

But it’s hard to see the party’s demand for a “rent freeze” gaining traction. The phrase promotes a binary understanding of rent control as a switch that is either on or off, rather than a dial that can be calibrated. It mobilises well-founded opposition based on evidence that blunt controls of this kind have unintended consequences.

As a report from the Centre for Equitable Housing notes, “hard” rent freezes, or “first generation” rent controls, have had negative effects elsewhere, deterring new housing investment and discouraging landlords from spending on maintenance. The report adds that a national one-size-fits-all rent freeze doesn’t account for regional differences and could drive some investors to switch their properties out of long-term rental and into short stays instead.

A range of more nuanced measures — what the report calls “second and third generation rent stabilisation” — could be used to moderate rent increases. These approaches, widely used in Europe, are more focussed on limiting rapid spikes than on bringing rents down overall. They may allow landlords to increase rents between tenancies, for example, or offer allowances for spending on maintenance.

The centre concludes that it is possible to develop rent stabilisation policies that allow the market “to play the defining role in setting rent prices but in a moderated and predictable fashion.”

The next test for Labor and the Greens will be whether they can move beyond the rent-freeze stand-off and begin a nuanced discussion about how to develop a more stable and affordable private rental market. That will require compromise on both sides. •

The post Two cheers for the HAFF appeared first on Inside Story.

The facilitator says she’s sorry there’s no tea and coffee in the room because the urn is fixed to the wall in the kitchen out the back, but she encourages us to duck out and help ourselves to a cuppa. She apologises that the staff from the Department of Social Security will be late because their plane was delayed by Canberra fog.

This modest Monday afternoon gathering in a suburban hall in East Geelong is the first of twenty public consultations — or “community conversation forums” — to help the federal government draft a national housing and homelessness plan.

There is a lot riding on the process. As Chris Martin from the City Futures Research Centre at UNSW has pointed out, Australia has never really had a national housing strategy. What we have had, he told a recent online forum organised by National Shelter, is a series Commonwealth–State agreements regulating how much housing money flows to the states and what Canberra expects in return. Starting in 1945, those multi-year agreements have focused solely on social housing and homelessness; a bigger vision of how housing fits into the economic and social life of the nation has always been lacking.

Martin hopes the new national plan will be more ambitious in scope and help to end the fragmentation of policy within and between different levels of government. He wants to see housing integrated with other policy areas, including employment, welfare, immigration, urban development, climate change, disability and closing the gap.

But the issues paper designed to kick off our “conversation forum” in Geelong is not a promising start. Like many earlier housing inquiries, it seems to assume that Australia’s complex housing challenge has a simple answer — just build more dwellings. It foresees a happy land where homes are available, and affordable, for all. All that’s blocking the way is restrictive zoning, onerous planning processes, cumbersome building regulations and constraints on the release of land. Cut through that thicket of regulation and our destination is within reach.

This popular supply-side explanation to our housing problems was evident at August’s national cabinet meeting, where the states and territories agreed to build 1.2 million new homes over five years from 2024. That’s 200,000 more than the target announced just ten months earlier under the National Housing Accord.

As an incentive to meet this stretch target, Canberra pledged an extra $3 billion to fund $15,000 bonus payments to the states for each additional dwelling. Another $500 million was set aside to “kick-start housing supply in well-located areas” by delivering public services and amenities or bolstering planning capacity. State and local governments will vie for this money under a competitive funding program.

Anthony Albanese calls it “the most comprehensive housing strategy that we’ve seen for a generation.” Even if that’s true, it’s hardly a big claim. With a limited exception during the Rudd years, when Tanya Plibersek was minister, federal governments have dodged responsibility for housing for decades.

Still, the Grattan Institute reckons the prime minister is right to talk up the new deal. It calculates an extra 200,000 homes could make rents 4 per cent lower than they would be otherwise. Its researchers argue that “state and local governments… restrict medium- and high-density developments, largely to appease existing residents in established suburbs.”

Denita Wawn from Master Builders Australia agrees. Welcoming the national cabinet announcements, she said Australia needs to reform planning, zoning, and building approvals to ensure that we’re “not just going out in the suburbs, but up as well.”

In the hope of slicing through the red tape strangling our housing dreams, national cabinet also agreed to a National Planning Reform Blueprint to promote “medium and high-density housing in well-located areas close to existing public transport connections, amenities and employment.”

Rather than a blueprint, though, this is a vague grab bag of sometimes conflicting proposals. While it aims for more timely development approvals, for instance, it also wants to rectify “gaps in housing design guidance and building certification to ensure the quality of new builds.” And while it wants stronger “call-in powers” for state planning ministers it also favours better “community consultation processes.”

Victorian premier Daniel Andrews has already committed Victoria to reducing the role of local councils in significant planning decisions. Yet his government’s record inspires little confidence that this will dramatically boost supply. There’s been little action on a 2017 plan to devote surplus government land to new housing, and the state government can be just as sensitive to resident opposition as local councils are.

Examples can be found in electorally significant sandbelt seats in Melbourne’s southeast. After Kingston Council refused in 2018 to rezone a disused golf course to allow Australian Super to build more than 800 dwellings, the state government intervened and commissioned an independent inquiry. Two years after it reported, its recommendations are still under consideration.

Then there’s what locals call the Great Wall of Frankston. Developers proposed two apartment buildings side by side overlooking Frankston beach — one fourteen storeys high and the other sixteen. The council approved a development overlay that would have allowed twelve storeys. The matter was before the Victorian Civil and Administrative Appeals Tribunal when planning minister Sonya Kilkenny intervened and imposed interim controls to reset the height limit to just three storeys.

National cabinet’s blueprint also calls for states to “consider” the “phased introduction” of inclusionary zoning, which would force developers to incorporate social and affordable housing in any major project — a common practice overseas. The caveat is that this should be done “in ways that do not add to construction costs.”

It’s hard to see such a limply worded proposal generating much change. In 2022, Victoria sought a similar outcome by requiring developers building three or more dwellings to contribute to a social housing growth fund. In the face of property industry opposition, and claims this would push up the cost of buying a home, the proposal was scrapped within a fortnight.

The national planning reform blueprint appears to draw inspiration from work by the Productivity Commission, including a 2021 information paper identifying planning and zoning reforms and last year’s review of the National Housing and Homelessness Agreement. Both reports argue that reforms to planning, zoning and land release are crucial to increasing the supply and affordability of housing.

Many of the Productivity Commission’s recommendations make sense. Its call for state and local planning to be more closely aligned is a good example: a state-wide housing target has little point if local councils refuse to accept their share of new builds or greater density. The commission also wants fewer and broader land-use zones, permitting a wider range of activities without explicit council approval or costly variations. This would make it easier to have mixed developments that combine business, retail and housing.

But a close reading of the commission’s work reveals that many proposals in national cabinet’s planning blueprint are already in train. To varying degrees, all jurisdictions have been “streamlining approval pathways,” especially for significant projects, often by replacing council decision-makers with expert panels. State and local governments have also put considerable energy into removing “barriers to the timely issuing of development approvals.”

In other words, state and territory governments have been reforming planning for a long time without any appreciable effect on housing affordability. As Sydney University planning expert Nicole Gurran points out, more than 90 per cent of multi-unit development applications in New South Wales are approved and decisions issued within about three months.

Nor is there great evidence of planning and zoning being a significant brake on development. Australian Bureau of Statistics data show that more than a million dwellings were completed between December 2017 and December 2022. So, the government’s original Housing Accord target of one million new homes over five years only seeks to match what went before.

An anticipated decline in prospective construction activity has less to do with planning, zoning and land release than with the cyclical nature of the property industry. As this chart shows, the industry is characterised by peaks and troughs. What is more, dwelling completions lag, but rarely match, dwelling approvals. Considerably more housing gets approved than gets built, which points to factors other than planning influencing the supply of housing.

Dwelling approvals and completions 1984–2022

Source: ABS, 8731.0 Building Approvals, Australia and 8752.0 Building Activity, Australia

Among the factors currently dampening activity are higher interest rates, subdued consumer sentiment, weather problems, labour shortages, increased construction costs, bottlenecks in the supply of building materials and construction firms going bust. On top of all that, the Covid-era stimulus brought forward construction that would otherwise have occurred later. None of these adverse factors will be fixed by planning and zoning reform.

Even in a blue-sky world of light-touch regulation, devoid of constraints on labour and materials, a rational developer would avoid bringing so much housing to market that prices would fall, cutting their profit margins.

When I was researching my book about housing in 2018, I visited the 1000-lot Madora Bay development in the growth region of Mandurah south of Perth and chatted to a bored estate agent flogging house-and-land packages. He told me he would get in strife if he clocked up too many sales. His instructions were to sell a certain number of blocks each year, and no more, to keep a floor under prices.

A recent study suggests Madora Bay is not an isolated case. Prosper Australia examined the sales history of nine master-planned communities in three states and found a striking pattern. Sales peak in the early years when a greenfield development is just getting off the ground. But as the project matures, the sales rate slows, even though there is still plenty of land available and demand for new housing has not diminished.

Take the example of Woodlea, a 711-hectare estate twenty-nine kilometres northwest of the Melbourne CBD that will eventually be home to about 20,000 people. When the first of its 6500 lots were released in 2015, sales were brisk, and over the next two years about 14 per cent of the total development was sold — an average of forty-five properties each month. But then sales slowed substantially, even though land prices were still climbing fast. Over the next three years, only about 6.5 per cent of the total lots were sold — an average of just thirteen properties a month.

“Supply effectively reduced from February 2017 all the way through to January 2020, despite rising prices,” writes Prosper economist Karl Fitzgerald. He infers that Woodlea’s developers needed to wind back supply “for fear of price reductions.”

The property industry is one of the loudest voices calling for more land releases and looser planning and zoning rules, arguing that this will enable them to increase supply and reduce the price of housing. But Fitzgerald says this isn’t how property markets operate and it’s illogical to expect private developers to bring on excess supply and, in effect, undercut their own product.

It isn’t just on the suburban fringe that approved residential developments are slow to manifest as dwellings for sale or rent. In July 2015 developer Sterling Global bought the Australian Federal Police building on La Trobe Street in central Melbourne for $70.7 million. Plans were approved in November 2016 for a 70-storey tower including a hotel and 488 apartments. But Sterling Global instead sold the site to Mirvac for $122 million dollars (booking a 73 per cent capital gain in three years) in 2018. In June 2021, the City of Melbourne endorsed new plans for a 31-storey office complex. Construction was due to commence in 2022 but there is no sign of work. The AFP has moved out and the existing five-storey building now sits empty.

UNSW housing expert Professor Hal Pawson advises scepticism about housing strategies based solely on the belief that regulations are limiting building activity. “In reality,” he writes, “the prime consideration for private developers and their financial backers is expected market conditions when constructed homes are saleable.”

The Planning Institute of Australia also points out that planning “doesn’t control the speed with which housing is developed — nor affect powerful drivers for investment in housing.”

“It is simply wrong to say that planning is what is holding back our housing supply,” urban planner Marcus Spiller told National Shelter’s online forum. Yet he says this is the “intellectual architecture” underpinning the government’s approach to a national plan.

The founding partner of SGS Economics and Planning and former national president of the Planning Institute of Australia, Spiller is a veteran of Australian housing debates and has served on numerous state and federal boards and advisory committees. In his view, it is fanciful to assume that we can deregulate planning and then rely on competitive markets to meet the housing needs of low- and middle-income Australians. There is no trickle-down solution to the housing crisis, he says, and government and public policy must play a much stronger role.

If governments had kept building social housing at the same average rate as between 1955 and 1985, Spiller calculates, then Australia would now have 330,000 more homes for low-income earners. Instead, we shifted to providing rent assistance so tenants could find the housing that best suits them in the private market. The theory was that they would become masters of their own destiny. “It’s a compelling economic proposition that we have been pursuing for thirty or forty years,” says Spiller. “And I think it’s time to ask the question, has it worked?”

Clearly, it has not. Barely one in a hundred rentals is affordable for essential workers in full-time jobs, hundreds of thousands of households are forking out more than half their income on rent, and vacancy rates are at record lows. But the conventional supply-side wisdom can never be disproven. If there’s not enough housing or if housing is too expensive, then that must mean we have not yet deregulated enough, and must deregulate more.

In May this year former Reserve Bank economist Tony Richards published a long article in the Australian Financial Review describing how to solve Australia’s housing crisis. Despite the Financial Review’s simplistic spruiking — “1.3 Million Missing Homes Blamed on Councils and NIMBYs” — it is a complex and thoughtful examination of the issues. Richards recognises the need to build more social housing and acknowledges that we could use the tax system to moderate demand. But I was struck by what Richards does and doesn’t say about one of the local governments he picked out as anti-development.

Like all Sydney councils, Hunters Hill must develop a local housing strategy. Astonishingly, though, the council projects that this relatively low-density area just six kilometres from the GPO will lose population between now and 2036. Richards concludes that getting more medium-density housing in such a well-located area may mean taking powers away from local councils, so decisions are not just based on “the preferences of current residents, including NIMBYs,” but also encompass “the needs of the broader city and of future generations of potential residents.”

Richards commends the work of economist Peter Tulip from the Centre for Independent Studies, who has made a detailed analysis of apartment development in local government areas in Sydney and concludes that units are not being built where they are most wanted. Parramatta, for example, is increasing in density much more rapidly than Randwick.

Tulip says we should “build more housing where people want to live, as judged by their willingness to pay for a location.” Mosman is more expensive than Penrith, therefore also more desirable, and so that’s where we should build more apartments — and if we did, this would bring down prices there.

I have very little argument with this line of reasoning, and I think Tulip’s suggestion of a carrot-and-stick approach requiring councils to meet predetermined housing targets is worth pursuing — though Boris Johnson’s efforts to impose mandatory building targets in Britain quickly shattered when worried backbench MPs rebelled against forcing new developments on their wealthy constituents.

And this is what I think is missing from the Richards–Tulip analysis. It fails to draw the connection between housing and wealth. Tulip recognises that “planning restrictions reflect a desire for social exclusion” — that is, rich people want to live near other rich people and not near poor people — but he fails to consider that planning restrictions may also reflect the political power that wealth brings. Perhaps a more progressive income tax would generate a more egalitarian planning regime.

Or perhaps planning is not the issue. Analysing census data in the United States, Seth Ackerman finds a much stronger correlation between housing costs and household incomes than between housing costs and planning restrictions: “Rents and land values in a particular location are determined by the income and wealth of the people and businesses in and around that location. Put plainly, it’s the presence of rich people that makes rents expensive: they can pay more.”

Nor does a conventional supply-side approach concern itself with the fact that rich people generally consume more housing. As British housing economist Geoff Meen observes, housing demand comes “not just from newly forming households, but also existing households as incomes rise.” We need to consider the distribution of housing as well as supply.

“What happens when you build and you have no plan to distribute the housing to people who need it is wealthy people use more housing,” says Maiy Azize from the Everybody’s Home campaign. “They live in smaller households and they buy second homes.”

Excess consumption of housing by the rich pushes up prices for all, but this demand side of the housing equation is rarely mentioned. If we want to promote more efficient use of housing — like people living in apartments instead of freestanding homes with empty bedrooms — then changing how we tax housing and land could make a real difference.

Of course, planning and zoning matter in housing, but not necessarily as barriers — at least not in the way they are normally presented. They can also help overcome systemic problems.

When the Albanese government emphasises the need to build “well-located homes” or Denita Wawn from Master Builders talks about going up in the suburbs as well as out, they are responding to a major problem, often summarised as the “missing middle,” something Richards also identifies in his piece for the Financial Review.

The “missing middle” is primarily a reference to the lack of medium-density apartment dwellings of three or four storeys — the midpoint between high-rise towers and detached family homes. But it can also be applied spatially, to designate the lack of significant new construction in middle-ring suburbs.

A quick summary of where new housing has been built in Melbourne in the past decade illustrates the issue. Between the 2011 and 2021 censuses, dwelling supply in Melbourne’s nine inner-city councils — members of the M9 alliance — increased by about a third. In the City of Melbourne, housing supply almost doubled in that time, from 53,000 to 103,000 dwellings, as new high-rise residential towers sprouted up across the Hoddle grid, Southbank and Docklands.

The supply of housing on the urban fringe rose by more than 50 per cent over the decade, mostly in the form of detached housing in residential developments on former farmland. But the supply of housing in Melbourne’s middle- and outer-ring suburbs grew by just 13 per cent. These are the “well-located” suburbs that the government is targeting for newer denser housing because they have good access to public transport, services, jobs and amenities.

Percentage of dwellings added in Melbourne local government areas 2011–21

Author’s calculations based on ABS Census data

These suburbs might have the most restrictive planning regulations and the most vociferous and well-heeled resident action groups. But I suspect something else is at work.

Unlike central Melbourne, these suburbs don’t have brownfield sites — disused docklands or railyards that can be home to high-rise residential towers. Unlike inner-city Fitzroy, Brunswick or Footscray, they have few warehouses or workshops that can be redeveloped into medium-density apartment blocks. And unlike the city’s outer-urban growth areas, no greenfield sites are available to be transformed into housing estates.

Melbourne’s middle- and outer-ring suburbs are sometimes called “greyfields.” They are, characteristically, residential neighbourhoods dominated by detached homes on separate blocks, with little in the way of industry. That makes urban regeneration challenging, even as buildings age and are due for replacement. Without strategic planning, redevelopment generally takes the form of piecemeal infill — a single family home is demolished to make way for two or perhaps three townhouses. Gardens and trees give way to garages and driveways. Density is increased but the amenity of suburban life is diminished with little planning for the extra demand on services, roads and public transport. No wonder existing residents object to new developments.

More than a decade ago, researchers Shane Murray and Peter Newton identified more than a quarter of a million middle-suburban properties in Melbourne with “high potential for regeneration, in localities where residential building stock is failing and infrastructure is in need of upgrade.” But the historical pattern of residential development based on freestanding houses on separate titles makes it very hard to assemble parcels of land big enough to carry substantial redevelopment projects — the “missing middle” of European-style medium-density housing. This challenge will be even greater in future decades, when current growth areas with smaller lot sizes are ripe for redevelopment.

The Planning Institute of Australia puts its finger on the problem: “many of the easiest candidate sites for housing development are already spent.” It calls for governments to take a leading role in land markets to overcome the inefficiencies caused by fragmented ownership. What’s required to address the “missing middle” is not for governments to get out of the way but for them to intervene more to assist private capital to carry out high-quality, precinct-level redevelopment.

Melbourne, says Marcus Spiller, needs to add one extra dwelling for every existing 1.3 dwellings over the next thirty years, all within the existing urban footprint, “a level of transformation that is difficult to wrap your head around even as a professional planner.” We won’t achieve that with the “hunt and catch, opportunistic, fragmented approach that we’ve had until now,” he says. “The real issues with housing supply lie in land withholding, land assembly, insufficient infrastructure and land fragmentation, all of which require concerted policy effort and public intervention.”

Chris Martin agrees. In a report for the Australian Housing and Urban Research Institute, Martin and his co-authors call for a mission-oriented approach to the national housing strategy. Drawing on the thinking of leading economist Mariana Mazzucato, they argue that the state must play a larger role in “innovation and value creation” and “actively create and shape markets.” Rather than a level playing field in which market can compete, Mazzucato says the state should tilt the playing field towards achieving publicly chosen goals.

The mission, says Martin, can be plainly stated: everyone in Australia needs adequate housing.

We reach a similar conclusion in the community hall in East Geelong. The first session is focused on social housing and homelessness, and our initial task is to share three words to describe what a new national housing plan should achieve. An app collates our responses and projects a word cloud dominated by concepts like affordability, safety and security.

Many of my fellow participants work in public and community housing. They are deeply knowledgeable, their comments detailed and passionate. They talk about renters in the private market needing help to hold on to tenancies — it’s better to support someone in housing than see them slip into homelessness. Yet so many services only kick in after someone is in crisis.

They talk about the lack of emergency housing, about mouldy homes, and about extending Victoria’s approach to domestic violence to the rest of the country — it is the only state that has a policy of removing the perpetrator from the home, regardless of who holds the lease. And they talk about the burgeoning number of applications on the priority list for social housing — 7000 in the Barwon region alone.

After ninety minutes, the top half of our sheet of butcher’s paper is a cluttered jumble of coloured sticky notes. This is where we’ve been asked to identify challenges in addressing homelessness and improving access to social housing. The lower half — where we’ve been asked to identify what is working well — is more thinly populated.

Afternoon has turned into evening and it’s time for a break. Fresh fruit and an abundant supply of traditional baked goods compensate for soggy sandwiches. I load my paper plate with lemon slice and hedgehog and buckle down for another ninety minutes of discussion, this time on housing markets. Our numbers have shrunk from twenty-one to ten.

I am the first to speak and express my dismay that the government’s issues paper makes only passing references to tax, most of them referring to recent changes to promote the build-to-rent sector. The paper ignores debates about the relative merits of stamp duty and broad-based property taxes, and makes no mention of negative gearing, the capital gains tax discount or the exemption of the primary residence from the pension assets test — generous tax concessions that encourage property speculation and over-investment in housing.

The facilitator writes notes and thanks me for my contribution. A few others in the room offer supportive comments. But when we eventually disperse I wonder whether our views, falling outside the parameters of the “issues” offered for discussion, will make any impression on the final consultation paper developed from all these community forums. •

The post Flawed foundations appeared first on Inside Story.

The HAFF is supposed to deliver 30,000 social and affordable homes over five years. It would be the first significant federal investment in rental homes for low-income earners since the Rudd government’s social housing initiative a decade and a half ago. That $5.6 billion scheme in response to the global financial crisis built almost 20,000 new dwellings and repaired another 12,000, some of which had become uninhabitable.

After that sugar hit, though, it was back to the usual lean years for not-for-profit housing providers, who once again had to cobble together funds from a range of sources to complete one-off projects, always uncertain where the next bucket of money or parcel of land would come from.

The result: Australia’s share of social housing, where rent is fixed at no more than 30 per cent of tenant income, continued its long-term decline to fall from just over 5 per cent of all dwellings in 2001 to 3.8 per cent at the last census.

Given the rarity of substantial public funding, many in the community housing sector are keen to see the HAFF proceed. Yet few could deny that the Greens’ critique is correct — Labor’s scheme is a meagre response to the scale of the problem.

More than 163,000 households are waiting for social housing. Since many of those households are couples and families with children, the number of people stuck in the queue is well over 300,000 and their wait could be longer than ten years. Four in ten households are classified as “greatest need” — in other words, they’re not just struggling to keep a roof over their heads but may be homeless or at risk of homelessness, fleeing family violence, or living in housing that makes them sick.

In its latest State of the Nation’s Housing Report, the National Housing Finance and Investment Corporation estimates that 331,000 low-income households are in rental stress, spending more than 30 per cent of their income in rent and unable to afford other essentials such as food, heating and transport. But, as the corporation acknowledges, this estimate is conservative. Other recent analysis puts unmet housing need at 640,000 households. The Greens are right to say that the 30,000 homes promised under the HAFF will barely touch the sides of Australia’s housing crisis.

Another strand to the Greens’ critique is that it will take too long for any homes to get built. In the interim, thousands of low-income tenants are at risk of being forced out of their current homes as they are removed from the expiring National Rental Affordability Scheme (another Rudd initiative).

The $10 billion for the HAFF will be invested rather than spent directly on housing. Only its returns, at least a year away, will fund construction. And, as the Greens also point out, Australia’s existing Future Fund lost money last financial year, so it could be several years before proceeds are available to invest.

The government says that up to $500 million from the HAFF could be invested in housing each year but it hasn’t specified a minimum annual spend.

Even assuming immediate positive returns, money from the fund won’t provide up-front grants to build dwellings. Instead, they will be used to bridge the gap between the rents low-income tenants can afford to pay and the costs of building, maintaining and operating housing. The idea is to give not-for-profit housing providers revenue certainty so that they can borrow from other sources. In this way, modest sums of public money are used to leverage large amounts of private capital for a positive social purpose.

At least that’s the theory. Analysis for the Australian Housing and Urban Research Institute concluded that “no amount of ‘innovative’ procurement or financing will yield a government ‘free lunch.’” The researchers found that the cheapest and most efficient way to fund new social housing is direct public investment — which is what the Greens are pushing for.

“Our point to the government is that you would not fund schools or hospitals via an uncertain gamble on the stock market,” housing spokesperson Max Chandler-Mather told the Conversation’s Michelle Grattan. “We’re much better off investing money directly in building public and affordable housing every year.”

Like Rudd’s GFC stimulus package, the HAFF will soon be fully committed. New builds will grind to a halt and we’ll be back to square one.

The Greens want the government to commit $5 billion in social housing funding annually. They say the money could come from reining in negative gearing and the capital gains concessions to property investors, or repealing the stage three tax cuts.

They are also calling for a two-year rent freeze. This sounds like a pitch to voters in the urban seats they hope to pinch from Labor at the next election, and it may well strike a chord in electorates with a high proportion of renters, like Macnamara in Melbourne, where Labor narrowly defeated the Greens on preferences in 2022. But it is a very blunt instrument likely to deter new private investment and have other unintended consequences.

A better approach could involve adapting sophisticated European models of rent regulation. Germany, where 58 per cent of households rent, has a system of reference rents for similar-quality dwellings in the same city or region. Landlords can’t raise rents more than 15 or 20 per cent above this level in any three-year period. Rents can rise in response to cost increases and wage increases, but only in a predictable and gradual manner. As economics writer Peter Martin has pointed out, the ACT limits rent increases to CPI and “Canberra landlords don’t seem to have withdrawn from the market.”

The government regards rent and tenancy laws as a matter for the states and territories. The Greens counter by pointing to the role Canberra played in preventing evictions during Covid. And Labor has undermined its own argument by making efforts to strengthen national renters’ rights a key priority at the most recent meeting of national cabinet.

The government could also use the National Housing and Homelessness Plan, which it is developing at the moment, and the next National Housing and Homelessness Agreement to develop measures with the states and territories to moderate rent rises and improve tenant security by getting rid of no-cause evictions and lease terminations.

The Greens’ overall critique of the HAFF is in many respects well founded. But are they letting the perfect be the enemy of the good by blocking the legislation?

The current stoush is reminiscent of the stand-off over Kevin Rudd’s carbon pollution reduction scheme, which the Greens refused to back in 2009, arguing that it would not reduce carbon pollution for at least twenty-five years. The following year they backed Julia Gillard’s carbon price instead. The outcome was a better policy.

Yet the Greens continue to wear opprobrium for that decision, not least because Gillard was so weakened by the broken “carbon tax” promise that her government and its carbon price were thrown out at the next election, ushering in a decade of inaction on climate.

Would it therefore be wise for the Greens to back the HAFF, despite all its shortcomings, and use it as a building block for better policy?

That’s certainly the view of their crossbench colleague senator Jacqui Lambie, who has labelled the Greens’ opposition “disgusting.” “For goodness sake, just tick off on it,” she said earlier this month. “Let’s get these homes built.”

Labor’s Penny Wong, leader of the government in the Senate, is similarly impatient. She has accused Chandler-Mather of prioritising media attention and his own ego “over housing for women and kids fleeing domestic violence.”

But Labor may be underestimating its opponent. A self-declared “massive housing nerd,” Chandler-Mather has a firm grasp of the policy issues and has a demonstrated capacity to get his message across to key audiences, especially younger voters. After all, that’s how he won the Brisbane seat of Griffith from Labor’s shadow environment minister, Terri Butler, at the federal election.

Labor leaders may also be misjudging the political moment. Many of its own members think the party’s housing policy is too weak and have put negative gearing reforms on the agenda for debate at Labor’s national conference in August. While prime minister Anthony Albanese dismissed such moves, the mood may be shifting.

A long-term trend is shifting households away from home ownership towards renting, and it isn’t only young people who are affected. Growing numbers of families with children are renting, and an increasing cohort of older long-term renters face the prospect of their precarious housing circumstances extending into old age as they leave the workforce and their incomes fall.

Late last year the government appointed Susan Lloyd-Hurwitz as the interim head of its National Housing Supply and Affordability Council “to deliver independent advice to Government on ways to increase housing supply and affordability.” As the former head of Mirvac Property and a former president of the Property Council, Lloyd-Hurwitz is not a usual suspect when it comes to debates about tax breaks for property investors. Last week she told the Financial Review that she thinks that concessions like negative gearing and the capital gains tax discount drive up prices and should be reined in.

Chandler-Mather says the Greens’ demands are “a public starting position” and “they’d like to meet the government half way.” If Labor wants to get the HAFF over the line, then it could offer more. It could, for example, go beyond the treasurer’s oblique hints that there will be more money and pledge that the HAFF will be only the first tranche of a pipeline of investment. It could also indicate more clearly how it might work with the states and territories to improve conditions for tenants in the private rental market.

Affordable housing policy consultant Jennifer Kulas recommends that the government tweak the scheme to provide greater certainty that much-needed funding will be made consistently available to the sector over time. She says it could remove the $500 million cap on annual disbursements and formally guarantee a minimum yearly amount from the HAFF instead. Those funds could be indexed in line with construction costs, which rose almost 12 per cent last year. The government could also promise to increase the HAFF’s base capital each year so that the fund continues to grow and fund new housing beyond its current five-year horizon.

By pushing the HAFF to the brink, Albanese appears to be wagering that Labor can see off the Greens’ challenge at the next election by arguing that they stopped any new homes from getting built. But given the way the debate about housing in Australia is developing, that may not be the safest bet. •

On Tuesday 23 May, Peter Mares will be facilitating a free online forum on Australia’s housing crisis for La Trobe University’s Ideas and Society Program.

The post The perfect versus the good appeared first on Inside Story.

This is the Boundary Estate, a public housing scheme that has provided quality homes to working-class Londoners since 1900. It was Britain’s first council housing project and one of the earliest examples anywhere of public investment in affordable homes.

The rise of the estate’s circular garden is reminiscent of an Anglo-Saxon burial mound — and it is a burial place of sorts, interring the rubble of Old Nichol, a notorious East End slum demolished in the 1890s. Described by the Illustrated London News as a “painful and monotonous round of vice, filth and poverty,” Old Nichol was a place of disease and deprivation. Thousands of families crowded into dwellings of just one or two rooms, the walls held together by cheap “billy-sweet,” a mortar that never dried out. Babies born in the slum had a one-in-four chance of dying before their first birthday.

For about eighty years after the Boundary Estate opened, almost all public housing in Britain was “council housing,” built and operated by local authorities. In Australia, state governments took the lead. In both cases public investment dried up in the closing decades of the twentieth century, ushering in a period of decline in the quantity and quality — and the reputation — of public housing.

In both places, housing construction and management increasingly shifted away from governments, local or state, to not-for-profit housing providers, although this process is further advanced in Britain than Australia. What was once known as council or public housing is now generally covered by the broader banner of “social housing.”

My guide through the Boundary Estate is social historian John Boughton, and I’ve drawn liberally on the opening chapter of his book Municipal Dreams, a chronicle of the rise and fall of council housing in Britain, in describing its history. The book grew out of his blog of the same name, launched a decade ago as a retirement project after he left his job teaching history to senior high school students.

“It was completely normal”: the Boundary Estate today. Peter Mares

For Boughton — whose long-term Labour Party membership included what he calls a brief, unremarkable stint as an elected local government official — the neglected subject of council housing chimed with existing political and academic interests. It deserved greater attention, he thought, but he never expected his blog to prove so popular.

“It just took off,” he says. “It caught a moment.” Boughton thinks the contemporary housing crisis has spurred interest in his writing by exposing the limitations of a neoliberal reliance on private capital and free markets to address complex social challenges. “People are starting to look with more sympathetic eyes on the role of the state, in housing in particular.”

Perhaps, too, the blog hit a chord with a generation shaped by council housing. Many of Boughton’s relatives lived on council estates, as did friends and acquaintances. “It was completely normal,” he says. One in three Britons lived in a council home in 1981, and it was often the best housing they had ever experienced.

Today, though, council housing suffers from an image problem almost as bad as Old Nichol’s in the nineteenth century.

I met Boughton soon after the final episode of the hugely popular Happy Valley screened on the BBC. As in many British crime series, part of the action took place on a council estate — in this case in Yorkshire, where a troubled woman was exploited by an unscrupulous criminal duo.

The image of crime- and poverty-ridden housing estates, reinforced time after time in fictional series and news coverage, has stuck. “The tendency to associate council housing with criminality has exaggerated and denigrated the experiences of millions of people currently and in the past,” says Boughton. “That is not to deny problems and missteps along the way. But it is a negative stereotype, and it is self-reinforcing.”

Where problems do arise on particular estates at particular times, they are always shaped by larger forces, he says, and especially the profound effect of demographics.

He cites the Pepys Estate, just south of the Thames in the Borough of Lewisham, which was very popular when it opened in 1973. Built on the site of a former naval dockyard and accommodating 5000 people in 1500 homes, it was one of the Greater London Council’s largest and most prestigious projects. Design innovations included basement garages to separate pedestrians from cars and elevated walkways between blocks to encourage neighbourly interaction. In TV dramas, these same locations are now likely to feature as hangouts for loitering gangs and escape routes for villains.

High-rise flats have become particularly reviled for facilitating antisocial behaviour, as if the fault resides in the very fabric of the buildings. Boughton insists the architecture isn’t to blame. “A great variety of estates have suffered problems,” he says. “Low-rise estates too, not just tower blocks.”

The roots of such ills lie elsewhere. In the decade from 1978, Lewisham lost 10,000 jobs and unemployment trebled. By the mid 1980s more than half the borough’s residents aged sixteen to twenty-nine were jobless. The Pepys Estate was hit hard, and an alternative economy sprang up based on drugs and crime. Racism was rife. Rather than fighting to get into a flat, people were begging to be transferred out.

Boughton tells a similar story abou the Park Hill Estate, a 996-flat scheme that replaced some of the worst slums in Sheffield. Completed in 1961, it also had “streets in the sky” — elevated walkways wide enough for children to play on, which enabled neighbours to chat without the noise and disruption of passing traffic. It had shops, pubs, schools, clinics, community centres and, in the words of one resident, other unaccustomed luxuries: “Three bedrooms, hot water, always warm. And the view. It’s lovely, especially at night when it’s all lit up.”

By the early 1980s, though, Park Hill was another towering symbol of council housing failure, its celebrated brutalist architecture blamed for criminality and vandalism. What rarely gets mentioned is that in the intervening decade Sheffield had lost a massive 40,000 jobs.

“Council housing does not exist in a vacuum. It exists in a social and economic context,” says Boughton. “What is happening to these communities is the product of policy and political choices.”

Attitudes towards council housing also changed as Britain became more affluent. “Into the 1960s, it was the best housing most working-class people could aspire to,” says Boughton. “But as owner-occupation became more widespread, council housing was seen as less desirable for sure. There was a psychological shift.”

As the economy declined in the wake of the oil shock and stagflation in the 1970s, public spending fell too. Repair and maintenance were neglected. Labour, which had once believed council housing should meet “general needs,” moved closer to the Conservatives’ view that it was better seen as a welfare safety net reserved for the vulnerable.

At one level, the shift (which was mirrored in Australia) makes sense: the fairest way to manage limited public resources is to prioritise the neediest. Over time, though, social housing was transformed into housing of last resort — an ambulance service that picks people up from the bottom of the cliff rather than a fence preventing anyone from falling.

Forty years later, social housing in both Britain and Australia accommodates an increasingly narrow stratum of society — the very poorest and those experiencing the most layers of disadvantage. This “residualisation” makes it easier, in turn, to stigmatise residents as “troubled” and point to “failed estates” as evidence that public investment in decent housing is a fundamentally flawed ideal.

Residualisation was compounded in 1980s Britain by the hammer blow of Thatcherism. The national government cut investment in council housing and stopped new construction in its tracks. In the year Conservative prime minister Margaret Thatcher took office, building commenced on nearly 80,000 new council homes in England and Wales. Within a decade, annual new starts had fallen to just 400. But when councils stopped building in England — the green band on the chart below — the private sector failed to pick up the slack. The overall supply of new housing dropped precipitously and has never recovered.

Source: Live table 213, Department for Levelling Up, Housing and Communities and Ministry of Housing, Communities & Local Government

Determined to convert Britain into a nation of homeowners, Thatcher also introduced the right-to-buy scheme. By the time the Conservatives lost office in 1997, one-in-four council homes had been sold, with prices discounted by between a third and a half of market value (up to a ceiling of £50,000). It amounted to a massive, highly subsidised transfer of public assets into private hands, and most of the receipts went straight to Treasury to retire debt.

Tenants with means were supported to become owner-occupiers; those without got less assistance than before as public investment in council housing dried up. “Typically, the best, most desirable homes got sold and the less desirable units got left,” says Boughton. “It was another form of residualisation.”

For many, this brought windfall profits. Boughton gives the example of a security guard living on a council estate in Camden who bought his flat for £39,000 under the scheme. It was valued at £70,000 at the time. Three decades later, his home was worth £600,000. Not surprisingly, he thought the scheme was “perfect.”

“The irony is that generally the first generation of former tenants who became owner-occupiers then sold off those homes,” Boughton says. Forty per cent of homes bought by their tenants are now back on the private rental market, though in poorer condition and with higher rents than the council houses next door.

“If you walk onto a suburban council estate, the well-maintained and modernised houses are council owned, while those sold under the right-to-buy scheme are least well maintained and equipped,” says Boughton. “The market does not do a very good job.”

About 40 per cent of the homes in the Boundary Estate are now in private hands, and those that are rented out are seen as desirable properties. At the “guide price” of £450 per week, a one-bedroom flat would eat up the entire pay packet of a full-time worker earning the London Living Wage.

The rest of the estate’s residents remain tenants of Tower Hamlets, the local authority. In 2006, the tenants vetoed a plan to transfer the estate from the council to the not-for-profit Southern Housing Group, even though the housing association had promised to redecorate the flats and install new kitchens, bathrooms and boilers.

In hundreds of other estates, tenants have voted to switch from the local authority to a housing association. Back in 2001, two-thirds of all social housing in England was owned and operated by local governments and one-third by registered housing providers. Today, those figures are almost reversed, and fewer than four in ten homes remain in council hands.

For the Conservatives, the shift from local authorities to housing providers was — like the right-to-buy scheme — ideological. Boughton says the Tory government genuinely believed that council housing was “the state at its worst, bureaucratic, distant and inefficient.”

While acknowledging that an era of austerity made it difficult for councils to maintain the quality of housing, he says there was some justification for the Thatcherite critique. “It varied from council to council, but some took their eyes off the ball, neglecting maintenance and repair,” he says. “Ongoing expenses were not always budgeted for.” The results weren’t all bad, he adds: local governments responded by decentralising decision-making and devolving management.

The shift to not-for-profit housing associations continued after Labour took government in 1997. Smaller and locally based, housing associations were seen as more agile than councils, more attentive to tenants’ needs and better aligned with Tony Blair’s “Third Way.”

These arguments are familiar in Australia, where the not-for-profit, or “community,” sector is also growing. The Community Housing Industry Association’s chief executive, Wendy Hayhurst, recently urged the Albanese government to direct all the proceeds from its $10 billion Housing Australia Future Fund to her sector rather than do the “easy thing” and divvy the money up among community, state and private providers.

Hayhurst argued that community housing scores better on ratings of quality and resident satisfaction, a claim supported by the Productivity Commission’s most recent Report on Government Services. With its charitable status, the community sector is exempt from GST, land tax and stamp duty, which Hayhurst says enables it to build more houses for any given amount of money than state governments or businesses can.

Duncan Maclennan, a housing expert at the University of Glasgow with extensive experience in Australia, argues that not-for-profits provide better management than state authorities and better integration with other services. He says they are more effective at using their housing assets to secure low-cost private capital for additional investment. “There is a strong case to see much stronger policies of transferring public stock to non-profits,” he concludes.

Though not as advanced as in Britain, the shift from state governments to community providers is already under way in Australia. Over the past five years, more than 21,000 homes have been transferred from public sector to registered housing providers, two-thirds of them in New South Wales. Around 70 per cent remain in state hands, but this is down from 85 per cent in 2008.

The trend is clear, yet the British experience gives pause for thought. Or at least the English experience — thanks to devolution, policies differ in Scotland and Wales.

Take the Juniper Crescent estate, for instance, which won architectural awards after it was completed by inner-north London’s Camden Council in 1996. Across the road from the estate, near some once-hip but now-tawdry markets, builders are hammering away at a £1 billion development, Camden Goods Yards. What was once a commercial site is being transformed into a mixed-use neighbourhood with 644 homes, Grade A office space, a supermarket, a rooftop farm and “landscaped open space for the whole community to explore.”

Thanks to inclusionary zoning requirements, the developers are supposed to include some affordable housing as well — as they are in all new housing projects in England. As a planning requirement, an agreement on the quantity and price range is generally negotiated between developers and local governments, though John Boughton says developers sometimes wriggle out of these commitments and, besides, “affordable is a pretty loose term.”

Sound from the construction site at Camden Goods Yard is audible from Juniper Crescent, which is now run by One Housing, one of London’s largest housing associations. Juniper Crescent might need some upgrades, but it is far from past its use-by date. Yet these 120 terrace homes in stylish yellow brick will soon be demolished as part of a redevelopment more in line with the high-end condominiums being built across the way.

The knockdown rebuild plan required the consent of Juniper Crescent residents, but in a 2020 ballot they voted the proposal down. One Housing’s response was to engage “with residents further about the regeneration proposals in order to understand the ballot results more fully.” In other words, keep trying until the residents gave the right answer. After consultations fuelled by glossy brochures, free pizza and live music, residents voting narrowly in favour of demolition.

One Housing has promised that all current residents will be able to return to the redeveloped estate. Residents will have more open space than before, it says, and their new better-quality homes will be just as spacious as their present dwellings. Each household will receive a £7800 “home loss payment” to compensate for years of disruption.

The demolition of an estate built less than thirty years ago reflects the way markets are structured, says Boughton. Little incentive exists to refurbish and upgrade existing council housing. The financial imperative is for developers to demolish and rebuild, tapping in to profits from new homes for sale and private rental. Projects are justified, with some plausibility, because they bring densification.

The soon-to-be-demolished Juniper Crescent estate. Peter Mares

Redeveloping Juniper Crescent will create about three times as many homes as the estate has now, adding much-needed supply to London’s over-taxed housing market. What remains unclear, though, is how many of these additional homes will be truly affordable for low-income tenants. As even its supporters acknowledge, One Housing’s motivation in this partnership with a private developer is as much financial as social: it needs to generate income from commercial projects to fund its broader operations.

For Boughton, this attempts to turn necessity into a virtue. Housing associations cross-subsidise their social mission by building housing for private sale or market rents. A touted benefit is the creation of “mixed communities,” where rich and poor, renters and owner-occupiers, live side by side and share facilities. Boughton welcomes this aim, noting that this is what all council estates originally were. But he adds, wryly, that no one seems to worry about the lack of social mix in middle-class suburbia, let alone in the exclusive neighbourhoods favoured by plutocrats.

Yet Boughton also fears that housing associations increasingly look and behave like property developers. Even when they separate their commercial and social operations in different divisions, they risk letting the for-profit tail wag the housing-association dog.

“I’m not criticising good housing associations with local roots and a strong grasp of social purpose,” says Boughton. “I’ve got plenty of time for those. But now they have consolidated and got bigger, many are suffering from some of the same evils once attributed to councils.”

There is a compelling argument that Australia’s nascent community housing sector must also grow, professionalise, and consolidate into fewer larger organisations if it is to operate efficiently through economies of scale and a deep well of corporate knowledge. Yet in England, signs suggest that some of the biggest housing associations are losing touch with their residents and becoming disconnected from their social purpose.

CEOs now command impressive salaries and privately lobby government to let them charge tenants higher rents. One Housing is accused of leaving some of its elderly tenants without heating or hot water through winter after bungling boiler repair work. Another big provider, L&Q, was recently rapped on the knuckles by the Housing Ombudsman with two severe maladministration findings over its treatment of a tenant with physical and mental vulnerabilities.

In one chilling case, the Peabody Group apologised after one of its tenants was left dead in her flat for more than two years. Neighbours had complained about a foul stench and Peabody had cut off the woman’s gas because of unpaid bills yet failed to check on her welfare.

Anecdotes are not proof of system failure, nor evidence that things would have been better if councils had remained in control. The G15 alliance of London’s biggest housing associations provides homes for around one-in-ten Londoners: in a sector so large things will always go wrong. Yet the potential for social purpose to be eroded remains real, especially when the sector remains starved of public funds.

This is apparent in the types of housing that are now getting built. Rather than “social rent housing” — that is, homes for people on the bottom rungs of the income ladder — housing associations in England are increasingly building other types of “affordable” housing, including properties rented for as much as 80 per cent of the local market rate — which, whether in London, Melbourne or Sydney, is often still very expensive. One “affordable” property currently listed by Australian social venture HomeGround Real Estate is a two-bedroom apartment at $1100 per week.

Affordable housing is often portrayed as “key worker” housing. It is intended to enable teachers, nurses, childcare workers, police officers, hospitality staff and sales assistants to live closer to their jobs. These are tenants that private developers would welcome in joint ventures like the Juniper Crescent rebuild — if they can afford it. Social renters, who often rely on government benefits, don’t fit so comfortably in marketing brochures.

Boughton warns that social rent housing will always come second under a cross-subsidy model. “You will never have the amount of social rent housing that is truly affordable being built. It will always be neglected.”

The statistics seem to bear him out. In 2021–22, about 60,000 homes were added to England’s “affordable housing” stock, almost half of them resulting from inclusionary zoning agreements. But only about 13 per cent of the total — or 7500 dwellings — were designated as social rent. That proportion has been steady for about ten years.

In the previous decade, though, social rent housing made up 50 to 60 per cent of new dwellings. In the decade before that, it was 70 to 80 per cent. When sales and demolitions are taken into account, Shelter England calculates that England has lost more than 165,000 social rent homes in the past decade.

Today, London south of the Thames is more affluent and desirable than it was in the 1970s, and the Pepys Estate has been rehabilitated. “The Pepys Estate was famous, then it was infamous, now it just looks and feels like a pretty decent place to live,” writes Boughton in a blog post.

After Lewisham Council transferred the estate to a housing association, it underwent an award-winning redevelopment during which many original buildings were demolished, especially those closest to the river. In what Boughton describes as “pure and unabashed gentrification,” a twenty-four-storey tower block with 144 flats was sold to Berkeley Homes, which stacked an additional five floors with fourteen penthouses on top and flogged off all the apartments at a premium.

In this case, the tower block design didn’t seem to be an automatic generator of crime and dysfunction, though the tower did get a new entrance to avoid any taint of council estate. As Boughton explains on his blog, this was another example of financial considerations determining social outcomes:

Lewisham Council claimed to have run out of money and it’s true enough that the rules of the game were — and are — designed to curtail the ability of local councils to improve and expand their housing stock. But it suited, too, a gentrifying agenda which sees some London councils only too keen to bring the middle-class and their money into their boroughs.

For those with municipal dreams, providing decent housing that caters for all, including people with the fewest resources, has been a challenge right from the start. When Old Nichol was cleared to make room for the Boundary Estate, only eleven residents from the original slum made it into the new apartments. Housing generally went to the members of the artisan working class, skilled tradespeople with reliable incomes who today might be described as “key workers.”

Whether housing is built and run by councils, by state governments, by not-for-profits or indeed by private enterprise, it will only provide decent homes for all, including the most disadvantaged, if it receives substantial and ongoing public investment. One persistent hope in Australia is that superannuation funds will invest in social housing, but as the Community Housing Industry Association’s Wendy Hayhurst and Matt Linden from Industry Super Australia write, this can only work if there is consistent and long-term government subsidy to generate the returns institutional investors require for their members.

As Australian housing policy expert Vivienne Milligan warns, only governments can fill the gap between the rent poor tenants can afford to pay and what it costs to build, run and maintain their homes, let alone generate a profit. A reliance on inclusionary zoning and cross-subsidies from commercial projects is just not going to cut it.

Boughton has an abiding sympathy for old-style council housing but is far from dogmatic about whether it should be in local government hands or run by not-for-profits. “Anything that provides genuinely affordable housing and looks after buildings and tenants is welcome,” he says. “A significant share of the population will never own their own home, and housing association, or local authority housing, should and can cater for a broader range of the population.”

But, he adds, “I do advocate for local authority house building as a cost-effective and affordable means of providing housing, as demonstrated from the 1890s to the 1970s.” Between 1945 and 1979, councils built an average of 126,000 dwellings each year. “Local authorities were able to borrow from the national government and use rents to repay loans. They had the resources, organisation, financial clout, and political will to build at scale. That’s what we’ve lost.”

Local authorities also build to a higher standard than commercial developers, says Boughton. “No one is looking to Barratt for best practice,” he says, referring to one of Britain’s biggest mass home builders. “But the very best council housing is something to aspire to.”

Boughton’s new book, A History of Council Housing in 100 Estates, concludes with a profile of Goldsmith Street, a Norwich City Council project of around a hundred highly energy-efficient homes. Awarding it the 2019 Stirling Prize, judges from the Royal Institute of British Architects called the project “a modest masterpiece.”

“Not everywhere can be like that,” says Boughton, “but it’s not a pipe dream to think that local authorities can play that role.” •

Funding for this article from the Copyright Agency’s Cultural Fund is gratefully acknowledged.

The post The elusive quest for decent homes appeared first on Inside Story.

They weren’t offering to build or finance these new houses; they want private developers to do that.

Sitting behind these policies is the commonsense view that the key to bringing down the cost of housing is building more dwellings. This accords with our everyday experience of how markets operate: when something is scarce, prices go up, and the best way to bring prices down is to provide more of it.

When it comes to housing, though, the relationship between price and supply isn’t so clear-cut.

We know this partly because we have an alternative to house prices — rents — as an indicator of housing demand. Rents track demand for housing as a service, whereas real estate prices also reflect demand for housing as an investment.

It turns out that rents have risen far more slowly than house prices over the past twenty years (although now they are rising sharply in England and Australia). And despite low wage growth, the average share of household spending devoted to rent has also remained fairly constant in both places.

That’s not to say that rents are affordable, especially for low-income tenants in expensive cities like London and Sydney. If rents were already excessive twenty years ago, they are still excessive today, reflecting a persistent shortage of housing. The point is that rent increases over time have been relatively modest; if the pace of house building had fallen well behind the growth in demand then we might have expected sharper rises.

We know, too, that factors other than supply can have immediate and dramatic impacts on property prices. As interest rates have gone up in recent months, house and apartment prices have dropped back from their 2022 peaks.

Prices tend to go down when it’s harder to get a loan (which is why regulatory authorities tighten bank lending rules when they want to dampen the market). And prices go up when governments stimulate the market with first homeowner grants or tax concessions. The construction industry is also notoriously volatile, so the supply of new homes fluctuates as the number of dwellings completed rises or falls from year to year. What’s more, new homes make up only a small proportion of overall housing stock and real estate transactions, so the impact of construction on prices is slow and muted.

Over time, such ups and downs should even out, revealing the underlying relationship between housing supply and housing demand. So, what does twenty years of census data tell us about the housing challenge in Australia and Britain? Is the core problem that we don’t build enough houses or are other factors also at play?

Australia’s population grew by 35 per cent between the 2001 and 2021 censuses, and the stock of dwellings grew by 39 per cent. England’s population grew by 15 per cent, and its stock of dwellings 17 per cent. In short, in both countries, population and dwelling supply moved roughly in tandem.

Of course, as with rents, if there was already a housing shortage in 2001 then that shortage would have carried through to 2021, keeping prices high. In principle, if we’d built more housing then prices should have come down. Proportionally, though, the scale of the problem has stayed roughly the same, so again, a lack of building doesn’t appear to account for the rapid escalation in real estate prices over the past two decades.

But a simple comparison between population growth and dwelling growth can be misleading, for a number of reasons.

First, housing demand is driven not by the overall number of people but by the overall number of households. This might seem like splitting hairs: average household size has remained roughly constant in England and Australia over the past twenty years, and so the relationship between household numbers and dwelling numbers held steady.

Here things get complicated, though, because in an ageing society, with more people living alone, household size should fall. This means more households overall and a need for more dwellings to accommodate them. In both Australia and England, average household size was projected to fall to about 2.2 people by 2021, but has remained higher.

One view is that the projections were wrong, because they failed to anticipate social changes such as fluctuations in birth rates, falling divorce rates and a preference by some recent migrants to live with extended family.

But perhaps housing shortages prevented the decline in average household size? A lack of housing can induce adult children to stay in the parental home longer than they’d prefer or force two families to squeeze into the same accommodation. The formation of new households is suppressed, and the demand diverted into “hidden” or “concealed” households. According to one estimate, two million adults could be living in concealed households in England.

Linking population and dwelling numbers over time also disguises regional differences. Greater London, for instance, gained more than 1.6 million new residents between 2001 and 2021, but the population of Sheffield hardly changed and remains below its 1950s peak. Barring a new industrial revolution to bring factory jobs back to Sheffield, the demand for housing there is likely to remain relatively flat.

Dwelling growth in the City of Melbourne has far outstripped population growth over the past twenty years thanks to a boom in high-rise residential towers. On census night 2021, a quarter of all the municipality’s homes were unoccupied. Covid alone is unlikely to account for all those empty apartments. Rental vacancy rates in the CBD are significantly higher than the rest of Melbourne.

The population of the City of Hobart, by contrast, has grown faster than dwelling supply since 2001, and the share of unoccupied dwellings was below the national average at the last census. This might help explain why Hobart is the toughest capital city for tenants, with the fewest vacancies and the highest rents relative to income.

So, is it possible that we may have been building enough houses, but in the wrong places? London School of Economics geographer Paul Cheshire blames planning failures for “actively preventing houses from being built where they are most needed or most wanted — in the leafier and prosperous bits of ex-urban England.”

Does his thesis gain more weight if we drill down to a more local level and can compare two local government areas in the same city and the same labour market?

Tower Hamlets, in London’s inner east, and Camden, in the inner north, are in many ways similar. About a third of their residents live in social housing, but both also have pockets of considerable wealth. In 2001, each of the boroughs had a population of about 200,000 people and a comparable population density.

Since then, however, their paths have diverged. Tower Hamlets has gained more than 100,000 residents, while Camden gained only 12,000 (and its population declined after 2011). Tower Hamlets is now the most densely populated local government area in England, home to 112 people per soccer pitch–sized piece of land (as the Office of National Statistics calculates it). Camden has “only” sixty-nine people per soccer pitch.

What conclusions can we draw from this? Perhaps Tower Hamlets council is more pro-development than Camden, and better planning has enabled more dwellings to be built there to accommodate new residents? Perhaps Tower Hamlets simply had more room to grow, with disused industrial sites like the docklands at Canary Wharf available for redevelopment? Or maybe the residents of Camden, which is home to an older demographic, have begun to consume more housing per head of population than their younger counterparts in Tower Hamlets?

Camden has double the share of residents who own their homes outright and more than double the share of households with at least two spare bedrooms. It also has a higher percentage of vacant dwellings than Tower Hamlets, and its residents are far more likely to own a holiday house.

The contrast between the two boroughs highlights a third objection to simple comparisons between numbers of people and numbers of dwellings: demand for housing is a product not just of population but also of income.

As leading British housing economist Professor Geoff Meen puts it, housing demand comes “not just from newly forming households, but also existing households as incomes rise.” In other words, as people get wealthier, they want bigger, better houses as well as second homes and holiday houses. Cheshire says his research shows that a 10 per cent increase in incomes leads people to spend about 20 per cent more on extra space in houses and gardens.

We could express this differently: as the rich get richer they consume more housing; as the poor get poorer, they consume less, to the point of living in severely overcrowded homes or without a home at all. If we look for the roots of the housing crises in England and Australia through this lens, then we might shift focus from the supply of housing to its distribution.

When we do that, the challenge becomes not just to build more housing but to find ways to make its use fairer and more efficient — by altering how housing and land are taxed, for example. More progressive land taxes or capital gains taxes on housing could both redistribute wealth and help dampen property speculation.

Or we could adopt the German approach to capturing the value of changes in land use. When land is rezoned from, say, agricultural to residential in England and Australia, dramatic increases in land value generally accrue to the landowner. In Germany, much of this “planning gain” goes instead to public authorities and is used to fund infrastructure or social housing.

The complex relationship between housing demand and housing supply suggests there are no simple solutions to the challenges that we face, and we should be wary of claims that the answer is just to build more dwellings. If high prices are the product of a speculative bubble rather than undersupply, then building more houses will cause a different set of problems.

Economist Ian Mulheirn from the Tony Blair Institute for Global Change points out that high real estate prices fuelled residential building booms in Spain, Ireland and parts of the United States in the first decade of the 2000s. When that boom went bust, it contributed to the global financial crisis and left “a large overhang of vacant and decaying ghost estates.”

The “build more” argument often goes with the view that the supply of new houses is held back by planning and zoning “red tape.” It then becomes an argument for scrapping the rules that limit incursions into land set aside for other purposes, such as London’s green belt or Melbourne’s green wedges.

This is contested territory. Once developed, the environmental or agricultural benefits of that land are lost forever. But if green space effectively subsidises elite pursuits like “‘horseyculture’ and golf” then the case for turning some of it over to housing might carry more weight.

Planning has been the subject of persistent reform efforts in many parts of Australia without, as yet, delivering lower house prices. “Of right” approvals have been introduced for code-compliant projects, decision-making powers transferred from elected councils to expert panels, “special purpose” bodies created to deliver urban redevelopment, and ministers given greater powers to override local decisions on major projects.

Strong arguments exist for rules-based planning systems because the alternative of assessing each application individually is time-consuming and costly, especially if decisions are made at a hyperlocal rather than city-wide level. But planning regimes should align with environmental and social goals, including affordability, rather than simply empower developers to respond to a housing “demand” that may be driven by growing inequality.

Treasurer Jim Chalmers says the task ahead is not just to build more homes, but to build more “well-located” homes. Boris Johnson’s one million homes promise was predicated on every local government area having its own mandatory housing target, although councils were very critical of the algorithm used to determine what to build where. Those targets have since been scrapped anyway, following opposition from Conservative MPs who feared a backlash against new developments in their prosperous constituencies.

This is a reminder that building homes where they are most needed — that is, with good access to jobs, transport and services — tends to throw up the biggest challenges.

In cities like Melbourne, this could be done by replacing postwar family homes with smaller, more energy-efficient, medium-density apartments and townhouses to better accommodate today’s smaller households. But it is in exactly these suburbs that not-in-my-backyard opposition tends to be most intense.

It is also in these areas that commercial barriers are greatest. It is easier to build on a rezoned greenfield site on the edge of the city, or in a rezoned brownfield area like a former dockland, than to transform a middle-ring greyfield area, especially if the aim is to retain the benefits of suburban streetscapes like tree canopies and gardens.

In such cases, what is needed is not so much liberalised planning, as consistent and supportive planning to assist developers to consolidate individual house blocks into larger sites, while also responding to community concerns about loss of amenity.

The number of dwellings is clearly important for the affordability and availability of housing, whether to buy or rent. But along with supply we also need to think about distribution, both spatial and economic. The question is not “do we need more houses” but rather “where do we need more houses, and who needs them most?”

To put this another way, is the challenge to keep up with housing demand, or to respond to housing need?

If it is the former, then the market is likely to meet the demand for a new holiday home more quickly than it meets the need of a low-income family to move out of an overcrowded, overpriced and damp apartment. Property developers have no incentive to provide housing for people who cannot pay prevailing rents or prices. Either we need to help those households participate in the market by boosting their incomes, or we need to build homes they can afford.

Another thing that Australia and England have in common is a sustained fall in public investment in social housing. If governments in both countries had continued to subsidise social housing at the rates they did in the postwar decades, then many thousands more affordable houses would be available today.

Prime minister Rishi Sunak’s Conservative government has no chance of delivering Boris Johnson’s 2019 pledge of a million homes before next year’s election. Let’s hope that Jim Chalmers has more success in building a million “well-located” new homes in Australia, and that a decent share of those homes are affordable for the people who need them most. •

The post Not enough houses? appeared first on Inside Story.

While we wouldn’t have used the term, we were acting as “yimbys” — saying “yes” to a development “in my backyard.” But many progressive, middle-class residents of Fitzroy and other well-located suburbs have switched sides since then and are now firmly in the nimby camp, particularly when it comes to housing.

Nimbys have come to oppose not just “social housing” — subsidised homes for people on low incomes — but new construction of any kind. Apartment buildings attract special ire, resisted as “inappropriate” for being too tall, for overshadowing or overlooking, for being out of keeping with “neighbourhood character,” for undermining heritage values, or because they generate those familiar evils: inadequate parking, congestion and noise.

Yimbys see it differently. They believe that objecting residents are primarily worried about their property values. Places like Fitzroy and its equivalents in other Australian capitals may or may not be home to nineteenth-century terrace houses adorned with ornate cast-iron fretwork, but they are certainly “bucolic hamlets of wealth within the hearts of cities,” as Melbourne-based American sociologist Max Holleran writes in his new book, Yes to the City. And residents generally want to keep them that way by resisting “new housing that would bring more people and, potentially, greater socioeconomic diversity.”

Conflicts over housing are often portrayed as a simple generational divide between “boomers” and “millennials” — “you spend too much on avocado on toast” versus “you got all the breaks.” Holleran brings other fault lines to the fore, including the different interests of homeowners and renters, and the conflict between established residents in desirable suburbs and those who also want to live in places with good access to transport, jobs, schools, coffee and a lively local culture but can’t afford it. Underlying all these tensions are questions of class and wealth.

The story of the yimby movement begins in San Francisco with the foundation of BARF — the Bay Area Renters’ Federation. The acronym was chosen not just to inject humour into dour housing debates but also to emphasise that tenants faced a situation so dire that it made them want to throw up.

From 2010 to 2019, as the tech boom helped boost San Francisco’s population by 80,000 people, only 29,000 new homes were built. The city compounded the problem by ruling in 2018 that only one unit of housing could be built for every new 3.45 jobs created. Real estate values skyrocketed, pushing prices six times higher than the US average.

The 1960s radicals who gave us flower power found themselves occupying homes worth millions while well-heeled tech workers forked out monthly rents of US$4000 or more. Those pushed to the margins were the service workers who clean, make coffee, teach, nurse, fight fires and police streets. They were forced either to become “super commuters,” travelling up to three hours from outlying districts to get to their jobs, or to live in ever more expensive and insecure housing.

As real estate values rose, so did homelessness. Holleran describes the spaces beneath San Francisco’s elevated trains as “encampments reminiscent of Latin America’s informal settlements.” Around the headquarters of firms like Uber and Pinterest “the unhoused roam the streets in huge numbers as tech workers skitter to the other side of sidewalks to avoid them.”

BARF activists began showing up at planning meetings “dominated by homeowners saying ‘no, no, no’” and calling out “yes” instead, hoping that at least some new housing projects would get approved. They wanted to shift the debate from “real estate ruins the city” to “controlled growth moderates prices and allows for new residents to contribute to existing communities.”

Aware that in more affordable parts of the city “urban consolidation” is code for redevelopment that forces out low-income residents, BARF committed to pushing for densification only in well-off suburbs, where house prices were already high.

But the coalition that BARF sought to build was unstable and fractious. On the one hand this group of mostly young, educated, white urban professionals sought to make allies of long-term activists dedicated to getting subsidised housing built for those in most need, and so align themselves with poor African-American and Latino residents attempting to defend their neighbourhoods against gentrification. On the other, BARF courted real estate agents and property developers. It is easy to see how these interests might collide.

This tension has riven yimby movements everywhere, especially when they have accepted funding from companies, rendering themselves vulnerable to accusations of astroturfing. They also want to reassure existing wealthy homeowners that new development won’t destroy the character or quality of their cherished built environment (or, as a subtext, lower their property values), while at the same time — as Holleran writes — wanting to convince low-income residents that “new housing will not further intensify gentrification and displacement.”

This doesn’t mean the yimby argument carries no weight. While housing justice activists see yimbyism as a poor substitute for increased public investment in social housing, the reasonable yimby response is that decades of campaigning have failed to produce tangible results in economies where most housing is, and always will be, created by the private sector. Enabling new apartments to be built in established suburbs increases housing choices for current and future residents and should help to hold prices down overall, and even reduce them in the long term.

Most of Yes to the City focuses on the United States. Holleran recounts the unsettling story of Boulder, Colorado, an affluent “eco-utopia at the foot of the Rocky Mountains” where lifestyles and property values are protected by an environmental greenbelt and limits on density, height and “non-familial co-habitation.” In the land of the free, liberty does not necessarily extend to living in a share house.

He documents the parallel trajectory of Austin, Texas, a university city celebrated for its lively music scene and “cowboy hippie spirit,” summed up in the motto “Keep Austin weird.” These days Austin is only affordable for people who are “economically productive but culturally boring” (namely, “doctors, bankers, and brokers, not poets, painters, and performance artists”).

Despite an acute housing shortage, downtown Austin still has open-air car parks that lend “a sprawling vacant feeling to some parts of the central business district that should be bustling.” Yet higher-density projects face stiff opposition for threatening the city’s acclaimed “weirdness.” As in San Francisco and Boulder, residential development has been pushed to the sprawling edges, condemning service workers to housing insecurity or car dependency and long commutes.

Australia’s planning constraints are generally less extreme than in the North American cities Holleran profiles. Postcode 3000 has transformed Melbourne’s CBD into a forest of residential towers, and urban consolidation is obvious in inner suburbs like Brunswick and Footscray. Over the past ten years, almost twice as many apartments as freestanding homes have been added to the housing stock of Greater Sydney. Yet Hobart, which has the most acute shortage of affordable rental housing of any Australian city, still has downtown areas, like in Austin, devoted to low-value uses like open car parks.

Whether planning rules are solely to blame for this lack of residential construction, or the causes are more multifaceted, is another question though. In Melbourne, for example, realtors are spruiking the CBD site of the Witches in Britches theatre restaurant as “a significant landbank opportunity.” Sometimes it’s not nimbys who delay development, but speculators looking to cash in on rising property values.

Yes to the City concludes by looking at how the concept of Yes in My Backyard has gone global. Holleran brings an acute outsider’s eye to observations about Melbourne and Brisbane, and invites Australian readers to consider how emerging yimby activism here might inject new life and fresh ideas into debates about housing and urban policy.

While some of our cities may be going up in the centre, they also continue to push outwards at the edges, giving us our own version of Holleran’s “missing middle” — a reference to underdevelopment in ageing middle-ring suburbs (or greyfields) and to the relative paucity of European-style medium-density housing that sits between freestanding homes and high-rise apartments. Stoushes over planning and densification are alive and well.

Holleran provides a useful contribution to Australia’s bitterly contested and often arid discussion about how to improve housing affordability. Opinion has hardened into two rival camps. For one side, the problem is entirely a question of supply — and the answer is to liberalise planning and zoning rules and let development rip. For the other, the problem comes down to demand: lax credit rules, tax concessions and other generous subsidies have turned housing into a speculative asset and driven up prices. On the latter view, the solution lies in tax reforms, more financial regulation and much greater public investment in social housing.

Yimby movements generally fall into the former supply-side camp, arguing that all development is good development, even at the luxury end of the real estate market, because it adds to the overall stock of housing and eventually “filters” down to benefit all. Active yimby groups in Melbourne, Brisbane and Sydney can be contrasted with nimby organisations like Save Our Suburbs that oppose “inappropriate development” and “forced rezoning.”

Interestingly, both sides invoke arguments about lifestyle and environment. Yimbys argue that higher densities bring the benefits of more walking and cycling, a “buzzy city” with outdoor dining and spaces for arts and culture, and rain gardens and trees in place of car parks. Save Our Suburbs wants to protect residents from “overcrowding, traffic congestion, pollution and loss of bushland and heritage resulting from ill-considered planning impositions.”

Avoiding such unhelpful dichotomies, Holleran reveals rifts within each camp. Not all yimbys take the build-more-of-everything approach; they are also concerned with price and quality, resilience in the face of a changing climate, and how new developments enhance or diminish the urban fabric by enabling walkability and neighbourliness. At the same time, he recognises that nimbys’ objections can be well founded: “Concern about one’s backyard is often a deeply deliberative form of community engagement that addresses the carrying capacity of land with on-the-ground knowledge that is attuned to environmental quality and social cohesion.”

Overall, though, Holleran is sympathetic to the yimby view that “building nothing is not an option.” He points out that hyperlocalism can provide cover for “latent racism and an unwillingness to share space and resources with others.” In San Francisco and Austin, planning controls and rising real estate prices have coincided with a rapid decline in the cities’ African-American population. Rather than “devolved decision-making” he would back the yimby call for city-, region- or even nationwide planning that de-emphasises the interests of individual homeowners and enables rational infrastructure and a fairer sharing of the costs and benefits of urban growth.

But Holleran also argues that the yimby agenda is far from enough to improve housing affordability, contain suburban sprawl, redress socioeconomic and racial segregation, and better prepare cities for climatic events. Greater state action will be needed to override local sensibilities and interests.

Just how contested this territory can become is evident right now in Britain. As part of its “levelling up” policy to “spread opportunity more equally,” Boris Johnson’s government committed to setting mandatory housing targets for every local council. In the competition for the leadership of the Tory party, Liz Truss promised to put an end to such “Whitehall-inspired Stalinist housing targets.” Her successor, Rishi Sunak, was none too keen either, and in any case the proposal has been white-anted by a group of conservative backbenchers concerned about the impact on their leafy constituencies.

This is not a simple left–right divide. In the Times, the director of the centre-right Centre for Policy Studies called their actions “selfish and wicked,” saying they would “enshrine nimbyism as the governing principle of British society… and leave every proposed development at the mercy of the propertied and privileged.” •

Yes to the City: Millennials and the Fight for Affordable Housing
By Max Holleran | Princeton University Press | US$27.95 | 216 pages

The post Building nothing is not an option appeared first on Inside Story.

As a result, getting access to social housing, whether it’s public housing provided by state authorities or community housing provided by not-for-profits, is harder than ever. The first tranche of 2021 census data shows that social housing’s share of all dwellings has fallen below 4 per cent Australia-wide, continuing a steady decline over more than two decades.

When Scott Morrison opted instead to subsidise property owners through the HomeBuilder program, the states were forced to go it alone. Victoria set the pace in 2020 with the $5.3 billion Big Housing Build, a plan to construct 12,000 new dwellings and refurbish 23,000 existing social housing properties. Queensland soon came to the party with its $1.8 billion Housing Investment Growth Initiative, promising 6365 new homes over four years, and the WA government committed $2.1 billion to deliver 3300 new homes, adding another $408 million in its 2022 budget.

Labor-run states weren’t alone. The largest per capita investment was Tasmania’s $615 million commitment to construct 3500 new social houses by 2027 (funded in part by senator Jacqui Lambie’s success in negotiating a waiver of the state’s historical Commonwealth housing debt.)

South Australia and New South Wales are building too, though their construction programs will mostly replace old, rundown public housing, producing little gain in dwelling numbers.

The total state effort amounts to about $10 billion. According to housing expert Hal Pawson, the states will build more social housing over the next three years than Australia saw in the previous decade. Presenting an analysis by the UNSW City Futures Research Centre at this month’s Affordable Housing Summit in Melbourne, Pawson said that these programs will add 15,500 homes to Australia’s social housing stock (after accounting for demolitions and replacements).

The scale of these efforts is comparable to the last significant federal investment, the Rudd government’s Social Housing Initiative in response to the global financial crisis — a $5.6 billion program that constructed 19,700 new dwellings and refurbished 12,000 more during 2009–12.

Now the Albanese government is bringing the Commonwealth back in, though rather than investing in social housing via the budget, it is setting up a $10 billion Housing Australia Future Fund. Three states, New South Wales, Queensland and Victoria have already created similar off-budget funds, each capitalised at a little over $1 billion.

Details of the federal scheme are yet to be finalised, but Pawson anticipates it will follow the pattern set by New South Wales, with returns from the fund helping not-for-profit housing providers develop new homes by bridging the gap between their costs and the rent their low-income tenants can afford to pay.

The costs are a mix of operational expenses, maintenance, and debt payments, and will vary depending on location and the characteristics of tenant. (In social housing, most tenants rely on government payments, and their rents are capped at no more than 30 per cent of income. In affordable rental housing, aimed primarily at low- and middle-income workers, rents are discounted to 80 per cent of the market rate.)

In 2018, the City Futures Research Centre estimated, the average annual gap for social housing was $12,000 per annum. On that basis, the Future Fund will need to earn $240 million each year to subsidise the 20,000 new social housing dwellings promised by Labor. If its earnings average 6 per cent each year, or $600 million, the extra income can be put towards Labor’s other promises — 10,000 “affordable” homes for police, nurses, cleaners and other “heroes of the pandemic,” repair and maintenance of existing housing stock, and a cash injection to build new crisis accommodation. And, of course, the government will need to pay interest on the $10 billion borrowed to set up the fund.

It’s important to understand that the proceeds from the Future Fund won’t be used to give not-for-profit housing providers up-front grants to build dwellings. Instead, it will guarantee to fund the gap between rent receipts and costs for twenty-five years, giving housing providers income certainty long into the future. This will enable them to seek the finance they need from private sources — including, potentially, superannuation funds (as is already happening in a limited number of cases). In this way, a relatively modest amount of public money can be leveraged to finance a lot of new housing.

Still, the fund seems a cumbersome workaround. An analysis by Pawson and his colleagues shows that another option, providing up-front development grants to not-for-profits, is the most cost-effective way to build social housing. Pawson also points out another downside of the fund: it will be fully committed after five years. In other words, once the first 20,000 social dwellings are completed and tenanted, all annual returns from the fund will be allocated to bridging the gap between rent those tenants pay and the cost of providing them with housing. Unless the fund is topped up with fresh capital, federally subsidised social housing construction will once again come to halt.

This already happened in New South Wales. All returns from its $1 billion Social and Affordable Housing Fund, set up in 2015, have been allocated to bridging the rental gap on 3400 social and affordable dwellings under contracts lasting twenty-five years. As the fund says on its “frequently asked questions” page, this means there “are no current opportunities to access SAHF funding.”

With sufficient political will, such funds could be replenished or duplicated, to enable more building. The fly in the ointment here is that establishing a new fund or topping up an existing one with billions of dollars could be hostage to the vagaries of the electoral cycle. Incumbent governments would need to do more borrowing, which is one thing the funds are set up to avoid. Or they could find other sources of capital, for example by selling public assets. The capital for Queensland’s $1 billion housing fund was extracted from the Queensland Land Titles Registry. But such choices require courageous governments.

The fact that Canberra is borrowing creative ideas from the states at least suggests that federal relations are turning a corner. Encouragingly, housing and homelessness minister Julie Collins has already met twice with her state and territory counterparts. Their last meeting with her Coalition predecessor was almost five years ago.

But Collins will have her work cut out realising Labor’s campaign promise of a National Housing and Homelessness Plan. Such an aspiration implies much more than simply rejigging the 2018 National Housing and Homelessness Agreement that governs the disbursement of $1.6 billion in federal funding to the states and territories.

A true national housing strategy would integrate the approaches of federal, state and local governments, and address not just how to subsidise homes for low-income earners, but the entire housing system and its interaction with other policies, like tax settings, immigration levels, planning regulations and building codes.

The plan needs to extend beyond the five-year horizon of the Housing Australia Future Fund and secure a pipeline of social housing construction after the current burst of state activity has run its course. Pawson says we can’t expect the states, with their limited revenue- and loan-raising powers, to keep investing at the current rate without federal support. (And as he points out, New South Wales and South Australia aren’t investing much from general funds anyway.) But he says Canberra can use its funding muscle to encourage the states to contribute in other ways, such as by providing land and using their planning powers to facilitate more construction.

A planning power widely used overseas but rarely implemented in Australia is inclusionary zoning, which mandates that new housing developments include an affordable component. Since 2005, South Australia has required that 15 per cent of new dwellings in significant development projects be affordable, with at least 5 per cent set aside for high-needs groups. In the City of Sydney, the developers of urban renewal projects like Green Square must include a small affordable housing component in their plans or pay a levy. Industry groups like the Property Council oppose inclusionary zoning on the basis that it amounts to an unfair tax on some landowners that deters investment.

Can Australia learn from its peers overseas? Canada, with similarities beyond a Westminster system, a British colonial history and a federal structure, is an obvious place to look. Both nations have comparable home ownership rates and a history of substantial postwar investment in social housing that was effectively shut down in the 1990s.

Canada’s 2018–28 national housing strategy was meant to turn that around. Set up with an “unprecedented” C$40 billion in funding, it aimed to halve rental housing need and chronic homelessness within a decade. When a keynote speaker at Australia’s 2017 National Housing Summit described how prime minister Justin Trudeau had declared that “housing rights are human rights” and promised to enshrine in law the right to adequate housing, the sighs of envy in the audience were audible.

But at the recent Affordable Housing Summit, McMaster University housing expert Steve Pomeroy explained how creating an effective national housing strategy for Canada has been far from straightforward.

On the plus slide, the strategy is embedded in legislation. While the legislation doesn’t entrench housing as an individual right enforceable by the courts, it commits federal and provincial governments to the goal of adequate housing for all. It also provides funding certainty over a ten-year period (and, since 2018, the budget has been boosted to C$72 billion). The ambition of the strategy was lifted too: it now aims to eliminate rather than merely halve chronic homelessness by 2028.

Yet, as Pomeroy told the conference, the vision and its funding don’t align. A 2021 review by Canada’s parliamentary budget office found that housing assistance to low-income households has fallen in real terms despite the increase in overall spending. Even with commitments to build more than 90,000 new units of housing and repair a similar number, the budget office anticipates the strategy will fall well short of its aim of halving housing need, which will have climbed from 1.7 million to 1.8 million households by 2025–26.

The problem is not just the quantum of funding but its form. Rather than providing grants, most new funding comes as loans, making it suitable only for projects that can generate a return on investment. These projects can increase the supply of rental housing overall, and help hold down rent rises, but they aren’t designed to build homes for those who need them most.

Pomeroy says the strategy has morphed into a program of “market rental supply with a poorly designed affordability requirement.” Along the way, it has facilitated “renovictions” in the private rental market, with loans used to fund modest upgrades that then provide an excuse to evict low-income tenants and raise rents. In real estate terms, these dwellings are “underperforming assets,” says Pomeroy, though he considers them “naturally occurring affordable housing.” The Canadian strategy lacks a commitment to enabling not-for-profits to “buy up affordable housing and keep it affordable.”

With the Albanese government facing similar challenges as it builds a national housing strategy, Pomeroy had two key messages for his Australian audience. First, “a national housing strategy is different from a federal housing strategy,” and an over-centralised model is likely to fail. Second, “a strategy without money really isn’t worth very much.”

Discussion of housing in Australia is always dominated by home ownership, and attention right now is focused on rising interest rates and their impact on real estate values and mortgage payments. While these indicators are important (not least for the stability of a financial system highly exposed to property debt), the sharp end of Australia’s housing crisis — fuelled by the lack of new, affordable homes — is in the private rental market.

According to Domain, average rental vacancy rates in Australia’s capitals were just 1 per cent in August. SQM Research puts the rate even lower, at 0.9 per cent. Outside the capitals, the situation is worse still, with Covid-fuelled sea- or tree-changers outbidding locals, not to mention housing lost to recent floods and fires. Domain puts the rental vacancy rate in regional Australia at just 0.6 per cent. In places as disparate as Warrnambool, Kiama, Queanbeyan, Toowoomba and Burnie, essentially no homes are available to rent.

To put these numbers in perspective, the former National Housing Supply Council used an “equilibrium” point for Australian cities of 3.0 per cent — that is, the vacancy rate at which there should be no upward or downward pressure on rents. With vacancy rates well below that figure, SQM data show capital city asking rents rising by more than 20 per cent over the past year. That’s for new listings; rents aren’t yet rising at the same pace for tenants with ongoing leases. Nevertheless, says Domain, a “landlords’ market” is “driving up rents and escalating competition” between tenants.

The return of international students, temporary skilled workers, backpackers and permanent migrants will put more demand into the system. In Australia’s lightly regulated market these pressures will soon flow through to tenants.

Beyond the $10 billion Housing Australia Future Fund, the federal government wants to avoid borrowing heavily to invest in social housing because that would add to a budget deficit that the Treasurer (misleadingly) claims is “heaving with a trillion dollars of Liberal debt.” Labor has also painted itself into a corner by backing away from sensible changes to negative gearing and the capital gains tax discount. Not only could changing the tax treatment of housing raise the revenue needed to build more social housing without extra borrowing, it would also dampen the speculation that inflates property prices.

The problem is partly one of perspective. Social housing is still framed primarily as a cost to the budget bottom line rather than an economic and social investment. Yet numbers crunched by SGS Economics and Planning for the private sector advocacy group Housing All Australians show that every $1 invested in social and affordable housing delivers $2 in benefits — a rate of return greater than many other infrastructure investments.

The SGS report, Give Me Shelter, says a failure to tackle our social and affordable housing needs will cost the nation $25 billion annually by 2051. We’ll pay the price in expenditure on welfare, visits to emergency departments, police and ambulance callouts, and putting people through courts and locking them up in jails. And we’ll lose tax revenue from lost productivity and lower employment.

By contrast, SGS calculates the benefits of providing adequate housing at almost $110 billion. Since the federal government stands to gain more than the states through increased tax revenue and lower welfare spending, it makes sense for Canberra to provide the bulk of the funding for new social housing.

Combined with recent state initiatives, the federal government’s Future Fund is a significant but modest step forward. To deal with Australia’s housing crisis, it will need to do much more. •

The post A new era for housing? appeared first on Inside Story.

The problem arises from market distortions. Few markets are pushed around more by government policy than Australia’s housing market — on both the demand and the supply side — and few market distortions so limit the life choices of so many Australians. The good news is that governments have practical options for solving this problem. The bad news is that it first requires us to stop focusing on the wrong solutions.

On the demand side, there are good reasons why house prices should be rising despite our hiccup with immigration. Covid has seen Australians spending more time at home for both fun and work. With some of this looking to be permanent, it makes sense to upgrade your home, particularly when housing is a relatively safe investment during times of uncertainty.

But our tax system supercharges this investment in all the wrong ways. Because you only pay stamp duty when you purchase the house, buyers have the incentive to build bigger and hold for longer. Higher earners too often look to housing to shelter their income from tax. Negative gearing — which encourages people to invest in rental properties at a loss to reduce their income tax — means Australia has one of the most fragmented rental housing markets in the world, with few corporate investors. First-homeowner grants and subsidies merely inflate prices further.

This wouldn’t matter so much if the supply side of the market could respond easily. But governments are once again causing problems. State and territory rules stop new houses being built. Homeowners in leafy inner suburbs are particularly to blame: studies show that the housing markets with the largest constraints on development tend to be those where home ownership is greatest and owners use their votes to support parties that keep housing supply low and house prices high.

A study by economists Christian Hilber and Wouter Vermeulen compared two regions in England that were almost identical in every way except one: one region had much stricter regulations on housing development than the other. Prices in the more restricted region were 25 per cent higher than in the region where it was easier to build.

The ramifications of Australia’s housing crisis are enormous. Productivity and wages are higher in the cities. Policies that make it harder for people to afford a move to the city result in lower productivity growth and lower wages. In the United States, the lack of new homes has been linked to economic problems including slowing internal migration (which reduces wages), lower productivity and lower GDP.

It’s also bad for the climate. Big cities — where transport, infrastructure and energy are used more efficiently — are the most cost-effective built forms for reducing carbon emissions. Constraints on urban growth make it harder to reduce carbon dioxide emissions and harder to achieve net zero by 2050.

An economic policy in which growth relies on rising housing prices isn’t sustainable. Analysis by the International Monetary Fund shows that rising household debt boosts economic growth in the short term but starts to have the opposite effect after three to five years, when households cut back their spending to pay down debt. It’s short-termism at its worst.

The political consequences are just as big. Housing inequality is a major reason why many people across the rich world feel that the economy doesn’t work for them. It exacerbates tensions between the baby boomers in huge houses and the young families in crowded units. With young people shouldering the cost of Covid restrictions to protect the lives of the elderly, now is not a great time to be handing more wealth to old people at the cost of the young.

Luckily, although housing is in short supply, policy solutions are not.

New South Wales is looking to implement one of those solutions by allowing buyers to avoid the upfront cost of stamp duty by agreeing to pay an annual land tax. The Henry tax review recommended flattening the tax on savings to treat housing more like superannuation: not only would the tax rate on housing fall, so would the rate of deductions investors could use against their wage income.

We can also learn from overseas. New Zealand’s new, bipartisan policy allows up to three houses, three storeys tall, to be built on most sites without requiring resource consent in the country’s major cities. New York City’s system of “air rights” means that a property owner who builds shorter or narrower than allowed under the planning rules can use or onsell the extra space. Britain is looking at devolving planning and zoning decisions to street level, allowing developers to negotiate and compensate those directly affected in order to win the necessary support of 60 per cent of the street’s residents. An analogous program in Israel reportedly led to a 30 per cent increase in new housing starts.

Covid has revealed another solution. Thanks to the pandemic, city centres are full of empty buildings, providing a significant opportunity to revamp these large, prime locations into residential apartments. New York developers have been doing this for years. More than 45,000 people live in Lower Manhattan today as a result. The City of London believes it has room for an extra 1500 homes by 2030.

Together, these reforms would redirect investment to where people most want it and would result in more quality affordable housing. Yet all we hear from the major political parties are the same tired old debates about interest rates and monetary policy, and pointless policies like housing subsidies.

Housing affordability will be a major topic at the next election. Let’s vote for the party that stops complaining about it and instead puts forward real solutions. •

The post Time for a knock-down-rebuild of housing policy appeared first on Inside Story.

Veteran observers question the need for another inquiry. The Financial Review’s long-time property editor Robert Harley has counted five major housing probes over the past two decades, and another — a report on the related issue of homelessness — was published just two months ago. Detailed analyses have also been published by the Reserve Bank, by Grattan Institute, Per Capita and other think tanks, and in a steady stream of research by the Australian Housing and Urban Research Institute, or AHURI.

Yet, says Harley, “while politicians, bureaucrats and developers have championed the cause of the first homebuyer, prices have risen inexorably higher… and home ownership has slipped, particularly among twenty- to forty-year-olds.” What remains unresolved is what makes housing so expensive, and how it can be made more affordable.

One camp argues that the problem is too little supply: we simply don’t build enough houses and flats. Australia’s stratospheric house prices are the product of red tape and nimbyism, and the solution is to liberalise planning and zoning rules so that developers can get building.

The other camp thinks the core problem is excess demand, fuelled by a combination of record low interest rates, easy credit and generous tax concessions. Housing has been transformed from an essential good into a financial asset, with the search for capital gains driving prices up relentlessly. This camp thinks solutions are to be found in changed tax rules and tighter financial regulation.

Opinions don’t divide quite so neatly, of course, and some views are shared by people in both camps. Many argue, for example, that whatever else happens, governments should invest more in social housing, and swap stamp duty for a broad-based property tax. But it’s hard to see either of these sensible recommendations emerging from the inquiry.

The House of Representatives tax and revenue committee, which Falinski chairs, has been asked to report on “the contribution of tax and regulation on housing affordability and supply in Australia.” The cynic might suspect the inquiry was designed to wedge Labor over its contested housing policies in the lead-up to the next federal election. Any hope on that score was short-lived: just four days after treasurer Josh Frydenberg initiated the inquiry, the opposition dumped its pledge to change negative gearing and capital gains rules.

Expectations that the committee would produce new insights have been dampened by Falinski’s confidence that the answer to the question is already clear. In calling for submissions, he declared allegiance to one side of the housing divide, saying “the research points to limitations on land and restrictive planning laws as the major causes of shortages in supply.”

Falinski’s assumption is reflected in the framing of the inquiry. While it sets out to investigate the contribution of tax and regulation to affordability and supply, the terms of reference refer solely to the latter, as if solving the supply problem will look after affordability.

Demand doesn’t rate a mention, even though most of its drivers — interest rates, immigration levels, mortgage lending regulations, homebuilder schemes, or, indeed, tax concessions like negative gearing — are federal responsibilities. Ignoring demand means ducking responsibility, consistent with messaging by housing minister Michael Sukkar that it is up to the states and territories, which “control planning schemes and zoning,” to solve our housing woes.

Yet, as Sydney University housing researchers Nicole Gurran and Peter Phibbs point out in their submission to the inquiry, state and local governments have already significantly eased controls on residential land release and development by standardising local planning instruments, speeding up and codifying development assessments, and “depoliticising” planning decisions by using expert panels and professional assessments. Far from a lack of supply, they say, construction has reached historic highs in recent years, with more than 200,000 dwellings built every year between 2014 and 2019.

“There are more, bigger, better, dwellings per capita in Australia now compared to any point in history,” agrees economist Cameron Murray. His submission to the inquiry questions whether a further relaxation of planning and zoning controls would provide any incentive for landowners and developers to speed up new housing, since it would lower the price of their future sales. Murray argues that developers systematically engage in landbanking, “holding undeveloped sites off market to ensure they match the rate of sales that maximises their total return on assets.”

The view that the stock of dwellings has largely kept pace with population growth — and even exceeded it in recent years — is supported by Reserve Bank research, as this chart from its submission to the inquiry shows:

The sudden drop in population growth (the orange line in the chart) reflects border closures in response to Covid-19. That fall challenges another version of the supply-side argument — that prices have rocketed in recent years because house building failed to keep up with Australia’s high migration intake. In theory, flatlining immigration since early 2020 should have pushed prices back down again. Instead, with a few exceptions (such as high-rise inner-city apartments in Melbourne), the real estate market has boomed.

As the pandemic demonstrates, the relationship between population, housing supply and prices is far from straightforward.

Not everyone on the Coalition side of politics agrees with Falinski and Sukkar. Writing in the Sydney Morning Herald earlier this month, NSW planning minister Rob Stokes declared “the idea that the planning system alone can solve housing affordability” to be “ludicrous at best; wilfully negligent at worst.”

Simple maths supports his contention. As the Planning Institute of Australia points out in its submission to the inquiry, new housing only increases the total stock of dwellings in Australia by about 2 per cent each year. Because most sales and rentals involve established homes and apartments, “it is hard for additional supply to reduce prices rapidly and deeply.” Even if we doubled the volume of new housing coming onto the market — a high hurdle given constraints on labour and materials — the impact on overall prices would be relatively modest.

This is not to suggest that the problem of housing affordability isn’t urgent. It certainly is, but for rather different reasons than Jason Falinski assumes. His primary concern is with declining rates of home ownership, which he describes as “one of the building blocks of Australian society.” But the more pressing problem is the fall in rental affordability for tenants on low incomes.

We’re familiar with comparisons showing a sharp rise in house and unit prices compared with earnings in recent decades. Westpac, for example, reported in June that “dwelling prices reached seven times average annual earnings” at the end of April 2021, about double the ratio at the start of this century.

But property prices are not necessarily an accurate guide to household housing costs, which are better understood as the amount individuals or families must spend each week — usually in the form of rent or mortgage repayments — to stay in their homes. For most households, housing costs as a share of income are far more important than the price of real estate: they can’t be avoided, and they determine how much money is left to pay for other things.

Australian households can be divided into three groups of roughly equal size: tenants, mortgage holders and outright homeowners. For tenants, rents are the most important factor influencing housing costs, and they have generally risen relative to incomes. For mortgage holders, the most relevant cost factor is interest rates; these have dropped, reducing the price of servicing a mortgage, even though people have taken out bigger loans. For outright homeowners, housing costs bear no relationship to fluctuations in rents or interest rates.

This means that two-thirds of households (mortgage holders and outright homeowners) have not faced rising housing costs over the past two decades, despite escalating house prices.

It’s a very different story for the other third — tenants — and especially for low-income tenants in the private rental market. The true nature of Australia’s housing affordability challenge, and where its impact is most acutely felt, is revealed in another chart from the Reserve Bank’s submission, which shows that for tenants in the first “quintile” (the bottom fifth of households by income), rents have risen, dramatically and unsustainably, to 38 per cent of disposable household income.

Not surprisingly, the Productivity Commission has found that half the low-income tenants in the private rental market experienced rental stress in 2017–18, spending at least 30 per cent of their disposable income (and often much more) on rent. That’s around 550,000 households — many of them families with children — that didn’t have enough money left over to pay for other essentials. And it has happened despite the $4.6 billion paid to some low-income tenants in Commonwealth Rent Assistance.

For these households, the supply problem is a lack of affordable homes to rent. Rising real estate prices do make matters worse, because they make it harder for moderate- and higher-income tenants to move to ownership. Wealthier tenants spend longer renting in the private market, out-competing low-income households for the most affordable homes with the best access to jobs and services.

In theory, a general increase in housing supply should push down the prices of houses and flats, and subsequently rents, across the board. Affordable housing would eventually filter down to low-income tenants.

But the filtering theory has at least two fundamental problems.

A general increase in overall housing supply could take a long time to filter down, with much damage done to individuals and families in the meantime. More fundamentally, though, the filtering doesn’t actually happen, because Australia’s tax structure — its preferential treatment of owners and investors — boosts demand for housing as an asset and encourages house-price inflation.

Supercharged by low interest rates, these tax settings make housing a highly attractive asset, for both owner-occupiers and investors. As researchers Blair Badcock and Andrew Beer concluded more than twenty years ago in their book Home Truths, “taxation arrangements have played an unambiguous role in the high proportion of wealth in Australia held as housing. In many respects, high-income earners would be foolish to invest elsewhere!”

In any case, if prices were to fall to the degree necessary for housing to “filter down” to the poor, that would signal a collapse on the scale experienced in the United States, Spain and Ireland during the global financial crisis.

As the Reserve Bank remarked in its submission to a 2015 parliamentary inquiry, “there are no examples internationally of large falls in nominal housing prices that have occurred other than through significant reduction in capacity to pay (e.g. recession and high unemployment).” In other words, the only sure-fire way to quickly make housing substantially cheaper is to crash the economy.

It’s not an outcome anyone would seek. But it points to the high-stakes situation that Australia finds itself in because our sustained residential property boom has dramatically increased household debt.

Just before the global financial crisis, Australia’s total household debt was estimated at $1.1 trillion, or a little over $50,000 per person. By early 2018, the figure had more than doubled to an estimated $2.466 trillion, or close to $100,000 for every person. Over the same decade, the ratio of household debt to annual household disposable income rose from about 160 per cent to around 200 per cent. The vast bulk of household debt is tied up in loans for buying homes and investment properties.

If interest rates remain low, rising household debt is not necessarily a problem. But a rise in interest rates could force a significant number of households into housing stress, with concomitant risks for major Australian major financial institutions heavily exposed to mortgage lending.

Australia’s housing system also encourages a volatile boom–bust cycle of property investment. Since construction is a major employer, this has repercussions throughout the economy. Given long lead times, developers are slow to ramp up employment in an upswing but quick to shed staff in a downturn. As the OECD has concluded, changes to the tax treatment of housing could moderate this boom–bust cycle: “Higher effective taxation of housing is associated with less severe downturns. Moreover, countries with higher taxation experience more moderate house price fluctuations and smoother residential construction cycles.”

And while the building of housing generates jobs, housing is not in and of itself a productive investment. Increased dwelling prices reflect the value of the underlying land more than the value of the dwelling. The escalation of residential property prices, and the increased borrowing necessary to finance it eat up investment funds that could potentially have been put to more productive use.

I share Jason Falinski’s concern with falling rates of home ownership, but not because I want to “restore the Australian dream for this generation and the ones that follow.” More important, in my view, is to reduce growing inequality.

With interest rates so low, the barrier to home ownership has less to do with managing a large mortgage than with saving the deposit needed to secure a mortgage in the first place. Higher education debts, superannuation contributions and a casualised labour market make it harder for the current generation of first homebuyers to assemble a deposit.

As researchers Hal Pawson, Vivienne Milligan and Judith Yates write in their book Housing Policy in Australia: A Case for System Reform, “wealth rather than income” now presents “the major stumbling block to home ownership.” Home ownership must often be facilitated by funds from parents, which are in turn enabled by existing property wealth. Homeowners beget homeowners and renters beget renters, with the risk that home ownership will become a dynastic privilege. And since the primary financial asset for most Australian households is their dwelling, the difference between owning and renting generally holds the key to whether you acquire any lifetime wealth.

Falling rates of home ownership will also increase pressure on government payments. Australia’s relatively ungenerous age pension rate is predicated on widespread home ownership keeping housing costs low in old age. But declining rates of home ownership mean this “fourth pillar” of Australia’s welfare system is crumbling as more households rent in retirement. Unless house prices can be moderated, pushing up home ownership again, the federal government will need to outlay ever greater sums on pensions and rental assistance.

Our best hope is to engineer a gradual deflation of dwelling prices or allow them to stagnate relative to inflation. Changing the tax mix to make housing a less attractive asset is arguably the best way to do this.

In the meantime, Jason Falinski’s committee could have a quick, practical impact on housing costs and rental stress by recommending the federal government increase the rate of Commonwealth Rental Assistance. As AHURI research has shown, that could be done painlessly by targeting rent assistance more accurately to those on the lowest incomes.

For the longer term, the committee could recommend that the federal government makes a substantial investment in social housing. As Nicole Gurran and Peter Phibbs write in their submission, “The most notable shift in Australian housing production over the past thirty years has been the gradual withdrawal of government involvement in land and housing development, with public sector housing completions falling as a proportion of all new housing from around 12.5 per cent in the early 1990s to around 2 per cent by 2016.”

A long-overdue national housing strategy with a time horizon of at least twenty years should fund an annual increase in supply of at least 15,000 new units of social housing to catch up with unmet demand. This is about five times what gets built now, but no more than the numbers regularly achieved in the decades after the second world war. Sometimes to go forward, we must first look back. •

The post Asking the wrong questions about housing appeared first on Inside Story.

The most glaring example is the lack of systematic action on climate change. Australia drags the chain on emissions reduction and continues to punt on energy-intensive exports with a dwindling customer base. A price on carbon wouldn’t have solved all our climate challenges, but it would have left us better placed than we are now.

The failure to rein in house prices is another case in point. The tax system has helped turn housing into a speculative asset, pushing funds into property rather than productive sectors of the economy, driving household debt to spectacular levels, and ramping up inequality. Again, reforming the tax treatment of residential property would hardly solve all our housing woes, but it would ameliorate some of the real estate boom’s worst effects.

In a new essay in Monash University Publishing’s “In the National Interest” series, Wayne Errington and Peter van Onselen argue that carbon pricing and property tax reform have become “pariah policies.” Despite evidence that they would have a net positive impact on Australian society, these measures have become untouchable. Events bolster their case: as we gear up for a federal election, Labor has walked away from its modest reforms to negative gearing and capital gains, and the phrases “carbon price” and “emissions trading” are banned from its political lexicon.

But, Errington and van Onselen argue, weak opposition means poor government: “The progressive side of the two-party divide is too inept to apply pressure to the conservative side, meaning conservatives stay in government without lifting their game.”

The title of their short book is Who Dares Loses. If this bleak declaration is true, then ambitious policy proposals are a recipe for electoral defeat, which appears to be the conclusion Labor has drawn from its loss in 2019. The flip side is that winners aren’t reformers. Having achieved office, governments avoid risking political capital to change society for the better.

Errington and van Onselen set out to “selectively challenge the conventional wisdom” by arguing the case for several “pariah policies,” including a universal basic income, the reintroduction of estate duties, a tax on the family home, a price on carbon, a levy on sugar, and the commercialisation of the ABC. Some of their arguments are convincing, others less so.

The case for a levy on sugar is strong. It would induce manufacturers to produce healthier food and encourage consumers to eat it, reducing the burden of diseases like diabetes and raising extra health dollars to boot. The idea that education campaigns and better labelling can drive this much-needed behavioural change was debunked long ago.

By contrast, the case for putting ads on the ABC is thin. Bizarrely, the authors propose this as a way of countering the decline of quality journalism in Australia. Their argument runs as follows: having lost valuable revenue streams like classified ads, commercial media have cut their newsrooms to the bone; as a result, subsidies for investigative reporting and quality debate must now “reach beyond the current public broadcasters.” So far so good — the case for funding more public interest journalism is strong. But their conclusion — that the ABC, like SBS, “will have to generate more of its own revenue” — is a non sequitur.

Are budget constraints so great that we can only increase funding in one area by reducing it in another? Believing that would be inconsistent with Errington and van Onselen’s support for a universal basic income, at an estimated $125 billion annual cost they claim “isn’t quite as eye-watering” as it may have seemed before JobKeeper.

In order to get more of the public interest journalism and investigative reporting that the ABC still does well, they want to make the ABC more like the commercial media. With the ABC competing for ads, they say, the other networks “would have a market incentive to lift their standard of news coverage, in a bid to steal ABC viewers and their lucrative advertisers.”

The reverse scenario is far more likely — the ABC would move downmarket as it sought to peel advertising dollars away from its (more) commercial rivals. And if it succeeded, the government would quickly cut public funding accordingly.

The “pariah policies” in Who Dares Loses overlap significantly with the reforms identified by the former chief executive of Grattan Institute, John Daley, in his recent report, Gridlock. Daley identifies carbon pricing, the tax treatment of housing, and sugar taxes as areas where government action has stalled. (He doesn’t mention commercialising the ABC.) Other initiatives consigned to the too-hard basket include congestion charging on roads, raising the pension age, introducing an effective mining resource rent tax, broadening (or increasing) the GST and lifting unemployment benefits.

Gridlock sets out to answer three questions. To the first — are twenty-first-century governments more reform-averse than their predecessors? — Daley’s answer is an emphatic yes. The 1980s and 1990s under Bob Hawke, Paul Keating and, initially at least, John Howard were “golden years” for reform. We might argue about the relative merits of measures like floating the dollar, cutting tariffs, deregulating the banks, introducing compulsory superannuation, imposing the GST, and privatising Telstra, Qantas and the Commonwealth Bank, but it is hard to dispute Daley’s contention that recent governments have been far less ambitious.

Daley’s second, more difficult, question is why are contemporary governments so timid? He identifies three obstacles that seem to be stopping governments from tackling major reforms: the lack of popular support for particular changes; the power of the “shibboleths” that mark out loyalties within parties or factions; and the opposition of powerful interest groups. The size of the required budget investment can also be a barrier, but Daley dismisses as relatively insignificant two of the most oft-cited roadblocks — the Senate and the messy division of responsibilities between the Canberra and the states.

But these obstacles aren’t new. The GST was deeply unpopular, but Howard risked electoral defeat to go ahead anyway. Privatising the Commonwealth Bank contradicted Labor shibboleths, but Hawke and Keating pressed on regardless. Vested interests vigorously opposed native title legislation, but it was still steered through parliament.

What’s different today? The glib response is that we’ve stopped electing politicians willing to push through obstacles in the belief that the change is worth the fight. As we contemplate an unedifying electoral contest between “ScoMo” and “Albo,” it’s easy to believe that current leaders don’t measure up to leaders past. That might be an emotionally satisfying answer, but it leaves us hoping forlornly that someone better will eventually turn up.

Deeper answers lie in structural economic and social changes. The echo chamber of social media has driven polarisation and division. The twenty-four-hour news cycle and the professionalisation of politics mean policies are more likely to be shaped by polling and focus groups than by evidence. The shifting and shrinking bases of the major political parties have reinforced polarisation.

Meanwhile, the hollowing out of the public service, the rising power of political staffers and the outsourcing of advice to corporate consultancies have weakened governments’ capacity to generate and implement good ideas. And the “revolving door” that turns a ministerial adviser into a “government relations” professional has picked up pace, as has the “golden escalator” from ministerial portfolio to corporate board or strategic advisory role.

Daley’s third question is obvious: what is to be done? If we want more ambitious, reform-minded leaders, we need to change the system that supports the current epidemic of policy timidity. “Institutional changes to ministerial adviser roles, to processes for appointing and dismissing senior public servants, to ministerial influence over government contracts and grants, and to controls over political donations, campaign finance, lobbying, and post-politics careers would all help to break the gridlock in policy reform,” he writes.

Errington and van Onselen recommend similar changes, and throw in a shift to proportional representation. If New Zealand can change its electoral system, why can’t we? The catch, as always, is that the people we need to fix these problems are a big part of the problem. As Daley says, the institutional changes he proposes “are themselves an example of blocked policy reform.” If our political caste can’t manage to abolish franking credits, let alone create a federal corruption commission, then the chances of substantial systemic reform appear slim.

Daley puts his hope in more independent MPs getting elected to parliament and using the balance of power to force systemic change. It’s hardly a quick fix, but it chimes with the fact that the reform highlights of the past two decades — including the (shortlived) carbon pricing mechanism, the NDIS, the Gonski school funding scheme, and plain-paper cigarettes packaging — mostly came when Julia Gillard was leading a government reliant on crossbench MPs.

Daley’s conclusion suggests the answer lies in getting back to the basics of political organisation at the local level: engaging citizens, listening to their concerns, and involving them in developing campaigns and policies. This is the nuts-and-bolts work that helped the campaign for marriage equality succeed. It is the kind of community organising that elected independent Cathy McGowan in the formerly safe Liberal seat of Indi in 2013, and enabled Helen Haines to succeed her in 2019.

In other words, we need to build democracy from the bottom up, not suffer it from the top down. Electing more independents to parliament seems like a good place to start. •

The post Good ideas going nowhere appeared first on Inside Story.

Political ideology was also driven by assumptions about what structures would deliver the best results. Labor believed that government delivery of services would solve the failures of the private sector to deliver. The Liberals believed that competition between service providers would deliver better services overall.

During the 1980s and 90s these ideologies broke down in many ways. People on all sides of politics realised that much of the time they weren’t disagreeing about which results were worth having. They were instead disagreeing about a factual question rather than a values question: which structures delivered the best results? Experience showed that well-designed competitive markets, with government regulations to protect the worst-off and prevent exploitation, delivered cheaper and better electricity services than a government monopoly. And so privatisation — well designed — was an idea that all sides of politics could back. Of course, that meant market design was vitally important, but that’s another story.

Today, a new kind of tribal belief is increasingly blocking policy reform, as we show in our recent Grattan report, Gridlock. These are tribal beliefs that some policy positions are simply right. Often these beliefs aren’t based on any consistent view about the importance of one value over another, or about what kind of regulatory structures work in practice. Rather, they’re often the result of history — political battles won or lost, sometimes many years ago.

For example, you won’t find a single Labor parliamentarian prepared to suggest (publicly at least) that changes to the rate or scope of the GST might be a good idea. It’s not a belief based on ensuring the needs of the worst-off are met. A well-designed GST reform package could deliver welfare changes and income tax reductions that would make people in the bottom 30 per cent of the income distribution much better off on average, an outcome Labor has traditionally sought. Having fought and lost two elections over a GST, though, it’s hard to move on.

Among the conservative wing of today’s federal Coalition, you won’t find anyone who thinks government should do anything about climate change. Some of them don’t think that carbon emissions are leading to global warming; some think global warming is a good thing that will increase rather than reduce prosperity; some think the costs of reducing emissions exceed the costs of living with a hotter world. Many believe all three. What unites those beliefs is not a value, or an observation about what kind of policy works best, but a commitment to a particular policy outcome.

To take another example, no serving federal Labor member has publicly acknowledged that there is any argument against increasing the superannuation guarantee from 9.5 to 12 per cent. I’m unaware of any of them having conceded in the past few years that an increase in that rate will lead to lower wages. No matter the conclusions of independent experts, backed by Treasury modelling, that a contribution rate of 9.5 per cent is already pushing the living standards of people on low wages lower than their incomes will be once they retire. No matter the conclusions of distinguished academics, the Reserve Bank and the Fair Work Commission (and many Labor MPs in the past) that increases in the super guarantee are an alternative to higher wages growth. And no matter that the major beneficiaries of increasing the rate will be the top 20 per cent of income earners, who will pay less tax over their lifetimes.

So if these beliefs aren’t about values — or what kind of government works best in practice — what are they about?

Their major function is to mark membership of a tribe. That’s why the need to conform to these beliefs is seen within a party as much greater than in the past. Simply holding the right belief marks you as “us” rather than “them.”

They are “shibboleths,” a word now at least 2500 years old. The book of Judges in the Old Testament tells the story of two warring tribes, one of which got stuck on the wrong side of a river. The other tribe, which controlled the river crossing, set as a password the Hebrew word for an ear of corn. They knew that people from the opposing tribe pronounced “shibboleth” differently. And so, in contemporary English, a shibboleth is a belief that marks membership of a tribe, rather than a consequence of rational thought or a particular value. Indeed, beliefs tend to make better tribal markers if they’re irrational. Otherwise there would be people who believe them because they think they’re true rather than because they identify with the tribe.

Having tribal markers is very important if the tribe looks after its own. If the leaders of the tribe are handing out government appointments, grants and contracts to their own members, they need a way of knowing who is “us” and who is “them.”

Shibboleths only work like this if there are penalties for not holding to the right belief. Another Coalition article of faith is that tax rates should never go up, particularly not taxes on investments. So when the Turnbull government announced that it would wind back generous tax concessions on superannuation, all hell broke loose — inside the party. The party’s broadsheet, the Australian, published article after article denouncing the changes. Major donors said they would never give again because the party had abandoned its “values.” The preselection of Kelly O’Dwyer, the responsible minister, was threatened.

Never mind that these changes were popular — particularly with those who had the most to lose, perhaps because they realised how indefensible the concessions were. Never mind that the proposals were consistent with the underlying policy purpose of superannuation. Never mind that the Coalition disproportionately won votes in the electorates most affected. A shibboleth had been questioned, and there had to be consequences.

Shibboleths are a big problem in politics precisely because they’re not rational. Almost by definition they lead to policy outcomes not based on the evidence. Over the past decade they’ve blocked progress on ten significant reforms recommended by Grattan Institute, particularly in three of the most important policy areas for Australia’s future prosperity: tax, superannuation and energy.

It’s a far cry from the golden years of reform in the 1980s and 90s, when the Hawke–Keating government jettisoned large quantities of party dogma to bring down tariff barriers, privatise industries and reform industrial relations.

So why are shibboleths dictating policy outcomes? Two forces are coming together: shifts in the electoral bases of our major parties; and the professionalisation of major parties so that they become almost arms of government rather than organisations that mediate between the population and government. Both trends are mirrored in other democracies around the world.

As Thomas Piketty and his colleagues have shown, the base of political parties is shifting. Traditionally, right-wing parties were aligned with business owners, high-income earners and people with high levels of education. But now people with high levels of education, including those with relatively high incomes, increasingly vote for left-wing parties. People with lower levels of education don’t belong to unions as much as in the past, now often work as sole traders, and are more likely to vote for right-wing parties.

Because the interests of their core constituencies are changing, policy issues are becoming more fluid within the parties. Issues that defined political parties for decades, such as government intervention in the economy and industrial relations, have converged on largely consensus positions. Social and identity issues such as marriage equality, workplace harassment, migration and racial disadvantage remain more contested. Many of these social issues cross traditional party lines. Bill Shorten has many policy views in common with Simon Birmingham, Joel Fitzgibbon has much in common with George Christensen, and it’s less obvious what policies they share with others in their respective parties. So instead, parties need shibboleths to mark who is a member of the tribe.

And tribal membership is increasingly important because of what political parties do. Politics has professionalised. Many more people have a career that starts as a political adviser, a union representative or an analyst at an aligned think tank and then progresses to preselection, parliament and the golden escalator to a lucrative government-relations role.

The professionals working for each party look after their tribe. Longstanding conventions are being trashed as government appointments to bodies such as the Administrative Appeals Tribunal and state government corporations increasingly favour those connected to the party in power rather than those best qualified. Government grants and contracts are often awarded to party donors, and those well connected — which may just be coincidence, but because the processes are increasingly opaque, who would know?

Patronage like this reinforces shibboleths. The rewards for toeing the party line are much higher. Breaking with the tribe can disqualify you from future patronage and jobs.

The disease is hard to cure. Politicians from all major parties have trashed valuable conventions that restrained politicisation of appointments, grants and contracts, and imposed consequences when politicians behaved badly. But there’s no going back. To restore good governance, these conventions will need to be replaced by hard rules policed by genuinely independent and well-armed regulators. The insider world of political advisers needs to be opened up to more people with policy expertise from the public service and fewer people with political expertise from student politics. Limiting political donations and campaign spending, and tightening controls on lobbying would also help to weaken the cosy coterie of politics and its clients.

Unfortunately the patient is not very interested in being cured. The current arrangements suit the major political parties and the professional political class very well. Although the treatments for the disease are well known, and voters strongly support them, the list of excuses for inactivity just gets longer.

History suggests that major institutional changes mostly happen only when there is an ongoing public scandal. Damning auditor-general reports aren’t enough. Only the nightly theatre of cross-examination at a royal commission or an independent corruption commission leads to voters focusing on institutional change rather than their usual concerns of jobs, health and education.

So the most likely path to change is for independent and minor-party members of parliament to insist on institutional reforms when they hold the balance of power. That’s how we got the Parliamentary Budget Office, the most significant institutional reform of the past fifteen years. And it’s an increasingly plausible scenario as the vote for minor parties and independents marches upwards, not least because voters are losing trust that the traditional parties are putting the public interest ahead of their own.

Shibboleths are a cancer eating away at good government. We need institutional change to weaken their tightening grip on our political class. Otherwise, many policy reforms that would benefit the country will continue to sit on the shelf. •

Gridlock is John Daley’s last report for Grattan Institute, where he was the CEO from its creation in 2009 to 2020.

The post Tribal gridlock appeared first on Inside Story.

On offer in Princes Hill was a second-floor, two-bedroom apartment. Described in the listing as “impeccably maintained retro,” it was the best-situated flat in an ugly block of chocolate-brown brick walk-ups dating from late 1960s. Its interior was charming, and the publicity wasn’t wrong about the abundance of natural light and gorgeous neighbourhood views. When it came to the price, however, it was way off the mark.

The agent’s indicative guide had the apartment selling for between $630,000 and $680,000. My friend, who didn’t come down in the last shower, had come prepared to pay about $100,000 more. But I didn’t even get to raise my finger on her behalf, because a clutch of other determined buyers quickly pushed the price up to $845,000.

The previous Sunday, I’d been a few streets away in Carlton North, visiting another friend who has just rented an apartment in a similar-sized block of a similar vintage. She’d decided to move when her previous lease in a dingy Victorian terrace came to an end. The new apartment was smaller than her old place, but it was also cleaner, lighter, better maintained and much, much cheaper.

My friend is $175 a week better off after the move. That’s consistent with the latest data, which shows rental returns on units in Melbourne down about 10 per cent on pre-pandemic levels, and falls in the inner city far steeper than the average.

A relative owns a two-bedroom apartment in central Melbourne that’s been returning $590 a week in rent for the past two years. Last month, after the tenants announced they were moving out, the agent suggested slashing the price by nearly a quarter, to $450. It’s a good apartment, but it could still prove hard to let. The rental vacancy rate in Melbourne’s CBD is more than 14 per cent — the highest in the country — which means almost one in seven rental units sits empty.

Meanwhile, just seventy-five minutes’ drive away in Torquay, on Victoria’s surf coast, you can’t find a place to rent for love or money. The vacancy rate there is officially zero.

Not long before Christmas, I offered to bid for friends — first homebuyers — who were keen on a house in Geelong, two-thirds of the way to Torquay. Again, I didn’t get to raise my hand as the auction quickly vaulted past the anticipated price. Between December 2019 and December 2020, the median house price in Geelong jumped from $550,000 to $601,000, a rise of almost 10 per cent. Over the past five years, median prices in the city have risen almost 50 per cent.

At one level, such weirdness is easily explained. Inner Melbourne is suffering from the loss of international students and other migrants who have been kept out of Australia by Covid-19 border restrictions. Meanwhile places like Geelong and Torquay are straining under an influx of sea- and tree-changers imagining a lifestyle that combines working from home with fresh air and outdoor space.

This is a reminder that there is not, and never has been, a single housing market, and averages can conceal more than they reveal. Demand for a house-and-land package in Tarneit on Melbourne’s western fringe, for example, is not a good indicator of the value of high-rise apartments in Southbank or, for that matter, a light-filled retro flat in Princes Hill.

On another level, though, the real estate market is just crazy and has been for a long time.

Basic economic theory links prices to supply and demand. If real estate values are rocketing upwards, like in Princes Hill, that means there aren’t enough inner-city apartments to go around. But if rents for inner-city flats are falling sharply, that suggests the opposite problem — the market is flooded with too much stock.

In theory, demand for housing — and therefore prices — should be linked to factors like immigration, employment prospects and household incomes. Immigration has stopped. Unemployment, and underemployment, though lower than feared, are still well above pre-pandemic levels. And average household incomes have been stagnant for more than a decade — and that isn’t about to change, as Reserve Bank Governor Philip Lowe warned this month. Yet (average) house prices defy these trends, as if disconnected from the everyday economy and ordinary lives.

If the housing market functioned with the efficiency claimed by free-market economic theory, then inner-city Melbourne would not be littered with vacant apartments — indeed, many of the soaring residential towers still being built in the CBD would never have been started. If the market were efficient, then it would allocate housing at an affordable price. Instead, more than half of all low-income tenants live in rental stress, shelling out more than 30 per cent of their disposable household income to keep a roof over their heads.

The weirdness of real estate prices and rents should caution us against relying primarily on “the market” to allocate a crucial good like housing.

Housing can’t be compared with bananas, which jump in price when a cyclone wipes out the Queensland crop and then come down again as plantations recover. If bananas get too expensive, we can switch to apples or pears for a few weeks. Nor is there much point in ordinary consumers speculating on the banana market by buying more than they can eat in the hope of selling at a profit in a fortnight. Bananas that don’t get eaten never rise in value, whereas houses that don’t get lived in just might.

The housing market’s distinctiveness doesn’t end there. The prospect that interest rates will remain near zero for the foreseeable future emboldens buyers to borrow more, pushing up real estate values. This inflationary process is further encouraged by stimulatory measures like stamp-duty discounts, first homebuyer grants, home builder programs and other government handouts that are quickly embedded in higher prices.

Also driving up prices is the generous tax treatment of housing. The asset price inflation that has been a hallmark of Australia’s residential market in most capital cities since the start of the century produces tax-free windfall gains for owner-occupiers (with zero impact on owners’ eligibility for the age pension). Meanwhile the capital gains tax discount makes property highly attractive to investors.

The more prices rise, the greater the incentive for further speculation, and the more vociferous the media spruiking that accompanies it.

Peter Phibbs, professor of urban planning at the University of Sydney, has memorably described Australia’s housing market as the “Game of Homes.” The longer the game goes on, the higher the stakes.

One feature of the game is Australia’s record level of household debt. Eventually, though, property prices must fall back to earth, and the higher the debt, the more damaging the shockwaves will be throughout the economy.

Australia’s Game of Homes is also deepening and entrenching inequality. In the postwar decades, anyone earning a reasonable wage had a reasonable prospect of eventually becoming a homeowner. That expectation has long since evaporated. The cost of servicing a massive mortgage on an average income is not the real barrier — the bigger problem is the size of the deposit required to enter the market. According to ANZ, a typical Melbourne household would need to save 15 per cent of their gross annual income for a decade to come up with the 20 per cent deposit needed to buy a median-priced home. Without an advance from the parental bank, most first homebuyers will struggle to reach that goal.

Home ownership is being transformed into a dynastic privilege, and that matters not because owning is intrinsically preferable to renting but because the primary financial asset for most Australian households is their dwelling. So the difference between owning and renting generally holds the key to whether you acquire any lifetime wealth.

What’s more, Australia’s low age pension rates are predicated on an assumption of home ownership in retirement. As Treasury’s recent Retirement Income Review documented, older renters experience higher levels of financial stress and poverty than homeowning retirees because they have much higher housing costs. Home ownership is sometimes called the “fourth pillar” of Australia’s welfare system, but the pillar is crumbling.

Existing property owners like me, watching our tax-sheltered housing assets rise, are generally winners in the Game of Homes. But the game also generates a constant stream of losers — primarily people on low incomes.

As a new report from the UNSW City Futures Centre and ACOSS shows, state governments did a creditable job of providing around 40,000 rough sleepers with immediate shelter after the pandemic hit. Eviction moratoriums reduced the risk of more people being rendered homeless, as did the banks’ mortgage repayment pause and the JobKeeper program. The lift in JobSeeker (via the temporary coronavirus supplement) made many low-income renters better off than they had been in years.

But as the report documents, only a minority of the people put up in hotel rooms and other emergency accommodation have been moved into longer-term housing, and in some cities rough sleeping is rising again. And the eviction moratoriums, the mortgage repayment pauses, the JobKeeper program and the extra payments to jobseekers will all soon end.

There is a simplistic, frequently repeated and often self-interested claim that Australia could build its way out of its housing affordability crisis if only we liberalised planning laws and let market forces work their magic. This is bunkum, not because planning laws don’t matter, but because “the market” is far more complicated than the claim suggests and is profoundly shaped by many other factors, especially tax settings.

I am yet to find an example anywhere in the world of private developers delivering safe, affordable housing for people at the bottom end of the income scale. Doing this always requires significant government investment. The Morrison government wants to push that responsibility onto the states and territories, but as the lead authors of the UNSW–ACOSS report argue, Canberra must “share responsibility for housing outcomes” because the Commonwealth controls vital policy levers like tax, social welfare and immigration. It is also the only level of government that has the resources to fund and coordinate a coherent national housing strategy.

The impact of the pandemic on housing has yet to run its course, and Melbourne’s bizarre combination of rising property prices and plummeting rents should caution us against relying heavily on “the market” to allocate such a crucial good. •

The post Rising prices, plummeting rents appeared first on Inside Story.

Possible is not the same as easy. Political and constitutional barriers make it hard to change the way assistance is allocated, but better housing for hundreds of thousands of struggling tenants is a worthy prize. And any government should be keen to ensure it spends an annual $4.6 billion wisely.

To understand what a better system would look like, we need to get to grips with how rent assistance currently works. Its aim is to reduce the “housing stress” that occurs when poor households — the bottom 40 per cent — spend more than 30 per cent of their disposable income on housing. At that level, they are forced to cut back on other essentials like food, power, phones, transport or medical expenses. By giving tenants extra money, rent assistance helps ease the pressure on tight household budgets.

About 1.3 million “income units” receive rent assistance. Apologies for the ugly terminology, but it’s hard to avoid. An “income unit” is not the same as a person or household. A single parent with two children is one income unit, for example, but a share house with four unrelated tenants contains four income units.

The median fortnightly payment of rent assistance is $137, which, while meagre, is sufficient to stave off rental stress for about two out of every three recipients. Even with the supplement, this leaves about one in three stuck in rental stress — and almost one in ten still shelling out more than half their income on rent.

Rent assistance doesn’t solve housing stress for everyone because payments are capped at low levels and have not kept pace with rising rents. A single person in a share house receives a maximum payment of $93 per fortnight, and the limit for a person living alone is $140. What’s more, an additional quarter of a million poor households — sorry, “income units” — live in housing stress but get no help at all.

Why not? Because rent assistance is only available to people who receive a Centrelink payment, like the age or disability support pension, Austudy, the youth allowance, JobSeeker or the family tax benefit part A (above the base rate). Low-income workers without children — and thus without any government payment — are not eligible, even though they make up a significant share of stressed tenants.

So, extending rent assistance to everyone who needs it — regardless of whether they receive a Centrelink payment — could do a great deal to reduce housing stress. As could increasing the rate of rent assistance, a point I’ll come back to.

Clearly, paying rent assistance to more people — like low-income workers with no children — is not going to save the government money. In fact, it’s going to cost hundreds of millions more. But the extra expense can be more than offset by targeting rent assistance more carefully.

This is where the new research comes in. According to a report published by AHURI, the Australian Housing and Urban Research Institute, hundreds of thousands of tenants receive rent assistance even though they aren’t experiencing housing stress. This “targeting error” arises largely because eligibility for rent assistance is linked to eligibility for family tax benefit part A, and it goes not only to struggling low-income tenants but also to tenants on moderate incomes who are less likely to be in housing stress.

Depending on the child’s age, households with one child and an income up to almost $80,000 may qualify for part A payments above the base rate, and therefore qualify for rent assistance. In a household with two children the income limit — and the linked eligibility for rent assistance — can rise to almost $97,000.

Another feature of the current system also contributes to the error: it is paid at a uniform rate nationwide, even though rents are much higher in some places than others. A single parent with two children who pays $560 a week to rent a two-bedroom unit in Sydney, for example, receives the same rent assistance ($82) as single parent paying $390 for a three-bedroom house in Dubbo.

There are strong ethical and public policy arguments to pay rent assistance to those with the highest housing needs. On this basis, it should be taken away from some moderate-income households with children and directed to low-income workers with no kids. On the same grounds, tenants should get more assistance in regions where rents are higher and less where rents are lower.

The AHURI researchers modelled only the first of these two options, looking at what would happen if rent assistance were paid at current rates on the basis of housing costs alone. Under this scenario, all low-income tenants whose rent exceeds 30 per cent of income would get support, regardless of whether they are eligible for any other government payment. On the flip side, some better-off tenants whose rent is less than 30 per cent of their income would lose their current supplement.

Aligning rent assistance with need in this way would save the government $1.2 billion a year. A free lunch? Not quite. There are two big stumbling blocks, the first constitutional, the second political.

Under its narrow social security power, the federal government can only make payments of a certain type. As the AHURI researchers write, these “do not include rent or other housing payments in their own right.” This makes it impossible to subsidise the rents of households that don’t already receive some kind of Centrelink benefit.

Rental assistance could be extended to other Australians, but none of the options is straightforward in constitutional terms. The least fraught would involve either the states agreeing to refer the necessary powers to the Commonwealth under section 51 of the Constitution, or the federal government leading a federal–state initiative, with Canberra providing grants and state and territory housing departments delivering the payments.

I hardly need to spell out the political barriers to implementing better targeting. Taking away existing entitlements is never popular, and it is particularly difficult when those most likely to lose out are families with children. If a brave government were to push ahead, though, support would go to those welfare recipients who need it most, with the $1.2 billion in savings used to increase rent support for the lowest-earning tenants.

The AHURI researchers calculate that lifting the maximum payment by 30 per cent would cost about $1 billion annually and cut the incidence housing stress among low-income tenants from 60 per cent to 36 per cent. An additional 340,000 “income units” would have affordable homes. That’s a big policy pay-off.

Even in its existing poorly targeted form, an increase in rent assistance makes good economic sense in the economic downturn. As the Grattan Institute argues, most of the extra funding would immediately find its way back into the economy when tenants spend it on essential goods and services. At least one of the AHURI researchers was sceptical about Grattan’s argument — fearing that higher rent assistance would simply lead to higher rents, just as first home buyer grants lead to higher house prices — but the modelling behind their report shows that such concerns are exaggerated.

While some of the extra assistance will find its way into landlords’ pockets, the proportion — between 7 and 32 cents in the dollar — is relatively low. The figure would be higher in the disadvantaged areas because housing supply there is less responsive to changes in demand and poorer tenants are less likely to be able to resist rent increases by moving somewhere else. But even if landlords benefit at the margins, the bulk of any increase in rent assistance would still go to boosting tenants’ spending power.

This points to two features of Australia’s rental assistance program that are worth preserving: payments go to tenants, not landlords; and rent assistance doesn’t have to be spent on rent. This not only reduces the rate of capture by property owners, but also gives tenants greater control, at least in theory. They can choose to devote rent assistance to securing better housing, if it is available, or they can choose to stay put and spend it on other goods and services they need.

None of this means that rent assistance is better or more appropriate than other possible measures, like the social housing investment the government seems so reluctant to make. Rent assistance does nothing to improve the quality of housing in the private rental market. Even though taxpayers are footing part of the bill, landlords are under no obligation to keep houses in good condition, offer secure leases, carry out repairs in a timely manner, improve insulation or install energy efficient appliances.

More importantly, rent assistance does nothing to increase the overall supply of housing. And that’s the strongest argument for a national post-pandemic investment in social housing. Not only would it stimulate the economy and create much-needed jobs, it would also enable state authorities or community housing providers to build tens of thousands of new, high-quality homes that low-income tenants can actually afford to rent. •

The post A free lunch for low-income renters? appeared first on Inside Story.

The pun might have been too tempting to resist, but the article tells a more modest tale. For a super fund managing more than $54 billion in super assets, an investment of “up to” $10 million is barely a drop in the vast ocean of unmet housing need. And it’s not clear how much of it will go to housing people on the lowest incomes.

Cbus is joining with the National Housing Finance and Investment Corporation to finance a ninety-six-dwelling pilot project across six “shovel-ready sites” owned by the NSW Land and Housing Corporation. The land will be offered to community housing providers on a forty-nine-year lease, creating a subsidy that will help deliver housing at lower rents.

But it’s unclear how many of the new homes will qualify as “social housing” — dwellings reserved for poor tenants who would pay no more than 30 per cent of their income in rent. The pilot will provide “mixed tenure dwellings,” and the not-for-profit housing organisations are allowed to partner with private developers and investors to deliver them. This suggests that the numbers will only stack up if the lowest-cost homes are cross-subsidised by dwellings rented out at full commercial rates.

The project is also likely to include an “affordable” component pitched at “key workers” on low to moderate incomes. These homes, rented at 20 per cent below market prices, may come closer to profitability but are unlikely to generate the level of returns super funds require.

NSW housing minister Melinda Pavey says this “innovative build-to-rent and financing model” will deliver on the state government’s objective “to build new and better social housing by renewing ageing assets that are expensive to maintain.” In other words, rather than invest public money or take on extra debt to directly expand and upgrade the state’s declining and outdated public housing stock, the government hopes super funds will finance community organisations and private developers to do the job for it.

Beyond the pilot, the Land and Housing Corporation will invite bids to develop a further 300 homes on sixteen sites in metropolitan and regional areas across New South Wales. And the model could be extended to other states. Cbus has suggested its lending to the sector could exceed $100 million within three years. “We need more of this type of innovative thinking and collaboration that provides the best possible bang for our buck we can get,” says Pavey.

But whether this really represents the best possible bang for the public buck is open to dispute. With Commonwealth bond rates at 0.8 per cent, as former prime minister Paul Keating recently told Fran Kelly on Radio National Breakfast, “we could be building public housing now till the cows come home.” Australia’s leading housing researchers make a similar case: the most efficient way to build homes for low-income renters is “direct public investment,” and Australia should avoid “overly complex private financing ‘innovations’ that have proven ineffective elsewhere.”

“Yes, putting it simply, that’s correct,” admits Stephen Anthony, chief economist at Industry Super Australia and lead author of a recent report on affordable housing for the NSW Community Housing Industry Council. The problem is that the federal government has no appetite for investing in social housing, despite joint calls for action from unions and industry bodies and compelling arguments from economists and housing experts that it is an ideal form of job-creating stimulus. Canberra believes it already has enough pump-priming planned and sees social housing as a responsibility of state and territory governments.

While state governments are stepping up their own efforts — Tasmania, for example, is promising 1000 new units of social housing over the next three years — only the federal government has the resources to make any kind of dent in the national social housing shortfall of more than 430,000 dwellings — a figure that, without action, will grow to well over 700,000 by 2036.

So, in the absence of federal investment, what would it take for super funds to play a role in housing the Australian nation?

When I put this question to Stephen Anthony, he responded by asking me to step back and consider why it is difficult to turn a buck from rental housing in the first place. The main reason is simple: residential property is very expensive. And every time prices go up, so does the investment needed to develop a project. Since tenants — especially low-income tenants — can’t afford to pay proportionately higher rents, the rate of return on capital goes down and rental housing become less attractive to institutional investors.

And why are property prices so high? The rot set in with financial deregulation in the 1980s, says Anthony, when banking was “handed over to the money changers” and became “all about collateralised lending.” Instead of providing small and medium-sized enterprises with capital to expand their businesses and increase employment, the banks’ “main game” shifted to “unproductive” property loans. (As of March 2020, about two-thirds of new lending by deposit-taking institutions was for housing.)

Combined with negative gearing, the capital gains tax discount and record low interest rates, this shift in lending fuelled the rise of “amateur” landlords — the “mum and dad” investors — who are more focused on rising property values than on rental returns. Because they mostly buy existing dwellings, they add little to the overall supply of rental housing. (Almost three-quarters of housing loans are for existing properties.) Instead, they bid up prices and inflate real estate values, especially in Sydney and Melbourne.

Treasurer Josh Frydenberg’s latest push to wind back responsible lending laws and make it easier to borrow from the banks (in the hope that looser credit rules will boost economic activity) is likely to ramp up speculative activity. If prices start rising again, super funds will be even more wary of investing in housing projects focused on rental returns rather than capital gains.

As Stephen Anthony points out, superannuation funds gain no benefit from negative gearing because they can’t borrow to invest in property and so can’t claim interest payments as a deduction. While they do get a capital gains tax discount, it is 33 per cent rather than the 50 per cent available to small investors — and capital gains shouldn’t be the main game in build-to-rent projects anyway. The way states levy land tax further discourages large-scale rental investments.

All this helps to explain why Cbus’s involvement in the NSW housing project takes the form of debt rather than equity. The return to its members will come as interest payments on a loan rather than as an income stream from tenants’ rent, which also means that the community housing providers, rather than the super fund, will bear most of the risk.

The point here is not to disparage the Cbus loan, or other recent initiatives by industry funds like HESTA, Aware (formerly First State), NGS and Australian Super to provide homes for low-income renters and key workers. Rather, it is to argue that investment in rental housing on a significant scale — rather than in once-off niche projects — will remain unlikely while Australia’s tax and financial arrangements encourage landlords to focus on rising property prices rather than a steady flow of long-term rent income.

The higher real estate prices go, the lower the return on investment in rental housing, and the less attractive it becomes to super funds. What’s more, rising property prices discourage governments — state or federal — from developing social housing because the required subsidy keeps getting bigger.

A 2018 report for the Australian Housing and Urban Research Institute, or AHURI, calculated that the average subsidy needed to build a unit of social housing in Australia was $13,000 per dwelling per year. Costs vary greatly between regions, of course: in parts of rural New South Wales the figure could be as low as $5000 annually; in parts of Sydney it could be as high as $35,000.

Let’s imagine that we want to get a super fund to invest in a hundred-unit social housing project (with rents set at 25 per cent of tenants’ income) in one of Sydney’s middle or outer suburbs. For the project to generate a gross rate of return of 6.5 per cent, Industry Super estimates that every two-bedroom townhouse would require an annual subsidy of around $25,000. If investors settled for a lower rate of return — say 4.5 per cent — then the annual per-dwelling subsidy would be about $15,000. If the state government (or a local council or a non-government organisation) provided land at no cost, then the required subsidy would almost halve. And of course, the subsidy can be reduced even further, or wiped out altogether, if, like the Cbus project, the development is a mix of social, affordable and market-priced rentals.

According to AHURI’s modelling, overcoming the NSW shortfall in social and affordable housing would require a state government investment of about $3.5 billion every year until 2036. This might sound like a great deal of money, but since the broader housing sector already receives billions of dollars via negative gearing and the capital gains tax discount, governments could tackle the challenge by changing priorities rather than borrowing more.

This is not just about targeting support to those who need it most, but also about dampening the fires that propel property prices.

In the current low-growth environment, says Stephen Anthony, institutional investors could be attracted to an affordable housing project that offered a return of something like inflation plus 3 per cent. In the first instance, the investment may come not from Australian super funds but from their North American and European counterparts, which will settle for lower returns based on reliable income streams like rent payments because their members are generally older.

But broadscale institutional investment is unlikely until we close the gap between the cost of new housing and the rents low-income tenants can afford to pay. “To make a market work you have to have a market price in there,” says Anthony. “We have to fill the subsidy bucket somehow.”

In the absence of significant tax reform or debt-financing of social housing, prospects might seem bleak. But Stephen Anthony says there are still things governments could do.

One would be to create an Australian version of the Low-Income Housing Tax Credit that operates in the United States. The scheme allows not-for-profit organisations that build social and affordable housing to generate tax credits that they can then sell to private companies looking to reduce their tax liabilities. It helps develop about 110,000 units of housing each year, worth around US$8 billion.

Anthony, who once worked briefly for the conservative Heritage Foundation in Washington, says the tax credit was created by Ronald Reagan’s administration. “It is a game-changing policy that can appeal across the political aisles,” he says. “The ability to trade in tax credits is gold for corporations trying to manage their tax liabilities.”

In operation since 1987, the scheme has an established record and the confidence of corporate investors. It’s no free lunch — just like negative gearing, it means revenue forgone for the federal government — but it may be a more palatable option than extra borrowing.

Another suggestion is for the federal government to set up a housing investment fund along the lines of the Clean Energy Finance Corporation. While this would require a big up-front injection of capital — the CEFC got $10 billion — it has the advantage of taking housing funding off the government’s balance sheet. The NSW Social and Affordable Housing Fund and Victoria’s Social Housing Growth Fund are initiatives of this kind, but their capital of just $1 billion each falls well short of the scale required to match the problem.

A much larger national fund could support social housing developments with equity investments as well as discounted loans to help attract additional private investors. Again, though, it wouldn’t alter the fundamental equation in which rents from low-income tenants are insufficient to generate a positive return on investment (as the CEFC is expected to do across its portfolio).

Anthony argues that the states could also use their planning powers more aggressively to increase the supply of social and affordable housing. His report singles out Western Australia’s integrated property development model, which requires that new land releases or urban redevelopments include various types of affordable and social housing, from discounted rentals to shared equity. It’s rare to see inclusionary zoning used in Australia, but it is common in many other countries.

As the Cbus example shows, super funds can be attracted to social housing if sufficient support is on offer — whether it’s free or discounted land, capital grants, cross-subsidies through market rentals, tax credits, or some other method or combination. Another way to change the equation, of course, is to permanently increase and properly index JobSeeker payments and Commonwealth Rent Assistance so that social housing tenants can afford to pay more rent (though some of the gains would flow to private landlords).

For social housing to be developed at scale, Anthony and other analysts say that Australia needs an agency similar to the National Housing Supply Council, created by the Rudd government in 2008 and abolished by the Abbott government in 2013. “This is not central planning but coordination,” says Anthony. “It’s overall guidance to identify where the shortages are, what resources are available and which players might come to the table.”

The other key requirement is certainty. “You need an institutional constant to establish the framework and leave it in place for future governments,” says Anthony.

The potential rewards of tackling the problem are considerable, as are the potential risks of not acting. As Anthony’s housing affordability report warns, Australia is experiencing its biggest peacetime economic shock since the Great Depression, and our approach to housing finance could make matters much worse.

Australia’s pre-1980s banking system was “framed by the tragedy of the 1890s property bust,” says Anthony, and “forged under fire during the Great Depression of the 1930s,” and “eventually informed by the 1936 Banking Royal Commission.” Deregulation, though, has “reawakened the old boom-bust property cycle” and fostered “an addiction to household debt,” which as a share of disposable income is much higher in Australia today than it was in the United States immediately before the global financial crisis.

If we transform financing and tax arrangements for housing then we can lay the foundations for future prosperity, just as we did after the second world war. And even if government has to take on extra debt to build homes for low-income renters, it’s a public investment that will return a dividend in higher productivity, lower health costs, lower welfare spending and changed lives.

“That’s indisputable,” says Anthony. “The bottom 30 per cent of the population by income just need a roof over their head. They want to live in one suburb for as long as possible. They want stability. And anything that brings stability to the family unit ticks all the boxes for investment and saves government a motza in the long run.” •

Funding for this article from the Copyright Agency’s Cultural Fund is gratefully acknowledged.

The post What would it really take to supercharge social housing? appeared first on Inside Story.

A return to business as usual would mean sending these people back onto the streets to fend for themselves. Providing permanent housing, and ending their homelessness for good, would clearly be a better response.

We know from Finland that homelessness can be eliminated, or at least reduced to “functional zero” — that is, with homelessness as a “rare, short-lived and non-recurrent” phenomenon. Yet Finland remains the exception. It’s not the only country to make serious, well-resourced efforts to eliminate homelessness, but it stands alone in getting close to that goal.

In an illuminating new book, Ending Homelessness?, researchers Mike Allen, Lars Benjaminsen, Eoin O’Sullivan and Nicholas Pleace contrast Finland with two other European countries of comparable size — Ireland and Denmark — to investigate why broadly similar approaches to homelessness over more than a decade have produced very different results: considerable success in Finland, marginal progress in Denmark and failure in Ireland.

All three countries aimed to achieve functional zero by adopted the “housing first” ethos. The core idea is just what the name implies: when people are homeless, you first provide them with housing, without any preconditions attached. Only when they are secure in their home do you offer support for tackling other challenges: improving mental and physical health, reducing drug and alcohol use, finding a job or getting an education.

Finland’s policy succinctly encapsulates the approach: “Solving social and health problems is not a prerequisite for arranging housing, but instead housing is a prerequisite that will also enable solving a homeless person’s other problems.”

Housing first challenges the entrenched “preparation first” or “staircase” model, which helps people overcome addiction, illness and other challenges, while living in temporary shelters or transitional accommodation. The aim is to help them to become “housing ready” — that is, capable of independently maintaining a tenancy in the public housing system or the private rental market.

The staircase approach has no doubt assisted many individuals to regain control over their lives, but it hasn’t reduced homelessness overall. Why? According to the authors of Ending Homelessness?, it individualises the problem and fails to address systemic causes. “Despite a broad academic consensus that structural factors were driving the increase in the number of people experiencing homelessness,” the authors write, “services largely responded to homelessness as a set of personal inadequacies and deficiencies that required addressing and resolving before any attempt would be made to house them.”

Housing first is usually traced back to pioneering work by Sam Tsemberis in New York in the early 1990s, but as Allen, Benjaminsen, O’Sullivan and Pleace explain, Finland’s housing first approach is largely homegrown. What is more, housing first in Finland is a “system” rather than a “program,” “strategy” or “tactic.” In other words, it doesn’t just represent, as in the United States, the determined efforts of a charity to create housing for a specific cohort of people experiencing homelessness and other compounding problems but is backed by “the dedication and commitment of the state.”

With both central and local governments on board, Finland has not only adopted the commonsense philosophy “that all effective responses to homelessness must start with the offer of an affordable home.” It has also tackled the fundamental question that this approach inevitably throws up: “where are the homes to come from?”

This contrasts sharply with the experience in Australia, where leading not-for-profit housing providers have embraced housing first over the past decade, often under the name Common Ground. While sometimes winning backing from state governments, housing first approaches here tend to follow the American rather than the Finnish model — that is, of non-government organisations creating safe but isolated islands of affordable, supported, long-term housing within a landscape of housing insecurity and homelessness.

It’s true that governments back individual projects here and there, routinely paying lip service to the lack of affordable housing, but they rarely move beyond ineffectual responses like first-homeowner grants and stamp duty concessions. That seems likely to continue for as long as Australia lacks a coherent and appropriately resourced national housing strategy linking all three levels of government.

Commendable as they are, the states and territories’ rapid responses to rough sleeping in the pandemic underline this point. People living on the streets only came into sharp policy focus when they began to pose a health risk to the broader community; as long as they bore all the risks of homelessness themselves, government attention was inconsistent and sporadic.

Nor is booking someone experiencing homelessness into a hotel room a novel initiative. It is really an extension of the practice, pre–Covid-19, of routinely putting people up for a few days in cheap motels, backpacker hostels, caravan parks, overnight refuges or rooming houses. This led to exactly the same question that we face now — what happens next? The answer, by and large, was nothing: just an ongoing state of profound insecurity. The few Common Ground dwellings built by NGOs were already full and public housing waiting lists stretched off into the far distant future.

In A Crisis in Crisis, a report released last year, specialist homelessness services in Melbourne’s north and west gave a blunt account of how that shelter mentality plays out in practice. They reported spending $2.5 million in 2017 to put 9000 households into temporary accommodation. That meant paying up to $160 per night for low-grade motel rooms, often with inadequate bedclothes, broken locks and filthy toilets.

Given the high demand and long waiting lists for any kind of social housing, only a small percentage of those distressed households were subsequently assisted to find a secure home. Most remained trapped in a cycle of homelessness, from which a cheap motel room was at best a temporary respite; at worst it was another empty kick-in-the-guts promise. Housing workers were placed in an ethical bind, knowing their best efforts to help potentially made matters worse:

We are contributing to people’s experience of trauma and adding to their feelings of hopelessness… [We] can no longer tacitly accept causing harm by accepting high-cost poor-quality emergency accommodation as a necessary evil for those people who come to us for assistance because they do not have a home.

Some of the hotels booked for the pandemic response are of a higher standard than the down-at-heel motels or boarding houses that usually make up crisis accommodation, and rooms have been secured for a longer period. Yet even with crisp linen, fluffy towels and a deferred checkout, a four-star hotel is not a home.

The shelter mentality of “three hots and a cot” might be driven by the best of intentions: let’s make sure that everyone has good food and a warm bed to sleep in tonight and that no one is left out on the streets. Yet as a response to housing insecurity it is expensive and ineffective, because people end up stuck in services designed for emergencies. A shelter mentality often compounds the very problems it sets out to solve.

The Finnish version of housing first has shifted the focus from the “right to shelter” to the “right to a decent home,” and almost all emergency and transitional accommodation has been converted into permanent dwellings. While this may sound like a costly strategy, and undoubtedly requires significant upfront investment, it’s cheaper in the long run. Research in Finland shows an average saving of €15,000 (A$25,000) per person per year when someone moves from temporary accommodation into a settled home, including reduced costs for the health and justice systems. If secure housing enables people to re-enter the workforce, the savings over time are potentially greater.

Denmark and Finland are very different from Australia. One-in-five Danish dwellings and one-in-eight Finnish dwellings are in the public housing system; in Australia it is about one in twenty-five. Denmark and Finland also have more extensive welfare systems. As a consequence, people are unlikely to be driven into homelessness simply by poverty or excessive housing costs. People experiencing homelessness are likely to be individuals rather than families, and they are likely to suffer from a set of confounding problems. In Denmark, for example, almost four out of five people counted as homeless live with either a mental illness or substance abuse problems, and about a third have both.

Although about one in ten Irish dwellings are public housing, in other respects that country bears more of a resemblance to Australia. It has a less comprehensive welfare system than the Nordic countries, where “most people are not ‘just three pay cheques away’ from homelessness,” according to Allen, Benjaminsen, O’Sullivan and Pleace. Rather than building a new supply of dedicated public housing, Ireland has resorted to providing rent assistance to support tenancies in the private market, just as Australia has. The flaws in this approach are well known: when the market is tight, governments are unlikely to lift benefits at the same rate that property owners raise rents; it does nothing to increase the supply of affordable housing; and it doesn’t improve security of tenure, though termination of private tenancies is a major contributor to homelessness.

Some encouraging signs suggest that what happens next in Australia could be different this time. In Victoria, for example, a $150 million government package extends emergency hotel accommodation until at least April, ensuring that 2000 people who were homeless before the pandemic will not be cast out on the streets in the coming months. What’s more, the state government will lease 1100 properties in the private rental market to enable people to move from hotels to permanent homes.

If people moving from hotels to houses are also offered flexible, ongoing support to rebuild their lives, then this initiative fits well with the housing first philosophy. But when this scheme is limited to people who were already on the streets, then it risks being overwhelmed by a new deluge of housing insecurity created by the economic downturn. Mortgage pauses, eviction moratoriums and income support payments like JobKeeper and the JobSeeker supplement are helping people to keep a roof over their heads in the short run, but unless these measures are maintained, spiralling unemployment is likely to push many more people into homelessness.

One of the urgent lessons from Ending Homelessness? is the importance of helping people to stay in their homes through a personal or societal crisis. The reason is simple: preventing homelessness is cheaper and more effective than dealing with the fallout from evictions and defaults. In Finland, this is known as “housing social work” and also incorporates dedicated measures to ensure that people leaving prisons, hospitals and other institutions shift immediately into permanent homes.

A lack of prevention work also helps to explain why Ireland’s efforts to tackle homelessness failed. The Way Home, Ireland’s revised strategy to address homelessness, was laid out in late 2008 and early 2009, with the ambition of ensuring that by the end of 2010 no one would stay in emergency accommodation for more than six months. Between the plan’s implementation and the target date, the world was hit by the global financial crisis. As households struggled to meet rent or mortgage payments, homelessness increased sharply, including among families. Denmark and Finland were also hit hard by the GFC, but their more extensive welfare systems helped households to ride out the downturn without being pushed from their homes.

Annual spending on homelessness in Ireland more than doubled between 2008 and 2018, and the country spent more on services than either Denmark or Finland in this period. Yet despite strategic plans that emphasised a housing first approach, Ireland’s efforts had less effect because practices quickly reverted to the default provision of emergency support. Instead of expanding the supply of new permanent housing, the extra spending went on securing short-term places in shelters, hostels and private bed and breakfasts.

In 2011, under pressure from international institutions to rein in budget deficits, Ireland also cut its existing investment in public housing, with long-term consequences for the supply of affordable dwellings.

Denmark fared better than Ireland, but still fell short. One explanation was a lack of coordination between housing and welfare policy. While pursuing the goal of reducing homelessness, Denmark simultaneously cut the benefits paid to young people, partly as a cost-saving measure, partly to “motivate” them to pursue jobs and education. Either way, it seems to have contributed to a spike in youth homelessness that overwhelmed its housing first efforts.

Despite its extensive public housing system, Denmark also failed to create a designated stream of new dwellings to accommodate those experiencing acute homelessness. As a result, people identified as needing immediate housing could still find themselves subject to considerable waiting times.

There are many paths into homelessness but only one way out. Domestic abuse, relationship break-up, poverty, unemployment, illness, injury, addiction, eviction — any one or more of these things might force an individual or a family out of their home. But the only route out of homelessness is secure, affordable, decent housing.

It is this simple premise that makes the housing first approach so compelling. But that doesn’t make it easy. Finland has succeeded by setting clear goals and revisiting and refining its approaches over time. It has invested heavily in achieving the targets it set and created a separate stream of dedicated housing for people with the most complex needs instead of feeding them into the existing social housing system. It has benefited from continuity in both policy and personnel, with committed individuals in the government and not-for-profit sectors staying the course over the long term. This has helped it weather criticism from right-wing politicians and tabloid media, which disparaged the policy as “bottle first,” rewarding drunks and drug addicts for antisocial behaviour.

The Finnish model can’t be transplanted directly into an Australian context, but it points the way forward. Substantial progress in reducing homelessness here must involve a long-term commitment to increasing the supply of affordable dwellings, and a coordinated approach linking different levels of government that is not contingent on electoral outcomes for its longevity. Without that, housing first approaches are just not viable. Political champions committed to the long haul would help too — ministers, backbenchers, public servants, non-government leaders and other public figures.

The federal government has a unique opportunity to begin reshaping Australia’s housing landscape in the October budget, by committing to a large-scale investment in social housing as part of a Covid-19 stimulus package.

As Mission Australia CEO James Toomey put it recently in a blog post, to have housing first, we need houses… first. •

The post Beyond shelter appeared first on Inside Story.

If property values fall and then stay low, Australia’s economic downturn could be deepened by the lack of consumer confidence that comes with subdued house prices. Some borrowers, particularly those who bought recently using low-deposit loans, could find themselves owing more to the banks than their house is worth — and with Australian banks more heavily exposed to residential property than most of their OECD counterparts, the financial impact could be wide.

Master Builders Australia predicts that residential construction will fall by 27 per cent next financial year, which means 43,000 fewer homes will be built in an already slowing industry. Construction — Australia’s third-largest employer — sheds labour quickly in a downturn but picks up much more slowly because of the time taken getting planning approval, running marketing campaigns, booking up pre-sales and securing finance. The impact of a construction downturn also ripples through sectors like building supplies and real estate services.

Perhaps it’s no surprise that Master Builders Australia has joined with its traditional rival, the construction union CFMMEU, in calling for the federal government to stump up $10 billion for 30,000 new social housing dwellings. Community agencies agree: the Community Housing Industry Association has combined with National Shelter and Homelessness Australia to propose a Social Housing Acceleration and Renovation Program, or SHARP, to spend $7.7 billion to build 30,000 new homes and repair thousands more, and ACOSS wants something similar.

This might sound like special pleading by vested interests and the usual bleeding hearts, but these proposals are a far more practical and immediate response to Australia’s recession than grandiose plans like a fast train between Melbourne and Sydney.

How do we know that? At a cost of less than $6 billion over three years, Kevin Rudd’s post–global financial crisis social housing initiative created 14,000 jobs. Every dollar spent generated $1.30 in economic activity. Almost 20,000 new dwellings were built and another 12,000 — some uninhabitable, others likely to become so — were repaired. Along the way the initiative helped to build the capacity and asset base of Australia’s nascent not-for-profit community housing sector.

But Rudd’s initiative was a one-off response to a crisis, and once it was over much of the momentum was lost.

State-based social housing packages — like the one announced this month in Victoria — will help to counter the immediate downturn. But they won’t tackle structural problems in the housing industry, including the way that Australia’s near-total reliance on the private sector generates boom–bust cycles. Despite Rudd’s initiative, real estate prices rocketed in most capital cities after the GFC, boosting household debt, inequality, rental stress, housing insecurity and homelessness.

Any stimulus program needs to fit into a national housing strategy linking all three levels of government. It should build at least 15,000 new units of social housing every year for decades into the future — about five times what gets built now, but no more than the construction levels regularly achieved in the decades after the second world war.

With the need for a national strategy more urgent than ever, the timing of Housing Policy in Australia: A Case for System Reform couldn’t be better. Experienced researchers Hal Pawson, Vivienne Milligan and Judith Yates pull together years of work — not only their own but also that of colleagues working through the Australian Housing and Urban Research Institute — and draw on overseas experience to make a persuasive case for change.

In a sense, the aim of housing policy is simple: everyone should have access to safe, decent, affordable shelter, whether rented or owned, house or apartment, city or country, shared, single or family. But if there is an underlying thesis to this book, it’s that the basic aim has been confused by the different and in many ways conflicting role housing has come to play. Increasingly, it is a vehicle for building and transferring wealth.

As housing researcher Bill Randolph writes in the foreword to this book, we’ve moved from housing policy as “a ‘fourth pillar’ of the postwar political settlement, alongside wages growth, social security and trade protection” to a position where, in effect, “the market became the policy.” But, as the authors make clear, the housing market is profoundly shaped by government action, primarily through iniquitous tax settings and subsidies that benefit some (existing homeowners and property investors) and harm others (low-income renters in the private market).

Successive government policies have led to the “financialisation of housing,” a term that I had found rather opaque until I read this book. As the authors explain, the term refers to how dwellings are “increasingly viewed as tradeable assets with capital value rather than homes with utility value.” It is a process supported by the deregulation of the financial system since the 1980s.

One local manifestation of financialisation is the way it encourages homeowners to view their house as a bank from which they can withdraw funds, often in order to buy more property. Financialisation also means that investors buy “stash pads” as a kind of “safe-deposit box” for excess capital, often in markets where the purchaser has little or no connection to the local community or its urban fabric. Foreign investors buying high-rise apartments in Sydney and Melbourne are a good example, but so are Australian investment funds buying cheap rental properties in the American Midwest.

In a more developed form, financialisation encourages the emergence of private equity firms, trusts and other corporate entities as mass landlords focused on driving up rents and driving down costs. The firm Kushner, in which Donald Trump’s son-in-law and preferred fix-it man Jared Kushner is a major shareholder, owns 23,000 apartments across five American states. It stands accused of systematically harassing low-income tenants to force them to move so that it can raise rents, and then of pursuing those same tenants through the courts for unpaid fees.

Australia’s 2.1 million landlords are mostly small-scale property investors. But if Covid-19 produces a major property slump and distressed owners are forced to sell in a falling market, then we face the possibility of the same kind of property empires that emerged in the United States and Ireland after the GFC. Even during the boom, the number of Australian investors with multiple properties was growing faster than the number who owned just one.

Pawson, Milligan and Yates build their case for system reform by revealing the many shortcomings of a narrowly conceived market approach. For a start, current arrangements increase risk — most obviously for households, with 1.3 million people pushed into poverty by excessive housing costs. But it’s also evident in the apartment boom, where a lightly regulated industry has produced defective buildings clad in highly flammable materials or vulnerable to flooding.

And then there is the risk that property-fuelled household debt poses for the financial system and the wider economy. Periodic “price corrections” in the housing sector depress demand and consumption throughout the economy, and threaten the stability of the banking system. As the authors write, “This latter issue is of particular salience for Australia since, as reportedly demonstrated by IMF loan book profile data, Australian banks’ exposure to residential property is the highest in the developed world.”

Second, our approach to housing increases inequality. In theory, an era of low interest rates and deregulated lending should make home ownership more affordable. But, by enabling higher-income earners to take out bigger loans “to purchase more expensive housing than they might otherwise be able to afford,” it fuels price rises and puts home ownership “further out of reach for low-income earners.”

Rising prices widen the “deposit gap” between the price of a dwelling and the maximum amount a bank will lend, so while a household’s income might be high enough to comfortably service a mortgage, it is almost impossible to save the required down payment. In March, just before the pandemic hit, Melbourne’s median house price reached a record high of $918,000. That makes the standard 20 per cent deposit $184,000, or more than a decade of saving on the gross median income of $88,000 — assuming, heroically, that the household is able to save a fifth of its earnings.

Over the past two decades, as a result, “wealth rather than income has presented the major stumbling block to home ownership entry for low-to-moderate-income households.” The best advice to aspiring first homebuyers is not “get a good job,” as former treasurer Joe Hockey once claimed, but choose wealthy parents.

As home ownership moves increasingly out of reach, the pressure on low-income tenants increases. They are crowded out of the declining number of affordable properties by renters who earn more and are trying to keep their housing costs low while they save for that elusive deposit.

Another way of thinking about housing and inequality is to think about housing as an essential cost that everyone has to pay. True income inequality is not revealed by comparing raw data on household incomes but by comparing those incomes after housing costs have been covered. Using this measure, the gradient of income inequality in Australia is much steeper.

During the housing boom, incomes for the top ten per cent of households rose 85 per cent before housing costs, and 81 per cent after. Incomes for the poorest ten per cent of households, by contrast, rose about 50 per cent overall but only 30 per cent after accounting for housing costs. As a proportion of income, housing costs had risen sharply for the poor — who are mostly renters — but barely changed at all for the wealthy — who generally own their own homes.

At the time of the Henderson poverty inquiry in 1975, as the authors note, “before-housing” poverty was higher than “after-housing” poverty. Now it’s the opposite. In other words, our housing system helped to pull people out of poverty in the postwar decades but now pushes them deeper in.

The role of housing in inequality also manifests spatially, write Pawson, Milligan and Yates, not only in the “coincidence of rising homelessness with growing numbers of grossly under-occupied homes” but also in the fact that residential property close to city centres (and to jobs and services) appreciates more rapidly than dwellings on the urban fringe.

Housing-related tax concessions — like exempting the family home from capital gains tax — drive this inequality. Households in the top income quintile receive “an average benefit more than sevenfold that received by households in the lowest income quintile.” It’s well established that wealthy households also capture the bulk of gains from investment breaks like negative gearing and the capital gains tax discount. Yet these tax concessions do nothing to increase the overall supply of rental housing (let alone affordable rental housing). As the authors document, in the ten years to 2018 only 7 per cent of investment property finance was used to build new dwellings.

These tax concessions don’t just increase inequality, they also reduce productivity by encouraging Australians to overinvest in housing using money that could be spent in sectors that might generate more wealth. By treating housing as a protected asset, tax arrangements encourage inefficient use — large houses with unoccupied bedrooms, for example, or second homes that are rarely used. And housing inequality is itself a drag on productivity: insecure private rental housing is likely to result in frequent moves, which damage children’s schooling, and congestion is worsened by the long commutes of workers forced to the “‘affordable edge” of Australia’s cities.

The market approach has also sent Australia’s public housing system into long-term decline. Under the first ten-year Commonwealth State Housing Agreement, struck in 1945, state housing authorities built about 96,000 homes for rent. Although Menzies shifted the bias towards home ownership under the second agreement in 1955, state construction continued to deliver a significant proportion of all residential building activity through the 1960s, accounting for about one in every six houses built between 1945 and 1970.

Since the mid 1990s, government’s average contribution to building has been about one in every thirty-three houses. Amounting to fewer than 4000 dwellings per year, this is barely enough to keep pace with sales and demolitions of existing social housing stock, let alone the growth in Australia’s population. With many dwellings occupied by long-term tenants, the availability of social housing to people in need has fallen precipitously, from 52,000 new social housing lettings in 1991 to just 35,000 in 2017.

Other processes have also had an impact on public housing. In the 1980s, the deinstitutionalisation movement shifted people with disabilities, especially mental illness, into community care. With no government investment in alternative housing to provide this care, “public housing became the default tenure for many of those affected by the closure of the institutions,” despite the fact that existing stock was not well suited to this purpose. Once a way of increasing the supply of housing, public housing became a safety net and then, increasingly, an “ambulance service.”

Symptomatic of this trend, state and territory governments have progressively transferred responsibility for their housing portfolios from public works agencies to human services departments. “Perhaps the single word that best captures post 1970s change as characterised here is residualisation,” write Pawson, Milligan and Yates:

This describes a process of socioeconomic change whereby the tenant population of social housing has become increasingly confined to those unable to compete effectively for market housing. This change is starkly highlighted by official statistics revealing that the proportion of NSW public housing tenants for whom wages are the main source of household income fell from 85 per cent in 1960 to just 5 per cent by 2013.

The history of public housing in Australia is one in which governments have been “reluctant landlords,” with the period from 1945 to 1956 “a partial exception to this general trend.”

Other nations have taken a different path. About a third of all Dutch households live in secure, rent-moderated social housing. In the face of UK-wide austerity measures, the Scottish government has continued to develop social housing at a high rate. Even in the United States, a longstanding low-income housing tax credit facilitated the private-sector development of almost three million affordable rental dwellings by 2017. US housing financed in this way must retain its affordable status for at least thirty years, whereas under Kevin Rudd’s short-lived National Rental Affordability Scheme, housing only had to be priced affordably for ten years. The US tax credit leveraged around US$100 billion in private investment; in the absence of a similar mechanism here, the holy grail of superannuation funds investing in social and affordable housing will never be realised.

Many other countries also make much greater use of planning measures like inclusionary zoning to generate social and affordable housing, recognising that the market alone won’t deliver an adequate range of dwellings.

While there are differences of detail between the major parties in Australia, write Pawson, Milligan and Yates, “it would be difficult to identify any distinct ideologically inspired policy difference between governments of Labor and Liberal/National hue at either federal or state/territory level.” Instead, governments engage in “busy work” — measures that give the impression of activity but fail to strike at core issues. Partly this failure reflects a shared view that home ownership “is inherently the most superior form of tenure” — a myth the authors debunk — and the linked ideal of “a property-owning democracy.” And partly it’s electoral maths: voters who own their own homes, and who have an interest in seeing the value of that property increase, vastly outnumber aspiring homeowners who have an interest in greater affordability and renters who would benefit from more social housing.

But governments can only ignore the failures of housing policy for so long. Australia’s low age pension rate is predicated on widespread home ownership keeping housing costs low in old age, but this is now the “crumbling pillar” of Australia’s retirement income system. With forecasts that home ownership rates among the over-sixty-fives could fall below 60 per cent around the middle of the century, spending on Commonwealth rent assistance will cost much more than the current annual $4.4 billion, which is more than three times the funding the federal government provides to the states under the National Housing and Homelessness Agreement.

As the authors make clear, pandemic or no pandemic, this is a long-term problem with long-term implications:

Firstly, Australia’s current housing policies and housing system are further compounding existing income and wealth inequalities. Secondly, current forms of housing assistance will become fiscally unsustainable if current trends persist. Thirdly, Australia’s housing system underperformance is increasingly compromising broader public policy objectives.

This is an academically oriented book using careful language and detailed referencing. Retailing at more than $100, it isn’t destined to be a bestseller. But it is a landmark achievement that puts a peg in the ground, a reference point for where housing policy should go next at this moment of crisis and opportunity. Politicians, public servants and industry players who are thinking about how Australia rebuilds after the Covid-19 pandemic would do well to read it. •

Peter Mares’s four-part radio series, “Housing the Australian Nation,” will be broadcast on ABC Radio National’s Earshot on  from Saturday 30 May.

The post When the market is the policy, housing fails appeared first on Inside Story.

Presenting the report to parliament yesterday, prime minister Scott Morrison described it as a “stark and sobering” tale of “hope, frustration and disappointment.” He said something very similar last year, calling out the failure of the current approach and the hubris of those who had created it.

Yet the past year has not only seen problems go unresolved, it has also seen considerable progress in some areas — and enough of each to generate both scepticism and optimism.

The basis of the optimism is the December 2018 commitment by the Council of Australian Governments, or COAG, to partner with Indigenous people in refreshing the Closing the Gap framework and creating a forum for ongoing engagement. The formal partnership agreement between COAG and the National Coalition of Aboriginal and Torres Strait Islander Peak Organisations (Coalition of Peaks) came into effect in March last year.

Since then, a series of community consultations has considered how this new partnership might work. In January, the Coalition of Peaks released its Community Engagement Snapshots report, which found strong support for the three reform priorities it had proposed: developing formal partnerships between government and Aboriginal and Torres Strait Islander people to close the gap, boosting community-controlled services, and improving mainstream service delivery. A fourth reform priority — local data projects led by local communities and organisations — will be sent to COAG.

The Indigenous leaders engaged in this process are feeling optimistic that a full partnership approach can show the way forward. But their view is offset by the prime minister’s refusal to commit to an Indigenous recognition referendum until “there is consensus,” a position at odds with his commitment to the beginning of a “new era.” It will be hard for Indigenous people to trust the government to deliver a new approach when it consistently sidelines the work of the Referendum Council and the central importance of the Uluru Statement from the Heart.

How can Closing the Gap be improved? Fully recognising that their validity is limited by my non-Indigenous status and a lack of formal consultation, these are a few thoughts.

In policy terms, the focus must be on the key underlying causes of disadvantage.

First, racism. The lack of progress on this key determinant of the physical and mental health of Indigenous Australians may explain part of the unremitting gap in health and socioeconomic outcomes. Tackling and reducing racism, including ensuring that healthcare is culturally safe and respectful, should be an integral part of policies and interventions aimed at improving Indigenous health, especially that of children.

Second, very high rates of Indigenous incarceration are, in the words of a recent PwC report, “unfair, unsafe and unaffordable.” Inappropriate imprisonment and the failure to ensure needed post-release services lead to loss of culture, identity and connection to the land, aggravating the cycle of disadvantage and poverty. A new justice target is part of the refresh of the Closing the Gap framework, but if it is to be effective then the courts, police, corrections services and social services will all need to adopt its principles.

Third, safe and secure housing is key to the health, wellbeing, safety and dignity of Indigenous Australians. A new report from the Australian Institute of Health and Welfare found that in 2016, 29 per cent of Indigenous Australians were living in a dwelling with major structural problems, with 15 per cent of households lacking at least one basic facility (a functioning kitchen, bathroom, laundry or toilet). The proportions are higher in remote areas.

In focusing on these three areas, the government must commit to a real and enduring partnership with Aboriginal and Torres Strait Islander communities and organisations. Despite the rhetoric, the Morrison government’s commitment to consultation has generally been deficient.

Not long after the last election, the prime minister announced a new National Indigenous Australians Agency within his own department. Indigenous affairs minister Ken Wyatt described it as a “new era of co-design and partnership,” but the decision was made without consulting Indigenous groups. Meanwhile, the National Congress of Australia’s First Peoples lost its funding and the government persisted with its expansion of the cashless welfare card in Indigenous communities.

The decision to double down on the cashless card came despite growing evidence that it is adversely affecting many lives, has failed to get users into jobs, and is opposed in many communities. Many people subject to the card feel they have been punished by a loss of control over their own finances. This blanket imposition of a political ideology backed by very little evidence is completely counter to a partnership approach.

Another consultation-free act was the axing of funding for the secretariat that oversees the thirteen-member National Family Violence Prevention and Legal Services Forum. This annual $244,000, a tiny outlay for government, was justified by reference to an independent evaluation that, on the contrary, recommended increased resourcing.

And on the day Scott Morrison was promising a new approach to Closing the Gap, it was rumoured that the government had taken a unilateral decision to end funding of Indigenous housing — a dismayingly plausible possibility that highlights how little attention is paid to the social determinants of health.

These various government decisions also highlight the lack of coordination across departments and agencies. When prime minister Tony Abbott moved responsibility for the majority of Indigenous programs to the prime minister’s department in 2014, under the rubric of the Indigenous Advancement Strategy, the shocking news that he also cut more than $500 million from the programs hid the fact that the move might facilitate a whole-of-government approach to tackling Indigenous problems.

That has never come to pass — and it still doesn’t happen even within portfolios. Hearing loss, trachoma and rheumatic heart disease, for instance, all involve a similar healthcare approach (cleanliness) for prevention, yet these conditions continue to be tackled under a series of separate programs. Their high incidence in Indigenous communities won’t be reduced without a coordinated effort to improve housing.

“Every minister in my government is a minister for Indigenous Australians,” the prime minister declared yesterday. Given the known occasions on which the real Indigenous affairs minister, Ken Wyatt, has been sidelined (the referendum, for instance), Indigenous communities will need some convincing on this point.

They will also be looking for evidence that programs are introduced — and evaluated — where they are needed. Here, the signs haven’t been good. A June 2019 report from the Australian National Audit Office identified delays in evaluating the five-year-old Indigenous Advancement Strategy. The prime minister’s department had not met guidelines, the report said, and nor had the department kept records of key decisions or set targets for all programs and projects.

In October 2019, the new National Indigenous Australians Agency released an equally, if not more, damning report on the past ten years of Closing the Gap. (Oddly, the date on the report is March 2018, more than a year before the agency was established.) Among its findings were three fundamental criticisms. Cultural determinants are not captured in the policy framework, which makes collaborating with Indigenous Australians difficult. The evidence base to support many programs is lacking or weak, and programs are rarely evaluated. And the effort to close the gap has been hampered by inconsistent political leadership, constantly changing policies, insufficient resources, and workforce and funding cuts.

Finally, the funding maze needs to be streamlined and made more transparent. Organisations and communities deal with a level of complexity and “red tape” that would never be tolerated by the general business community, with the evidence suggesting that some Aboriginal health services are juggling forty or more funding sources with separate application and reporting requirements. Too often communities are unaware of services for which they are eligible.

A 2016 study identified 1082 separate Indigenous-specific programs. Less than one in ten had been evaluated, and most have produced little evidence of effectiveness. Multiple service providers often compete in the same communities (assuming there are providers), and duplication and waste are rife.

The impact of funding conditions on the governance and performance of Indigenous organisations is under-researched. Evidence suggests that the public financing of Indigenous organisations is successful when the focus is on the organisation rather than the program. Funded organisations should always be required to be accountable to their constituents; performance indicators should be negotiated rather than imposed; achievements should be rewarded.

Encouragingly, the health department will introduce a new funding model for the Indigenous Australians’ Health Program’s primary healthcare program in July this year. Three-year funding agreements, annually indexed, will become the norm, and the administrative burden will be reduced.

Recent efforts by the Productivity Commission have gone some way to tackling the lack of transparency. Preparing an analysis for Oxfam in 2017, I found it very difficult to track spending on Indigenous programs on the basis of publicly available data. But I did find every indication that the government is increasingly looking to mainstream services and programs to meet Indigenous people’s needs, especially in non-remote areas. While 55 per cent of the programs funded under the Indigenous Advancement Strategy were run by Aboriginal and Torres Strait Islander organisations, 81 per cent of direct Indigenous expenditure went towards mainstream services.

Pat Turner, lead convenor of the Coalition of Peaks, has described the gap between Indigenous and non-Indigenous Australians as “a gaping wound on the soul of our nation.” This wound won’t be healed without the best efforts of all Australians. The prime minister is right to say that the Closing the Gap strategy has reinforced “the language of failing and falling short” and neglected to “celebrate the strengths, achievements and aspirations of Indigenous people.”

Refreshing the program must involve building on the expertise and wisdom of Indigenous individuals and communities and the abundant success stories that have largely been unrecognised and uncelebrated. The Oxfam report In Good Hands: The People and Communities Behind Aboriginal-led Solutions is just one of the many excellent places to start. •

The post Gap year appeared first on Inside Story.

Since my partner and I moved into our ninth-floor apartment thirteen years ago, around 30,000 more people have moved in around us, most of them into high-rise apartments of twenty storeys or more. The city centre has been transformed, with more life on the streets — new restaurants, bars and shops — and more crowding as well. Swanston Street, just around the corner, is often congested with pedestrians.

While the residential market has been cooler over the past eighteen months, high-rise approvals from the pre-2017 boom have been coming to completion and developments like the Aurora continue to dramatically reshape the city’s skyline, just as they are doing in other major capitals. Another twenty-four towers are under construction in Melbourne’s city centre alone.

One of them, the hundred-storey Australia 108 building in Southbank, will be the tallest residential tower in the southern hemisphere — so tall that the original design had to be cropped by eight floors to avoid interrupting the flight path to Essendon Airport, nearly twenty kilometres away. Its proponents promise future residents an idyllic life:

We are all born with the ability to soar, but only the brave trust their wings. Australia’s tallest tower will go where no development has gone before, offering a cloudbreaking lifestyle 319 metres above the glittering Melbourne streetscape. With the city’s amenities within easy reach below and the boundless freedom of endless sky above, those who reside here will be part of a world that few others can imagine.

No longer are apartment towers found only in the centre of Australia’s capital cities. Sydney’s Parramatta and Melbourne’s Box Hill are being transformed into second central business districts, with high-rise developments central to the strategy. Twenty-storey developments are under way in regional centres like Geelong and Newcastle, with thirty-storey towers also under consideration.

This break with past patterns of development is dramatic. Australian cities developed at low densities compared with their European and Asian counterparts, creating significant sprawl and a high reliance on cars. Long commutes are the norm. But policies to promote urban consolidation and arrest this trend, first introduced in the 1990s, have become the planning orthodoxy. The Victorian government and the Greater Sydney Commission are seeking to create “twenty-minute” and “thirty-minute” cities, respectively, by establishing multiple urban centres where people can fulfil their daily needs on public transport, bicycle or foot within twenty or thirty minutes of home.

Integral to achieving these objectives is the high-rise residential tower. The terminology is often used loosely in Australia, with eight-storey buildings that would be dwarfed in the central city referred to as “towers” in the suburbs. Globally, it’s agreed that “skyscraper” refers to buildings more than 150 metres high, or about forty storeys, with buildings of more than 300 metres called “supertall” and those over 600 metres “megatall.” The Australia 108 building will be Australia’s first supertall skyscraper (although Q1 on the Gold Coast is 322 metres with its spire, and 275 metres without).

Increasingly, skyscrapers are for residential use. In 2012, an estimated 59 per cent of the world’s one hundred tallest buildings were residential towers, American journalist Tom Vanderbilt reports, up from around 20 per cent a decade earlier. Most of Australia’s major cities have been reviewing their central-city planning policies to respond to pressure for change. Perth, Sydney and Geelong are currently re-examining their central-city development controls, while Melbourne, Adelaide, Darwin and Newcastle have undertaken reviews in recent years.

Nearly 330 people are moving to the greater Melbourne area each day, making it Australia’s fastest-growing city. It is likely to be more populous than Sydney in ten years’ time. Along with the urgent need to reduce the carbon footprint of the city, the pressure to accommodate these new arrivals makes a compelling case for well-designed, high-density cities.

Melbourne is under pressure at a time when trust in planners is low. Planning schemes can be impenetrably complex and jargon-ridden, and approvals for new developments frequently appear to break the rules, especially on height. Victoria’s planning system is founded on performance assessments rather than prescriptions. In theory this is sound: clearly established design and strategic objectives are typically supported by preferred height limits and other controls. Developers are required to demonstrate that their proposal delivers sought-after outcomes rather than necessarily conforms to strict specifications.

In practice, this means that a thirty-storey building can legitimately be approved in an area with a fifteen-storey limit if it is demonstrated that the development meets overarching objectives. If a planning control states that a new development “should” be no taller than a specified height, that simply means it would ideally be that height but doesn’t have to be. And that means it is often much taller.

While the more everyday meaning of the word “should” creates an expectation that buildings will be delivered up to the maximum nominated height, and no higher, performance-based rules have the advantage of supporting design flexibility and site-by-site assessments. But the lack of certainty can undermine confidence in the planning process and create an unproductive tension between the community, local government decision-makers and the development industry.

Strategic planning reviews often rest on a vision for new urban character or a way of delivering new jobs and housing. Implicitly, though, they pose questions about what we value — about what we seek to create and what we seek to protect. At their heart, these are questions about identity, belonging, community, social equity and our relationship to the environment. As each urban area is analysed and new developments are proposed, we are implicitly being asked: what type of cities do we wish to be citizens of?

The proposal for a 210-metre luxury hotel development in central Hobart last year — within an eighteen-metre height-control area and four times the height of the tallest building in Hobart — angered community members who felt strongly that the proposal was at odds with the city’s human scale and valued heritage character. According to the architect, Peter Scott, that was exactly the point. “It’s not going to blend in,” he said. “It will be a prominent building. I’m not here to suggest that won’t be the case. It will become something that Hobart is remembered for.”

As those comments highlight, the debate is essentially between a future focused on iconography, tourism, lifestyle opportunities and the movement of global capital, on the one hand, and local cultural values and respect for history on the other.

As the new planning policies develop, broader community engagement can become more difficult. A high degree of technical literacy is required, together with the resources and capacity to prepare submissions or objections in a complicated legal and political process. Broader, more open-ended questions about a city’s future are constrained by the technocratic language that surrounds planning.

Many of the towers that sprang up near our apartment were assessed against lax planning controls that operated in Melbourne’s CBD between 1999 and 2016. When I toured major cities on a Churchill Fellowship in 2014, I found that towers like these could not have been built in Hong Kong, New York, Seoul and other recognisable high-rise cities — a finding that attracted much coverage when my report was released in 2015.

A review of central Melbourne’s building controls was initiated that year by the new Labor planning minister, Richard Wynne. High-rise towers in central Melbourne were being developed at four times the densities allowed in Hong Kong or New York. Fifty-storey towers were rising straight from the street-front, creating windy, overshadowed public spaces. Skyscrapers were constructed as close as four metres apart. Within the apartments were bedrooms with no windows. It was a low point for a city proud of its design legacy and its frequently touted livability. The elasticity applied in assessing developments against building-height and separation controls had stretched to the point of being meaningless.

Certainty returned with the introduction of density controls that cap a site’s overall “yield,” and mandatory requirements for minimum building separation. Restrictions on overshadowing now protect the Yarra River and key public spaces. The 2015 review also introduced incentives for public benefits, including new open spaces, laneways, community spaces and affordable housing, though the inclusion of commercial floorspace on that list has been contentious.

New apartment standards, introduced in 2016, include pragmatic measures such as minimum bedroom, living room and balcony sizes, minimum storage requirements, daylight standards and energy-efficiency requirements. But although they stress the importance of building separation, they don’t provide specific, measurable guidance.

Largely missing from these policies were measures to deal with the growing crisis in affordable housing — a term that wasn’t defined in the Planning and Environment Act until 2018. That’s an important step forward but is backed only by a voluntary affordable housing contribution for new developments. This leaves local councils with the responsibility to establish clear affordable housing strategies and targets and to encourage developers to deliver. The planning tools have been established, but there are no real carrots or sticks. It’s not a question of whether this approach will work, but of when the government will concede that a voluntary approach, without sufficient subsidies from state or federal governments, can’t deliver the required scale of affordable housing. Broadly, though, Victoria has established firm foundations and has the opportunity to refine its policies and practices.

Somewhat surprisingly, one question that hasn’t been asked often during this process is whether high-rise towers are suitable for people to live in. The question is poorly understood and relatively unexplored by researchers. Understanding the experience of living in high-rises is complicated by factors including economic status, the degree of control residents have over where they live, the location of the building in the neighbourhood, population density, life stage, gender, culture and dwelling design. Of the studies that have been done, many involved people — students or public housing tenants, for example — who didn’t necessarily choose what type of housing they live in, which may have distorted their conclusions.

Much of the stigma associated with high-rise housing dates back to the 1960s and 1970s, when tower living was first embraced as an efficient, cost-effective method of delivering affordable social housing. This modernist vision of high-density living was driven by a desire to impose order, rationality and standardisation, to take advantage of mass production, and to provide clean air and light.

The reality did not match the lofty expectations, with growing concerns about crime, health and safety, and children’s welfare. In Australia, this housing type was soon seen as unsuitable for family living, and high-rise housing as a preferred public housing model was abandoned. Internationally, high-profile demolitions of high-rise public housing estates such as the Pruitt–Igoe complex in St Louis in 1972 became signifiers of the dramatic failure of modernism’s utopian high-rise vision.

This perspective had shifted again by the 1990s. High-rise housing was no longer developed primarily for residents with little or no choice, but rather for those with the widest range of choices who sought luxury living in the best locations. This shift aligned with the adoption of compact-city policies and changes in lifestyle preferences. High-rise housing in the central city, with easy access to trendy, vibrant neighbourhoods, became a place of privilege, and new high-rise residential developments were marketed on the basis of amenities and facilities both within the building and within the neighbourhood.

The Aurora, for example, offers the opportunity to experience a “new paradigm in urban living,” with a twenty-five-metre lap pool, sauna, steam room, sundecks, plunge pool jacuzzi, gymnasium, yoga zone, dance barre studio, private dining and lounge spaces with self-catered kitchens, BBQ deck, karaoke room and a private cineplex. The building is the first in Melbourne to have a direct underground link to Melbourne Central station and the future State Library metro station — the kind of access that is already common in Hong Kong, Singapore and other high-density cities with mature metro rail networks, and is not only practical but also appealing to residents who like to feel they live in a large, contemporary, connected metropolis.

The scale of these developments requires complex financial models and construction programs. Residents of the Aurora tower, for example, moved into the lowest floors six months before the upper structure was complete — a form of staged development now common as a financing strategy, enabling contractual settlement of lower-floor apartments to help pay for the construction of upper floors. Residents live with craned building materials sliding past their windows for the first year, separated from the construction noise by twenty empty floors.

Implicit in these housing models are assumptions about who lives in high-rise housing at the moment and who will live there in the future, and a broad acceptance that residents are happy to trade off apartment size against amenities. In 2016, almost 30 per cent of apartment residents were in the twenty-five to thirty-four age group, while 11 per cent were children aged up to fourteen years. Buildings are still largely designed to appeal to professional singles and couples, younger people and students, rather than to families, with all studies of behavioural problems identifying higher rates of incidence among children living in high-rises (although some problems are alleviated by access to green open space).

But the perceived disadvantages of high-rise living tend to reflect more obvious everyday concerns: dependence on unreliable or slow elevators, for example; physical safety above ground level; who one’s neighbours are; a sense of overcrowding; and feelings of detachment from a sense of home or community. Many of these issues can be dealt with through building design.

To help overcome these perceptions, high-rise buildings are often marketed as “vertical villages” that allow a range of social encounters distinctly different from other housing types. But whether jacuzzis, karaoke rooms and swimming pools provide the opportunity to form community is poorly understood. In developing programs to address social isolation in apartment buildings, the City of Sydney found that just over half the residents of apartment buildings felt that they could get help from neighbours if needed.

Also relatively unexplored by researchers are other perceived advantages to high-rise living, including views, a sense of getting away from street-level life, relative peace and quiet, enhanced privacy and opportunities for anonymity, and the convenience of not having to perform maintenance tasks. What evidence we do have suggests that residents will be happy in high-rises if they don’t have small children, don’t plan to stay long and are socially capable.

The resident-only facilities in these buildings, which are becoming more luxurious, contrast with serious failures in building quality. Significant safety issues associated with high-rise buildings include flammable cladding and structural failure that have resulted in recent high-profile evictions of residents from their homes. In July, the Victorian government committed $600 million to deal with flammable cladding in the 500 private buildings identified as the highest risk. The problems posed by the cladding and by structural shortcomings in buildings are also making it harder for apartment buyers to secure loans. These shortcomings are combining to significantly undermine confidence in the high-density apartment market.

The latest wave of apartment living has spread quickly in Australia, and much of the research has occurred in cities that have been building high-rises for much longer. The results can be intriguing: one study found that living on the eighth floor of an eight-storey building is perceived as a different experience from living on the eighth floor of a twenty-storey building. “Those who live on high floors experience the advantages of height absolutely and not relatively,” reported the researchers, “and therefore incorporate them into their image; while those who live on the lower floors would seem to experience the disadvantages of large numbers of people to a greater extent than those who live higher up.” In Hong Kong, the average apartment dweller prefers to live no higher than the twenty-ninth floor, while in Singapore it is the twentieth floor. Perceptions of height seem to change over time as the urban context changes.

These findings imply an evolving relationship between the identities and experiences of residents living at heights. But few people are asking how living in high-rise buildings shapes residents’ imagination and their perspective on the city and the wider world. Does living in close proximity to others in highly managed communal spaces lead to more open-mindedness and acceptance of others? Or could it be bad for social cohesion? How does our city’s psyche change as we build taller and taller?

The high-rise apartment is still a home. A key attribute of a well-designed home is the capacity to adapt it over time to suit residents’ needs as they change over the life course — as they study, work, have families and grow older. But high-rise buildings are very difficult to adapt. High-rise housing is located in the parts of our cities that have the highest level of services and access to jobs. Does it make sense to create buildings in the best-serviced parts of the city that only suit a limited segment of our diverse population for a limited period in their lives?

Even in the relatively small building I live in, with its thirty-five apartments, negotiating significant maintenance expenditure or dealing with rare cases of antisocial behaviour can be complicated, time-consuming and potentially expensive. Multiply the number of apartments and the challenge of dealing with problems can be immense.

High-rise housing is a particularly long-lived asset, extremely difficult to adapt, redesign or demolish. Potentially hundreds of individual owners need to agree to any proposed changes. Globally, only five residential towers taller than one hundred metres (approximately thirty storeys) have been demolished, the most recent in 1978. Regardless of their quality, the towers emerging across the city are here to stay. Whether they are good for people to live in is therefore an urgent question.

In 2016 almost one in ten people in Australia spent census night in an apartment. Among people aged twenty-five to thirty-four, the figure was one in five. As well as reflecting urban policies designed to create sustainable communities, the high-rise apartment is an increasingly common and conspicuous marker of how cities are being redefined and societal values questioned. They represent financial and technical innovation but also raise difficult questions about the long-term social sustainability of Australian cities.

A sensitive and rarely considered question is the degree to which resistance to taller buildings is a proxy for other concerns. As buildings become taller and neighbourhoods denser, community profiles change. Is the fear and anger in community resistance partly a rejection of the “others” who may come into an established community? It’s a question that needs to be tackled more openly and honestly.

Higher residential densities bring the opportunity to deliver sophisticated planning outcomes. They include opportunities for density bonuses and value capture, which involve contributions from developers towards community benefits in exchange for additional development yield or height. These smart mechanisms can deliver affordable housing and improved livability, including new open spaces. Increasing the number of high-density neighbourhoods in our inner cities has the potential to reduce long commutes, reduce high car dependency and create the opportunity for more people to live in the best-serviced parts of our cities.

We need good high-density housing models to prove this can be done, and these can include well-designed towers. As Melbourne and other Australian cities continue to evolve, we need more public debate about the cities we want to create and more research and proven models to demonstrate how high-rise, high-density housing can best meet the long-term housing needs of our diverse communities. As Alexandros Washburn, the former chief urban designer of New York City says, “density has to be likeable” — it can’t simply serve a rational city-planning purpose. •

Funding for this article from the Copyright Agency Limited’s Cultural Fund is gratefully acknowledged.

The post “Density has to be likeable” appeared first on Inside Story.

By video, prime minister Scott Morrison, champion of “quiet Australians,” invoked the “homes material, homes human and homes spiritual” of Robert Menzies’s forgotten people broadcast to remind attendees that “housing is much more than a roof over your head.” Also by video, housing minister and assistant treasurer Michael Sukkar declared that the government’s priority is to “reduce pressure on affordability” and pointed to the first home loan deposit scheme and other Coalition campaign promises. In person, assistant housing minister Luke Howarth, whose responsibilities include community housing and homelessness, stressed that the government is aware of the shortage of social and affordable housing and “wants to get some wins in this space.”

All three ministers lauded the policy-oriented research of the conference organiser, the Australian Housing and Urban Research Institute, and praised the practical efforts of the housing and homelessness workers who attend each year in large numbers. None of them offered any new initiatives.

Like climate change, housing is in the political too-hard basket, acknowledged as a pressing national problem but tackled in a piecemeal and ad hoc manner. There’s no mystery about why: a comprehensive response would cost a lot of money and upset core constituencies.

Perhaps this is what induced Luke Howarth’s clumsy attempt to put “a positive spin” on homelessness recently. Only a “very, very small percentage of the population” is affected, he told Radio National Breakfast, and “parts of homelessness” have actually “reduced.”

Technically, he’s right. The number of people counted as homeless in the 2016 census represented 0.5 per cent of the population — a small, though not negligible, minority. And while homelessness was higher than in the previous census, the number of rough sleepers had fallen. It was other forms of homelessness, especially severe overcrowding, that got worse. Indigenous homelessness was also down, though the rate among Aboriginal and Torres Strait Islander people remains ten times higher than for non-Indigenous Australians.

On Radio National, Mr Howarth also rejected the idea that Australia has a housing crisis. At first glance the latest Australian Bureau of Statistics data on housing occupancy and costs seems to support that view too. Home ownership might have declined slightly, but two-thirds of Australians still own their own homes. On average, keeping a roof over your head is no bigger burden on your household budget —around 13–14 per cent of gross income — than it was a decade ago. Rising house prices may have forced buyers to take out larger mortgages, but falling interest rates have brought down the cost of servicing loans.

So we might be tempted to ask, along with the assistant minister: Crisis? What crisis? But it’s more appropriate to ask: Crisis? Whose crisis?

Housing costs for those on the lowest incomes — the bottom fifth of households — have risen dramatically from 22 per cent to 29 per cent of gross income. Tenants in the private rental market haven’t benefited from falling interest rates, and rents have risen faster than incomes — especially with wages and government payments stagnating over the past decade.

Housing costs as a proportion of household income, 1994–95 to 2017–18

Source: ABS 41300, Table 1, Housing Occupancy and Costs, Australia, 2017–18

The result is high levels of rental stress, now affecting 57 per cent of low-income households in the private market. This means that about 600,000 households with an “equivalised disposable income” below $775 per week hand over at least 30 per cent of that income to their landlord (and often much more than that). At the conference, Wendy Hayhurst from the Community Housing Industry Association described homelessness as “the tip of a rental stress iceberg,” and the group experiencing the most rapid increase in homelessness is older women, often as a result of the compounding effects of poverty and relationship breakdown (frequently caused by domestic abuse).

If people are spending a large proportion of their income on rent, that’s money they aren’t spending on goods and services in other parts of the economy. (Most landlords don’t spend their rent income either, but use it to pay down mortgages.) Renting in the private market on a low income not only shrinks the budget for other essentials like heating and healthy food, but means that the housing itself is insecure and unhealthy too.

The conference heard that the Warm Up New Zealand Program, which improves insulation in rental properties, has a benefit–cost ratio of four to one. It has been shown to significantly reduce hospital admissions, with the greatest benefits going to the poorest tenants, and to elderly people and children. Even though Luke Howarth said he was keen to hear positive ideas from the conference, the legacy of Australia’s “pink batts” controversy is likely to prevent governments from replicating such a commonsense program here.

Against the vociferous objections of landlords, New Zealand is also enforcing minimum standards in private rentals to ensure that housing is “warm, dry, safe and stable.” As Patrick Veyret from the Australian consumer organisation Choice told the conference, tenants here have more recourse against a mouldy loaf of bread than they do against a mouldy rental property.

The problem for low-income earners is compounded by the fact that they are competing for tenancies with a growing number of higher-earning people who are staying in the private rental market because they can’t scramble into home ownership. This is the phenomenon that lies behind terms like “generation rent,” the cohort of Australians seemingly locked permanently out of home ownership. But viewing the problem solely through a generational lens is misleading: as the Grattan Institute noted in its recent Generation Gap report, home ownership is “dropping fastest for the young and the poor.”

The flipside of generation rent is generation landlord. Australian Tax Office statistics show that the number of individuals reporting an interest in a rental property has been rising rapidly, with the fastest growth among people with an interest in multiple rental properties. The number of investors declaring an interest in three or more properties has grown 40 per cent in a decade. Government ministers are fond of pointing out that 70 per cent of investors own just one property. This is true, but from the tenants’ perspective, they are just as likely to be renting from a landlord who owns two or more properties as from “mum and dad” investors.

People who already have property are able to acquire more as they borrow against existing assets. The rich are getting richer, and my calculations from the latest ABS data show that housing plays a big role. In 2003–04, the mean value of the property owned by the wealthiest fifth of Australian households was worth 1.3 times as much as the mean value of the property owned by all other households combined. By 2017–18 that multiple had blown out to 1.6 times.

Average property wealth, 2003–04 to 2017–18: the rich versus the rest

Sources: ABS 6554.0 Household Wealth and Wealth Distribution, Australia, 2003–04, Table 6. ABS 6523.0 Household Income and Wealth Australia 2017–18 Table 7.2. Note: Property assets minus property liabilities.

While home ownership is falling relatively slowly, the share of Australians who own their homes outright is falling much faster. On current trends, the number of Australians who own outright will soon be overtaken by the number who rent in the private market.

Shifts in housing tenure, 1994–95 to 2017–18

Source: ABS 41300, Table 1, Housing Occupancy and Costs, Australia, 2017–18

As new AHURI research shows, this has profound implications for future welfare spending. First, homeowners entering retirement (or prematurely forced out of the workforce) may be tempted to use their super to pay off their mortgages and then qualify for the age pension. Second, there will be more low-wage earners leaving the workforce without owning a home at all. As renters in the private market, they will become eligible for both the pension and Commonwealth rent assistance. According to the AHURI, the combination of ageing and declining home ownership will be a “seismic shock,” bringing a 60 per cent increase in the number of seniors eligible for rent assistance by 2031.

The budget cost of rent assistance has already jumped from $2.8 billion to $4.6 billion since 2008. Interestingly, a senior Canberra official at the conference couldn’t answer a question about future projections for spending on Commonwealth rent assistance, but we can expect it to keep going up.

Changes in demography and housing tenure are not the only factors. Another driver is the transfer of public housing stock from state-owned authorities to not-for-profit community housing associations. Ten years ago, Australia’s housing ministers agreed that community housing should make up 35 per cent of all social housing. With little money available for new housing, this target could only be met by moving thousands of dwellings into community hands. In the process, thousands of tenants became eligible for rent assistance for the first time. (Tenants in state-run housing don’t qualify, but tenants in community housing do.)

The continuing transfer of social housing stock from state to community hands seemed to be taken as a given by most conference delegates, including housing officials from all jurisdictions. But there are mixed motives behind these transfers. One aim is to boost the community housing associations’ asset base so that they can leverage more funds. Another aim reflects the view that community housing providers are more efficient and innovative than public authorities and cater better to tenants’ needs and interests. It’s certainly true that surveys consistently report higher levels of tenant satisfaction in the community sector.

Equally, though, the transition to community management shifts costs and liabilities off the states’ balance sheets. One community association in regional New South Wales has seen its housing portfolio grow 170 per cent in twelve months as a result of stock transfers, but most of the dwellings it has acquired are already forty years old. As buildings age, maintenance costs increase. Old public housing stock may have been designed to house families, which means it won’t be appropriate for the six in ten social housing tenants who live alone. Or it may not be accessible for the one in three tenant households that include someone with a disability. Where the funds to refurbish or replace these houses will come from is far from clear.

The solution to this problem is supposed to be the National Housing Finance and Investment Corporation, a relatively new means of channelling investment into community housing. An initiative of Scott Morrison when he was treasurer, the NHFIC was variously described at the conference as “a game changer” and “the one bright spark” in housing policy in recent years, though even its biggest enthusiasts stressed it is only one part of the housing jigsaw.

In his address, Luke Howarth spruiked NHFIC’s debut $315 million bond issue, which was four times oversubscribed. So far, though, apart from one construction loan to build ninety-three new affordable dwellings in Sydney, NHFIC’s main role has been to enable community housing providers to refinance their existing debts at lower rates.

For two of Australia’s larger housing providers, one in Victoria and another in New South Wales, refinancing using the NHFIC bond has freed up about $1 million a year for new spending. Another talks of saving $6 million over ten years. These are welcome amounts, but just a small fraction of overall need.

Social housing is in long-term decline, falling from about 6 per cent of all households to about 4 per cent over the past twenty years. Housing finance expert Judy Yates calculates that if we want to restore the share of social housing to the level of 1996, then we need to build 16,500 new dwellings every year for the next twenty years. To meet the total projected shortfall of more than 700,000 dwellings, the City Futures Research Centre at the University of New South Wales estimates that we need to build 36,000 units annually. By way of comparison, about 3000 units of social housing were built last year.

The last major injection of funds — Kevin Rudd’s 2009 stimulus package in response to the global financial crisis — built about 19,000 homes. His National Rental Affordability Scheme resulted in 38,000 new dwellings over ten years, but this was mostly “affordable” rather than “social” housing. (Under charity rules and NHFIC’s guidelines, affordable housing must be offered at a 20 per cent discount on market rates, which can still be very expensive in major cities or tourist towns. Tenants in social housing, on the other hand, pay a fixed 25 per cent of their income in rent, regardless of location.)

These are early days, but NHFIC will only increase the stock of community housing by about 560 dwellings in its first twelve months. If it is going to enable the scale of building Australia needs, then it needs to unlock vastly larger amounts of funding. A secure return above 4 per cent could attract billions of dollars from Australian superannuation schemes and overseas pension funds seeking safe, long-term investments. But community housing associations can’t generate adequate returns by housing people on the lowest incomes. As Bill Randolph from the City Futures Research Centre put it, “there is always a gap” between the cost of building and maintaining social housing, and the rent that the lowest-income tenants can afford to pay. Modelling by Randolph and his colleagues shows that the average gap is about $12,000 a year, even with discounted finance via NHFIC and the added income flowing to community housing tenants from Commonwealth rent assistance. The gap will be larger in city centres, where land is expensive, or in remote Aboriginal communities, where building costs are particularly high.

There are many ways to bridge this gap. The cheapest option would be for government to fund more social housing with up-front capital investment, but this is not politically palatable. Governments — state, federal and local — could also provide vacant or underutilised land for community housing on a long-term peppercorn lease. Or Australia could adopt a version of the tax credit scheme used to encourage investment in affordable housing in the United States.

Another option discussed at the conference was Jacqui Lambie’s proposal that the federal government waive state and territory housing debts so that money can be spent on new dwellings instead of repayments to Canberra. But evidence from South Australia suggests caution here. That state managed to get the Commonwealth to wipe hundreds of millions of dollars off its debt in 2013, when Labor’s Mark Butler was federal housing minister. But an SA official told the conference that increased social housing investment didn’t follow. Instead, the savings were banked by the state treasury and spending on social housing actually fell.

Regardless of how the funding gap is bridged, any government subsidy needs to be stable, predictable and bipartisan so that it can survive a change of government. One-off programs with limited time horizons won’t be sufficient. “How have other countries unlocked affordable housing supply?” asked Carrie Hamilton from the Housing Action Network. “In every single case it has been credible permanent programs of national government subsidy.”

To fulfil election promises, NHFIC is getting an extra $25 million to administer the government’s first home loan deposit scheme and to take on a new research role. The scheme will enable purchasers with a 5 per cent deposit to get into the market without paying mortgage insurance, and the government hopes it will assist 10,000 first homebuyers each year. The research will focus on housing demand, supply and affordability with the explicit aim of ensuring that “owning your own home stays within the reach of most Australians.” Expanding the supply of affordable rental housing for those on the lowest incomes is not a priority. As Ken Marchingo, CEO of the Victorian community housing provider Haven Home Safe commented, “What we get is $25 million worth of research when what we need is $25 billion worth of new housing.”

Given its Darwin location, the conference had a strong focus on Indigenous housing. Under a ten-year agreement and a fifty–fifty funding split with the federal government, the Northern Territory is investing $1.1 billion in remote Aboriginal housing, with the aim of reducing the chronic overcrowding that contributes to easily preventable illnesses. The program has a big emphasis on training and employing local workers and encouraging the development of Aboriginal enterprises.

It’s a promising initiative, but hard-won. Jamie Chalker, the Territory public servant overseeing the program, ended the conference with an impassioned plea to delegates to tell the truth about what they had learned in Darwin: that the Territory has twelve times the rate of homelessness and twenty-two times the rate of overcrowding of the rest of Australia, and that it is a world leader in rheumatic heart disease. Given there have been six reviews of remote Aboriginal housing, he left his audience in no doubt that a Commonwealth contribution of $550 million over ten years is woefully inadequate.

Still, the Territory has done better than other jurisdictions since the expiry of a ten-year national remote-housing partnership in June 2018. Western Australia has managed to negotiate a one-off payment of $121 million from Canberra, South Australia has secured $37.5 million over five years, and there is still no deal in place in Queensland. Overall, says Labor senator Malarndirri McCarthy, remote Aboriginal housing remains a “wicked mess.”

The same term could be applied to social housing in general. There is a glaring need for public investment of at least $5 billion a year to meet the urgent housing needs of people on the lowest incomes. If Labor had won the federal election, its reforms to negative gearing and the capital gains tax discount could have raised revenue on this scale. But it lost, and tax reform is off the agenda.

Significantly, not a single presentation at the conference discussed tax settings. The Coalition says it is open to new ideas but only appears to be interested in initiatives that don’t cost much. The refusal to raise the level of Newstart payments shows that the government has no inclination whatsoever to increase social spending. Neither the Commonwealth nor most of the states and territories have clearly articulated targets for increasing the share of social housing or even for preventing it from declining further.

Even if we don’t invest in social housing, though, we are going to spend a lot more public money on housing anyway. We’re just going to spend it in different, less effective ways: on more rent assistance, more welfare payments, more homelessness services, more visits to emergency departments, more Medicare claims, more police and ambulance call-outs, and more people going through the courts and being put in jail. And tax revenue will be lost as a result of lower employment and declining productivity.

As Scott Morrison said, “housing is much more than a roof over your head.” It is also essential economic infrastructure, the foundation of good health, a building block for educational success, and the cornerstone of flourishing communities and flourishing lives. •

The post Plenty of ideas, not much money appeared first on Inside Story.

Malcolm Turnbull labelled Labor’s proposals “reckless,” and accused the opposition of putting “the value of every Australian home at risk.” Scott Morrison claimed its policies would “erode the value of Australians’ homes and push up people’s rents.” Yet Treasury, the Reserve Bank and think tanks like the Grattan Institute argue the effect on house prices and rents would be modest. And we now know that Mr Morrison himself acknowledged negative gearing “excesses” when he became treasurer, and was open to reforming it.

One significant difference between the two election campaigns was the backdrop. In 2016 house prices in most capital cities were rising fast; in 2019 they were going in the opposite direction. The Coalition’s campaign against Labor’s plan was also helped along by a better-organised real estate lobby, with agents around the country warning tenants that their rents would rise while simultaneously telling property holders that the value of their houses would fall.

Still, even if Labor’s negative gearing policies were sensible — and potentially more saleable if house prices start booming again — they may be too severely tarnished for another outing.

But Labor’s housing policy had a second, less-discussed element: it wanted to scale back the capital gains tax discount on rental housing. The Grattan Institute has recommended the same policy and, again, it didn’t ring alarm bells at Treasury or the Reserve Bank. In an era of low interest rates and low inflation, the discount probably has a far more significant influence on the housing market than negative gearing, and reforming it could have a more transformative effect, especially for renters.

Negative gearing allows landlords to deduct interest payments not just from their property earnings but also from any other income. When interest rates are going down, the interest paid on the investment — and hence the deduction — will fall, especially if rents are rising at the same time. The latest Tax Office data bear this out: deductions for interest payments were lower in 2016–17 than in 2012–13, while gross rental income was substantially higher.

Over the same period, the proportion of landlords claiming a tax loss on their property investments dropped from 64 per cent to 60 per cent. With interest rates expected to fall even further and stay near rock bottom, negative gearing is much less of a reason to invest in property than it was in the past.

The opposite is true of the capital gains tax discount, which halves the rate at which investors are taxed when they sell a property, as long as they have held it for at least a year. Peter Costello introduced the discount as treasurer in 1999, ostensibly to make tax law simpler and encourage saving and investment. Capital gains tax calculations had previously taken account of inflation and then used complex averaging provisions to work out what tax rate to apply. Costello’s reforms did away with all that, compensating investors for the eroding effect of inflation by offering a flat 50 per cent capital gains tax discount.

As a result, capital gains from passive investments like rental properties are taxed much more lightly than earnings from wages. And when inflation is low, investors are overcompensated, especially if they only own the asset for a relatively short time. As the Grattan Institute argues, the tax discount “distorts investment decisions” by encouraging investors to focus on “capital growth rather than annual income.”

The Australian Council of Social Service warned in 1999 that Costello’s decision, in combination with negative gearing, was likely to lead to an escalation in house prices. By 2004, economics commentator Ross Gittins was agreeing that ACOSS was on the money. “First,” he wrote, “it’s clearer today than it was five years ago that the return to low inflation is a lasting thing. In a world of low inflation (in the prices of goods and services, of course, not asset prices), people making capital gains are much better off under the Costello regime.”

For Gittins, the “privileged minority making capital gains” (himself among them, as he acknowledged) “had the best of all worlds. When inflation was high, they had indexation; when inflation reverted to low, thus minimising the benefit from indexation, the regime was switched to half rates.”

At both the 2016 and 2019 elections, Labor promised to cut the capital gains tax discount to 25 per cent. If it had won and implemented the policy, investors would have paid tax on three-quarters of their capital gain rather than only half of it — undoubtedly a fairer approach, and also a boost for government revenue.

But have two election losses made any change to housing taxation too hot for Labor to handle? Would the Coalition contemplate changing course given the extent of the problem?

There is a way forward, but it involves creative thinking and a measure of political sophistication. It would work like this: rather than simply halving the capital gains tax discount, as Labor proposed, the government would phase in reductions according to how long a landlord has hung on to a property. A discount of, say, 20 per cent on the capital gain might apply after one year, a discount of 40 per cent after five years, and a discount of 60 per cent after ten.

This could boost government revenue but still compensate investors for inflation in a relatively simple way. More importantly, it would induce investors to see residential property as a long-term asset rather than a short-term punt. Landlords would have an interest in seeking out reliable tenants and offering them secure, long-term leases.

At the moment, Australia’s generous tax treatment of capital gains combines with its negative gearing rules to feed a speculative spiral that pushes up property prices while — seemingly paradoxically — reducing rental returns per dollar of investment. As a result, Australian landlords generally want maximum flexibility, including the right to terminate a lease with short notice so they can sell the property at any time to realise a profit.

I recently heard an executive from one of the Big Four banks explain that when her staff assess house values, they lower the value if there is a sitting tenant, whereas when banks assess commercial properties tenants would generally be seen as a positive. Her observation highlights the fact that investors in residential property prioritise capital gains over stable long-term income.

It doesn’t have to be this way. Germany, for example, offers residential property investors a capital gains tax discount, but only after they have owned a property for ten years. Landlords have an incentive to offer secure, long-term tenancies rather than stringing renters out month to month.

With around 60 per cent of Germans renting, the interests of landlord and tenant are better aligned: the tenant wants secure accommodation and the landlord wants a consistent long-term return. The average tenancy in Germany is eleven years, so renters are generally able to feel secure in their homes.

Here, by contrast, rental bond data suggests that the average tenancy varies from less than one year in Queensland to a little more than two years in Victoria. Renting is often regarded as a temporary phenomenon — something you do for a few years before buying your own place. But this was never true for everyone, and today the private rental sector is the fastest-growing segment of Australian housing. More people are renting in middle age, more renters have young families and more households are lifelong renters. More than half of all renters over thirty-five have been renting for at least a decade.

So it makes sense to adjust capital gains tax settings to encourage longer, more stable tenancies. And Scott Morrison set a modest precedent when he was treasurer. Since the start of last year, as a result of measures included in the 2017 budget, residential property investors “receive an additional capital gains tax discount of up to ten percentage points” if they provide affordable rental housing for at least three years. This means that they only pay tax on 40 per cent of their capital gain, instead of 50 per cent.

Having recognised that the capital gains tax discount can be modified to encourage investment in affordable housing, it would be no great stretch to make a more substantial change that could have a positive effect on Australia’s private rental market overall. Scott Morrison knows a bit about property. After all, he spent six years managing policy and research for the Property Council of Australia. With his political stocks high, he should act in the interests of housing fairness. •

The post If we won’t fix negative gearing, then what? appeared first on Inside Story.

The Morrison government’s election win killed Labor’s plan to shut the gate on negative gearing and reduce tax breaks for capital gains. The Australian Prudential Regulation Authority lowered the excessive safety margins it required on home loans as insurance against rate rises. And Reserve Bank governor Philip Lowe made it very clear that the bank is about to cut interest rates.

AMP chief economist Shane Oliver now forecasts that prices will bottom out by the end of 2019, not much below current prices. That would allay fears of further price falls dragging down the economy. But it would also end the progress made on housing affordability, which has allowed first homebuyers back into the market.

The key question is: what comes next? What do the Morrison government and the Reserve Bank want the next stage of the housing market to look like?

Will they aim to create the conditions for another boom in housing prices? Or will they aim to create stability in house prices — just as the Reserve Bank aims for price stability in more humdrum purchases?

And as the global and Australian economies lose momentum, could the housing market once again be conscripted to lead the fight against the threat of recession — with housing affordability sacrificed as collateral damage?

Welcome back to government, Mr Morrison. There are a few challenges waiting for you.

The housing market is one that Scott Morrison knows a lot about: he used to work there, and he made it a central issue in the election campaign. And now it’s his opportunity, and responsibility, to set the goals for what happens next.

The central issue is: do we want to return to the way the housing market has developed in the past forty years, and continue those trends into the future? Or do we want to end this long period of high inflation in housing prices, declining affordability, and declining home ownership?

In 1980, the median home cost less than three years of median household income. Home ownership was not universal, but it was close. The 1981 census found 75 per cent home ownership among thirty-five- to forty-four-year-olds, and 61 per cent even among twenty-five- to thirty-four-year-olds. If you aspired to own your own home, you usually could.

Then housing prices took off.

We had a boom from 1983 to the end of 1985, a pause when Labor ended tax breaks for negative gearing, then back to boom when it restored those tax breaks. Prices had roughly doubled by the time the boom ended in 1989, when the Reserve Bank lifted mortgage rates to 17 per cent.

National housing prices 1980–2019

December 1980 = 100. Logarithmic scale
Source: Reserve Bank of Australia chart using CoreLogic data

There was a small correction, and seven years of roughly stable markets allowed incomes to catch up a bit. Then prices took off again in 1997, in a boom that essentially ran until rising interest rates choked it at the end of 2007. By then the median house cost two and a half times as much as it had in 1996, and five times as much as it had in 1986.

A big correction was needed: a long period of slowly declining or stable prices, to allow household incomes to catch up. Instead, we were hit by the global financial crisis. Interest rates went down, so housing prices went up. The Reserve soon slammed on the brake, raising interest rates by far more than the economy required, and prices edged down. But in 2012 a crucial policy choice intervened.

The mining investment boom had seen the Australian dollar soar to levels that made Australian industries across the board globally uncompetitive. After the boom would come a bust, and some of us noted that every time mining investment had gone bust in the postwar era, the economy had gone bust with it. This was a colossal boom compared with any before it. We were facing a colossal bust.

The Reserve got the message.

It repealed every one of its interest rate hikes, and then some. In fifteen months during 2012–13 it gave us the equivalent of seven interest rate cuts, taking the cash rate to a record low of 2.5 per cent. Two more cuts followed in 2015, and another two in 2016.

Reserve Bank cash rate, 1990–2018

Source: Reserve Bank of Australia

These interest rate cuts had nothing to do with the 2 to 3 per cent inflation target. They aimed at stopping the economy going into recession as the mining boom turned to bust. And the housing market was to be its saviour.

The mining boom peaked in September 2012. In the next four years, the volume of housing construction and property transfers shot up by 35 per cent. With their links to manufacturing, transport, professional services and so on, they largely offset the fall in mining construction.

Alas, this created another boom in home prices. The Bureau of Statistics estimates that Sydney prices shot up 80 per cent and Melbourne 57 per cent. Housing affordability became collateral damage in the war against recession. As the Reserve Bank graph shows, national housing prices by December 2017 were almost ten times higher than in December 1982.

Household incomes had not kept pace. Buying a home now required six or seven years of the median household income, not two or three. The 2016 census found home ownership rates had slumped from 75 to 62 per cent among thirty-five- to forty-four-year-olds, and from 61 to 45 per cent among twenty-five- to thirty-four-year-olds. Young buyers could not compete with rental investors enjoying tax breaks on rental losses and capital gains. For a while, most of the money banks lent for housing purchases went to investors, not owner-occupiers. Sir Robert Menzies would have turned in his grave.

Another long correction was needed. And a year and a half of falling prices has made some progress in improving affordability. Housing analyst CoreLogic reports that median prices have fallen 15 per cent in Sydney, 11 per cent in Melbourne, and 10 per cent across capital cities. Its head of research, Tim Lawless, noted that the pace of decline has slowed in 2019, easing fears of a hard landing in which investors might panic and rush for the exits.

Some say Labor’s plan to shut off tax breaks on negative gearing for new purchases was a factor in the price fall. Certainly, the real benefit of that plan was that over the long term it would weaken the incentive for investors to jump in, and hence reduce the frequency and size of future booms, creating a period of price stability in which renters could again afford to become first homebuyers.

Lowe implied in his answers to questions on Wednesday that the looming rate cuts will be aimed not at the housing markets but at stimulating the economy in general. The Reserve Bank is sufficiently worried by the trends in global markets and at home that it is prepared to use up scarce ammo to try to boost activity.

Morrison and treasurer Josh Frydenberg also did their bit for the economy in the budget, with a tax break offering up to $1080 to low- and middle-income earners, and a $284 grant to people on welfare. Economist Chris Richardson of Deloitte estimates that this is equivalent to a 2 per cent rise in after-tax wages: significant at a time like this.

But the long-term issues must be faced. If the PM and his team want to keep negative gearing, do they want it to play as big a role as in the past?

In the four years to 2016–17, the tax office notes that a quarter of the growth in negatively geared taxpayers was among people who owned three or more investment properties. Morrison as treasurer tried to cap this, but was blocked by opposition from MPs and senators, one of whom owned fifty properties. To revive his plan would be a small step, but a useful one that sends a message.

And the message from both the government and the banks needs to be: we don’t want any more housing booms. We want to make homes affordable for ordinary Australians. •

The post Housing boom, housing bust. What comes next? appeared first on Inside Story.

The merits of the first homebuyers scheme have sparked a lot of debate, but the key point to understand is this: it would be a niche operation. In a housing market that in recent years has lent purchasers about $250 billion each year, the new fund at its peak would take on liabilities equivalent to 0.2 per cent of annual lending.

The transport projects announced in Melbourne, by contrast, are seriously big — and seriously unviable.

East West Link, the freeway the Liberals want to build under the inner suburbs of Collingwood, Fitzroy and Carlton, would unquestionably be a useful addition to Melbourne’s freeway network. You could drive from the Eastern Freeway at Clifton Hill to City Link at Flemington in ten minutes. It is very likely that if it is built, it will also include outlets that would shorten the journey from the eastern suburbs into the CBD and surrounding areas — and it’s those cars that the locals don’t want on their streets.

But it would be horrendously expensive. Tunnelling at freeway width costs well over $1 billion a kilometre. The whole 4.4 kilometre freeway was estimated to cost $7 billion in 2013; Morrison optimistically assumes the same cost now.

The link has been subjected to cost–benefit analysis three times, and has failed every time. The first, for the Eddington report in 2008, estimated the cost was about twice the likely benefit. The second, for the state Coalition government in 2013, was hardly any better, so the government assumed a lot of “wider benefits” to try to make it look good. And even a sympathetic Infrastructure Victoria, costing the plan at its own initiative in 2016, found the benefits would be well short of the cost: $3 of benefit for every $4 of cost.

One must add that standard cost–benefit analysis uses interest rates that are now quite unrealistic: the 7 per cent interest rate assumed is more than twice what governments actually pay. But that is true for all infrastructure projects. East West Link might well pass the test if the test were more realistic — but other projects would still return much more benefit for the same cost.

The best one can say is that East West Link would probably waste less money than the rail line Shorten has now committed federal Labor to help build: a ninety kilometre rail loop — also mostly underground — through Melbourne’s middle suburbs, from Cheltenham to Glen Waverley, Box Hill, Reservoir and Melbourne Airport, where it would connect with the future Airport Rail Link to Sunshine, and eventually, on to Werribee.

We have no cost–benefit analysis for this project, and for good reason. The Andrews government has airily declared that it could be built for $50 million, but no one believes that. If it were subjected to analysis, the Suburban Rail Loop would make the East West Link look good.

The loop would work only if future Victorian governments could do what past Victorian governments have been unable to do: shift Melbourne’s future growth from the outer fringe and the inner core to middle-suburban centres like Box Hill — or Sydney’s Parramatta, a more successful example — which would then grow to become so big that a circular train line to link them would make sense.

It might be safer to bet on seeing pigs fly. At least you wouldn’t be likely to waste $10 billion, or $50 billion, or $100 billion, on that dream.

(I know that many readers assume that rail investments must be a Good Thing. There are a lot of good rail investments governments could make in Melbourne, as urban commentator Alan Davies has pointed out, but this is not one of them. And that view is widely shared.)

What do these three plans — the home loan guarantee, East West Link and the rail loop — have in common? None of them passed any economic assessment. All of them were dreamed up for political reasons. None was put through the normal policy process. Rather, in each case, the government first decided to commit to them — then let the experts work out what they would cost.

They were adopted, that is, because a government decided it needed them for political branding — not because they would be good investments for the state or nation.

When Labor governments set up Infrastructure Australia and Infrastructure Victoria, they promised us that the new agencies would provide open, transparent, honest assessments of proposed transport projects. It was like manna from heaven. But then reality struck.

Having set up Infrastructure Australia, the Rudd and Gillard governments refused to give it adequate funding. It had only eleven staff, and was unable to carry out more than a handful of project assessments. Its advice, when offered, was ignored. Under the Coalition government, it has been much the same, with frequent changes at the top leading to changes of assessments (of Brisbane’s Cross River Rail, for example) that appeared to be politically motivated.

Infrastructure Victoria has not been politically compromised in the same way, but it has been ignored. Its advice was exactly what Labor had promised: bold, insightful and independent. As a result, it was sidelined when Labor was planning its rail loop. Political staffers replaced the experts as the government’s sounding board, and source of advice.

As Marion Terrill of Grattan Institute has argued, most recently in its excellent Orange Book of advice to the next federal government, Australia must ditch this bipartisan addiction to choosing infrastructure projects on political grounds. Anthony Albanese too has sometimes voiced the same view, but as Labor’s infrastructure minister he would take office with his priorities already decided: a host of projects chosen for political reasons, with neither bipartisan support nor appraisal by independent experts.

Some government, some day, must be brave enough to break out of this habit of treating infrastructure as a political battleground. Two political leaders must be brave enough to take the lead to achieve it. Long ago in Victoria we had an all-party parliamentary public works committee that generally operated in a non-partisan way — as many federal parliamentary committees still do. That’s one key to a solution. The other is to let your infrastructure advisers do their job.

Scott Morrison’s housing plan is less a plan than a thought bubble with virtually no details attached. On Sunday we were told it would have a capital of $500 million, but by Monday Morrison was promising to increase that amount if there was more demand. His goal is to ensure that it helps homebuyers throughout Australia, but there is no mechanism to achieve that. Another goal is to favour homebuyers borrowing from banks other than the big four, but there is no mechanism to achieve that either.

The whole thing is a work in progress, made up in a hurry, so that the prime minister had something new to announce at his policy launch — which he fed to the Murdoch press first, so that they could mislead voters by making it seem much bigger than it is. Treasury had not been consulted on the plan, the Age tells us, and neither was cabinet.

But at least this policy will have small costs — which is why Labor was quick to sign on to it, to squash the issue. More than half a million properties change hands in Australia each year, but, as Morrison has presented it, no more than 10,000 would be eligible for this scheme. That’s just as well, because the way he’s done it makes it more risky than the New Zealand scheme it is based on.

Helen Clark’s Labour government introduced Welcome Home Loans, the New Zealand scheme, in 2003. It was then enthusiastically supported by John Key’s National government, although it remained small-scale. In 2017–18, it approved just 1674 loan guarantees, and its total liability was only around NZ$30 million.

Unlike Morrison’s idea, it is carefully targeted to help those in the bottom 60 per cent of the population — those who genuinely need the government’s help to buy a property. You can’t buy an above-average property using this scheme. To be eligible, you need to be on an income that’s at best roughly average. And you must be able to raise at least 10 per cent of the purchase price independently for your deposit.

(The New Zealand government and its offshoot, Kiwibank, have other ways to help you to do that, and they play a bigger role in helping young people buy a home. In a country without compulsory superannuation, the young are encouraged to save in a Kiwibank superannuation account, from which they can withdraw virtually all their money when buying a home, and receive a home-saver grant averaging about NZ$5000.)

To be eligible, assuming you’re buying an existing property, the property must cost no more than NZ$600,000 in Auckland, NZ$500,000 in the other cities, and NZ$400,000 in the rest of New Zealand. (A$1 is currently NZ$1.06.) Slightly higher budgets are allowed for new buildings. You must be a genuine first homebuyer — no investment properties — and your income must be no more than NZ$85,000 for a single borrower, or NZ$130,000 for a couple.

Morrison has blown out those limits. His idea has the thresholds higher by half as much again as the New Zealand version: A$125,000 for a single borrower, A$200,000 for a couple. He didn’t mention any cap on the price of properties — nor on the value of the guarantees offered.

Moreover, instead of requiring applicants to have a 10 per cent deposit, he set that bar at only 5 per cent — with the government guaranteeing the banks for 15 per cent of the purchase price should the borrower default.

The lower you set the bar, the more likely it is that falling prices will leave the borrowers with negative equity: having a property that is worth less than what you owe on it. The lower the bar, the greater the financial pressure that borrowers will be under, and the higher the risk that they will default. And, as the banks warned in today’s Financial Review, the higher the interest rate they are likely to ask borrowers to pay.

One of the reasons why New Zealand’s scheme remains so small is that three of the big four banks (the same as ours, although two have different names) have refused to take part. Westpac is the only big bank participating, and Kiwibank (New Zealand’s fifth-biggest bank) writes 40 per cent of the loans.

If Labor wins Saturday’s election, one hopes it will study the New Zealand scheme carefully before deciding the design of its own scheme: it is now committed to it in some form or other, but it needs to find a way to maximise the benefits while minimising the risks.

At best, this could be a useful niche measure to help those who have been squeezed out of home ownership. As Grattan’s Brendan Coates and John Daley have pointed out in the Conversation, in 1981 even the poor in the twenty-five to thirty-four age group were mostly homeowners. Now fewer than one in four own their own home. Coates and Daley warn: “At this rate, almost half of retirees will be renters in forty years’ time.”

No political party will advocate that outcome, but that is where the existing policy is leading us. The balance has been tilted for too long in favour of housing investors. The Coalition lacked the political courage to fix it. Now, if the polls are right, Labor will have its chance. •

The post Helping first homebuyers, and other misdirected pledges appeared first on Inside Story.

Listen here

The post Time to rethink the Great Australian Dream appeared first on Inside Story.

Both major parties are trying to capture the shift in mood. Prime minister Scott Morrison pitched himself as a defender of the fair go in his first press conference in the role. His government would deliver “a fair go for those who have a go,” he promised, using a phrase that came to dominate his first few months in the job.

Labor, meanwhile, has based its election campaign on a “fair go action plan” that pledges to make the economy and government “work” for ordinary people. According to Labor, a fair go means rolling back penalty rate cuts, taxing the “top end of town” and expanding government services.

But has Australia really become less fair? Are we increasingly a society in which some are born lucky and delivered into power and wealth, while others struggle to find opportunity and live a good life?

If we measure fairness according to whether economic growth is evenly distributed between the rich and poor, Australia is actually doing relatively well: income growth here has been high and (mostly) evenly spread. The disposable income of most households has grown by about 2 per cent every year since the late eighties.

The income gap in Australia has increased much more slowly than in countries we typically compare ourselves to. This is especially thanks to Australia’s very progressive tax and transfer system – which exerts a strong equalising effect on household incomes.

But some of our boats have lifted faster than others. The disposable income of the very richest top 10 per cent of Australian households has risen by 2.5 per cent – somewhat more than the income growth achieved by everyone else since the late 1980s. And the top 1 per cent of income-earners have gained an increasing share of national income over the same period.

With rising housing costs hitting low-income households the hardest, Australia’s housing affordability crisis has made things worse. The growth in house prices is also increasing wealth inequality (although Australia’s level of wealth inequality remains about average for the OECD).

Of course, economic inequality doesn’t mean the distribution of resources is inherently unfair. Unequal incomes will naturally arise when some people have more luck, talent or industry. High incomes can be a reasonable reward for innovation or entrepreneurialism, which make everyone better off.

And it’s not always the case that more-equal incomes would make our society better. Dragging everyone’s income to just above the poverty line, for instance, would eliminate inequality — but it could leave everyone equally miserable.

So should we worry that our economy has become too unequal? Some moral philosophers argue we should focus on equality of outcomes. According to thinkers such as John Rawls, inequality is inherently problematic and is justified only if it is the price of greater wellbeing overall. Others, like Amartya Sen, focus more on equality of opportunity. They are worried about inequality primarily when it leads to entrenched disadvantage that prevents the least well-off from leading fulfilling lives.

Australia tracks well on some of these measures, but less well on others. A recent Productivity Commission analysis shows that Australians enjoy high life-course “mobility” by international standards. That is, Australians tend to move up (and down) the income distribution frequently throughout their working lives. But some people do have more opportunity than others: a son’s position in the income distribution is still materially affected by his father’s.

And while low-income households are better off than they were ten or twenty years ago, some still face entrenched disadvantage. About 12 per cent of households can’t afford essentials. Although most Australians who suffer poverty pull out of it within three years, about 30 per cent of people who make it out of poverty re-enter later on.

Most worryingly, Australia’s social safety net is no longer a safeguard against poverty. The base rate of Newstart is just $40 a day — and hasn’t increased in real terms in nearly two-and-a-half decades.

Many people get stuck on income support: about two-thirds of people on Newstart receive it for a year or more. And reliance on social security can be passed down through generations. Young people are almost twice as likely to need social assistance if their parents have a history of receiving support themselves.

So while we aren’t at panic stations yet, there are economic inequalities that politicians could address to promote a fair go for all Australians.

It’s also important to recognise that fairness is about more than economics. Some moral philosophers make the point that inequality is a problem when it grants wealthy people undue power and influence. Harry Frankfurt says we should pay attention when those who are better off have a serious advantage over people who are less affluent, especially when it translates into inappropriate influence over policy decisions that could further entrench their advantage.

According to this line of thinking, if Australia is to once again become the land of the fair go we should look at structural imbalances of power.

Voters certainly seem to believe these imbalances are a problem. More Australians than ever think that our government is run for a few big interests. Less than a third of people have confidence in business groups, state government, federal government, religious organisations and unions to do the right thing. Perhaps not surprisingly, political parties are the least trusted of all.

The sense that Australian elites have too much power risks opening the door to populist rhetoric that promises to restore power to “ordinary” voters. But slogan-laden solutions won’t be enough to protect the fair go.

Instead, we need evidence-based policy solutions to pressing problems. To name a few, we should tackle housing affordability by increasing housing supply and rolling back distortionary taxes that artificially inflate demand; embrace policies that improve productivity, such as encouraging increased female workforce participation; and alleviate poverty by increasing Newstart.

Parties also need to ensure that voters feel heard by their democratic institutions. A national anti-corruption body and tougher laws on lobbying and political donations would limit the capacity of vested interests such as big business and big unions to wield more power over government policy than regular Australians.

Better policy choices like these would help ensure Australia really does offer a fair go for all. •

The post How to make Australia fairer appeared first on Inside Story.

Ryan-Collins demonstrates that neoclassical economics has a blind spot when it comes to land. Unlike Adam Smith, Henry George and other early economists, most modern economic theory ignores the distinct features of land: we can’t make more of it, and it doesn’t depreciate. Instead, land is treated like any other form of capital, and the windfall gains that naturally accrue to landowners in a growing economy — generally referred to as “land rents” — have been allowed to grow.

Ryan-Collins also points out that the way most economics textbooks treat banks — as institutions taking the money of savers and lending it to willing borrowers — bears little resemblance to reality. Money is actually created when banks make loans — a point made recently by both the Bank of England and our own Reserve Bank. And so the real limit on credit is not savings but banks’ willingness to make loans (subject to the whims of regulators).

These two factors meant that the deregulation of banks in Australia and elsewhere led to an explosion in household debt that was channelled overwhelmingly into housing. The expanding credit created a bidding war, driving up land values, and those higher prices led to more demand for mortgage credit, which further pumped up land prices, and so on.

The Australian experience bears out much of Ryan-Collins’s thesis. Australia’s ratio of household debt to GDP has rocketed, from 70 per cent in the early 1990s to more than 190 per cent today. And house prices have followed suit — more than doubling in real terms over the past twenty years, mostly reflecting rising land values.

Many of Ryan-Collins’s policy prescriptions to tame housing markets echo those made by Grattan Institute in recent years: levy higher recurrent taxes on land, provide more secure rental tenancies, scale back the favourable treatment of housing provided by negative gearing and the capital gains discount, and include the family home in the age pension assets test.

But Ryan-Collins also pushes a more radical idea: a return to the Keynesian “golden period” where most countries adopted “credit guidance” — essentially controls on credit for mortgages. He cites approvingly the examples of Germany, Austria, South Korea, Japan and Singapore, where household debt has grown slowly and house prices have fallen relative to incomes since the 1990s.

There’s little doubt that restricting credit further would reduce house prices. With Australian banks clamping down on lending in response to the Hayne royal commission and tighter macro-prudential rules, and new housing construction reaching record levels, prices here have gone into reverse. And lower household debt reduces the risk of our banks getting into trouble, with all the economic chaos that would create.

But the book doesn’t engage seriously with the arguments for liberalising mortgage markets in the first place, and the costs of turning back.

Deregulating the banks meant that those who were not wealthy or well-connected could also obtain finance to purchase a home. Homebuyers were no longer restricted to borrowing only two or three times the value of their annual income. Greater access to credit may have bid up land values, but it’s also a big reason why most of us are better housed in larger and better-appointed homes than we have been in the past, even if we’re now paying more for the privilege.

Reining in mortgage credit would not make housing more affordable for everyone: people who could still obtain a mortgage would be winners because housing would be cheaper to buy; people who couldn’t get a loan would be the losers. And tighter credit controls could also raise the costs of credit, boosting banks’ profits at the expense of borrowers. The Productivity Commission found that recent macro-prudential rules restricting growth in investor and interest-only lending led to higher interest rates, boosting bank profits by $1 billion.

Such costs may be justified in an effort to secure more affordable housing. But Ryan-Collins’s argument would be much stronger if he’d addressed the potential downsides to his proposals.

And one wonders whether his objective of more affordable housing could be achieved without such collateral damage. Higher taxes on land could bring down house prices without constraining our ability to finance the construction of more and better housing, or hurting the economy.

But most importantly, his book neglects the potential for planning rules to boost housing supply, reducing rents and house prices. After all, while land may be scarce, housing doesn’t have to be if we’re willing to build denser cities. Instead of increased mortgage debt fuelling higher house prices, it could lead to more home building instead.

A recent study by the Reserve Bank of Australia estimated that land-use planning rules restricting what can be built, and where, added as much as $489,000 to the cost of the average house in Sydney. Other studies in the United States and New Zealand have found that restrictive planning rules inflate house prices.

Of course, land-use planning rules benefit other land users by preserving the amenity of existing residents or preventing increased congestion. But studies assessing the local costs and benefits of current rules generally conclude that the negative externalities are much smaller than the costs of regulation.

Recent Grattan Institute research shows that relaxing planning rules to allow more homes to be built near the centres of major cities where people want to live would make housing more affordable. Today’s record level of housing construction in Australia is the bare minimum needed to meet record levels of population growth driven by migration.

Past episodes of rising housing demand did not see such rapid increases in house prices. Rapid population growth in Australia in the 1950s was matched by record rates of home building. House prices barely moved. Similarly, the postwar expansion of mortgage credit in the United States led to more houses but not higher house prices. Perhaps the same would hold true today.

It’s no coincidence that many of the countries with the biggest declines in house prices in the past two decades, such as Japan, have also built the most new housing.

Why Can’t You Afford a Home? is a powerful call to arms to younger generations worried about worsening housing affordability. Ryan-Collins is right that radical change is needed to make housing more affordable: higher taxes on land, more secure tenancies and less favourable tax treatment of housing would all make a difference. But policymakers should be cautious about adopting all of his policy prescriptions without considering their costs, and should remember that they will also need to set planning rules to allow enough new building for a growing population. •

The post Why houses cost too much appeared first on Inside Story.

There were seven of us in that neglected Federation-era terrace, four adults and three children, including Carolyn’s two preschool-aged boys. It was chaotic and highly sociable and I loved the place — which I’d assumed would be a temporary home — from day one. When my ABC job became permanent, I gladly stayed on.

I had the front bedroom on the second floor, which was meant to give me, as the only non-parent, a bit of extra distance from the trio of exuberant children. We shopped in bulk at South Melbourne market and endeavoured to grow veggies in the backyard. There was always someone cooking or eating in the kitchen and the overflowing compost bin invariably needed emptying.

A constant stream of visitors would call by unannounced — this was before mobile phones — and I entered the social circle that led me to Julie, my partner now for more than thirty years. Like many group houses, though, it didn’t last, and after two years Carolyn and I looked for a new place. We were compatible housemates, and I enjoyed sharing my life with her boys, who were now at school.

For the next two years, the four of us lived in a single-fronted brick terrace in East St Kilda. It was dark, damp and cold in winter, with only a dodgy gas fire in the lounge room for heating, but there were parks, playgrounds and a swimming pool nearby, and on sunny mornings the east-facing kitchen would fill with light.

By 1990, I had been living in shared rental houses for more than a decade. At times, I imagined — naively, idealistically — that this would be how I would always live. I still got on well with Carolyn and her boys, but I had a full-on job and hankered for more orderly surroundings.

After four years at the ABC I had some savings, which my mother had just topped up with ten thousand dollars, generously sharing part of her retirement package with her four children. Julie already owned a house with a friend — she had supplemented her modest wages by making junk jewellery to sell at weekend markets in order to scratch together her original deposit (at a time when banks often demanded that women have a man to act as guarantor on their loan application) — and she understood the real estate market.

So, with Julie’s help, I started looking around for a flat to buy. In the process of inspecting properties, we realised that we really wanted to move in together. With assets and jobs, we had little trouble getting a mortgage on a modest weatherboard in Northcote, though at the time $80,000 seemed a frighteningly large sum to borrow, especially at 15.5 per cent interest.

Julie and I sold that Northcote house three years later, and since then we have bought and sold two other houses in inner Melbourne, realising a significant increase in value each time. The last one was in St Kilda, not far from where Carolyn and I used to share a house. We bought it in 1999, and Carolyn, who still lived nearby, came along to cheer for us at the Saturday morning auction.

It was lucky she did, because I’d forgotten our chequebook, and when we surprised ourselves by ending up as top bidders, we couldn’t complete the contract. Carolyn gallantly dashed home to get her own chequebook and wrote out a cheque for a deposit of tens of thousands of dollars drawn on her own account. We all thought this was pretty funny, Carolyn especially, since she had no savings. On the following Monday, we replaced her deposit with our own and gave Carolyn back her cheque — as a joke, she kept it on her pin board.

Recalling the story now, the humour of the situation has a darker edge to it. In the twenty-seven years since Carolyn and I last shared a house, she has lived in at least a dozen different rental properties. Julie and I have chosen our real estate well, mostly thanks to her nous in picking houses that were undervalued, and we have worked hard to maintain and improve the properties we have owned — investing our money and our sweat in renovations, sanding floors, patching holes, painting ceilings and landscaping gardens.

According to philosopher John Locke’s theory about the origins of private property, Julie and I have been “industrious and rational” and deserve the wealth that has come our way. In truth, though, like most other people who were able to buy houses a decade or more ago, we mostly benefited from a large dose of generational circumstance and locational luck. On relatively modest salaries, we were able to buy houses in inner- and middle-ring suburbs that have dramatically increased in value. By contrast, Carolyn, equally rational and industrious, has been punished for renting — or rather, despite a lifetime of hard work and self-reliance, she has been punished for having neither secure employment nor parents affluent enough to help her out with a gift or an inheritance.

“If I’d had a decent secure income or a big inheritance, we wouldn’t be having this conversation,” says Carolyn, when we discuss our different housing trajectories over the past three decades. Today we are both in our mid-fifties, and Carolyn knows the demographic reality: older renters on low incomes are at increasing risk of homelessness. While only about 6 per cent of over sixty-fives live in private rental housing, their situation points to a dark cloud on the not-so-distant horizon — falling home-ownership rates mean more people are now entering retirement (or continuing in casual, low-paid, insecure jobs) without owning a home. With few assets and a low income, often just the age pension, it is challenging to find an affordable place to live. Already, seven out of ten older renters live in “stress,” which means they shell out more than 30 per cent of their income to the landlord, and potentially scrimp on essentials like food, heating and healthcare.

There are likely to be more older women than older men in this vulnerable category, because women live longer and need more money to adequately fund their later years, but generally leave work with fewer assets. Signs of the problem are already evident. The number of women aged over sixty-five living in private rental housing grew by 64 per cent between 2006 and 2016. In 2016–17, for the first time since the Australian Institute of Health and Welfare began collecting the data, the number of women presenting as homeless overtook the number of men. In 2017, Homelessness Australia found that the number of women over fifty who were couch surfing had almost doubled in the previous four years.

Carolyn is not couch surfing, but she is part of this at-risk cohort. In a decade from now, when she is sixty-five years old, she will probably still have a low income and not much superannuation, and she will almost certainly still be paying rent to a private landlord.

When we meet at her place for breakfast, Carolyn has to come down and let me in at the “security gate.” She should be able to buzz me in from upstairs, but the remote-release lock is perpetually broken. Often there is no security at all, because whenever it rains the wooden gate swells up and won’t close.

Carolyn lives on the top floor of a three-storey block of fifteen red-brick, sixties-era, walk-up flats. With a vista across the rooftops of Victorian terraces to the Exhibition gardens, she reckons she has one of the best views in Melbourne, but her apartment has no heating or cooling, so the temperature inside depends heavily on the weather outside. On hot summer days, Carolyn uses sheets of cardboard to block the rays of the sun penetrating the thin window glass.

There is no exhaust fan in the bathroom or the kitchen, which is barely a kitchen in any case because it does not have an oven or a stove. Carolyn does all her cooking on a single plug-in electric hotplate, which she uses to fire up the espresso pot and warm us some croissants. She has become adept at one-pot meals, generally soups and stews that will last her for a couple of days, supplemented by salad, including lettuces grown on her window sill. She has managed to squeeze in a small couch alongside the table and chairs where we sit for breakfast; it doubles as a bed for her eldest grandchild when he has a sleepover. At $285 a week, she reckons she has found the cheapest one-bedroom flat in inner Melbourne, but rent still chews up close to 40 per cent of her income. Carolyn is not grumbling. “It’s a kooky little flat,” she says, “but I love it.”

Everyone, renters and property owners alike, wants to turn the place they live in into a home. At her own expense, Carolyn is gradually repainting the entire flat to make it cleaner and lighter. It looks like it has been a long time since this was last done, and while redecoration and maintenance are technically the landlord’s responsibility, Carolyn has repainted at least one room in almost every place she has rented.

She has also installed a curtain on the entrance to the bathroom because the sliding door is stuck and she does not see much point in asking the landlord to fix it. “I got the toilet fixed because it had a leaking pipe,” she says. “But the pipe still leaks and now the toilet won’t stop flushing.” The kitchen cupboard over her benchtop has a lean on it to rival the Tower of Pisa, jutting out from the wall at a disconcerting angle. Carolyn had that fixed, too, but rather than securing the cupboard back flat against the wall, the handyman simply braced it with a couple of extra bolts to stop it pulling away any further.

According to estimates on real estate websites, the modest Northcote weatherboard house that Julie and I bought for $137,500 in 1990 is now worth between $1.7 and $2.2 million. Most of the price rise derives not from the improvements that we, or any subsequent owners, made to the property, but from the underlying increase in the value of the land. Changes in the structure of the economy and the labour market have made city centres the locus of high-income jobs. While property prices have risen across the board, the increase has been steepest in inner suburbs, especially in places with good public transport links, parks, shops and desirable schools.

Carolyn’s boys are now in their thirties, and both of them have been in good, secure, full-time jobs for many years. Both rent, and Carolyn knows she will never be able to help them to buy their own homes. By contrast, Julie and I can afford to act as family bankers for our son, and when we die, he will inherit whatever property wealth we have left. In this way, the real estate market entrenches inequality.

Julie and I may move again one day, but we will control the when and the where. Carolyn enjoys no such security and may soon be forced to find a new place to rent. The Fitzroy block containing her kooky little flat recently went on the market. Chances are it will be demolished to make way for luxury apartments. Plenty of people would pay a lot of money for Carolyn’s fine view. •

This is an edited extract from No Place Like Home: Repairing Australia’s Housing Crisis, released this week by Text Publishing.

The post Buyer’s luck appeared first on Inside Story.

Like me, residents of Australia’s inner suburbs witness homelessness every day. But rough sleepers huddled in doorways or crouching behind cardboard signs are just the visible part of a much bigger problem. We don’t see people couch surfing, sleeping in their cars, or holed up in caravan parks, rooming houses and motels.

When we do come across someone on the street, we often agonise about the right thing to do. If I give money, will it just go on booze or drugs? Should I give food instead? Should I offer to buy this person a coffee or just say a friendly word? Should I walk on and console myself that I donate regularly to a local charity?

I have no definitive answers to those questions, but I suspect that they are the wrong place to start thinking about the problem. Surely the fundamental issue is this: in a country that has enjoyed the longest run of uninterrupted economic growth in history, why is there any homelessness at all?

“There are no rough sleepers in Finland,” says Juha Kaakinen, chief executive of Finland’s fourth-largest landlord, the not-for-profit Y-Foundation. “You don’t see people sleeping on the streets.” It was Kaakinen who led Finland’s successful national program to reduce homelessness. Launched in 2008, it aimed to halve the rate of long-term homelessness in four years, focusing not only on rough sleepers but also on people living in insecure and temporary accommodation. “People in shelters and hostels are still homeless,” he reminds me when we meet at the National Homelessness Conference in Melbourne.

As a new report by a federation of homelessness agencies shows, Finland is the only country in Europe in which homelessness declined over the past decade. Official data puts the number of homeless people at 7112 in 2017. Among them were only 214 families, down by a third on the previous year’s figure. “There are no homeless families with children,” says Kaakinen, “or if they are it is an extremely temporary condition.” As the chart shows, the vast majority of the remaining homeless — 84 per cent — are staying with friends and relatives. Only a tiny number sleep out or live in refuges or other temporary accommodation.

On trend: homelessness in Finland 1987–2017

Source: Housing Finance and Development Centre of Finland.

With its population of 5.5 million, Finland’s homelessness rate is thirteen people for every 10,000 residents. At the 2016 Census, the equivalent rate in Australia was nearly four times higher, at fifty per 10,000 residents.

How did the Finnish miracle come about? The answer is beguilingly simple: the country provided at-risk people with a secure and permanent place to live and made sure that they could afford to pay full market rent. In practice, this involved closing down most emergency shelters and boarding houses or converting them into permanent dwellings. Kaakinen says Helsinki’s last big shelter, which was run by the Salvation Army, closed in 2010 and has now been turned into eighty-one independent living apartments with onsite support services.

This might seem counterintuitive, but, as Kaakinen says, homeless people can end up getting stuck in such supposedly short-term lodgings.

By way of illustration, he tells me about a new state-of-the-art shelter for homeless people he helped develop in Helsinki in the 1980s. “Each room could accommodate two men and had a fridge,” he says. “We thought this was really top of the game. It was meant to be a temporary solution for a harsh winter, but it lasted twenty years. When we demolished it, it was the worst place. That’s what happens with temporary solutions: they become permanent.”

Having recently spent a week watching staff at work at Frontyard Youth Services in inner-city Melbourne, I could see what Kaakinen was getting at. In Victoria, as in many parts of Australia, support to overcome homelessness is generally conceived as a three-step process from crisis accommodation, through temporary housing to permanent lodgings. The theory is logical, but in practice people get stuck at chronic bottlenecks every step of the way.

Step one: After seeking help at a place like Frontyard, you get put up in a refuge. But with more than 6000 young people experiencing some kind of homelessness in Victoria, the 110 beds in the state’s fifteen youth refuges are already occupied. Doing their daily ring-around, members of Frontyard’s housing team are lucky if even one or two of these beds has become vacant. So young people often end up in backpacker hostels or back out on the street.

Step two: If you finally secure a bed in a refuge, you are not generally supposed to stay for more than six to eight weeks, at which point you move to transitional housing, where rent is capped at 25 per cent of your income. Here again, the shortage of places is extreme, particularly in the most urgently needed category of one-bedroom dwellings. As a result, a six- to eight-week stay in a refuge can easily stretch to six to eight months.

Step three: After a year, or maybe two, of getting on top of things in transitional housing, you are ready to live independently. But then you encounter another acute shortage, this time of affordable private rental housing. Anglicare’s national affordability snapshot of more than 67,000 dwellings found fewer than 3 per cent matched the budget of a single person earning the minimum wage. For an unemployed person on the Newstart allowance, only three properties across the entire country were affordable; needless to say, none of them was in a major city.

Outside the private market, the only option is social housing, which is afflicted by intractable waiting lists. A recent parliamentary inquiry found that the new Victorian Housing Register (which supposedly “makes applying for housing easy”) is clogged with 37,000 applications representing more than 82,000 people (roughly 57,000 adults and 25,000 children). There are similar waiting lists in other parts of Australia.

“Without sufficient housing you have to build systems to compensate for the lack of the real thing,” says Juha Kaakinen. “If there’s not a big enough supply of affordable housing, then it’s wise to produce more of it.” His logic is compelling. Even if the Finnish model can’t be transplanted wholesale to Australia, we can learn a great deal from it.

Finland’s success in cutting long-term homelessness and all but eradicating rough sleeping is often described as a Housing First approach. Essentially, it involves meeting a person’s need for safe and secure housing before attempting to solve other deep-seated challenges like physical or mental illness, substance abuse, unemployment or poverty.

Housing First developed as an alternative to the established “staircase” model of assistance, widely applied in Australia, which encourages homeless people to proceed through a sequence of treatment steps to reach housing readiness. Interventions like psychiatric care or a stint in a detox clinic are intended to prepare a person for living independently and sustaining a long-term tenancy. But many people, especially those who have chronic problems, find getting to the top of the staircase overwhelmingly challenging. They might get kicked out of emergency accommodation or transitional housing for getting drunk, using drugs, losing their temper or failing to attend treatment, for instance, and then tumble back down the staircase into homelessness. If one step proves beyond them, secure housing can remain permanently out of reach.

Staircase services run the risk of setting “unattainable standards,” writes Nicholas Pleace, director of the Centre for Housing Policy at the University of York, in a guide to Housing First policies in Europe. Although they’re fallible human beings like the rest of us, service users can be expected to behave like perfect citizens.

Housing First reverses the staircase model by providing secure housing up-front and not taking it away after perceived behavioural lapses. Support services are offered alongside housing, in the belief that people are more likely to successfully tackle other issues if they don’t have to worry about finding a place to sleep for the night.

Australia has its own experience with Housing First strategies, dating back more than a decade. Adelaide was the first Australian city to adopt the model, when the initial Common Ground project opened in Franklin Street in 2008. Similar projects followed in other cities, helping to fundamentally improve individual lives.

Nicholas Pleace, who was also in Melbourne for the National Homelessness Conference, says Housing First has worked wherever it’s been deployed in Europe, from tiny pilot projects held together with string in Britain, Sweden and Italy to long-term trials in France and fully fledged government programs in Denmark and Finland.

What does that success look like? “There is strong evidence that Housing First works in terms of keeping a roof over the heads of people who previously experienced chronic homelessness,” says Pleace. “Less can be said with certainty about improvements in mental and physical health, reduced drug and alcohol use or social integration.”

Housing First primarily targets people with high and complex needs. They are repeat users of overnight shelters and hospital emergency departments, and often have repeated interactions with the police and the courts, including cycling in and out of prison. “These people are sometimes referred to as ‘frequent flyers,’” says Pleace, wincing slightly at the metaphor. By reducing the rate of frequent flying, Housing First can theoretically save public money, even if chronic drug use or mental illness persist.

Data presented to the conference by Juha Kaakinen shows that in Finland, the investment in housing and supporting a homeless person pays itself back in less than seven years. A reduction in the use of specialist health services and institutional care generates savings of approximately €15,000 (A$24,000) per person per year.

In Australia, the second phase of the Journey to Social Inclusion, or J2SI, project at Sacred Heart Mission in Melbourne has yielded interim results that point in the same direction. Like other Housing First projects, J2SI uses permanent housing as “a stable base from which to address individuals’ non-housing issues.” After twelve months, J2SI participants are far more likely to be housed than those receiving standard support, and far less likely to spend nights in hospital or drug and alcohol rehabilitation facilities. Although the sample is small and needs to be treated carefully, average annual health costs for the J2SI participants fell by more than $15,000 while costs rose for those receiving conventional support.

But Pleace cautions that cost savings can’t be assumed, because outcomes depend on exactly who is getting help. “Housing First doesn’t necessarily generate cost savings because not all rough sleepers are a cost to the state,” he says. “Some are very low cost to leave on the street. All they need is a blanket and a bowl of soup.”

What is clear is that stabilising housing — and so averting a descent into homelessness — is more cost-effective than implementing Housing First after people end up on the streets. It is better and cheaper to prevent the tumble and the crash than to try to put the pieces back together again.

People usually have to resort to unstable housing after illness, relationship breakdown, family violence, unemployment or other life shocks. The impact of such events is felt most keenly by those with low incomes and few assets, especially when housing costs are high. Marah Curtis from the Institute for Research on Poverty at the University of Wisconsin–Madison says it’s not just the level of income that matters but also its regularity: if you compare two households with the same annual income — one steady, the other fluctuating— then the first household will generally have better housing outcomes than the second.

A corollary of Curtis’s research is that small, timely infusions of financial support can prevent a descent into homelessness. “Markets go up and down,” she told the homelessness conference in Melbourne. “We have to insure people against that process.”

One criticism levelled at Housing First is that it comes too late — that it is the ambulance at the bottom of the cliff, rather than the fence at the top.

But Juha Kaakinen insists that this is not true in Finland, where Housing First is just one component of a comprehensive national strategy on housing and homelessness. Finnish social workers are trained as housing advocates, and one of their main tasks is to help vulnerable people to maintain a tenancy. More important still is providing affordable housing. “Increasing the affordable social housing supply is the best means to solve and prevent homelessness,” says Kaakinen.

He shows a chart that provides a compelling illustration of what he means: as the number of Y-Foundation’s affordable apartments increases, homelessness falls.

Bridging the gap: affordable apartment supply and homelessness in Finland

Source: Juha Kaakinen, “Housing First and Ending Homelessness in Finland” National Homelessness Conference Melbourne, August 2018.

Australia’s own recent history accords with Kaakinen’s argument. Kate Colvin from Everybody’s Home, a campaign for a fairer housing system, told the national conference that after Kevin Rudd implemented the National Rental Affordability Scheme and injected $500 million into affordable housing in response to the global financial crisis, the supply of social housing grew, rough sleeping declined, and emergency presentations by homeless people fell. Without sustained effort, though, these gains were short-lived.

Housing First strategies can’t be divorced from their broader social context. Chronic homelessness is far more widespread in the United States than in northern Europe because of the far less comprehensive American welfare system. There, homelessness can be triggered by poverty alone, whereas in countries like Denmark and Finland it is far more likely to arise from a convergence of multiple challenges in a person’s life. So, while Denmark and Finland are dealing with a far smaller problem overall, the people who end up homeless are likely to have particularly severe problems and high needs.

In the United States, Housing First projects can end up as safe but isolated islands within the broad sea of government indifference. Nicholas Pleace calls it a “welfare state in miniature model.” In Finland, by contrast, Housing First strategies are integrated into a fully fledged welfare system, including universal healthcare and an extensive supply of social housing. People assisted by Housing First have access to the same high-quality support services as everyone else.

Kaakinen sees risks in developing small-scale Housing First projects without a comprehensive strategy to tackle homelessness. “You end up creating a priority service for a very small group of homeless people,” he says. “That’s not solving the issue.” He also thinks that a small-scale effort can pose ethical problems by delivering two levels of housing support. “There is the normal service and there is the good service,” he says. Nor does he see any need for more Housing First experiments or pilots: “We know what works.”

Australia probably sits closer to Finland on the welfare spectrum but closer to the United States when it comes to piecemeal efforts to tackle homelessness. We enjoy universal healthcare, but most government benefits are paid at a low level and there is very little social housing. In Finland, social housing accounts for about 13 per cent of all dwellings; in Australia, it’s a little more than 4 per cent. There are other differences, too. While neither country is a nation of renters — about 70 per cent of Finnish housing is owner-occupied, a proportion similar to Australia’s — rental agreements in Finland are generally permanent, whereas Australian rentals tend to be short-term, making it easy for landlords to eject tenants with little notice.

Affordable housing is largely built by the private sector in Finland, but the government provides long-term low-interest loans to developers on a 5 per cent deposit and guarantees their returns with a housing benefit that can cover up to 80 per cent of full market rent. The equivalent payment in Australia, Commonwealth Rent Assistance, is capped at a maximum rate of $67.40 per week for single people living alone, regardless of how much rent they pay.

What is more, social housing in Finland is generally built on publicly owned land. Local governments in Finland tend to control much larger tracts of urban land than their counterparts in Australia. Kaakinen tells me that the City of Helsinki owns about half the land in the capital, which gives it a very strong hand in planning decisions. A fifth of the dwellings in all new residential developments must be set aside for social housing, and authorities use their rental guarantee to ensure that new social housing meets high standards of design and energy efficiency. “You can’t tell the difference between public and private housing in Finland,” says Kaakinen. In Australia, where publicly owned land is split across three levels of government, local authorities don’t have the same leverage. Still, as new research shows, our cities have many suitable parcels of unused and “lazy” public land that could be used for new dwellings.

Building a large supply of affordable housing has other benefits. It helps to contain rents in the private market and smooths boom-and-bust cycles in the residential construction industry. “When the economy is booming, construction companies are not interested in building social housing,” says Kaakinen. “But they have a sudden increase in social consciousness when the economy slows, and there is a lot of attention when you put out a tender.”

In the absence of more substantial subsidies or stronger planning regimes, Australia’s private developers have no incentive or requirement to build low-income rental housing. Kaakinen says it’s in the national interest to provide more affordable housing as basic social infrastructure, but this won’t happen without coherent policy and concerted effort. “It’s really wishful thinking to think that the private market would solve homelessness or housing issues,” he says. “That’s a completely crazy idea.” He argues that the logic of capitalism works against a balance between housing supply and housing demand because housing shortages push up prices and generate higher returns.

Kaakinen starts from the principle that secure and adequate housing should be a social right but says this right cannot be seen in isolation from other economic and social policy. He’s critical of Australian tax policies that make housing the most secure and profitable place to store wealth: “If all the money that people invest in housing was used for other investments, then that would generate greater productivity.”

Halfway to the station platform, I realise there might be something else I could share with the young man on the pavement outside — information. I stop rushing for my train, go back and ask if he knows about Frontyard and the services it provides. He tells me he does, that he’s been there and is on a waiting list for accommodation. We chat for a while longer and his spirits seem to lift. He’s hopeful that things are starting to look up.

“I’ve got my instrument back with me now,” he says, patting the guitar tucked behind the backpack and rolled-up sleeping bag he’s leaning on. “I’m saving up for my busker’s licence, so I should be working again before too long.” I tell him I look forward to hearing him singing on the streets of Melbourne soon. I hope I do, and I hope he finds a place to live, but until we deal with the fundamental lack of affordable rental housing, the odds are stacked against him.

We need to stop regarding homelessness as inevitable and to name it for what it is — a failure of policy and politics that can be overcome. Finland shows that a national strategy to increase the supply of affordable housing can work. Without that, Housing First approaches won’t make a Finnish-sized dent in the problem. ●

The post “You don’t see people sleeping on the streets” appeared first on Inside Story.

What advice could Australia possibly want from a team of economists from Washington, who come down here for two weeks, talk to Treasury, the Reserve Bank and a few others, and then head home to write a report published three months later as the International Monetary Fund’s annual report on Australia and discussion of additional issues?

Judging from some of the media coverage, including today’s editorial in the Financial Review, you would think the IMF’s goal was to spruik the government’s plan for corporate tax cuts. The editorial was full of fantasies about what the IMF said: whoever wrote it obviously had more important things to do than to read the report.

Shadow treasurer Chris Bowen was closer to the mark when he claimed that the IMF report vindicates Labor’s policy to shut off the tax break on negative gearing and reduce the tax break for capital gains. The latter, at least, is an issue the report comes back to repeatedly, as it examines how to improve housing affordability and reduce the risk that a housing price crash could push Australia into recession.

In fact, the IMF report carefully avoids endorsing the tax plans of either side of politics. AAP economics correspondent Colin Brinsden summed it up perfectly: “The IMF has backed the Turnbull government’s pursuit of a lower corporate tax rate, but has again called for a broader tax reform package.”

The IMF mentions corporate tax cuts in one paragraph of a report of more than 150 pages, and only as part of a wider series of tax reforms, which is just one of six proposals to lift Australia’s growth. In order, they were:

● further increase investment in infrastructure
● bump up government support for innovation
● strengthen labour market programs to equip the unemployed with new skills
● tackle the barriers to female employment
● increase taxes on land and consumer spending and reduce them on incomes and profits
● beef up competition policies as part of a structural reform drawing on the Productivity Commission’s wishlist issued late last year.

Since the coverage has focused on the company tax debate, let’s read what the IMF economists actually wrote on that topic:

A broad tax reform package would benefit productivity and reduce inequality. The government seeks to broaden the corporate tax reduction beyond small enterprises. With Australia being a capital importer, it is appropriately concerned about the international standing of corporate tax rates. Australia’s effective average corporate tax rates are currently in the upper third among advanced economies, but the international environment is evolving. A more comprehensive tax reform has the potential to increase efficiency of the tax system, increase investment and labour demand, and reduce inequality. This would entail lowering taxes on income from mobile factors of production (capital and labour) and increasing reliance on income from immobile factors of production (land) and indirect taxes on consumption, undertaken in a revenue-neutral way. According to a comprehensive reform scenario outlined in [the IMF’s 2015 report on Australia] such a reform could raise real GDP by at least 1.3 per cent. Concerns about the regressive nature of higher taxes on consumption at a time of low wage growth could be addressed by broadening the base, reducing generous tax concessions (some of which are not means-tested or are limited), and revising the design of the income tax reform.

The final sentence might seem confusing, but Brinsden’s report, written after a briefing from the head of the IMF’s team, Thomas Helbling, clarifies that the IMF meant that rather than raise the GST — a regressive tax that falls disproportionately on lower- and middle-income earners — Australia could finance its corporate and personal tax cuts by broadening the tax base, reducing tax breaks and targeting its income tax cuts.

It’s all good advice, similar to that given to a parliamentary committee a week earlier, in forthright fashion, by Reserve Bank governor Philip Lowe. It also pretty closely resembles the advice that the IMF has given in previous reports on Australia, and that many of us have been giving successive governments for years — sadly, without success.

But it does not resemble the government’s plan to cut corporate taxes, which is not revenue-neutral, but is expected to cost the budget some $80 billion in its first decade alone. There are many relevant issues in the corporate tax debate, but one of the core issues is the question of which goal should take priority: getting the budget back into a sustainable surplus, or cutting corporate and individual taxes? The IMF is saying that lower taxes should not come at the expense of the budget.

Dr Lowe made the point very clearly in his testimony. Let’s read what he had to say too:

The debate (on corporate tax rates) has moved on internationally, and it does look like there is a form of international tax competition going on. The US has moved. The UK has plans to lower its corporate tax rates, and a number of European countries do as well. And you can view this competition as good or bad. If you want lower taxes, it’s probably good. If you need to fund a budget, then maybe it’s not so good.

So whatever side of that debate you come down on, it is actually occurring, and it’s hard to ignore. In the last [2016] IMF annual Review of Australia, they noted that relative tax rates were something that did influence capital flows… We mightn’t like it, but we can’t ignore it.

Another point I’d make is that if we were to respond to this competition by having lower corporate tax rates here, then it’s really important that it doesn’t come at the expense of higher budget deficits. And in the US… the official estimates at the moment are that for the next five or six years, the budget deficits are going to average almost 5 per cent of GDP [a year]… I think that’s very problematic, and if we were to go in the direction of having lower corporate tax rates, then I think it would be a big mistake to do that on the back of higher budget deficits…

However we finance [cuts to corporate tax rates], it can’t be by running bigger budget deficits. There could be some other changes to the tax system.

Here, the IMF and the Reserve Bank governor are on the same page. Yes, there is a case for cutting corporate tax rates to avoid losing out on foreign investment we would otherwise get. But it is crucial that the tax cuts are paid for, and not financed by running budget deficits. What the government is proposing are tax cuts that are not paid for, and would come out of what it claims to be future surpluses, based on rosy assumptions about future growth, particularly in wages.

The IMF has pointed to where the parties could find middle ground, if they wanted to. We could have company tax cuts that are paid for, and would not threaten our very fragile budget balance. Neither side is remotely interested in that, at least this side of the election.

In the end, as Peter Martin argued in yesterday’s Age, it’s a question of priorities. Both the IMF and the governor are at pains to point out that there are many other paths to increasing Australia’s potential growth rate.

The IMF report shows that on an international matrix of Australia’s economic strengths and weaknesses, our main weaknesses relative to our peers are in innovation, labour-market efficiency (matching the skills of the unemployed to those needed for the jobs on offer) and business sophistication. “Strengthening trend [productivity] growth through a stronger innovation system, labour force skills upgrades, and reduced gender imbalances is critical,” it concludes. “Related programs should be underpinned by longer-term strategies, and longer-dated resource commitments.”

Moreover, lifting growth is not the only first-order economic issue: defending growth is just as important. Former Reserve Bank governor Ian Macfarlane once said that the role of the bank was to work out where the biggest threats to economic growth could come from and try to counter them. The IMF report, like many others, highlights two serious threats: a potential hard landing in China (which it sees as a “medium” probability) and a potential slump in housing prices (to which it, somewhat unconvincingly, assigns a “low” probability).

In a separate chapter, the report argues that a hard landing in China would hurt Australia only temporarily, in fact, and in the longer term could help us. At first sight, that’s hard to believe: last year we sold China $110 billion of goods and services, 30 per cent of our entire exports and 6.3 per cent of our entire output. If China experiences a hard landing, much of that would disappear rapidly.

But in that event, the IMF argues, the Australian dollar would fall sharply relative to other currencies. That would make our exports more competitive globally, and the sales lost to China would be made up in other markets. It could well be right. Some analysts argue that, with China maintaining a de facto currency peg to the US dollar, the markets buy or sell the Australian dollar as a substitute yuan, rising and falling with China’s fortunes.

The IMF is far more concerned about the need for tax reform in relation to housing than about company tax rates. It is particularly keen to see the states abolish stamp duties on property transfer and increase land tax instead; but the only government to do so has been the Australian Capital Territory’s, which almost lost an election over it. It is offended by recent Commonwealth and state reforms to impose higher taxes on foreign property buyers. It argues that the exemption of the family home from the capital gains tax “may encourage ‘excess’ demand for housing, excess in the sense that families prefer more to less space.” It goes on:

On the investment side, the combination of high capital gains discount rates and unlimited negative gearing can encourage leveraged real estate investment in market upswings. While similar tax incentives are also present in other countries, they tend to be more limited… Housing tax reform would strengthen the effectiveness of the overall policy response.

It backs this up with a three-page comparison of Australia’s tax regime on housing with those of comparable countries, noting recent reforms in Britain, New Zealand and Hong Kong to reduce incentives for property investment. Of the other seven countries surveyed, five ban negative gearing outright, and only New Zealand treats investors as generously as we do.

While the IMF is generally positive about the future of the economy, and echoes the government’s line that real wage growth will return as the labour market tightens, this part of its analysis is of little value. It relies on old, selective data that makes you wonder what its team learnt by coming here.

It declares that Australia’s recovery has been “robust,” and says “Australia has enjoyed high growth in per capita terms.” But Australia ranked only thirteenth out of twenty-seven comparable countries, even between 2010 and 2016. That’s the report’s only reference to per capita growth, which is, after all, the bottom line for economic performance. The IMF’s own data (see chart below) shows that while Australia’s GDP growth over the past decade has been among the highest in the Western world, it slips to eighth among comparable countries when you focus instead on the issue that matters: growth in GDP per head.

The IMF team seems not to have even noticed that, while Europe has rebounded vigorously, Australia has sunk to almost the bottom of the ladder. Within the twenty-eight-member European Union, its current per capita growth rate of 0.9 per cent would place it equal twenty-seventh with Britain. That’s not “robust” growth, my friends.

Similarly, it declares that unemployment in Australia “is relatively low,” giving as evidence the fact that it was lower than most other Western countries between 2010 and 2016, when Europe took a long time to recover its mojo. But by the end of 2017, Australia’s stagnant unemployment rate ranked only equal fourteenth of the twenty-seven countries on the IMF’s list. Were its experts not even aware of that? Or that Australia’s underemployment rate is just about the highest in the Western world?

One last thing that has escaped notice. In his testimony to the House committee on economics, Dr Lowe pointed out that a combination of low wage growth and strong growth in employment is not unique to Australia. It is happening throughout the Western world, as companies and workers fear losing their competitiveness. It’s a very good point, which we’ll come back to in another article. ●

The post Good advice, and puzzling blind spots, in the IMF’s latest report on Australia appeared first on Inside Story.

This conventional wisdom is wrong. Recent Australian research claiming that most new housing built in Australia is targeted at the top end of the market is flawed because it groups price deciles by the number of Local Government Areas, rather than by the number of dwellings. And claims that more housing doesn’t help low-income earners are at odds with international literature showing that market-rent housing remains the largest source of affordable housing for low-income earners.

This matters, because many people are using the recent research to argue that governments should focus on increasing the subsidies for affordable housing rather than tackling politically difficult planning reforms. This would be misguided policy, based on misguided analysis.

Much of the conventional wisdom is underpinned by a study released in May last year by housing researchers Rachel Ong, Tony Dalton, Nicole Gurran, Christopher Phelps, Steven Rowley and Gavin Wood for the Australian Housing and Urban Research Institute, or AHURI. According to the authors:

Most of the growth in housing supply has been taking place in mid-to-high price segments, rather than low price segments. There seem to be structural impediments to the trickle-down of new housing supply.

To support this conclusion they present analysis of building approvals in each Local Government Area in Australia. They count the number of new housing and apartment approvals made in each of 2005–06 and 2013–14 in each LGA, and then rank LGAs from lowest to highest according to the real median prices of houses and apartments. They then divide the LGAs into ten groups (or deciles), each containing the same number of LGAs.

The authors find that over the past decade almost 90 per cent of houses and 95 per cent of units were built in the 50 per cent of LGAs with more expensive housing. By contrast, less than 5 per cent of new homes were built in the 20 per cent of LGAs with the cheapest housing. They conclude that most new housing has been supplied at mid-to-high prices relative to the existing stock, and that this effect has become more pronounced between 2006 and 2014.

The critical flaw is that when they group LGAs into deciles, the authors fail to weight the LGAs by the existing number of dwellings in each.

This is more than a rounding error, because LGAs have very different populations, ranging from sixty-two people in Maralinga Tjarutja in far-west South Australia to 1,184,215 in the LGA covered by Brisbane City Council. While just 5 per cent of Australians live in the smallest half of all LGAs, half of all Australians live in the 10 per cent of LGAs with the largest populations — all of which are in or close to our major cities.

Small LGAs are not randomly distributed around Australia. Most LGAs with small populations are in rural and regional areas. With relatively few jobs being created there, these aren’t the places where we would expect much new housing.

According to the AHURI analysis, LGAs in the bottom six deciles according to median house price covered just 28 per cent of all houses in 2013–14. By contrast, the LGAs in the top three house price deciles — almost all of which are in or close to capital cities — account for 54 per cent of the existing housing stock.

It is hardly surprising that most new housing is built in the top three LGA deciles — they already house most of the population. These LGAs represent the vast bulk of Australia’s major cities, where population and jobs are growing faster than regional areas. And so it is misleading to conclude that new housing has been disproportionately built to serve the top end of the market.

The skew in the analysis introduces significant distortions. A suburb with the same median house price as Australia overall ($571,000 in October 2014) would not fall in the authors’ middle LGA decile, as you might expect it to, but in the ninth LGA decile. The Australia-wide median apartment price — $490,000 — would sit in the authors’ highest LGA decile. No Australian capital city has a median house price within the bottom half of LGA deciles by median house price. And only Hobart has a median unit price that would fall in the bottom half of LGAs by median unit price.

Our new analysis of the data, updated to 2016–17, shows that two-thirds of new houses have been built in the cheapest half of all suburbs, and most new units and apartments have been built in Sydney and Melbourne, where median prices are higher.

The chart below creates weighted price deciles for houses and units, so that each price decile has approximately the same number of dwellings (according to 2006 and 2016 census data). In 2016–17, almost half of the new houses were built in the third, fourth and fifth price deciles, where the median price ranges from $343,000 to $541,000. This is a typical price for a new house and land package in new greenfield suburbs on the edges of our major cities, and includes LGAs such as Casey, Wyndham and Melton in Victoria, Moreton Bay and Redlands in Queensland, and Swan and Wanneroo in Western Australia. Because Sydney’s fringe LGAs (such as Campbelltown and the Central Coast) are more expensive, they sit in the sixth decile.

And whereas the authors claim that less than 1 per cent of new homes were in the cheapest 20 per cent of suburbs in 2013–14, we found that 16 per cent of houses were in the cheapest suburbs. We also detected only a small change in this supply pattern between 2005–06 and 2016–17.

Not surprisingly, new units and apartments tend to be built in more expensive LGAs. Sydney, where median dwelling prices are highest, has seen a construction boom in recent years: about 85,000 new apartments have been built in the past four years, including 60,000 in inner and middle-ring suburbs. And these apartments aren’t just being built in high-end suburbs: new apartments in LGAs like Parramatta, Penrith and Liverpool are still in the eighth and ninth unit-price deciles nationally.

In Melbourne and Brisbane, many new apartments are being built in LGAs in the seventh and eighth deciles. Across Australia, less than 60 per cent of apartments and townhouses were built in the LGAs in the eighth, ninth and tenth price deciles (compared to 84 per cent in the original AHURI calculations for 2013–14).

New housing should be disproportionately located in suburbs that are more attractive (both in access to jobs and quality of life). And precisely because they are more attractive, such areas are likely to be more expensive. It would not be good to disproportionately build housing in LGAs with the lowest median house prices — typically rural and regional areas or fringe suburbs of our major cities — where job prospects are often poor. The fact that units and apartments are mostly being built in established desirable suburbs is good for affordability: units and apartments are generally cheaper than existing detached housing, so this makes housing in those suburbs more affordable overall.

Of course, new housing needn’t be targeted at lower price points to improve overall housing affordability. More housing supply — even at the top end — should ultimately free up less expensive housing stock. The people who move into newly constructed, more expensive housing are either existing residents who move out of less expensive housing, or new residents who would otherwise have added to the demand and pushed up the price for existing housing. Irrespective of its cost, each additional dwelling adds to total supply, which ultimately affects affordability for all homebuyers.

There is good international evidence to suggest that this “filtering” does occur in practice. For example, a recent study published in the American Economic Review found that the US housing stock

filters down at a rate of roughly 1.9 per cent per year in real terms. At that rate the real income of an arriving occupant in a fifty-year-old home would be 60 per cent less than the income of an occupant in a newly built home.

Other studies reach similar conclusions.

Data from the American Housing Survey show that 45 per cent of homes that were affordable to very low-income earners in in 2013 had filtered down from owner-occupier or higher rent categories in 1985. Expensive homes gradually became cheaper as they aged, and were sold or rented to people with more modest incomes. Without those extra homes, far less affordable housing would have been available to low-income earners.

Unfortunately, there is little Australian literature on filtering. Australia lacks an equivalent to the American Housing Survey, which has tracked a consistent set of homes, and the characteristics of those who live in them, every two years since 1985. The last dedicated survey of the Australian housing stock was conducted almost two decades ago. Nor do we know what happens to particular homes over time. But it’s a fair bet that market-rent housing is an important source of affordable housing here, as it is in the United States.

Of course, new expensive housing might not improve the balance between supply and demand if it merely induces additional demand, presumably from overseas purchasers. But there is little evidence that overseas purchasers are increasing demand by much more than they increase supply. There is clear evidence that they are not the only purchasers of more expensive housing. And while gentrification can push up prices in a particular area, the construction of more housing in total should lead to prices lower than otherwise.

Filtering may be slower if house prices rise rapidly and overall housing supply is restricted. For example, in a 2003 paper American housing academics Tsuriel Somerville and Christopher Mayer concluded that:

restrictions on the supply of new units lower the supply of affordable units. This occurs because increases in the demand for higher quality units raise the returns to maintenance, repairs, and renovations of lower-quality units, as landlords have a stronger incentive to upgrade them to a higher-quality, higher-return housing submarket.

These studies underscore the importance of more housing supply to keep housing affordable for low-income earners — even if much of the new housing is too expensive for them.

Previous Grattan Institute research shows that worsening housing affordability is hurting low-income earners the most. Those at the bottom of the income spectrum are much less likely to own their own home than in the past, are often spending more of their income on rent, and are more likely to be living a long way from where most new jobs are being created.

Until recently, the supply of new homes in Australia wasn’t keeping pace with demand. Planning rules and practices made it reasonably easy to build apartments in the CBD and to develop new housing estates on the city fringe. But they made it relatively difficult to redevelop the inner and middle-ring suburbs of major cities, where many people would prefer to live because they would have better access to jobs. Overall population growth outstripped housing growth. Not surprisingly, house prices rose.

Development in middle suburbs has increased in recent years, especially in Sydney. But development at today’s record rates is the bare minimum needed to meet Sydney and Melbourne’s housing supply targets over the next forty years, given that population growth is back up towards record levels.

While more market housing can make housing more affordable for all Australians, including many low-income earners, some level of subsidies will always be required for the worst-off Australians.

The social housing stock has not kept pace with population growth. The stock of social housing — currently around 400,000 dwellings — has barely grown in twenty years, whereas Australia’s population has increased by 33 per cent over the same period. Social housing as a proportion of the housing stock peaked in about 1997, and has fallen from about 5.6 per cent to 4.8 per cent over fifteen years.

But the public subsidies required to make a real difference to the supply of social housing would be large: boosting the stock of social housing by 100,000 dwellings — broadly sufficient to return the total affordable housing stock to its historical share of the total housing stock — would require additional public funding of around $900 million each and every year. Even then, it would still house less than a third of the bottom 20 per cent of households.

Increased rent assistance would be a fairer way to help low-income renters. No low-income renter would get a lot of support, but everyone would get a little help. Rent assistance is based on recipients’ rent levels, the payment can be well-targeted to need, and the support can move with people when they move homes. That’s why the Henry Tax Review instead recommended that rent assistance be increased to a level “sufficient to support access to an adequate level of housing.” But even a $500-a-year boost to rent assistance would cost the budget $700 million a year, and a larger boost is probably warranted.

Inclusionary zoning could provide more affordable housing at no direct cost to government budgets. But inclusionary zoning is not cost-free. It may increase rents in the private rental market a little, which would mean that people are allocated affordable housing would be much better off but other low-income earners could be a little worse off.

In practice, no plausible amount of public funding can shield low-income earners from rising housing costs. But making housing cheaper overall will reduce the amount of public subsidy needed to bridge the gap between development costs and what low-income earners can afford to pay. Even better, boosting housing supply doesn’t cost the taxpayer anything.

Housing supply isn’t the only solution to make housing more affordable for low-income earners. Larger subsidies are needed to help low-income earners cope with rising housing costs. But without more supply for everyone, housing won’t become much more affordable, especially for low-income earners. ●

The post The conventional wisdom is wrong: building more housing does help low-income earners appeared first on Inside Story.

To break the ice, music therapist Asami Koike asks us to introduce ourselves and nominate an artist we like whose name begins with the same first letter as our own. The others mostly choose performers I’ve never heard of, and I worry that my pick, Paul Kelly, will make me look even more out of place. But Susie, a slight young woman with lively eyes, short hair and a winning smile, surprises me by saying, “Cool, good choice,” and Conrad, solid and quiet, nods in agreement. The two of them are already holding acoustic guitars; Asami has one too, and Jess is seated at the keyboards, ready to play. Asami encourages the rest of us to pick a less demanding instrument from a selection of things for shaking or hitting that she’s spilled onto the table.

“Okay,” she says. “Let’s make some music. Susie, why don’t you choose something?” Susie hauls over a fat blue folder and begins leafing through. The folders, and there are several of them, are packed with plastic sleeves, each sleeve containing multiple copies of the lyrics and chord progressions for popular songs. Asami has collected hundreds of sheets to cover every possible taste in music.

Susie makes her selection and hands around the photocopies, and we crash our way through a rather sad ballad. I’m not familiar with the artist or the song, but the melody is easy enough and we make a surprisingly good fist of it. Asami’s strumming keeps the rest of us more or less in time and her singing helps us carry the tune. As we finish, a light ripple of laughter goes through the group, a sense of relief and release. No one is embarrassed. No one feels foolish. The song is a small triumph that binds us together.

Music therapy is a relatively new but growing profession. Like many new ways of doing things, it has its origins in wartime, when medical professionals began noticing the effect visiting music groups had on traumatised veterans. Music therapy is mostly used in clinical environments, often with the very old — as a therapy for dementia for example — and the very young, including in children’s hospitals as an aid to treatments, mental health and neurodevelopment. It is also used to help people with autism.

To date, though, it hasn’t often been used in community settings or as a way of helping teenagers and young adults. But Asami says common sense tells her that it has great potential. “If you think about it, adolescence and early adulthood are the times when music plays the most crucial role in our lives,” she says. “Music is the way young people express and explore identities.” Asami is putting her theory to the test at Frontyard Youth Services, where she runs this weekly drop-in session every Thursday afternoon and sees young people individually on other days.

Frontyard is part of one of Victoria’s oldest charities, Melbourne City Mission. It provides statewide services for vulnerable young people (aged twelve to twenty-five), particularly those who are homeless or at risk of becoming homeless. Every day, seven days a week, about thirty young people make their way through the door, some coming back for repeat visits, and a larger number seek help over the phone.

When they first make contact with Frontyard, most of them want urgent assistance with housing: maybe they’ve finally run out of couch-surfing options, maybe they’ve been kicked out of private rental accommodation or fallen out with their housemates. Often, they will have escaped a violent home and sometimes they are already sleeping rough. Frontyard staff do their best to find them a safe place to spend the night, but the best they can offer may be a bed in a dorm at a backpacker hostel or a seedy motel room. On any given day, more than 6000 young Victorians are homeless, yet the state has only fifteen dedicated youth refuges with a total of 107 beds between them.

Beyond a lack of accommodation, Frontyard’s clients generally have other complex needs. Homelessness is frequently tangled together with challenges like experiences of family violence, trauma inflicted in state care, mental illness, disability or learning difficulties, poor social skills, limited education, low self-esteem, and poverty and unemployment. Even with the best-trained and most sympathetic youth workers, a troubled kid is unlikely to be willing or able to lay this all out at the first meeting. So Frontyard strives to build trust and engagement through a range of free onsite services and activities. It offers a help-yourself, all-day breakfast, wi-fi, phone charging, showers and laundry facilities. It helps with practicalities like getting an ID card and registering for Youth Allowance, has its own college, and is co-located with an adolescent health clinic, a free legal service and a mental health team. Staff can help with finding a job or with improving personal relationships.

Then there’s music therapy, one of Frontyard’s newer and more innovative offerings. The program grew out of Asami’s postgraduate studies at the University of Melbourne, which were coming to an end in 2015. In the final semester of her Master of Music Therapy, she and other students were required to find a placement in an organisation that didn’t already offer music therapy. In other words, they had to approach an organisation and convince it to give music therapy a chance. Asami chose Frontyard, and staff there were happy to give it a try. By the end of her placement the results were so positive that management offered her a job, funded out of the untied donations that make up about a quarter of Frontyard’s budget.

Asami is a versatile and highly skilled musician. Along with vocals and guitar, she plays violin, piano, saxophone and drums. She’s also worked as a research assistant on a University of Melbourne study examining music therapy’s role in helping young people recovering from mental illness. Her ability to build rapport within our disparate little group is remarkable.

Crowded together in her basement music room, we work our way through songs by Adele, Bruno Mars and ABBA. “Dancing Queen” is the only song I know well (though it wouldn’t have been my choice) and, apart from Asami, most of us struggle with its rapid transitions from low to high notes. But no one really cares, and I even get a bit more ambitious on my tambourine, with a flourish on the line “Feel the beat from the tambourine, oh yeah…” I don’t think the other participants quite comprehend when I tell them afterwards that the song was a hit when I was thirteen — the mid 1970s is just too remote in time — but they humour me nonetheless.

One participant, Frankie, leaves after our first song to attend a meeting with a support worker, but not before swapping tips about hair colour. The newcomers, Nina and Lucy, are both noticeably more relaxed. “Do you come here every week?” Nina asks Susie. “Because if I know you are here too then it’ll be easier to come back again.” Quiet Conrad is also talking more, telling us how much the fingertips of his left hand are starting to hurt from pressing down the guitar strings to form chords. He looks lighter and makes more eye contact.

Before the group started, Asami had explained to me that promoting social connection was one of her three overall goals. “It is not about music as performance or about giving young people the skills to busk or to get into a music school,” she says. “It’s more about bringing people together.” She wants to give isolated young people a chance to work out who they are in a social context.

“Many young people who come to Frontyard have only a negative sense of self,” she says. “They think, I am homeless, I am in crisis.” Listening to, playing and talking about music enables young people to start building a more positive identity, the second of Asami’s three goals. “Often, they have little sense of who they are,” she says. “They don’t care about themselves and have no boundaries.” In determining the artists they like or hate, in forming opinions about whether they think a piece of music is good or bad, they begin to define themselves, and so put in place the building blocks of a more secure sense of identity. “Young people have such strong opinions about music, so if you can say you don’t like something, then your prefrontal cortex is working,” says Asami, referring to a part of the brain that plays a crucial role in developing personality, complex planning and impulse control, and ordering emotional responses.

This links to Asami’s third aim of using music to regulate the senses and provide emotional respite in an otherwise chaotic world. Towards the end of our group session I get a dramatic firsthand taste of how this works. We’ve just finished a rendition of Oasis’s “Don’t Look Back in Anger.” I couldn’t name the song, but I immediately recognise the tune and the lyrics (“And so, Sally can wait, she knows it’s too late as we’re walking on by.”) We’ve done a solid job with the song, despite its tricky rhythms, and the mood in the room is upbeat but mellow. There is a sense that we have achieved something together.

Then, just as it looks like the session is drawing to a natural close, three new participants burst in, filling the room with backpacks and duffel bags bursting at the seams. Bernie and Helen are regulars at Frontyard, and know most of the others in the room, greeting them loudly. The third young woman, Christie, is a new arrival and has just spent her first night in one of Melbourne City Mission’s four youth refuges, being lucky enough to secure the one bed that is kept vacant for last-minute emergencies. All of them are eating doughnuts, all of them are hyped up and on edge. “This is the last time you’ll see us, Miss,” Bernie calls out to Asami. “We’re going to Brisbane tomorrow!” Susie asks why. “’Cause I got bashed on Saturday night,” she responds, as if this is explanation enough. “Who’s he?” Bernie then demands, pointing at me. I explain that I’m writing about housing and homelessness.

Bernie doesn’t seem to care about my answer or my presence, but her arrival has been like a sudden change in the weather. The energy in the room is completely different, almost electric. I feel like the situation is getting out of hand, and that the progress Asami has made with the rest of the group is at risk of being undone. I expect her to wrap things up quickly to limit the damage, but she does the opposite, quietly suggesting that the three late arrivals join us in another song. She encourages Bernie to choose from the folders. “Nah, Miss, I don’t want to play, I just came to say goodbye,” she says. Bernie is still standing, jiggling from one foot to the other, her tall frame dominating the room. Susie chooses instead and we get stuck into another ballad. Despite themselves, Bernie, Helen and Christie soon join in. When the song ends, Bernie wants another, and then a third. By the end of the session she is calmer and more focused, and is sitting down, joining us in the circle of chairs.

“With the young people who come to Frontyard, often their brain is over-firing, or it is not firing at all,” Asami tells me later. Even playing with one hand on a drum regulates breathing and heartrate and brings participants into emotional sync with others in the group. “The feeling of being in time with a whole group means that everyone is there, everyone is present,” she says. “The effect is both visceral and cognitive.”

While I see that sensory regulation can be almost immediate, Asami tells me that it can take a year or more of incremental steps to achieve longer-term outcomes. A young person may initially be averse to seeing the nurse at Frontyard’s health clinic, for example, but feel more confident to do so after a few weeks of attending music therapy.

While the Thursday event I attend is a drop-in session, open to all, Asami’s one-on-one work proceeds a bit differently. “Some just want to learn guitar, they don’t want to talk and they don’t want to look at you,” she says. “They have lost so much trust with all the authority figures in their life.” But after about fifteen minutes, that generally changes. “They must feel calm and must feel safe to start talking,” she says. “If you start to play music together, then I’m no longer a therapist, I’m a band member. It breaks down the power dynamic.”

Bernie has participated in these one-on-one sessions, and Asami tells me that the first time she came she said, “Nothing fucking works, Asami, so I’m just going to give this a go.” She would use two fingers to pick out notes on the keyboard for long stretches of time, apparently completely at random, with no evidence of melody or rhythm. Asami interprets Bernie’s improvisation as an expression of the intense isolation she feels. She says that music therapy has really softened Bernie, whom she describes as both “intense” and “maternal,” quick to share whatever she has, and often taking others, like Helen and Christie, under her wing. Conrad, too, has been doing individual sessions. I am amazed when Asami tells me that this placid, friendly young man has anger problems and has been the subject of intervention orders by his parents.

At the end of our group session, Nina asks Asami if she can stay behind for a minute and talk to her privately. I sense that this is another opportunity, the moment at which a troubled young person reaches out, revealing more of her story and her needs.

As Asami reminds me, music is symbolic, and we often use it when words are unavailable or inadequate to express our feelings or meet the emotion of a situation. “That’s why we play music at weddings and funerals and before sending soldiers off to war,” she says. Music can lift young people out of the hole they are in, and help them to see beyond the rim of their immediate crisis, connect with others and build trust. As the odd man out in our group, I felt included, with the young participants doing their best to put me at ease and make me welcome.

“What is so interesting is that everyone is so generous,” says Asami. “They step up and take responsibility, as if there is a real need to prove that they are not just taking, but want to give back.” ●

Names have been changed to protect the privacy of participants.

The post “Okay. Let’s make some music” appeared first on Inside Story.

The states reacted predictably, immediately releasing statements critical of the cuts. The federal Indigenous affairs minister, Nigel Scullion, duly accused them (in a statement that doesn’t appear on his website) of “undermining good faith negotiations” and denied that Commonwealth funding was ceasing. But he also said that the states should spend some of their mainstream federal funding on social housing for remote residents, and confirmed that the negotiations had begun only on 20 December. Then, during a visit to Gunbalanya in the Northern Territory last week, he appears to have pledged to match the NT government’s longstanding commitment of $1.1 billion over ten years for remote housing. Once again, he told the three states to put up their own money.

No one doubts that housing plays an important role in alleviating deep-seated disadvantage, and few would dispute that remote Indigenous communities are the locus of perhaps the most concentrated disadvantage in the nation. So what is going on here? Why the last-minute resort to mixed messages?

The federal government has played a crucial role in funding social housing since the second world war. Following the 1967 referendum, it gradually ramped up its direct investment in Indigenous housing programs both through the Commonwealth–State Housing Agreement and with a number of Indigenous-specific programs. Until 2007, the CSHA included funds for Indigenous social housing delivered by the states and territories, while the Commonwealth itself ran a nationwide Indigenous housing and infrastructure program, the Community Housing and Infrastructure Program, or CHIP.

These programs recognised the reality that the states had not provided adequate social housing to their Indigenous citizens. While the overt racism of the states’ policies has largely disappeared, the invisibility of Indigenous interests continues. The case for an ongoing Commonwealth engagement in remote housing policy remains incontrovertible.

A 2007 report on CHIP, commissioned by John Howard’s Indigenous affairs minister, Mal Brough, found that the program had failed to focus on need. Given that Indigenous citizens in urban areas and regional centres had access to mainstream social housing options, the most urgent need was clearly in remote communities. There, the almost total lack of private rental housing in remote communities meant that residents couldn’t qualify for Commonwealth Rent Assistance, the largest social housing program in the nation.

In its last year in office, the Howard government increased funding for Indigenous housing and infrastructure. Then the Rudd government struck a National Partnership Agreement on Remote Indigenous Housing with the states, which came with a massively increased Commonwealth investment of $5.5 billion over ten years. Construction and tenancy management were to be undertaken by the states and the Northern Territory, with each jurisdiction given targets for dwelling numbers, refurbishments and Indigenous employment. Even so, it was recognised that the investment wouldn’t meet the totality of housing needs in remote Australia.

The ten-year agreement survived the arrival of the Abbott government in 2013, albeit with the almost-mandatory change of name (it is now known as the National Partnership on Remote Housing, or sometimes as the Remote Housing Strategy) and a funding cut of $95 million. But now, with less than six months to run, what is likely to replace this scheme?

In November 2016, to pave the way for the decisions that will answer that question, Nigel Scullion announced a review of remote Indigenous housing. “Overcrowding, homelessness and poor housing conditions in remote Australia remain unacceptably high,” he said. The review had two tasks: an analysis of what had been done and an assessment of what should happen.

The prime minister’s Indigenous Advisory Council was briefed on the review progress in May last year. In its 19 May communique, the council made a number of comments on Indigenous housing and the review-in-progress, among other things expressing concern that “despite significant reductions in overcrowding investment is required to meet unmet need and maintenance of housing stock.”

In August, Scullion foreshadowed a number of likely policy directions during an episode of ABC TV’s Q&A broadcast from the Garma Festival. “We’re deadly serious about this,” he said. “We’ve invested $5.4 billion over the last decade, and I think everybody would agree we could have done a lot better. We have reduced overcrowding from 52 per cent to 37 per cent — it’s still in the margins, and that took a fair while to do.” In talks with the states and territories about the National Partnership, he said, “we’ll be negotiating on the basis of what the communities have asked us to negotiate on.”

He went on: “So, Indigenous employment is non-negotiable. Indigenous procurement is non-negotiable. And we’ll be asking the states to match those funds. Because we need a pulse. Sometimes we can just trickle along and we’ll be just catching up, just getting ahead, but we actually need a significant injection of funds. So, that’ll be the basis of our negotiation with the states.”

Then, on 26 October, just before the most recent Senate Estimates hearings on Indigenous affairs, the minister released the Remote Housing Review’s report, which essentially confirmed the minister’s assessment of the unacceptable state of remote housing. Its headline finding was that:

By 2018, the Strategy will have delivered over 11,500 more liveable homes in remote Australia (around 4000 new houses and 7500 refurbishments).

This increase in supply is estimated to have led to a significant decrease in the proportion of overcrowded households in remote and very remote areas, falling from 52.1 per cent in 2008 to 41.3 per cent in 2014–15. The Panel projects this will fall further to 37.4 per cent by 2018.

The minister and his officials made no absolute commitments to remote housing at the Estimates hearing. But they did lay down what appeared to be the benchmarks that will shape future Commonwealth policy.

First, they argued — against accepted wisdom and contrary to the history of Commonwealth involvement since at least 1968 — that funding for remote Indigenous housing was primarily a responsibility of the states and territory, and that the Commonwealth’s role was in effect optional or discretionary. “Yes, we have seen this review and we’ve let the states know about the review,” said Scullion. “They are aware that this is a national partnership agreement under which we haven’t reached the goals we were supposed to reach, because then it was to go back to the states’ responsibility…” The Commonwealth would negotiate with the states about what percentage of the responsibility it retains, he went on. “It was the intention that by this stage, the Commonwealth would have no further role and the role would go back, rightly, to the states and territories in this regard.”

But there was never an “intention” that the National Partnership on Remote Housing would be the end of the Commonwealth’s involvement; indeed, it was recognised when the agreement was negotiated that its targets would meet only around half of the outstanding need for remote housing. Moreover, the National Partnership largely met its goals; in fact, allowing for substitution of investment between new builds and refurbishments, it exceeded its goals.

One way to interpret the minister’s statement is that a cabinet decision had not been made, but that he recognised it was unlikely to allocate a further $5.5 billion over ten years. He also appeared to rule out a new national agreement, indicating instead that the government was considering a series of bilateral agreements with the three states and the Northern Territory. No persuasive argument has been made for such a shift, but it will clearly allow what will effectively be a bidding war between the relevant jurisdictions (which all happen to have Labor governments) based on their preparedness to match Commonwealth funding.

This shift also opens up the possibility that the ten-year program will give way to shorter-term agreements. It also increases the likelihood of reductions in funding through the annual federal budget process, whereas the National Partnerships — endorsed by the Council of Australian Governments — appeared to have a greater (but not total) degree of protection from budget revisions.

The minister also backtracked on the timing of an announcement of the new funding arrangements. In responses to earlier Estimates questions, the government had advised that the decision would be announced as part of the Mid-Year Economic and Financial Outlook statement, or MYEFO, normally brought down in December or January. In the latest Estimates hearing, Scullion shifted ground, indicating that discussions with the states and territory were at a very preliminary stage and “it’s unlikely any announcement will be made prior to MYEFO, but there will certainly be an announcement prior to or during the budget process.”

One key recommendation of the Remote Housing Review was that “a minimum five-year rolling plan” should be created for the program. Yet the Commonwealth’s delays mean that the states and the Northern Territory will enter the 2018–19 financial year with very little time to develop a capital works program, more or less guaranteeing a hiatus of a year or more.

What should the next iteration of the National Partnership look like? The two first-order issues are the levels of need across remote Australia, as measured by overcrowding; and the investment needed to maintain the existing housing and increase its lifespan. The necessary level of funding flows from these two factors.

Other issues are important but secondary. They include maximising local Indigenous employment and/or Indigenous employment generally; deciding how best to deliver necessary repairs and maintenance; choosing and resourcing the most effective tenancy support models; and determining how to make trade-offs between design and cost, between new building and refurbishment, and between construction cost and whole-of-asset lifespan cost.

As a guide to meeting the first-order goals, the minister’s Remote Housing Review is of only limited assistance. In estimating the ten-year need for 5500 houses, it includes only households that need three bedrooms or more, and citizens who are homeless. As it concedes, “the overcrowding challenge is likely to be greater.” The review’s estimates are based on 2011 rather than 2016 census data, and it fails to include any estimate of how many houses are reaching the end of their effective lifespan, and when they will need replacing. (Such data is virtually non-existent, but if average asset lifespans were thirty years, and the national remote Indigenous community housing asset base were 15,000 houses, then we could expect around 500 houses to reach effective “end of life” each year, or 5000 over the next decade.)

The review’s modelling is based on reducing overcrowding from 37 per cent to “around 25–30 per cent by 2028,” a level still 10 percentage points higher than in urban and regional areas. It makes no assessment of outstanding need based on matching the rate in metropolitan Australia. (Given that the National Partnership’s extra 4000 houses reduced overcrowding by 15 per cent, and that the review estimates that 5500 extra houses would reduce overcrowding by another 10 per cent, then at least 5000 more houses would probably be required.)

The review reports but then entirely ignores the figures on current demand and projected need provided by three jurisdictions, which total 7520 houses. This suggests that a more accurate figure for the coming decade would be at least 10,000 new houses and arguably 15,000 new houses. Assuming a construction cost of $600,000 per house, delivering 10,000 houses would cost $6 billion. This would need to be complemented by a program of refurbishments aimed at extending asset lifespans wherever possible; assuming effective property and tenancy management policies are in place, this might involve somewhere in the region of 2000–5000 refurbishments over the next decade. Three thousand refurbishments at $100,000 each would add $300 million to the necessary outlays.

Finally, the review correctly emphasises the need for a complementary recurrent program designed to deliver property and tenancy management to the entire asset base. The review’s most insightful conclusion, based on detailed research by Nous Consulting, is that annual rental revenues cover only between 10 and 20 per cent of the actual cost of maintaining remote housing. (Much of this extra cost is a function of remoteness.) This suggests that some $2.8 billion in additional funds will be required to maintain the existing asset base over the next decade.

These rough though conservative calculations suggest that meeting the outstanding housing need in remote Australia over 2018–28 would cost around $9 billion: $6 billion for 10,000 additional houses, $0.3 billion for refurbishments, and $2.8 billion for property and tenancy management. While these figures are daunting in themselves, the challenge is magnified by the fact that they don’t include land servicing, essential services infrastructure, and access roads, all of which were selectively funded by the current National Partnership.

Underinvesting in remote housing over the coming decade will have devastating consequences. For taxpayers, the lifespans of housing built under the National Partnership will be substantially and prematurely shortened by inadequate maintenance. The costs of poor health, education and social outcomes will expand. The local economic activity that spins off capital works will dissipate, further undermining economic development in remote communities. Most importantly, though, the lives and opportunities of tens of thousands of remote citizens will be irretrievably constrained. Evidence from the latest census shows that income levels are worsening in remote Australia, and a pullback in remote housing investment will only exacerbate the trend.

Apart from renewing the National Partnership with a significant level of funding, what options exist for the Commonwealth and the states? I would suggest four.

First, the Commonwealth needs to make good on its commitment to open up opportunities for private-sector investment in remote community housing. One major impediment thus far has been the lack of progress in land reforms (which, to be effective, must not lessen the rights of traditional owners or native title holders). Another has been a lack of innovative vision within government. A third has been the transaction costs and other hidden disincentives that hold back investment, even where progress has been made on more flexible institutional frameworks (for example, the township leases in a number of NT communities). And the fourth is a lack of access to capital. The government’s focus on higher levels of home ownership among remote Indigenous citizens, the vast majority of whom are welfare recipients, has been misdirected; they would do better to concentrate on building up a rental housing market in remote Australia, where it is virtually non-existent.

One way to kickstart such a shift would be to establish a government-owned corporation (which might joint venture with Indigenous corporations) able to borrow in the private sector to build, own and rent out housing in remote communities. Such an initiative would tackle the shortage of housing, and of staff housing, in remote communities (which acts as a disincentive to attract and retain both locally engaged and external staff); would open up new sources of private-sector capital for investment in remote locations; and would begin to give remote Indigenous residents access to the Commonwealth Rent Assistance program.

Second, policy-makers could focus on supporting three or four community housing providers across remote Australia to complement the operations of state housing authorities in remote regions. Although the National Partnership established formal lines of accountability for the owners of social housing, state and territory housing authorities have yet to deliver on their responsibilities. Introducing competing providers may be necessary to demonstrate that poor housing is not an inevitable and endemic feature of remote regions.

Third, given the propensity of the states and the Northern Territory to underfund property and tenancy management in remote regions, the Commonwealth should take a much more direct role, either by delivering these services itself (perhaps by injecting Commonwealth officials into the relevant parts of state and territory housing authorities) or by establishing a new statutory office to monitor, oversee and regulate them. Such an initiative might need only exist for ten or fifteen years until new expectations are embedded into bureaucratic practice, but it would ensure that the capital investments to date, and any future investments, will be protected from accelerated wear and tear.

Finally, one innovative element of the National Partnership was the capacity to vary funding allocations in response to state governments’ performance against key metrics. Despite improvements in state and territory performance, this element was discontinued after the change of government. While the Remote Housing Review argues that varying funding had “undesirable and unintended consequences,” it is salutary to reflect on the fact that the best-performing state in terms of value for money, South Australia, was penalised for poor performance in the early years of the program.

Without a renewed commitment, we will witness a slow-motion national crisis. The asymmetry between the short-term benefits of reduced investment and the longer-term social, economic and health costs is leading to decisions that are not in the public interest, and certainly not in the nation’s long-term interest.

How this issue is resolved will be a test not only of the capacity of the Australian Public Service to drive good policy, but also of the calibre of our political leaders and, ultimately, our national character. The pre-Christmas flurry appears to have been designed to scare the states into thinking that the Commonwealth might allocate no funds at all, and thus pressure them into treating any offer as a bonus. It might work politically, but will magnify the task of closing the gap in remote Australia. ●

The post Tactics versus strategy in Indigenous housing appeared first on Inside Story.

The debate over negative gearing illustrates a broader problem ignored by many affordable housing advocates. While negative gearing and a number of other housing tax reforms are definitely worth pursuing, they alone won’t solve our housing affordability crisis.

Treasury’s advice confirms previous Grattan Institute research showing that abolishing negative gearing and halving the capital gains tax discount to 25 per cent would leave house prices roughly 2 per cent lower than otherwise, favouring would-be homeowners over investors.

Of course, the price changes wouldn’t be uniform across Australia. Prices would probably fall a bit more for cheaper housing, since tax breaks have channelled investors into low-value homes that pay less tax under state land tax thresholds. But even in apartment markets dominated by investors, the maximum rational price impact shouldn’t exceed 3 to 4 per cent. In other markets the impact will be practically zero. And price falls could be larger in markets where the tax breaks have encouraged highly leveraged investors to chase higher capital gains, or where investors place more value on the tax benefits of negative gearing than they’re really worth.

And so the dominant rationale for reforming negative gearing and the capital gains tax discount remains their economic and budgetary benefits. The current tax arrangements distort investment decisions and make housing markets more volatile. Abolishing negative gearing and halving the capital gains tax discount would boost the federal budget’s bottom line by around $5 billion a year.

Extending state land taxes to owner-occupied housing would have a bigger impact on prices while also helping state budgets to the tune of $7 billion nationally. If the funds were used to abolish more economically costly taxes — such as taxes on insurance — they would give a big boost to the economy. Again, though, the impact on house prices is modest: they would be around 3 per cent lower than otherwise.

State governments should also abolish stamp duties on property, and replace them with a general property tax, as the ACT government is doing at the moment. But replacing one tax on property with another collecting the same revenue won’t have a big impact on house prices. The real justification is that it would help workers to take a better job that’s only accessible by moving house, and so improve economic growth. It’s a big prize: a national shift from stamp duties to broad-based property taxes could leave Australians up to $17 billion a year better off.

Including the family home in the age-pension assets test would also make only a small difference to housing affordability because few seniors would choose to downsize. Research shows that downsizing is primarily motivated by lifestyle preferences and relationship changes. Surveys suggest that no more than 15 per cent of downsizers are motivated by financial gain, with only 1 per cent nominating the impact on their pension as their main reason for not downsizing.

But reforming the pension means test would still make the retirement incomes system fairer and contribute to budget repair. Half of the government’s spending on age pensions goes to people with more than $500,000 in assets.

If the value of homes above $500,000 was included in the age pension assets test — and the asset-free area for homeowners was raised to the level that currently applies to non-homeowners — the Commonwealth budget balance could improve by between $1 and $2 billion a year.

And no senior would be forced to move. Asset-rich, income-poor retirees could continue to receive a full pension by borrowing against the value of the home until the house is sold. If well designed, this scheme would have almost no effect on retirees — instead, it would primarily reduce inheritances.

All these reforms are worth pursuing. Each would produce big budgetary and economic benefits. But even if federal and state governments adopted them all, they would have only a modest impact on Australia’s $7 trillion housing market. House prices would be unlikely to fall by more than 10 per cent from where they would be otherwise — small beer compared to the tripling of house prices over the past three decades. And governments have little control over two of the biggest drivers of rising housing demand: higher incomes and record-low global interest rates.

If governments are serious about affordability, then a boost in the supply of housing is also needed, even if it will take time.

Until recently, the supply of new homes wasn’t keeping pace with demand. Planning rules and practices made it reasonably easy to build apartments in the CBD and to develop new housing estates on the city fringe. But they made it relatively difficult to redevelop the inner and middle-ring suburbs of major cities, where many people would prefer to live because they would have better access to jobs.

Development in middle suburbs has increased in recent years, especially in Sydney. But today’s record level of housing construction is less impressive than it seems because population growth in Sydney and Melbourne has been so strong.

In fact, development at today’s record rates is the bare minimum needed to meet both cities’ housing supply targets over the next forty years.

The best evidence suggests that boosting housing supply will improve affordability, albeit only slowly. Even at current record rates, new housing construction increases the stock of dwellings by only about 2 per cent each year. But, on one estimate, adding an additional 10,000 homes a year above current rates of housing construction for the next decade could see national house prices almost 20 per cent lower than they would be otherwise.

Within living memory, Australian housing costs were manageable, and people of all ages and incomes had a reasonable chance to own a home close to jobs. Now, home ownership rates are falling among the young and the poor. Owning a home increasingly depends on who your parents are, a big change from thirty-five years ago, when home ownership rates were similar for all income groups.

Perhaps the most frustrating aspect of the Australian housing affordability debate is the tendency to focus on any one policy lever to the exclusion of all others. The federal government insists that supply alone will make housing more affordable. Many affordable housing advocates argue the opposite. As the battle lines sharpen over whether demand or supply is the right way to tackle housing affordability, we risk getting bogged down without achieving anything. And all the while housing will become even less affordable for younger generations.

There is no silver bullet. Both strong demand and weak supply have pushed house prices higher. Improving affordability will therefore require policies affecting both demand and supply. Tax reforms that reduce housing demand could reduce prices somewhat. In the long term, though, boosting the supply of housing will have the biggest impact on affordability. ●

The post There’s no silver bullet when it comes to housing affordability appeared first on Inside Story.

Those fine words are backed by C$15.9 billion of federal money. Evan Siddall, president and CEO of the Canada Mortgage and Housing Corporation, told the conference that contributions from provincial and local governments could bring the total investment to around C$40 billion over ten years, sufficient to repair 300,000 existing dwellings and build 100,000 new ones.

Ottawa is spending C$4.8 billion to increase the quality and supply of public and social housing provided by provincial governments and community organisations, and putting another C$11.1 billion into a National Housing Co-Investment Fund offering low-interest loans to build affordable housing for the private rental market.

To get finance from the fund, 30 per cent of dwellings in a project must be rented out for less than 80 per cent of median market rates for a minimum of twenty years. That’s double the duration required under the successful but short-lived Australian equivalent, the National Rental Affordability Scheme, or NRAS, which funded about 37,000 new homes renting at a 20 per cent discount to the market. The Canadian government is also leveraging its fund to achieve other objectives: projects must outperform existing national codes on energy efficiency and greenhouse gas emissions by 25 per cent or more and at least one in five dwellings must meet specified accessibility criteria.

On top of all that, Canada’s strategy sets a target of halving chronic homelessness within ten years through a C$2.2 billion program that Siddall said would take a housing-first approach, regarded by many advocates as the most effective long-term way to tackle the problem.

The relevance of the Canadian example was not lost on the Australian audience. Measured by housing prices and the pace of their rises, Toronto and Vancouver are up there with Sydney and Melbourne. Both countries are federations, with split responsibilities across three tiers of government complicating housing policy. Both struggle to find a coherent response to chronic homelessness.

Perhaps the reason that Siddall’s presentation had the Sydney audience buzzing was the extent to which the approach of the Canadian government appeared to reflect their own aspirations for policy in Australia. This goes beyond the language of human rights to encompass the benefits of secure, appropriate and affordable housing for health, education, employment and economic growth. Siddall, who helped develop the strategy and described his role in the Canadian system as equivalent to that of a deputy housing minister, cited research showing that housing has “a higher multiplier effect than personal or corporate tax cuts” with a return of $1.50 for every $1 invested. He described the strategy as “community renewal on a national scale” and said the Trudeau government conceived housing as “shelter, not bricks and mortar.”

The sincerity of Trudeau’s promises will only become clear over time. Australia, too, has had a prime minister who vowed to halve homelessness and then found the problem to be far more intractable than expected. Critics note that Trudeau’s new approach to homelessness won’t be launched until early 2019, about six months before Canada’s next federal election. Another key element of the program, a C$4 billion rent subsidy called the Canada Housing Benefit (which looks like it might be similar to Australia’s Commonwealth Rent Assistance) is not due to start until six months after that election, in April 2020. As Australian housing advocates know only too well, programs are only durable if they have bipartisan support solid enough to withstand changes of government and changing budgetary circumstances.

Still, Evan Siddall’s presentation on Canada’s strategy set the tone for many conversations during the rest of the conference. For the more optimistically inclined, there was a sense that measures announced by treasurer Scott Morrison in this year’s federal budget had also moved Australia closer to a coherent national policy.

The most significant step is the creation of the National Housing Finance and Investment Corporation. If it works, the NHFIC will attract new long-term institutional investment into affordable housing by acting as a bridge between community housing providers and superannuation funds. While community organisations can, and do, borrow from banks, each loan must be separately negotiated. Super funds won’t deal one-on-one with individual providers in this way, so the NHFIC and its associated bond aggregator aim to offer them a standardised, rated investment product. “The NHFIC is not a national housing policy,” said Carrie Hamilton from the Housing Action Network, “but it is a very important piece of the puzzle.”

Hamilton was introducing a keynote presentation by Piers Williamson, chief executive of the Housing Finance Corporation. This British forerunner of the NHFIC was set up in 1987, after Margaret Thatcher’s controversial “right-to-buy” program had depleted Britain’s supply of affordable rental dwellings by selling off council houses. It provides long-term loans to Britain’s 170 individual housing associations, which between them own 2.49 million homes and account for 10.5 per cent of all housing.

Williamson, who is advising the Australian government on setting up the NHFIC, described himself as a specialist in risk — “not in taking risks but avoiding them.” He is proud of the fact that no bank or institutional investor has lost money lending to a British housing association over the corporation’s thirty-year history. He also points out that the Housing Finance Corporation helps smooth economic cycles. When commercial banks were falling over in the global financial crisis, its lending grew. Under a government scheme introduced in 2013, the Corporation also guarantees loans to housing associations, reducing the cumulative cost of borrowing for affordable housing, he says, from 3.7 per cent to 2.5 per cent.

On the final day of the conference, when assistant treasurer Michael Sukkar announced that the Commonwealth would offer a similar guarantee on bonds issued by the NHFIC, delegates burst into spontaneous applause. Two other announcements also pleased the audience. The first was that the NHFIC will have an independent board when it begins operations on 1 July 2018. Williamson had earlier told the conference that independence has been crucial to the success of Britain’s housing finance corporation because “politicians always like to dabble and dabbling is not always good.” Sukkar’s third bit of news was that a $1 billion facility set up to finance infrastructure to expedite new housing supply will now be ongoing, rather than terminating after five years.

The NHFIC has the backing of both Labor and the Greens, which means it should survive any change of government, and in his conference speech Sukkar added some small but essential elements that move it closer to being a core piece in the bigger picture of a coherent national housing strategy. But the most important part of the puzzle is still absent — government money.

“Subsidised housing requires a subsidy,” Williamson told the conference. He said that “sitting at the bottom” of Britain’s affordable housing model was £45 billion (A$75 billion) in grant money. “Grants,” he said, “are one of the things missing over here.”

The crucial role of public investment in providing housing for low-income households is well established. Private developers will not build affordable housing because it does not make commercial sense for them to do so. It’s a clear case of market failure.

Two charts from reports by the Australian Housing and Urban Research Institute, or AHURI, help illustrate the point. The first, from a report on the responsiveness of Australia’s housing supply, tracks new dwelling supply over a decade. The authors argue that this data shows that the vast majority of new houses and units are “concentrated in the mid-to-high price deciles” and that there is a “paucity of new supply at the bottom end of the housing market.”

In theory, though, an increase in higher-priced supply should still help reduce the cost of housing overall. As buyers or renters of more expensive homes move up the property ladder, they release their former cheaper dwellings onto the market — a process known as filtering. If filtering works effectively (and there are arguments about that), then what matters for affordability is not so much an increase in supply at the bottom of the market as an increase in supply overall. But what is happening to supply is also disputed, as seen in a current public debate between leading Australian housing researchers.

Ben Phillips and Cukkoo Joseph at ANU’s Centre for Social Research and Methods recently concluded that Australia had an oversupply of new dwellings between 2001 and 2017. If this is correct, then other factors must be stopping filtering from increasing affordability. If new properties are bought as second homes or by overseas investors, for example, then there is no previous property to filter down.

But the Grattan Institute challenges the ANU analysis of oversupply. “Phillips and Joseph ignore how rising prices and worsening affordability pushed people into larger households than they would have chosen,” wrote John Daley and Brendan Coates in response to the report. “And so their estimates underplay the number of dwellings needed to accommodate Australia’s growing population.” Daley and Coates give the example of young people staying longer in the family home than in the past and conclude that this is less likely to be driven by “a social wave of filial affection” than by the fact that “there is less housing to go round.”

Even if the Grattan Institute is right that “a sustained increase in supply over several years” would materially lower prices, it will be a slow process, because high rates of new construction only increase the stock of existing dwellings very gradually. This is why many delegates at the Sydney conference focused less on market settings and more on public investment in social and affordable housing.

Which brings us to the second chart, from an AHURI report on public housing that shows how government investment in the sector has tracked steadily downwards over a thirty-year period, with one brief, spectacular exception. The blip in the chart that resembles the sudden resuscitation of a stalled heartbeat is the dramatic effect of Kevin Rudd’s second stimulus package during the global financial crisis. In February 2009, Labor pumped $42 billion into the economy, including $6.6 billion to build 20,000 new units of social housing dwellings and 802 defence homes. At the time, surprised housing advocates called it a “quantum leap” for the sector. As soon as the stimulus ran out, though, construction of social housing fell off a cliff and the heartbeat of Australia’s social housing sector returned to its dangerously low levels.

On the same day as Justin Trudeau was launching Canada’s national housing strategy, the British government released its autumn budget, which included “£15.3 billion of new financial support for housing over the next five years, bringing total support for housing to at least £44 billion over this period.” Oona Goldsworthy, CEO of Bristol housing provider United Communities, who was at the Sydney conference, told me that “a lot of government effort” is going into housing in Britain, with prime minister Theresa May giving it equal priority, or greater, to health, education and growth.

Despite Michael Sukkar’s announcements, housing doesn’t seem to be getting the same level of attention here. Nor is there evidence of the cohesive approach that unites all levels of government as in Canada. This became obvious at a conference session that brought together senior state, territory and federal public servants. The focus was on housing policy innovation around the nation but the session ended in a degree of acrimony.

The final speaker was Paul McBride, manager of welfare and housing reform in the Commonwealth Department of Social Services. He was endeavouring to explain why the federal government wants to replace its existing deal with the states and territories — the National Affordable Housing Agreement, or NAHA — with a new National Housing and Homelessness Agreement, or NHHA. This was another 2017 budget initiative but it has stalled, not least because of resistance from state governments.

The Commonwealth says NAHA has failed because only one of the four performance benchmarks set up under the agreement has been met. Despite $9 billion in funding since 2009, “growth in the size of the social housing stock has stagnated and numbers on waiting lists have increased.” In return for future funding under the replacement NHHA, the Commonwealth wants the states and territories to put in place credible housing and homelessness strategies and provide data for transparent and consistent reporting. As an incentive, it is offering to index $115 million in annual funding for homelessness services provided under the current agreement and to make that funding permanent.

When McBride described this as “a significant concession from the Commonwealth,” Caryn Kakas, executive director of Housing NSW, shook her head in disbelief. She accused Canberra of holding the states hostage over housing funding. “If the Commonwealth is serious, it should be putting forward a national housing strategy, not just stitching together state programs,” she retorted. She pointed out that the Commonwealth can pull levers like tax reform that are beyond the reach of the states and territories. McBride’s response was interrupted by interjections from the floor. “There’s no strategy, absolutely none,” yelled one delegate. “Spend more money!” called out another.

McBride had earlier noted that treasurer Scott Morrison “wants a pathway to home ownership” and that all subsidies and state programs should point in that direction. And this is perhaps where the difference in views really resides. For most of those at the conference, the core issue is not assisting first homebuyers to take their initial step up the property ladder, but helping low-income households to put a secure roof over their heads.

Sydney University’s Nicole Gurran told the final conference session that Australia lacks a properly funded social housing system, which would require government and institutional investment to increase supply at the bottom of the market. “If we want stable supply, then we have to be serious about building, irrespective of the fluctuations of the real estate market,” she said. “And we have to make sure that we are delivering what we really need, and that’s affordable, new rental housing.”

Gurran noted that forgoing billions of dollars in revenue through negative gearing and the capital gains tax discount failed to deliver this outcome. Labor has promised to reform negative gearing and the capital gains tax discount if it wins the next election. Even if it only saved half of the $11.7 billion calculated to be lost on these concessions to property investors annually, that would still bring in enough funding to revive the heartbeat of Australia’s social and affordable housing sector, not just in a one-off stimulus package, but year on year. Wherever the money ultimately comes from, if we want a national housing strategy, public investment is still a missing piece of the puzzle. ●

The post In search of a national housing strategy appeared first on Inside Story.

But changes to negative gearing and the capital gains tax — the preserve of federal government policy — aren’t sufficient to make housing fairer and more sustainable. At least as important, according to analysis by the Grattan Institute, is reform of state taxes, and particularly the abolition of stamp duty and its replacement with broad-based property tax — something that is even more difficult to achieve politically.

Research released at the 2017 National Housing Conference in Sydney suggests that there is a way forward, though, given sufficient will. A new report on pathways to property tax reform published by the Australian Housing and Urban Research Institute, or AHURI, argues that a gradual transition from stamp duty to a property tax is possible without severely disrupting the housing market or disadvantaging home owners.

Change in this area is difficult because state governments — particularly those with booming house prices — are addicted to stamp duty. State and territory property taxes raised around $40 billion in 2014–15, or more than 10 per cent of all taxes collected in Australia.

But University of Tasmania political scientist Richard Eccleston, who led the AHURI research, says a recurrent property tax could raise the same amount of money as stamp duty. “This is not about increasing taxes, it’s about using a new and more efficient tax,” he told the Sydney conference.

Economists and housing experts generally agree that there are good reasons for using property tax rather than stamp duty to raise revenue.

First, stamp duty is levied at the point of purchase, when buyers, particularly first homebuyers, can least afford it, whereas a broad-based property tax is spread over time. A property tax also brings in more revenue as house prices rise and so captures a share of windfall gains that would otherwise accrue solely to home owners when, for example, government builds a train line, school or hospital that improves the amenity of an area and boosts their property values. It also means that taxes fall with house values, and so home owners pay less if their notional equity is reduced.

Second, the big up-front cost of stamp duty is a deterrent to moving house, making people less likely to move from areas of low to high employment or to take up positions where their skills are more effectively used. Speaking on the same panel at the AHURI conference, Grattan Institute researcher Brendan Coates said the really big benefits of a shift from stamp duty to property tax were productivity gains, which could be worth up to $17 billion a year.

Third, by lowering the cost of moving, the shift to a property tax could encourage more efficient use of housing. Empty-nesters may be more willing to move to smaller dwellings if downsizing doesn’t cost them tens of thousands of dollars in stamp duty.

Finally, property taxes give state governments a more predictable, stable and reliable revenue stream than stamp duties. While New South Wales and Victoria may be rolling in cash right now, if the housing bubble pops and the real estate market slows, then the rivers of gold could quickly slow to a trickle.

The question is not whether shifting from stamp duty to property tax is a good policy idea, the question is how to do it. Asking existing home owners to start paying property tax would seem like double taxation, since they paid stamp duty up-front when they bought their homes. Yet exempting them would create an even bigger disincentive to moving. “Grandfathering is bad for mobility,” Coates told the conference, “because it locks people into their current homes.”

Both Coates and Eccleston recommend a twenty-year transition from stamp duty to property tax — just like the process that has been under way in the Australian Capital Territory since 2012. It’s true that the transition is simpler there because the ACT government is also effectively the local government and can incorporate property taxes into council rates more easily than other states and territories. But such practical obstacles are not insurmountable.

The new AHURI report recommends a four-step process. Eccleston says the immediate first steps are to develop consistent methods for valuing residential property across all states and territories and to establish a national register of property valuations and ownership. The second, short-term step is to simplify stamp duty into a single flat rate of 6 per cent applying only above a significant threshold. Eccleston says this would benefit those 60 per cent of buyers purchasing property at the lower end of the market and transfer costs to those buying more expensive houses. The third, medium-term step is to add a stamp duty surcharge for investors and top-end buyers or increase the rate of stamp duty they pay. According to the report, this would “meet housing policy goals by dampening demand for investment properties and increasing home ownership rates.”

Converting stamp duty into a “single progressive system” in this way would provide the foundation for the fourth and final substantive reform: replacing stamp duty altogether with a recurrent property tax. Stamp duties would gradually fall over the twenty years, and property taxes would gradually increase. Eccleston’s study estimates that the annual rate of property tax needed to fully replace stamp duty on a median-priced dwelling in New South Wales or Victoria would be less than $1300. In Tasmania, the figure would be less than $500.

The transition from stamp duty to property tax requires national leadership and national coordination. Eccleston says the obvious precedent — in terms of process rather than outcomes — is the implementation of National Competition Policy under the Howard government. The Commonwealth should take a similar leadership role in relation to property taxes, he says, because it would be the main beneficiary of the resulting increase in economic growth and output. And only the Commonwealth has the capacity to put a deferred payments scheme in place to enable asset-rich but income-poor retirees to put off paying property tax until they sell their home, or to have those taxes paid out of their estate.

Richard Eccleston acknowledges that moving to what is “essentially a wealth tax based on property” is a political challenge, but says it’s not as hard as the obvious alternative, removing capital gains tax exemption on the family home.

Grattan’s Brendan Coates adds two more big measures to the housing tax wish list. The first is to include the value of the family home in the pension assets test, but only above a certain threshold (say $500,000). Not only might this encourage some older Australians to downsize, it would also save the government money and even up the pension treatment of home owners and renters.

Coates also wants to flatten progressive state land taxes. In terms of fairness, this might sound counterintuitive, but the aim is to encourage a shift in the private rental sector from “mum and dad” landlords to institutional investors. Coates makes the point that investors who only own one rental property often don’t make very good landlords, partly because they are scared of getting a bad tenant and not being able to kick them out, and partly because they want to be able to sell the property any time to cash in on the value of their asset. As a result, they don’t like to offer tenants long tenure.

Institutional landlords, by contrast, invest at scale, spreading the risk of a bad tenant across many dwellings. They are also seeking long-term rental returns ahead of capital gains. Under current arrangements, the rate of state-based land taxes rises with the value of property held, quite steeply in some cases. This significantly reduces the yield for institutions like superannuation funds and creates a disincentive for them to invest in the private rental market.

Politically convenient changes “are often ineffective or harmful,” notes Eccleston, while “meaningful reforms are generally politically difficult.” The major beneficiaries of a transition from stamp duty to property tax would be younger Australians buying their first home. “Do we have leaders with the courage to make that argument?” he asks.

With his own battle wounds from attempting significant tax reform, former Liberal leader John Hewson has his doubts. “Politics is even more short-term, populist and opportunistic than in my time,” he told the same conference session. “It is hard to imagine a serious and sustained debate about any aspect of public policy.”

Changing the way housing is taxed wouldn’t necessarily have a huge impact on housing affordability, but it should make it easier for younger homebuyers to enter the market. It would also help to boost growth, deal with budget challenges and reduce inequality, and so make the entire system fairer and more sustainable. As Hewson told the conference, continuing to push such problems further down the road is “basically intergenerational theft.” ⦁

The post Housing taxes: getting from here to there appeared first on Inside Story.

At issue in Northcote was the fate of eighty-seven dwellings on the Walker Street estate, built in the 1960s and slated for redevelopment under Labor’s $185 million public-housing renewal program. The program promises to replace “older, rundown housing” on nine inner- and middle-ring estates with “new, modern, low maintenance homes.”

While the Northcote stoush has its own special characteristics, similar battles are being fought across Melbourne and in Sydney and other cities. They are symptomatic of how public housing is being reshaped in two main ways.

First, state governments are trying to replace or refurbish ageing public housing without investing large sums of public money or taking on substantial new debt. By giving private developers access to well-located land that is home to public-housing estates, governments can offset the cost of renewing social housing. Second, and simultaneously, state governments are increasingly transferring the management or ownership of public housing to community-housing associations, the other much smaller branch of the social housing sector.

These shifts come on top of a long period of neglect. According to data compiled by the Australian Institute of Health and Welfare, the number of households in state-owned and state-run housing dropped from 331,100 to 312,200 in the decade to June 2016, a fall of 6 per cent despite overall growth in the population.

Given Australia’s ageing demographic and changing household composition, the tally of individuals in public housing probably fell even faster. In 2007, families with children (couples and sole parents) made up 27 per cent of households in public rental; ten years later their share had fallen below 20 per cent. The proportion of single-person households rose from 50 per cent to 54 per cent.

As public-housing assets age, maintenance becomes more expensive. In a report released in June 2017, the Victorian auditor-general found that 60 per cent of the state’s public-housing stock was more than thirty years old — up from 42 per cent just five years earlier. As a result, state governments struggle to maintain existing dwellings at an acceptable standard, let alone expand their portfolios.

In any case, the public-housing mix is no longer fit for purpose. Though many existing houses and flats have three or more bedrooms, designed to accommodate families, growing numbers of long-term tenants live as couples or singles. Children have grown up and moved out; couples have separated or a partner has died. As a result, says the Australian Institute of Health and Welfare, more than 16 per cent of public housing is underused — that is, the property has at least two more bedrooms than the residents need. One- and two-bedroom accommodation is also by far the most sought-after option among people on waiting lists.

Add to those factors the age profile and levels of disability among current and potential public-housing tenants, and it’s clear that older-style “walk-up” flats like those at Walker Street urgently need to be replaced. Lifts will provide access to higher floors for people with limited mobility, better air circulation will create healthier environments, and energy-efficient design can reduce heating and cooling costs.

All these pressures help explain why state governments are looking to leverage private-sector investment and engage the not-for-profit sector in building, upgrading and maintaining public housing.

In theory, allowing the private sector to build commercial residential property on well-located public land is win–win, because it generates revenue to offset the cost of public-housing renewal. This enables government not only to replace stock that is run-down, inaccessible or unsuitable with new more appropriate dwellings, but also to increase the supply of dwellings overall.

In the case of Walker Street, the Victorian government says it included private housing to “help fund” the redevelopment, and insists that its renewal program will increase the total number of social housing properties by “at least 10 per cent.” Existing residents will have to move away during construction, but housing minister Martin Foley has pledged that any public tenant who wants to can return when the work is complete.

Yet the potential benefits were hotly disputed at the Northcote by-election, with the mayor of Darebin, the Greens’ Kim Le Cerf, warning that redeveloping the estate could permanently displace forty-seven families.

Foley and Le Cerf can’t both be right, so what is going on here?

The government’s claim that the number of public-housing dwellings will rise is technically correct. As the plans stand, the eighty-seven existing homes in Northcote will be replaced by ninety-five new social housing units. But the overall number of bedrooms appears to decrease by about 25 per cent (from 201 to 149) because smaller one- and two-bedroom apartments will replace mostly three-bedroom dwellings. So it’s possible that the new estate could end up with more public housing but fewer public tenants.

According to researchers Abdullahi Jama and Kate Shaw, this was what happened when the state government used a similar technique to redevelop an ageing estate in inner-city Carlton. They estimate that 146 public tenancies were lost as a result of renewal and conclude that “the social-mix approach to inner-city estate redevelopments in Australia is driven more by an imperative to capitalise on the sale of public land than it is to assist public tenants.”

But private-sector development has potential benefits. Along with ninety-five new units of public housing on the 1.1 hectare Walker Street site, another 125 dwellings will be built and sold on the open market. This expansion in medium-density housing means that existing infrastructure will be used more efficiently and more housing will be available close to public transport and jobs. All things being equal, it should improve overall affordability and reduce the constant pressure to develop on the metropolitan fringe.

Where the government is on more uncertain ground is when it argues that mixing private development and public housing helps transform “pockets of disadvantage” into “genuinely integrated communities.” Critics argue that this promise rarely translates into practice, with Jama and Shaw again citing the Carlton redevelopment as an example. Far from being integrated, “public” and “private” residents ended up living in separate blocks, entering through different foyers and parking in different areas. The surrounding open space was not fully shared either, with owner-occupiers enjoying a “private courtyard garden” that public tenants can’t use. This parallels the “poor doors” found in notionally integrated developments in New York and London.

Even if these problems were overcome, the evidence that social integration makes a material difference to the lives of public-housing tenants is mixed at best. According to the Australian Housing and Urban Research Institute, or AHURI, “a vast literature compiled over many years” has produced only “inconclusive” findings about the benefits for disadvantaged residents.

What’s more, selling public land to fund the renewal of housing estates is a one-off that can never be repeated. AHURI cautions that “forward-thinking governments” should be planning for forty years hence, when today’s “new” public housing needs replacing and there is no public land left to sell.

More broadly, are state governments driving a hard enough bargain when they redevelop estates? After all, Victoria’s plans to increase the stock of public housing by 10 per cent are hardly ambitious.

The Coalition government in New South Wales appears to be extracting greater value from its public-housing assets than its Labor counterparts in Victoria, at least if the promises made about the redevelopment of the Ivanhoe estate in Macquarie Park are anything to go by. Under its “innovative approach to social housing,” dubbed Communities Plus, the NSW government is hoping to transform “259 social housing properties on the 8.2 hectare site into a socially integrated neighbourhood of around 3000 properties including at least 950 social and 128 affordable rental apartments.” The state government seems to have accepted that the necessary price for getting the private sector to build more social housing in Sydney is much higher levels of density.

Oona Goldsworthy, CEO of the not-for-profit housing association United Communities, based in the English city of Bristol, has dealt with private developers in creating mixed residential communities. “The land owner is in the driver’s seat,” she told me recently. It can require developers to meet particular design standards or insist on a bigger share of public housing on a revamped estate.

“One developer wanted to put all our social housing at the back of the site,” says Goldsworthy. The development was on municipal land, and a progressive city government used the planning system to demand a different layout. It’s true that governments may end up having to accept a lower price on the sale of public land as a result of applying constraints to private-sector development, but she believes this is an acceptable trade-off for more high-quality social housing.

Goldsworthy is visiting Australia on a Churchill Fellowship studying the way other countries are planning to house millennials. Her initial impression is that the problem here “is even worse than in the UK” because so many factors work against an increased supply of affordable housing. “The tax system gives such a huge advantage to people buying investment properties,” she says. “And the split of responsibilities between federal, state and local government makes things extra complicated.”

Yet Goldsworthy, who is speaking at AHURI’s 2017 National Housing Conference this week, thinks not-for-profit housing associations could play a key role in the delivery of affordable housing in Australia, just as they do in Britain. There, around 10 per cent of all housing is owned or managed by housing associations, considerably more than the 7 per cent owned by local government. Less than 1 per cent of Australian housing is owned or managed by not-for-profits.

“Housing associations in the UK grew out of an ideological and political push that the state is not necessarily the best provider of housing and the view that it can be better handled by smaller organisations that are closer to the community,” says Goldsworthy. “Ironically, some community-housing providers are now much bigger than local councils.”

She says the community-housing sector in Britain “matured relatively quickly.” Housing associations were able to borrow proactively, capturing a relatively small amount of public subsidy and matching it with lending from other sources — something public authorities couldn’t do. This agility makes housing associations attractive for Australia too, and similar arguments are being used to justify putting public-housing assets under the control of community organisations.

In a modest way, Victoria is following that lead. Under its affordable housing strategy, Homes for Victorians, the state government plans to hand over the management of 4000 state-owned properties to housing associations, about 6 per cent of its existing stock. New South Wales is going a bit further, with 14,000 public-housing dwellings on nine entire estates to be transferred to community management as part of its social housing reform program. This will increase the share of the state’s social housing managed by community-housing providers from 19 to 32 per cent.

From the perspective of state governments, transfers make sense for four main reasons. Housing associations are generally closer to the ground and more in touch than public servants tucked away in CBD offices. Housing associations do the very thing governments are reluctant to do themselves — create more housing by borrowing against the assets and their rental return. The shift to the community sector pulls in additional subsidies from the federal government, since it enables social housing tenants to qualify for Commonwealth Rent Assistance. And as long as community-housing providers hold rents below 75 per cent of market value, they are exempt from paying GST on any inputs used in building, repairing or maintenance. (State governments do not enjoy the same exemption.)

It all adds up, says David Cant, who spent sixteen years at the helm of the Brisbane Housing Company, one of Australia’s most innovative community providers. Cant, who is also speaking at the AHURI conference, reckons that every dollar invested in public housing by the state government generates a return of just 85 cents, whereas the same dollar invested in a community-housing provider can generate at least $1.35 — and significantly more if local government can be persuaded to join the party with cash or in-kind contributions, such as free or discounted land.

Victoria’s plan is part of a trend. The renewal of Sydney’s Ivanhoe Estate is a joint venture between community provider Mission Australia Housing and private developers Frasers Property Australia and the Citta Property Group. The project promises not only to generate affordable housing but also to reduce residents’ utility costs by building in solar panels, green roofs, high-efficiency centralised hot water and other environmental and energy-saving features.

The shift from public housing to community housing can have big benefits. One example is the Brisbane Housing Company’s award-winning Caggara House, in the middle-ring Brisbane suburb of Mt Gravatt. The $15 million development created fifty-seven one-bedroom apartments designed for older tenants who were living alone in public housing that had become too large for their needs. Residents who previously felt isolated, or were overwhelmed by the upkeep of a three-bedroom home with a garden, express relief and pleasure at moving into a brand-new apartment located close to shops, public transport, a library and medical services.

The advantage for the Queensland government is that a $15 million investment in Caggara House freed up existing public housing worth $25 million. “What makes Caggara work is that it is liberating houses worth $500,000,” says David Cant. He thinks the capacity of community-housing associations for innovation is even more important than the hard numbers. “Small not-for-profits know their residents and know their geography,” he says. “We’ve overheard so many conversations between the kids and Mum about how she’s always cold in winter because she’s living in a draughty old Queenslander, and the lawn always needs mowing.”

Working face to face at a local level, with a single focus on affordable housing and a willingness to take risks, community associations can do things “quicker and smarter” than an overly cautious public service, says Cant.

A “gradual but steady” shift from “public” to “community” housing has been apparent for some time, says Cant. Over the past decade, the decline in state-provided public housing has been offset by a doubling in the number of households living in housing provided by not-for-profit community organisations, up from 35,700 in 2007–08 to 72,400 in 2015–16.

As a result, the total stock of social housing (public and community housing combined) has grown, although not quickly enough to match population growth or keep up with demand. As a proportion of all housing, the share of households in social housing has fallen from 5.1 per cent to 4.7 per cent over the past decade and almost 200,000 households are on waiting lists for social housing nationwide.

Can community-housing associations be scaled up rapidly to meet this pressing need? Recent federal moves should help. In this year’s budget, treasurer Scott Morrison announced two measures designed to enable not-for-profit associations to develop more housing for low-income households by borrowing long-term at low interest rates: the National Housing Finance and Investment Corporation and an affordable housing bond aggregator.

The Victorian government has created similar mechanisms: a $1 billion loan guarantee to help housing associations borrow at affordable rates, and a $100 million revolving credit facility to provide them with long-term, low-cost loans.

Despite governments’ emerging ideological and practical support for community housing, the kind of take-off seen in Britain will only be achieved with much higher levels of subsidy than what is currently on offer. In the meantime, thousands of Australians are being denied safe, secure, affordable housing.

At the end of last year, more than 34,000 households were on the waiting list for public housing in Victoria, and upwards of 10,000 of them were classified as priority cases in urgent need. According to the state’s auditor-general, applicants “who are homeless or experiencing family violence” face an average wait of almost nine months. Applicants “who are in insecure, unsafe or inappropriate housing, or who have a serious medical condition” can expect to wait sixteen months on average, and “low-income households that may benefit from public housing” face nearly two years in the queue. The expected wait for “general social housing applicants” in most suburbs of Sydney, is “ten-plus years.”

All this serves as a reminder that community-housing providers can’t work miracles with only relatively modest government help. “Community-housing providers can extend public money much further,” says Oona Goldsworthy, “but you still need the subsidy in some form, whether that is land, financial grants or tax concessions.” David Cant agrees. “If you want to house people on lower incomes then you have to find a bit of a subsidy,” he says. “If public money comes in, private capital will follow.” ⦁

The post Does public housing have a community-run future? appeared first on Inside Story.

Inside is a sprawling seventeen hectares, fringed by eucalyptus bush to the west and the Shoalhaven River to the north. Nowra has been holding its annual country show here, over two days in late summer, since 1887. In the between times, it’s a place where locals walk their dogs and community groups meet; children go to scouts and gymnastics in the same place their parents once did.

Sometime around early 2016, the showground’s role in the community underwent a radical transformation: it became a destination for growing numbers of homeless people. During winter, some bunked down in the stables, but by late spring a cluster of around twenty tents had sprung up on the grass. Some people came of their own volition, others were given tents and directed there by desperate community service providers in town. “We didn’t want to do this, this was the last resort,” one worker told me. But “there was nowhere else for people to go.” Many people came and went; others started to look more permanent. One tent had a washing machine beside it, plugged into the showground’s power supply. There were men, women, the old, the young, couples, singles and dogs. Lots of dogs.

For the homeless, it was a sanctuary of sorts. One was a young woman, nineteen years old, who’d spent her adolescence bouncing through twenty different foster homes. She said the showground felt safer than sleeping in a doorway in town. She liked that the gates were locked at night. A woman called Sharron, who was sleeping in her car after escaping domestic violence, said she liked having access to a toilet.

But a drug scene sprang up among some of the homeless. Dealers started coming through, and there were commotions throughout the night. Campfires were lit. Some people struggled with mental illness: one man would careen through the showground, terrified, trying to escape ghosts. Others stayed away from the main group of tents, preferring to find their own quiet place elsewhere in the grounds.

This was all a new experience for Nowra. One woman who had her tent in the main area told me that “sticky beakers” would sometimes drive slowly past the showground, staring at the homeless camp. She says one man who had “drug issues” used to get really irate about this, and yell abuse at the gawkers.

Sharron, who was applying — unsuccessfully — for dozens of private rentals while living in her car, said that, once, a nicely dressed person walking their dog in the showground came past her and told her to “get a life.” She said nothing then, but later, while relaying the story, was fuming: “I’m bloody trying.”

By the end of that year, a small group of local residents decided they’d had enough of the showground camp. They rang around, and distributed a flyer, titled “A Better Solution for Our Showground,” that called on people to come to Shoalhaven City Council’s monthly meeting to “peacefully demonstrate.” Around 130 turned up. One of the organisers, a man in his late sixties who’s lived in Nowra his whole life, addressed the council: “We know we have a problem in the town with [homelessness], it’s everywhere around the place,” he said. “But this showground is our showground and we want it back.”

Then, he turned his ire towards the homeless themselves. “These people are very violent; these aren’t genuinely displaced people that need a roof over their head. These people are there because it is free, it is a great spot, it is close to drugs and it is close to grog. They walk down the street with their dogs. It is disgraceful. These are nasty people.”

The crowd cheered. The few who spoke up in defence of the homeless, such as the mayor and a couple of councillors, were jeered and heckled. “Take them to your house then!” yelled one voice from the crowd.

The fear and anger in the room gathered momentum. Some councillors joined in hurling allegations: someone had heard someone say that a nurse was “held hostage up there”; someone’s neighbour had been hit with a machete; there was washing hung off power cables. Surely council would be liable if there was an accident?

While the meeting had started with a motion asking that a committee be formed, with local residents included, to find a better solution for the showground, after several hours of heated debate a new motion was slapped on the table: simply ban tents from the showground altogether. Essentially, it was an eviction notice for the homeless — and when a vote was finally held, it passed unanimously.

Within weeks, council rangers started moving the homeless on from the showground. The decision sent community service providers scrambling to try to find alternative accommodation, but there were few options. Most of the homeless were simply dispersed — into the bush, parks and cars, onto people’s couches or, if they were really lucky, into a cheap caravan park.

Over the following months, in the summer of 2016–17, I spent time in Nowra for ABC Radio National’s Background Briefing, reporting on the impact of this decision. I spent many hours with the homeless and those who help them. While at one level, what I saw was people trying to find a solution to a practical problem — where to house the homeless — there was also something much more profound going on: a town was struggling to determine the limits of its compassion.

Pastor Peter Dover runs a small independent church in Nowra called Salt Ministries. Salt has a mobile food van that takes supplies to homeless people around town, and throughout 2016 the showground was one of its prime destinations. Dover was at the council meeting and says it was deeply upsetting. “They were just rubbishing all the people up there,” he says. “And then instead of getting rid of one or two troublemakers, they got rid of everybody. These are the most vulnerable people in our community… and to say that we don’t want to see that, well that’s just sad.”

One Thursday morning, late in the summer of 2017, I go to see Dover at the community hall next door to his church. As well as running the mobile food van, every week his church provides lunch here for the needy. Dover doesn’t ask why people need help — to come is enough. While Nowra is just 160 kilometres south of Sydney, average household incomes are 75 per cent lower than in the city. Work by the town’s well-regarded Anti-Poverty Committee illustrates that growing numbers of local people have to survive on very low incomes. Health conditions associated with poverty, such as diabetes and obesity, are increasing, as are addiction and mental illness. In a perfect storm, this is now being fuelled by the rising cost of housing.

I find Dover standing in the middle of the hall as lunch is being served, wrestling with an ethical dilemma. While homeless people in tents have been banned from the showground for several months now, some are still periodically turning up, and a handful are staying there in vans. Dover has just been told that council wants him to stop taking Salt’s van up to the showground and handing out food. “They believe that us going up there is enabling the homeless people to stay there, and they want to move them on,” he says. “And we want to work with these guys in council… we want to respect them. But there’s people up there at the showground who have got kids. How can we just not help them?”

He’s too busy to deliberate for long: more than a hundred people have come for lunch at the hall today. The volunteer who drives the van is hovering by his shoulder, waiting for his decision on where she’ll be taking the van next week. “I’ll tell you what we’ll do,” he says. “We’ll still drive through. We won’t spend a lot of time there — but if there is someone in need, we’ll help them.”

I follow Dover as he strides outside the community hall, past clusters of smokers, to the old weatherboard building next door that serves as Salt Ministries’ home. Along its verandah, church volunteers are handing out free groceries to a growing line of people, arriving as they finish their lunch to collect basic supplies they can take away. Fresh fruit and bread is being swiftly deposited into plastic bags and passed to outstretched hands by a woman in her early fifties. Dover introduces us.

Lyn works efficiently as we talk. She has an earthy friendliness that’s underpinned by a sharp competence. When she used to manage a nearby bowling club, she knew how to cut off a drunken patron from the bar without causing a confrontation: a friendly arm around the shoulder and a joke while firmly guiding him out the door. She’s worked in real estate, owned a couple of houses and raised two boys — mostly on her own.

“I’m not doing this because I’m virtuous, you know,” she says, nodding towards the line of people she’s serving. I know. Lyn is here because she’s homeless. She’s on a program that allows homeless people to work off their debts to the state government — accrued for things like not voting, or driving without a licence — by volunteering. I figure she’s being extra upfront with me because, after everything that’s happened to her, she has no interest in dissembling.

Lyn’s unravelling began six years ago. Her youngest son, Steven, who was eighteen at the time, hooked up with a girl whose ex-boyfriend was in prison. When the ex got out, he and some friends hunted Steven down, holding him hostage and torturing him for seven hours. He survived, but was left with broken bones, partially blind in one eye, and the word “dog” tattooed across his forehead

Lyn found it overwhelmingly traumatic. She held it together for about six months after the assault, then had a mental breakdown. She couldn’t leave the house, couldn’t work, her partner left and she started using ice. “I didn’t want to live any more,” Lyn says of this time. “I was hoping I wouldn’t wake up. I didn’t wanna know.”

Through addiction and mental illness — and the associated calamities these things generally bring — Lyn eventually lost everything. She spent most of 2016 living in a tent at Nowra showground and now lives in an old Winnebago with another homeless woman. “Look at me,” she says, without a trace of self-pity. “I’m not the type am I? If you’d have said to me ten years ago this is where I’d end up, I’d have said you were mad.”

Time spent with the homeless quickly strips away any comforting notions that homeless people are somehow “other,” and that this is a situation that could never happen to you, or someone you know.

Life veers off course in unexpected ways, as it did for the young woman I met in the back yard of the Nowra Homeless Hub, a drop-in centre for the homeless. She’d just walked in from the bush, where she was sleeping rough with her two dogs after being kicked out of the showground, and was looking for a shower. She told me her descent into homelessness began with a violent sexual assault when she was at university. Her post-traumatic stress spiralled into cycles of severe mental illness, time in psychiatric wards, unemployment, broken ties with family and friends. She didn’t tell me about ice, but that was my guess.

I also met Brian, a tradie in his early fifties. He once had a good job as a concreter, a wife and kids, a mortgage and enough money for the occasional trip to Bali. By the time I met him he was living under a tarpaulin attached to a van at the showground, with nothing but a dog and a battered old car with a soon-to-lapse registration. Council rangers were letting him stay, for now, because he was looking after the man in the van who had cancer. His downfall began when he was prescribed OxyContin — also known as “hillbilly heroin” — after hurting his back at work. He soon moved on to the real thing, and now has a raging heroin addiction.

Just as often, though, there is no dramatic event in people’s stories — and their downfall is certainly not always due to drug use. Often, it’s just a tale of trying to survive being poor in a country where keeping a roof over your head has become prohibitively expensive. This was the case with Vernon, a wiry man in his mid forties who lives with his two dogs in an old white minibus. I met him a handful of times over the summer, first parked at the showground and then, after he was forced out, at a truck stop south of town. I see him again at Salt Ministries’ Thursday lunch in the community hall, and sit down with him to talk.

As we’re eating, he waves his fork around the room. “I had my Year 6 formal in this building,” he says. Vernon tells me the surrounding streets have been home to his family for three generations. His dad used to walk barefoot to the weatherboard building next door — now Salt Ministries — back when it was a primary school; his grandmother, whom he describes as a proud Aboriginal woman from La Perouse in Sydney’s southeast, came to town when she was just a girl.

Vernon was the youngest of seven kids. “I was brought up by my father,” he says. “My mother left when I was nine and a half. I grew up with the bare minimum. I got brought up to show respect and give respect.”

Vernon’s been poor all his life, but he only became homeless in the past year, after he broke up with his partner and left the social housing they rented together. He emerged, newly single, into a private rental market that is completely beyond his means, and a waiting list for social housing of around a decade.

The cost of private rental in the region has been rising steeply for most of the past decade, and has increased by a quarter in the last three years alone. For those relying on government benefits, like Newstart or a disability pension, there are virtually no affordable properties. And for those who are working but in lower-paid jobs like retail or aged care, only 7 per cent of all properties are affordable — despite this income bracket making up nearly half the population.

Vernon is on Newstart, and he reckons he’s got no hope of ever getting a job again — he’s got heart disease, and has already had one major heart attack. “If I tell ’em I got heart disease they are not going to want to employ me,” he says. “[And if I] don’t tell them I got heart disease and I have a turn on their job site, their insurance ain’t gonna cover it. So I lose anyway.”

A community worker who’s been in the region for thirty years tells me that jobs, particularly for the many with low education, started disappearing in the 1980s. Factories closed and farms were carved up. “There are older men in this community now who haven’t worked since their twenties,” she says. The jobs available now — and there aren’t many, given that the unemployment rate has been way above the national average for a decade — are mainly low-paid and increasingly part-time or casual. But it’s not just the unemployed who struggle: she sees plenty of working families who can’t afford their rent. I spoke with another community service worker who told me he had a client who was a casual schoolteacher but was forced to live in a car.

Every time I’ve seen Vernon he’s been remarkably chipper. The first time I met him, up at the showground, he’d just finished a unique barter: he’d given a lady a tattoo, and in return she’d given him a portable toilet that he then gave to a homeless man who had bowel cancer. “Nice little community we are,” he’d said of his homeless friends. “We look after each other.”

By the end of summer, though, he’s looking thinner and his skin has a greyish pallor. He’s angry about being moved on from the showground, and his van — now parked temporarily outside a friend’s factory — has sprung a leak. He has a large bandage on his hand. He tells me he had an argument with his teenage son that made him feel disrespected. He was so upset he put his hand through a window.

At one of their homes, I meet the two Nowra residents who spearheaded the campaign to remove the homeless from the showground. It’s a renovated older-style place with high ceilings, leadlight windows and deeply polished floorboards, on a street just a few hundred metres from the showground gates. It belongs to a trim retiree named Rex, who says that he and his wife used to enjoy walking in the showground but, once the homeless arrived, they stopped. He was convinced — and remained so as we talked — that they were people of a certain kind, “actually out to do you some harm.”

His friend and neighbour, Peter, said that after the homeless arrived he stopped taking his grandchildren there, believing it to be a “dangerous situation.” It was Peter who spoke out at the council meeting, calling the homeless “nasty people.” I ask him if perhaps he could stand accused of lacking compassion for these people? “Yes, I’m sure we are. No doubt about that,” he says. “But if we hadn’t spoken up about this, somebody [was] going to get hurt.”

While it was clear these residents felt fear, they also demonstrated a fair degree of loathing and resentment. As we spoke, Rex kept coming back to what he said was the “real” problem: not one of poverty and lack of affordable housing, but flawed individuals using drugs and living a life of welfare dependency. “I can’t see how you can just allow people to not contribute at all, anywhere in their life, ever,” he says. “You just can’t allow people to take drugs and rort the system.”

“They got free electricity and showers and toilets and open fires,” says Peter. “They are fed by certain groups. But we got to stop this growing into something that is getting out of control.”

It’s easy to appreciate why someone might want to use their town’s public space freely without feeling fearful. But what’s uncertain is how grounded in reality this fear is. The particular residents I spoke with were unrepentantly unaware of the circumstances of their homeless neighbours’ lives. Peter freely admits he’s never spoken to a homeless person from the showground.

I spoke with Jack de Groot, the CEO of the St Vincent De Paul Society for NSW. He’s based in Sydney but his organisation runs services for homeless people in Nowra, so he’s been following the situation at the showground closely. He says it’s not unusual for people to feel confronted by the sight of such visible disadvantage.

“The face-to-face encounter with poverty, and its messiness and ugliness, is deeply disturbing,” he says. “But when you spend time listening to people’s stories… once you get that human story, the ugliness of poverty dissipates.”

What’s happened in Nowra, he says, is a by-product of a growing inequality that’s taking hold in Australia. “That’s what inequality can do, it can entrench fear,” he says. “Inequality can drive us apart, and drive us to fear. And we have a global narrative at the moment around fear. Fear of the stranger, fear of the other. And it is a crap narrative.”

But the residents weren’t the only ones I heard expressing fear. A number of homeless people I met over the summer wanted to talk about refugees. They felt their destitution was inextricably linked to “too many refugees” coming to Australia, taking limited resources such as houses and government benefits. Whenever the issue of homelessness is discussed on Nowra community Facebook sites, it is this same narrative that invariably surfaces. There is a meme that often pops up, with a picture of a clearly Muslim family in front of a house, which says, “Australians forced to wait ten years for government housing while refugees take priority. Share if you think this is a disgrace.”

One morning, about three months after the showground ban, I stop by the Nowra Homeless Hub. The homeless may now be less visible to the community, but their numbers are not diminishing. Julie, one of the Hub’s workers, says they’ve been frantic for months, with twenty to thirty people coming through a day asking for help.

There’s a young couple there, just seventeen and eighteen. She’s thin and won’t lift her eyes to meet mine; he’s also skinny, but more talkative. They both look cold and damp. They’re sleeping in a tent at a remote bush camp about thirty kilometres west of town. They have a car, but no money for petrol, so they’ve hitched a ride to the Hub to sort out some paperwork so the girl can start receiving Centrelink payments. The boy is confident he’ll get a job once they get a place to live. But right now it’s just about survival. As they rush out the door to get their ride back to the bush, Julie presses some pastries that have been donated that morning into their hands, despite the boy’s polite insistence that “we’re fine, thank you.”

Over at the computer, Crystal is applying for rental properties. She’s recently out of jail, and has been bouncing between refuges and motels.

She’s desperate for her own place so she can start seeing her two kids again. She’s well-spoken — she used to be a manager at McDonald’s — but knows her criminal record will be a deterrent for landlords. “I just need someone to give me a chance,” she says.

With the shortage of affordable private rental accommodation in town, competition for the few available places is fierce. The homeless are competing against people with jobs, better references and good rental histories. Community service workers say that in this ultra-competitive market, people who are unemployed or suffer social stigma — Aboriginal people, single mothers or former prisoners, say — are often unsuccessful.

Over on the couch, Bek, thirty-eight, and her partner Jaimie, twenty-eight, are drinking tea while taking a brief break from this race for a home. For weeks they’ve been attending inspections for every cheap place on the market. Applicants are required to physically attend the inspection, so they’ve quite literally been running around town: Jaimie describes how, the day before, they bolted through a paddock to get from one inspection to another in time. “It’s great for weight loss,” she jokes. Plenty of the places they’ve seen are awful but they apply for everything regardless. Right now they’re staying in a caravan park.

We end up talking for over an hour. They tell me about the mess they’ve made of their lives. Bek was a hairdresser, soccer mum, the president of the parents and citizens’ association at her kids’ school; Jaimie was a chef with a good job. Ice addiction destroyed everything. But they’ve now been clean of drugs for a couple of months and are desperate to rebuild their lives.

Jaimie wants to work again, as soon as she gets a house. “That is the foundation of trying to rebuild your life,” she says. “The world’s your oyster once you’ve got a house.” Bek wants to see her kids, and work on her mental health. “I got my life just waiting to start again,” she says.

They’ve been here before: off drugs and looking for somewhere to live. Last time they ended up crashing at a friend’s place, an “ice den,” and soon started using again.

Bek checks her phone. She says she can’t stop thinking about one of the places they applied for this week; it was an actual house, with a yard, and a funny room in the middle decorated with wallpaper with pictures of swans. “I’m just thinking about furniture, and how I’ll decorate it,” she says.

The tussle over what this community should and could do for its most vulnerable members is ongoing. At a council meeting at the end of summer, the mayor, Amanda Findley, arrived with a new motion: winter is coming, she said, so could council investigate opening up an abandoned building in the centre of town to be used by the homeless when the weather is fierce?

It was swiftly defeated. One councillor voiced his irritation at the mayor: “You are wanting to send our ratepayers down a path where we spend time and money and resources on an issue that does not belong to us,” he said. “Today is the day we need to hit this out of the park and never come back.”

To follow this analogy, though, even if it were possible to hit homelessness in Nowra “out of the park,” it will, of course, come back — the game will invariably continue. And not just in Nowra. People sleeping rough in a country showground is a symptom of a nationwide phenomenon: growing inequality and poverty, fuelled by a dire lack of affordable housing. While this can hardly be the future that the bronze soldier outside the showground’s front gate imagined he was safeguarding, it is the new reality facing Australia. •

This essay first appeared in Griffith Review 57: Perils of Populism, edited by Julianne Schultz.

The post Rush to judgement appeared first on Inside Story.

The key themes are well-known. Australians are getting older: almost five million of us are now over sixty, and almost a million Australians are over eighty. We are becoming ethnically more diverse: more than six million Australians – more than one in four – were born overseas, and for the first time more of them come from Asia than from Europe.

Fewer of us own our homes (thank you, negative gearing!). Home ownership rates are now back to postwar levels, and housing densities in the big cities are rising as more people squeeze into existing homes. Fewer of us believe in God, and those who do worship in increasingly diverse forms: only 52 per cent identified themselves as Christians, 8 per cent belonged to other faiths – mainly Islam, Buddhism and Hinduism, in that order – while 30 per cent declared no religion and 10 per cent declined to answer.

Despite the NBN, and the way the internet has transformed the lives of most of us, the census found that almost 15 per cent of Australian homes still have no internet connection. While 25 per cent of households reported a combined household income of less than $800 a week, 15 per cent reported earning more than $3000 a week (and another 10 per cent provided incomplete information on incomes, or none at all).

While census questions about incomes are always subject to a high rate of non-compliance, those figures, and many other census details, map out a growing level of economic inequality in a country for which social equality has long been a trademark.

From the census data, the Bureau of Statistics has concluded that Australia has more people than it thought. More precisely, Victoria (Melbourne, that is) had 100,000 more people than previously thought, and is now estimated to have grown by 146,000 in 2016 alone. This means the city is adding more than 10,000 people a month, and Victoria – essentially Melbourne and the area within a 150 kilometre radius of it – is attracting almost 40 per cent of the nation’s population growth. The political and policy consequences are startling.

Politically, Victoria and the Australian Capital Territory will each get an extra seat in parliament because of their rapid growth (long overdue for the ACT, whose two existing seats have huge enrolments). The new ACT seat will certainly go to Labor, and the Victorian one probably so. On the other hand, Adelaide will lose a seat, and most Adelaide seats are Labor.

Had it happened earlier, Malcolm Turnbull might now be struggling with a minority government. The census figures have just made his chances of re-election a bit harder.

Turnbull and his team must now accept their responsibility to play a constructive role in helping to fill Melbourne’s need for new infrastructure. As I have written before, this government’s neglect is stunning. In 2017–18, on its own figures, it will spend or lend $1.7 billion to build new infrastructure in Sydney, but will provide only $193 million for new infrastructure in Melbourne, which now has to house and service more than a third of Australia’s population growth. This blatant bias is bad policy, and bad politics.

The mainstream media did a very good job of covering the census data, but inevitably it focused first on the overall numbers. In many ways, the most revealing things the census tells us are in the finer detail, or will come from matching one set of data with another. That will take time.

One of the surprises, for instance, was that the overall rate of home ownership in 2016 was not too much lower than a decade earlier. Of those answering the question, 67.1 per cent said they owned their home, down from 69.8 per cent a decade earlier. But there were limitations in the data supplied, which could mean that the census understates the shift.

For years, compliance in answering census questions has been in decline. In 1996, only 2.3 per cent of households skipped the question on housing tenure. Last year, 7.7 per cent of households answering the census form skipped that question (and many others). Can we assume that they have similar tenure patterns to those who did answer the question? Or is it likely that a higher proportion of those who don’t answer are renters? If so, the published figures understate the decline in ownership.

Also obscuring the problem is the fact that home ownership rises with age – and Australia is an ageing society. I’m burying the scoop somewhat, but detailed figures given to Inside Story by the Australian Bureau of Statistics show dramatic declines in home ownership by age group since negative gearing took off in the early 1980s.

Ownership in retreat: home owners by age group

Since 1981, the rate of home ownership among twenty-five to thirty-four year olds has crashed from 61 per cent to 45 per cent. (Figures for past census years come from a submission by Sydney University’s respected housing expert Judith Yates to the parliamentary inquiry into home ownership led by Liberal MP John Alexander. The inquiry was cynically terminated by the Coalition before the independently minded Alexander could file a report, then reconstituted under the more compliant David Coleman, who duly reported that if there are any problems with housing affordability, state governments are to blame.)

Okay, we know that many of today’s young are big spenders on their phones, overseas holidays and weddings, and don’t prioritise home ownership as their parents did; but other young people do want to own their own homes, save as hard as they can, only to find the market out of their reach. Even among thirty-five to forty-four year olds, the rate of home ownership has fallen from 75 per cent in 1981 to 62 per cent in 2016.

To put it another way, those without their own home at the age of forty or so have risen from 25 per cent to 38 per cent of Australians that age.

It has happened because of a bipartisan policy, until recently, to reduce home ownership by allowing tax breaks for rental investors. As treasurers, Joe Hockey and Scott Morrison tried to get the Coalition to reduce or remove these tax breaks, without success – probably because so many Coalition MPs and senators are themselves taking advantage of this rort. Chris Bowen has been more successful in getting Labor to reverse its policy, which gives us a clear choice between the two parties: one of them now sides with the investors, the other with aspiring home owners.

The census found that in the past decade, the slump in home ownership has spread to higher age groups. This time, 28 per cent of households headed by forty-five- to fifty-four-year-olds were without a home they owned, as against 22 per cent a decade earlier. Future budgets will face serious costs if they have to subsidise the rental bills of millions of retirees, rather than the few hundred thousand receiving rental support now.

The bottom line from the census is that different Australias are changing at very different paces. Some changes are sweeping right across the nation; others are confined to the big cities, and especially to the inner areas of them. It’s worth burrowing down into the detail to discover what’s really going on where.

Let’s look at the data for three federal electorates. All are in Victoria, but in different areas, and the changes there reflect those happening in every state of Australia.

Melbourne is the only federal electorate held by the Greens, and it’s at the epicentre of the rapid remaking of Australia’s inner cities. In the established outer eastern suburbs lies Aston, which has seen, by contrast, the biggest swing to the Liberals anywhere in Victoria over the past thirty years, changing it from a marginal Labor seat to a safe Liberal one. And far away in the Western District is Wannon, once represented by Malcolm Fraser, which today seems as remote from social and economic change as any place in Australia.

The Census, as told by three electorates

The massive increase in Victoria’s population – in a decade, it’s swollen by 1.14 million or 22.3 per cent – has increased the average enrolment in its electorates by 15.5 per cent since the 2010 redistribution. A third of that has gone into just five electorates, all held by Labor or the Greens: four on the outer suburban fringe, and Melbourne. The census counted 136,018 people living in Aston, 133,772 people in Wannon, and 208,593 in Melbourne, which now has the biggest population of any of the 150 federal electorates.

Since the 2010 redistribution, Melbourne has added another 52,767 people, whereas Wannon has added just 8415 and Aston 6568. Inner Melbourne can absorb that number because many of them are students, and new jobs are constantly springing up for workers. The inner city is a dynamic region: if you live there, the world around you is changing constantly, and that influences your values. If you live in a settled outer suburb or country town with little population growth, the world around you isn’t changing much, and that too influences your values.

In the three statistical regions covering Wannon, meanwhile, the census found population growth of just 2600 over the past decade. By 2016, in round figures, it had 4500 fewer children and teenagers than a decade earlier, and 3200 fewer people of prime working age – but 10,300 more people at or nearing retirement age. The next census might well record more retirees than workers, because few jobs are being created there and many of the young are migrating. That was why the Andrews government had to swallow its principles and agree to a new subsidy for Alcoa’s Portland smelter, to keep one of the area’s biggest employers.

Victoria is seen as an economic success story, but if you dig into the figures, that success is concentrated in Melbourne, and particularly in inner Melbourne. The Bureau of Statistics estimates that in the past three years, 95.5 per cent of all growth in full-time jobs in the state has been in Melbourne. In net terms, only 4.5 per cent of new full-time jobs are in the regions. In the country, six in every seven new jobs created are part-time. That’s why the kids move out, and head to the city.

In recent days the Age has shone its investigative spotlight on the problems of a city (and to some extent, a nation) that seems to be relying on population growth and housing construction to drive its economy. While the series made too much of the Bureau’s unreliable measures of state output, and let the Turnbull government off lightly, it did a fine job of highlighting the gap between the city’s breakneck population growth and the modest investments in infrastructure, and the lack of jobs, services and infrastructure in the outer suburbs that still take a narrow majority of Melbourne’s population growth.

The census confirms that, essentially, immigration is driving Victoria’s economy. In the electorate of Melbourne, 50.3 per cent of those who gave their birthplace were born in Australia, while 49.7 per cent were born overseas, including 11.1 per cent in China alone, and a similar number in ASEAN countries such as Malaysia. That probably understates the reality, since one in ten census respondents didn’t answer the question.

Even twenty-five kilometres away in suburban Aston, centred on Knox at the foot of the Dandenongs, a third of residents were born overseas. Of them, though, one in four was from the white English-speaking world (what I call “the Anglo crew”), and the rest were from a wide range of countries, including an outsize share from Sri Lanka. In fact, one in forty of Aston’s residents comes from that island, part of a large community that started settling in Melbourne in the 1960s and is now 54,000 strong.

But in the far west of Victoria, hardly any Asian migration has reached Wannon. The census found only 8.7 per cent of its residents were born overseas, and most were from Britain, New Zealand and other Anglo countries. The biggest contingent among the non-English-speaking countries were the 597 residents who had migrated from the Netherlands, most of them at least fifty years ago.

Malcolm Fraser opened Australia to Vietnamese refugees, yet forty years later, only sixty-nine Vietnamese-born people live in his old electorate, compared with 5098 in the electorate of Melbourne. Wannon has just 261 residents born in China; the electorate of Melbourne has 20,739.

In Melbourne, 41 per cent of people said they spoke a language other than English at home; in Wannon, only 4 per cent did. In Melbourne, 13 per cent of residents were Buddhists, Muslims, Hindus and other minority faiths. In Wannon, only 1.4 per cent belong to non-Christian faiths. The difference is staggering.

Is it plausible to suggest that one reason for the polarisation of Australians’ attitudes to Muslims in general, and Muslim refugees in particular, is that people in some areas are used to them being in their neighbourhood, while people in other areas are not?

It is striking how what we are seeing now differs from the first wave of postwar migration in the 1940s and early 50s. That wave was led by the British, the Dutch and the Germans, who spread right across the country and put down roots wherever they settled. Even now, the 2016 census finds that in New South Wales, 34 per cent of the British-born live outside Sydney, as do 37 per cent of Germans and 44 per cent of the Dutch. Stunningly, so do 44 per cent of the Australian-born. In Victoria, the numbers are lower, but the pattern is similar.

But the second wave of migrants that followed, dominated by the Italians and Greeks, were more likely to form urban enclaves in the big cities. In Victoria, which attracted the largest share, only 10 per cent of Italian migrants and 3.4 per cent of Greeks now live outside Melbourne, much the same as a generation ago.

And the third wave of migration we are seeing now is almost completely city-centric. In Sydney on census night, the 224,685 Chinese migrants clearly outnumbered the 178,411 British – probably the first time in Australian history that British migrants have ever been outnumbered by another race in any capital city. But in the rest of New South Wales, with its 2.65 million people, the census found just 9578 Chinese migrants. Only 4.2 per cent of those in New South Wales live outside Sydney.

Sydney is also home to 96.3 per cent of the state’s Vietnamese-born population, 97.4 per cent of its Iraqi migrants, and 97.6 per cent of its Lebanese. That’s so different from the first wave of Lebanese migration a century or more ago, which spread out all over Australia, with some enterprising migrants buying horse and cart, fitting them out, and riding from station to station as the general stores of the outback.

Migrants to Victoria are similarly concentrated in Melbourne. The few square kilometres ruled by the Melbourne City Council house four and a half times as many Chinese-born residents as the 210,000 square kilometres of regional Victoria, which include cities like Geelong, Ballarat and Bendigo. Melbourne is home to 97.2 per cent of Victoria’s Chinese migrants, 96.8 per cent of its Sri Lankans, 94.9 per cent of its booming Indian-born population, and 98.0 per cent of its Vietnamese.

Sydney now – and twenty-five years ago

Melbourne now – and twenty-five years ago

The one group of Asian migrants that has spread across Australia are the Filipinos. Barely half of them have settled in Sydney and Melbourne, and the rest have gone everywhere – maybe because they speak better English and can find work more readily, who knows? They are easily the biggest Asian community in Wannon, and you will find more Filipinos than Chinese across regional Australia.

Migrants usually flock to the cities. It’s natural that newcomers go where they have friends or family. But what we are seeing now is that natural tendency carried to extreme lengths. The difference between the racial makeup of electorates such as Melbourne and Wannon is like a difference between countries, rather than between parts of one region. Their human makeups have little in common. It’s not surprising that their political views also have little in common.

There are many other points of difference between these three electorates. Incomes, mortgages and rents are all highest in Melbourne, lowest in Wannon. The concentration of families is highest in Aston, whereas most households in Melbourne are either one-person flats or group houses. Almost half the residents of Melbourne have a university education; in Wannon, just one in seventeen people has been to university. And even in 2016, 23 per cent of occupied homes in Wannon have no internet connection.

The census also found that one in six homes in Wannon was unoccupied: more than anything, this reflects the decades of relative stagnation that has seen farms consolidate, villages die away and smaller towns shrink as the young migrate to bigger places. Footy grounds decay for lack of enough youngish men to field a team. A lot of western Victoria is going through that decline.

Even in Aston, 6.2 per cent of homes were unoccupied. In the city of Melbourne, a stunning 14.6 per cent of homes were declared empty by the census collectors; in neighbouring Port Phillip and Stonnington, the vacancy rate was almost as high. It adds to the case for a serious government-led stocktake of vacant housing, and the reasons for it. It’s a similar story in Sydney.

But the census did find one trend happening right across the nation, and at surprisingly similar rates: Australia is losing its religion. This is not so much because migration has brought growing numbers of Muslims, Hindus and Buddhists; their collective share of our people has grown from 2.6 per cent in 1991 to 8.2 per cent, but their numbers remain relatively small: the number of Muslims in Australia (604,240) is similar to the number of Presbyterians, and less than one-in-forty of the population.

The big increase has been in the number openly declaring that they have no religion. From 12.9 per cent a generation ago, that has soared to 30.1 per cent in the latest census, while another 9.6 per cent ignored the question. The Bureau of Statistics tells us that 75 per cent of all marriages in 2015 were carried out by civil celebrants; only brides and grooms born in the Middle East preferred to have a religious ceremony.

Even an ageing, conservative area like Wannon is experiencing that change. Apart from the lack of Muslims, Buddhists and Hindus, its census responses reflected the nation. The census found that, by state, the highest proportion of non-believers was in Tasmania, the nation’s oldest and most Anglo society, where 37.8 per cent said they had no religion, compared with just 25.1 per cent in New South Wales, which has by far the highest concentration of East Asian and Middle Eastern migrants.

Carrying out a census is an expression of national unity. But its results in many areas highlight our national divisions. •

The post One census, three stories appeared first on Inside Story.

Western Sydney is Australia’s third-largest economy. With its population set to grow by one million people over the next twenty years, a City Deal for this region will be a big deal. The two other City Deals struck so far – in Townsville and Launceston – have been more modest in scope, which makes Western Sydney the first substantial test of the Coalition’s “smart cities” approach to urban development. When he announced the policy in April last year, prime minister Malcolm Turnbull said that smart cities would deliver all the things that Lindy Deitz wants for her squinters and more: “Jobs closer to homes, more affordable housing, better transport connections and healthy environments.”

Smart cities are also designed to drive “the innovation economy,” and City Deals are at their heart. Angus Taylor, Turnbull’s assistant cities and digital transformation minister, told the Melbourne conference that “we have to reshape the way our cities work” because they are becoming “a brake on productivity.” It’s not just the time lost to traffic jams and long commutes, it’s also inefficient land use and poor matching of jobs and skills. Deitz gives the example of major hospitals in Western Sydney struggling to find staff because key workers like nurses are priced out of nearby housing.

The very things that make cities economically productive – the benefits that flow from bringing people, ideas and capital closer together – also undermine that productivity by creating congestion and pushing up rents and property prices. Existing landowners make windfall gains but the poor and the young are forced either to pay excessively for housing or to move away from the places that offer the most jobs and the best career prospects. We are “actually asking young Australians to buy a high-paid job… by buying an expensive house or renting an expensive house,” says Taylor.

Improving Australia’s cities is “not a minor issue about productivity, but a central question of economic policy,” international urban development expert Duncan Maclellan told the conference. With current policies reinforcing inequality and frustrating sustainable development, it is also a matter of fairness and environmental impact. And the fact that Angus Taylor’s cities portfolio is located within the prime minister’s department suggests that Turnbull – unusually for a Liberal leader – recognises these realities.

In his famous “It’s time” policy speech during the 1972 election campaign, Labor’s Gough Whitlam told supporters in Blacktown that almost every major national problem related to cities. “A national government which cuts itself off from responsibility for the nation’s cities is cutting itself off from the nation's real life,” he said. “A national government which has nothing to say about cities has nothing relevant or enduring to say about the nation or the nation’s future.”

In office, Whitlam set up a Department of Urban and Regional Development and involved the Commonwealth in everything from inner-city renewal and heritage protection to public transport and sewerage projects. Since then, the engagement of national governments with cities has tended to rise under Labor and fall under the Coalition. During the Hawke–Keating years, Labor minister Brian Howe initiated the Building Better Cities program, which shares some characteristics – including collaboration between different levels of government – with City Deals. The Rudd and Gillard governments not only developed a national urban policy to improve “the productivity, sustainability and liveability of major urban centres,” but also set up the National Affordable Housing Agreement and the National Rental Affordability Scheme, created Infrastructure Australia, and tracked progress in annual State of Australian Cities reports.

By contrast, the Fraser, Howard and Abbott governments tended to “stick to their knitting,” treating cities, urban policy and public transport as the realm of state governments. Turnbull is bucking this trend. The idea is to bring together all three tiers of government – national, state and local – to forge agreement on urban development goals and the measures needed to achieve them. Angus Taylor says the deals will be transparent and the lines of responsibility will be clear: “No more finger pointing, no more saying, look, housing’s the state, or local or the federal government’s fault. We put the finger-pointing aside and we say, you know, we’re actually going to solve this problem. We’re going to publicise who’s accountable for what and we’re going to hold ourselves to account.”

Taylor’s bold words are an attempt to deal with the fact that no single level of government has clear carriage of urban issues in Australia. Tim Williams, CEO of the Committee for Sydney, describes cities as “orphans of public policy.” In Melbourne, Duncan Maclennan asked rhetorically, “Who deals with the issue that we had a 20 per cent rise in property prices in Sydney last year?” His answer: “No one.” Three layers of government, he says, “is precisely the problem.”

City Deals have their origins in the longstanding French contrat de ville system, but they have come to Australia via more recent developments in Britain. Both Maclennan and Williams have direct experience of the way the deals have operated there since 2012, Maclennan as “knowledge leader” on City Deals for Britain's Economic and Social Research Council from 2014 to 2017 and Williams as a former senior adviser in the UK Department of Communities and Local Government.

Although he was initially sceptical about a private-sector-led scheme supposedly based on innovative finance models, Maclellan believes that City Deals have been “fundamentally positive” and “changed the game.” The poster child is Manchester: its agreement, the biggest and most established in Britain, has produced a revolving infrastructure fund (with the city earning back some of the tax revenue arising from the boost to economic growth), a metropolitan investment strategy, a housing investment fund, and hubs to promote apprenticeships, business growth and low-carbon initiatives.

The Manchester deal only involved two levels of government – national and local. Perhaps more relevant to Australia is Britain’s second-largest City Deal, in Glasgow, which also involved the Scottish government. The deal activates more than £1 billion (A$1.7 billion) in infrastructure investment for urban renewal and transport projects, establishes a life sciences research centre and provides targeted assistance for young unemployed Glaswegians and other vulnerable residents.

One of the most important things to come out of both the Manchester and Glasgow deals is not new money or new construction projects but innovation in the way those cities are governed. The Greater Manchester Combined Authority brings together ten separate local authorities and the Glasgow and Clyde deal brings together eight. The idea is that an overarching body can more effectively address issues that cross council boundaries, including transport planning, urban regeneration and investment strategies.

The Western Sydney City deal is also aiming for this type of horizontal integration. In bringing together eight local governments (Camden, Campbelltown, Fairfield, Hawkesbury, Liverpool, Penrith, the Blue Mountains and Wollondilly), it seeks to overcome another perennial problem of urban planning in all of Australia’s capital cities except Brisbane – the lack of an overarching authority that can coordinate policies across a greater metropolitan area. “Sydney does not exist as an entity,” says Tim Williams. “It doesn’t act as an entity; it has things done to it.”

One of the advantages of City Deals, says Williams, is that they are shaped from the bottom up, based on what local governments determine they need rather than on what central governments want to give them. And since local governments must invest some of their own money up front, they also have skin in the game. Both these factors move City Deals away from the Australian norm of top-down federal grants that are so vulnerable to pork barrelling (although it didn’t pass notice at the Melbourne conference that Australia’s first three City Deals are all in electorally sensitive regions).

One of the potential pitfalls of City Deals is the amount of effort needed to set up and implement them. Necessarily bespoke by nature, they can’t simply be rolled out across the nation. Townsville’s deal includes investment in port and rail facilities, as well as a new NRL stadium and a cooperative research centre for the development of Northern Australia. The Launceston deal includes money to move the University of Tasmania campus into the heart of the city, to redevelop the historic Paterson Barracks and support local schools to extend classes to Years 11 and 12. (Many Tasmanian high schools only go to Year 10.) Both deals are integrated to some degree with defence projects.

In Western Sydney, the deal is likely to include public transport investments, local employment initiatives and a housing package. In return for its investment, the Commonwealth will expect significant planning and zoning reforms at state and local government level to reduce restrictions on residential development and speed up building approvals. This is in line with the federal government’s dubious argument that red tape and a lack of new construction are almost entirely to blame for Sydney’s runaway house prices.

In reality, two distinct issues to be dealt with: “housing affordability” and “affordable housing.” The first relates to the general rise in house prices, which puts pressure on new home-buyers and raises overall levels of mortgage debt, with associated risks to the economy and the financial system. The second relates to the provision of dwellings for low-income households that simply can’t afford to buy or rent in the current market. While an increase in supply may help with housing affordability, it will do little to generate more affordable housing stock.

Many participants at the Melbourne conference argued that City Deals will only improve housing options for low-income households if they involve previously taboo initiatives such as inclusionary zoning. Widely used in other countries, inclusionary zoning requires developers to set aside a proportion of new dwellings in any project for sales or rentals at below market rates.

David Waldren, head of planning, design and development for the construction company Grocon, told the conference that his firm is absolutely certain that inclusionary zoning will be part of the future (though he acknowledged that rival firms strongly oppose the idea). The “notion of a fair go” is still embedded in Australian society, he argues, and would find expression in a demand to provide affordable housing options close to city centres. City Deals were an opportunity to make inclusionary zoning a reality.

One way to introduce inclusionary zoning would be to make it a condition of developers’ bids for government land like the former defence site at Maribyrnong, in Melbourne’s west. With developers incorporating the cost into their modelling, governments may earn less from the sale, but the benefit will be an increased supply of well-located affordable housing. Inclusionary zoning could also be combined with an investment strategy for not-for-profit housing providers. Duncan Maclellan says the funds unlocked through City Deals can help buy off the ideological opposition of some local governments to new social and community housing.

Whether Western Sydney’s City Deal will make much difference to either housing affordability or affordable housing will depend on the nature of the final deal struck. Given that the most urgent and necessary housing reforms lie in the realm of tax policy, and are being dodged, City Deals may be the only available option right now. They aren’t perfect, but at least they have the potential to generate coherent, region-wide land use strategies that better align housing, transport and jobs. And if they result in increased coordination and cooperation between Australia’s three tiers of government, and across fragmented local councils, then the process of striking the deals may be just as important as their content. •

The post Dealing cities in appeared first on Inside Story.

After surging for five years, the growth in house prices is slowing in Melbourne and Sydney, the two epicentres of the boom. New lending volumes are down following a clampdown on interest-only loans. And there are signs that oversupply could hit apartment prices in parts of Brisbane and Melbourne.

Talk of a “bubble” threatening to pop misses an important point, though. Yes, house prices have risen rapidly – by more than 40 per cent nationally and 70 per cent in Sydney over the past five years. But there are good reasons why housing is so expensive today.

Australia’s population has surged by about 350,000 a year over the past decade, up from the 220,000 a year during the previous ten years. Record low interest rates have made it possible to service much larger mortgages. And most of the increase in house prices reflects restrictions on the effective supply of residential land – both limits on rezoning for urban infill and limits on developing land on the urban fringe. Dwelling construction has simply not kept pace. Several years of housing construction – probably at even faster rates than currently – will be needed to erode the large backlog that accumulated between 2006 and 2014, estimated at about 200,000 dwellings.

Investors are also part of the story. Emboldened by recent price rises and armed with cheap credit, they have chased further house price gains. Investors now account for 40 per cent of all new mortgage credit. Negatively geared property remains a popular investment strategy. And with gross rental yields below 3 per cent in Melbourne and Sydney, such investments only make sense if investors are banking on future capital gains or a large rise in rents.

Of course, no one can predict with certainty what will happen to houses prices from here. But history provides some pointers. Past Australian housing booms have tended to end with prices falling modestly, or flat-lining for an extended period, rather than crashing down. Sharper falls are certainly possible – as the US and European experience during the global financial crisis shows – but they are unlikely in Australia while our regulators keep a tight rein on bank lending practices, unless we are hit by an economic downturn unrelated to housing.

But what might happen to the banks, and the economy, if house prices do start to fall or if households struggle to make good on their debts?

Since the subprime mortgage crisis hit the United States, commentators have tended to focus on the risks that property market booms and busts pose to the banking sector. Higher levels of debt increase the risks of borrower default and thus the risks of banks getting into trouble, with all the economic chaos that would create. And household debt in Australia is now a record 190 per cent of household after-tax income, up from about 170 per cent between 2007 and 2015. In 2002, 20 per cent of households had debts of more than twice their income; today it’s 30 per cent.

But the risks of Australian banking instability are low because relatively few households have high loans-to-total-assets ratios and our banks are highly profitable and well capitalised by international standards. As Reserve Bank governor Philip Lowe noted in a recent speech, it’s the riskiest borrower who gets into trouble first in a downturn. And most of those taking on larger debts in Australia appear to be from wealthier households well placed to service those debts.

But there is always a risk that banks will drop their lending standards as they compete for business. One-third of borrowers have either no accrued buffer or a buffer of less than one month’s repayments. This is not historically high – indeed, more households have a buffer on their loan today than at any time since the Household, Income and Labour Dynamics in Australia Survey began in 2002. But those with minimal buffers tend to have newer mortgages, or to be lower-income or lower-wealth households.

That’s why Australia’s banking regulator, the Australian Prudential Regulation Authority, or APRA, is limiting banks’ new interest-only lending to 30 per cent of total new residential mortgage lending. This followed its move in late 2014 to limit growth in each bank’s total lending to property investors to no more than 10 per cent each year. And APRA may soon require banks to hold more capital against their loans, in line with recommendations from the 2014 Financial System Inquiry to make our banks’ capital ratios “unquestionably strong.”

We should be more concerned about the risk that much higher debts could prompt a rapid fall in household spending in the event of a downturn. Household consumption accounts for well over half of GDP. Recent Reserve Bank of Australia research shows that households with higher debts are more likely to reduce spending if their incomes fall. A rise in unemployment, perhaps prompted by a slowdown in China or a stuttering US recovery, would force many people to save more – and consume less.

Even a relatively small rise in the interest rates paid by households would crimp their spending. Our research at the Grattan Institute shows that if interest rates rise by just two percentage points, mortgage payments on a new home will take up more of a household’s income than at any time in the past two decades. While the RBA would only lift interest rates cautiously, another disruption to international financial markets like the 2008 shock could sharply increase banks’ funding costs, raising mortgage rates.

Falling house prices may also result in reduced consumption if home owners feel poorer. But estimates of the size of this effect vary widely. One recent RBA paper estimated that each dollar of housing wealth lost reduced household consumption by about a quarter of one cent, implying a 0.1 per cent fall in GDP for each 10 per cent fall in house prices. Another paper suggested that such a “wealth effect” could be ten times as large.

So how should policy-makers respond to these risks? First, the RBA needs to be especially careful when it feels the need to raise interest rates. Higher debt levels mean household spending is likely to fall more when interest rates rise than it did in the past. Perhaps the RBA should make smaller shifts in the cash rate – such as ten basis points, or a tenth of a per cent – to cushion the impact of future rate rises.

Second, Australia’s financial regulators – APRA and the Australian Securities and Investments Commission – need to be ready to clamp down on banks making risky loans if there are signs that lending practices are deteriorating. But that doesn’t mean lending should be restricted simply in order to bring down house prices.

Third, the federal government needs to get its fiscal house in order. Australia urgently needs a better budget position so we have more room to manoeuvre in difficult times. The Australian economy is particularly exposed: with interest rates at historical lows, there are limits to what the RBA can do to stimulate growth, so fiscal stimulus will be an important part of the response to any future economic shock. •

The post What comes after the housing boom? appeared first on Inside Story.

At least the giveaways to first homebuyers and downsizers are small, and the overall package will contribute to dealing with the budget deficit by reducing deductions for landlords and increasing taxes on those who don’t vote. This means that demand for housing will fall, though only very slightly.

Serious reform will have to wait for another day and another government, one willing to embrace the tough choices that will make a real difference to housing affordability. With public concern about housing on the rise and meaningful reform sidestepped yet again, that day may come sooner rather than later.

But first to the budget’s giveaways – to first homebuyers and to downsizers. Neither will make much of a difference to affordability, but nor will they cost very much.

Allowing first homebuyers to withdraw any future voluntary super contributions will bring the tax treatment of their savings a little closer to how existing property owners are treated. First homebuyers’ savings typically sit in bank term deposits, where any interest earned is taxed at full marginal rates of personal income tax. In contrast, the nest eggs of owner-occupiers are tax-exempt, or taxed only lightly in the case of investors.

But while allowing first homebuyers to access super tax breaks to save for a home has some merit, it’s unlikely to make much difference. Why? Because few people will take up the treasurer’s offer. Households are reluctant to give up access to their savings, especially when they’re already saving 9.5 per cent of their income via compulsory super, and especially when they can’t withdraw the money if they then decide they can’t afford to buy a home.

In fact, the proposal is similar to the Rudd government’s First Home Saver Accounts, and is likely to be just as ineffective. Treasury expected $6.5 billion to be held in First Home Saver Accounts by 2012. Instead, only $500 million had been saved by 2014, when Joe Hockey abolished the scheme, citing a lack of take-up.

Allowing first homebuyers to use their existing super accounts may prove more attractive this time around because no one has to set up a new account to access the tax benefits. But the scheme is capped at $30,000, much less than the $90,000 buyers could save in First Home Saver Accounts. Even Treasury doubts the scheme will be popular; it expects the measure to cost just $70 million in 2020–21.

On downsizing, the government has badged a giveaway to a small number of seniors as a housing affordability measure. It is waiving new rules that restrict wealthier retirees from making large post-tax super contributions if they downsize. Again, it sounds good: the new incentives are supposed to encourage seniors to move to housing that better suits their needs, while freeing up equity for their retirement and larger homes for younger families.

The trouble is, research shows that most seniors are emotionally attached to their home and neighbourhood and don’t want to downsize. When people do downsize, financial incentives are generally not the big things on their minds. And so most of the budget’s financial incentives will go to those who were going to downsize anyway.

And the government has chosen a strange group to help downsize. The plan ignores pensioners, the group most disadvantaged by downsizing because their family home is exempt from the pension assets test but any equity unlocked by downsizing is not.

Those who will benefit are overwhelmingly self-funded retirees who will be able to make large super contributions even when their super account balance already exceeds $1.6 million. Roughly 35,000 people aged over sixty-five had a super balance exceeding $1.6 million in 2014. Each had a home valued at an average of $1.3 million, and net wealth of over $7 million. By definition, none of this group receives any age pension. And few of these homes unlocked by downsizing will go to first homebuyers.

But it’s not worth going to the barricades over such a poor piece of policy-making: Treasury expects it will cost the budget only $20 million in 2020–21, suggesting that take-up will be pretty small.

Housing affordability will be helped more by curbs on tax breaks for property investors and increased taxes on foreign investors. But the effects will still be imperceptible in the scheme of Australia’s $6 trillion residential housing market.

The treasurer also announced that landlords will no longer be able to deduct travel costs related to inspecting or maintaining residential investment properties. Landlords will find it harder to depreciate improvements such as dishwashers and ceiling fans. Temporary and foreign residents will be denied access to the capital gains tax exemption for their main residence, amid a host of tax changes affecting foreign property investors. While each change appears piecemeal, as a whole they are expected to save the budget about $500 million a year by 2020–21.

But the question remains: why didn’t the government go further and bite the bullet on more wholesale reforms to negative gearing and the capital gains tax discount, especially with Labor having provided political cover by announcing its own changes? The current tax arrangements distort investment decisions and make housing markets more volatile. Reform could boost the budget bottom line by up to $5 billion a year. Contrary to urban myth, rents wouldn’t change much, nor would housing markets collapse. And although the effect on affordability wouldn’t be huge, at least it might be big enough to measure.

The budget does contain some measures to boost housing supply, and these may make some difference over time.

The government will establish a National Housing Finance and Investment Corporation to operate a “bond aggregator” for the social housing sector. The corporation will borrow on behalf of community housing providers, and on-lend to the providers – giving them access to cheaper and longer-term finance. The increase in the capital gains tax discount from 50 per cent to 60 per cent for investors in “affordable” housing, and new tax incentives to encourage managed investment trusts to invest in affordable housing will also help a little.

But a substantial increase in the affordable housing stock is unlikely unless there are additional large public subsidies to cover the costs of providing housing at below-market rents. Plans to sign a new National Affordable Housing Agreement with the states could lead to extra funding, but any increase would hit the budget bottom line.

The government has plans to use the new intergovernmental housing agreement and City Deals to encourage state and local governments to boost housing supply by offering incentive payments to support planning and zoning reform. These sound promising; after all, new housing supply has simply not kept pace with demand over the past decade. But much will depend on the final deals struck. It isn’t obvious that the Commonwealth is putting enough money on the table to get states to make the politically difficult decisions on planning reform. And in the case of City Deals, the process could still be derailed if deals are motivated by a chase for votes in marginal seats rather than meaningful reforms.

Other parts of the government’s housing package are mere distractions. The proposed tax on foreign homeowners who keep their properties vacant may play well on talkback radio, but it is likely to prove hard to implement and will make little difference to house prices. Nor will capping the portion of new developments that can be sold to foreign investors at 50 per cent. While some developers currently obtain preapproval to sell 100 per cent of a new development to foreigners, the share actually sold to foreigners is typically less. The fact is that foreigners don’t own much of our housing – perhaps 2 per cent of the value of the residential stock.

After raising expectations for reform, Scott Morrison’s tactical retreat on housing shows that this government, like so many of its predecessors, is not serious about making housing more affordable. His failure to act will have big and bad consequences; housing affordability has vexed Australian governments for two decades, as politicians have tried to appease aspiring first homebuyers without upsetting existing home owners. They have dodged the choices that would make a difference, preferring policies that are cosmetic but politically painless.

Continuing inaction means that home ownership rates among younger age groups will fall further, inequality will increase, economic growth will be slower than it otherwise would have been, and the risks of an economic downturn will become more acute. Not surprisingly, the public has figured out that there is a real problem. Unless governments improve the reality rather than appearances, public trust in political institutions will continue to fall. •

The post Another lost opportunity for housing affordability appeared first on Inside Story.

The shift in rhetoric isn’t surprising. Despite all the talk of options on the table, the government is yet to show that it’s serious about addressing housing affordability. Few of the proposals it has flagged in recent weeks would make much difference, and some would make the problem worse.

To capitalise on the government’s indecision, the opposition announced its own housing strategy last week. While most of Labor’s ideas are sensible, not many will make housing much more affordable, with the exception of previously announced changes to negative gearing and the capital gains tax discount.

State and federal governments have raised expectations among voters anxious to see action on housing. Governments now need something concrete to point to. There are options that would make a big difference, but none is politically easy. If governments want to be seen to be serious about housing affordability, they’re going to have to make tough choices and avoid the temptation to do the easy (and stupid) things.

The first step to making housing more affordable is to face up to the size of the problem. Australian house prices have more than doubled in real terms since the mid 1990s, far outstripping growth in household incomes. And while low interest rates make it relatively easy to service a loan today, slow wages growth means that the burden of a mortgage is eroded more slowly than in the past. Home ownership rates are falling, especially among the young and the poor. Without change, many young Australians could be locked out of the housing market.

Governments have long promised to improve housing affordability, yet all the while house prices have continued to rise. The politics are hard. More Australians own a house than are seeking to buy a house, and making housing more affordable means house prices will be lower than would otherwise be the case. And many people who live in the established middle suburbs don’t like the idea of more density in their neighbourhoods. If governments really want to make a difference, they need to explain why improving housing affordability matters – and why doing nothing will only make the problem worse.

While making the hard decisions, governments should also set realistic expectations. Although government policy can help, housing is unlikely to become much more affordable overnight. It took neglectful governments two decades to create Australia’s housing affordability crisis, and it will take just as long to improve matters. There are limits to what even a brave government can do.

A lack of policy ideas isn’t the problem. There are plenty, but most of them simply won’t have much effect. Some will make housing affordability worse, drag on economic growth, or subtract from government budgets that are already in trouble. And a few will make a difference, but all of them are politically difficult.

The policies that sound good, but won’t help much in practice, live in the top left of our diagram.

Treasurer Scott Morrison has shown great interest in “shared equity” schemes, which sound like a way for first home buyers to clear the deposit hurdle without significant costs to taxpayers. Such schemes come in many shapes and sizes, but in this case the government would likely stump up some of the capital to purchase a home, and later, when the property is sold, it would get its money back, together with a share of any property price growth. Such schemes already exist in Western Australia and South Australia, where government lenders have issued thousands of loans for people to purchase their own home.

There is some evidence that these schemes increase home ownership rates. Yet they are unlikely to make much of a difference to housing affordability, at least not without big public subsidies. Only one-in-five loans approved by the WA lender in 2015–16 were genuine shared-equity loans. Most were low-deposit loans to borrowers, some of whom may have borrowed from a commercial bank.

Treasurer Morrison is also keen on a “bond aggregator” for the social housing sector. The government would borrow on behalf of community housing providers, and on-lend to the providers – giving them access to cheaper and longer-term finance. While this may help to boost the supply of social housing, a substantial increase in the stock is unlikely unless there are additional large public subsidies to cover the costs of providing housing at below-market rents.

Restricting foreign investment in housing may have some impact on house prices, but again only at the margin. Treasury research suggests that foreign investment has not been a major contributor to recent growth in house prices. Of course, the government should ensure that foreign investment rules are being followed; recent reports suggest that foreign investment rules are still being broken, despite a recent crackdown.

Increasing taxes on foreign investment in housing, as several state governments have already done, and federal Labor has now proposed, may be a sensible way to raise revenue, but it is unlikely to hit house prices unless the tax hikes are very big.

Taxing vacant dwellings, a policy recently announced by the federal opposition and the Victorian Labor government, sounds attractive, but will be difficult to administer. Accountants are likely to be able to fit most vacant homes within one of the exemptions for those temporarily overseas, holiday homes and those who need a city unit for work purposes. A similar tax introduced in Vancouver this year is yet to show that it has overcome these challenges.

While those ideas won’t do much to make housing more affordable, they won’t do much harm either. Several other ideas, shown in the bottom left of our diagram, are less benign: they involve big risks either to the budget or to the economy.

The Turnbull government is reportedly still considering allowing people to use their superannuation to buy their first house. Politicians are understandably attracted to any policy that appears to help first home buyers build a deposit. Unlike the various first home buyers’ grants, which cost billions each year, letting first home buyers cash out their super would not hurt the budget bottom line – at least in the short run. But as we wrote in 2015, such a change would push up house prices, leave many people with less to retire on, and cost taxpayers in the long run. Alternatives that allow first home buyers to withdraw only voluntary super contributions are less foolish, but are unlikely to make much difference to housing affordability.

Another proposal to give first homebuyers extra tax incentives to save for a home has similar problems – it would move taxpayer money into the pockets of vendors without addressing affordability. In fact we’ve been here before: the former Rudd government’s First Home Saver Accounts provided similar financial incentives to help first homebuyers build a deposit. Treasury expected A$6.5 billion to be held in First Home Saver Accounts by 2012. Instead only A$500 million had been saved by 2014, when Joe Hockey abolished the scheme, citing a lack of take up.

The government is reportedly considering providing incentives to encourage seniors to downsize their homes, thereby freeing up larger homes for younger Australians. This idea, too, should be rejected. Research shows that downsizing is primarily motivated by lifestyle preferences and relationship changes. These considerations dwarf the financial trade-offs between having more cash to spend, but a lower age pension. According to surveys, no more than 15 per cent of downsizers are motivated by financial gain. Stamp duty costs (which are analogous to the threat of losing pension entitlements) were a barrier for only about 5 per cent of those thinking about downsizing. If financial considerations aren’t the big barrier then many of the incentives would go to households that would have downsized anyway. As the Productivity Commission found, these incentives have a material budget cost, and distort the housing market by adding even more to the long-term tax and welfare incentives to own a home.

The government should also resist the temptation to push people to the regions. Since Federation, state and federal governments have tried to lure people, trade and business away from capital cities. It has invariably been an expensive policy failure. Despite government policies of decentralisation, the trend to city-centred growth has accelerated in the past decade. Half of all net jobs growth in Melbourne and Sydney is now within a two-kilometre radius of the city centres, reflecting the rapid growth of jobs in service industries, where physical proximity really matters. In the unlikely event that government policy actually succeeded in encouraging more people to live in regional areas, it could reduce house prices in the major cities, but it would also slow growth in incomes.

The government should also tread carefully when it comes to curbing immigration, as proposed by former prime minister Tony Abbott. Slowing immigration would have a big impact on house prices. Australia’s resident population is increasing by about 350,000 a year, and over half of this is due to immigration. But curbing migration could also slow growth in incomes. Recent Productivity Commission modelling concluded that continuing Australia’s approach of taking younger, skilled migrants could result in GDP per person being up to 7 per cent higher in 2060 than if there were zero net migration.

So governments need to focus on the policies in the top right of our diagram: policies that will make a material difference to affordability without substantially dragging on the economy or the budget. Everything in this category is politically difficult.

Given the allocation of federal responsibilities, the Commonwealth can primarily intervene to reduce demand. States have more ability to boost supply, through land-use planning and zoning laws, and by releasing greenfield land. They can also make renting more attractive by reforming state land taxes and residential tenancy laws. Both levels of government can improve access by making better decisions about which transport infrastructure to build, and then introducing congestion charges.

The most obvious way the Commonwealth government can materially reduce housing demand is by reducing the capital gains tax discount and abolishing negative gearing. The effect on property prices would be modest – they would be roughly 2 per cent lower than otherwise – but would-be home owners would benefit. Economic benefits would flow too. The current tax arrangements distort investment decisions and make housing markets more volatile. Reform would boost the budget bottom line by around $5 billion a year. Contrary to urban myth, rents wouldn’t change much, nor would housing markets collapse. If phased in, the reforms would be easier to sell politically and would dissuade investors from rushing to sell property before the changes come into force. An alternative flagged by the government – limiting the number of properties a person could negatively gear – would be much less effective because few people negatively gear multiple properties.

The government should also include the value of the family home above some threshold – such as $500,000 – in the age pension assets test. This would encourage a few more senior Australians to downsize to more appropriate housing. More importantly, it would make pension arrangements fairer, and contribute up to $7 billion a year to the budget.

Making owner-occupied housing liable for capital gains tax could also reduce demand and improve the budget bottom line. But such a change might have unintended consequences. It would discourage people from moving house, since home sales would trigger liability to pay capital gains tax. Young purchasers would be tempted to choose oversized housing to reduce the number of home moves they make over a lifetime. It would be difficult to resist calls to allow deduction of interest payments (given taxation of the gains), which would wipe out most of the benefit to the budget.

Affordability would improve much more if the states did the heavy policy lifting over a number of years to increase supply.

The middle rings of Australia’s large capital cities generally have good infrastructure, and good access to city centres, where most of the new jobs are being created. These cities are sparsely populated relative to other large cities in the developed world outside the United States. Grattan Institute research shows that people want more townhouses and semi-detached dwellings in established suburbs.

Current rules make it reasonably easy to build apartments in the CBD and to develop new housing estates on the fringes of the major cities – so that is what we’re getting. But the rules make it very difficult to subdivide and create extra residences in the middle rings of the capital cities, up to twenty kilometres out of the CBD. Population density in the middle rings has hardly changed in the past thirty years, yet urban infill could supply a lot of the new housing needed.

State and local governments need to change planning laws and practice to make it easier to subdivide in middle-ring suburbs. They also need to increase density along transport corridors, which would both boost housing supply and use existing transport infrastructure better.

Increasing supply will only restore housing affordability slowly. With migration increasing substantially from about 2006, Australia’s population grew by around 350,000 per year, rather than the 220,000 per year that was typical in the previous decade. Dwelling construction did not match demand, particularly in New South Wales. It increased by about 30 per cent in the past four years, but it is still only keeping pace with current population growth. Several years of construction – probably at even faster rates than currently – will be needed to erode the large backlog that accumulated between 2006 and 2014, estimated to be a shortage of about 200,000 dwellings.

This is primarily a state government problem. While the federal government can release some of the limited stock of Commonwealth land, it does not directly control planning rules. It could provide incentives to state and local governments to increase the supply of housing in good locations, but its budget will struggle to provide incentives sufficiently large to overcome the reluctance of a state government that is not motivated to take on the political difficulties anyway.

State governments should also abolish stamp duties and replace them with a general property tax, as the ACT government is doing. Stamp duties on the transfer of property are among the most inefficient of taxes: they discourage people from moving to better jobs, or to housing that better suits their needs. Their abolition would encourage people to move as their circumstances change, making more efficient use of the housing stock. This would mainly improve economic growth rather than housing affordability, but it’s a big prize: a national shift from stamp duties to a broad-based property tax could add up to $9 billion a year to gross domestic product.

Reform of progressive state land taxes, which levy a higher rate of land tax if a person owns more investment property, could improve conditions for renters, because institutional investors would be more likely to offer long-term leases to those renters who seek greater certainty.

Such tax reforms might be encouraged if the federal government provided incentive payments to the states, which would reflect how Commonwealth revenues will ultimately benefit from the increased economic growth. A recent COAG agreement to encourage states to enact economic reforms is a step in the right direction, but more needs to be done.

Governments also need to improve transport networks by using existing transport infrastructure more efficiently and building more effective transport projects. This will make fringe suburbs a more attractive alternative to established suburbs closer to CBDs, limiting price increases in inner suburbs.

First, the federal government should work with states on the possibility of introducing congestion charging to ensure existing roads are used more efficiently. A congestion charge needs to discourage only a small proportion of people from driving to enable a big increase in traffic speed.

Second, the way governments decide on transport infrastructure investment needs to improve. Governments have tended to favour projects in swing states and marginal seats, rather than projects with the highest benefit–cost ratios. They should only commit money to a transport infrastructure project if Infrastructure Australia or another independent body has assessed it as high priority, and the business case has been tabled in parliament.

Housing affordability has vexed Australian governments for two decades, as politicians have tried to appease aspiring first home buyers without upsetting existing home owners. They have dodged the hard choices that would actually make a difference, preferring policies that are cosmetic but politically painless.

Continuing inaction will further reduce home ownership, increase inequality, dampen economic growth, and increase the risks of an economic downturn. The public has figured out that there is a real problem. Unless governments improve the reality rather than appearances, public trust in political institutions will continue to fall. Pretending there are easy answers will only make things worse. •

The post Options for housing affordability: the good, the bad and the cosmetic appeared first on Inside Story.

“Housing affordability” is a catch-all banner for a grab-bag of public concerns linked to rising house prices. Some people resent spending more of their pay packet on housing. Some fear that younger Australians will be locked out of the housing market. Economists are worried that many people can’t find housing with good access to jobs. Patterns of home ownership are increasing inequality between and among generations. Others fret about the risks that higher house prices pose to the economy.

It’s worth teasing these issues apart to understand what should really keep policy-makers awake at night.

Most literally, housing affordability is about how much a person spends on housing relative to everything else. Overall, spending on housing has increased from about 16 per cent of all spending in 1980 to more than 20 per cent today. And this means households have less to spend on other goods and services, from healthcare to entertainment.

Australian house prices have more than doubled since the mid 1990s in real terms, far outstripping growth in incomes. Although attention is focused on the rapidly rising prices in Sydney and Melbourne (a typical house in a capital city currently sells for around six-to-seven times annual incomes, up from around two-to-three thirty years ago), prices have also risen strongly in the regions.

Of course, house prices were always going to rise as incomes increased and finance became cheaper and more readily available. These changes have helped people to access more and better housing. Since the late 1980s, the average floor space of newly constructed houses has risen by around 45 per cent. The number of spare bedrooms has also risen rapidly.

But most of the increase in the value of housing reflects increases in the price of land. These higher land prices mainly reflect restrictions on the effective supply of residential land – both limits on rezoning for urban infill and limits on developing land at the urban fringe – at a time when demand for land is growing strongly.

Of course, most Australians don’t buy a home outright: instead, they borrow to purchase a home. Housing affordability is falling mainly because it takes longer to pay back the principal on a mortgage. That takes longer because house prices have risen much faster than incomes. And nominal incomes are not rising as fast to overtake the nominal amount originally paid for a home.

While it is harder to pay down the principal, paying the interest on a new mortgage on the average-priced home is no more difficult today than in 2003: the rise in prices has been counteracted by the fall in interest rates. As for rents, they have more or less kept pace with wages over the past twenty years. Because mortgage and rent costs haven’t risen much relative to incomes, households are under relatively little financial stress. As a recent Reserve Bank of Australia article showed, more homeowners are further ahead on their mortgage today than in 2006, and fewer households are reporting financial stress events such as being unable to pay a bill.

Inevitably, averages conceal problems for some groups. In particular, it is getting harder for low-income households to pay the rent, particularly if they live in large cities. About 47 per cent of low-income households in capital cities now spend more than 30 per cent of their pre-tax income on rent, up from 36 per cent in 2007.

Higher house prices have also made it harder for buyers to save a deposit, which historically has been 20 per cent of the purchase price. In the early 1990s it took around six years to save a 20 per cent deposit for an average dwelling; it now takes around ten years.

Higher house prices and debts may not currently mean higher mortgage payments, given lower interest rates. But they do increase the risks. If interest rates rise by just 2 percentage points, mortgage payments on a new home will cost more of a household’s income than at any time in the past two decades. With interest rates across the globe at historic lows, the risk of an interest rate rise is real. And because wages aren’t rising fast, households are burdened by big interest payments for much longer.

These risks may explain the second big concern about housing affordability: the worry that “my child can’t afford to buy a house.” While buying a first home might seem “affordable” if we only look at mortgage payments relative to income today, it now involves a lot more risk.

Home ownership rates are falling quickly for those under fifty-five. Falling home ownership among twenty-five- to thirty-four-year-olds might be explained away because people are forming long-term partnerships and having children later in life. But this explanation doesn’t wash for thirty-five- to forty-four-year-olds. Home ownership among this group has fallen from about 75 per cent in 1991 to about 60 per cent today. The fall has been particularly steep among low-income households.

There are plenty of reasons to care about home ownership. Owning a home can provide a sense of community belonging, a sense of prosperity, the motivation for additional savings, and the basis for investing in a business. Under current policy settings, it provides higher after-tax returns on savings, and effectively higher income in retirement. Of course, home ownership also has its costs: for example, home owners may be more reluctant to take on a better job that would involve the emotional and financial costs of moving.

Given current rental markets and policies, renting is relatively unattractive: it is generally much less secure; many tenants are restrained from making their house into their home; and tenants miss out on the tax and welfare benefits of home ownership. Renters are forced to move much more often than home owners, and are less satisfied with their housing.

So it’s not surprising that younger generations still want to own their own home. There is little evidence that falling home ownership is due to lack of desire; rather it seems to be due to lack of opportunity, and the heightened risks.

Housing in the right places is also becoming less affordable. Australia’s large cities are increasingly divided between the middle and inner ring with good access to jobs, and an outer ring whose residents can’t get to many jobs. This divide is becoming more important because much of the net growth in jobs is occurring in the large capital CBDs. Relatively few people commute from outer suburbs to the centre – the travel time is just too long. And whereas new housing on the city fringe forty years ago still had reasonable access to the centre, new housing on Sydney and Melbourne’s outer fringes is now typically much further out. As a result, the price differential between inner and outer city is increasing. And so it’s getting harder to buy a home that has good access to the places where a lot of the jobs growth is happening.

Concerns about housing affordability also reflect worries about increasing wealth divides between generations, and among generations. The wealth of older households increased rapidly over the past decade: the average household aged between thirty-five and fifty-five in 2004 increased its wealth by $50,000 a year over the decade to 2014. Wealth was boosted significantly by the rapid run-up in the price of houses and other assets. A younger generation is unlikely to get this kind of free kick.

The increasing divide between generations can easily transmit into an increasing divide within generations. If home ownership relies more on the “bank of mum and dad,” then getting a home depends more on the success of one’s parents than on one’s own endeavours. Rising house prices are also likely to boost future inheritances, which tend to transmit wealth to children who are already well off.

Finally, concerns about housing affordability may reflect concerns about economic stability. House prices are rising faster than incomes. And households are borrowing more, particularly to invest in housing. As a result, household debt in Australia is now a record 190 per cent of household after-tax income, up from about 170 per cent between 2007 and 2015. More households are exposed: in 2002, 20 per cent of households had a debt of more than twice their income; today it’s 30 per cent.

Higher levels of debt increase the risks of borrower default and thus the risks of banks getting into trouble, with all the economic chaos that would create. But overall, the risks of Australian banking instability are low given relatively few households with high leverage of loans to total assets, and robust bank capitalisation.

Much more concerning is the risk of a rapid fall in household spending. A fall in house prices, or a relatively small rise in the interest rates paid by households, would force many households to save more – and to consume less. This would probably slow economic growth, potentially increasing unemployment and further reducing house prices.

Thus, “housing affordability” includes a wide variety of concerns: less money to spend on goods and services other than housing; falling home ownership rates; worsening access to jobs; increasing wealth inequality between and among generations; and increasing risks of a housing-led economic downturn.

Responding to these concerns requires careful analysis of the underlying drivers and of the potential impact of policy changes. Not all policy changes will make a difference to the problems that really need solving. We will look at potential policy reforms in a subsequent article. But even then, policy-makers need to be honest about how there are limits to what governments can do to get the barbecue started again. •

Monday: Assessing the solutions

The post Why should we care about housing affordability? appeared first on Inside Story.

Homelessness is not just the product of too few houses and high rentals. Poor health, and the consequent loss of employment and income, is a major factor. The same people who are most at risk of homelessness – the poor, Indigenous Australians, those with a mental illness, prisoners, and women and children who have experienced domestic violence – have the lowest levels of access to primary care. Homeless people have higher rates of infectious and chronic illnesses and typically use hospital emergency departments and other expensive healthcare services at very high rates. Even if they get the immediate healthcare they need, their recovery is compromised by a lack of housing.

This is particularly true for people with a mental illness. As human rights and equal opportunity commissioner Brian Burdekin wrote back in 1995, “Living with a mental illness – or recovering from it – is difficult even in the best circumstances. Without a decent place to live it is virtually impossible.” If we fail to meet this need, most mental healthcare will continue to be hospital-based and – despite the evidence of the benefits of community care – people with mental health problems will continue to be discharged from hospitals and prisons without ongoing treatment and support.

Homelessness and overcrowded, poor-quality housing are also major contributors to the health disparities experienced by Indigenous Australians, especially in remote areas. The result is a range of infectious diseases of the skin, eyes and ears, respiratory infections and rheumatic fever, which can have a huge impact on children’s development and education.

How have governments responded? In 2008, not long after it took office, the Labor government of prime minister Kevin Rudd commissioned a white paper on the issue titled “The Road Home: A National Approach to Reducing Homelessness.” Rudd described homelessness as a “national obscenity” and set two headline goals for 2020: to halve homelessness and to offer supported accommodation to all people sleeping rough. At his urging, the Council of Australian Governments committed more than $800 million over 2009–12, a 55 per cent increase in funding, to a National Partnership Agreement on Homelessness, and also struck agreements on remote Indigenous housing and social housing.

Acknowledging that the problem would only be alleviated by a long-term strategy, Rudd described the funding as a “down payment on a twelve-year reform agenda.” But this commitment faded after the change of government in 2013, and since then funding levels have been reduced and limited to one- or two-year agreements. The most recent of these, providing $250 million over two years, expires in June.

The opportunity created by the National Partnership Agreement is now seen as having been wasted. The innovative, evidence-based ideas that underpinned the proposed reforms didn’t take hold and today, as political leadership in this area has evaporated, the majority of funding is still directed towards transitional support linked to short- and medium-term emergency accommodation.

It’s no surprise then that the number of homeless people, including families with children, continues to grow, as do the costs of their homelessness. A recent study of rough sleepers in inner Sydney found that government and non-government agencies spent between $15,900 and $35,000 per person per year, the majority of this on healthcare. The data highlight why: 40 per cent of homeless people have a mental health condition; 30 per cent have a long-term physical condition; 22 per cent have problems with alcohol and drug use; 40 per cent are assessed as needing intensive and/or ongoing support across four or more major needs. The average annual cost for health services for a homeless person is $10,217 higher than the population average.

What’s obvious from these statistics is that homelessness can’t be dealt with simply by providing housing. The most successful approaches, exemplified by initiatives in the United States and Europe, see homelessness as a public health issue and take action accordingly. They take a preventive approach, drawing on analogies from public health and recognising that prevention is more effective and efficient than cure.

Primary prevention targets households and individuals at risk of homelessness before that becomes the case. It creates community-level systems that are alert to those at risk (people in short- or long-term financial distress with poor housing options, for example, or people about to be discharged from jail, or patients with chronic mental illness but no access to support services) and links them to services that can respond in a timely fashion with stable, affordable housing options and support.

When resources are in short supply, the alternative to primary prevention is secondary prevention: targeting those who come through the front door of homeless shelters and ushering them quickly out the back door to affordable and appropriate housing. But this can only work effectively and efficiently if services are responsive and there is a stock of suitable housing available in areas where it is needed.

Tertiary prevention in homelessness is analogous to providing treatment to the cancer patient who didn’t get timely preventive and screening services and make regular visits to the doctor. A range of treatment options still exists, and early intervention with a coordinated, multidisciplinary team is best. A number of programs provide outreach healthcare services to the homeless (see, for example, the Homeless to Home Healthcare After-Hours Service), but experience shows that the Housing First approach is best: provide safe housing first and then set about addressing the other problems, rather than vice versa.

The Housing First approach raises two challenges for funders. First, they must recognise that the healthcare costs of people who have been homeless will initially rise because now their chronic needs are being properly met. Second, many people who have experienced or are at risk of homelessness will need ongoing assistance (with chronic disease management, disabilities, employment and discrimination). Homeless programs are not the best mechanism to provide this; their job is to make the necessary connections and referrals.

Research about what works in the Australian context is thin, and the promising research base that was kickstarted under the Rudd government has struggled to continue as funding has disappeared. Later this month, the Australian Housing and Urban Research Institute, a leader in this field, will hold a conference on homelessness and housing solutions to debate policy responses. We can only hope that all levels of government are paying attention.

Ultimately, what is needed in Australia is a recognition by politicians and the public that growing inequality is contributing to the lack of progress on homelessness and its consequences. Policy-makers and bean-counters at all levels of government need to examine what poor housing and homelessness are costing their budgets, taking a wide view to cover health, welfare and social justice costs, and adding a large measure of compassion and forward vision. Then we might see some action on this blight to our society. •

The post “Housing first” takes second place appeared first on Inside Story.

After two years, the Hawke government wobbled under pressure from vested interests and restored the tax break for negative gearing. But the United States has never restored it. If we want to know what might happen if Labor removes it again, the American experience has valuable lessons.

The motivation was similar. Tax breaks for capital gains and what Americans call “passive investment losses” (negative gearing) were widely seen as tax loopholes for the rich. At astonishing speed, a bipartisan political swell developed in 1986 for a sweeping trade-off that would close such loopholes and use the revenue saved to slash tax rates, especially for people on middle incomes. It became a kind of political tornado that swept through Washington: no interest group could stand in its way, and by the time it had passed, the US tax system had been revolutionised.

There, as here, there were predictions of doom. A pair of accountants from the University of Nevada forecast that rents would have to rise 28 per cent to allow investors to maintain their after-tax earnings. As late as 1990, renowned housing economist James Poterba of the Massachusetts Institute of Technology forecast that the change would drive up long-term rents by 10 to 15 per cent.

“The majority of policy analysts… viewed the reform as anti-housing,” Poterba explained in a 1994 retrospective for a conference of the Federal Reserve. “There was little doubt that the reforms would reduce incentives for rental housing construction… Many studies pointed out that the long-term stock of rental housing would decline as a consequence of the tax reform.” The result, they predicted, would be higher real rents.

Reality didn’t follow the script. Even as Poterba made his prediction in 1990, rents in the US were falling. And they were falling despite new apartment construction slumping by two-thirds, a crash even more intense than the industry had forecast. What had happened?

It’s a story we should remember when we see any forecasts of what will happen if Labor is elected and implements its tax reforms. Essentially, the impact of the 1986 US tax reforms was overrun by bigger forces. It would be the same here. The impact of Labor’s plans would be just one in a mix of forces that would shape future house prices, rent levels, home ownership rates and the rest.

In the US, the reforms coincided with three things: the bursting of the apartment building boom of the early-to-mid 1980s, which created rental vacancy rates of more than 10 per cent; the arrival of low inflation, which reduced the value of the tax breaks anyway; and the 1990–91 recession, which drove down demand for housing.

Not that Labor’s proposals are identical to the US reforms. There, investors were focused largely on apartment construction; in Australia, 93 per cent of money lent to investors is used to buy existing homes – and Labor plans to retain negative gearing for construction of new rental housing.

The US reforms went further than Labor has, phasing out tax breaks for existing negatively geared investments. Commenting on Poterba’s paper, Reagan’s former chief economic advisor, Martin Feldstein, blamed part of the apartment construction slump on this “retroactive” legislation, and said the reforms should have been aimed at future investments only – advice Labor has followed in drafting its plans.

But while the industry blamed the tax reforms for the slump in apartment construction, Poterba and Feldstein agreed that there were bigger factors at work. “Vacancy rates above 10 per cent were unprecedented in this market,” Poterba said. “A savvy analyst would have predicted in early 1986 that new construction would decline even without changes in tax provisions.” Feldstein concurred: “The excess building would probably have caused a glut by the late 1980s, leading to falling asset values and declining rents.” And that is exactly what happened.

Bear that in mind. In Australia during 2015, work began on 105,797 new units and apartments, almost double the highest number recorded in any previous boom. The signs of a glut that will force down prices in Sydney and Melbourne are already evident. In four years, the Bureau of Statistics tells us, prices for established houses rose 61 per cent in Sydney and 34 per cent in Melbourne, while per capita household income rose just 10 per cent. Both cities often experience sustained price falls, and they are almost certainly heading into another one now – whether the negative gearing rules are changed or not.

House prices did fall after the 1986 US reforms, Poterba reported, but only by an average of 1 per cent a year. Other factors were clearly at play, and once the US came out of the 1990–91 recession prices resumed their upward path. Real rents stabilised in the late 80s, then fell due to the glut of vacant homes. As the glut was worked off, they began rising again, but not dramatically. From 1994 to 2012, rents rose just under 3 per cent a year, while consumer prices averaged growth of 2.5 per cent. Falling prices of computers and audiovisual equipment explained the difference, not surging rents.

One other important difference must be mentioned. The efforts to close the US loopholes created their own loophole. Because they targeted only “passive investment losses,” they allowed rental losses made by “active investors” – those who manage their own property portfolio – to continue to be written off against tax. A 2012 paper by Larry Ozanne of the Congressional Budget Office notes that in 2006, 60 per cent of taxpayers reporting losses on rental investment wrote them off against income from other sources.

In all, the US experience suggests that the forecasts of the impact of the reforms added up to much ado about nothing. Their impact on real world activity was minor, and in some areas undetectable.

The same might be said of Australia’s experience when negative gearing deductions were abolished from 1985 to 1987. Saul Eslake has won the debate over what happened to rents: there was a marked rise in rents in Sydney and Perth, but it was a result of extremely tight vacancy rates, and would have happened anyway.

Yet just as that myth has been dispelled, a new one has been created this week by Louis Christopher of SQM Research in his critique of Labor’s reform plans. The headlines focused on his forecasts of falls of between 4 and 15 per cent in house prices, and up to 20 per cent in real estate turnover. But no one has highlighted the clear flaws in how he reached those conclusions.

Christopher looks for guidance to what happened in 1985–87, when Australia saw a marked slump in housing construction and sales. He assumes that all the damage was done by the government’s scrapping tax breaks for negative gearing – and takes that as his guide to what would happen if Labor did it in 2017.

Whoa, boy. Louis, are you really unaware of what happened to home mortgage rates in that time? In 1985 they were still regulated, and the Reserve Bank hiked them from 11.5 per cent to 13.5 per cent to try to slow down activity. That worked a treat in reducing lending to owner-occupiers. Then, in April 1986, the government deregulated mortgage rates, and the banks immediately hiked them to 15.5 per cent. That does tend to have an impact on housing activity. But Christopher’s analysis fails to mention it.

Nor does he mention the home lending data. It shows that, far from activity falling because “buyers ultimately lost interest in non-negatively geared properties,” as he claims, lending to investors buying existing homes in fact rose slightly as a share of home lending during the period in which negative gearing was banned! Tax Office data also shows that in 1986–87 the number of rental investors rose by 6000. It wasn’t the investors who toppled the market.

Rather, the housing slump Christopher ascribes to the abolition of tax breaks for negative gearing was primarily due to a combination of the interest rate rise to 15.5 per cent, the bust of the 1984–85 construction boom, and the economy hitting a speed hump as the Reserve pushed up interest rates generally. Trend unemployment rose by 55,000 or 0.5 per cent. New car registrations slumped by 26 per cent, from 511,000 to 376,000. You’re surely not going to blame that on the end of tax breaks for negative gearing?

That is not to say that his forecasts are necessarily wrong. I don’t know what would happen either, but the conclusion that Labor’s reforms could slice 4 per cent off future growth in house prices, as forecast at the lower end of his projections and in a separate report this week from Gene Tunny of Adept Economics, sounds in the right ball park to me.

Tunny’s report was prepared for Brisbane firm Walshs Financial Planning, whose website says it provides “accounting and taxation services to high net worth individuals (including medical practitioners), family businesses and other small-medium enterprises (SMEs).” Fair enough: they’ve got a vested interest in this, and they don’t hide it. While the report is clearly tailored for the development industry and makes many debatable claims, its estimate that Labor’s reforms would cut $20,000 from the future value of a $500,000 home seems to me a reasonable guess.

But that is, after all, the main point of the reform: it aims to make housing more affordable by restraining future growth in house prices. There would be benefits to the budget too, but Adept argues persuasively that they would be relatively minor and develop only slowly. It also makes a case that Labor’s plan to cut the capital gains tax break from 50 per cent to 25 per cent goes too far, and that 40 per cent would be a better target.

It argues less convincingly that lifting housing supply would be a better way to make housing more affordable. That is a cliché in this Sydneycentric industry, which ignores the fact that Melbourne has zoned vast amounts of land for development but has similar problems with affordability.

The fact is that you can only make housing more affordable in a sustained way by reducing the future growth in prices. Suppose you raise housing supply: how will that have an impact on affordability? By bringing down prices – or at least, as Tunny rightly puts it, growth in house prices. The record housing supply we’ve had in the past year will reduce growth in prices. But if you’re serious about making housing more affordable, it’s not an either/or issue. There’s no reason why you can’t tackle both negative gearing and land supply issues.

Since negative gearing was restored in 1987, Australia has had three decades of extreme inflation in the housing market. In that time, the average price of an established home in our cities has risen by 727 per cent. Household debt has soared from 60 per cent of household income to 186 per cent. The tax break for negative gearing diverts investment into existing housing, where it simply inflates prices and prices poorer families out of the market. It is inequitable, and it is not a sustainable basis for economic growth.

Sadly, inflation does not make us any richer. In housing, we buy in the same market that we sell. Unless we are downsizing or moving somewhere cheaper, our increased “wealth” from rising property prices is an illusion.

In my judgement, Labor’s tax reforms are the most important policy package either side has put forward in this campaign. They are carefully crafted to avoid creating a “rush for the exits” by investors. They would gradually restore housing affordability, and restore home ownership – which was a key policy objective of the Liberal Party in the Menzies era.

Malcolm Turnbull clearly understood the problems with negative gearing when he was writing his 2005 tax paper, and in the work he and Scott Morrison did last summer – before Labor announced its plans and the Coalition decided, for opportunistic reasons, to oppose any reform. I have not given up hope that if Turnbull wins the election he will reclaim that Menzies legacy and work for a bipartisan reform to make it happen. •

The post On negative gearing and negative forecasts appeared first on Inside Story.

The helpline volunteers meet regularly for group supervision, where we discuss the calls we’ve had: how we responded, how we felt about it, what we could do better next time. While every call I’ve taken stays with me in some way, it was a call I didn’t take that made me reflect the most.

There we were one weekday evening, sitting in a circle of chairs in an old church hall as rush hour swept through the city; a motley group composed of different ages, colours, accents. One of the volunteers offered to discuss a call he had found difficult.

“She was an eighty-six-year-old woman,” he said. “She called because she was moving into a nursing home later that morning and didn’t want to go.”

He confessed that it took him a long time to understand her distress. After all, weren’t nursing homes nice places – warm pockets of bingo and crochet blankets over frail knees? Why would she not want to go? Did she really prefer rattling around in her house by herself?

“It was her kids who had organised the move. They didn’t think she was safe living alone.”

I could almost hear her voice then, talking about her “kids.” They must be in their fifties, perhaps even sixties.

“I tried to find out if she had any resources, anyone else she could talk to. But she said her kids didn’t understand and she didn’t want to worry them anyway. Her husband had passed away twenty years before. And her friends – all her friends have died.”

What would this look like for me? No partner at home to talk to each evening; no brunch dates with my siblings on the weekends; no text-message pings from my phone; no point in logging on to Facebook, all of the pages frozen with inaction.

“That’s when I realised that, for her, moving really was a crisis,” said the volunteer. “She had absolutely no one. I wanted to give her a referral to some kind of service; I wanted to let her know that it would be okay, that she had options. But she really had no one left. And I couldn’t think of anywhere to refer her to. Was there something else I could have done for her?”

“Couldn’t she see her kids were worried about her?” a woman in her fifties asked. “It sounds like she was just being difficult.”

“They would only be doing it because they care about her. They don’t want her to be lonely.” One of the other volunteers, a man in his early twenties, offered this, shrugging his shoulders beneath his hoodie and rocking back a little on his chair. As far as I could tell, it didn’t seem like a crisis to him.

“Unless they just want to get their hands on the family home,” countered another woman, her palms wrapped around a styrofoam cup of tea, her comment prompting laughter.

“She spoke about being tired of this world,” said the man who had taken the call. “And that the only thing she had to look forward to was one day meeting her late husband again. I asked her if she had thoughts of suicide.” This is something we are obliged to cover with every caller who gives any indication of such thoughts. “She said she had – that she often thought about walking into the sea, but she didn’t want to chance being punished by God and ending up in limbo, unable to be reunited with her husband in heaven.”

“That’s sweet,” said the woman with the tea. It was the first time I had heard a caller’s thoughts of suicide described as sweet.

“But why would she bother doing away with herself? She’s only got a couple of years to go anyway,” said the hoodie-wearing volunteer. The circle broke into awkward laughter, taken aback that he should say such a thing.

But was it simply what some of us had been thinking?

The just-born crowd are below, spreading along the base. The old teeter at the top, a single antenna reaching for the skies. If you graph by age Australia’s population at most points throughout the twentieth century, it looks like a pyramid: the largest age groups are the young, and there are very few elderly people perched at the top.

Postwar prosperity and increased longevity have changed the shape of our population. The pyramid has become wider as the overall population has increased, and the arrival of the baby boomers can be seen in all their onomatopoeic glory: a sonic boom sending shockwaves across the chart so that there is a noticeable bulge around middle age. There are still fewer elderly people at the top than young propping it up from below, but the whole thing is stouter, like the trunk of a boab tree.

It is only when we graph the projected population of the twenty-first century that the advances in healthcare, living standards, and technology, which have contributed to increased life expectancy and lower fertility rates, are most apparent. The pyramid becomes a tower, straight up and down, slightly narrower at the top and bottom. In some projections it resembles a coffin or a sarcophagus: narrow at the feet, where the children are located, and broad across the shoulders of the retirees, before tapering to the elderly.

All projections by the Australian Bureau of Statistics make one thing clear: Australia’s population is ageing. At present, 14 per cent of us are aged over sixty-five. By 2060, this is likely to have increased to approximately 25 per cent, or a quarter of the population.

These graphs represent unprecedented success. Our life expectancy has so increased that a non-Indigenous girl born in 2012 can expect to live ninety-four years, her twin brother almost ninety-two. (There is still, of course, a gap in life expectancy between Indigenous and non-Indigenous populations.) This success should be celebrated, since most of us want to reach old age rather than die young.

Yet all around is evidence of hypocrisy in our youth-loving culture. There is an invisible turning point where we stop respecting the old and begin punishing them for existing.

When Treasury released its Intergenerational Report in 2010, it named our ageing population, along with climate change, as one of the most difficult economic challenges facing Australia in the next forty years. The recently updated report of 2015 is similarly steeped in apprehension for the slowing of growth in a post–mining boom economy, just as an ageing population increases the need for aged care, healthcare, and the age pension. The 2015 report, however, hardly mentions climate change, choosing to focus on older generations and their very existence as a “threat” to the budget.

This anxiety about the ageing population is neatly summed up by the oft-cited concept of dependency ratios, which considers part of the population (those aged between fifteen and sixty-five) as productive working providers, and the rest as freeloading dependants. The 2015 report takes as a given that Australia should aim to achieve the same unsustainable rate of growth in living standards that we have done over the last few decades, even if it comes at the expense of the environment and social cohesion.

In alarmist documents such as this, older people are often seen as a burden. In the eye of governments looking to make savings, older people require too much in the way of pensions and healthcare, and they provide too little to be counted as productive citizens. This assumption is incorrect – apart from a lifetime of tax-paying contribution, older people are the backbone of the volunteer industry and provide care for a quarter of children. Nonetheless, this negativity filters down into day-to-day interactions, feeding the kind of stereotypes that label old people as frail, dotty and unnecessary.

We all want the opportunity to grow old, yet we penalise those who already have.

Anne, seventy-nine

The only time I think about my age is when I wake up in the morning and my legs are a bit slow to get going. Thomas, my cat, and I stagger around, especially when it’s cold. But I don’t think about my age much. If people ask me I tell them, but the response I usually get is, “I didn’t think you were that old.”

I’ve got a neighbour who’s younger than I am, but she’s not young. She’d be well into her sixties, I reckon. She’s still working; she’s a very senior person in an aged-care centre. She was their acting manager a while ago, which she hated because she wanted to spend more time with the patients. She went white-haired fairly early and she got tired of being invisible so she paints a splodge of colour – it’s either pink or purple – in her hair. And she said, “The first day I went out with it, people noticed me.” It was like she existed in the world again.

I’ve got several other friends who do the same thing, actually, though I’ve never bothered. I mean, it’s very irritating being invisible, but I’m very confident about making myself visible by using my voice, and I enjoy working with other people to make that happen.

I was in a knitting shop once and I bought some wool for a yarn-bombing project. I spent quite a lot of money in there, actually. And this new, young woman – very young, early twenties I would think – talked to me as if I were a three-year-old. She handed me my change or my receipt or whatever and she said, “Bye, sweet pea!” And I walked out of the shop and I was just stunned! I thought, Why didn’t I do something? It really irritates me when people accept being treated differently.

I’m better now. “I don’t like to be called darling,” I told one woman. “But I call everyone darling,” she replied.

“Not me, you don’t! I’m not your darling.”

Active ageing, productive ageing, positive ageing. These are buzz phrases that encourage people to remain healthy and active as long as possible. The intended payoff is twofold: older people remain in better health and can enjoy their retirement and increased longevity, and governments don’t have to watch the ageing population tip their budgets into the red. It is reasonable to expect individuals to make a concerted effort to take responsibility for their health and attempt to age well, but are the intended outcomes actually achievable in the face of our increasingly sedentary lifestyle and the realities of getting old?

The World Health Organization promotes active ageing as a holistic concept, encouraging older people’s participation in social, economic, cultural, spiritual and civic affairs. But the term has primarily been co-opted by those who seek to medicalise ageing, and is most often used to refer to physical, and perhaps social, activity. Under the banner of ageing well, all levels of government encourage older people to join exercise classes and eat a healthy diet in order to maintain their independence and delay age-related illnesses as long as possible. In short, to postpone becoming old.

Part of the positive-ageing agenda relies on health-promotion material and superannuation ads that show happily active and untroubled older people who are not frail or in need of constant support. Almost 95 per cent of older Australians live at home, a quarter of them alone, so this may be a true representation. But can this relentless positivity do harm as well as good?

Aged-care advocate Linda Sparrow is concerned that positive-ageing campaigns carry “the risk of developing a new and equally misleading myth about older people – that all old people are, or should be, fit and healthy, productive and engaged with life.” She points out that this focus on successful ageing puts the blame for failing to age well on the shoulders of the individual, ignoring wider systemic causes and refusing to accept that some things – such as the inevitability of death – cannot be treated or cured.

This positive-ageing view, according to Sparrow, “undermines those who find themselves burdened with the diseases and conditions that can and do affect old people, such as Parkinson’s disease, arthritis, dementia, and impaired vision. Rather than enhancing the dignity and self-esteem of those who are old and frail and in need of care, it adds a sense of failure to the difficulties they already face.”

This sense of failure can translate to feelings of burden – on family, partners and society – and can lead to older people feeling as if they have no right to continue. As Karen Hitchcock points out in her wonderful essay Dear Life, to the outsider an older person’s life can look meaningless: “Unable to walk to the shops. Taking ten pills a day. Isolated. Housebound. Sitting for two years in a nursing home, waiting to die.” Yet to the older person themselves, each day may still be a medley of achievements and joys among the frustrations: a walk to the park, a visit from a family member, a favourite show on television.

In his book Being Mortal, doctor Atul Gawande documented how the slow demise of his father, whose health failed as he aged, led Gawande to closely consider people’s experience of old age and how society can better manage it. As a son and a doctor, Gawande attempted to seek treatments and cures for the things that ailed his father. But he also noted the way that over time his father adjusted his desires for his remaining years in line with the limitations of his body. Gawande points out that as people age, they seek to continue to have agency: “to make choices and sustain connections to others according to their own priorities. In modern society, we have come to assume that debility and dependence rule out such autonomy.”

While well-meaning, the positive-ageing agenda is partly born of this terror of debility and dependence. It posits that a person’s best self is their young self – before the onset of any age-related concerns – and sees old age as a corruption of the natural way of things rather than a continuation. In the essay “The Seductiveness of Agelessness,” academic Molly Andrews writes: “The unspecified but clearly preferred method of successful ageing is, by most accounts, not to age at all, or at least to minimise the extent to which it is apparent that one is ageing, both internally and externally.” She argues that we are all products of an ageist society, and upon reaching old age most of us still try to distance ourselves from the old. Andrews calls this a desperate plea for exceptionalism. It doesn’t challenge the ageist stereotype, only the application of it to ourselves.

While people of all ages should be encouraged to strive for good physical and mental health, trying in and of itself will not ensure one succeeds. In many ways, positive ageing is an endeavour not to age at all – to achieve the fantasy of agelessness. But it’s a goal we will all fail to some degree. If living longer is really about staying young, do we risk turning a blind eye to issues facing the elderly?

For many, old age is not a kind place to be. The body’s natural ageing process can be difficult to experience. But ageing can also be expedited and exaggerated by other factors – such as poverty and insecure housing, loneliness and mental illness. Our society sees these issues as problems when they affect younger and working-age people, but too often overlooks them as just an ordinary part of old age.

The international survey Global AgeWatch found that one-third of older Australians live in poverty, meaning they live on an income that is less than half of the country’s median income. This is partly due to the fact that while 80 per cent of older people receive a pension, it is a very small amount, coming in at approximately $1850 a month (less if you’re part of a couple), or less than 28 per cent of the average income.

While making for a miserable day-to-day existence, poverty and disadvantage are also risk factors for chronic physical and mental illness, as well as hospitalisation, social isolation and early death. This is particularly apparent in Indigenous populations, where a history of discrimination and racism has resulted in high rates of psychological harm and chronic illnesses. Many aspects of positive ageing, such as remaining physically and socially active, do not require a high income, but it would be disingenuous to ignore the fact that ageing well is more achievable by those who have had a lifetime’s access to good, preventative healthcare, and the education to make beneficial lifestyle choices.

The difficulties of eking out an existence on a small income in a time when the cost of living is increasing should not be underestimated. While isolation in old age will strike people from all walks of life, it is exceptionally hard to ameliorate the effects when you are worried you won’t have enough money to pay rent. If you’re having trouble hearing, your sight is failing, or your knees won’t allow you to walk as easily as you once did, you might find it difficult to participate in a harried, fast-paced world. If your partner has died, and so have many of your friends, and your children visit just twice a year, you may spend days without speaking to another person.

Occasionally the media will report on an older person who has died at home and not been discovered for months, or perhaps years. The loneliness of such an existence is candidly rendered in the journal of one unnamed woman who passed away in her kitchen in Sydney in 2014, her death undiscovered for six months: “When we moved into our present house in 1966, the atmosphere of the streets was more or less one of a village formed by different nationalities. Today the friendly atmosphere of the neighbourhood is extinct. Except for a few privately owned houses, the whole neighbourhood has been transformed into apartment blocks of strangers. A smile and a good day or a helping hand have become as rare and as exceptional as a white whale.”

If you have ever experienced loneliness, you understand how ruinous a feeling it can be, and there is much evidence to suggest that loneliness is a major public-health issue: it’s related to depression and other forms of mental illness, as well as to physical impairment and reduced quality of life. It is also associated with a greater risk of chronic illness, with lonely people more likely to undergo early admission to residential aged care.

Older people with depression and anxiety have a much higher risk of suicide than the general population, and this is particularly apparent among older men, who tend to have lower levels of social support than older women. In 2013 the highest age-specific suicide rate for men was in the group aged eighty-five and above. For every 100,000 men in this group, close to thirty-eight ended their own life. Compare this to the fourteen out of every 100,000 men aged fifteen to nineteen, or almost twenty-four for every 100,000 men aged forty-five to forty-nine. The real numbers in all age groups could be much higher, as suicide is notoriously under-reported.

Just as depression does not always result in suicide, suicide is not always a result of clinical depression. As psychiatrist Michael Baigent says, “I think in the elderly we’ve got circumstances that don’t arise as often in younger people. One of them is that they generally have a lot of medical problems that people don’t experience when they’re younger. And there’s no doubt that the presence of chronic medical conditions, particularly if they cause pain, is a factor in people ending their lives. So you could put that together with the horrible kind of isolation that happens when your friends move away or pass away; you do become very isolated – it is a very lonely thing.” His comments are backed up by research that shows stress and social disconnectedness account for a larger proportion of cases of suicidal ideation among older people than the presence of mood disorders.

Our increased social awareness of the high suicide rate of younger men may have been one of the reasons the rate has halved since a peak in 1997. This suggests that if we applied the same awareness to the situation of older men, we might have a similar result.

Yet it seems too difficult to move away from the belief that a loss of a young life is worth more than an old one. We lament a young person’s death because we can see the future he or she has foregone. But by limiting our empathy for older people because they’ve had a “fair innings,” we are denying them the worth of their present.

Bob, eighty-one

What’s changed with age? I’ve become accustomed to people standing up on the tram for me, and instead of saying no I’ve started to say thank you. Occasionally I realise that I’m being bypassed in the conversation and I don’t know what’s going on.

Retirement’s good as long as you keep yourself interested in something. And as you get older, your circle of friends drops. Family is important, but on the other hand my wife and I have still got a good circle of friends.

We want to stay here in this house and for it to be comfortable for us for as long as possible. So we’ve just started taking steps to remodel the bathroom. We’ve got most of the approvals and now we’re waiting for government approval, which will take twelve months. So we hope we’ll be around to see it! We wish to be as independent as possible, not to be a burden, and to be helpful, as much as we can be.

I’ve always struggled with depression at critical times in my work life and sometimes I regret some of the things that have happened there, and reflecting on that brings it up today. But generally speaking I endeavour to look at the good things that I can remember, rather than the less so. The family know, they have a saying – “Come winter, Dad’s down.” So I’ve just come back from ten days up north, getting away from the cold.

And I work at it, but I’m aware I sometimes become morose. Each of us experiences our own sense of depression – you droop, you’re less lively – but how you come out of it is from your own experience. With help.

The current inclination to treat ageing as a medical problem to be solved or arrested rather than to see it as a natural part of the life course robs older people of the right to be themselves. The positive-ageing agenda says: it’s okay for you to keep on living, so long as you don’t become old. And in too many circumstances we seem to give up on older people when they do face problems, framing these difficulties as an inevitable part of ageing.

Yet they don’t have to be. We need to stop pushing people to the margins of society as they age, or deeming their needs inordinate and their contributions insufficient. We need to recognise that old people are not lesser than young people, and that true intergenerational cooperation is both desirable and necessary.

Realising the right to be old and putting it into practice in our cities, communities and personal lives asks us to rethink the concepts of productivity and participation, and to consider what kind of society we wish to live in, both now and in the future. Because we will all age, and we all have a right to be old. •

This is an extract from Melanie Joosten’s latest book, A Long Time Coming: Essays on Old Age, published by Scribe.

The post The right to be old appeared first on Inside Story.

At 67 per cent, it was still a lot higher than in 1954, but the rate has nonetheless been gradually trending down since the peak of 72.5 per cent in 1966, as this chart shows.

Chart 1: Australian home ownership rates at censuses, 1911–2011

Source: Australian Bureau of Statistics, 2011 Census Quickstats; A Picture of the Nation and historical censuses (catalogue 2107.0–2112.0).

The next census will be taken on 9 August this year (although we won’t get the first results until mid 2017). But surveys since the last census suggest that home ownership rates will have continued the trend.

Worryingly, the relatively modest declines recorded in successive censuses mask a much larger decline among significant segments of the Australian population over the past two decades. In particular, as Chart 2 shows, the home ownership rate among households headed by people aged twenty-five to thirty-four dropped by 9 percentage points (from 56 per cent to 47 per cent) between 1991 and 2011; among households headed by people aged thirty-five to forty-four it dropped by 11 points (from 75 per cent to 64 per cent); and among households headed by people aged forty-five to fifty-four it dropped by 8 points (from 81 per cent to 73 per cent).

Chart 2: Home ownership rates by age of “household head” at censuses, 1961–2011  

Source: Australian Bureau of Statistics, Census results; and Judith Yates, Housing and the Distribution of Wealth, 2012 Giblin Lecture, and personal communications.

The impact of these quite sharp declines among young adult and middle-aged households on the overall home ownership rate has been largely offset by households headed by people aged fifty-five and over, which now make up a larger proportion of the population. In that age group, home ownership rates are much higher, and have fallen by much less since the 1991 census.

The decline among households headed by young and middle-aged adults since the early 1990s is particularly striking given that mortgage interest rates during this period have been roughly half what they were over the previous fifteen or so years – and also given that federal and state governments have spent billions of dollars during this period on programs ostensibly directed towards promoting home ownership, such as first home owner grants and stamp duty concessions.

No doubt there are many reasons for this striking trend. Young adults nowadays typically spend longer in the education system (which is a Good Thing), and thus start earning (and saving) at older ages than they did in previous generations. If they have a tertiary education, they are likely to have accumulated HECS or HELP debt that has to be repaid – unlike those who were lucky enough to have gone to university when it was “free.” But whether they have a tertiary education or not, since they started working they will have been making compulsory superannuation contributions, which most people didn’t do until the early 1990s.

Young adults are also more likely to be in casual employment – which can make it more difficult to gain access to mortgage finance – than they were in the 1960s, 70s or 80s. And if they do form what they intend to be permanent relationships or have children – events often associated with buying a first home – they tend to do so later than previous generations.

Yet it is hard to escape the conclusion that the main reason for the drop in home ownership among twenty-five- to fifty-four-year-olds since the early 1990s has been the enormous increase in home prices. Depending on which series you use, residential property prices in Australia’s eight capital cities have risen by between 340 per cent and 390 per cent. By contrast, average weekly earnings for full-time adults have risen by about 165 per cent. As a multiple of average household disposable income, capital city dwelling prices rose from just under three times in the early 1990s to around five times by the early 2000s, around which level it has fluctuated ever since. Australia is by no means unique in this regard, although the ratio of house prices to incomes has risen further, relative to its 1990s average, in Australia than in most other OECD countries.

This outsized increase in Australian housing prices reflects the interaction of powerful forces on both the demand for and supply of housing. The “underlying” demand for housing has been propelled by rapid population growth, driven in turn by one of the largest immigration intakes of any advanced economy. “Effective” demand for housing has been further boosted by the dramatic fall in mortgage interest rates since the early 1990s, and by the greater availability of mortgage finance as a result of financial deregulation and greater competition among mortgage lenders. Together, these developments allowed households to borrow considerably greater sums for the purchase of housing than hitherto. On top of that, changes to the capital gains tax regime in 1999 greatly enhanced the appeal of leveraged property investment.

At the same time, increases in the supply of housing have been constrained not only by inherent geographical obstacles in many of Australia’s larger cities, but also by increasingly onerous land-use planning and zoning regulations, changes in how suburban infrastructure is financed, and underinvestment in transport links from “growth areas” to places where employment growth has been concentrated.

This sharp decline in home ownership rates among a significant segment of the Australian population is likely to have a number of profound consequences, especially if (as seems probable) it has continued since the 2011 census.

First, Australia’s retirement income system rests on an implicit assumption that the majority of retirees will have close to zero housing costs (beyond repairs, maintenance and council rates) – because a large majority of them will own their own dwellings, and moreover own them outright. That assumption is likely to become much less valid in future. Not only will fewer people own their homes as they reach retirement, but an increasing proportion of those who do will still have a mortgage outstanding – and thus will (quite rationally) elect to use some or all of their superannuation savings to pay off that mortgage, with the result that they will be less able to fund their own retirement incomes (in whole or in part) than intended. The result is likely to be greater pressure for increases in the value of the age pension, and more pensioners claiming Commonwealth Rent Assistance.

Second, declining home ownership rates among people who would once have been home owners – people who nonetheless have access to greater economic resources than those who would never have expected to become home owners – means increased competition for rental housing. Greater upward pressure on rents is one likely result, as are increased “housing stress” among low-income tenants and increased demand on the limited supply of public and community housing.

Third, since the ungeared equity in owner-occupied housing commonly provides the collateral that lenders require for loans to small businesses (especially startups), the decline in home ownership rates among this large age group may detract from the rate of small business formation over time. Given the outsized contribution that new businesses, in particular, make to economic and employment growth, this shift has potentially adverse consequences for long-run economic and employment growth.

Fourth, since property ownership has traditionally been the major source of wealth accumulation for middle-income households in particular (although that role has more recently been challenged to some extent by superannuation), declining home ownership rates may presage greater disparities in the distribution of wealth. Over the past decade, according to the Australian Bureau of Statistics, the average net worth of home-owning households has risen by $485,000 while that of renting households has risen by less than $95,000.

Government policies haven’t been the only cause of the escalation of property prices over the past twenty-five years, but they have clearly contributed to it. Federal and state government policies have helped to inflate the demand for housing – for example by giving cash grants or tax breaks to homebuyers, who in turn spend more on housing than they would otherwise have done, and by enhancing the appeal of property as an investment vehicle by increasing the generosity of the taxation treatment of capital gains. State and local government policies have helped to constrain the supply of housing by “locking up” land that could otherwise have been used for residential development, by imposing increasingly onerous building construction standards and controls over higher-density redevelopment of established areas, and by underinvesting in urban public transport and urban arterial roads.

More recently, governments have begun to step back from some of these policies. Every state and territory government has now either abolished, or substantially reduced, cash grants to first-time buyers of established dwellings (grants that would more accurately have been termed second-home vendors’ grants, since that’s where the money usually ended up), in favour of increased grants to first-time buyers of new housing (in the hope of inducing an increase in new dwelling construction).

The federal government has bolstered the Foreign Investment Review Board’s monitoring and enforcement of restrictions on the purchase of established housing by foreign residents, dampening a source of demand for housing that, at least anecdotally, had become more important in recent years. Last year, the Australian Prudential Regulation Authority, which supervises the banks and other lenders, required the banks to tighten the criteria they use in determining the creditworthiness of property investors and the amounts they are willing to lend – which also appears to have led to a softening in demand from that source.

Each of these measures has been implemented without any obviously deleterious impact on the housing market, beyond (perhaps) slowing the rate at which property prices have continued to escalate.

There’s no reason to think that the impact of the Labor Party’s policies on negative gearing and the capital gains tax discount would be any different. They would certainly not prompt a “wave of selling” by existing property investors, since they would be “grandfathered” under the Labor Party’s proposal. If anything, these investors would be less likely to sell their properties than otherwise. On the other hand, there would clearly be less additional investment in established housing, since after 1 July 2017 that would no longer be eligible for negative gearing for tax purposes.

But there may be additional investment in new housing, since that would be the only form of new investment eligible for negative gearing for tax purposes. Whether that turns out to be the case, and whether it results in an increase in the supply of new housing or an increase in developers’ and builders’ profit margins may depend on state and local government planning and zoning decisions.

But anything that lessens the demand for established housing from investors means that would-be homebuyers will face less competition in purchasing residential property. This should do something to stem the decline in the home ownership rate, even if only at the margin; and because the greater the number of people who succeed in becoming home owners, the smaller the number of people who need to rent (all else being equal), it’s hard to see why the Labor Party’s proposals will inevitably or necessarily lead to an increase in rents. •

The post The housing affordability trap appeared first on Inside Story.

The convoluted logic of the report, its manifestly ridiculous economic predictions and the fact that the consulting firm in question refuses to disclose who commissioned it were not enough to stop the report being the lead story of at least one national newspaper.

The report’s claims must not go unchallenged. But nor should the fact that a report that would flunk any first year economics course has been allowed a serious voice in the public debate.

Here are just two of its outlandish claims. First, the headline-grabbing $19 billion GDP figure. The report claims that removing negative gearing for existing (but not new) properties would shrink cumulative GDP by up $190 billion over ten years.

All tax increases drag somewhat on economic growth, but some have less of an economic effect than others. Treasury estimates that the loss of economic activity from every dollar of tax collected ranges from almost nothing, for broad-based land taxes, to 50 cents for company tax and more than 70 cents for residential stamp duties (the most inefficient taxes).

The consultancy’s report suggests that the annual increase in tax collections from the change to negative gearing would be $2.1 billion. The $19 billion hit to GDP would make the loss of economic activity from each additional dollar of tax collected more than $9. That’s right, more than ten times the economic harm of stamp duty, almost universally accepted among economists as the most economically damaging tax. While Treasury hasn’t published estimates of the economic effects of limiting negative gearing, Grattan Institute has previously made the case that it is likely to be one of the least damaging tax changes on offer.

While difficult to divine, the extreme GDP effects threatened in the report seem to be driven by an assumption that the change would shrink new home building by 4 per cent a year.

That is implausible. A standard economic model would suggest that reducing a tax concession for investors would reduce their willingness to pay, leading to a one-off decline in land prices (and therefore a drop in house prices that we estimate to be between 1 and 2 per cent). Developers with existing banks of land would take a hit – hence their strong campaign against change – but they would maintain their returns on new investments going forward.

By contrast, the report assumes that land prices won’t fall. Instead, residential land would become attractive for industrial, commercial or retail uses. That’s a strange conclusion for a specialist property consulting firm that is paid to know something about zoning restrictions and the higher return on residential development.

Beyond ignoring the lower cost of investment from lower land prices, the report makes a series of unjustified assumptions to reach the 4 per cent figure. It ignores the fact that tax losses would still have a value because they could be written off against future investment income. It assumes that investor demand is extraordinarily sensitive to changes in after-tax returns for property. It also assumes that new housing starts would fall by almost the same proportion as investor demand. In fact, negatively geared investors account for only about a third of property investment. So this assumption would imply that for every negatively geared investor that leaves the market there would be three fewer new home starts.

The second of the more fanciful claims is that restricting negative gearing would lead to rents rising by up to 10 per cent. This assumes that the reduction in the tax concession for investors would be passed on in full through higher rents. Yet there is no basis for assuming that landlords could recoup anywhere near the full loss in tax benefit through increasing rents.

That’s because rents are ultimately determined by the balance between demand and supply for rental housing. In property markets – as in other markets – returns determine asset prices, not the other way around. Rents don’t increase just to ensure that buyers of assets get their money back.

Competition in rental markets would limit material rent rises. Because the negative gearing changes modelled in the report are grandfathered, the vast bulk of landlords wouldn’t pay higher taxes. Nor would new landlords with positive net rental income. And tenants could beat rent rises by threatening to move.

Some people may choose not to invest in property if tax concessions are less generous. This might reduce house prices, but it would have a minimal impact on rents. Every time an investor sold a property, a current renter would buy it, so there would be one less rental property and one less renter, and no change to the balance between supply and demand for rental properties. Indeed, one of the benefits of changes to negative gearing is that lower prices are likely to make housing more accessible for first home buyers.

The report claims that rents would rise because of the fall in new housing supply. But 93 per cent of all investment property lending is for existing dwellings. And as we already discussed, the assumptions in the report massively overstate any impact on new activity.

But the real concern of this episode goes beyond the claims of this nonsense-on-stilts report. The rise of consultancies churning out “independent” reports to advance the causes of vested interests has been well documented. What is alarming is the prominence these reports receive in public debate. No matter how outlandish their claims or how obscure their provenance, the media report them and politicians quote them. The public, confused or frightened by the numbers, forms the view that policy change is simply too risky. That’s a pretty cheap way of buying policy outcomes, especially ones that help special interests but go against the long-term interests of the country. •

The post A low-cost way to derail the housing debate appeared first on Inside Story.

And for four months or so, it did. Turnbull engaged us in the adult conversation he had promised; he respected our intelligence. He embarked on a bold course of tax reform, leaving everything on the table, and highlighting its importance for our future growth. Few decisions were made, but they were mostly sensible ones. It seemed that due process and cabinet decision-making were back as the framework of government. The polls showed Australians were happy with their leader.

Then the tax reform debate started going off the rails – and the economic horizon grew cloudier. Those two developments arrived together, and it is important to grasp the link between them. Tax reform was always going to be hard, but it becomes a lot harder if the economy is heading into trouble. That might have played a part in Turnbull’s decision to put off big tax reforms.

The economic news in 2016 has been more bad than good. The main threat to Australia’s economy lies outside these shores: it’s the price, as yet unknown, that China will be forced to pay for its long binge of reckless lending for unviable investments. At home, too, the signs aren’t good; Wednesday’s first peek at next week’s national accounts shows construction activity falling by the equivalent of almost 0.5 per cent of GDP in the December quarter. Mining investment is still shrinking faster than residential and other building investment is growing to replace it.

Also on Wednesday, the Australian Financial Review published a disturbing article by Anne Hyland in which analysts John Hempton and Jonathan Tepper used anecdotal and statistical evidence to argue that extraordinarily lax credit standards were behind the boom in which banks and others last year lent out $391 billion – that’s almost a quarter of the annual output of the Australian economy – to people buying houses and apartments.

Banks, we were told, rarely checked with employers whether borrowers really received the wage they claimed. More than 40 per cent of their lending last year was in interest-only mortgages, which make sense only if house prices rise faster than the costs of the loan.

The Fin drew a long bow in likening it to the lack of credit standards in the US housing market that led to the global financial crisis, as depicted in the film The Big Short. But an ominous drumbeat ran through the piece, warning of the potential for disaster ahead. The banks and the authorities were quick to dispute the findings, but there’s no disputing the fact that the median Sydney property price has soared by 60 per cent in four years. Fears of a sharp corrective slump might also have influenced Turnbull’s sudden change of policy and persona on tax.

There are certainly risks. Remember that in the past twenty years, the median house price in capital cities has quadrupled – or, if you’re in Melbourne, quintupled – yet median household disposable incomes have risen at only half that rate. The gap has been filled by massive increases in debt. Total household debt now tallies at 185 per cent of household disposable income, twice the ratio of twenty years ago. Debt due to rental housing investments is now 40 per cent of household income, up from 6 per cent in 1995. It’s not another subprime crisis, but that huge debt burden makes the economy slower, less agile, and more at risk of capsizing.

Whatever happens next, we, and the world, need to rethink the role that debt and the finance sector now play in economic development. Are we right to allow firms to write off their interest bills against tax? Or is this an incentive to overgearing at the risk of economic stability? Debt can be useful. It can also be dangerous.

The tax debate was already going badly for Turnbull. Labor, having been locked out of the reform process, was scoring points in its scare campaign against a higher GST, and government MPs were becoming nervous. Why do we have to risk my seat, they asked, to raise money for state governments that don’t even have the guts to campaign with us? Why does it have to be the GST? Why do it now?

So Turnbull backed off – so suddenly that for a few days he and treasurer Scott Morrison were sending out conflicting signals. It didn’t look pretty, and raised doubts about whether the cabinet process under Turnbull really has replaced the captain’s call. Soon, the higher GST Morrison had been trying to sell was swept off the table, at the same time that Labor, which we had scourged for its lack of courage, decided to put negative gearing on the table.

Since the PM and others appear confused about exactly what Labor is proposing, let’s spell it out. From 1 July 2017 (the start of the 2017–18 financial year), landlords who claim to be losing money on their financial investments – whether in rental housing or other areas – would be able to offset those losses for tax purposes only against other investment income. They would no longer be able to deduct them from their wage or salary income.

There are, however, three caveats. The new policy would apply only to properties purchased from that date; in other words, the existing tax breaks would remain for existing rental properties. Landlords who invest their money in building new housing would still be able to deduct rental losses against income from other sources. And others would be allowed to carry their losses forward to claim against capital gains tax when the property is eventually sold.

At the same time, the tax discount applied to income from capital gains would be reduced from 50 per cent to 25 per cent. (Or, to put it another way, you would have to pay tax on 75 per cent of your capital gain, rather than 50 per cent as now.) Again, the new rule would apply only to new investments from 1 July 2017; the current rules would remain for all investments before that date.

In the circles of non-partisan tax economists, the Labor policy has won widespread applause; the only criticisms have come from industry lobbies and predictable Liberal partisans. Leading economists such as Chris Richardson, Saul Eslake and John Daley have endorsed the policy as one that, in Richardson’s words, “has the potential to help provide better outcomes for all Australians.”

As someone who has been writing on tax reform for a long time myself, I see it as a bold policy, but with sensible safeguards to meet the obvious objections. My one criticism is that it should also incorporate the measure the Turnbull government is reportedly planning, which puts an annual cap on the value of tax breaks from existing rental investments.

Why do this? First, because the negative gearing tax break alone is now so widespread that it costs revenue – that is, other taxpayers – between $3 billion and $6 billion a year, depending on the level of interest rates. In effect, other taxpayers are subsidising the beneficiaries in their aspiration to become landlords.

Second, unless rental investment is used to supply new housing – which only 7 per cent is – rental housing can expand only by shrinking owner-occupied housing. Lower- and middle-income people who want to buy their own home are outbid at the auctions, and forced to remain renters. Sydney housing economist Judith Yates told the recent House of Representatives inquiry into home ownership, under Liberal MP John Alexander, that since 1981 – which was roughly when negative gearing started to spread as a tax avoidance strategy – home ownership rates among households headed by people aged twenty-five to thirty-four have fallen from 61 per cent to 47 per cent. Among those aged thirty-five to forty-four, they have plunged from 75 to 64 per cent, and among those aged forty-five to fifty-four, from 79 to 73 per cent. This is a cost of the tax break that’s always ignored by its supporters.

Labor’s move opened up various options for Turnbull. First, and most obviously, it gave him the option of taking over Labor’s policy himself, at no political cost; as the superior debater, he could quickly establish his ownership of it, yet he would be protected from political harm because Labor could not back away from its own policy. That option is gone now.

A second option is still open to him: as an alternative, adopt the Henry tax review’s proposal for a flat 40 per cent discount to apply to net income from all savings-related investments: bank interest, rental housing, capital gains (and losses), and share trading. This would cover a wider range of investments but in a less dramatic manner, and would create a level playing field across the very uneven tax laws now applying. In particular, it would remove the tax system’s discrimination against bank deposits, and hence make them a more attractive savings option – with gains to the wider economy.

Instead, Turnbull somehow decided to discard his better self and try to morph into Tony Abbott. He is making heavy weather of it; he is much better being true to himself. If you admired the real Malcolm, his recent performances in parliament and press conferences have been embarrassing to watch, a pastiche of outright lies, made-up statistics and ridiculous statements.

One example: “They want the price of homes to go down – that is their objective! And if they win the election, they will succeed in smashing home values… Vote Labor, and be poorer! Every single home owner in every single electorate represented in this House will be poorer if the Labor Party is elected to government.”

Well, when Sydney prices have shot up 60 per cent in four years, it’s very likely that they will fall some time soon, whoever is in government. They often do; the Bureau of Statistics tells us that in the past twelve years they’ve had three sustained falls, of up to 10 per cent. Sydney prices in fact have fallen for five of the past twelve years. That’s often the pattern of Australian property prices: dramatic surges followed by flat periods or prices drifting gradually up or down until a new surge hits.

Another example, a blatant fib from question time on Wednesday: “They [Labor] are proposing to remove from the market for established dwellings one-third of demand. All investors would be gone.” The PM is well aware that Labor is not proposing to ban people from owning rental investments. There will always be rental property investors, and they will do what investors did before negative gearing became fashionable: they will borrow prudently, charge the rents the market will bear, and make a profit. Even now, a third of Australian rental investors do precisely that. Rental investments provide them with an income, not a tax loss. That’s the way it’s meant to work.

Buried under Turnbull’s bluster is a serious issue: what will happen to a housing market in which prices have peaked, and the incentive for rental investment is sharply reduced? That could be very interesting indeed.

First, if Labor wins the election and can get its policy through the Senate, we’d expect to see some shift of new rental investment from established housing to new housing. That’s what Labor wants to have happen, and so long as the shift goes to filling real gaps in the market rather than building substandard apartment blocks where there’s already a glut of them, that would be a good thing. The consensus is that we need more housing, except in and around Melbourne’s CBD, and more housing choices. This policy would help in that direction.

But what would happen to the established housing market? The reduced incentive for investors would shift the balance between supply and demand. Depending on the circumstances, this would reduce either the price of houses or the growth in their price.

We can’t be sure which, but given the size of the recent price surges in Sydney and Melbourne – 61 per cent in Sydney, 30 per cent in Melbourne – falls are likely in those two cities. In regional Australia and the other capitals, where price rises since 2011–12 range from 9 per cent in Hobart to 17 per cent in Brisbane and Perth, it’s less clear.

Second, the demand vacuum created by investors moving out of the established home market would quickly be filled by would-be owner-occupiers. Rapid price rises are already telling us there is no shortage of demand. But the aspiring owner-occupiers would not be able to pay the same prices as the investors, so that too makes it more likely that prices would fall, although it is impossible to say how much.

Third, what is the likelihood of existing investors deciding that the game is up, and making a stampede for the exit gates? That would be the most disruptive outcome for the economy, although very good for those who have been forced to rent because they can’t afford to buy. Labor’s policy does try to guard against this by grandfathering existing investors from both rule changes, but it is certainly true that future house prices will be lower under its policy than they would be if the tax breaks remain.

No doubt some existing investors, particularly those with interest-only loans, would decide that speculation on future housing prices has become a risky game, and might sell out and switch to alternative investments. No doubt many others will remain in housing because they don’t see a disaster looming and/or because housing is a traditional favourite of investors seeking a safe choice they understand. Again, it’s impossible to guess from here what the balance between these two groups will be.

Finally, some confused souls have told us that if some housing investors leave the market, rents will rise. It’s a common misconception, but no, they won’t. If there are fewer housing investors, then it is axiomatic that there must be more owner-occupiers – someone has to own the joint. If there are more owner-occupiers, then there are fewer renters. The balance between supply and demand determines the price, and that will remain unchanged – except that by stimulating an increased supply of housing, Labor’s tax changes would tend to reduce rents.

Labor’s proposed policy reform is the most important that has come out of this tax debate. It would redirect some investment towards creating new assets instead of simply changing the ownership and bidding up the price of existing assets. It would make housing more affordable, for aspiring owner-occupiers and (at the margin) renters. It would save the budget (and other taxpayers) many, many billions of dollars over time.

It would also make the tax system fairer, by closing off a loophole that delivers the biggest benefits to high-income earners who need no help. And it would make the housing market fairer by gradually removing a subsidy to investors that is not available to those who want to own their own home.

The risk is that it could exacerbate a slide in housing prices that already looks likely, and in an economy that could be in fragile shape. Who knows? Economist and former Reserve Bank board member Warwick McKibbin summed the choice up well: ‘‘The question is, do you want to avoid the problem now, or do you want to wait until the thing just bursts?’’

Act now, and you make it less likely that our housing market will suffer a US-style meltdown in the future. Malcolm Turnbull should find a way to get on board, and not cheapen himself by trying to run a low-quality scare campaign. •

The post Truth and negativity in the negative gearing debate appeared first on Inside Story.

In 2005 she married Jason Osborne, an IT professional who worked in a city bank, and they began planning a future with children and their own home. They didn’t even bother looking in the inner city. Alice’s friends told her “it would be six, seven [hundred thousand dollars]-plus for anything decent.”

Alice’s sister lived in Point Cook, a new suburb twenty-five kilometres southwest of the CBD. It was growing fast, with new shops, schools and childcare centres. The couple liked what they saw. They bought off the plan and in a couple of years moved into their four-bedroom home. They caught the Werribee train to work, and life was good.

Then Alice had their first child, William, and took nine months off. When she went back to work two days a week, Jason took three months’ paternity leave. After he returned to work, they enrolled William in the new childcare centre at nearby Sanctuary Lakes while Alice continued her part-time job.

The two days Alice worked were hectic. She woke at 5 am so she could get to work at the Murdoch Children’s Research Institute by 7 am. (Jason dropped William at childcare at about 8 am on his way to work.) This allowed Alice to leave for home at 3.30 pm. She was anxious to keep William’s days in childcare as short as possible.

Naturally, problems sometimes occurred. On one day, Alice left around her usual finish time to get back to Point Cook and pick up William. But at North Melbourne station she heard announcements that trains were suspended indefinitely on the Werribee line. There were replacement buses, but she was already imagining the crush to get on board. By now it was after 4.30, and the childcare centre closed at 6.30 sharp. Alice “began freaking out.” She called Jason at his CBD office. They made a snap decision to brave the traffic in a taxi. The fare cost $90.

With the birth of their second child, Lucy, Alice again took nine months maternity leave, then returned to work. Jason again took paternity leave for three months. During that time they decided that their carefully calibrated “tag-in, tag-out” arrangement was unsustainable.

They assessed options, laid out spreadsheets on the dining room table, pored over the weekly budget. Could they afford to live on one salary and keep up the mortgage? If Alice continued to work as before, Jason would have to get two kids off to childcare during peak hour. He’d probably get to work even later than 10 am. As well as it taking longer to get two kids out of the house, Point Cook’s growing population and increasing traffic congestion had by that point doubled the time it took Jason to drive to the train. He also had to park further away from the station. Would it hurt his career?

There was also the high cost of childcare, which would eat into Alice’s salary. But the logistics – the traffic, the limited public transport, the exhausting distances – proved to be the clincher. Remembering that day at North Melbourne station, the frantic taxi ride, Alice gave notice to her employer. For the foreseeable future, her career in public health was over.

She tried to keep her hand in with some university teaching, tutoring in genetics a couple of times a year. But she found it too hard to keep abreast of developments in her field of prenatal screening for birth defects. On the other hand, she was over-qualified for most jobs that came up around Point Cook.

The family lives more frugally since Alice stopped working in public health. Their last proper family holiday was three years ago, though sometimes they go camping. Two days a week Alice works at William’s primary school. She collects a half-day’s salary for teaching sewing classes, and dabbles in a sewing business from home. Perhaps she’ll consider getting a teaching qualification herself once Lucy starts school, so she can work part-time while staying close for school pick-up.

One thing they won’t do is move from Point Cook. The community spirit is strong, and Alice loves the place. But for all its positives, she is clear that if she lived closer to the city she would not have been forced into the trade-off that cut short her career.

The Osbornes are typical of millions caught on the far side of the new urban divide changing Australia and challenging longheld ideals of economic opportunity and fairness. This is the growing gap between people who live near the centre of Australian cities and those who live near the outer fringes.

The two groups experience city life very differently. For those on the wrong side of the divide, poorer access to jobs affects their ability to maintain and build a career over time, and long commutes are expensive and exhausting. In some cases, commutes can make juggling the responsibilities of home and work so difficult that some – usually women – have to give up work altogether.

Employees living furthest from the centre of Australia’s five biggest cities also get paid less. The average yearly individual income among employees living within ten kilometres of Australia’s five largest cities is a quarter higher than that of employees living more than twenty kilometres from city centres.

In Sydney, the highest-earning twenty-five to sixty-four-year-olds are clustered around the inner suburbs, Sydney Harbour and the North Shore. Typical incomes in Bondi, by the sea, and St Ives, in the north, are also comparatively high, above $60,000. Incomes in western suburbs such as Bankstown and Wetherill Park are typically below $40,000. In Brisbane, typical individual incomes are highest – above $60,000 a year – among people living near the centre in places such as Bulimba or Ashgrove, and in well-located riverside suburbs. Incomes in more distant suburbs are typically below $40,000.

The income gap between inner and outer suburbs is growing. Since the mid 1990s, income growth among people living in suburbs close to city centres – Alexandria in Sydney, for example, and Albert Park in Melbourne and Morningside in Brisbane – has been 3 or 4 per cent a year (adjusted for inflation). Incomes in the west and southwest of Sydney, the far southeast and northwest of Melbourne and in the southern suburbs of Brisbane suburbs have barely grown over the same period.

The changes are reshaping cities, the opportunities they offer and their very identity. Living north or south of the Yarra River used to be Melbourne’s biggest class marker. The working class lived in the north, the well-heeled in the east and the south. But people on high incomes have increasingly clustered in inner suburbs on both banks of the river. In Brisbane the economic and cultural divide between people living north and south of the Brisbane River is eroding, with proximity to the city centre increasingly desirable.

The pattern is less pronounced in Perth, where incomes have grown strongly across the metropolitan region, a legacy of the recent mining boom. Perth’s smaller manufacturing base also means the decline of that sector has not hit the city as hard. Nevertheless, income growth is still highest close to the city centre.

Part of the reason outer suburban residents earn lower incomes is that they are more likely to be employed casually in lower-skilled roles. Casual employees account for almost half of all sales workers and labourers in outer suburbs but fewer than 10 per cent of the management and professional jobs concentrated in city centres. The average weekly wage of casual workers Australia-wide is $538 per week, less than half the average weekly full-time wage of $1276. Almost a third of casual employees are underemployed and want to work more hours.

Differences in wealth, or assets, can give a more meaningful indication of people’s material living standards than differences in income. For example, a retiree may have a low annual income despite having accumulated extensive assets during a long career. It is difficult to get an accurate geographic breakdown of wealth in Australia, but we can use house prices as a rough proxy for wealth distribution in Australia’s big cities.

The highest property prices are increasingly found in suburbs close to the CBD. Households with the greatest levels of wealth congregate in the parts of cities with the best access to jobs and transport. The further you go from city centres, the more house prices fall. The declines in house prices as you get further from the CBD are steepest in Sydney and Melbourne, the two cities with the greatest concentrations of knowledge-intensive jobs in the inner city. They are also the cities that sprawl furthest and offer the worst access to jobs.

Of course, access to jobs and transport are just two factors in creating a person’s wealth; education and skill levels are also vital. A strong link now exists between skill levels and where people live. University graduates are concentrated in Melbourne’s inner suburbs, for example, and in some middle suburbs east of the city centre. Outer suburbs have lower shares of university graduates. And the closer residents live to city centres, the greater the number and range of high-skilled jobs they can reach by car, bicycle, foot or public transport, which better services the inner city.

There are many stories like Alice’s. In common with a great number of people who live far from city centres, she isn’t reaping the full material benefits that living in a city should bring, benefits that previous generations of Australian city residents enjoyed before the new divide set in. There are a number of ways this division can be broken down; here, we’ll focus on one key area for change.

Enabling people to live closer to jobs and transport, and to choose the kind of home they want, means that more homes need to be built – especially semi-detached terraces, units and townhouses, and low-rise flats – in established inner and middle suburbs.

Critics of greater inner-urban density sometimes conjure up images of downtown Shanghai, or of high-rise apartment towers dwarfing suburban homes. But well-designed new housing, close to jobs and transport, can be found in Potts Point in Sydney, South Yarra in Melbourne, New Farm in Brisbane and Subiaco in Perth, among other places. These are some of Australia’s most populated areas, but they are also desirable and often prestigious places to live.

The benefits of giving people more housing options are considerable. Households wouldn’t get everything they want, but a wider range of choices would make a great difference to many people’s lives. The whole community benefits, too. Enabling people to live closer to jobs would contribute to economic growth by giving people a wider choice of jobs and employers a better choice of employees. And if new housing doesn’t get built in places with good access to jobs, it will continue to be built in areas with poor access to jobs, exacerbating the growing social and economic divide.

The biggest barrier to new housing near employment centres is the system of state and local government rules and processes that dictate where and how new housing is built. The complexity and delay built into these processes can make getting permission to construct new housing expensive and uncertain, and frequently impossible. Dramatically simplifying and streamlining these processes is an urgent priority.

Less complexity shouldn’t mean lower standards, though. In fact, higher standards are essential if the community is to accept a simpler, faster and less costly system.

Local residents’ interests are protected by arbitrary barriers that slow down all proposals to build housing and make them more costly or completely unviable. A better way to achieve clearer and higher standards is through clear codes or standards that determine approval for more kinds of home development. Housing codes can protect existing residents from badly designed developments while reducing the costs of planning approval processes.

Compliance with the code could be assessed by a builder, surveyor or consultant, and permission to build would not have to be sought through an authority such as a local council. This doesn’t mean a free-for-all: buildings that are later found not to comply with the code can be demolished or modified at the developer’s expense, with substantial penalties for the professional who endorsed it. Alternatively, planning approval could be granted by an authority such as a local council, but through an accelerated process.

Codes would cover aspects of the scale and appearance of buildings and how they integrate into a street. These include height and overshadowing in outdoor areas, privacy and the appearance of new developments from the street. They would also cover internal features, such as how much sunlight can enter living areas, and the amount of private open space. Homes that comply with the relevant housing code will be well designed and respect neighbourhood character.

Some state governments are using these kinds of code already, but largely for detached houses or in limited locations. They are not yet enabling the mix of housing in the mix of locations that people want. Applying housing codes to all residential areas would make a big difference to the availability of a variety of new housing.

Sometimes governments call existing rules and processes “codes” but allow for a lot of discretion and uncertainty in practice. If codes are to offer certainty, developers and builders should not have discretion over whether to apply them. Local communities’ interests should be respected from the start by the government involving them in developing the housing code that applies to their area. In most cases communities shouldn’t need to go to a tribunal or court to enforce local rules.

Ministerial interventions in the approval process for individual developments erode the trust local residents have in the system, giving them little reassurance that their interests will be respected. Planning ministers should decide the content of the rules, guided by deep community engagement. Indeed, they have a democratic mandate to do so. But they should not be the umpire as well.

And, as the NSW Independent Commission Against Corruption points out, clarity and simplicity also reduce the risk of corruption.

To succeed, any change needs to work for existing residents of established suburbs, as well as for prospective residents and the city as a whole. Genuine engagement is essential to achieving change that ensures everyone has their interests respected, even though not everybody will get everything they want.

The first step is citywide engagement to allocate responsibility for managing population change and building new homes across the city. This should reflect the broader needs of the city and the interests of all its residents. Plans should identify where new housing will be built, and what new transport connections are required to improve residents’ access to jobs. If the plans are based on good engagement that creates a real sense of community ownership they will also help different levels of government and different organisations work in the same direction, rather than opposing developments for short-term political gain.

To turn the plan into reality, each local council must have realistic housing targets. Every area needs to accommodate its share of population growth. Housing targets can distribute growth fairly and encourage local councils not to think only about short-term benefits to local residents at the expense of people living elsewhere in the city.

Local communities can then agree on how to meet their housing target in a way that works best for their area. As in Vancouver and Seattle, local residents should decide on design guidelines that are sensitive to the existing character of their neighbourhood. Buildings that can house the same number of households can be made to look and feel very different.

The community should also be involved in deciding what mixes of housing should go where, so that different types of household can live in the area, including older downsizers, young couples, families and single-person households. Finally, issues that existing residents rightly care about – such as maintenance of privacy, minimisation of overlooking and overshadowing, and placement of garages – should be built into local codes.

State governments have a critical role to play. They have the authority to push local councils to stick to their housing targets. They can require local plans to include enough land zoned to allow new housing. They can offer praise and extra funding to those that are succeeding, while naming and shaming laggards, and if necessary applying financial penalties.

In line with citywide plans, state governments also need to ensure more housing is accompanied by better transport. Depending on the location, this could involve more infrastructure, or better ways to manage congestion and parking. These transport improvements need to be paid for and implemented, not promised then forgotten. Otherwise, geography will increasingly be destiny. •

This is an edited extract from City Limits: Why Australia's Cities are Broken and How We Can Fix Them.

The post The new urban divide, and how to deal with it appeared first on Inside Story.

At first I thought I might have accidentally committed myself to reading a “kings and battles” history, a type I generally avoid. If that was the case, though, it was an excellent version of the genre. Take, for example, this quote from the opening pages:

Just as the story of Gallipoli drew on Homer’s epic story of the siege of Troy, so that of Kokoda has taken on the legendary proportions of the battle of Thermopylae, where a band of Spartan warriors sacrificed their lives to prevent conquest by a vast imperial army.

But by the time I was approaching the halfway mark, I had to acknowledge I’d been wrong. For one thing, there is an awful lot about women in Australia’s Boldest Experiment. In fact, this monumental chronicle is a “big” book in the proper sense, with every chapter contributing to Australian history in important ways.

I was surprised by this, just as I had been surprised by the kings and battles in the early pages. Based on the rumours circulating among historians over the past few years, I knew that Stuart Macintyre was writing a history of postwar reconstruction. And it’s true that this is a book about how the new habit of central government planning, developed during the second world war, continued afterwards to construct Australia’s modern welfare state. Which might sound incredibly dull, but isn’t.

In an important sense, postwar reconstruction marks the moment Australia became modern. Sure, it involved lots of bureaucrats in Canberra making lots of decisions. Certainly, our understanding their decisions comes largely from turgid minutes, formal correspondence and file notes. But let’s consider what they were planning – homes and housing, health, education, immigration, the nature and size of farms and food production, the sources of our energy, and the structure and character of the workforce. Pretty much everything we saw and experienced in Australia in the second half of the twentieth century was touched by this 1940s urge to remake.

This aspect of postwar reconstruction – the one I was nerdily anticipating with some excitement – dominates the book. But it is not its only subject. Not only are the chapters devoted to reconstruction planning more expansive than I’d anticipated, but they are also sandwiched by important details of Australia’s participation in the second world war, on the one hand, and the shaping of Australian politics and society on the other.

Commencing Australia’s Boldest Experiment with a “distant war,” as Macintyre does, is important and appropriate, for it was the management and planning of the second world war, here and among our allies, that forged the habits and expertise that infused postwar planning. Macintyre takes the time to fill out previously unexplored details of the war and its politics, reminding readers at every step that wars are not run by faceless systems but by real and complex humans whose relation to one another is nuanced by their beliefs and experiences.

The themes that preoccupied these people – issues such as housing, employment, rural development and social welfare – weave through the rest of the book. They are framed by the reality of war and then of demobilisation. Particular attention is paid to the women involved in reconstruction planning, and to shifts in structures of feeling and experience as women’s worlds changed. As we might expect given Macintyre’s past work, he gives labour conditions before, during and after the war a good and complex telling, showing how history is shaped by the nature and structure of work as much as by the inclinations of political giants.

The political history is the book’s most obvious strength. Curtin and his successor as Labor prime minister, Ben Chifley, come alive in its pages, their work and lives shaping and informing the Australia they hoped for and the one that eventuated. Menzies comes off better than one might expect, for he is given credit where it is due. His decision to continue many of the policies of postwar reconstruction, grounded in Keynesian economics and including the welfare state, is acknowledged, as is his continued use of the talented administrators nurtured by the Labor government.

If there is a hero of the book it is H.C. “Nugget” Coombs. Coombs was the brilliant economist who headed the Department of Post-War Reconstruction and was later the governor of the Commonwealth Bank. He was central to a great deal of government social and economic planning during this period, and participated in the international negotiations leading to the Bretton Woods system that governed the postwar global economy.

In Macintyre’s account, Coombs can sometimes seem superhuman. He was everywhere at once, his value as a public servant evident at many key points. Despite his centrality, though, this is no biography, and Macintyre frequently acknowledges the work of Tim Rowse, whose biography of Coombs appeared in the early 2000s. Moreover, the primary sources that Coombs created are treated in this volume with critical care, taking into account both the fallibility of memory and the perspective built into the evidence Coombs left. Coombs makes for a wonderful hero, for he didn’t see himself in such heroic terms.

While politics stands out in Macintyre’s account of this period, there are chapters that focus on what we would call social history. We learn about living conditions in Australia and the movements to improve them; we begin to understand why the architecture of our cities looks the way it does, reflecting successive building regimes; and we learn about work conditions, from both legislative and structural perspectives, and from real-world experience. These themes are woven into the complex decisions of political leaders, both Labor and conservative, to enable us to see the interplay between economic management and economic activity, grounded in labour.

We learn about the leaders of military and domestic “manpower” planning, but Macintyre also gives a vivid sense of how this planning was experienced in “every corner of national life.” Women, for example, were attracted to war work by pay rates closer to men’s than they had been at any other time, and often as much as 90 per cent of the male rate.

Whether he is offering details of postwar reconstruction minister John Dedman’s intentions for women after the war, examining the motives of labour organisations or explaining the origins of government policies, one of Macintyre’s important contributions in this book is to challenge historians’ long-held beliefs. He is a kindly mythbuster, but his masterly use of archival evidence makes this both an enlightening and a bracing read.

In the introduction, for instance, we find that postwar reconstruction was far larger than a mere exercise in social engineering; in chapter three Macintyre debunks our tendency to see Curtin’s attempt to forge closer links with the United States as clumsy and offensive to Britain; in chapter four we see that Menzies’s famous “forgotten people” had not really been forgotten at all by other politicians. I won’t try to list them all, but the gentle corrections continue all the way to the last chapter, where I learned that I had been mistaken in some of my own work on the origins of Commonwealth Scholarships.

Australia’s Boldest Experiment is more than a useful collection of facts for historians, however: it is also an entertaining read. I often found myself able to see and feel the world as Macintyre evoked it, with the chapter on demobilisation a particular highlight in this respect. I found that I could just as readily relate to impatient soldiers, waiting months to return home as the war ended, as I could to the immensity of the list of tasks that Coombs set his team the day after the peace was declared: “demobilisation, protection against immediate displacement consequences, training and retraining, expediting readaption of factory production, restoration of infrastructure and housing, capital issues control, monetary and fiscal measures to cope with the expected inflationary pressures.”

As well as becoming immersed in the experience of what in other hands might be a mundane account of administrative procedures, I laughed out loud at Macintyre’s astute judgements on historical characters and the significance of their quirks to the development of postwar Australia, and at his revelation of often telling details, such as the suggested naming of a public service bureau in order to use “bunyip” as its telegraph address.

As well as correcting many small misconceptions, Macintyre offers a gentle rebuke to Australian historiography by insisting on a more diverse set of methodological considerations than is common in our field. Extending the materialist framework that has characterised his labour history, this book may well also be the most important work of economic history Australia has seen in recent years, not least because Macintyre takes pains to explain economic history so that non-specialists will be able to understand it. Transformations in the global currency system and banking, the changing role of tariffs, and the risks associated with the rapid growth of consumption as the war ended are all dealt with in the context of the debates among those seeking to influence the direction of policy. In so doing, Macintyre brings a transnational perspective to this history of a national program of change. Drawing on a very wide range of sources, from meeting minutes to the mass media, he exposes shifts that were simultaneously global and structural, and personal and specific.

The economic assumptions of the book are sometimes a little strained, however, as Macintyre seeks both to demonstrate the diversity of economic thinking and to show the real-world effect of economic decisions. As a result, there are moments in the book when the economic assumptions of the 1940s appear as ahistorical truths. In the introduction, for example, Macintyre describes prewar Australia as “undeveloped” and lacking in plans to “direct the use of all its resources,” an assumption that reflects the ideology of progress that prevailed at the time instead of taking into account the environmental consequences of developmentalism that we can see in hindsight.

The selection of the timeframe itself might reinforce this tendency. Historians and political polemicists are often tempted to look back at the postwar period internationally as an exemplar of fairer economic management than is in current vogue in many states. Macintyre rarely falls into this trap, though his unashamed admiration for Curtin and Chifley suggests something of it.

It would be churlish, however, to criticise this book for not covering a longer period. Australia’s Boldest Experiment will be correcting and feeding our interpretations of Australia in the 1940s – and indeed the twentieth century as a whole – for a good while yet. •

The post Australia reconstructs appeared first on Inside Story.

It says something about the nature of our public policy debate that the solutions to the problems each of them identified are in full view in front of them. But sacred cows will need to be dealt with. No problem, you might think? After all, both of them are tough guys. The trouble, I think, is that our leaders are in the sacred cow business.

“Imbalance” is a popular euphemism these days in the global economic debate. Internationally, growth economies aren’t borrowing and weak economies are borrowing too much, creating an endemic instability. In Australia, as the tide rolls back on our recent booms, household debt looks too high. Our public finances have been drawn down to offset the impact of the global financial crisis. And our industry structure is too heavily exposed to commodities. In short, Australia has some worrying imbalances.

Hockey chose to assert once again that Australia risks becoming an indigent if his budget is not passed by the Senate. Narev highlighted a lack of economic confidence and stressed the need for coherent policy to support a more diverse investment base and create an economy less exposed to volatile commodity cycles.

Narev’s narrative points to how Hockey’s problem might be solved. Hockey’s own solution, however, is clearly part of the malaise that Narev worries about. Ironically, if Hockey went for a plan like the one urged by Narev it’s entirely likely that banks like the Commonwealth would be in the hot seat.

The total preoccupation of Canberra with the budget, and budget deficits more generally, is a one-track story that reminds us of Bob Carr and his inane notion that Standard & Poor’s ratings are a measure of state government management. When we look at broader budget options, though, we can see what’s wrong with Hockey’s view and how Narev’s priorities might be cast.

The federal government has a series of deficit-reduction measures – particularly in health and education – stuck in the Senate. At $7, the Medicare copayment would have eased the budget deficit by $3.5 billion over five years – in other words, perhaps $900 million a year, at best. In their original form, the university funding reforms would save $5.84 billion over ten years; after the amendments, the plan might cut $500 million a year, at best. So the budget strategy is gridlocked for a saving of perhaps $1.4 billion a year, while the deficit is headed for thirty times that number. There have to be better options.

Flip over to Narev’s concerns. One of the most striking trends in Australia is over-investment in housing. There was a time when rising home valuations encouraged Australians to spend, but that effect appears to have gone as the consumer’s sense of security has waned (encouraged, perhaps, by Hockey’s constant assertion that we face economic ruin if the budget is not managed his way). Household debt levels are clearly a drag on the economy, undermining consumer confidence and increasing the risks we run if we mismanage the decline of the resources sector.

Hockey might well look at the housing market and consider two policy options. First, he could review the regulations that have lifted lending for housing from about 30 per cent of total bank lending to about 60 per cent. According to the Economist, mortgage loans have accounted for virtually all of the increase in private sector debt as a share of GDP globally since the 1970s. Banks have gone from being substantial lenders to businesses to being heavy lenders for private housing.

We know that the regulations that make banks more profitable provide a strong incentive for them to lend for houses. We also know that direct tax subsidies for housing are a major cost to the federal budget and a substantial reason for overinvestment. And we know that the last financial crisis was directly related to excessive home lending. Indeed, many international commentators think Australia’s housing market today is a “bubble” waiting to burst.

What are the incentives Hockey should look at? Among Australia’s tax loopholes and preferences, tax exemptions for private housing top the list in terms of the cost to the budget. Treasury puts the total at $46 billion. So, if Hockey wants to promote a wider diversity of business growth – and if he really wants to take a serious shot at the deficit – he might see merit in changing the rules that encourage Australian banks to lend aggressively for housing. Even a moderate rebalancing of bank lending should improve opportunities for businesses and help the budget’s bottom line.

Pundits would no doubt point out that the exemption of housing from tax is very popular. That much is obvious. What we don’t know is how the public would respond if the political leadership pointed out how removing these incentives would reduce prices, which would take considerable pressure off current generations facing gigantic obstacles to owning their own homes. Leadership might also point out that this excessive investment is largely consumed in asset inflation and handicaps the innovative investors essential to a dynamic economy. It’s also a reform that is completely fair. It affects everyone.

Of course, that might prove too hard. What’s next on the tax shelter list?

Superannuation tax exemptions will take almost $30 billion from the budget in the current year. This cost is split almost equally between the tax lost by concessions on employee contributions and the tax exemptions for the income earned on superannuation fund investments. This staggering cost has been growing at a rapid rate.

The logical purpose of our savings policy is to encourage Australians to become independent, reducing their reliance on public pensions. Twenty years after it became compulsory, we might expect that much has been achieved. Yet a study for CPA Australia found that, as superannuation balances have built up, debt has also grown. On average, people are no better placed for savings now than they were before the policy was introduced.

Again, Hockey would no doubt be advised that the superannuation industry would be a nasty opponent should he attempt changes in the policy. But would the public be so hard to convince?

Superannuation levies are compulsory. In 2013, the Labor government legislated for changes that would hike the levy from 9 per cent to 12 per cent over a few years. Hockey retained the increase to 9.5 per cent and pushed out the steps to 12 per cent by a few years.

Given that the public has worked around the policy goal to improve their savings performance, how much do they really care about the tax shelters – which are largely of material benefit to people well above average earnings? A decision to give back to people control over about 10 per cent of their income might not only put a very large amount back into the budget but also prove very popular.

Finally, there is another big-picture argument. What housing and superannuation highlight is the enormous amount of economic capacity trapped largely in domestic assets, and mostly in existing assets. We seem to have a very heavy preference for pushing up the prices of businesses and property that already exist. And that’s risky, because it reduces the potential for innovators and growth.

If Australia has been living beyond its means, then it is these policies that are the very clearest indicators. •

The post Time to slay some sacred cows appeared first on Inside Story.

The tax treatment of housing disproportionately favours those who own, rather than rent, property. This inverts Australia’s usually progressive tax regime, as those who are already wealthy receive far more benefits than those who are not. And because housing is often the major asset in a family, inability to afford housing just entrenches inequality. For people with a mental illness, insecure tenancies, low incomes and rising housing costs work against their recovery and wellbeing.

This inequality must be urgently addressed as part of broader social reforms for people with disabilities, including psychosocial disabilities. Without a home that is affordable, people with a mental illness can end up in prison, or become homeless.

People on low incomes, many of whom have mental health concerns, are being pushed further and further away from services that people on higher incomes take for granted. If people can’t get access to healthcare, are we permanently consigning them to life at the bottom? How can people recover from mental illness if they don’t have a place to call home?

•••

I first met “Mary” through her music. Late one night, tired from my commute to Sydney, I sat on my back verandah in the Blue Mountains, drinking a glass of wine and smoking a cigarette. The mist had drifted up slowly until all I could see was the faint glow of the moon and the reflection of the streetlights. And through that mist came the sweet sound of Nina Simone, layered over prickly jazz chords.

Mary loved this kind of music; all spiky crescendos and loud wailing brass. Her battered old record player would start up downstairs about nine most nights as she worked through her collection. Occasionally, the needle on the player would get stuck, and small fragments of notes would repeat, and repeat.

It was months later when I finally met my neighbour in person – my commute meant I was rarely home during the day, and asleep by the time she cranked up the tunes each night. But she often took my bin out or brought it back in. One rare weekend at home, I came back from the supermarket, and there was Mary sitting on her doorstep.

She was a tiny lady, all fine-lined skin over pointy bones; thin white hair fading from blonde and bright blue eyes. It was a cold morning, but she was only wearing a t-shirt and skirt. I said hello and she jumped; far away in her thoughts, she hadn’t even noticed I was coming past. I smiled and told her how much I liked her music. It took a while to convince her that I meant it. She lit a cigarette; I put down my shopping bags and did the same.

Over the next few years, Mary and I often had a cigarette on the doorstep. She’d leave me presents when I was in Sydney; coming home, I’d discover a card, or a cake, or some flowers at my door. I’d leave groceries at her door when I knew I’d be away for a week or more. We gardened out the back of the house on those clear, cold and sunny Blue Mountains mornings.

I loved the mountains, despite the commute. I had room to breathe and space that I could never afford in Sydney. I’d trudge up Katoomba Street before six most mornings and let the rattle of the train down the hill lull me off to sleep. I loved the diversity of people in my town; rents were still low enough then that lots of different folks lived together, rubbing up against each other.

•••

Affordable housing

Everyone needs somewhere to live, and yet housing has become just another way to make money. The idea of a right to a home seems quaint in a world of renovation programs and eye-popping auction results that are breathlessly reported in the major newspapers. But it wasn’t always this way.

Previous Australian governments believed that affordable housing was not only important for individuals and families, but also valuable for the wellbeing of the whole Commonwealth. In 1945, a government report stated: “We consider that a dwelling of good standard and equipment is not only the need but the right of every citizen – whether the dwelling is to be rented or purchased, no tenant or purchaser should be exploited for excessive profit.” Public housing was integral through to the 1970s to ensure a degree of equity. By the mid 1960s, one in five Australians lived in public housing.

Over the last two decades, housing has become less and less affordable. Inner-city areas, close to services and work, have become gentrified and expensive. This is more than just the market at work. Government policy now is to favour those who already own property, through negative gearing and capital gains tax concessions, while doing little to support renters, particularly those on low incomes. Governments at all levels have also stepped far away from being direct providers of housing, with new public housing falling to its lowest level in 2007.

The Grattan Institute reported in 2013 that tax concessions worth $36 billion a year went to subsidising those who own property and a further $7 billion went to investors for negative gearing. By contrast, low-income tenants received $3 billion a year in rental support.

Finding somewhere to live in Australia’s major cities is becoming harder and harder, especially for people on low incomes. Anglicare’s affordable housing snapshot this year found that someone on Newstart or the Disability Support Pension could not find an affordable home anywhere in Sydney. For people eligible for public housing, the waiting period can be longer than a decade and social housing, provided by not-for-profit groups, is also in short supply.

Research from SANE Australia shows that many people with a mental illness live on a low income, with one third receiving below $20,000 per year; SANE also found that they contend with high health expenses. Both factors clearly increase their reliance on affordable housing.

Social and public housing are important options for people with a mental illness. But increasingly tough entry requirements for public housing mean that many more extremely disadvantaged people are housed together, further exacerbating health-related disabilities. People with a mental illness report increased anxiety and other symptoms because of the marginal nature of public housing.

Boarding houses have thus become the default housing option for many people with mental illness, particularly following the closure of large institutions. Despite recent NSW reforms to boarding houses, they remain an insecure and sometimes dangerous place to live. These houses are outside the regular tenancy system and provide poor facilities; residents are often exploited and in poor health. Some reform to this system has finally begun, but as recently as 2012 ABC Radio’s Background Briefing reported on the deaths of six residents due to neglect.

At both state and federal levels of government, there are clear policy commitments to “housing first” approaches in mental health policy, which acknowledge that secure accommodation is vitally important. And yet little or no funding is allocated to creating that accommodation. Investment in public housing has dropped sharply over the last few decades. The now-abolished National Rental Affordability Scheme, which operated in 2008–13, gave developers incentives to build and rent lower-priced properties, but it only took affordable housing back to 1980s levels. With nearly half a million lower-priced housing properties needed, it was a drop in the bucket. Given the competition for the few available places, is it any surprise that people with a mental illness end up at the bottom of the pile?

Housing is crucial to mental health, both for people with a mental illness and for those without. The most recent survey of renters from the NSW Tenants’ Union showed they had high levels of anxiety; and this was particularly true for those in housing stress – that is, paying more than 30 per cent of their income in rent. People in both public and private rental properties were affected.

The latest report from the Australian Housing and Urban Research Institute for the Mental Health Commission of New South Wales looked in detail at the links between mental health and housing. It noted:

Social housing can no longer be relied upon as a housing solution for people with mental health issues due to shortages in supply. In order to account for these housing market problems, the private rental market is likely to represent the most important segment of the housing market for people with mental health issues.

Rents, even in outer suburbs, have risen faster than the minimum wage, with the median rent in Sydney now above $500 a week. At the same time, people are renting for longer periods of time, and for more of their lives – one-third of tenants are over forty-five. Tenants have far fewer rights than their counterparts overseas: landlords can evict people for no reason, and there are no caps on rent increases.

People with a mental illness who are employed are more likely to be working part-time, and therefore earning a lower income. SANE Australia has found that people with a mental illness also experience discrimination at work and need a supportive employer. These barriers prevent the increase in income necessary to make housing less precarious.

•••

Katoomba is a tourist town and has been for over a century. Guesthouses line the streets, some now made over as backpacker hostels, some as private rental properties, and some as boarding houses. Behind the shops in Katoomba Street is a rabbit warren of small flats in various states of disrepair and often lacking documentation and regulation. As the Sydney housing boom continued and rents climbed further and further, more people arrived to try to find a place to call home.

And as they came, the people who already had a home here were pushed even further to the margins. Hotels became crisis accommodation, and more people were living in their cars or sleeping rough in the cold bush.

•••

Looking back

In New South Wales, the landmark 1983 Richmond Report laid out the pathways for people with mental illness to move out of institutions and back into the community. This report highlighted what community resources were needed, and the discrimination faced by people with mental illness in accessing services. Richmond recommended that the government provide specific housing allocations for people with mental illness and subsidise places in boarding houses.

A decade later, the nationally focused Burdekin Report found:

One of the biggest obstacles in the lives of people with a mental illness is the absence of adequate, affordable and secure accommodation. Living with a mental illness – or recovering from it – is difficult even in the best circumstances. Without a decent place to live it is virtually impossible…

All the evidence considered by the Inquiry established that the policy of deinstitutionalisation cannot succeed unless it is complemented by appropriate policies on housing – and a commensurate allocation of resources.

The lack of accommodation, over thirty years later, is still one of the biggest barriers for the independence and dignity of people with a mental illness. The failure to address the cost of housing is causing real harm in the community, while others get rich.

In 2002, the NSW Parliament Select Committee on Mental Health emphasised that people in public housing needed extra support to keep up with their rent, and suggested that specific housing be provided for people with a mental illness. In a statement to the committee that is very familiar, Mission Australia said that the Sydney housing market was “characterised by high rents, low vacancy rates and very high cost of home purchase.”

The 2003 Mental Health Council of Australia’s Out of Hospital, Out of Mind report also made this clear:

There is a distinct lack of stable and appropriate housing for mental health consumers. When consumers are discharged from hospital it is not uncommon for them to be left without any accommodation options and end up on the street; it was reported that many consumers lose their housing during their hospitalisation. There was the concern that many boarding houses are closing and the criteria for eligibility for housing is getting harder.

People with mental illness, advocates and carers have made this point over, and over, and over again. Yet current headlines are about which suburbs have cracked the one million dollar mark, instead of about how many people are being forced further and further from services and into substandard, insecure housing. For Aboriginal and Torres Strait Islanders, who already make up a higher percentage of homeless people, the situation is even more dire.

In 2001, a coordinated group of community sector organisations employed a health worker for twenty-five hours a week to work with people living in boarding houses in the Blue Mountains area. This followed from other projects, all short-term, that demonstrated the myriad problems for people with mental health disabilities living in these kinds of homes. Neglect, abuse and appalling other health problems were rampant. A report on the project noted:

The “episode of care” model of health service provision with an emphasis on management of symptoms of “illness” rather than a more global view of “disability” can be seen to have failed many residents of boarding houses who constitute one of the most marginalised, passive and disenfranchised populations, least likely to initiate or maintain contact with service providers.

•••

In 2009, ABC TV’s Four Corners featured a program on homelessness in Katoomba. A motel converted to crisis accommodation; exploitative landlords; terrible boarding house conditions. None of these a surprise to people living there.

Committees were formed, action plans were agreed, and a few new properties were built. But the fragile links set up between support services, housing providers and people at risk of ending up homeless proved not enough to help Mary.

Mary’s situation was what was meant to happen when the large psychiatric institutions were shut down in the 1980s. Her diagnosis of schizophrenia, which once condemned people to a life locked away, was no longer a barrier to her living in the community and having her music close by. Here, in her little, sparsely furnished flat, she could have friends over and stay up late dancing. Mary’s case worker visited regularly, her medication helped smooth out the rough edges of her illness and people in the neighbourhood looked out for her, reminding her to eat when her dreamings took her far away.

She had been a teacher in a former life; her only child was in another state. I don’t know how old she was, or how long she’d lived downstairs. When I asked, she told me that she’d always been there. She coughed long and hard, then had another cigarette.

•••

Mental illness, homelessness and a secure home

People with a mental illness make up a large percentage of people who are homeless, and at the same time, homelessness contributes to poor mental health. Homelessness can include rough sleeping, overcrowded homes, couch surfing, and living in temporary or emergency accommodation. A study of people with a mental illness found there was a clear connection between stable, secure housing and their ongoing health:

Housing is central to building a future. It offers a secure base. When that base is established, friendships, social networks and meaningful activities can develop. Consumers prefer housing that involves living alone or with a friend of their own choosing and having access to mental health support needs.

The Australian Human Rights Commission links homelessness with a range of other rights, such as the right to health, privacy and personal safety. One contributor to homelessness for people with a mental illness is their difficulty in maintaining a tenancy – in either public or private accommodation. The Homeless Persons’ Legal Service found that people who were hospitalised sometimes lost their home, or were housed far away from their regular treatment centres.

An innovative program, the Housing and Accommodation Support Initiative, or HASI, was set up in New South Wales in 2006 to bring together a range of services to assist people to maintain a tenancy and stay out of hospital. HASI focuses on integrating services with housing, rather than the usual separation of housing from health and wellbeing. The majority of people using HASI have schizophrenia and are either homeless, or at risk of homelessness. The 2012 evaluation of the program showed a remarkable improvement in people’s lives, with 90 per cent able to keep a roof over their heads. The report noted:

Most people enter the program with a history of unstable housing, including almost half with no home immediately prior to entering HASI, for example, from hospital, prison, living with friends or family, living in a boarding house, in other unstable or temporary housing or primary homelessness. Many consumers who were already housed before joining HASI had also experienced unstable housing in the past.

Housing is a key part of the submission from the Mental Health Commission to the proposed Strategic Plan for Mental Health in New South Wales, but to date there has been no commitment from the NSW government to increase the supply of affordable housing, or create further different models of social housing such as HASI.

•••

A few weeks before Christmas one year, I got home from Sydney late one Friday night – the light tricking me into staying at the office longer than I had intended. Walking home from the station was a blissful relief from a day sweating in the sweltering heat on the plains. Checking the letterbox, I found a note from the real estate agency that I promptly ignored until the next day. I’m glad I did, because an eviction notice is never a good way to end the week.

The owner was selling the whole building, and we all had to get out. At Christmas. Of course they had every right to do that under the current law, but it was a punch in the guts to have to leave my lovely flat, with the wonderful verandah. And then I heard screaming.

The eviction notice broke Mary. I found her curled into the tiniest of balls on her lounge room floor, smashed records lying all around her. I rang the mental health crisis team and stayed with her till they came. There was nothing I could do to comfort her; she couldn’t conceive of not being able to stay in her home. And the loss of her home took something else away from her – independence.

Mary never came back. Her meagre belongings were packed away and space found for her in a nursing home that specialised in psycho-gerontology and “secure facilities for wanderers.” And I only knew that because the bloke at the tobacconist told me that Mary had come in after running away.

I only saw her once after that, passing her on the street. She didn’t remember me – away from what was familiar, I was just another intrusive noise. I don’t know if she has her music anymore, those soaring voices she’d accompany in fragile soprano tones.

•••

Over and over reports are written about why housing is as important as having enough to eat, and just as integral to health and wellbeing. Yet they are ignored, condemning people on low incomes to poor health. A place to call home is more than a roof over our heads, or a way to make money. Secure, affordable housing has to be part of all health policies, particularly for people with a mental illness.

Without a home, it’s damn hard to get well and stay well. •

More information about the Gavin Mooney Memorial Essay Competition and a list of runners-up can be found at Croakey.

The post A place to call home appeared first on Inside Story.