Making better economic cases for housing policies

Speaker: Jennifer Westacott
Venue: Museum of Sydney, Bridge Street
Delivery: Thursday, 08 March 2018

Panel session - Making Better Economic Cases for Housing Policies

Thank you, I am very pleased to be here as part of the panel discussion

I agree with Duncan about the need to apply an economic lens to housing affordability and congratulate him on his report.

The cost and location of housing directly influences workforce participation, productivity, and of course, the wellbeing of households.  

This is particularly true right now in our major capital cities

It is therefore imperative the housing market operates efficiently and is geared with the needs of real people in mind.

Housing demand is running hot in our big cities, particularly in Sydney and Melbourne, where demand is outstripping supply.

Over the past five years, residential property prices have increased by more than 70 per cent in Sydney and by more than 50 percent in Melbourne. 

Population growth is a key factor in both these cities, with Melbourne up by almost 1 million people and Sydney up by almost three quarters of a million people over 10 years. This growth will continue - Melbourne and Sydney are expected to reach around 8 million people each by around mid-century.

Population growth can bring economic and social benefits, and we must have a sensible conversation about planning for this growth to support and optimise these benefits. 

We are firmly of the view that we need to increase housing supply to meet the additional demand that will come from population growth and do not support a reduction in the migration intake as a way to address housing affordability concerns.

High housing costs limit housing choices for consumers.

This has a flow on impact for the wider economy. It makes it harder for workers to live close to jobs, it can limit turnover and it can exacerbate intergenerational inequality.

Continuing with a “business as usual’’ approach will not produce the changes that are needed -  we must adopt a new economic narrative on housing policies.

We need to focus on making the market work better – not ad hoc, one-off initiatives.  

Recent history tells us that Governments typically tend to narrowly focus on the demand side of the market when tackling housing affordability. 

Experience shows us this narrow focus on one side of the equation – while well intentioned - inevitably distorts the market, leading to unintended consequences.

For example, the first home owners grant was designed to help new buyers enter the market, however, without adequate supply arguably all it does is assist with pushing up prices.

There is clear evidence that limited land release and restricted supply have contributed to the housing affordability challenge.

We agree with the Grattan Institute that the biggest gains will come from lifting supply – yes, it is more politically challenging, but that shouldn’t stop governments from acting

The Business Council has been undertaking research into housing affordability and what is needed to enable housing supply to keep pace with demand.

We’ve identified five things the nation needs to get right

First, all levels of government need to commit to growth strategies that will increase the supply of housing.  

  • State metropolitan growth plans must integrate land use and infrastructure, and must take precedence over local council plans, particularly to allow urban infill in key transport corridors.
  • Zoning should be simplified to ensure it is clear and unambiguous, and predicable for all participants in the planning process.
  • More housing development should be code assessable to speed up approvals.
  • Why should there be a merit assessment of a house in a residential zone?
  • We applaud the Independent Hearing and Assessment Panels, which are now mandatory for all Sydney councils and for Wollongong, and will speed up and create certainty for development.
  • We should hold the ground on designating employment zones and mixed use land outside our city centres. Erskine Park, developed with Sue Holliday’s expertise, is an example of where this has been successfully achieved.
  • The Commonwealth sets the migration policies that are driving population growth and has an important leadership role and a responsibility to use its purchasing power to:
    1. leverage land release by the states in a timely manner; and
    2. introduce productivity payments that are conditional on states agreeing to reform their development assessment and approval processes to make greater use of zoning and complying development
  • The abolition of the National Housing Supply Council has left a void of information that needs to be filled, particularly highlighting shortfall of housing and the need for greater action by the states to release and rezone land.

Second, encourage large-scale private investment and innovation in housing that is affordable. 

  • Increase opportunities for the private sector to partner with the government, and play a greater role in precinct planning, urban regeneration and new housing developments;
  • Mixed-housing developments, such as Ivanhoe Estate at Macquarie Park here in Sydney, utilise private sector expertise and investment to increase the supply of social, affordable and private dwellings.
  • In the UK, Southwark Council is working with Lendlease to deliver the £1.5 billion Elephant & Castle project, which will replace 1,214 homes built in the 1960’s with nearly 3,000 new homes, a quarter of which will be affordable housing.
  • We also need to encourage institutional investment in long term rental by supporting the ‘build-to-rent’ model along with appropriate long term rental regulatory frameworks.
  • And we should review the tax settings that are hindering its establishment here in Australia.
  • In these cases, I am not advocating for simplistic targets about the number of affordable dwellings that should be accommodated in new developments because experience tells us that the price of other dwellings is inflated to recover the cost.
  • I will come back to what we need to do about affordable housing.

Third, reform taxes and charges. 

  • As we all know, the application of stamp duty impacts mobility. The additional marginal cost of relocation hinders decision making
  • The removal of inefficient taxes, such as stamp duty, has to be part of broader tax reform.
  • Nationally, it would be sensible to follow the ACT’s lead and reduce and replace stamp duties with a broad-based land tax.
  • And when protecting vulnerable people it’s the threshold, not the principal, that matters.
  • We also know that taxes and charges can make up a significant amount of the cost of housing, and in some jurisdictions, it can be up to 40 per cent of the total cost for new homes.
  • Most jurisdictions levy some form of contribution charge for infrastructure.
  • This is sensible, however these charges need to be transparent, efficient and not excessive.
  • There are broader questions about where the onus for payment for infrastructure should fall and how we can improve coordination across the system.

Fourth, improve infrastructure provision and connections to the outer suburbs and regional centres, to allow workers to access cheaper housing and commute to the business districts where the jobs are.

State governments need to produce 15-year prioritised infrastructure investment programs, and bring projects to market with planning approvals in place to facilitate private involvement.

We can’t afford stop-start infrastructure delivery, as we have seen in Perth and Melbourne.

It inflicts more pain on our long-suffering, infrastructure-starved communities, and it will inevitably drive away critical private sector investment.

And fifth, we need to structurally reform the ‘social housing’ system to make it work more like a commercial market. 

We must consider if the current rent assistance and social housing framework is designed properly in Australia.

Or whether there is a better way to provide subsidy arrangements that will improve the outcomes for its recipients and provide opportunities for investment to increase supply.

For example, does the current framework:

  • encourage movement across the tenures, and innovation in the housing system?
  • Or does it actually trap people into poverty?
  • We have tremendous opportunity to restructure the system.
  • This will require a comprehensive rethink, and a shift in ideology for some policy makers.

A well-functioning social housing market, underpinned by a secure asset base, will attract private investment.

Infrastructure Partnerships Australia valued the NSW public housing stock of approximately 140,000 dwellings at $38 billion for 2015.

Whilst we may not know the national value, we can safely assume its value to be around $70 - 100 billion.

The UK actively welcomes private investment in its affordable housing and we should too.

Between 1990 and 2015, almost half of the £100 billion capital investment in new housing association homes across the UK came from private finance.

  • This funded the construction of 719,000 housing association dwellings.

To address the challenges in the affordable housing system, I believe we must also enhance consumer choice. We need to:

  • Make subsidy arrangements tenure neutral
  • Strengthen community housing systems by bringing in more commercial focus
  • Question the incoming rent policy - does this really work?
  • Diversify the tenure and social income and mix on large housing estates.
  • My main question is can you modernise this system with a relatively small housing associate model and the dominate provider being large monolithic public housing providers?

 

In summary, I agree with Duncan that an economic lens is vital when considering the impacts of the challenges faced in the housing market.  

This is an economic issue for Australia, and we need to be bold to address it.

Getting Australia’s housing markets working better will also be our best weapon for dealing with growing concerns about equity and home ownership.

There has been an overall decline in property ownership rates across all age brackets over the past 10 years, except for the 65-plus age bracket.

We need to ask ourselves – what level of home ownership are we willing to tolerate in Australia?

The decline may be partly explained by lifestyle choices, but we should be concerned if people are being locked out because a key driver to net increases in wealth for households is owner occupied housing and other property.

  • What impact will declining home ownership have on our assumptions about wealth creation being driven by housing?
  • What impact will it have on our assumptions about generational wealth transfer, and about the adequacy of superannuation and pension frameworks to fund retirement?

These wider concerns again reinforce the need to apply an economic lens to housing affordability in Australia.