Affordable Housing

The attached "Affordable Housing Framework" slides* examine the key drivers of housing affordability and potential policies to address it.  They cover the issues and recommended reforms that I summarise below with links to further references & detailed proposals (bolded) on this web site.  The first three strategies aim to tackle "housing affordability" in general by improving the  efficiency of the housing market and, most importantly, by redistributing wealth so everyone can afford a home (and other life essentials), whilst the subsequent strategies address reforms to provide better additional support targeted towards those who are most disadvantaged:

1. Long-term supply of more-accessible & affordable land – that is "close" (in time) to high-value jobs – through an economically-efficient, integrated land-planning and transport strategy, which I address for NSW with proposals for fast metro & regional trains (e.g. to Wollongong) to reduce commuting times to Sydney's existing employment centres (i.e. simply doing the same as other global cities), as well as with a more flexible & efficient "anytime, anywhere" metro-wide "Overground" bus network, which could improve the viability of medium density developments in urban areas that are distant from rail lines.

2. Reforming planning rules & restrictive regulations, for example to:

   • Encourage or at least allow smaller homes, given Australian homes are currently the largest in the world (more than twice as big per person as in France, three times bigger than in the UK, Italy and Spain and 6 times bigger than Hong Kong),

   • Address local councils' many other planning restrictions, not least technically & economically incompetent flood-control measures (see the attached critique for example — noting my point is about competence, not whether we should manage flood risks, which we should of course), and,

   • Reform planning conditions and building standards/codes to facilitate greater use of modern, cost-effective automated manufacturing technologies and environmentally sustainable buildings (e.g. "Tektum" modular homes), especially in regional areas.

3. Reforms for a more progressive tax & welfare system to redistribute income & wealth and reverse recent decades of increasing inequality, since for a given supply of land & housing, housing affordability for any individual is principally determined by their purchasing power relative to others bidding for the limited space available (because in total, the price of housing is determined by what everyone can afford to pay, particularly for land, which has constituted over 70% of dwelling values in Australia since 2015).  Inequality of wealth is the most fundamental, yet rarely acknowledged reason for growing concerns about housing affordability (as I highlight in my article on Global Access Partner's OpenForum blog site), and thus addressing inequality is probably the most effective & economically-efficient solution to housing affordability.

   • As part of such reforms, a new "Universal Basic Income" (UBI, funded by tax reform) – in place of existing housing benefits like rental assistance or direct allocation of social housing – would enable people to pay rent on the property that best suits them (balancing these needs with their other preferences in life) or even provide the income security that could help support a mortgage (potentially also facilitated by a "shared equity" or similar scheme), thus enabling people at the bottom of society to get their foot on the first rung of the "ladder of wealth opportunity".  By avoiding the very high "effective marginal tax rates" that people currently experience if they gain employment income and lose welfare benefits, a UBI would substantially avoid current disincentives that can keep people stuck in social housing and entrenched in poverty & disadvantage.  Also, if a UBI is not contingent on applying for currently available jobs, it would enable people to move out to cheaper regional towns, which may lack existing jobs but could then develop them as their populations grow.

   • In addition, replacing stamp duty with a land tax would facilitate housing transactions and thereby promote a better utilisation of available space, in particular by encouraging downsizing to free-up space for others (noting that about a third of NSW households have more than 2 spare bedrooms, with about 60% of people aged over 65 doing so — see Figs. 17 & 18 in the NSW Housing Strategy Fact Book).  These tax changes could be phased in over many years, with new home buyers at least given the option to pay ongoing land tax instead of stamp duty (effectively providing them with low-cost government finance for stamp duty, thus reducing the size of deposit that new home buyers need to save for).

   • Further tax reforms, including abolishing the current capital-gains-tax concession, which, along with other tax benefits for the rich, fueled post-2000 house price inflation (more importantly than tackling negative gearing, which is influenced by this discount, or foreign investors – perhaps temporarily inflated by China – which have preoccupied recent public debate), could also remove the current investment distortions that bias against major housing investment bodies, and thus could facilitate a consolidation of the existing fragmented ownership of rental properties by small investors (over 70% of investors own only one property & 90% own no more than two), which currently results in poor-quality tenancy management with inadequate maintenance and security of tenancy.  This would also improve the commercial viability of major new high-quality, rental-housing developments ("build to rent") with enhanced communal facilities (common rooms, outdoor areas etc.) and supplementary services (e.g. communal kitchens/meal delivery, aged care etc).  These and other reforms would help those people in society who are most in need and are generally renting (or homeless), as well as providing a more stable rental home for those trying to work, save and eventually buy a first home.

4. Beyond the above strategies for improving "housing affordability" in general, there's a need to more efficiently and effectively deliver assistance to those requiring extra special support.  Such "affordable housing" policies need to be much more strongly focussed on clear objectives and target beneficiaries (instead of trying to be all things to everyone, as usual) – using improved data analysis to better identify and prioritise who most needs help (& when and where) – with particular emphasis on homeless people who are in most desperate & urgent need, such as rough street sleepers (over 70% of whom are men in NSW, with over 60% of them aged 35-64), or people escaping domestic violence, and Indigenous Australians (who are 14 times more likely to become homeless than other Australians), but generally assisting these people on a time-limited basis (until they have some stability, when support may be phased out and resources redirected to others in greater need):

   • The big problem with current approaches to "affordable housing" are that they use bureaucracy to replace market price mechanisms as the tool for deciding who gets what housing.  The current eligibility criteria for "affordable housing" in NSW are very broad – potentially covering any household with up to 120% of median income (i.e. over 50% of the population) – which leaves the process for selecting lucky recipients still highly discretionary and potentially open to abuse.  Many people advocate that housing with below-market rent should be allocated to "key workers", which means people who the rest of society need to function.  For this read, nurses (pretty ones, obviously), policemen (friendly ones), firemen (muscly ones), teachers (wonderful, inspirational, hard-working ones), etc., but apparently not toilet cleaners (foreigners), café workers (low-paid bogans) or obviously the unemployed!  Are clean toilets and lunch less "key", less essential?  No, of course not, it's just that these people are less desirable as tenants for investors or as neighbours for other "key workers".  Do you think that's equitable?

   • However, one policy objective that a more progressive tax & welfare system may not adequately address is the aim to avoid creating geographic areas of concentrated disadvantage (as has historically blighted large social-housing developments).  To combat this issue, the attached "Inclusive Housing Communities" paper offers some thoughts on the rationale and strategies for efficiently delivering & financing more-dispersed & affordable "inclusive housing communities" that cater to a range of demographic groups, whilst also providing specialist support services for those in need (e.g. for aged-care and retirement living, consistent with my proposed integrated "Ageing Strategy").  Geographic dispersion of social/affordable housing may be assisted by the government establishing funding agreements and targets for such housing with local councils or "Community Housing Providers", and/or by providing supplementary funding for a limited number of homes managed by accredited private rental providers in more expensive areas, if they are occupied by low-income tenants such as those receiving other welfare support (e.g. Commonwealth rent assistance).  Also, one would expect planning controls that force or encourage developers to build more affordable housing (than they otherwise would to maximise profit) – such as "build-to-rent" and/or smaller homes – would preferentially attract poorer people (who otherwise could not afford the housing sold in that area) whilst causing some of the more wealthy / middle-income people to move to other, cheaper suburbs, where they can buy the larger home they'd prefer.  And obviously the extent to which this reduces social stratification would be enhanced by reduced wealth inequality achieved through a more progressive tax & welfare system.  Certainly this seems a better approach than Soviet-style allocation of "affordable housing" to those deemed worthy (so called "key workers").

5. Finally the attached slides consider reforms to the funding and contracting of affordable and social housing, including issues such as developer levies (which are probably better than "inclusionary zoning" mechanisms such as "density bonuses" that allow developers to increase densities beyond existing planning limits if the additional homes built are allocated as "affordable housing").

• • The reforms I proposed in the attached "Social Housing Strategy" (in 2015*) aim to deliver more efficient & effective management of social-housing whilst also addressing the critical fiscal challenges facing NSW, and seem broadly consistent with the NSW Government's "Future Directions for Social Housing" (developed over 2016-2018).

• • Social/affordable housing providers should ideally partner with other "human services" organisations that can provide coordinated, "wrap-around" social support services to help people tackle underlying issues contributing to their housing problems, preferably in a more proactive than reactive way, by identifying people most at risk.  The demand for social housing may also be moderated through reform of the justice system.

Here's a few links to reports of interest:

• The Grattan Institute: "The Housing We'd Choose", 2011 (the case for converting Australia's sprawling suburbs of low-density, single-level homes to 2-storey, twin semis).

• The Committee for Sydney: "Five Game-Changers for Affordable Housing in Sydney", 2015.

• PwC: "A Place for Everyone", 2017.

* NB. I was asked to do the attached "Affordable Housing Framework" slides to facilitate stakeholder discussion when I was employed by the NSW Government in 2015. 
They weren't developed for Cabinet advice and don't necessarily represent the Government's or any agency's policy position, so I'm releasing them proactively here in accordance with GIPA.

I did the "Social Housing Strategy" and other attached/linked documents & reform proposals of my own initiative.

This page was completely refreshed on 20-21 June 2020 for submission to the NSW Housing Strategy consultation process.