When the New South Wales Productivity Commission said this week that the way to fix the housing crisis in Sydney was to remove a swathe of regulation and quality from apartment construction and to let market forces roar, our initial take was to declare an emergency.
But first let’s congratulate the neo liberal economists and the sub prime property developers for once again winning the battle on who runs the state of NSW – and other states of course.
What this cohort hasn’t won is the hearts and minds of the people who would increasingly welcome higher density if it came with good quality dwellings and public domain.
Why, they might imagine themselves in a European City or New York enjoying abundant street life on their quiet evening stroll, nodding to neighbours, being part of the community. Not for a minute too worried about their modest house because it’s only to keep their immediate family comfortable and not a showpiece for the world.
In a recent article in The Economist a new blue zone was detected in Spain – where people “live on top of each other” but enjoy a lively village life, eating and drinking too much, but walking everywhere. Living to 100 is not unusual.
But the NSW Productivity Commission isn’t concerned with people’s social, physical and mental outcomes. It’s about advancing the market economy, which is perfectly fine if you’re dealing with widgets.
It’s a shame they’re not all focused on giving us all blue zones to live in. If they employed the same zeal and vigour to improving our lives and happiness through better village life and everything that went with it, we’re sure they’d succeed. And we’re pretty sure we’d eliminate a whole swag of physical and mental health issues.
The problem with a pure market led approach to housing is that it just doesn’t work. It’s a square peg in a round hole and the main reason for that is the inelasticity of the demand and supply equation.
If you’re building widgets you can respond quickly to rising prices by producing more widgets.
But with housing you have a three or even five year lag. No wonder most developers are a bit strange – they have to have nerves of steel to deal with the gamble. And no amount of feasibility studies can cut the mustard each and every time. Most get caught out sooner or later.
A renowned architect/developer once said that it takes years to find the right site, years to build a significant building that may be around for 50 or 100 years. But for some reason the development lobby wants planning approvals in a week.
Work smarter or longer
In his presentation ahead of the housing report, the NSW Productivity Commissioner Peter Achterstraat starts well.
He explains in a generic video introducing his work that for Australia to move ahead we need to improve our productivity – by either working longer hours for more output or working smarter, through technology and innovation and so on.
And of course he’s right.
But he’s applying the same thinking to housing. And that’s where the problem starts. As we said there’s a big time lag in development. And another thing is we’re dealing with people, humans who change their minds, have the ability to move around, change jobs and respond to things like the pandemic by suddenly deciding they want to live alone.
When Achterstraat wants to deregulate the use of land he’s unleashing all sorts of unintended consequences.
Without regulation the market will not provide the results we need partly because the delivery of this particular product in the economy is painfully slow.
If there’s a problem, by the time you realise it, it’s too late. You’re stuck with a fight to get retrospective fixes – or the builder’s gone broke or phoenixed into another entity.
A market implies agreement to provide goods and services but by the time the customer gets the goods or realises the quality of those goods the provider may be long gone.
Ask former building commissioner David Chandler about the devious means the more unsavoury of these people use to get out of their obligations to deliver what they promised.
Achterstraat might think the market will self regulate, but how, when it can take two years for the leaks to start or five for the walls to crack?
By pushing deregulation including winding back building reforms he’s giving the wrong signal. He actually states that building reforms should only be imposed if they don’t cost too much or if they are a public risk. What about the occupants of the buildings?
To ignore their needs is to externalise the full costs of delivery to the buyer or the society at large – we the people.
The move to allow low quality apartments will also deepen divisions in our society between those relegated to poor housing and those who can afford better. Not a safe road to take if you want a cohesive society.
How about a two-speed industry?
But let’s take the commissioner at his word and try to do things smarter/different. Let’s split the industry into two. One might tackle the high end private market and one might provide housing for the lower end of the market but without the trashy approach that this report dangerously gives rise to.
To provide low cost abundant housing we don’t need to relegate some people to the worst outcomes, we need to think different.
As the commission’s report outlines a big chunk of the cost of apartments is in developer profits. In fact that’s why so many are currently approved but not being built. Look at the chart on page 26 of the report and reproduced here and you’ll see that the market will pay for all the costs of construction right now – except the developer margin!
Amazing insight if you take off one set of lenses and put on another.
So imagine if the federal government in partnership with the states ramped up social housing now (Greens and Libs get out of the way, this is urgent).
Such a body can train and accumulate a skilled workforce eliminating the nasty effects of work insecurity that builders and labourers currently face.
A steady long term delivery model in areas that are well planned and well supported by infrastructure will also smooth out the wild fluctuations we currently get with a freewheeling market that cause so much pain for the entire economy. High interest rates right now are mainly to tame the cost of housing. But everyone suffers whether they have a mortgage or not.
The other big benefit is that the public purse has access to much lower cost of money at much more stable interest rates over much longer terms.
This isn’t new; it’s reinvention of a previous method of meeting society’s needs. And Australia has done it very well in the past.
Which absolutely fits Productivity Commission’s exhortation to think different and better.
The past holds many lessons, just because it’s old doesn’t mean it’s not better.