Here’s the introductory article for our latest TFE Review, which will be out very soon.
Australia’s obsession with housing in this country is legendary. It goes to the very heart of the national psyche and comes partly from our immigrant roots. It goes something like this: “build it, they will come, and we’ll get rich.” It’s the dream machine of wealth – a constant supply of housing-hungry people spending ever more to buy their slice of dreamland.
But in the past few years, something happened to snap the back of that formula. Suddenly, unaffordable housing became ridiculously unaffordable. And with climate change lashing the least fortunate parts of the country, location now has existential overtones.
What to tell our young? Is this where those with the biggest access to funds simply clean up? Maybe.
That’s a problem beyond our ken. And sorry to disappoint, but we’re not going there.
But regardless of this, there are intractable facts we need to deal with. The biggest is that the market won’t pay what it costs to build our homes.
The NSW Productivity and Equality (sic) Commission unpacked the reasons late last year. You can see in the handy table it provides on page 21 that the gap is pretty close to the profit margins that are needed to incentivise action.
There’s the builder, the developer, the financier, the marketer, the tradies and all the hangers on – each wanting their “margin”.
What if we remove the margins for that bunch and give them a job instead – on a fee for service basis?
The government is big and burly enough to do this and reap the economies of scale (economics 101). It can procure the finance at lower costs because it’s much better placed to deliver housing to quality. Perhaps even deliver to National Construction Code standards for energy efficiency, climate resilience and accessibility that seems to be beyond the reach of the private sector for anything other than the premium end.
If it embarked on providing 30 per cent of housing – all social and affordable – it could underpin a low carbon market transformation in the entire supply chain. Let’s recall that it was the government’s mandate for minimum Green Star offices that kickstarted the green building movement.
It might also be able to underwrite the prefabrication or modern methods of construction so that this big promise pays off. Finally.
It’s all about scale. Economies of scale are the alchemy the market needs right now. It’s the magic ingredient that matches the moment. In the past, when we had plenty of everything – natural resources, a stable climate, cheap energy and lashings of optimism in the “natural order of everything” – it was a good time for the free market to unleash its multitudinous animal spirits.
But those animal spirits don’t quite cut it anymore.
They are being crushed by a constrained planet, rolling climate change and severe global disruptions in everything from the supply chain to the geopolitical order. They need to be big, burly beasts to survive.
Or governments.
If small to mid size developers are calling for regulations to be wound back because they can’t afford to deliver better, cheaper, more resilient, sustainable buildings, what’s our answer?
Do we give in to them and get rid of the red tape/green tape?
Or do we do exercise our free market prerogative and find someone who can give us what we want and what we need?
Maybe AI can solve all our problems. Maybe.
But until then, we should look to the Lego blocks available to us and put them together as best we can.
This special issue of the magazine is a cross section of what socially and environmentally minded people have been able to deliver using their available resources.
They are to be applauded. But what they can do barely touches the sides.
Here’s our wish list: governments to deliver 30 per cent of our housing for sale and rent without the profit margin inherent in the private sector, but with the private sector engaged in delivering it on a fee for service basis.
And let the balance of the private sector do what it does best for those who can afford it.
See how that goes.
The point about too many individual players in the house-building system is well made. Most other product manufacturers (HIA calls houses products) have one governing board and CEO responsible from R&D to end product. Houses rely on each individual supplier/creator linking with each other, adhering to formal (regulations) and informal (we’ve always done it like this) norms as their version of efficiency. It would be wonderful to have one governing body to oversee a decent percentage of our housing. They could push the envelope for energy efficiency, resilience and universal design (accessible for all) and thereby drag the rest of the development industry along with it.