Among the multiple questions that have been stimulated by the proposed demolition of Melbourne’s 44 public housing towers is the cost of building social housing.
A new report, along with a parliamentary inquiry tabled in December, unveils the internal tug of war on information to prevent further probing into why the towers needed to be demolished, uprooting the lives of 10,000 mostly elderly tenants.
The final report tabled by the parliamentary inquiry into the towers has raised eyebrows on the costs and the state of the public housing sector.
In particular, a lack of transparency with a proposed ground lease model (where developers lease the land from the government long term), as part of an invitation to community housing providers to redevelop six of the towers for community housing.
The inquiry found tenants were not informed whether they would return to their homes or whether the towers would remain as social housing.
It recommended the government revisit legislation to remove the term “social housing” and separately define public and community housing. Chief executive of Community Housing Industry Association (CHIA) Victoria, Sarah Toohey, told the inquiry that the lack of definition made government investment in this space problematic. On top of that are concerns around whether the model was a guise to repackage and offload public land.
But the most eyebrow-raising finding was Homes Victoria CEO Simon Newport, who told the inquiry that public housing would cost 10 per cent more to build than community housing.
Wait, public housing costs more to build?
Newport told the committee that his organisation, “like most jurisdictions in Australia” is treated the same “as mum and dad property investors” and is charged input tax, meaning it does not receive input credit for GST paid on construction and maintenance costs.
“When we pay the plumber $110, we do not get the $10 back from the federal government. That in itself is probably worth somewhere in the order of $50 million to $60 million a year to Homes Victoria.”
Newport said this naturally means it was 10 per cent more expensive to deliver public housing than community housing providers. This alone is worth around $150 million a year to Homes Victoria, he said.
The CHIA told the inquiry it was GST exempt as a charity and, in addition, is eligible for the Commonwealth Rent Assistance, whereas public housing is not.
Sarah Toohey confirmed this was the case. She told The Fifth Estate that the cost of public housing, however, was probably more than 10 per cent greater and that the topic was a lot more nuanced.
When the Victorian government contracts with the community housing sector to build social housing, it often asks for co-contribution, Toohey said. This could cover between 15 and 50 per cent of the project cost. This would often involve debt, borrowing, philanthropy or access to free or sub-market land.
Community housing providers can also access GST discounts as a charity, and renters can apply for the Commonwealth rent assistance, which is paid to the provider to assist with the cost of maintenance, which means providers can access higher income.
As for why the state government couldn’t access the rent assistance scheme, Toohey said it could be that the federal government already gives states over $1 billion in both social housing and homelessness funding.
“So, I think the argument from the Commonwealth perspective is that they already contribute to the social housing system. There have been advocates calling for a long time to extend the rent assistance to the public housing system. It could improve the sustainability of state housing authorities.”
While it’s true that public housing funded by the state government cannot access these initiatives and must pay GST, the state government is also a recipient of all GST revenues, although subject to the distribution by the Commonwealth Grants Commission.
“It’s a funny argument, because if you were to give the State Housing Authority a GST discount, whatever is spent on state housing goes back to the state government anyway. There’s a broader taxation principle question there than just about whether public housing should pay GST or not.”
The state government also receive around $400 million a year from the National Agreement on Social Housing and Homelessness (NASHH) from the federal government, which isn’t necessarily accessible to the community housing sector.
However, it was still cheaper for the government to outsource its social housing to the community housing sector, because of the additional investments it could bring to the table, Toohey said.
Because providers are not for profit organisations, the profits made are invested back into upgrades such as kitchens and bathrooms or delivering more social and affordable housing.
According to Toohey, costs for public housing could also be higher because the government agency has to develop on its own land, which often means demolishing what was there, while CHIA members often source new sites. While public housing renters pay 25 per cent of their income, community housing renters could pay up to 30 per cent – “but the impact on the renter is negligible”.
Toohey said that she and member organisations, some of whom are already involved in tenders, attended the inquiry, although their stance wasn’t about whether the towers should be demolished. It was to ensure that if people needed to be relocated and the building was to be demolished, there needed to be a net improvement in getting people off the housing waiting list.
“We think it’s incredibly important to be revitalising and investing in public housing assets, but we need to do that in the context of a broader growth strategy to make sure we’re growing the social housing system in Victoria and ultimately housing more people who need it.”
The ground leasing model
The Victorian government intends to utilise a “ground lease model” for six of the social housing estates, where Crown land is leased to the community housing providers to develop and manage tenancies with the agreement to develop a certain number of social, affordable and market housing.
The lease lasts over a 40 year period, and at the end of the 40 years, the land is returned to the government. In return, providers also receive payment from the government, including one-off capital payments and ongoing quarterly service fee payments in line with the consumer price index (CPI).
“This is a new model for the delivery of housing … although it’s been used for roads and hospitals for a long time,” Toohey said.
She added that there wasn’t anything immediately wrong with utilising such a model, especially when 40 years was far into the future.
Dr David Kelly, who contributed an article to TFE on the topic, was also a key figure giving evidence at the inquiry. He described the model as a “repackaging” or “variation” of the public private partnership model, which he said research shows “results in poor returns to the public, permanent loss of land and housing capacity, and minimal tenant return.”
The inquiry states this “reflects concerns that the land will not be returned to the public after the 40 year lease period runs out”. Despite acknowledging the strategy as a response to “critique from the public around the loss of public land”, it just wasn’t transparent enough around governance and the funding arrangements.”
No decisions yet
Victorian Housing and Building Minister, Harriet Shing, told the inquiry that the government has not “contemplated or made” any decisions on the redevelopment of the towers, including whether the ground lease model will be used.
The plan was announced in 2023 by the former Victorian Premier Daniel Andrews, meant to be “Australia’s biggest ever urban renewable project”.