Commonwealth support for prefabricated housing, the return of an improved National Rental Affordability Scheme, tax incentives for landlords to improve energy efficiency in rental properties and reinstating the Major Cities Unit are among the recommendations made by the Senate Economics References Committee following an inquiry into housing affordability.
Greens Senators Scott Ludlam and Penny Wright, Liberal Senator Chris Back, Independent Jacqui Lambie and ALP Senator Sue Lines participated in the inquiry, which received submissions from industry and community groups including the Master Builders Association, Property Council of Australia, Housing Industry Association, Real Estate Institute of Australia and Australian Council for Social Services.
Prefab one of the answers
The potential of prefabricated housing to deliver more affordable housing while also stimulating new activity in the manufacturing sector was identified, and the committee has recommended a separate parliamentary inquiry into the prefab industry.
The committee said this new inquiry should consider the development of a comprehensive approach to creating a sustainable prefabricated building and insulated panel production industry and the possibility of prefabricated housing targets being set by the Commonwealth as part of a proposed national affordable housing plan. It should also consider the possibility of an industry package to support research, skills development, new production and manufacturing facilities, and the support for “world class” demonstration projects.
Dean of the Monash University Faculty of Art Design and Architecture Professor Shane Murray told the inquiry the Australian housing industry remained essentially “a cottage based industry which lacks innovation and sophistication in its delivery”, with a “type of extreme binary” in the forms of housing delivery, “which are either high-rise apartments or detached low-density dwellings”.
Professor Murray said to deliver better affordability outcomes, there needed to be greater emphasis on innovation “through the industrialisation of the construction of housing –modularised delivery, off-site construction.”
Melbourne’s apartment standards get a mention
The committee asked about the tension between affordability and building quality. Senior strategic planner for the City of Melbourne Adam Mills told the committee “smaller apartment sizes or more cheaply designed and built dwellings did not necessarily equate to better affordability outcomes”.
“If you have poor-quality apartments without much light and ventilation, there are therefore life cycle costs of running that apartment, with more energy being used for light and mechanical ventilation, not to mention the health implications of living in a bedroom without a window. It is not any cheaper,” Mr Mills said.
Energy efficiency as part of the equation
The committee received a number of submissions relating to energy efficiency as part of the affordability equation. The Australian Building Codes Board told the committee that the increase in minimum energy performance requirements in the Building Code of Australia in 2010 from five to six stars might add a “small amount” to the initial construction cost of dwellings, but that “over the life of the building significant savings are returned to householders by increasing efficiency standards through lower energy costs resulting in a net benefit to the householder”.
Aged and Community Services Australia also said energy efficiency was significant in determining housing affordability for older people, including people wanting to age in their homes.
“An enhanced focus on environmental sustainability will have a positive impact on housing running costs and affordability levels. The development of energy efficient homes for older people in Australia in particular will provide positive outcomes for all, the ongoing running costs of homes will be reduced and older people with fixed incomes will be able to remain in their homes at an affordable cost.”
ACSA recommended that the various energy efficiency programs currently administered at the state level in South Australia and NSW [and in Victoria at the time of ACSA’s submission], be folded into a National Energy Saving Initiative. ACSA suggested this would create a nationally consistent framework and deliver economies of scale.
The Housing Industry Association, however, told the committee that the shift to six star standards had added considerably to the cost of construction, was therefore contributing to the affordability issue, and that there were no benefits to be gained from energy efficiency regarding affordability.
The committee noted that in rental properties, the issue of energy efficiency contributed to affordability problems, and that tenants had limited ability to implement energy efficiency measures.
It recommended a proposed Housing Council look at measures, such as tax incentives, to encourage landlords to improve the energy efficiency of their properties.
Recognising the needs of renters
The committee heard from numerous experts that current conditions for renters required review, as it was increasingly becoming a long-term or permanent housing choice for large numbers of Australians. Issues raised include the short duration of leases, the difficulty of securing appropriate rental housing near employment and education, and the rising prices of rental homes.
The committee recommended that the Commonwealth, together with the states and territories, investigate national and specific minimum standards including security of tenure, stability and fairness of rent prices and a new energy efficiency and comfort standard.
The committee also called for the National Rental Affordability Scheme to be reinstated in an improved form to increase the quantity of affordable rental housing stock.
Negative gearing and other taxation policy aspects received significant attention, with many submissions saying that negative gearing was required in order to ensure supply of investment properties available for rent.
Saul Eslake, chief economist for Merrill Lynch, however, told the inquiry that calculations based on losses declared in the 2010-11financial year showed an estimated $5 billion cost to revenue from negative gearing.
Mr Eslake said this was “a pretty large subsidy from people who are working and saving to people who are borrowing and speculating”.
“It’s hard to think of any worthwhile public policy purpose which is served by [negative gearing],” he said. “It certainly does nothing to increase the supply of housing, since the vast majority of landlords buy established properties: 92 per cent of all borrowing by residential property investors over the past decade has been for the purchase of established dwellings, as against about 72 per cent of all borrowing by owner-occupiers.
“Precisely for that reason, the availability of negative gearing contributes to upward pressure on the prices of established dwellings, and thus diminishes housing affordability for would-be homebuyers.”
The committee suggested a number of adjustments that could be considered to taxation policy to reduce the revenue cost of negative gearing and its potential inflationary pressure on house prices, including allowing tax-deductibility of rental property costs only against rental property income, not personal income; or a “quarantine” on deductibility for investment in established dwellings.
Call for a national affordable housing plan
The committee recommended the federal government develop a national long-term affordable housing plan that:
- recognises affordable housing, including affordable rental housing, as a mainstream and national policy objective and places affordable housing at the forefront of government policy across Australia
- is spearheaded by a dedicated minister for housing and homelessness and supported by an institutional infrastructure that would provide the continuity, expertise, experience and established networks with all levels of government
- fosters intergovernmental cooperation in solving housing issues within a “whole-of-system housing policy framework”
- places a high priority on improving the supply-side efficiency of the Australian housing market
- recognises that significant volumes of public and private finance would be required to meet the projected need for additional rental housing and the importance of attracting institutional investors into the affordable housing market
- understands that efforts to attract a significant level of institutional investment into affordable housing have to date been largely unsuccessful
- makes institutional investment a core policy objective in affordable housing
The committee also recommends that the federal government:
- reinstate the National Urban Policy and Major Cities Unit given the former role both played in driving housing affordability policy and outcomes at the national level
- show leadership in its policy capability and engagement with the states and territories with regard to urban planning policy
- consider developing a long-term strategy for regenerating Australia’s urban centres and transport corridors
- consider re-establishing the Urban Policy Forum, reconnecting with key stakeholders from the public and private sectors, academia and the community, and including responsibility for reviewing jurisdictional performance against targets relating to urban regeneration
Read the full report and submissions.