In many ways life in one of Australia’s major cities is as good as it gets. Lifestyle, culture and services are all top of the range.
One major metric, however, grimly overshadows the benefits— affordability, particularly when it comes to housing.
Even with the Covid-caused drop in migration, house prices nationally are up 16.1 per cent for the year to June, further alienating a major segment of the population from even considering owning a house.
In Sydney, prices are up 18.2 per cent this year. Melbourne is not far behind with prices rising 10.4 per cent over the year to June; Brisbane 15.9 per cent and Darwin a massive 23.4 per cent higher.
This week saw the announcement of yet another federal inquiry into housing affordability, possibly with the intention of formulating talking points the government can take to the next election.
At first we were hopeful to see housing on the agenda, maybe finally prompting some serious action, rather than more back and forth.
However, our optimism quickly faded as we realised the committee, led by Liberal MP Jason Falinski, had clearly already arrived at a conclusion before it began. Hardly a scientific approach.
“Arguments about the impact of increased subsidies and tax concessions on housing have continued for some time. There is ample evidence that points to the small effect such measures have on supply,” he said.
“Indeed the research points to limitations on land and restrictive planning laws as the major causes of shortages in supply.”
Might as well pack up and go home then, but not before the honourable member gets to flaunt his admiration for the “Australian dream” in the media. He’s talking about the Adam Goodes documentary right?
We’re not saying Falinski is entirely wrong. We’re just not hopeful that the representative for the Northern Beaches is the man for the job; being from a place where the phrase “affordable housing” will get you laughed out of any highly stylised Merivale venue.
“Home ownership, one of the building blocks of Australian society,” Falinski said, “has been falling for the last 30 years. In my view, this represents an urgent moral call for action.”
Perhaps the fact Falinski’s “urgent moral call for action” doesn’t mention social housing hints at potentially one of the broader weights working against us all when we discuss housing.
Housing is so broad an issue and so loosely defined most of the time, how do we even know what we are talking about?
Falinski appears to be addressing the issue that some segments of the population, particularly young people, are being locked out of the housing market by exorbitant prices.
Others, when they say “housing crisis” refer to the lack of social housing availability, with wait times for a one bedroom studio in Sydney between 5-10 years, and for a 2-bedroom home more than a decade.
While both issues are important, and interconnected, Flinski’s concern appears to be more on the former, although ideally addressing one issue can help alleviate the other.
Tell him he’s Australian dreaming
It used to be the case that hard working Australians could buy a house for around three or four times their annual salary, now that figure is closer to 12 times or above what the average worker earns in a year.
While this may not seem like a major issue — the housing market is still a viable option for those diligent 20-somethings who save their money rather than blow it all in a London pub — it is a significant factor that will play into growing inequality over the coming decades.
Selling the idea that the answer to more affordability is increasing supply is not difficult, particularly when the ins and outs of the housing system are far from accessible to the average voter.
Falinski is certainly not alone in lamenting the amount of red tape and the glacial pace of planning laws, particularly in Sydney.
Dr Shane Geha, professor of practice in UNSW’s Engineering Department and managing director of property advisory at fund manager EG, is extremely frustrated by the layers of approvals required to get even a new driveway off the ground.
He quotes Alexander the Great in saying Sydney’s housing market is dying by the treatment of too many physicians.
“We have a system that needs to very much be seen as being equitable, fair, transparent and all of those things as much as it is doing those things,” Geha said.
“It tends to be more concerned with the outward appearance of process than with the results it delivers.”
He says there is no doubt housing supply is being constrained by the regulatory environment, with roughly two years on average to get the go ahead for a medium-sized $50 million project in Sydney.
Geha is also frustrated by the amount of public land being wasted, which often the government is unaware that it owns in the first place. He says opening up the land doesn’t need to be a free for all, but can be targeted towards those who need it.
“If the government says, ‘here’s a 10 hectare block of land, I will approve it overnight, I’m going to chop it up into blocks for first time owners, everyone who can prove to me they’ve never bought a house and has a certain income requirement will get a 60 per cent discount on the regular price of this block provided you build a home and stay here for 10 years’ I think you’d see a rush.”
This and other examples of making use of the available government land could work he says, but are held back by excessive regulation, and in part by a good bit of NIMBYism.
Geha says that if we want to avoid what is already occurring, with the gilded inner suburbs becoming only available to the wealthy, the government needs to encourage much more of a diversity of dwellings in these areas, and do it quick.
Supply and affordability
Professor Nicole Gurran, director of planning institute the Henry Halloran Trust at Sydney University agrees that those on middle incomes are being shafted to wherever they can find cheap enough housing.
However, she says casting the housing problem in Australia purely as a supply issue is a misdirect.
“The evidence doesn’t actually back that up and actually housing production is at the highest rate it’s ever been. From 2014 to 2019-20, we were definitely building at a faster rate than population growth,” she said.
“Our problem isn’t approving new dwellings.”
The response from the government is similar. When asked, they cite figures showing a record 180,000 new homes being built in Sydney over the past five years. Shortly before the market began to slow down due to Covid, in the 2018-19 financial year alone, 42,400 homes were completed.
So when Falinski says approvals have dropped by 44 per cent across Australia between 2016 and 2020, and that new home listings were at record lows, something doesn’t match up.
“New housing supply chases prices, it doesn’t bring prices down,” Gurran says. “In Australia, because we do have a responsive housing industry, when house prices are going up we do see new applications come through and we see new units being produced as fast as the producers can pump them out.”
“But that’s not going to bring down the price of an asset like housing, for which there is capital gains to be had and global investment demand.”
Live long and Prosper
Karl Fitzgerald, director of advocacy at land tax reform organisation, Prosper Australia, says many people have for a long time been critical of the reliance on trickle down housing supply.
“We’ve all taken this hook, line and sinker that more supply equals affordability. And we think there’s a bit more nuance in there,” he said.
According to Fitzgerald, Falinski’s inquiry is hell bent on blaming government processes, without challenging the notion that supply equals affordability.
Fitzgerald is one of those who actually got on his bike and took a look at the new housing developments popping up on urban outskirts and questioned why many of them seemed to take decades to complete.
“If you drive through these master planned communities, you can see that there’s virtually hundreds of acres there that’s not being put to the market,” he said.
Fitzgerald is part of a group of planning experts trying to unravel exactly how much land is tied up, post approval, in areas such as these where it is then being drip fed to market.
“We’re still scratching our heads trying to figure out how on earth with all this land, we still have such housing pressures.”
Among a list of requests directed at Falinski’s inquiry, Fitzgerald asks that “a comparison be made between the time for planning delays and the time for a land bank to be fully developed, that is, 24 months for planning versus 24 years for an estate to reach completion.”
Perhaps the answer is in what Gurran said, “why would producers produce at a rate that would reduce their profit?”
You can always rent (the good news)
So that’s it kids, you’re out of luck, the housing market ain’t gonna come down and nor should it.
Falinski certainly doesn’t want the price of houses coming down, not when his constituents have pumped millions into a new home near the beach.
Maybe it’s not without hope though. We can all have a roof over our head even if we don’t own the roof.
According to Gurran, “where supply does improve affordability is in the rental market.”
Affordable rents within the city limits rather than on the outskirts may, at least in the short term, be the solution. And if we focus on building where people want to live it may be a win-win.
Whether increasing supply is actually going to get more people into the housing market is doubtful at best, but that doesn’t mean we can stop pushing that boulder up the hill at a rapid rate as long as our population is growing.
Earlier this year the NSW government, perhaps sick of the whinging, opened the doors for developers to “make them an offer” on publicly held land.
See a breakdown of the strategy by UNSW’s Hal Pawson and Vivienne Milligan here.
Meanwhile Victoria announced it would pump $5.3 billion towards fixing the housing crisis as part of its Big Housing Build, aimed at creating 12,000 new dwellings in just four years.
They say the first step to fixing a problem is admitting you have one, so at least now we seem to be on the right track.
“Hi, my name’s Australia and I have a housing problem.”
Good luck with the inquiry Falinski. You’ll need it.