In just one of many misdirects that abound in the housing debate, Treasurer Jim Chalmers’ budget papers wrongly suggested Australia was a bottom feeder in terms of global housing delivery, when in per capita terms it’s actually towards the top of the global table and twice as productive as the UK. But the corruption of the facts gets worse.
Part of the problem with the Australian housing debate – best understood as a veritable “dialogue of the deaf” – is that it is too Australian. That is, there is an international scale crisis going on, but we are parochially attracted to the notion that the housing problem, rarely defined, is something uniquely Australian, or indeed, at the most absurd level of reductionism, a uniquely New South Wales council problem. I have taken to calling this the “I blame the NSW planning system” syndrome.
Spinifex is an opinion column. If you would like to contribute, contact us to ask for a detailed brief.
In an effort to draw attention to the truly international dimensions of the housing situation, and how there are problems with supply and indeed demand, in a large swathe of different countries, all with different planning systems, I have reviewed data on housing supply and affordability issues on my social media site about difficulties of a similar kind way beyond Australia – the UK, the US, Canada, but also France, Germany and Japan.
By the way, not being a professional academic I am shocked at the lack of research being done on international comparisons by the housing academics in each separate country.
As a former ministerial advisor in the UK, I am less shocked that when governments do sometimes bother to seek to internationally contextualise the housing crisis, they do so for tactical reasons and usually get it wrong anyway.
Australia is actually towards the top of the global table and twice as productive in relation to population uplift than the UK
A case in point: Jim Chalmers’ budget papers justifying federal intervention in housing showed a table wrongly suggesting Australia is a bottom feeder in terms of global housing delivery when compared with its fast demographic growth it’s actually towards the top of the global table and twice as productive in relation to population uplift than the UK.
As part of my own international research, I recently reviewed a report on housing by the usually reliable UK Centre for Cities, which I often have praised for their advocacy for regional British cities, particularly the need to invest in their infrastructure and economic development.
However, I discovered that like with many apparently sober folk, they have lost their balance when it comes to housing.
Their recently published report Planorama: How the English planning system can learn from abroad, is in my view deeply flawed in relation to international housing and planning comparisons in ways that will also be of interest to an Australian audience.
An Australian reader would immediately see at least one shared characteristic with the UK. That is the Centre for Cities essentially accepts the commonly held prejudice that the main thing wrong with housing delivery by the private sector in the UK – insert “in Australia, Canada, and all Anglosphere countries” as required because they all are suffering similar problems at the moment, though Planorama seems unaware of this – is the public sector.
Just say that out loud to yourself: the problem with private sector delivery is the public sector.
Apparently, if it were not for all the “planning barriers” and “red tape”, which the UK uniquely has – it doesn’t – some form of housing delivery Nirvana would break out.
It wouldn’t for reasons I have explained in these pages and elsewhere before. The private sector development business everywhere has had its own short term viability and affordability problems since the end of Covid with materials and labour costs having sky rocketed – combined with skills shortages and stubbornly high interest rates – before delays in gaining planning approval come into the consideration.
So much so that many fewer applications have been going to councils in the first place, here as in the UK, as it’s just not been viable to date to develop many existing projects.
And by the way, we have seen such pressures in almost all countries with the comparator countries in Planorama – Japan, German and France – all reporting their own delivery problems and with diverse planning systems in no way being a common problematical factor.
The private sector has its own constraints
Of course, I would also argue that, just as the public sector should have reasonable and moderate transaction costs, the private sector developer business model has its own constraints that limit productivity and supply.
Housing developers calibrate their supply so as to maintain margins at the circa 20 per cent return on capital employed required by their investors/banks and have evolved a sophisticated market absorption rate approach, which supplies local housing markets with their stock at a pace which indeed can be absorbed without reducing those margins.
I repeat. This is not to demonise the private sector.
It’s a risky business, and this is the real-world way they have developed internationally to manage some key risks.
But it does mean that with or without “planning barriers” the private sector will still only supply housing at a rate which maintains margins. They have never done and will never produce housing that cannot be sold at the requisite margins. We have been seeing the reality of that internationally in the slowing down of housing productivity and sales.
The Centre for Cities seems unaware of the private sector delivery constraints though they were studied in depth in the 2018 Lord Oliver Letwin review of the UK housing industry, which I have referred to previously in The Fifth Estate.
But then, more specifically in praising the German, Japanese and French planning systems and in stressing what they can learn from them in the UK, the centre I think have got some things wrong re data, key economic trends and demography, all relevant to robust comparisons.
Two examples: one on house price inflation in Germany, the other on the very different demographic character of the UK in comparison with the other countries in the Planorama study (for example Japan) – both of which cast doubt over the adequacy of the centre’s analysis.
According to a widely accepted house price index in Germany, the Greix, prices for multi-family houses quadrupled between 2009 and 2022, when a significant reduction in German home prices set in.
Despite the claimed planning efficiencies and lower transaction burdens of the German planning system, at least according to the Centre for Cities, the English numbers would not be far different. The centre is silent on such data.
As to the other evidence, the centre puts a lot of emphasis on data apparently showing that Japan, for one, has been far more productive of housing per thousand population.
Planoroma states baldly that “since 1993, the number of dwellings per person in England has increased by 5.5 per cent, but this is low compared to 18 per cent in France, 21 per cent in Germany and over 32 per cent in Japan”. Mmm. Maybe. But confidence in the overall proposition that England is worse at delivery is a tad undermined by what the centre doesn’t say about Japan’s demographics and why it’s relevant to a more accurate judgement.
I think they missed the fact overall that England’s population, due to mass immigration, has been growing at a much faster rate than France or Germany and that since 2008 Japan’s population has actually been declining. And ageing faster than the UK as the other countries are also doing.
The Aussie housing economist Cameron Murray who I regard as very reliable on such matters, has pointed out, crucially, how comparing countries with different demographic trends, particularly ageing, has implications for interpreting measures of housing stock per person.
Basically, Murray shows how an ageing population in and of itself will over time automatically generate high measures of housing stock per capita growth.
He points at that if you have a transition as has been seen in Japan from the 1980s of a high proportion of young people being replaced by a high proportion of older people, and thus households with more persons per dwelling being replaced by households with fewer, as the young fly the nest and are not replaced, the ”number of dwellings per capita rises between the two stages”.
In the case of Japan between 1995 and 2015 that process and shift led to a “massive 25 per cent relative increase in the dwelling stock per capita measurement” with no increase required, or evident, in the efficiency of the planning system or the productivity of the housing market.
New housing delivery in Japan matches demographic demand for new households. But as society gets older and fewer young households have been forming for every old household being formed, as an artefact solely of this shift, there has been a significant increase in dwelling stock per thousand population.
In Japan, aged single and couple households have been the fastest growing household type for decades. Less so in Germany and France but still echoing that shift: in the UK, least so.
That difference alone should make those who praise Japan for “doing housing” better than England pause for thought.
(It’s also worth pointing out that house prices effectively stayed down in Japan since they crashed in the late 80s and that the country has been in depression for all that time: having a decent planning system has not as much impact on Japan as the stalling of aggregate demand there).
But then pausing for thought is not characterising much government behaviour in either the UK or Australia at the moment.
They are both off on goose chases attacking public sector performance as the key barrier to delivering private housing without really understanding either the housing market or frankly the demographic issues relevant to good decision-making.
Something about housing seems, as I say, to make otherwise smart people lose their grip on reality.
I’d hoped Planorama would help us get closer to housing market reality. I don’t think it does. But then as I’ve suggested, governments across Australia may themselves be no closer to reality: not a great basis for effective policy.
Hi Tim,
I just thought I’d point out that I (author of the paper in question) also published a piece of work on public housebuilding in the UK, which does cover at least some of what you are asking the Planorama piece to cover. You can read that here: https://www.centreforcities.org/publication/restarting-housebuilding-ii-social-housing-and-the-public-sector/
On the contents of Planorama – you have mostly focussed on our brief housing stock analysis at the top. I think it’s better than you give it credit for – regardless demographic effects, it is simply true that all three countries have had a faster build rate than England, which has left England trailing. And English household formation is endogenous to supply of houses for them to form into, so I don’t accept that part of the demographic point. Supply isn’t the only determinant of affordability, but it is important, and the data presented is relevant.
On the rest of the paper, which you haven’t engaged with, we don’t talk about ‘red tape’ in the terms you suggest. We discuss the role of the public sector in a number of ways: as discretionary actor in planning processes (with that discretion located in different parts of the process in England vs abroad), as an entity that directly shapes the land market & urban development, and as an actor with incentives / capabilities on that basis of their tax / revenue system.
I’d be very happy to chat more about this if you’d like.
Best wishes,
Maurice
Thanks. Useful article. If developers and banks are locked into a 20% margin model maybe this is where the efficiencies can be found?