Failing to address the housing crisis meaningfully will not only harm those missing out but also risks creating dangerous rifts in our democracy.
The term “moral hazard” derives from the insurance industry and describes behaviour that entails levels of risk the consequences of which the perpetrator to does not personally have to bear. It has come to describe some financial behaviour, such as that leading to the 2008 financial crisis.
To the lay eye, much recent urban development also seems to have been conducted in a climate of moral hazard.
Consider WestConnex.
Against the backdrop of Sydney’s Cross City Tunnel project – sold to a weary electorate that decongesting William Street would enable it to become a leafy, pedestrian friendly boulevard, which never actually eventuated – WestConnex was pitched to a now sullen electorate in almost cut-and-paste terms, but with the name “Parramatta Road” inserted instead.
Initially conceived to increase the efficiency of economically productive freight and service vehicles – “white vans” – separated in tunnels from the congestion of less productive private vehicles, its cost ballooned from an initial estimate of some $10 billion to at least some $17 billion and possibly a lot more.
Instead it has actually increased traffic congestion in some key locations that require the banning of these same productive trucks for certain periods, he increased congestion is likely to persist for many years, increasingly valuable inner suburban land has been disrupted or permanently alienated by the network, Paramatta Road remains a traffic sewer, and the asset has been sold to private investors in terms that virtually guarantee their profit at taxpayer expense.
According to one expert: “Trying to shovel a motorway into the middle of a city was never going to work. The previous government and the roads department stuffed it up. They didn’t want to listen to anyone who would tell them it was not going to work”.
And so, the finger pointing has started. The planning spokesperson for the previous government had the brazen temerity to accuse the recently elected current government of somehow stuffing it all up.
By any one of these measures WestConnex could be regarded as a spectacular failure of government and a vast waste of taxpayer’s money.
Similar authorial fingerprints can be detected on the early stages of the housing crisis. Steadily worsening for at least a decade in NSW, the already wealthy are the ultimate beneficiaries, now aptly symbolised by the Crown casino and Sirius redevelopments on formerly publicly owned land, close to Sydney’s centre.
Yet there are no heads on pikes.
The worst fate for bad decision makers is removal from office, often into comfortable retirement on some board, whereas the subjects of those decisions suffer real damage – recall the suicides from the Robo-debt scandal.
The housing crisis will create enduring and generational damage
Yet, compared to the ongoing WestConnex debacle, the current housing crisis is rapidly heading into much more dangerous terrain. The resentments generated will be far deeper and longer lasting than a traffic jam twice a day. Much like the costs of climate change, the damage caused by the housing crisis will be enduring and generational, unless remediated decisively and effectively.
As a consequence, it is suggested here, costs of failing to resolve the crisis will extend far wider than than to the currently unhoused; it could also weaken our core democratic foundations and thereby permanently diminish us all.
External autocratic threats
The democratic idea, and associated freedoms, is increasingly contested internationally by expansionist authoritarian governments that seek to dominate neighbours and their interests.
We get along with many nations that are governed by systems that differ markedly from our own, even some that are more benignly autocratic.
But the most alarming feature of strident autocracies – a central tenet of their world view – is that they are both better and the rightful managers of human affairs, which warrants their proselytising assertiveness.
It is this latter feature that generates most alarm.
China justifies its expansionist ambitions on its place in history and the supposedly superior administrative competence of its command economy, though recent economic mismanagement of its housing sector now severely undermines that claim.
As Jade McGlynn reports, the projection of Russian state power is an expression of its self-defined global mission defined by the garbled remanufacture of a self-flattering national identity comprising a contemporary version of its 19th century “orthodoxy, nationality, and autocracy” troika imbued with a large dash of Slavic manifest destiny and a soupcon of Soviet greatness. Recounting the long sad history of Russia’s democratic faltering, James Pearce holds little hope for significant improvement.
In contrast, our governance (supposedly) obtains its authority directly from those governed, via elections, and founds its policy (again supposedly) on dispassionate evidence, not on authenticating increasingly shaky badly manufactured myths.
Autocratic threats thrive on internal democratic deficiencies
In both these examples, international cohabitation is not really possible.
Even internal democratic weaknesses are vulnerable to exploitation by aggressive autocracies, as exemplified by Russia’s interference in the 2016 US presidential elections.
According to Robert M Gates, the most effective resistance to these external threats comes from within nations, which is why he identifies internal political dysfunction as the greatest weakness in the projection of American democratic virtue.
Certainly, American democracy is no longer fit-for-export.
For similar reasons, endogenous autocratic growth also hobbles national resistance to external assertive autocrats. The rise of extreme right-wing populism, such as America endured during the Trump years, rapidly developed authoritarian overtones.
The recent Dutch elections illustrate how easily only minor changes can threaten supposedly solid democracies.
The hard-right obtained 25 per cent of total votes in a single contest – a lot, though up only a few percentage points on previous polling contests. It demonstrated that a dramatic shift in that nation’s polity and, in consequence, stability of the EU, were vulnerable to relatively minor shifts, that were due, in turn, to increased underlying disgruntlements.
Tellingly celebrated in Russia, these events reveal the close attention paid by authoritarian regimes to Western democratic stumbles and explain why stoking internal grievances can be so effective in changing the balance of international influence.
The depressing reality of the current housing crisis
Though the housing crisis is rapidly growing as a source of Australian voter disgruntlement, it is highly unlikely that state or national governments will respond meaningfully.
According to Alan Kohler, and many commentators before him, the disbenefits of the crisis are unevenly distributed. Those that benefit most from escalating housing costs comprise a much larger, though shrinking cohort, compared to those that suffer.
The problem is worsened yet exemplified by the complicity of elected representatives on the winning side of the housing divide.
The brutally simple arithmetic of democratic governance predicts that governments will maintain the status quo by implementing ineffective policies, yet trumpet them as breathtaking achievements in the hope that predictable policy failures will not materialise before the next electoral cycle.
At all costs, it seems, government will avoid any housing policies that are known to work simply because overall voter wealth will decline if housing becomes more affordable.
That is why when faced with a wealth of evidence to address the housing crisis,
failure to deal meaningfully with it is so damaging to our democracy.
Moral hazard and the escalating political costs of housing policy failure
Failure to improve housing affordability nationally could well crystalise into deep resentments here as they recently did in the Netherlands (though for different reasons).
Set against this background, Kohler’s fundamental observation becomes much more ominous, “The Coalition will never get back into power and Labor will never again hold a clear majority without a viable housing policy” (emphases added).
The key word here is “viable”, taken here to mean affordability policies that actually work at scale.
Occasionally censured for artificially limiting supply to keep prices high, the for-profit development industries’ mouthpieces have largely succeeded in blaming government as the cause, due to an alleged backlog of development assessments.
A previous planning minister’s rebuttal – that his department had handled exactly the number of housing applications lodged with it – did little to debunk these claims.
Entering this debate, the NSW Productivity Commission recently released the first of a projected series of reports on housing affordability.
In that report an illustrative aside attracted a lot of pro-development attention; increased dwelling numbers arising from a hypothetical increase from seven to 10 storeys in approved apartment developments over the study period would have resulted in city-wide rent reductions from $650 to $390.
The imputation was that the only way to reduce housing costs is to relax planning controls; a familiar development industry refrain.
Writing recently in The Fifth Estate, Tim Sneesby very clearly and succinctly debunked this “supply” myth and its supposed solutions.
However, the commission overlooked a more obvious conclusion.
Echoing Sneesby’s analysis, no for-profit developer or for-profit investor is interested in greater housing supply if it depresses sale prices and rental returns. Nor can the industry sustain the economic inefficiencies of building in anticipation of future demand, the conditions under which most of the products we consume derive.
In Sneesby’s words, housing is a “built to order” product, not “built to stock”.
What this illustrates is that it matters which industry sector is the best focus of policy efforts to increase affordable supply.
All the accumulated evidence indicates that the for-profit sector will likely continue to resist efforts to reduce housing costs through increased supply, which has led to the current condition of market failure – the unmet market demand for affordable housing.
A senior economist for the Housing Industry Association, Tom Devitt, “… noted tax, regulatory and planning changes would be required to ensure enough new, affordable housing was being built, and higher and medium-density housing would be key”.
But where and how should “regulatory and planning changes” be targeted?
Sneesby again, “Provide as much planning incentives and rent-seeker giveaways as you like, but this won’t resolve the current housing crisis”.
Along with many others, Sneesby scoffs at the idea of offering planning incentives to developers. Instead, he suggests social and affordable housing would act as a market counter-cyclical to the conditions under which the for-profit industry sustains high prices.
Look to the not for profit sector for real change
Hence, greater bang for the policy buck might also be achieved by enlarging the capacity of the not-for-profit sector and supporting less electorally contentious small-scale infill such as “missing middle” development and in the backyards of mum-and-dad, which to its credit the current government has just announced it will do.
Returning to Kohler’s remarks, he summarises what he refers to as Australia’s dirty little secret thus: “Unaffordable housing has a political cause and a political solution”.
So, unless “viable” solutions emerge very soon, the wider political consequences could be dire.
Urban voter indifference, the South Australian coda
The gravity of these issues, and folly of current solutions, is well illustrated by recent South Australian government decisions.
As previously rehearsed and despite its socially progressive legacy, so much of Adelaide’s recent and imminent development is an exemplar of what NOT to do in Australian cities.
It appears that the current recently elected government is pressing ahead with its own controversial roadway – the “South Road Corridor” – even adopting the laughable WestConnex claims that it will be “city building”.
Northern and southern ends were completed in recent years and entailed significant land acquisitions and massive civil works.
The remaining middle 10.2 kilometre Torrens-to-Darlington section, (T2D) running past and closest to Adelaide’s CBD will comprise a mix of tunnels and open road corridor that will require a significant land-take well beyond the existing corridor.
This open corridor, over slightly less than half the T2D length, will add to the existing land take of mostly on-grade roadway along the already completed northern and southern sections and will also include area for run-off ramps, landscaping and the like. Nearby land is also likely to be sterilised for residential development by road noise and particulate pollution from road traffic.
Currently projected to cost some $15.4 billion, the T2D section would be about 50 per cent more expensive than the initial projections of Sydney’s entire WestConnex. Based on that experience, likely cost of just the T2D section is likely to be far greater.
Just recently, in response to the national government’s push for states to increase the supply of new housing, the South Australian government announced it would zone more peri-urban land, some 75 kilometres from the city centre.
This announcement came soon after the most recent bout of concern about the remoteness of the Mount Barker subdivision, carried out more than a decade ago about 50 kilometres from the city centre, but still expanding.
What is remarkable about these events is that no one has held the SA government’s feet to the fire by asking the obvious question: in the face of a worsening nationwide housing shortage, is Adelaide’s electorate expected to thank their politicians for deciding to subdivide residential land up to 75 kilometres from the CBD yet eliminate houses to widen inner Adelaide’s road-reserves for a new north-south motorway that is likely to cost more than Sydney’s WestConnex?
Effectively, Adelaide is choosing to accommodate motor vehicles over people.
What this may mean for that state’s democratic underpinnings is had to assess, though given its marginal national role and its seeming determination to become ever more beige and mediocre, not much may come of it, other than its ongoing subsidence in national estimation.
Adelaide is fast becoming the built record of a seemingly docile electorate, obsessed mainly with the niceties of atomised suburban life or retiring to a winery; a relatively supine press, overly accommodating of entrenched vested interests; a comparatively uncritical embrace of almost any new development; and a generally unengaged and inattentive indifference to the vital complexities of city-making”.
On the other hand, maybe Adelaideans have had enough and are now reaching for their pikes, en masse; let’s see…