Franklyn Street social housing estate in Glebe, NSW. Photo: The Land and Housing Corporation

It has long been this author’s view that appraising political performance on achievement alone is an incomplete and misleading measure. Judgement should be complemented by considering what could have been achieved but was not even attempted, with overall estimations of merit marked down proportionately.

We can already detect the electorate warming to this approach.

The federal government is failing to persuade us of its improved climate credentials by its policy shift favouring gas over coal fired power production.

Instead, pesky voters mark government down, noting its lack of commitment to cheaper and cleaner solar, wind and battery storage.

The glass-half-full marketing hype of “Hey, how good is gas” is met with an angry “Oi, this glass is still half empty!”

Let’s apply this idea to some recent seemingly unrelated news reports and state government announcements.

The title image is from a Tate Gallery exhibition of sculptures by Mike Nelson. Called “The Asset Strippers” each piece derives new meaning from the reassembly of obsolete industrial machinery. This particular piece is surmounted by a mechanical rake, used to gather waste cereal stalks into marketable hay. Image: author supplied

The public sponsorship of homelessness

Reporting on University of Technology Sydney research, Vivienne Skinner has highlighted the economic hypocrisy of homelessness.

Drawing on international and Australian examples, it appears the taxpayer cost of community services consumed by the homeless – in health, law enforcement, social services – exceeds the combined cost of housing and the savings from subsequent reduced demand for those same services.

Put simply, the misery of homelessness is taxpayer funded.

The ironic iconic destruction of savings

“Safe as houses” goes the maxim; well, it used to.

A little over five years ago, the NSW state government legislated to reduce the burden on for-profit residential developers to repair defects in their new buildings.

The usual reasons were given; cut red tape, reduce costs, keep up with demand to accommodate Sydney’s swelling population, yadda, yadda.

The legislation was strongly opposed on the grounds that it would license shoddy workmanship and expose home-owners to life-long costs.

Well, duh, it happened; who’da thunk it?

No doubt partly to avoid scrutiny of its own contribution to the disaster, the state government announced with much fanfare the appointment of a building commissioner David Chandler – a former contributor to this publication – who has started to re-regulate the industry.

However, the lag-time between catastrophe and its hopeful resolution, is likely to take many years before reform can be pronounced a success.

Reports of an ongoing “epidemic” of defect battles illustrate this glum prognosis.

Defect repair bills in the tens of millions of dollars of some recent developments are unlikely to be met because the developer is reported as being wound up.

Lifetime savings continue to be devastated.

Glebe asset stripping?

Whoo-hooo!

Hot on the heels of the marvellous success of the Sirius building sale – from tawdry public housing to sparkly new luxury-housing – the Franklyn Street public housing estate in Glebe is next in line to be, errr, “renewed”!!!!

In a deal with the private sector, the existing 108 dwellings would be demolished and replaced with 425 dwellings, of which “up to” 130 would be allocated back to public housing – a maximum of 22 additional dwellings, but possibly less, maybe none.

The estate is much loved by its long-term residents, who (strangely) are devastated at the prospect of losing their much-loved homes of some 30 years within the next year or two.

The local member [Balmain MP Jamie Parker] accused the government of not investing enough in building new social housing. “Instead, they are selling off public housing and public land in order to fund tiny increases in accommodation in the inner city while delivering bumper profits to private developers.”

Commenting on the Glebe announcement, in terms that chimed with the title image, a spokesperson for the government’s Land and Housing Corporation actually let the cat out of the bag.

She blithely observed the redevelopment would permit “an increase in private housing supply within a high demand area”. Hmmm!

The business accounting of property development is notoriously opaque, usually concealed within a maze of commercial-in-confidence pea-and-cup-game secrecy, but private housing supply comes with a fundamental immutable expectation – profit, typically 20 per cent above all other costs.

Right there, this means that the Glebe announcement will entail the transfer of 20 per cent of existing public wealth to private housing providers. When the cost of borrowing by governments is essentially 0 per cent, a 20 per cent transfer amounts to a super profit.

The Land and Housing Corporation plans to redevelop Boundary map of the Franklyn Street social housing estate in Glebe, NSW. Photo: The Land and Housing Corporation

How would this be a better outcome for public housing?

The usual reason given is that private sector profit extraction is more than compensated by greater efficiencies, providing the public with a net benefit.

But as the still-unfolding property development scandal illustrates, this “compensation” could well see the public bearing the costs of shortcuts and shoddy workmanship, with private profits and developer risk both safely removed; the traditional “privatise the profits, socialise the losses” model.

Yet, there are other unsavoury dimensions to this announcement.

It is plain futile to fund any public housing renewal – in Glebe or anywhere – through sale of land that it sits on. It’s like satisfying hunger by cannibalising one’s limbs.

The state faces a backlog of some 5000 places in demand for public housing. Adding “up to” 22 would do almost nothing to meet this demand.

However, the transfer of some of the public’s land to provide these units would generate two problems.

Firstly, the burden of meeting ever growing demand would actually be further enlarged by the cost of having to acquire more land.

Secondly, it would also transfer that burden into the future, when land prices are likely to be higher.

This is Ponzi thinking.

The net effect is to kick the can down the road; to make it someone else’s problem; essentially to burden the next generation, which is already facing other structural problems in addition to declining housing affordability.

Alternatives for Glebe

Non-government residential providers comprise the for-profit and not-for-profit (NFP) sectors. 

Acknowledging that the majority of for-profit developers are good and honest, the sector as a whole is still currently on the nose and will be for some time until it proves its reliability, perhaps after a decade or more.

So, if a joint-venture partnership is the way forward, why not restrict participation only to the NFP sector?

Unlike the for-profit sector, where circuits of economic exchange extract profit from the system, the NFP sector simply ploughs profits back into more affordable units, effectively reducing housing costs by some 20 per cent using the example explored here.

This way, the state might obtain more units, increase housing provision for other low-income cohorts, and obtain supportive social services often thrown-in by the NFP sector as part of their bargain.

These services would be of great benefit to the homeless, for example.

Another option is to build “up to” 22 more dwellings on the existing estate. This would only cost the state some $11 million, at a build-cost of $500,000 per unit, but would preserve in public ownership an estate eventually capable of holding 425 units.

If applied to homeless housing, these could be funded from savings in health, social services, and other related cost centres.

Alternatively, why not fund the construction of 425 new dwellings at a cost of $212 million, using the same numbers. Whether paid for by the private or public sector, the money has to be found, but it is a trifle compared to government economic bailout packages we’ve recently witnessed.

Further, the long-term cost of borrowing and default risks by states are both negligible compared to private sector borrowing, particularly as the recent rash of building faults will likely have raised risk premiums for many developers.

Long-term government-raised finance could therefore largely be funded by the concessional rents commonly paid in social housing.

The state would be seen as directly stimulating the economy towards recovery but would also be left with a greatly enlarged public asset equal to the value of land and new dwellings that would offset a much larger part of the unmet demand for public housing.

Despite a general consensus that business cases for large capital works projects should be reappraised after the pandemic, the long mooted construction of the $14 billion (2017 cost indication only) northern beaches road tunnel, beneath the harbour and beyond, is likely to commence in 2022.

As a controversial extension of the also-controversial WestConnex project, a new road was this government’s preference above rail for improved access to the “insular peninsula”.

So be it.

Alternatives for the northern beaches

As Patrick Fensham and Tim Sneesby emphatically remind us, and land sales following the Badgerys Creek airport announcement illustrate, any tax-payer funded large infrastructure development will ineluctably increase the value of nearby land.

Essentially, this uplift comprises a monetisation of state administration, transferred into private hands. This is generally called “rent-seeking” and is an economic drag.

The same effect applies to land use changes, such as those permitting more intense development.

The market-distorting imbalance of conferring public benefits to private beneficiaries is commonly addressed in other nations, the US included, by charging a “betterment levy”. That way, some of the public “gift” is recovered to offset the taxpayer funded project cost that generated it.

Notwithstanding its pause during the pandemic, Sydney’s growth will need to be accommodated within its existing footprint, which in turn will require greater development density, with a fair proportion of the density absorbed in apartment developments built by for-profit providers.

As a simple matter of fairness this should occur closest to our urban and natural assets; near Sydney’s employment centres, its harbour, coast and bushland, as Phillip Bull has pointed out.

The northern beaches is one such locale. Any rezoning would definitely provide “an increase in private housing supply within a high demand area”.

Though they would stand to gain by improved road access, northern beaches residents may oppose greater rezoning for apartments in order to preserve the leafy low-density beach-side amenity of their locale.

Yet, as Australia’s only Pritzker Prize winning architect Glenn Murcutt observed, the density of inner Sydney suburbs can also be increased and amenity preserved with well-designed second dwellings.

Sadly, the “missing middle” planning provisions to encourage this seem to have stalled.

Either way, an administration genuinely concerned to govern for all citizens could respond to concerns in the blunt finger-space-between-each-word argot of hardened property development, “you want the road; you share the load”. 

Whose interests does the government represent?

Though recently capable of ideological heresy, conservative governments adhere to two shibboleths; “beneficiary pays” and “lower taxes”.

Let’s review how these principles might consistently apply to the foregoing.

Firstly, government would preclude the for-profit residential development sector from participating in redevelopment of any public estate for two reasons.

Firstly, it is not responsible management of public assets to divert 20 per cent of existing value just to private profit.

Secondly, though government contributed through deregulation to the building defects crisis, it should not permit for-profit participation at least until regulatory reforms have taken effect, which could take a decade to demonstrate with clarity.

Instead, government would confine joint-venture participation in any public estate redevelopment just to the NFP sector.

Government would also recognise that long-term savings from fully housing the currently homeless warrants direct state outlay for social housing, perhaps starting with an additional 22 units in Glebe.

Acknowledging the need, nevertheless, to provide the for-profit sector with growth capacity, government would fast-track more rezoning of land benefiting from the Northern Beaches Link, with objections countered on a “you want the road; you share the load” basis.

Though financed with state debt at negligible long-term interest rates, road construction would be part-funded by betterment levies on affected property in order to capture part of the value uplift deriving from new infrastructure and land re-zoning.

As per WestConnex practice, government would retain the right to on-sell the road in order to reinvest the proceeds in other infrastructure projects.

Sceptics are likely to say none of this is very likely.

We now know this state government sees nothing wrong with partisan pork-barrelling, so we are then left with a fundamental question: if the broader community would benefit most from doing all the above things, who would benefit most by not doing them?


Mike Brown has worked in NSW local and state government in planning, urban design, and strategic roles for 15 years. He is also a graduate of the Masters of Urban Policy and Strategy program at the University of NSW.

One reply on “The economics (not) of 22 new public housing units in Glebe… or asset stripping”

  1. the Liberals in government as now so used to corruption that they no longer bother to hide it – just give public taxpayer assets to private companies

    privatise the profits – socialise the losses, etc.

    and will continue to do so until you vote them out

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