The housing affordability crisis derives, in part, from two conditions: financialisation of housing that favours it as an asset class above its function to provide shelter, and the monopolistic nature of land. These combine to bar access for the less well-off, particularly the young. Yet, a parliamentary enquiry looks set to blame planning as the cause. Here’s one suggestion to improve housing affordability that links all three conditions.
Reprising former premier Bob Carr with a soupçon of Chicken Little, a Woollahra councillor recently asserted that the suburb was “full”, citing as evidence that its sewers and stormwater systems had reached peak capacity.
In the context of a national enquiry into housing affordability, chaired by Jason Falinski MP, and state planning efforts to fit more people into Sydney, the claim was probably intended to persuade policy-makers to direct their hunt for space elsewhere other than the leafy inner city.
However, the prospect that cascading “Richard-the-thirds” from expensive pets and owners might impede Sydney Harbour ferry traffic, warrants infrastructure upgrades instead, as Whitlam did for the previously unsewered shire.
The problem, then, is how to pay for the upgrade. Solutions to the housing affordability crisis could provide an answer.
Urban density, housing affordability and planning reform
Any urban density comparison with other inner cities will quickly reveal that Woollahra is not “full”.
Woollahra residents should note that the current conservative government is not engaged in class warfare.
Thus, and applying a “what’s good for the goose is good for the gander” principle of public policy neutrality, they should expect that the exposure of inner-city state-owned housing assets to the disciplines of renewal and densification — recall Waterloo Estate, Glebe, Millers Point and The Rocks — should find counterpart policy expression in the low-density inner-east and North Shore.
Indeed, “missing middle” housing policies and ideas for by-rights development approvals developed by this government, fit such an impulse very closely. The current housing crisis provides an urgent need to drive these policies harder, despite local opposition.
Any planning relaxation must exclude the for-profit sector
We have already noted that the current push for planning reform by the for-profit property development industry to achieve more affordable housing is a ruse; a half-plausible narrative that targets credulous lawmakers wanting to placate large donors on the one hand, and taxpayers’ concerns about unaffordable housing on the other.
The evidence — longstanding market failure of unmet demand for affordable housing; industry resistance to inclusionary zoning provisions; the absence of firm affordable housing commitments and increased building failures following affordability-driven regulatory relaxation — strongly suggests that the for-profit industry will not deliver significantly improved housing affordability; certainly not through any relaxation of planning controls.
An aside — hopefully, the newly-minted building regulator is aware that, following the terrible Grenfell tower fire, the cost of remediating the UK building cladding crisis is now being slated back to the development industry.
The correct policy response to market failure
Currently, fixing the housing crisis involves little more than talk-fests and political posturing, neither of which is useful unless acted upon.
Market failure is generally regarded as a precondition for targeted government intervention, which obviously should not aggravate the problem further.
Yet, this is exactly what previous financial solutions did. Offering first home buyers a cash grant or halving the minimum deposit simply added fuel to the house-price inflationary fire leaving young homebuyers worse off. Tax concessions to home owners and investors simply encouraged further house price escalation by profit-seeking capital.
Allowing first homebuyers to apply their compulsory superannuation towards a deposit is highly likely to do the same, with the added disadvantage of impoverishing them in the longer term.
Therefore, the correct policy response should entail sponsorship of alternative delivery methods that address the failure directly, such as through the NFP (not-for-profit) sector, and thereby benefit those affected, without funds diverted into profit-making businesses.
Recasting the problem
Impressively, the Premier Dominic Perrottet has indicated that “everything is on the table” and “scare campaigns” won’t stop housing affordability reform — Woollahra take note.
Setting aside the often-fruitless arguments about supply or demand causes of housing unaffordability, let’s accept for the moment the enquiry chair’s contentious claim that investors are not the cause but that relaxation of planning controls is part of the solution.
Essentially, lower-income entrants to the housing market are barred access by rapidly escalating prices, still increasing by more than $1000 per day.
But what is actually being purchased?
In many instances it is not the value of the dwelling, which is often demolished, nor the value of the land per se, but the right to exclude all others except a single-family dwelling unit. The average price of this bar is currently nudging $1 million in Melbourne and more than $1.6 million in Sydney.
This bar indeed rests on planning controls that permit no more than a single dwelling on that land.
It is this formulation that is the target of the for-profit development industry, which sees, partly correctly, that greater intensity of development would accommodate more people.
However, many suburbs including Woollahra, don’t want the bar lifted, fearing their valued lifestyle will be ruined with the erection of tomorrow’s slums by a notoriously powerful industry.
A Woollahra solution to housing affordability
What if planning constraints were relaxed but ONLY for those in need of, or who desire, more affordable housing? What if this was done so that it did NOT contribute to the current financialisation of housing?
There is a plethora of very workable delivery models within the NFP sector — housing cooperatives, charitable organisations, even the social housing sector run by governments — but let’s combine the cooperative model with targeted planning control relaxation and associated taxation measures.
We’ll give it the working title of the Woollahra Buyers Club, WBC for short.
Now, let’s set policy objectives that will quicken a conservative pulse; the WBC model should:
- not destroy the wealth of existing home-owners
- not affect existing for-profit housing delivery systems
- not rely on significant public investment for the construction of dwellings
- not require the creation of a large, potentially unwieldy, bureaucracy
- appropriately and directly address evident market failure
- lead to a more sustainable city, particularly with a reduction in car usage
- generate increased rates to fund necessary infrastructure upgrades
- not impinge on existing home-owner and investor taxation benefits.
Indeed, let’s adopt the simple Menzies objective to provide by legislative enablement a ladder to home ownership for those currently denied access.
The model rests on a simple planning change — provide more-dense as-of-right development approval ONLY for registered WBC participants that allow them to develop purchased land to a height no greater than two storeys for individual Class 1 dwellings (houses, not apartments) on subdivided allotments of about 80 square metres each at a maximum floor space ratio of 1:1.
This may seem small, but 40-square metre lots with two-storey townhouses exist in Pyrmont and have attracted seven-figure sales prices.
Imaginative Auxiliary Dwelling Units (ADUs) in corners of larger, single-housing lots in the USA illustrate the quality and amenity that can be achieved in small dwellings.
This scale chimes with views of the incoming national president of the Australian Institute of Architects, who decries current over-generous Australian dwelling sizes.
No minimum car-parking requirements would apply for WBCs; on-street spaces would not be provided for participants, though access to on-street parked car-shares would be encouraged.
“As of right” development already applies in NSW in a restricted capacity under the Low-Rise Medium Density Housing Code, so a modest expansion to fit the WBC approach should be relatively uncontroversial.
Who could participate in the WBC?
To be registered, participants would be required to:
- be natural persons and/or registered NFP providers
- jointly obtain finance through pooling and bid for/purchase land in competition with other purchasers
- subdivide the lot to produce individual securable titles
- engage an architect to design the scheme and a building supervisor to coordinate individual building trades contracted by participants.
If natural persons occupy the property, then:
- restrict ownership by natural person participants to one WBC property
- treat any profit on sale of their property as part of their taxable income, no Capital Gains Tax (CGT) exemption.
How WBCs might work
Let’s apply this approach to a real property, not in Woollahra but in Terrey Hills, within the national electorate of Mackellar, currently held by Mr Falinski.
As the advertising blurb states: “The [existing] home is within easy access to local schools, public transport, Terrey Hills shopping village, restaurants, cafes and only 35 minutes to the CBD.”
In other words, intensified WBC development would rely on, and add value to, existing private and public infrastructure, and provide good access to inner-city jobs.
That’s what we need more of!
At just under 700-square metres of land it could readily take eight WBC dwellings, subject to careful design. The asking price is $2.05 million or a whisker over $250K for each WBC participant. If one rolled all subsequent costs into a build figure of about $4K per square metre (economical Class 1 construction) then each dwelling would cost each participant about $600K — pricey, but half that of the current house price Australia-wide and about $1 million less than the average price in Sydney.
The key is to have certainty of planning consent; an approach that has been considered in the past for similar scaled “by rights” development in Sydney. The enquiry chair could easily recommend his state planning counterpart implement these simple changes.
He could also define what regulatory oversight would be necessary to ensure that WBCs fulfilled the housing affordability objectives. Current legislation governing operation of NFPs could provide a guide.
So, too, could he recommend changes to taxation legislation that would remove homeowner CGT concessions for WBC dwellings, thereby diminishing their attraction as financial instruments, while also increasing the national tax take.
In doing so, he would directly address the housing affordability crisis while not caving-in to for-profit developers, who would largely be relieved of affordable housing expectations but otherwise left to operate under existing conditions. He would also keep faith with the now well-known Menzian doctrine of providing a ladder for individuals to climb, rather than the awful social housing that he is on record as despising.
Let’s examine this proposition a little further using the popular Frequently Asked Questions technique.
- Will the character of suburbs hosting WBC developments be changed?
Yes, a little, but that’s part of the “missing middle” policy objective — more Paddington and Pyrmont than Green Square. Low density, inner-city suburbs currently impose infrastructure costs that must be levied elsewhere. Greater inner-city density means that the costs of utilities, public transport and social infrastructure can be more equitably distributed. The change in character would be much less than if the planning controls were relaxed in favour of the for-profit development industry, which seeks to attract a much larger market than those lacking affordable access to home ownership.
- Won’t major developers start using the WBC approach anyway?
No, not unless they disavowed profits and complied with existing provisions governing the NFP sectors.
- Won’t WBC residents become permanent second-class residents?
No, not really. The WBC model does not prevent participants exiting into the current housing market as their means provide. WBC residents would include new homeowners, keen to enter the housing market, and downsizers, keen to crystallize their property wealth (perhaps from sale of the land they continue to reside on) and move into something more suited to their needs. Equally, some may elect to stay within the WBC sector and redirect their growing wealth into other asset classes, such as superannuation.
- Will the WBC approach mean that existing housing prices will plummet?
It shouldn’t. The operation of WBCs rests on participants purchasing within the existing housing market, just pooling their wealth to outbid individually wealthier bidders. However, alternative pathways to home ownership would remove FOMO (fear of missing out) bidders and diminish the stock of desperate, permanent renters. Essentially, this is a slave-owners’ bleat: that the removal of gross unfairness will diminish the wealth of those that depend on the unfairness persisting.
- Will existing home-owners lose the wealth inherent in their dwellings?
No, WBCs would operate within the current market, but would have the capacity, through numbers, to out-bid other individually wealthier bidders.
- Will property developers be unfairly disadvantaged by WBCs?
Yes, and no: WBCs would merely operate as a parallel pathway to home-ownership that is currently not well served by the for-profit industry. Any developer losses would arise from the removal of the monopolistic character of the current for-profit housing provision by providing a competitively healthy alternative pathway to home-ownership. There would be nothing in principle to prevent developers from participating in WBCs — other than disavowal of their significant profit.
- Why not residential flat developments?
RFB (residential flat buildings) generally consume more resources and energy than modest single dwellings. Further, construction of RFBs is more complex, entails greater coordination and assembly of capital than separate dwellings and carries ongoing governance and related obligations on those housed.
- Won’t banks refuse to fund WBCs?
They shouldn’t refuse to fund WBCs. The initially purchased and completed assets would be securable throughout, subject to market conditions and values. Occupants, keener to retain a roof over their heads are notoriously more reliable; loan default rates are reportedly 10 per cent of those in the “normal” housing market.
- Won’t there be too much red tape?
No, participants would self-select and could opt-out at any time to join the non-WBC market. Some regulatory oversight would be needed to ensure that the general parameters of WBCs were maintained, such as one-dwelling per participant, no for-profit participation, and the broader probity of the scheme. This should impose no more regulatory burden than currently applies to strata scheme regulation; possibly less, as individual WBC dwellings would be Torrens titled, in which case most oversight would apply only to the initial establishment of WBCs.
- Won’t the building industry suffer?
No, it would likely benefit from increased building activity with the construction of otherwise un-provided affordable housing.
- Why must architects be employed?
For the same reason they are required for RFBs (residential flat buildings). The granting of by-rights development carries the risk that unintentionally aggressive development will harm the amenity of adjacent properties. Architects are adept at ensuring these and other complex considerations are met satisfactorily.
- Won’t WBCs lead to further housing financialisation?
They shouldn’t have this effect. There would be no CGT exemption on the sale of individual WBC dwellings; and prevention of multiple ownership of WBCs should dampen any speculative treatment but would not prevent redirection of WBC owner savings towards other asset classes, such as superannuation as their means improve.
Housing unaffordability is a symptom of a larger, darker failure
All this is great, but we know nothing of the sort will happen. Predictions that housing affordability will not become an election issue will likely be proven correct.
The purpose of this discussion is to draw attention to a more fundamental problem afflicting our decision makers — the depth and reach of vested interests at the expense of all others.
Many fear that the interests of for-profit developers and investors will simply not go away, no matter how selfish and ludicrous their policy demands.
This perception will be confirmed if the current enquiry rewards the for-profit industry push for relaxed planning controls with no corresponding iron-clad guarantees to dramatically increase housing affordability.
If this does occur it will be a vivid indicator of a larger governance failure, whereby our systems have been overtaken by interests of a similar kind, though not degree, to the influence-wielding that has brought Lebanon to its knees.
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.