Monday, March 05, 2018

Monday forum - Australia's housing affordability problem

This is the Monday Forum post. As always, feel free to go in whatever direction you want.

On 4 March 2018, the Grattan Institute released its latest report, Housing affordability: re-imagining the Australian dream. The ABC provides a useful summary. That same day, the Australian and NSW Governments, together with eight local governments of Western Sydney, signed the Western Sydney City Deal.  "The City Deal," states the web site, " is a 20 year agreement between the three levels of government to deliver a once-in-a-generation transformation of Sydney’s outer west – creating the ‘Western Parkland City’"  This is planned to be Sydney's third metropolitan city after the harbourside city (the current metro) and Parramatta.

On 12 February, the NSW Federation of Housing Associations released its NSW Community Housing Industry Development Snapshot. Between 2012 and 2020, 18 of the largest community housing providers will have delivered $1 billion in new projects in 34 local government areas. Between 2012 and 2017 the community housing industry provided 1296 new social and affordable homes in NSW communities, valued at $438 million. The industry is committed to delivering another 1404 more homes by 2020, bringing total
investment to $963 million.

The new homes will largely (98%) concentrated in greater Sydney with a focus on one and two bedroom properties and an increasing shift to high density living. The numbers do not include homes developed via the NSW Government's Community Plus and Social and Affordable Housing fund programs.

Returning to 4 March,  the Sydney Morning Herald's Helen Pitt had an interesting piece, Tale of two Sydneys, comparing two similar families living in quite different parts of the city.

Against this background, the question is what, if anything, can be done to solve the affordable housing problem, recognising how many things are involved? .


Anonymous said...

"the affordable housing problem" seems to me to be more a problem of supply rather than price reduction of existing stock - unless you think "more affordable" could be solved by raising wages? Whatever. Stick to "more affordable"...

The government seems quite happy to pre-fund without security all sorts of uni degrees (advanced knitting, victimology, gender differentiation, wokeness, come to mind) so why not also provide, say, $200K first home interest free deposit funds?

Please note I said "also" not "in place of".

The government would have more security (given first lien on any subsequent sale) than presently provided by the HECS (acronym correction expected) scheme - which seems to collapse if you die or move overseas, and they'd be putting bums in homes, as opposed to supporting useless bums in useless uni courses. Homes can't die or move overseas, to state the obvious.

It's amazing what a little capital accumulation can do to even the staunchest of our professed social activists. Maybe even stump up for a 4-bedder+ensuite if they also take somebody from Nauru could be a go - so long as they don't AirBnB it?

Also - not to change the subject, but I shall - I take great exception to my eloquent prose on that earlier thread being mistaken for tanners' more blunt and brutal efforts. I am hereby offended :)


2 tanners said...

Fascinated that Grattan thinks halving the negative gearing concession would have such miniscule effects. Taxing the family home would, I would have thought, made home owning more unaffordable, not less. Quite possibly a bar on overseas ownership of domestic real estate may have some effect - wealthy Chinese who wish to conceal their wealth from the State purchase assets all over the world. I imagine others do too. Wage rises might work, although I can see houses prices just being part of an inflationary spiral. In the end, it's going to be demand and supply. In ten years or so, when the Notional Bastardised Network is largely rolled out, telecommuting might really become A Thing and then you could live in Armadale and work in Perth.

And just for kvd the acronym correction: the former HECS (pronounced HEX) has now degenerated to HELP!!

Jim Belshaw said...

Hi both. I'm heading out for a meeting. Thanks for the comments. They are helpful because this is an area where I have some expertise and I wanted other views without putting my own pre-conceptions into the mix.

Your offence is noted, kvd! I have a vision of spluttering into a tea-cup while watching a small-animal collection as the sun dawns on a certain valley.

Anonymous said...

A link for Winton to hopefully comment upon:

Also, it contains a Nicholas Gruen comment:

"For example, there is three times as much human capital in Australia as all other types of capital, including natural capital."

- which left me scratching my head as to the measuring stick being applied - which is not to suggest that I fully understand his specific terminology anyway?


Jim Belshaw said...

At this point kvd I just want to pick up your point on wages.

A year or so back, I spent a lot of time looking at development spreadsheets concerned with housing redevelopments that involved redevelopment of public housing sites. The aim was to increase supply of social and affordable housing by re-developing lots, with the development part funded by sale of new units. Viability depended upon increased density that would be sufficient to overcome starting costs made up of site value plus demolition plus construction and financing costs. This placed a price floor below which re-development would not be viable.

Nothing profound there, I know. However, the simply discussion about increasing supply and thus making housing more affordable especially through urban in-fill/higher density tends to ignore this. Now there are all sorts of issues here, but it bears upon your point about income.

Put simply, do we have a housing affordability problem or do we have an income problem, recognising that real incomes have been rising so slowly that people cannot afford increased housing costs in the way that was possible in the past?

Anonymous said...

Jim, we don't have a "housing affordability" problem, we have a supply problem.

If you doubled wages but kept available housing stock level, I think that would directly lead to a doubling of house prices.

We simply don't have enough houses to accommodate present population preferences (aka metropolitan, where the jobs are) let alone our present immigration targets.

Unless there's a positive attempt to allow people to economically remove themselves some distance from their employment (tanners' NBN comes to mind) you are faced with quite simply, less people, or more houses. (But some mix of same, I expect)

Anyway, here's a Barnaby thought: arbitrarily relocate every government department to separate country centres.

The cost would be enormous, but no more than the present infill stop-gap measures you are thinking of - and far more effective as a permanent solution to the 'crisis' you speak of.


Anonymous said...

I'm quite serious about relocation.

Like any modern army, our public service is composed of 10% frontline troops, and the rest pushing paper for supplies, or for analysis, or for budgeting, and for self-protection.

The other day I re-registered my car. 3P insurance over the 'phone; rego paid online. Had to attend for vehicle inspection because it's over 5 years old. All that process was covered by one face-to-face attendance. The rest could've been in Dubbo or even Singapore for all I know, or care.

We have a "I need to live in Sydney and it costs sooo much" problem. There are alternatives to making Sydney even more unliveable - is all I'm saying.


Jim Belshaw said...

kvd, we are in grave danger of being in agreement on some of this! To avoid this!

As a first point, housing affordability refers to costs whether renting or buying. It's often mixed in with the home ownership question. I would agree with those who say that the decline in home ownership is an important issue, but it is a separate issue. Yes, I know that you didn't refer to this. I am just adding it to the mix because it has a tendency to distort discussion.

My point on the development price point - and its not just a problem in Sydney or Melbourne although the issues are a little different elsewhere - is that an increasing proportion of the population are struggling to afford housing at that price point given existing income levels and distribution. A simple increase in supply will not affect that maths without a reduction in the cost of supply. I think that something can be done on cost of supply by. for example, reduction in the development standards now demanded, but the problem remains.

Assume that we dropped immigration tomorrow to zero. That would affect future price increases, might drop the cost of current housing in some places very significantly, but would still leave the price point issue in place for any additions to future housing supply to accommodate some natural population growth.

Because of Google's word limit on comments, I will continue in a second comment.

Jim Belshaw said...

part 2. I think that Australia can sustain a higher population and remain an immigration supporter. However, I do struggle with the present position where immigration is concentrated in small geographic areas, where the majority of the present population experiences higher costs but does not share in the income gains, at least not in the short term. So some combination of reduced immigration with more effective decentralisation would appear to be a sensible starting point. I recognise that there are some coasts here.

On income increases, a doubling of incomes would have some housing price effects in that people could pay more. However, it seems to me pretty certain that rents would drop as a proportion of income.

I will now pass the conversation back to you and anybody else who cares to join in!

Anonymous said...

Yes, I'm not arguing with you Jim - you've obviously thought quite a bit about it, from a number of angles.

Earlier I used "Barnaby thought" which is not really what I meant, or mean. That was a quite arbitrary forced relocation which, while it should prove long-term successful, was in some ways quite cruel to the existing workforce.

What might work is an announced intention to relocate some duties as and when current Sydney leases fall due - say a 5 year prospect. This would give existing staff time to consider, and transfer to other departments if they wished, but over time - 20-30 years - it might be possible to significantly reduce the present Sydney-based workforce.

Canberra itself is a relocation writ large - sheep paddock to national capital - so I don't see why centres such as Orange, Wagga, Goulburn or Newcastle plus your Northern Tablelands couldn't become part of an integrated effort to take the strain off Sydney?

It just seems a madness to me to continue to poke more people into an already under strain Sydney - largely by creating more jobs in Sydney.


2 tanners said...

Edit: I wrote this before any of your comments today but didn't post it. You can read it or not but the summary is that I agree about it being a supply and location problem with some caveats. These relate to my beliefs about effective government. If it is so much cheaper to live and work and operate in the regional cities, why aren't major firms flocking to do so? I imagine part of it is the upfront moving cost, but much of it is the "I need to live in Sydney/Melbourne" mindset. To kvd: sorry for agreeing with you so much over the past few days, I'll mend my ways soon.


I voiced my objections to the AVPMA move loud and strong a couple of years back. In very short summary, they all needed to be together for the sake of their customers, they needed to be close to the Minister to advise him and the move meant that they would lose most of their existing expertise while not offering any benefits. Better to just give Armidale better infrastructure and maintenance of equal value.

All that said, kvd has a point that much govt business can be physically decentralised. Not as much as is claimed, because the policy work still requires a lot of face to face with ministers and their offices, and the policy support needs face to face with each other.

It has to be remembered that most of the Australian Public Service is not in Canberra. It was decentralised decades ago, or never centralised at all. But the further the analysts are from Canberra, the fainter their voices become compared to lobbyists and special interests. I remain sceptical that decentralising government advisory capacity will result in better government, no matter who is sleeping in the lodge.

And why are private interests not doing so?

Anonymous said...

"And why are private interests not doing so?"

- that's chicken or egg stuff.

"policy work still requires a lot of face to face with ministers and their offices"

- not according to Jim's reported degradation of 'face-to-face' as opposed to quite strict hierarchy reporting of recent times?

"they all needed to be together for the sake of their customers"

- who are all based in Canberra - one thus assumes?

"sorry for agreeing with you"

- tosh, pish and nonsense. You will no doubt soon resemble your earlier ways :)


marcellous said...

One difficulty of requiring specialist workers to move to a region is that they are quite likely to have specialist spouses. Can both be accommodated? Isn't that an advantage that cities have (until/unless they price themselves out of it) - a wider range of jobs and workers?

Anonymous said...

Good point @marcellous - if we were to assume the majority were 'specialists'. I actually think the generalists outnumber them - hence contemplation of sideways movements, given reasonable notice?

Your last point: can't be denied. It's probably only available to government to remove/restrict/reduce said 'wider range' of jobs. Too big for any other employer I think.


2 tanners said...

If there was a good economic incentive to move to the regions larger companies would have done it. It's not chicken and egg.

Face to face was written with Jim's comment in mind. The further away the non/less political advisors, the less their advice will be heard or even sought.

The customers are largely in Canberra, Sydney and Melbourne. Of these, Canberra is the least expensive. The stakeholders unanimously opposed the move.

I appear to have mended my ways, as promised.

With regard to specialist spouses, I'm not so sure. What I am more sure of is that most of them had employed spouses. No compensation for the spouse having to resign and be uprooted was envisaged, nor was there any kind of employment plan for them or any other provision, except some pissant pay offer (which breached APS wage negotiation guidelines). The point is, it's the same for everyone. Two income families are the norm not the exception and quite a few public sector workplaces still place bars on spouse working in the same area for good and sound reasons. Unless both spouses can find work, why would the family move?

Anonymous said...

tanners, I agree with your above points, however, let's just state up front that the specific forced relocation being now discussed/dissected is the absolute worst example of what might be achieved by a thoughtful, extended attempt to take the pressure off our main urban centres - okay?

Or not?


Jim Belshaw said...

Morning all. A brief comment at this point on the issue raised by marcellous. The effect of two incomes in reducing geographic mobility was becoming clear by 1980. The problem can be more acute where both are professionals. However, its not the only factor. Other things such as attachment to location, the length and structure of training, source of student cohorts and family formation all come in. It's a long running issue that has become more acute, creating something of a vicious cycle.

I have a column due. I will come back again when that is finished.

2 tanners said...


@kvd Definitely agree. If it wasn't worst practice, it wasn't far off. I made the point at the time that it assumed the scientist (who is not necessarily the husband) was the sole or main breadwinner and that the families had no other attachments. I would think a considered approach, involving a lot of consultation with workers, families and companies that need AVPMA approvals for their business could have seen a much better outcome that still worked for Armidale. Personally, I'd probably have picked a different body to move, but whatever.

I'll try and leave AVPMA alone from this point, unless asked. The Canberras who asked for a revision of the decision now that BJ is on the back bench were, if serious, living in dreamland.

Jim Belshaw said...

Sticking with mobility for the moment.

Many people like to stick to home territory if they have the opportunity. In my admin training year, nearly all the group came from universities outside Sydney or Melbourne where local employment opportunities were less. Canberra still has some problem in getting people to move there despite its many advantages. It's away from the coast, regarded as remote and even dull.

Where people train has an impact especially where there are job opportunities at that place. The NSW Education Department was struggling to get country teachers. At the time, all teachers were trained in Sydney. That was one reason for the establishment of the Armidale Teachers' College, a move that worked despite the initial criticism using arguments that would appear quite familiar today.

Locational issues can be accentuated by demographic shifts. Students in vet Science at Sydney, then the only school, moved from majority male to majority female and Asian. The result was a surplus in Sydney based small animal vets, a deficit in country based and especially large animal vets, Something similar happened in optometry even though regional incomes were higher.

The process is affected by length of training. The time required for medical training has increased so much that doctors are 32-33 before they finish training. By then they generally have partners and often children and are reluctant to move, even to the Western suburbs!

Pulling this together, mobility is a critical issue but its not a simple issue.

Jim Belshaw said...

On large companies, it is a bit of a chicken and egg. However, there are locational advantages that favour the two big metros in particular for head offices. If we take Canberra as an example, outside Government I know of no large companies headquartered there. Again, there are particular locational dynamics that need to be factored in in considering decentralisation policy. Among others, individual branch office or service functions are inherently unstable.