Housing Affordability

Presentation by Alan Morschel to the Canberra Urban and Regional Futures forum at the University of Canberra 6 March 2017

Summary of housing affordability
To this seminar’s question as to whether we are there yet, I say we are very close to a possible train wreck.  In my presentation, I intend to set out why and how I believe that we have reached this position, and offer some solutions from an architect’s perspective.

There are many statistics now available to demonstrate the worsening problem of housing affordability, but I believe that the worst summary is OECD’s measure of our national average housing price to average income ratio. It has increased between 1980 and 2015 by nearly 80%. The current stagnation of wage growth will likely see this figure worsen. The median Sydney house price in 2016 was an astonishing $999,600 and in Canberra it was $570,000.

These property values are so adversely affecting the affordability of house purchasing that about 30% of the population are now renting. Robert Menzies post war dream is looking very sad. In the last couple of years, the problem has noticeably escalated with many political, economic and social commentators daily addressing the matter. Politically it has now become so critical that WA is likely to (did) see a change of government, and the issue is rumoured to be addressed in the forthcoming federal budget- whatever that may mean.

Reasons for current situation
I believe that it has regressively developed into such a critical problem for a number of reasons:

Firstly, a lack of political will. Development and delivery of long-term bi-partisan strategies have been missing. This has occurred within the federal parliament, as well as between the commonwealth and state governments. There has been a lot of buck-passing and political point scoring, while solutions are missing.

There is a history of variously failed, or partially failed and emasculated proposals, such as the home super saver scheme, first home buyer grants, inclusionary housing requirements, stamp duty moratoriums and the rental affordability scheme.

In contrast to these mish-mash of measures, negative gearing and discounts on capital gains tax remain untouched.

Secondly, there is a lot of self-interest in the housing property industry. It is a very large and powerful business, involving land speculators, banks, developers, builders and tradesmen, marketers and sellers. They certainly have the ear of many politicians through federal, state and local jurisdictions. I also suspect that many politicians are conflicted, being themselves owners of negatively geared properties.

Thirdly, supply.  The housing property industry repeatedly advises that the annual supply of housing is insufficient to meet the underlying, long-term needs. True as this may be, the industry often ignores the specific requirements for public or social housing and low-income renters. Delivery of long-term, bi-partisan and serious support by both commonwealth and state governments is required to ensure that public or social housing’s role for its constituents is assured.

Low-income renters, often those saving for a housing deposit, need more secure and lasting rental premises than are provided by the “mums and dads” landlords. These landlords, with the benefits of negative gearing and discounted capital gains tax, are not in the business of providing secure and lasting rental accommodation. Institutional investing landlords that are in the business for the long-term can provide a more reliable accommodation support, and should be more encouraged by governments.

Fourthly, there are the first home buyers. They are a discordant group, decreasing in numbers- not due so much to their success in purchasing a house but enforced to withdraw from the purchasing market. They have very little political clout.

If they are successful with a purchase, and can continue to meet the mortgage repayments, they will likely take a very different view of the issue because of the natural inclination to want to protect, and even improve, the value of their asset. Owner-occupiers and/or land-lords have a very strong self-interest in rising property values. You would not want to be in government when the housing cost bubble does inevitably burst.

So what can be done?
The aim should be for an adequate and good housing supply that is affordable, diverse, sustainable and will be supported by all the nation. Housing and its neighbourhood should be supportive of a strong and healthy community.

I believe that many of the big impact solutions for controlling the spiralling level of housing affordability are the responsibility of the commonwealth, with some involvement by the states. This particularly involves the economic issues of negative gearing and capital gains tax, which currently distort the market unfavourably against first-home buyers.

However, as an architect, I have very little expertise in these areas of policy. But I want to make some other suggestions in the fields of planning and architecture, and on matters that can both support an easing of housing costs and improve the level of sustainability. These are issues that can more directly improve the level of affordable housing which can lead to better housing affordability outcomes.

1. Recognise and accept change. Urban areas worldwide are having to face up to the world’s rapidly growing population, with over 50% of the 7.5 billion now living in cities. Australia is part of this challenge, and planning policies should be prepared and delivered to provide affordable amenity and accommodation for all citizens.

2. Discourage urban sprawl, with the provision of high quality planning and design of increased density housing that is strongly supported by public infrastructure and local community services and amenities. High quality planning and design can provide for the expectations of both existing residents and their new neighbours.
   The cost and value of land, is a major factor in setting the value of a dwelling, but undeveloped land also has very important environmental and agricultural benefits that should be recognised. Existing serviced land can usually be more beneficial for meeting broad urban objectives.

3. Consider regional decentralisation, where employment, services and infrastructure can cost effectively support an increase in population. Canberra and its surrounding region is a prime example of successful decentralisation, but many others do exist in the country and can be realistically supported to extend their role.

4. Anticipate and prepare for the alleviation of the impacts of climate change. Possible building cost increases for strong, mandatory minimum requirements for energy performance in buildings should not be a deterrent for this long-term strategy. Later and more disruptive and reactive actions could be far more costly.

5. Support and encourage housing choice to meet the diverse range of occupants, whether renters or owners. This can be achieved by involvement in challenging, reviewing and amending current planning policies and regulations. Planning policies should have clear targets for affordable and social housing, but also allow for flexibility and multi-generational occupancy.

6. Construction materials. I believe that building construction costs are very tight and competitive for the nature of the Australian industry it is very much an on-site operation, focused on self-employed subcontractors. Pre-fabricated and kit houses have achieved some success in specialist areas, such as low-cost tourist accommodation and remote rural areas, but remain far from acceptable to both the main-stream housing industry and the market. However, I believe that at some future stage factory produced houses will prove themselves with the delivery of construction costs that are lower than the current system.

7. High expectations. New or up-selling buyers are very aspirational in their housing requirements. Many builders will advise that they rarely sell their base model house. It will often be optioned up with European imported fittings and fixtures, and the provision of additional space. Australia has the 2nd highest floor area for new housing in the world, at over 200 sq. Metres. It is an aspiration that is unsustainable in the long-term.

And finally, the example of the nightingale housing concept, and how architects have demonstrated a built solution to the problem of both affordable housing and then housing affordability. It is an innovative approach to housing design and delivery. The nightingale group is now on its 4th development in inner Melbourne. Nightingale was instigated by a small group of architects who challenged the role of developers and marketers in the medium density housing market. They calculated that about 20% of the housing costs could be saved by avoiding the use of developer and marketing agents.

They also realised that lesser savings, but still important ones, could be achieved by taking on difficult infill sites (e.g. next to railway lines), involving potential owner-occupiers at the initial design stage, and minimising, if not deleting, car parking.  The developments are both financially and environmentally sustainable, and their success is now leading to similar projects being considered in other Australian cities. A group of Canberra architects is also making serious investigation into a local proposal.

Conclusion
Housing affordability, although a complex problem with many self-interest players, has been allowed to fester and worsen for too long. If not at least held in check for now, its uncontrolled resolution in the near future could be disastrous for not only the country, but also many house owners.