Towards the end of last year Quarterly Essay published Alan Kohler’s The Great Divide: Australia’s Housing Mess and How to Fix It. Being a long-standing housing person and also someone who enjoys reading Kohler’s economic analysis, I dived in. Here’s some thoughts.
In his trademark style Kohler has taken a complex and frustrating subject and explained it in a manner that is not only comprehensive enough to be useful, but easy to understand, a pleasure to read and laced with his trademark wit. The picture he paints is not pretty. The combination of tax and transfer policies designed to stimulate housing demand (along with low interest rates) and planning policies designed to limit supply has led to a doubling of house prices relative to incomes over the past quarter of a century. The result is that people who own housing have a steadily appreciating asset and those who don’t own a home already see the prospect of ever doing so receding into the distance.
What’s sad and frustrating about this, as Alan points out, is that he’s not telling us anything we don’t already know. Rumour has it that the Parliamentary Library had to commandeer an extra room to house the reports from the parliamentary inquiries, Productivity Commission investigations, Reserve Bank research and the output of various efforts around the country to find a solution. Ideas for solving our housing mess are not in short supply. What is experiencing a supply crisis is actual willingness to do anything about it.
It wasn’t until I got to Alan’s proposed solutions that I felt that familiar depression. He puts his finger on the obvious reason we have never taken any action to decrease house prices. The majority of us, including the wealthiest and best connected, own housing. We are happy if its value rises and sad if it falls. Furthermore, a sustained fall in prices would risk a repeat of the Global Financial Crisis, and that wouldn’t be good for anyone. This means that while governments might make sympathetic noises about housing affordability, they have little motivation to do anything about it.
This means that he skips past all the things we know we need to do – reform of negative gearing and capital gains tax, scrapping first home owner grants, planning reform to allow more medium density housing – and lands on transport reform. If we build fast train connections between our capital cities and key regional centres like Bendigo, Bathurst and Toowoomba people will be able to live in affordable regional housing and still work in the city courtesy of a fast commute.
I don’t think this is a bad idea. Better public transport is good for all sorts of reasons. But I think it’s unlikely to happen any time soon, and even if it does it is hard to see how it would solve the problem rather than just relocating it.
I think the problem here is that Alan is caught in a dilemma. On the one hand he would like to see house prices gradually fall relative to incomes until they are back where they were in 2000. On the other hand he acknowledges that when governments and oppositions try to do the things that the experts say will get us there they get beaten around the head until they withdraw. Housing reform of the kind he is talking about has become politically impossible.
My immediate thought as I got to the end of his essay was, what if he was trying to solve the wrong problem? Not that I don’t have sympathy with the millennial and Gen Y kids trapped in insecure rental. This is a genuine problem. But the most urgent problem is literally out there in plain sight. Over the past year or two we have seen a steady increase in the number of people living in tents in our urban parks and along our riverbanks, in improvised shelters under bridges and roadways, or huddled in sleeping bags under shop awnings. What was once easy to miss is now slapping us in the face.
These people are just the tip of the iceberg. The 2021 census counted over 120,000 people homeless. Of these, less than 8,000 were sleeping rough. Just under 25,000 were in crisis housing. The rest were crowded in with friends and family, or in temporary lodgings of some sort. A similar number were at risk of homelessness in the near future – living on overcrowded, insecure or unsafe housing.
If reports from the field are anything to go by, this number is almost certainly higher now than it was in 2021. In my 40 years working in homelessness and affordable housing I have never seen things this bad. My colleagues in front-line services are becoming increasingly dispirited as their options have dried up – often the best they can do is a few nights in a motel or caravan park, advice on how to stabilise an unsafe couch-surfing posse, a donated tent, or assistance to join a social housing waiting list that might see the person housed in some distant future. On top of this is the wearying stress of listening to people vent their totally understandable frustrations when homelessness services are unable to help them solve their homelessness.
Homelessness is nothing new. Even at the height of Australia’s post-war housing golden age in the 1960s and 1970s some people were still homeless. It’s just that now we have a lot more of it, and fewer pathways out. As housing affordability has declined across the board, the number of homeless people has steadily climbed. People who work in this field have been trying to draw attention to this for a long time, but it’s been hard to get anyone to listen.
Part of the reason for this is that we have invented various ways to mask the problem. For instance, over the past 20 or 30 years we have increasingly targeted social housing allocations to those deemed most in need. When I started working in homelessness in the 1980s, social housing lists were genuine waiting lists – you filed your application and if you were eligible you would go on a list prioritised in date order. Occasionally people would be housed out of turn if their need was particularly urgent, but these were a minority. This has gradually changed over the past 30 years, and we are now at the point where even those who have nowhere to sleep right now have a long wait. This makes it look like demand for social housing hasn’t increased in 30 years, when it’s actually just more stringent rationing.
Alan Kohler skipped quickly past social housing, but if you want to focus on helping those who are suffering the most from our current housing mess it needs to be front and centre. It is the only realistic source of housing for most of the people who are homeless or at risk of homelessness.
What would it take to revitalise social housing? In November 2022 the City Futures Research Centre at UNSW estimated that there were 640,000 Australian households whose housing needs were not being met and projected that this will increase to 940,000 by 2041 on current trends. These seem like impossibly big numbers, so let’s focus on the people who are homeless or at risk right now. In 2021 these amounted to around 220,000 persons. There are probably more now, so let’s round it up to 250,000. At an average of two persons per household, this equates to 125,000 households.
Let’s assume that to house them we need 125,000 new social housing dwellings. Ideally, we need them right now but realistically let’s consider this within the five-year time horizon of the National Housing Accord. To achieve this, just over 10% of the targeted 1.2 million new homes would need to be social housing. At an average of $500,000 per dwelling (a lot of them would be small units rather than houses) the cost would be $62.5b over five years, or $12.5b per year. Not all this money needs to be in direct government grants – there are a number of ways to leverage private investment, loans and developer contributions to help meet the cost.
How close are we to this number right now? The Commonwealth Government plans to deliver 30,000 homes in this period through the Housing Affordability Future Fund, while the extra $2b negotiated by the Greens as part of their deal to pass the legislation could produce around 4,000 more. This is on top of ongoing programs being run by the various State and Territory governments under the existing National Housing and Homelessness Agreement, where the Commonwealth Government contributes $1.6b per year, matched by the States. It’s hard to get a clear picture of exactly what this delivers in terms of new housing because a lot is spent maintaining and upgrading the existing State property portfolios. However, various State and Territory announcements over the past year or two suggest a figure of 25-30,000 new dwellings wouldn’t be too far from the truth. If all these plans deliver as promised, we will be about halfway there.
Doubling this effort would be challenging, but far from impossible. State and Territory governments and community housing organisations already develop housing, so they have the skills and systems to do it. In 2008-10 in the wake of the Global Financial Crisis, under the Commonwealth’s economic stimulus program the State governments increased their construction from around 4,000 dwellings a year to around 16,000, and the program was delivered on time and under budget. The fact that the system in the various States and territories is already gearing up for growth will make it easier than it was in 2008, although they will face the same challenges as the private development sector with skills and materials shortages.
This wouldn’t necessarily solve Australia’s housing affordability problem, although it would contribute to the solution. It would ensure a substantial government contribution to the supply effort, one that didn’t wax and wane according to market conditions. It would build up the only genuine ‘build to rent’ sector in the Australian housing market. But most importantly, those who are suffering the most from our housing crisis would be the first to get help, rather than waiting and hoping for the market to deliver the promised affordability.
We have an urgent problem. People are homeless right now. We can’t wait for the market to magically provide lots of housing and the effects of this to eventually ‘filter’ to people who are homeless. The only realistic way to solve this problem is to revitalise our social housing sector, starting right now.