Pearls and Irritations

This is the latest monthly digest of articles, research reports, policy announcements and other material about housing stress/affordability and homelessness.

USA: Why building more homes won’t solve the affordable housing problem for the millions of people who need it most In this article in The Conversation, two US professors of urban planning contend that increasing the supply of homes is necessary, but not sufficient, to address the country’s housing affordability problems, especially for those with the most severe needs. They say that in much of the US there is actually no shortage of rental housing and that the problem is that millions of people lack the income to afford what’s on the market: “Nationally, about 45 per cent of all renter households spend more than 30 per cent of their pretax income on rent”, and “About half of these renters, 9.7 million in total, spend more than 50 per cent of their income on housing, greatly impairing their ability to meet other basic needs and putting them at risk of become homeless.” Of the renters paying at least half of their income on housing, nearly 2/3 (over 6 million households) earn less than $US20,000, which is below the poverty line for a family of three. The authors say the problem of housing affordability in the US is pervasive throughout the nation: “… there is not a single state, metropolitan area or county in which a full-time minimum wage worker can afford the ‘fair market rent’ for a two-bedroom home”.  They see the heart of the problem as being that “the cost to build and operate housing simply exceeds what low-income renters can afford” and conclude that covering the difference is “the only solution for the nearly 9 million low-income households that pay at least half their income on rent”.  America’s Housing Choice Vouchers (Section 8) program, costing $US26 billion and serving about 2.5 million households, is designed to help address this gap, with recipients paying 30 per cent of their income on rent and the balance being covered by the program. The Democrats’ social spending bill would expand the program significantly.

Canada: What if we treat homelessness like a pandemic? OCAD University Associate Professor Sarah Tranum, writing in The Conversation, makes the case (in a Canadian context) for adopting a systems-based strategy in addressing the root causes of homelessness and how to prevent it, rather than just managing its symptoms. She challenges us to imagine how much worse off we’d be if we had managed the Covid pandemic like we treat homelessness.

Fundamental overhaul of Australian housing system required to ensure affordability for future generations Journalist Courtney Gould, from The Australian, provides a precis of some expert evidence to the current House of Representatives inquiry into housing affordability, chaired by Jason Falinski MP. The Grattan Institute’s Brendan Coates warns: “Basically, anyone who doesn’t own their own home by the time they’re around 45, given the current settings, is probably looking at potentially quite a big drop in their living standards when they hit retirement.” The current house price boom is certainly not helping those unfortunate to have not yet got “set” in the residential property market. Gould notes that house prices across Australia have increased over 21 per cent in the 12 months to the end of October, the highest annual growth rate since mid 1989. It now takes an Australian almost a decade to save for a 20 per cent deposit on a house, up from five years and six months in September 2001, and home ownership rates continue their decline (particularly for younger age cohorts). UNSW City Futures Research Centre’s Professor Hal Pawson believes Australia’s housing market has a structural affordability problem, one which requires “fundamental reform of the entire system” — addressing both housing supply and demand issues — a view the Grattan Institute shares. Corelogic’s Eliza Owen says we have “widening wealth inequality, perpetuated through Australia’s housing system”, and SQM Research’s Louis Christopher favours longer-term tax reform, including a gradual phasing out of negative gearing.

“Priced out”: Alan Kohler special investigation into housing affordability This special report for the ABC’s 7.30 by finance presenter, Alan Kohler, explores housing affordability and some proposed solutions, while acknowledging “It’s a complex problem with many parts”. He interviews Jason Falinski MP, chair of the current House of Representatives inquiry into housing affordability, who admits it is within the “top three or four questions that we face in this country right now”. Interestingly, for a government MP, Falinski acknowledges that current tax settings incentivise higher house prices and he believes capital gains tax should be looked at. He describes Australia’s lack of housing affordability as form of “intergenerational theft”. Demographer, Simon Kuestenmacher, says politicians are reluctant to do anything that might dampen house prices, due to the electoral damage this would likely cause them. Former Commonwealth Treasurer, Peter Costello, is another to recognise the political realities surrounding the debate about house prices.  Kohler notes that the supply of housing needs to be increased, and demand needs to be dampened by removing tax breaks and government grants for buyers.  He also supports the case for improving rental conditions (eg. Better rental accommodation standards and, for those wanting it, longer lease terms). Above all, however, he makes a plea for at least someone amongst the nine housing ministers in Australian to take responsibility for housing affordability. See also this related article by Alan Kohler.

Australia’s rental system reaches new heights of unaffordable ProBono Australia journalist, Maggie Coggan, analyses findings from the recently published Rental Affordability Index (RAI) for 2021, compiled by National Shelter, SGS Economics & Planning, the Brotherhood of St. Laurence and Beyond Bank Australia. The 2021 RAI reveals that there is currently no affordable rental housing in Australia for single pensioners, people on jobseeker, pensioner couples and single part-time working parents on benefits, apart from in regional South Australia. Hobart is named the least affordable city to rent in Australia, followed by Adelaide, with Melbourne and Sydney the most affordable capitals for the period. The ACT and Sydney remained the least affordable locations for low-income renters. The Covid pandemic has had the effect of pushing up prices in regional areas, as thousands of people facing lockdowns in Australia’s capital cities (many of them on higher incomes) relocated to regional areas, taking advantage of the opportunity for remote working. Adrian Pisarski, CEO of National Shelter, has called for the federal government to, at the very least, increase the level of Commonwealth Rent Assistance (CRA) by 50 per cent, and to help bring about a substantial boost in social and affordable housing. See also Rental affordability dropped in most cities during 2021, according to new report.

Housing price growth underrated by the RBA Most economists agree that cheap money is one the main factors that has contributed in recent times to Australia’s booming housing market. The Australian Financial Review’s Cecile Lefort notes that Australia’s official cash rate would be closer to its NZ counterpart if Australia had the same allocation to housing price growth in its CPI basket as Stats NZ does — a point relevant to our overheated residential property market. Housing is the largest component of the Australian CPI basket, accounting for 24 per cent of the total, compared to the corresponding figure of 28 per cent in NZ.  Both countries measure changes in the price of new dwellings purchased by owner-occupiers (8.49 per cent of the Australian CPI basket), as well as rents (6.8 per cent of that basket) and a range of other home operating costs, but they both exclude the cost of existing homes, the cost of land, and mortgage interest rates. Lefort cites an estimate by one economist that if the ABS were to match NZ’s housing weighting, by raising it to 28 per cent, it would lift overall inflation by as much as half a percentage point and cause the RBA to raise interest rates sooner.

Sydney home buyers face a record 16 years to save a deposit The Australian Financial Review’s Nila Sweeney highlights some of the findings from the latest ANZ CoreLogic Housing Affordability report. Based on households saving 15 per cent of their gross annual income, it now takes a record 10.8 years to save a deposit for a median price Australian house and nine years for a median price apartment. The corresponding period to save for a median price house in Sydney is a staggering 16.6 years. On average across Australia, property prices rose nearly 22 per cent over the 12 months to end October 2021. Home buyers on an average income now need to use almost 40 per cent of their household income to service a new mortgage, following price rises averaging over 24 per cent nationwide over the past year. ANZ senior economist Felicity Emmett believes that for many Australians on median incomes, homeownership is becoming more and more inaccessible, at least in our major cities. Sweeney quotes Emmett: “The main issue is that house prices have been growing so much faster than incomes — now 12.5 times the average household income in Sydney.” The equivalent national ratio was 7.7 times in the June quarter 2021. When rising interest rates do eventually slow rising house prices, that will create its own problems with mortgage debt serviceability. See also an article by AAP journalist Prashant Mehra, First home buyer deposit hurdle worsening, from which some of the above findings from the latest CoreLogic report are drawn.

Governments’ response to housing during COVID-19 highlights need for policy reform UNSW Sydney and ACOSS have partnered in research examining the impact of the Covid pandemic during 2020 and 2021 on long-standing housing unaffordability, inequality and indebtedness. Their related research report shows “renters on low and modest incomes are experiencing housing stress, especially in regional Australia, due to surging rents and lack of social and affordable housing”, and that “by far the most significant housing impact of the pandemic in Australia has been the house price boom that took off in late 2020” — a boom which was stimulated by government measures to boost private market demand.  ACOSS CEO, Dr Cassandra Goldie, says “The situation for those on the waiting list for social housing feels increasingly hopeless. Individuals and families struggle to keep a roof over their heads in the face of rising private market rents or are forced to stay in unhealthy or unsafe circumstances.” The report notes that there are currently 155,000 households registered on social housing waiting lists across Australia, and more than 400,000 households also need affordable housing. Post-pandemic stimulus investment by Victoria, Queensland, Tasmania and Western Australia, totals nearly $10 billion, while NSW’s stock of social housing is set to fall below 4 per cent of total occupied dwellings within 10 years, comparing poorly to the OECD average of 7.1 per cent. State and territory governments plan to build over 23,000 new social housing units over the three years from 2021-22, a threefold increase on social housebuilding rates during the late 2010s, and comparable to the Rudd government’s post-GFC Social Housing Initiative. Overall, across Australia, the post pandemic revival in construction of social housing remains patchy, and unsustainable without more concerted action led by the federal government. From mid-2020, rents have been rising rapidly, and by August 2021 national rents were accelerating at more than 8 per cent per annum, the fastest rate of increase for well over a decade, far ahead of wage growth at 1.7 per cent. Rents in regional Australia surged by 12.4 per cent in the year to August 2021. Rental affordability will be further worsened by the progressive expiry of affordable rents under the now dwindling National Rental Affordability Scheme (NRAS), started under the Rudd Labor government and axed by the Abbott coalition government. See also Rental market Australia: COVID-19 pandemic sparks housing crisis.

The compelling case for a future fund for social housing Brendan Coates, Grattan Institute Program Director for Economic Policy, outlines an innovative new scheme under which the federal government could, at relatively low cost to the public purse, spearhead a resurgence in the stock of social housing across Australia. Tenants of social housing typically pay rent capped at 25 per cent of their income (ie. unrelated to market rent) and such housing is reserved for the most vulnerable in our community. Only 7 per cent of renters in social housing subsequently become homeless, compared to 20 per cent of private renters. Coates observes that Australia’s stock of social housing, currently around 430,000 dwellings, has barely grown in 20 years, during a time Australia’s population has grown 33 per cent. As the per capita stock of social housing has dwindled, waiting lists for social housing have become very long, and this has contributed to a higher incidence of poverty and homelessness. The Grattan proposal, which is more fully explained in a new Grattan Institute paper, involves the establishment of a $20 billion federal government Social Housing Future Fund, which would make regular capital grants to state governments and community housing providers. As Coates points out: “Future funds are not unusual. The Future Fund Board of Guardians, chaired by former Commonwealth treasurer, Peter Costello, already manages nearly $250 billion in assets across six funds addressing problems ranging from covering federal public servants’ superannuation entitlements to drought to disability care to medical research”. Under the Grattan proposal, only the returns above inflation would be used to provide capital grants for housing, thereby maintaining the real value of the fund over time. Capital grants for new social housing units would be allocated by the National Housing Finance and Investment Corporation (NHFIC) via competitive tenders after specifying dwelling size, location and subsidies for tenants. As with the existing Future Fund, funding would be off-budget, with only each year’s profits or losses affecting the budget balance.  Coates indicates that a $20 billion fund which achieved after-inflation returns of 4 per cent to 5 per cent could over time provide $900 million each year, enough to deliver 3000 extra social housing units a year in perpetuity, assuming capital grants of $3000 per dwelling. Assuming a start in 2022-23, the scheme could fund 24,000 social housing dwellings by 2030, and 54,000 by 2040. If the federal government were to require state governments to match such federal funding (as Grattan suggests should be the case), the initiative could provide 6000 social homes a year, or 48,000 new homes by 2030, and 108,000 by 2040, boosting the current stock by a quarter. Coates says a Social Housing Future Fund would not solve the housing crisis for low-income Australians, but “would give a much-needed helping hand to some of our most vulnerable and keep social housing there for future generations should they need it”.

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