HAL PAWSON. Shorten places housing at the centre of the 2019 electionDec 18, 2018
With his weekend announcement of a $6.6 billion affordable rental construction program, Bill Shorten has dramatically reinforced Labor’s emphasis on housing as central to the Party’s 2019 election policy pitch. The initiative, Labor’s first significant housing investment pledge in four federal elections, aims to help qualifying low-to-moderate income earners increasingly squeezed out of urban housing markets. It builds on Chris Bowen’s vow, ahead of the last federal contest, to restrict landlord investor negative gearing tax handouts to those helping to expand supply through newly-built housing acquisition.
Now, Labor is re-committing to its 2016 investor landlord tax reform plan and to a rental supply program partly financed by the resulting tax savings. In combination, these moves start to redirect what is effectively a form of housing subsidy (negative gearing and Capital Gains Tax discount) towards a targeted and highly justifiable end: expanding the supply of good quality rental properties reserved for essential service workers and other similarly eligible applicants.
Importantly too, Shorten’s new housing program is far removed from the small-scale gimmick initiatives that have become so familiar in this policy area. His claim that this would be the largest national housing program since World War 2 is no exaggeration. Since public housing construction flatlined following 1997 Howard Government cuts the only measure at scale has been Kevin Rudd’s 2008 National Rental Affordability Scheme (NRAS). But, with its initial target of 50,000 units, NRAS was small beer compared with Shorten’s 250,000-in-a-decade pledge.
The need to crank such an operation into gear means it will necessarily start fairly small, generating a targeted 20,000 construction starts in the next parliamentary term. But this needs to be seen within the current context where annual public housebuilding (often involving the replacement of obsolete homes) equates to only around 3,000 dwellings.
With the aim of generating 250,000 homes over ten years the Shorten program will need to be delivering close to 30,000 annually by the time it really hits its stride in the mid-2020s. Justifying his rhetoric, this would far exceed the output achieved in the mid-twentieth century heyday of public housebuilding. Equally, though, in modern Australia it would represent only around 10-15% of total residential construction – proportionately similar to public housing in the early post-war period and well below the present-day subsidised rental output of some European countries (including the UK, Finland, France and Austria).
So, yes, this is a big program – but how far would it actually address need? In our recent research we estimated a current shortfall of over 400,000 homes affordable to very low-income Australians – people who are actually homeless or are low earners paying rents so expensive that they are forced to forgo basic necessities. Even with steadfast political will and commitment to the necessary social housing investment, resolution of this situation would take decades to achieve. The required program, must therefore also account for the newly arising need projected to emerge over such a period. On this basis we estimated that – without other major changes in market conditions or policy settings – this would call for a 20-year program to deliver over 700,000 social rental properties (over 350,000 in a decade).
While somewhat lower than our needs estimate, Shorten’s number is arguably getting close to the same ball park. The bigger question is exactly how ‘affordable’ the Labor program homes would be. On this, Shorten’s speech was explicit, designated federal funding will enable rents to be set at a 20% discount on market levels – or, as he put it, a saving for a family paying an average private sector rent of ‘up to $92 per week, every week of the year’. That will help in reducing rental stress (facing an unaffordable rent) that now affects 44% of low-income tenants (over 50% in NSW). But the new homes generated under the program will be affordable to very low-income earners only if construction and land costs are underpinned by additional subsidy beyond what would be federally supported.
This is where the states and territories must be incentivised and cajoled to come to the party. By matching Commonwealth support through discounted public land, through cash subsidies and through obligatory developer contributions (via the planning system), state and territory governments can enable Shorten program homes to be rented out at levels affordable to those reliant on minimum wage employment or welfare benefits. Indeed, these kinds of investment contribution are envisaged in the Labor statement. But unless they happen, to a much greater extent than achieved under the Rudd NRAS initiative, the program will be of only indirect assistance in tackling Australia’s growing homelessness problem and in cutting the huge queue of social housing applicants.
Referencing the current government’s – albeit modest – input in this space, Labor envisages its new initiative as complementing the low-cost financing recently enabled through the National Housing Finance and Investment Corporation (NHFIC). This facility, established under Scott Morrison in his Treasurer role, should channel private investment to not-for-profit housing providers otherwise reliant on higher cost bank finance. Unless complemented by government subsidy, however, the NHFIC is likely to be something of a white elephant. With Shorten’s speech, Labor has now upped the ante here. The challenge for Prime Minister Morrison is to respond with an election pitch of his own that includes an affordable rental funding commitment. Otherwise, his contribution to this policy area as Treasurer will have been futile.
Hal Pawson, Professor of Housing Research and Policy, UNSW