Pearls and Irritations

Along with a new scheme for first home buyer assistance, Federally-led rental reform is now on the PM’s agenda. But this week’s National Cabinet and Party Conference housing announcements need to be integrated into a coherent and ambitious long-term strategy.

Anthony Albanese has signalled backing for ‘harmonising’ tenants’ rights, country-wide, importantly including enhanced security of tenure and minimum property standards. With growing numbers of Australians renting, many of them perpetually, and with state/territory tenancy regulation generally among the lightest in the developed world, such changes cannot come soon enough.

Admittedly, Victoria and the ACT are well ahead of other jurisdictions on reforms of this kind. Extending these nationwide would be a significant win for renters elsewhere, fulfilling part of the renters rights agenda championed by the Australian Greens.

But because this week’s National Cabinet agreement largely rebuffed calls for firmer rent regulation it seems unlikely to resolve the Government’s Parliamentary stoush with the Greens, a Senate dispute that has stalled the ALP’s flagship housing investment legislation for six months already.

Not only did the meeting unsurprisingly reject the Greens’ demand for a two-year national rent freeze; it even baulked at the ACT’s ‘light touch’ model for regulating rent increases. This involves a legislated ‘guideline’ – set at 1.1 times the CPI Rent series. A landlord wanting to increase rent above the guideline must seek tribunal approval and show that it is not excessive to the general market level of rent for comparable premises.

As more fully argued in our recent Parliamentary submission within-tenancy rent increase restrictions – widely operated in comparator countries – mainly function to protect tenants from the risk of large rent hikes that could precipitate serious financial stress. For example, while sector-wide rent increases averaged only 5% in the year to February 2023, nearly a quarter of rents were hiked by more than 10%.

Placing faith in planning deregulation

In seeking to confront housing affordability stress, the new National Cabinet agreement instead places faith in boosting overall housing supply; that is, stepping up housebuilding.

Interestingly, along with the usual associated warm words about Australian governments’ mutual commitment to relaxing land-use planning restrictions and streamlining procedures, the communique also announced new Federal funding in the form of the $3 billion New Home Bonus to ‘incentivise states and territories to undertake the reforms necessary to boost housing supply and increase housing affordability’.

This appears to emulate recent initiatives in both the UK and Canada. Indeed, as introduced in 2011, the UK progenitor is even named the New Homes Bonus. Under that scheme, it is local authorities which are ‘incentivised’ to facilitate more housebuilding. However, an officially-commissioned evaluation found that ‘whilst many local authorities understood the bonus as a potentially powerful incentive, very few felt it had any effect on decision-making’. Assessments have also judged it difficult to conclusively quantify housing construction additionality attributable to the scheme.

Whether the Australian version of the model will have a more decisively positive impact remains to be seen, but we should be sceptical about any strategy to enhance housing affordability inferring a belief that market housebuilding activity is primarily determined by regulatory constraints.

In reality, the prime consideration for private developers and their financial backers is expected market conditions when constructed homes are saleable. Even if a construction boost could be evoked by planning de-regulation, it is unlikely that this would continue in the face of the stabilising or falling property prices that policy proponents would hope for as a result. Such behaviour is not argued as in any way malevolent; it is simply rational business logic for a profit-making entity.

A ramped-up housing supply target

In any event, by whatever means it might be achieved, National Cabinet also ramped up the existing aspiration to facilitate construction of 1 million homes over five years; instead, Australian governments have now committed to a 1.2 million target. Considering that this would represent an output increase of around a third on current activity levels, its achievement would be no mean feat.

Current Government plans envisage some 40,000 of the 1.2 million homes being social and affordable units part-funded by Federal subsidy – via the Housing Australia Future Fund (HAFF) and the National Housing Accord. That is, of course, if the HAFF is eventually passed in the Senate – more of which later.

If he is serious about meeting the 1.2 million target, the PM may need to ponder more direct government involvement in housing production. Ideally, this would include the commitment to substantial additional social and affordable housing investment in any case required to seriously address the scale of unmet need. He might even consider the recently proposed CFMEU scheme for a hugely ramped-up construction program funded by a corporate super-profits tax.

Of perhaps equal radicalism, other Australian governments could also emulate NSW in looking to revive the government-commissioned build-for-sale programs of the 1950s and 1960s. That is, homes built for sale at cost price on land owned by government or potentially acquired for the purpose through compulsory acquisition powers.

A way forward for the housing legislation

Measures of the kind floated above might even be sufficient to woo Greens Senators to relent on their opposition to the ALP’s housing bills so that the HAFF-subsidised social and affordable housing program can be finally got under way. Short of that, as previously argued, Federal Labor needs to more clearly signal that the current housing bills and recent announcements represent only the initial elements of a more coherent and ambitious long-term housing investment and reform agenda.

The obvious vehicle for this should be the promised National Housing and Homelessness Plan. As part of a vision for a better functioning housing system, the Plan should, for example, envisage a better (more strongly) regulated rental sector to the liking of the Greens Party. However, the recently issued NHHP Discussion Paper suggests that the Plan may fall totally flat.

The paper, for example, lacks any analysis of housing system performance, a weighing of relevant evidence and at least an initial set of priorities which could be further refined via consultation. While its commentary is generally anodyne in the extreme, some sections are highly dependent on contentious Productivity Commission assertions on the inherent superiority of market forces and the benefits of deregulation, all of which are uncritically cited.

As a basis for an initiative that should be the Government’s housing policy flagship, the Paper is a woeful failure. It only vindicates previous warnings that this assignment should have been delegated to the new Housing Australia agency and not to the Department for Social Services. Or, if the PM would prefer, why not take up Ken Henry’s kind offer to lead an underpinning housing system review?

Ministers must get a grip of this process, and fast. Beyond re-allocating responsibility for NHHP development, they should affirm its importance by legislating its remit, broad objectives and review schedule. And if they are seeking inspiration on the scale and breadth of the task at hand, the Australian Housing and Urban Research Institute has only recently published the very blueprint needed.

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