Pearls and Irritations

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

Post-election special 

Do we even want to solve housing affordability? In a typically thought-provoking opinion piece for the SMH, Waleed Aly poses the question “Do we even want to solve housing affordability”. His reasoning boils down to a recognition that for the great majority of the Australian population, housing is seen not just as a place to live but also as an investment, and once they have made that investment, they have a strong incentive to see the value of that investment go up. Aly epitomises this attitude as follows: “A house is a bank account in which you live; it just holds your money in an illiquid form, and gives you a very high (if illiquid) return” and notes the realpolitik of the situation “The moment housing became significantly about wealth accumulation, we created a political imperative that house prices must always go up”, describing this as being “the philosophical root of all our problems”. In summary, until such time as politicians perceive that the majority of voting Australians place primary importance on housing as a basic need for all, rather than a means of wealth accumulation, we will continue to thwart attempts to make it “affordable” in any real sense.

Tinkering at the edges won’t fix housing affordability This editorial from The Melbourne Age poses a similar question: “…what kind of society we want to be – how much the homelessness housing insecurity and rental stress of other people matters to people who own homes. Do we – really – want housing prices to fall?” and cites Ross Gittins’ observation that houses are both a place where people live and an investment that people already in the market want to see appreciate. While it is politically naïve to think that politicians from the major parties will ever positively advocate for policies that cause property prices to fall, it is hoped that such politicians will at least see the merit in policies that moderate price rises, tamp down the speculative aspect of investment in housing and prioritise supply side measures that specifically address the need for more social and affordable housing stock. As Professor Hal Pawson notes in his recent piece in The Conversation (see further below), social housing stock levels for example have fallen by more than a half on a population adjusted basis since the 1990s.

If the major parties really wanted to house the nation, they’d start building In this opinion piece from the Sydney Morning Herald, Emily Sims, Research and Policy manager for Prosper Australia, makes a similar point: “If we are serious about supply, we must fund non-market housing alternatives”, including social housing, community land trusts and land rent schemes. She regards the policies announced by the major parties during the latter stages of the election campaign as “business-as-usual rather than transformational housing policy” and she, like other commentators, observes that they put more money in the pockets of homebuyers (which ultimately benefits vendors and creates upward pressure on prices) without adding to supply. For Sims, “Transformational housing policy is policy that responds to the inherent structure of land markets, shaping and regulating them in ways that reduce rent-seeking for capital gains, reverse or reduce financialization of housing, and offer non-market housing opportunities.”

Just seven rentals in Australia are affordable for a person on JobSeeker Pro Bono Australia journalist, Wendy Williams, parses the sobering results of Anglicare Australia’s recently released annual Rental Affordability Snapshot, which surveyed 45,992 rental listings across Australia, noting the major drop in rental listings and an associated halving of the national vacancy rate, to a record low of 1%. Only 2% of rentals were affordable for a person earning a full-time minimum wage, 1% for a person on the Age Pension and a mere handful for those on the Disability Support Pension or on JobSeeker. Anglicare Australia executive director, Kasy Chambers, described the situation for low-income renters as “desperation stakes”. She went on to remind people that a third of Australians are living in private rental, and many of those are forced through economic circumstance to rent during their entire lives. Chambers estimates a shortfall of 500,000 social and affordable rentals across Australia.

The big solutions that could fix Australia’s massive housing affordability problem In an opinion piece for The New Daily, Simon Kuestenmacher (self-styled Stats Guy) reviews the recently released (2022) Demographia International Housing Affordability report, which compares median incomes and median house prices in 92 urban housing markets in eight countries, including Australia. Sydney is rated second-least-affordable housing market on the list, with Hong Kong taking the unenviable top spot. Demographia considers an income-to-house price ratio of over 5 as ‘severely unaffordable’. Against this standard, Sydney’s ratio is rated a pitiable 15.3, after Hong Kong at 23.2. Melbourne is rated 12.1 (fifth least affordable in the survey), Brisbane at 7.4 and Perth at 7.1. Like many commentators, Kuestenmacher sees the recent policy initiatives of Australia’s major political parties as problematic (eg. Because they stimulate demand and push prices even higher) and/or wholly inadequate to the size of the task, and he favours policies which boost supply, including more government sponsored social housing, targeted at the low-income-end of the market. See also Is housing our greatest fail?

Australia’s social housing system is critically stressed. Many eligible applicants simply give up Professor Hal Pawson, from UNSW’s City Futures Research Centre, writing in The Conversation, provides a summary of the main findings of his recent report into the stresses faced by our social housing system. Amongst the findings are that demand is rapidly outpacing supply, to an extent that many eligible applicants simply give up on ever being allocated a spot. The report estimates that some two-thirds of low-income private rental tenants (around a million households) are affected by “rental stress”, meaning that the relevant tenant’s housing costs do not leave enough remaining income to cover household essentials. Adding to the pressure of those so affected, the last two years have seen rents rising at rates not seen in more than a decade, particularly in the regions. Taking account of population growth, social housing system capacity has been cut by more than half since the 1990s. Social housing waiting lists rose 16 per cent in the three years to 2021, to an Australia-wide figure of 164,000 households, and those in the “greatest need” category (ie. those who are homeless, or at risk of being so) rose 48 per cent over the same period. The UNSW research report estimates that during 2020-21, over 6,000 registrations on the social housing waiting list were cancelled or withdrawn, which Pawson says “likely reflects the realisation by many non-priority applicants that the prospect of a tenancy offer is remote”. For those needing a 3-bedroom social housing unit, the NSW government estimates waiting times of more than a decade in most of its 25 Sydney letting areas.

Super for housing or the government as a co-owner: how Liberal and Labor home-buyer schemes compare Visiting Fellow at the ANU’s Crawford School of Public Policy, Steven Hamilton, writing in The Conversation, compares the housing affordability initiatives that the major political parties surfaced during the latter stages of the recent federal election campaign. The Coalition’s big new initiative was a “super home buyer” scheme, under which first-home buyers could withdraw up to 40% of their superannuation balance, up to a maximum of $50,000, to fund a mortgage deposit, but on condition that they return the amount withdrawn, plus or minus any associated capital gain or loss, when they sell the property. Labor’s “Help to Buy” scheme involves the federal government becoming an equity partner in up to 10,000 homes a year, chipping in up to 40% of the cost of a new home, and 30% for an existing home. To be eligible to participate, individuals must earn less than $90,000 a year, and couples less than a combined $120,000 a year. In addition, there would be a cap on the property value, according to location. Sydney’s cap is $950,000. Comparing the two initiatives, Hamilton notes that Labor’s scheme is far more generous than the Coalition’s and entails a very large subsidy (ie. the eligible first home buyer never pays any rent to the government in respect of its up to 40% equity investment in the property), but also covers far fewer people than that proposed by the Coalition. Each of these two initiatives address the demand side of the market , by increasing the buyer’s purchasing power, and both are criticised by some experts for having the effect of potentially pushing up prices, though the overall numbers involved relative to the size of the market are such that market price pressure from this source is expected to be modest. Hamilton’s main criticism of both of the major parties’ schemes is that they do nothing to address the supply side of the market, though he cautions that increased supply must be of the right kind in the right locations. Hamilton applauds Labor’s plan to set up a National Housing Supply and Affordability Council and argues that the real culprits in terms of fiscal policies adversely affecting housing affordability are the “overly generous 50% discount on capital gains tax” (introduced during the Howard years) and also State government stamp duties, which discourage turnover and prevent better housing matches. See also Federal election 2022: How the major parties’ policies compare; How are governments supporting first home buyers in Australia?; and What a Labor Government means for housing affordability and the Australian property market

Grattan: Shared equity is a start, but fixing the housing crisis requires more ambition The Grattan Institute’s Brendan Coates and Joey Maloney, in this opinion piece from The New Daily, assess Labor’s ‘Help to Buy’ shared equity scheme as “a positive step forward”, noting that it echoes a similar scheme they recommended earlier this year, but they point to some drawbacks in Labor’s plan. For example, the income thresholds for the scheme are too generous, given that about 80% of working age singles earn less than the single person threshold and 42% of couples earn less than the couplesOnly 2% of rentals were affordable for a person earning a full-time minimum wage threshold, many of whom would have a good chance of buying a home anyway. They also contend that borrowers should be required to stump up at least a 5% deposit (rather than the 2% Labor proposes) in order to reduce the risk of borrowers falling into negative equity if house prices fall – as is now predicted in some of our major cities. Most importantly, Grattan bemoans the fact that neither of the major parties proposed more ambitious initiatives to address the housing affordability challenge. Coates and Maloney favour, for example, the federal government exploring “hard” options such as a winding back of housing tax breaks such as negative gearing and the 50% capital gains tax discount (fiscal reform plans that Labor abandoned after their surprise loss at the 2019 federal election) and inclusion of more of the value of the family home in the Age Pension asset test. They argue that the “easy” options so far advanced will not really address the underlying problems in a sustainable manner. See also Labor’s shared equity scheme makes housing a serious election issue – at last. Here’s the verdict; Michael Pascoe: Housing crisis? Look over there – a puppy! and What is a shared equity scheme?

The housing crisis is Australia’s greatest weakness Writing in The Saturday Paper, Elizabeth Farrelly argues that housing is Australia’s most glaring weakness, having once been our greatest strength. She says: “Knowing that you have, and will always have, somewhere decent to live enables everything else – work, education, health, creativity, ethics”, and yet “Huge swaths of the electorate – many under 40, single parents, women over 60 – are now permanently excluded from the home-ownership dream that once defined our famous ‘way of life’”. After reviewing the housing initiatives of the two major political parties, she concludes that both parties are “focused on reviving the ‘Australian dream’ rather than critiquing or amending it… and both skip over companion issues such as rent protection, negative gearing and the fundamental pathology of commodifying the idea of home.” She notes the inherent conflict of interest for those who are already owners of residential property and who are loathe to see any reduction in the value of such property, despite mouthing how important it is to preserve housing affordability for our children and grandchildren. She wishes we had a “less property-obsessed economy” – one in which “property prices were lower and ordinary people invested more broadly across a variety of business and cultural enterprises”, and where we were “more inclined to establish rental decency, using the law to redress the inherent power imbalance of the renter-landlord relationship”, thereby making renting a “comfortable, confident and dignified alternative”. She is clear that rental life in Australia is currently “inherently undignified”.

Housing affordability crisis requires Nordic Policy solutions: Experts A recent research report from the The Australia Institute’s Nordic Policy Centre examines housing policy in various Nordic countries and draws comparisons with Australian housing policy. Overall, it concludes “The key driver of Australia’s acute housing affordability crisis is its over-reliance on just two housing options – private home ownership and private renting.” Professor Andrew Scott, convenor of the Nordic Policy Centre, is quoted as saying “Housing policies in Nordic nations prioritise homes to live in, rather than houses as investments.” Key findings of the research report include: Australia’s proportion of social housing is estimated to have fallen from over 7% of all housing in the early 1990s down to just 4% in 2019; Sweden’s proportion of public housing is more than triple that in Australia, with housing cooperatives accounting for 22% of total housing, compared to 15% in Norway as a whole and 40% in Norway’s capital Oslo; Sweden, Norway and Denmark each feature extensive co-ownership models, involving a mix of individually owned and occupied spaces and co-owned and managed shared spaces, thereby improving overall affordability; Finland’s homeless rate is less than 1 person per 1,000 people, compared to Australia’s 5 per 1,000 and Finland’s government has a policy to eliminate homelessness by 2027.

The housing game has changed – interest rate hikes hurt more than before The Grattan Institute’s Joey Maloney and Brendan Coates, writing in The Conversation, explain why the rises in interest rates that most commentators now see as an inevitable consequence of our recent (and projected to continue) rise in inflation will hurt borrowers even more than they did when interest rates were in double-digit territory, back in the early 1990s. Maloney and Coates say that the impact of the 1990s’ double-digit interest rates on overall mortgage interest payments as a share of income was modest because house prices were much lower then, and mortgages were also much smaller. They note that the ratio of house prices to incomes is now double what it was in the earlier period (and even more so in Sydney and Melbourne), meaning “for any given mortgage rate, the share of income taken up by mortgage payments is much, much higher”. They even go so far as to claim: “The extraordinary increase in house prices and debt means mortgage rates of 7% would be as painful to borrowers today as rates of 17% were decades ago”, concluding “Skyrocketing house prices have changed the game. For millennials, even historically small increases in interest rates will hurt.” See also What is the role of the RBA in relation to housing?

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