OLIVER FRANKEL AND SUSAN RYAN. Monthly digest on housing affordability and homelessness – late Nov 2019 to mid Jan 2020

This is part of what is normally a monthly digest of interesting articles, research reports, policy announcements and other material relevant to housing stress/affordability and homelessness – with hypertext links to the relevant source. Due to the just past Christmas holiday period, this particular digest covers more than the usual monthly period, and is therefore longer than usual.

Britain has a horrific homelessness crisis. Why isn’t it a priority? [The Guardian, 19 Nov 2019] This article provides a rather depressing reminder that the scourge of homelessness is omnipresent in Britain, as it sadly is in Australia. A Shelter UK report in November 2018 estimated that 320,000 people in Britain were homeless, representing one in every 200 people – similar to the ratio in Australia. The situation is worst in London, with one in 52 people homeless. According to the Guardian article, 726 people died homeless in England and Wales in 2018, a 22% rise from 2017.

An effective homelessness service system for older Australians [AHURI research, 27 Nov 2019] Where once homelessness in older age was seen to be limited largely to men, older women are increasingly also affected – partly due to societal changes such as domestic violence and divorce, but also to their lower lifetime earnings as a result of workforce gender inequality and women’s disproportionately greater role in child rearing and home care. A growing number and percentage of people of both sexes are experiencing homelessness for the first time in older age. This report draws lessons from international experience, including the need for better focus on prevention, early intervention and the provision of “housing first” solutions, allied with “wraparound” services for those affected.

Understanding downsizing [AHURI Brief, 27 Nov 2019] AHURI research shows that most older Australians (55 and over) who own their own home don’t downsize, whereas downsizing amongst older Australians who rent in the private market is much more common. Physical downsizing (as measured by a decrease in the number of bedrooms) is relatively uncommon for all older age groups, even those over 75. The incidence of financial downsizing is also very low – only around 20% of owner-occupiers aged 55 to 64 in 2001 moved to another owner-occupied dwelling of lesser value by 2016.

Explaining demand side subsidies [AHURI Brief, 27 Nov 2019] This Brief provides a useful summary of the extent to which government – mainly the Federal government, and largely in the form of Commonwealth Rent Assistance (“CRA”) – provides financial assistance for Australian households on low incomes who are renting in the private rental market. CRA, which cost the Federal government $4.4 billion in 2017-18, is a type of “demand-side subsidy”, given to a tenant or home buyer to boost their effective purchasing power in housing markets. The state and territory governments spent $5 billion on social housing in 2017-18. This Brief also discusses side effects of demand-side subsidies, including the likelihood that at least part of them is “captured” by landlords in the form of increased rents. Although not mentioned in this Brief, it is worth noting that negative gearing and the associated 50% CGT discount represent a form of Federal government provided “supply-side subsidy”, which arguably also distorts the housing market by encouraging capital growth speculation by investors in residential real estate.

Housing in retirement: the emerging challenge to retirement incomes policy [Grattan Institute, 2 Dec 2019] This detailed and informative set of slides from a talk given by Brendan Coates, Grattan’s Household Finances Program Director, includes some sobering statistics for those who retire as renters, rather than homeowners. Homeowners’ housing costs tend to decline sharply as they approach retirement, while renters’ costs don’t. That said, more older Australians are finding themselves still stuck with a mortgage as they approach retirement. Home ownership is declining, especially among the young and poor, and more retirees are expected to experience poverty in future. Coates canvasses a range of policy reforms – some easy and some difficult – designed to help improve affordability for those in or approaching retirement.

The EU recognises that it too needs a strategy for more adequate social and affordable housing [EESC press release, 4 Dec 2019] The European Economic and Social Committee (EESC), an arm of the EU, has recently drawn attention to the housing crisis that Europe is currently experiencing, and called for urgent measures to alleviate the crisis, noting: “The real danger of excessive housing costs no longer affects the most disadvantaged only, but also an ever-growing part of the rest of the population”. The European Pillar of Social Rights provides in part: “access to social housing or housing assistance of good quality shall be provided for those in need”.

One idea for boosting the supply of affordable rental housing [AFR, 5 Dec 2019] Former Australand boss, Robert Pradolin, the founder of a not-for-profit organisation called “Housing All Australians”, is with help from consultancy firm PwC promoting to a handful of Melbourne Councils a model designed to enable them to supercharge the supply of affordable rental housing. The key ingredient is cutting approval times on suitable projects to as short as three months (they can drag on for up to 2 years), thereby creating savings that would in theory allow developers to sell cut-price stock to investors. The resulting rental units would have an encumbrance on title, requiring them to be leased at a fixed discount to the prevailing market rate. Successful implementation of this model assumes that Councils be capable of substantially compressing the planning approval time, and that in turn would probably require curbing third-party objection right. No easy matter!

NSW should swap stamp duties for a broad-based property tax [Grattan Institute, 6 Dec 2019] Brendan Coates makes the excellent and oft made suggestion that the NSW Government should abolish stamp duties and replace them with a broad-based property tax – a recommendation that has been made repeatedly by many a wise economist, but so far to deaf ears in state government. According to Coates: “This could leave $4-5 billion a year better off, while also helping to improve housing affordability”. He points out that “Stamp duties are among the most inefficient and inequitable taxes available to the states and territories”. In Australia, the ACT is so far alone in making the move from stamp duties to a broad-based property tax.

The supply of affordable private rental housing in Australian cities: short-term and longer-term changes [AHURI research, 11 Dec 2019] The private rental sector (PRS) is the fastest growing part of the Australian housing system, growing at more than twice the rate of household growth in the 5 years from 2011 to 2016. Within the PRS, there is an acute and increasing national shortage of affordable and available private rental dwellings for householders in the lowest quintile (Q1) of household incomes, made worse by the fact that many affordable dwellings are occupied by households on higher incomes (Q2 to Q5), thereby reducing availabilityfor Q1 households. Although the picture varies across Australia, the national position in 2016 was: 80% of Q1 private renter households were paying unaffordable rents (89% in metro areas), and 36% of Q2 households (46% in metro areas) were living in unaffordable rentals. Younger households, households with children and group households were the worst affected. To address the growing shortage of affordable rental housing for Q1 households, the AHURI Report calls for substantial capital investment in new social housing, suggesting the need for at least 200,000 additional dwellings of a mixed type, or 20,000 new units per year over 10 years. See also New report finds government must build at least 20,000 affordable homes a year.

The UK’s rough sleeping crisis, and what needs to be done [The Conversation, 11 Dec 2019] The UK charity Shelter estimated that during this Christmas just past there would be at least 135,000 homeless children in Britain, the highest number in 12 years. Homelessness is a term that includes not only rough sleepers, but also those living in extremely unsuitable or temporary accommodation. Rough sleeping itself is at record levels in some UK cities, including London, and the number of premature deaths amongst people who are homeless is horrifying. The author of this article, having participated in a review of international evidence of “what works” in ending rough sleeping, makes a strong (and unsurprising) plea for a “housing first” approach – combined with person-centered support – which allows rapid access to settled housing and long-term flexible support on a relatively unconditional basis. See also this article from The Guardian, which includes some sobering statistics on the increase in homeless numbers in England over the past year.

Getting people out of social housing is more complicated than just finding a job [The Conversation, 12 Dec 2019] The authors of this article challenge the assertion made by Luke Howarth, Federal Assistant Minister for Community Housing, Homelessness and Community Services, that helping social housing tenants to enter or re-enter the workforce will necessarily and realistically enable them to move on from social housing so as to provide a flow-through effect for those currently on the waiting list for such housing. The authors point to the barriers for social housing tenants to entering the private rental market, including for example the fact that less than 26% of private rental properties are affordable for households on a minimum wage, and less than 4% are affordable and appropriate for households on income support. It is noted that low-income households in the private rental market also face insecure tenure, partly due to “no-grounds terminations”, which are permitted in all states and territories except Tasmania and Victoria (from 1 July 2020, except at the end of the first fixed term).

Community land trusts: cutting out the cost of land, to make home ownership more affordable [ABC AM, 21 Dec 2019] Western Sydney University academic, Dr Louise Crabtree, is part of a discussion around the concept of Community Land Trusts (CLTs), an affordable housing model that has a reasonable following in the US and UK, but is only beginning to emerge in Australia. Dr Crabtree is perhaps the leading Australian academic interested in researching and exploring the housing affordability opportunity that CLTs offer.

The facts on housing affordability in the US [Politifact, 30 Dec 2019] This article provides a useful collation of data on the declining state of housing affordability in the US. For example, the National Low Income Housing Coalition (NLIHC) estimated in a March 2019 Report that the US has a shortage of 7 million rental homes affordable and available to extremely low-income renters, whose household incomes are at or below the poverty guideline or 30% of their area median income. Only 37 affordable and available rental homes exist for every 100 extremely low-income renter households. According to the 2019 annual report from Harvard University’s Joint Center for Housing Studies, the ratio of median home prices to median household incomes is back near peak levels across the US, sitting at 4.1 in 2018 – though the ratio in specific markets varies widely across the country. Set against the cost of housing in Australia’s largest cities – Sydney and Melbourne – these US ratios appear relatively modest. In America’s 100 largest metro areas with price to income ratios above 5.0, a median-income household could afford just 36% of recently sold homes on average in 2017. Many lower-income workers struggling with housing affordability in inner suburbs of large cities are having to move further out and thereby face longer commute times and higher transportation costs. The groups most negatively impacted by the housing affordability crisis are first homebuyers and low-income renters.

Moving back in: the rise of multi-generational households [UNSW City Futures, 10 Jan 2020] One in five Australians (rising to one in four Sydneysiders) live in a multigenerational household, with housing affordability being identified as one of the key drivers behind the growth in this type of living arrangement. However, living with your parents is not all about saving money or free childcare, says Dr Edgar Liu from UNSW’s City Futures Research Centre. He points out that while it definitely has some advantages, including financial savings, companionship and improved intergenerational connections, multi-generational living can also lead to strains, including from added noise and lack of privacy. Australia’s prevailing housing types often do not lend themselves to multigenerational living.

California’s housing crisis reached new heights in 2019 [The Guardian, 6 Jan 2020] Drawing partly from an October 2016 research report by the McKinsey Global Institute, and partly from a January 2017 public draft report by California’s Department of Housing and Community Development, this article refers to California’s current housing crisis, including a need for between 1.8m and 3.5m new housing units by 2025 – set against the production of less than 80,000 new homes annually in recent years. The article goes on to describe some of the factors contributing to California’s housing shortage, ranging from high building costs to zoning and other planning obstacles.

Dwelling construction is still falling despite record low interest rates [P&I, 13 Jan 2020] Michael Keating reviews the impact of record low interest rates on the price of housing in Australia, and concludes that the main impact is to lift the prices of the most expensive dwellings, thereby increasing existing disparities in housing wealth. He notes “lower interest rates have done little to stimulate the demand to build new housing which is much more limited by the stagnant incomes of new home buyers and their job insecurity”. He dismisses the Federal Government’s new loan guarantee scheme for first-home buyers (which started on 1 January 2020), as “very limited”. Rather than investing in infrastructure projects that typically have no business case, he thinks government should “use that money to start spending more on creating cheaper social housing estates”.

What role can local government play in delivering affordable housing? [AHURI Brief, 13 Jan 2020] Many Australian local government areas (LGAs) – particularly in our capital cities – are developing affordable housing strategies framed around the need for housing for low-income “key” workers in their neighbourhoods. These workers, including those in hospitality, healthcare support and retail, are increasingly travelling longer distances to work, as high rents force them to move further out from the center. Long travel times may in due course lead these people to seek jobs closer to home, leaving the high cost inner-city suburbs struggling to find a pool of suitably qualified workers – to the disadvantage of inner (capital) city LGAs in particular. Some such LGAs are turning to planning controls such as inclusionary zoning and voluntary planning agreements (VPAs) to increase the supply of affordable housing for key workers.

Housing is at the root of many of the rich world’s problems [The Economist, Special Report, 16 Jan, 2020] This Special Report by Callum Williams charts the failings of the housing market in recent times across numerous parts of the rich world, including Australia. The Report blames a mismanaged housing market, at least in significant part, for the global financial crisis of 2008-10, as well as a range of other recessions in the rich world. It notes: “Costly housing is unambiguously bad for the rich world’s growing population of renters” and “The rich world’s most productive cities do not build enough new houses, constraining their growth and making them more expensive than they would otherwise be.” The Report argues that since the second world war, governments across the rich world have made three big mistakes: “They have made it too difficult to build the accommodation that their populations require; they have created unwise economic incentives for households to funnel more money into the housing market; and they have failed to design a regulatory infrastructure to constrain housing bubbles.” The Report describes “lack of building” as lying at the root of the failure of the housing market… “From Sydney to Sydenham, fiddly regulations protect the elite of existing homeowners and prevent developers from building the skyscrapers and flats that the modern economy demands. The resulting high rents and house prices make it hard for workers to move to where the most productive jobs are, and have slowed growth…The soaring cost of housing has created gaping inequalities and inflamed both generational and geographical divides.” The Report author does not see doom and gloom everywhere. For example, he praises government efforts to boost housing supply and make it more affordable (either to own or rent) in Singapore, Japan, Switzerland and Germany (a country with a high proportion of long-term renters, and perhaps the best example of a rich and successful country not bound by the “home-ownership fetish”).

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Oliver Frankel is a former corporate finance and M&A lawyer, who has spent the second half of his career in finance, investment and management. Most recently, he has taken a strong interest in how to address the affordable housing crisis.

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