_The federal Labor government has promised to craft anational housing and homelessness planand to fundnew social housing, returning Canberra to a field it all but abandoned for a decade. A new Productivity Commissionreportis scathing about current arrangements and calls for far-reaching change.

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Yet some of the reports key recommendations rest on faulty assumptions andoutdated economic thinking. It relies on a misplaced belief that the market will respond to low-income households need for affordable housing. Its faith in deregulation as a cure-all is misguided.

The experience of recent decades and a wealth of research evidence instead point to the need to increase government investment in public and community housing.

Failed policies must change

TheNational Housing and Homelessness Agreementprovides $1.6 billion a year in federal funding to the states and territories. Its meant to improve Australians access to affordable and secure housing.

However, in itsreview of the agreement, the commission judges it ineffective and in need of a major shake-up.

Withrents rising and vacancies falling, low-income private renters are spending more on housing than they used to. Some have little income left after paying their rent. Almost one in four have less than $36 a day for other essentials.

The supply of social housing with rents capped at 25% of tenant income has virtually halved in 30 years. Waiting listshave surged to 176,000 households. Many more areestimatedto be in need.

More people are seeking emergency housing support from homelessness services. And, as the report acknowledges, more are being turned away.

The commission declares homelessness is a result of not being able to afford housing and governments must address the structural factors that lead to housing unaffordability. As experts in housing policy, economics and urban planning, we agree. Far-reaching reform is long overdue.

The report concludes, for example, that first home-buyer grants and stamp duty concessions are counterproductive and push up prices. It advocates spending these billions on preventing homelessness instead.

The report endorses a housing first approach to tackling homelessness this means housing people unconditionally as the first priority before dealing with their other needs. The report also calls for early intervention programs for at risk cohorts, such as people leaving hospitals, prisons or out-of-home care.

So whats wrong with the report?

The reviews terms of reference, set by the previous government in 2021, meant the commission did not consider how easy credit, negative gearing and the capital gains tax discount drive real estate speculation, inflate prices and lead to inefficient use of housing and land. Coupled with the commissions embedded faith in market forces, these omissionsskew its recommendations, especially on social housing.

Instead of more public investment to provide more social housing, the commission urges Canberra to convert its $1.4 billion-a-year support for social housing running costs through the national agreement intoCommonwealth Rent Assistance. It wants to up-end the current system by replacing income-based rents with market rents across social housing.

But most of these renters would be much worse off unless there is a large rent assistance increase across the board. Recognising this, the commission advocates a top-up payment to ensure housing is affordable and tenancies can be sustained. Without estimating the cost, it optimistically suggests the states should pick up the tab.

The commission argues this approach would be more equitable for social and private renters. The implicit subsidy from capping social housing tenants rents at 25% of income typically exceeds the rent assistance paid to private tenants. Yet reducing social housing tenants to the same level of precarity as private renters seems an odd way to eliminate unfairness.

Enabling low-income Australians to secure decent private rental homes would require a dramatic rise in rent assistance payments, perhaps even to a level equating to the implicit subsidy social housing tenants receive.

Broader benefits of social housing overlooked

The commission has neglected the broader benefits of social housing investment that delivers good-quality, well-managed homes that low-income earners can afford.

Decades of mounting rent assistance expenditure have failed to fill the gap created by the lack of a sustained national program of social housing construction since the 1990s.Researchshows the shortfall in private dwellings affordable to low-income renters ballooned from 48,000 in 1996 to 212,00 in 2016.

Simple comparisons between the costs of rent assistance and building affordable homes also ignore the wider community benefits of social housing.SGS Economicsrecently found the return on social housing investment is comparable to, or better than major infrastructure projects. Andeconomics professor Andi Nygaardestimates the large, but avoidable, annual social and economic costs of the affordable housing shortage will top $1 billion a year by 2036.

Why planning reform is no panacea

Underlying much of the commissions thinking is the idea that the main cause of unaffordable housing is outdated land-use planning rules that restrict new housing supply.

This contention ignorestwo decades of state planning reforms, including higher-density housing near transport and town centres, simplified rules and accelerated decision-making.

The commission estimates a 1% increase in overall housing supply (implicitly achievable through planning deregulation) could deflate rents by 2.5%. But what makes this scenario implausible is the development industrys time-honoured but entirely rational practice ofdrip-feeding new housing supplyto keep prices buoyant. Even if planning relaxation could enable ramped-up construction, its hard to imagine that being sustained in the face of any resulting market cooling.

However, the commission argues all private real estate development, regardless of cost, will eventually trickle through to those in need. As properties are traded over time, pricier homes will filter down through the market at progressively lower rents.

This view defiesevidencethat many factors other than planning have profound impacts on housing costs and supply.New Australian researchstrongly suggests filtering alone will not make homes affordable for lower-income earners.

None of this is to deny that the planning system could be improved. But if solving housing unaffordability were simply a case of unleashing planning reforms, other countries would have managed it long ago.

Australians struggling to pay the rent, or even find a home, deserve a much better response from Australias premier economic policy agency, and one that actually reflects the dynamics of the housing system.

Authors: Hal Pawson, Bill Randolph, Chris Leishman, Nicole Gurran, Peter Mares, Peter Phibbs, Vivienne Milligan - each of whom offer expertise in housing policy, research and planning.

First Published in THE CONVERSATION October 14, 2022