Insight 06: Gimme shelter - housing affordability in Australia

VICTORIAN COUNCIL OF SOCIAL SERVICE AUSTRALIAN COUNCIL OF SOCIAL SERVICE

ISSUE 6

E M M I R E G ELT H S

Y T I L I B A D R O FF RALIA A G ST N I S AU U O IN H

CONTENTS

GIMME SHELTER: HOUSING AFFORDABILITY 04. LOW RENTAL + HIGH RENTAL IS A POOR EQUATION

Cassandra Goldie 05. THE POLITICS OF HOUSING Sarah Toohey 08. IN CONVERSATION: Housing And Homelessness

Minister Brendan O’connor 012. SPOTLIGHT ON NAHA Hellene Gronda, Lauren Costello, Adrian Pisarski 016. STATE OF HOUSING IN AUSTRALIA

022. DOOR SHOULD CLOSE ON FIRST HOME OWNER GRANT

Saul Eslake 024. SCRAPPING STAMP DUTIES FOR A LAND TAX

Ian Winter, Gavin Wood 028. INVESTING IN INFRASTRUCTURE

Caryn Kakas 030. TALE OF TWO CITIES:

SUPPLY AND DEMAND

Michael Buxton

034. HOUSING BONDS:

BACK ON THE AGENDA

Judith Yates

036. SHARED EQUITY

Tania Loosley-Smith 038. FIXING RENT ASSISTANCE

Toby Archer 040. THE ROAD HOME: HOW ARE WE TRAVELLING Nicole Lawder, Travis Gilbert

042. GENERATION RENTAL

Benjamin Law

ISSN 1838 5184 ISBN 978-0-949748-83-6

INSIGHT

CONTRIBUTORS

Publisher: Cath Smith Editorial team: Kate Colvin Marie McInerney, Sarah Toohey Design: Nicole Dominic Photos: Reuters, Luke Chang Printer: Blueprint

Toby Archer is Policy and Liaison Worker at the Tenants Union of Victoria.

Insight is printed on recycled paper, using vegetable-based inks, by an ISO 1400-accredited printer.

Acknowledgements Special thanks to: all our contributors; housing departments of all states and territories; Fernando de Freitas, Penny Dorsch (ACOSS); Katherine Post, Maria Hawthorne (Office of the Federal Minister of Housing and Homelessness); Reuters for permission to use photographs; Grant Reaby (Blueprint); our advertisers HESTA, VICSERV, RMIT University, and Better Boards Australia.

Articles are subject to copyright. Apart from dealings under the Copyright Act 1968, permission must be obtained from both VCOSS and the author.

VICTORIAN COUNCIL OF SOCIAL SERVICE Level 8, 128 Exhibition Street Melbourne 3000

Michael Buxton is Professor of Environment and Planning at RMIT University in Melbourne.

Lauren Costello is the Director of the Research Synthesis Services at the Australian Housing and Urban Research Institute (AHURI).

Saul Eslake is Chief Economist of Bank of America Merrill Lynch Australia.

Travis Gilbert is Policy and Research Officer at Homelessness Australia.

Cassandra Goldie is Chief Executive Officer of the Australian Council of Social Service (ACOSS).

Hellene Gronda is a former Director of the Research Synthesis Service at the Australian Housing and Urban Research Institute (AHURI).

Caryn Kakas is Executive Director of the Residential Development Council, a national policy division of the Property Council of Australia.

Benjamin Law is a Brisbane-based writer, whose debut book The Family Law was shortlisted for Book of the Year at the Australian Book Industry Awards.

03 9654 5050

Nicole Lawder is Chief Executive Officer at Homelessness Australia.

VCOSS raises awareness of the existence, causes and effects of poverty and Tania Loosley-Smith is General inequality, and contributes to initiatives Manager of the Strategy and Policy seeking to create a more just society.

Division of Western Australia’s www.vcoss.org.au

Department of Housing.

Join the Twitter conversation at @vcoss

Adrian Pisarski is Chairperson of National Shelter.

Accessible format If you would like to receive this publication in an accessible format, please telephone 03 9654 5050 or email vcoss@vcoss.org.au

Sarah Toohey is Campaign Manager for Australians for Affordable Housing.

Ian Winter is the Executive Director of the Australian Housing and Urban Research Institute (AHURI).

Gavin Wood is at the School of Global Studies, Social Science and Planning at RMIT University in Melbourne.

Judith Yates is an Honorary Associate in the School of Economics at the University of Sydney, and member of the Federal Government’s National Housing Supply Council.

03.

EDITORIAL

INSIGHT 6

EDITORIAL. Housing affordability is one of the most difficult and intractable issues facing Australia as a nation. Not only does it create widespread ‘housing stress’, where people living on low incomes are forced to pay so much for housing they must skimp on essentials like food and health care, but our obsession with home ownership and housing investment is a permanent drain on economic growth and prosperity.

This would be a tragedy if we had no solution. It is even more so that, in fact, the solutions are known, but the political will to change is not yet present. However, this simply invites us to embark on a journey of change.

This journey will necessarily involve a transformation in public understanding – where ordinary people in Australia learn about what is causing constantly increasing housing prices, both to buy a property and to rent [see ‘The Politics of Housing’ and Benjamin Law’s ‘Generation Rental’]; and then become angry about government failure to act, including changing Australia’s tax settings, which win the dubious honour of delivering more generous tax benefits to housing investors than any other nation in the world, and our First Home Owner’s Grants, which deliver scarce tax dollars straight into the bank accounts of housing vendors [‘Door should close on the First Home Owner Grant’].

At this point the journey must turn to our political leaders, who will need to exercise keen intelligence and strong political will to turn the housing policy Titanic around. For real and systemic change that will truly deliver a housing system where every person’s right to be affordably and decently housed is met, this transformation will need to include: • reform of funding for affordable housing programs [‘Spotlight on the National Affordable Housing Agreement’ and ‘Housing bonds: back on the agenda],

Photo: Cath Smith (left) and Cassandra Goldie

• reform of state housing taxes [‘Scrapping stamp duties for a land tax’], • an overhaul of federal housing tax settings, income support and Commonwealth Rent Assistance [See ‘Low income + high rental is a poor equation’ and ‘Fixing rent assistance’] • smart policies to deliver direct assistance to first home owners that is actually helpful, including scrapping first home owner grants and use of shared equity [‘Shared equity: new models at work in WA’], and • a new approach to planning and urban development [‘Tale of two cities: supply and demand’ and ‘Investing in infrastructure’].

•

To show the way we can see some beacons of hope in existing policies in some states and territories, most notably: the exciting self-funding home ownership models in Western Australia, the inclusionary zoning successes in South Australia and the ACT [‘State of housing in Australia’], and federally in the gains made from the often un-lauded but nonetheless significant accomplishment of the Nation Building Stimulus package for public and community housing, the success of the National Rental Affordability Scheme, and the progress in addressing homelessness [‘The Road Home: how are we travelling’].

Welcome too are the early insights into the views and priorities of the new Federal Housing and Homelessness Minister Brendan O’Connor, outlined here just weeks after his appointment [‘In conversation’].

We hope this special national edition of Insight, developed by the Victorian Council of Social Service (VCOSS) in partnership with the Australian Council of Social Service (ACOSS), and its complementary online version (coming soon, see www.vcoss.org.au) with further links and information, excites your interest to fight with the COSS network and broader community sector for a fairer Australian housing system.

Visit www.vcoss.org.au also to catch up on an earlier national edition of the magazine, Fair share, which focused on tax reform, and offered additional analysis about the impact of housing taxation on affordability.

Cassandra Goldie, CEO, ACOSS Cath Smith, CEO, VCOSS

04.

GIMME SHELTER

INSIGHT 6

DR CASSANDRA GOLDIE

Low income + high rental is a poor equation The lack of affordable housing in Australia can be devastating for people with low incomes, particularly those who depend on income support payments. Dr Cassandra Goldie says we can’t address affordability until we also admit that $35 a day is not enough to live on.

According to the National Housing Supply Council, there is a shortfall of 250,000 affordable rental properties in Australia.1 However, the availability of affordable housing is only a part of the problem for the 47 per cent of low-income households which experience rental stress in the private market.

The other main issue is the paucity of income support payments.

For over 600,000 people receiving some type of unemployment benefit, the cost of housing is a huge drain on their resources. A single person living on Newstart Allowance receives $245 a week, or $35 a day. Commonwealth Rent Assistance is also available, at a maximum payment of $59.70 for those whose weekly rent is over $132.70. Even if they have an ‘affordable’ rental property, those who depend on income support payments will still struggle to pay for other essential items. An estimated 62 per cent of people receiving Newstart live in housing stress, meaning that they pay over 30 per cent of their income in housing costs2.

In September 2011, according to the Victorian Department of Human Services’ Rental Report3, low income single person households face the most difficulties in accessing affordable rental housing.

Across Melbourne, just 0.5 per cent of one bedroom dwellings let in the September quarter were affordable to low income singles. What is ‘affordable’, however, is dubious. ‘Affordable weekly rent’ for a single person is judged to be $130 a week, but this could leave them, under full entitlements, to just $172.70 per week after rent was paid. As can be seen from the table (right), this leaves little for other items.

Melbourne is not alone. The cheapest rent in Sydney’s ‘outer metropolitan’ area for a one-bedroom flat was in Wyong (100km north of Sydney city centre) at $137 a week4. In Adelaide, the cheapest rent for a one

bedroom flat is in Smithfield Plains at $95 a week5, and in Brisbane the cheapest median rent for a onebedroom flat is in Bayside at $205 a week6.

ACOSS is spearheading a campaign – $35 a day is not enough! – to draw the attention of politicians, the media and the public to the paucity of those payments, and to win the $50 per week increase proposed by former Treasurer Ken Henry7. This has already attracted support from the ACTU, peak business groups, and across the community sector.

Dr Cassandra Goldie is Chief Executive Officer of the Australian Council of Social Service (ACOSS). To support $35 a day is not enough visit www.acoss.org.au.

Budgeting on Newstart[1] Expense item

Weekly cost

Food & drink

$78

Clothing & footwear

$10

Rent

$130

Utilities

$15

Household contents & other services

$15

Health

$14 (no insurance)

Transport

$18 (3 trips bus/train)

Phone/Internet

$12

Recreation/entertainment

$23

Annual holiday/travel

$6

Total expenditure

$321

Total weekly income Income

$243 (Newstart Allowance)

Rent assistance

$60

Total income

$303

Weekly difference

-$18

[1] Table modified and updated from QCOSS, QCOSS Cost of Living Report: ensuring a basic standard of living for low income Queenslanders, May 2011

1. National Housing Supply Council: State of Supply Report 2010, 2010, pp. 223–224 5. SA Department for Communities and Social Inclusion: Quarterly Rent Report, December quarter 2011.

2. National Welfare Rights Network: Submission to the Tax Forum, September 2011, p. 12 6. Residential Tenancies Authority QLD: 2011 Median rents quarterly data, 3. Department of Human Services: Rental Report, September quarter 2011, December quarter 2011.

State of Victoria, 2011, available at http://www.dhs.vic.gov.au/__data/assets/ pdf_file/0007/681271/91_Rental-Report-September-quarter-2011.pdf 7. Commonwealth of Australia, Australia’s future tax system: Report to the Treasurer, December 2009.

4. Housing NSW: Rent December Quarter 2011; Sales September Quarter 2011.

05.

GIMME SHELTER

INSIGHT 6

SARAH TOOHEY

THE POLITICS OF HOUSING RARELY DOES A POLITICAL ISSUE HAVE AS MANY VESTED INTERESTS AS HOUSING, PARTICULARLY WHEN YOU TAKE AUSTRALIA’S 5.7 MILLION HOMEOWNERS INTO ACCOUNT. SARAH TOOHEY ARGUES THAT WE HAVE TO SHIFT THE POLITICS OF HOUSING BY SHOWING HOW THE MARKET REALLY WORKS. The trouble with housing policy is that housing politics is just so damn hard. What might seem like selfevident solutions will affect the wellbeing (perceived or otherwise) of over eight million Australian households, the vast majority of which are home owners who have, on average, nearly half of their household wealth invested in their home.

• 68 per cent of Australians are home owners1 • home ownership accounts for 43 per cent of average household wealth2 • 14 per cent of Australian taxpayers claim a tax deduction on an investment property3 When we talk about improving housing affordability, what we mean is slowing down house price growth and, with it, the growth of the investments and wealth of almost seven out of every 10 households. That’s a hard sell.

Trouble is, all this individual investment in housing wealth is causing pretty serious problems for non home owners and future generations. Because the housing market is interlinked, the astronomical growth in house prices is locking future generations out of home ownership, driving up rents and linking the financial security (investment) of households to their physical security (housing), an inherently risky strategy if one takes a quick look at the United States. The bigger picture is that while an individual home owner might gain in wealth (or not if they’re unlucky), this national obsession with investment in housing actually reduces our overall economic prosperity.

1. Australian Bureau of Statistics, 2011, Household Income and Income Distribution, Australia, 2009-10, CAT no. 6523.0 Commonwealth of Australia, Canberra.

2. Australian Bureau of Statistics, 2011, Household Wealth and Wealth Distribution, Australia, CAT no. 6554.0, Commonwealth of Australia, Canberra.

3. Australian Tax Office, 2011, Taxation Statistics 08-09, Commonwealth of Australia, Canberra.

• over half a million households spend more than 50 per cent of their income on housing costs, meaning less is spent on the goods and services that create jobs4 • low wage service workers, like cleaners, sales assistants and hospitality workers can’t afford to live in city centres where these jobs are located5 We need to change some attitudes towards home ownership and renting, and to understand that housing is first and foremost shelter, something everyone needs.

RENTAL ROLLERCOASTER Attitudes to the rental market also drive this obsession with housing and home ownership. Nearly everyone has rented at some stage in their life and so many see it as a transitional tenure, something to be done until you settle in to a ‘real’ life of home ownership; for many, those times of student share housing, and the occasional meal of two minute noodles when the rent was due, seem like nostalgic fun times.

But tenure in Australia is changing; people are renting for longer and later into life, rates of home ownership are declining (albeit slowly) and we may soon find ourselves with a growing proportion of lifelong renters, stuck in sub-standard conditions without security or certainty.

4. National Centre for Social and Economic Modelling, unreleased data.

5. Yates J, Randolph, B & Holloway D, 2006, Housing Affordability, occupation and location in Australian cities, and regions, Australian Housing and Urban Research Institute; Sydney, 2006.

06.

INSIGHT 6

GIMME SHELTER

• 29 per cent of households are renting, up from 26 per cent in 1995 • home ownership among the 2544 age group has declined by 15 per cent in the last 20 years6 • the median age of renters is 387 • rates of outright home ownership have declined from 42 per cent in 1995 to 33 per cent in 2010 The difficulty with current attitudes towards renting is that any drive to increase security of tenure or give some certainty to tenants about rent increases has no natural constituency as renting is still seen as a tenure of transition.

TAX ‘TREATMENTS’ The current tax and transfer system favours home ownership and encourages over-investment in housing. By and large households receive more in tax breaks the older and wealthier they are and the more expensive their house is.

• the tax system delivers indirect assistance to owner-occupiers worth about $45 billion annually • most ($30 billion) is due to the exemption of owner-occupied homes from capital gains tax • individual property investors benefit from $5.4 billion in tax concessions each year, mainly due to the 50 per cent tax discount on capital gains and to negative gearing8

6. Flood J & Baker E, Australia’s changing patterns of home ownership, AHURI Research Bulletin Issue 133 December 2010 7. National Housing Supply Council: State of Supply Report 2010, 2010 8. Yates J, 2009, Tax expenditures and housing, Australian Housing and Research Institute, Melbourne p.1, 2009.

Investors in particular get perverse tax incentives that encourage them to borrow more than they can afford, deduct any losses they make from their income and then be taxed half on the profit they make from the sale of a property. Over-generous capital gains and negative gearing tax breaks mean that investors can outbid first home buyers who must rely on their income, and not the tax man, to service their mortgage. Unfortunately with 1.6 million investors claiming a tax deduction each year compared to 110,000 people buying their first home, their sheer numbers give them 95 per cent more voting power.

So rather than addressing these tax incentives and levelling the playing field, successive governments have bought off first home buyers with a $7,000 grant.

This grant is universal and widely liked, but it doesn’t actually help first home buyers to compete with a negatively geared investor, nor to manage a mortgage six times their annual income. What it does is bid up the price of housing. When two first home buyers bid against each other they simply send the extra $7,000 straight into vendors’ pockets.

HEALTHY HOUSING While these tax incentives affect the way the housing market functions, there’s a large section of the community who the housing market simply fails. This is because providing low cost rental housing isn’t particularly profitable, and those ‘market innovations’ which make it profitable – like rooming houses – have social consequences that we should not accept. This is why government involvement in the low cost end of the housing market, through affordable housing programs, is critical.

But it’s expensive. It’s expensive to build and run social housing, and policy settings around targeting tenancies and historical underfunding have made it more so.

Currently the Government is giving social housing providers (and state housing authorities) around the same amount of money that it was in 1995 and asking them to build exactly the same amount of housing.

07.

INSIGHT 6

GIMME SHELTER

• funding to the social housing sector has plunged by 53 per cent in real terms over the last 15 years • if funding had been maintained at 1995 levels, the National Affordable Housing Agreement would contain an additional $1 billion a year 9 The one-off injection of $5.6 billion to build social housing in the Nation Building stimulus package has certainly helped to address that decline. But a single shot of adrenaline is not enough to fix an obese patient after a heart attack. You need a plan for post operative care, and the social housing system doesn’t have one.

The gaping hole is a real funding plan and a commitment to an affordable housing sector in the long term, because, without it, the lowest income and most disadvantaged households will continue to live in housing that most of the community would find unacceptable.

VESTED VOICES Sadly the national conversation around housing is dominated by investment speak and industry analysts, people whose interest is in making money from housing – and that’s the opposite of making housing affordable. Strangely these industry advocates do proffer a range of solutions to housing affordability that are faithfully reported in the media. Sadly these solutions are more ad hoc than systemic and more self-serving than saving. They advocate for an expansion of our cities, when all evidence suggests that this means low income households get pushed out to areas with few jobs, and little public transport.

9. Sources for expenditure on social housing include Australian Institute of Health and Welfare, Australia’s Welfare 2007 and 2009, and Australian Treasury, Budget 2011-12 - Part 2

They ask for stamp duty cuts, but without replacing them with land taxes, so that it reduces state revenues and the benefits get eaten up in house price inflation.

They say ‘increase the First Home Owners Grant’, knowing full well it bids up the price and increases their commissions. And, most importantly, they generally don’t advocate for the social housing system, because it’s not profitable to them.

Sadly the national conversation around housing is dominated by investment speak and industry analysts. Their solutions are more ad hoc than systemic and more self-serving than saving.

WHAT’S TO BE DONE? If the structural tax reforms are too hard, building social housing is too expensive, and the other industry voices are too loud, then how do we do we get more affordable housing?

Well, by making the structural reforms easier, saying that social investment in housing is as non-negotiable as health and education spending, and adding new voices to the public debate.

Like all great social policy reform, it’s about the politics.

That is the task of Australians for Affordable Housing, its members and supporters. To help shift the politics of housing, so that governments invest in a housing system that works for everyone.

Sarah Toohey is Campaign Manager of Australians for Affordable Housing. Visit www.housingstressed.org.au to sign up to the campaign.

08.

INSIGHT 6

GIMME SHELTER

IN CONVERSATION: Brendan O’Connor

1. Housing and homelessness have only recently been integrated into the one portfolio. What do you hope to achieve by doing this?

Labor understands that the best way to tackle homelessness is to increase the supply of affordable housing.

That’s why the Prime Minister brought the two portfolios together to ensure a stronger focus on the issue of housing affordability.

We also understand that the overwhelming majority of people who will build the new homes that we need are small business operators or are employed by small businesses, which is why I also hold the small business portfolio.

This Government believes that all Australians have a right to a safe and affordable home, so they have a stable environment to raise a family, to study or train and to find and keep work, and to remain connected with the wider community.

The shortage of affordable housing puts pressure on social housing waiting lists. By increasing the supply of affordable housing, such as through the National Rental Affordability Scheme, we can better support those for whom social housing is the only option.

2. Housing means many different things to different people. What does it mean to you and what will be driving housing policy under your leadership?

To me, as a Minister for Housing and Homelessness, ‘housing’ means many things – safety and security, a family home, a way to connect with community, an investment property, an industry that employs thousands of workers, a nest-egg for retirement, and something for your children to inherit. This is what makes housing policy so challenging.

The Government wants to create a society in which all Australians can live in safe, affordable homes. We’re strongly committed to ensuring all Australians have a roof over their head, and to helping vulnerable Australians who are sleeping rough or at risk of becoming homeless.

It’s very hard to participate in society – to hold down a job or keep kids in school – without a home, and it’s hard to keep a home without a job.

For many thousands of Australian workers in the construction sector – housing also creates jobs. Labor has demonstrated that it is prepared to take strong action to protect these jobs in tough times. Our social housing stimulus package helped to support thousands of jobs in the construction industry during the global recession.

3. Housing affordability is making life difficult for a great many Australians, with more than one in ten low income households stressed, and more than one in four in the rental market. How have you seen affordability change over your lifetime – what do you think is driving these changes?

There’s no denying that many Australians have been doing it tough and that increases in rents and house prices over the past two decades relative to incomes have contributed to housing affordability pressures. To some extent, pressure on house prices has eased in recent times, improving affordability for some first home buyers and mortgage holders. Lower interest rates have also made housing more affordable.

The main cause of rising house prices has been the gap between supply and demand. Demand for housing has been driven by consistent population growth, low interest rates and our strong economy. According to the National Housing Supply Council, the gap between total underlying demand and total supply is estimated to have increased by approximately 28,200 homes in the year to June 2010, to a cumulative shortfall of 186,800 homes since 2001.1 That’s a significant shortfall and we’re going to have to keep working hard to increase supply.

High house prices also affect rental affordability. Rental increases have outstripped wages growth in recent years and the housing shortage adds to competition among tenants for suitable homes, pushing up rents.

1. National Housing Supply Council, State of Supply Report 2011, p.xvii.

Housing and Homelessness Minister Brendan O’Connor (left) at St Kilda Crisis Accommodation in Melbourne, with Rob Ellis, Program Manager - Youth and Family Services. Photo supplied by the Australian Government.

The Hon. Brendan O’Connor was appointed the new Federal Minister for Housing, Homelessness and Small Business in early March. Insight asked him to outline some of his views and priorities.

09.

INSIGHT 6

GIMME SHELTER

4. To what extent are housing affordability challenges in particular locations, such as city centres and high employment zones like mining towns, impacting on the Australian economy?

What solutions do you foresee could address these problems?

Housing affordability challenges in city centres and mining towns are impacting on the Australian economy in two key ways. First, people cannot afford to move to areas where jobs are available; and second, people who have grown up in locations such as mining towns are being priced out of the housing market, with many having to leave their communities.

The Government is addressing these pressures through the National Rental Affordability Scheme (NRAS). NRAS helps to reduce the shortage of affordable rental housing by offering financial incentives to the business sector and community organisations to build and rent homes to low and moderate income households at least 20 per cent below local market rents.

With nearly 35,000 NRAS incentives already awarded (and 6,200 homes delivered so far), this will boost the supply of affordable rental accommodation for low and moderate income earners – including key workers and their families – in our cities and regional areas, including mining towns such as Bundaberg, Gladstone, Karratha and Newman.

The Government is currently working on the future allocation of the remaining 15,000 NRAS incentives in 2015-16. State and territory government partners and other stakeholders will be consulted in the design of this process.

5. With the exception of the Nation Building stimulus package, social housing spending by Australian Governments has steadily declined for decades, and now most state housing authorities are running annual operating deficits, or selling off their stock to balance their books. What are you planning to deliver the social housing needed?

The Australian Government continues to work collaboratively with the states and territories to make sure vulnerable Australians have a roof over their heads.

The National Affordable Housing Agreement provides Commonwealth funding of $6.2 billion over the first five years and is complemented by funding through National Partnership Agreements of $400 million for social housing, $5.5 billion for remote Indigenous housing and $1.1 billion for homelessness through joint funding with the States and Territories.

Our one-off $5.6 billion investment in social housing, in response to the global financial crisis, will deliver around 19,600 new homes by the end of this year. More than 17,000 of these new homes have been delivered and are already housing vulnerable people and families. In addition, repairs and maintenance have been carried out on 80,000 existing homes, including major upgrades to 12,000 homes that were uninhabitable or would have become uninhabitable without this work.

The Government strongly supports the growth of the not- for-profit housing sector. Many community housing providers are showing business acumen and are using the homes built as part of the social housing stimulus package as equity to gain finance to further increase the supply of affordable homes for low and moderate income earners and their families.

I’m really pleased to see this sort of innovation coming out of the community housing sector.

6. At last year’s Tax Forum there was almost universal agreement that our tax settings related to housing – including the capital gains tax discount, negative gearing and the use of stamp duty at state level rather than a broad-based land tax – have contributed to a strong inflationary trend in house prices. From your seat as Housing Minister, what tax reform would you like to see over the next ten years?

The Tax Forum was about helping us identify the next steps forward in Australia’s ongoing tax reform journey.

One of the key steps is a review of state charges and taxes which affect housing affordability.

By the end of 2012, state treasurers will develop a plan for state tax reform that provides a timeline for harmonisation – including on land tax – and present it at the Treasurers’ conference and to the Council of Australian Governments (COAG). This work will be led by Queensland Treasurer Andrew Fraser and NSW Treasurer Mike Baird.

I also believe our work with the state and territory governments to address supply side constraints, including planning, infrastructure charging and land supply, through the COAG Housing Supply and Affordability Reform (HSAR) agenda is an important initiative. The HSAR agenda is examining the degree to which various policies inhibit housing supply responsiveness including planning and zoning processes, infrastructure charges, Commonwealth and state housing policies and other regulations.

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GIMME SHELTER

7. Your Government has actively sought a role in urban policy. What urban policy reforms would you like to see in terms of your housing priorities over the next ten years?

Housing plays a key role in the development of sustainable and liveable cities. Housing provides security, improves health outcomes, boosts independence and self-esteem, provides greater opportunities to study or work, and acts as a foundation for social and economic participation.

That’s why we need the right planning and infrastructure for our cities and towns, including health services, roads, public transport, parks and other recreational facilities, shops, businesses and community services.

The future challenges of Australia’s housing industry, notably a large supply/demand gap and an increasing population, are inextricably linked to broader challenges of cities noted in the National Urban Policy – that is, an increasing and ageing population, and environmental issues such as linking housing with transport, land use and infrastructure planning, location and density of residential areas to commercial hubs.

The National Urban Policy outlines the Government’s objectives and priorities in building better cities. It has guided our reforms to improve the efficient functioning of cities and to ensure that housing assistance is supportive and adequate. This includes: the sustainable communities program – including Liveable Cities; a new $29.2 million Sustainable Regional Development initiative; and the $100 million Building Better Regional Cities program. Building Better Regional Cities will also help to address housing affordability pressures in regional areas.

8. What structures for engagement with housing and homelessness stakeholders are you planning – for example, do you see a continuing role for the Social Housing Advisory Committee?

I look forward to meeting and working with stakeholders to tackle housing and homelessness challenges.

The Gillard Government acknowledges and appreciates the integral role the housing and homelessness sector plays in assisting people into affordable housing. I believe the sector has a great deal to offer in contributing to new and innovative ideas for future housing policy.

Consulting with the people and organisations that understand the challenges in the housing and homelessness sectors is critical.

These are the people likely to tell Government – State and Territory and Commonwealth – about best practice and innovation to inform policies into the future.

Housing is a national issue that requires the combined effort of each state and territory Housing Minister as well as the Commonwealth and wider private and community sector. Committees and councils such as the Prime Minister’s Council on Homelessness, the National Housing Supply Council and the Advisory Committee on Social Housing and Housing Assistance will continue to support and advise the Government to improve housing and homelessness outcomes.

9. What do you see as the biggest political challenges to delivering greater housing affordability in Australia?

Housing and homelessness was neglected by the Howard Government

for more than a decade and it will take time to address the problems we have inherited – particularly the imbalance between housing supply and demand which is driving up the cost of housing and creating a market which is unaffordable for too many people.

We need to work across government to tackle the urgent and long-term policy challenges.

The Gillard Government’s $20 billion investment in social and affordable housing is the largest by any Australian Government in history. Our approach is multi-faceted – assisting home buyers, renters, people who need social housing and tackling homelessness.

We also supported the construction industry in tough economic times – our housing stimulus supported thousands of jobs during the global financial crisis It is important that we continue to work collaboratively with the State and Territory Governments and the sector to deliver ambitious reforms and meet our targets to reduce the rate of homelessness.

Governments cannot meet this challenge on their own – that is why I am determined to continue to work together with the community housing sector and the corporate sector to discuss what the Australian Government can do to encourage expanding stock through diversifying streams of investment.

10. Finally, as part of an Insight magazine tradition, what books do you have by your bedside?

At the moment, as I’ve just taken on these challenging new portfolios, my reading time is being taken up with briefings and submissions.

I’m also reading Barack Obama’s The Audacity of Hope, The God Delusion

by Richard Dawkins, and George Megalogenis’s latest book, The Australian Moment.

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HELLENE GRONDA, LAUREN COSTELLO

INSIGHT 6

Spotlight on: The National Affordable Housing Agreement The National Affordable Housing Agreement (NAHA) – established in 2009 to deliver a new national approach to the housing affordability crisis – is now under review by the Federal Government. Hellene Gronda and Lauren Costello look at how it works and whether we can measure its success to date, while Adrian Pisarski explains what needs to happen next.

The National Affordable Housing Agreement

NAHA: ARCHITECTURE AND OUTCOMES

• People are able to rent housing that meets their needs.

The National Affordable Housing Agreement (NAHA) heralded a significant shift in housing policy and provision in Australia that placed housing at the core of a national agenda and aimed to rewrite State and Commonwealth relationships with respect to financing affordable housing. Before NAHA, Australian housing policy had largely devolved to lower levels of government, resulting in reduced co-ordination, accountability and certainty.

Commencing on 1 January 2009, the NAHA superseded the longstanding Commonwealth State Housing Agreement (CSHA), which had been in operation for over 60 years, and since 1984 had included the Supported Accommodation and Assistance Program (SAAP). It adopted a whole-ofhousing system approach to affordability outcomes, as well as integrating homelessness services, creating a growth fund for social housing and focusing on remote housing for Indigenous people.

Objectives As a schedule to the Council of Australian Governments (COAG) Intergovernmental Agreement on Federal Financial Relations (IAFFR)1, the NAHA established mutually agreed objectives, outcomes, outputs and performance indicators with respect to affordable housing in Australia. The agreement sets the framework for Commonwealth provision of block grants of untied funds and national partnership agreements which require states and territories to negotiate implementation plans.

Its goals are high-level, ambitious and comprehensive (see breakout).

Objective: All Australians have access to affordable, safe and sustainable housing that contributes to social and economic participation.

This is to be delivered through six specific outcomes: • People who are homeless or at risk of homelessness achieve sustainable housing and social inclusion.

• People can purchase affordable housing.

• People have access to housing through an efficient and responsive housing market.

• Indigenous people have the same housing opportunities (in relation to homelessness services, housing rental, housing purchase and access to housing through an efficient and responsive housing market) as other Australians.

• Indigenous people have improved housing amenity and reduced overcrowding, particularly in remote areas and discrete communities.

Commonwealth funding for the delivery of services to achieve the NAHA objectives was allocated by a Special Purpose Payment ($1.2 billion in 2011-12, to be distributed between the states and territories on a per capita basis) and through five National Partnership Agreements. The annual growth factor for the Special Purpose Payment is not a housing indicator, but is tied to incomes.

The IAFFR requires that the NAHA Special Purpose Payment is spent on the housing sector, but the funds are otherwise untied. This means that states and territories can implement a variety of program mechanisms of their choice in order to achieve the NAHA objective. The agreement does, however, specify that they provide a uniform national entitlement for first home ownership of $7,000 per application2.

Under the NAHA umbrella, five National Partnership Agreements (NPs) were established. These provide additional targeted funds and specified program directions: 1. Homelessness NP ($800 million over four years).

2. Remote Indigenous Housing NP ($1.9 billion over ten years).

1. The IAFFR began in January 2009 and represents significant reform of Australia’s Commonwealth-State financial relations, creating six new national agreements around major areas of service delivery: the National Healthcare Agreement, National Education Agreement, National Agreement for Skills and Workforce Development, National Disability Agreement, National Affordable Housing Agreement, and the National Indigenous Reform Agreement, and replacing 90 special purpose payments with five payments.

2. From 2010, it allowed that this entitlement be capped at property values 1.4 times the median property value to make it more effective, as research demonstrates that first home owner grants primarily operate as an economic stimulus, rather than improving housing affordability.

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3. Social Housing NP ($400 million over two years).

4. First Homeowners Boost NP (an additional $7,000 until end 2009).

5. Nation Building and Jobs Plan NP, Schedule C, Social housing ($5.6 billion over three and a half years, 2008–09 to 2011–12; $5.238 billion for new construction and $400 million for repairs and maintenance).

Outcomes Has the NAHA delivered, or begun to deliver then on its objectives and promise?

The architecture of the NAHA agreement is complex and fragmented over a range of different agreements and reform directions. In addition, there are important program mechanisms (such as Commonwealth Rent Assistance, the National Rental Affordability Scheme (NRAS), the Housing Affordability Fund, and the First Home Owners Scheme) that are not part of the NAHA, yet impact on the outcomes. This is at least partly why there is not a strong evidence base to assess NAHA against its objective and outcomes (see table).

The COAG Reform Council (the Council) is responsible for publically reporting the performance of all governments against the NAHA outcomes. To date it has published baseline data for 2008–09 and a

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second year report which reports progress against the outcome and outputs in 2009–10 (COAG Reform Council 2011) but the Council itself says that this is not sufficient to assess performance.

However this is not simply a data problem. There remain significant gaps in our understanding of the housing system, and of the relationship between interventions (outputs) and outcomes. In particular, the timescale of housing policy mechanisms and the flowon effect in housing affordability outcomes across the housing system is not clear.

The only strong evidence of change was that the share of home purchase affordable to low-income households grew from 6.9 per cent to 11.5 per cent of all housing sale transactions. However the Council notes that the impact of interest rate changes following the global financial crisis is a significant probable cause, and one unrelated to previous housing market interventions.

This article is an edited version of the paper Beyond the current NAHA: what next for national housing policy? authored by Dr Hellene Gronda and Dr Lauren Costello for the AHURI Research Synthesis Service. The paper is available at http://www.ahuri.edu.au/download. asp?RelatedLinkID=710

Reported NAHA performance 2009–10 Outcome

COAG Reform Council, National Affordable Housing Agreement Performance Report for 2009–10

People who are homeless or at risk of homelessness achieve sustainable housing and social inclusion

There are limited data to track progress against this outcome. Identified need for repeat assistance amongst SAAP clients dropped from 9.9 to 9.0% (COAG 2011, p.13).

People are able to rent housing that meets their needs

There are limited new data to track progress towards the outcome. Rental stress among public housing tenants remained low and steady, but increased with remoteness (COAG 2011, p.19).

People can purchase affordable housing

Data show improvements across all jurisdictions. Share of home purchase affordable to low-income households grew from 6.9 to 11.5% (COAG 2011, p. 23).

People have access to housing through an efficient and responsive housing market

It is not possible to measure progress toward this outcome (COAG 2011, p.37).

Indigenous people have the same housing opportunities as other Australians

There are limited data to track progress against this outcome. Mortgage stress was more common amongst low-income Indigenous home purchasers (COAG 2011, p.39).

Indigenous people have improved housing amenity and reduced overcrowding, particularly in remote areas and discrete communities

There are limited data to track progress against this outcome (COAG 2011, p.47).

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ADRIAN PISARSKI

NAHA: WHERE TO NOW? The first National Affordable Housing Agreement (NAHA) was disappointing on many counts, not least of which that it cut funding for public and community housing by around $1 billion in comparison to its predecessor, the Commonwealth State Housing Agreement (CSHA)3.

The cuts aside, it was a conceptual breakthrough to move from a funding deal between the Commonwealth and States to a properly national agreement, with roles for the other critical players in housing affordability: local government, the community sector, and private finance.

This breakthrough also meant housing policy and funding issues were elevated from Commonwealth and State Housing Ministers and officials to the more powerful central agencies (Premiers, Treasurers and the Prime Minister).

And in theory, the NAHA implemented a whole of housing system approach to housing affordability, outlining some very broad and laudable objectives.

And yet, in practice, the architecture to achieve actual change across the breadth of policy that impacts on housing affordability was not in place. Housing taxes, urban planning, Commonwealth Rent Assistance, and even the National Rental Affordability Scheme (NRAS), a program explicitly focused on increasing the supply of affordable housing, were excluded from the NAHA. In the next NAHA, scheduled to begin on 1 July 2013, bringing these policies and programs together as part of a cohesive national housing strategy is the first priority.

This national housing strategy, including an expanded NAHA, must necessarily include: 1. Reform of housing taxation Australia is among the most generous in the world to property investors, yet not only does this cost the community and economy close to $5 billion in revenue foregone, it does nothing to increase the supply of housing, boost the rental vacancy rate, bring down rental costs, or increase affordability.

3. Australians for Affordable Housing, Easing Housing Stress: Budget Statement 2012-13, available at http://housingstressed.org.au/2012/02/06/ aah-budget-statement-2012-13-easing-housing-stress/

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As housing economist Saul Eslake concludes: It’s actually quite difficult to think of anything that would do more to improve affordability conditions for wouldbe homebuyers than the abolition of ‘negative gearing’4.

Only by having a national strategy that includes tax and other measures can we balance all the levers of affordability.

2. Reform of Commonwealth Rent Assistance Commonwealth Rent Assistance in its current form is not working to deliver affordability, with over 40 per cent of recipients still in rental stress after receiving the subsidy. It’s also unclear the impact that Rent Assistance has on either rental housing supply or rental prices.

It is clear, then, that reform is needed. It needs to include significant increases to the payment so that it actually delivers affordability in the private rental market, and could also be included directly in pensions and benefits, rather than as an add-on only for renters. This would deliver it to all income support recipients, including public tenants and home owners (currently public tenants do not receive Rent Assistance). Another option would be to pay Rent Assistance directly to public and community housing providers as suggested by the Henry Review5, replacing the operational subsidy currently implicitly included in the NAHA. Achieving the most effective reform package relies on having the best information. The Productivity Commission should be asked to examine the payment, assess whether it is an effective means of assistance and an efficient government outlay – and to recommend a reform package.

3. A significant growth fund for affordable housing The most fundamental reform required for affordable housing is the development of a long term fund dedicated to growth in affordable housing stock. This would contrast with past practice where the base payment for the NAHA has included no funding for growth; making it, in reality, only a fund for operating existing stock. Alongside a new growth fund, existing NAHA funding should be retained as an operational fund made available on a per dwelling basis rather than a per capita one as is currently the case.

4. Saul Eslake, ‘Crunch time for negative gearing’, Insight, vol 4, Fair share: tax reform, pp 22-24, Victorian Council of Social Service (VCOSS), 2011 5. Commonwealth of Australia, Australia’s future tax system, Report to the Treasurer, December 2009, Canberra, Australian Government.

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National Shelter estimates that a growth fund of around $2.5 billion per annum for at least five years would bring affordable housing stocks to sustainable levels.

A growth fund should not just be ploughed into direct purchase of public and community housing, but used to leverage additional finance through innovative models for supply, including using it in combination with the National Rental Affordability Scheme (NRAS), and with sales to market. It should be made available to states and territories on a per capita basis or, if distributed to national notfor-profit providers directly, account for population distribution between regions to ensure equity.

The growth fund could be jointly financed by the private sector through an affordable housing bond issue, an idea gaining some real currency in government and housing policy circles6.

4. Appropriate transfers of housing stock A key issue for the NAHA has been the extent to which the not-for-profit sector should control, leverage and grow the stock of affordable housing.

To date there is a target in the NAHA for notfor-profit control of stock of up to 35 per cent.

Some degree of transfer has been achieved, although well shy of that target, by transferring new stimulus-funded stock to the community sector.

If significant properties are transferred in future it is most likely that these will be existing tenanted housing. In many cases these will be old properties that will require redevelopment to achieve renewal and growth – a process that itself requires significant investment.

This also presents challenges for tenants who must be brought into the process around stock transfer and given genuine choice, through the right to vote on and properly participate in the process.

5. Transparency of funding Another key issue within the existing NAHA and the previous CSHA has been transparency.

The Commonwealth is consistently suspicious about outcomes and accurate reporting from the states, often accusing them of fudging their figures. The current reporting provides no

6. See ‘Housing bonds: back on the agenda’ by Judy Yates in this editon.

accurate assessment of current stock, of sales and replacement, of maintenance backlogs, or any of the other critical elements that demonstrate progress. A new NAHA should begin with a national audit to provide a starting benchmark, and include proper reporting to deliver a new level of transparency.

6. National cooperation The most alarming element of the current NAHA is the hostility between levels of government. As one who works in and between both spheres I am constantly surprised at the lack of trust displayed by states and the Commonwealth as they discuss each other’s roles. There is a real imperative at the national level to bring the Commonwealth, states, community and private sectors to the table in a spirit of genuine cooperation.

7. Urban and regional policy Housing affordability also needs to be considered as part of urban and regional policy. Access to jobs, education, services, and other opportunities is as much about having good transport as afterhousing income. If most of our affordable housing is on the outer fringe of cities, then we have an obligation to ensure that those who live there can access the opportunities easily enjoyed by inner city residents and the public transport to get them into other areas of opportunity.

The way ahead The current NAHA is a compromised document and process. It is too narrow, inflexible and bureaucratic to achieve its objectives. I propose that the drafting of the next iteration be outsourced and include non-government stakeholders, the private sector and local government representatives in its final negotiation to ensure we capture all the parts of a national housing agreement that will make it effective.

Adrian Pisarski is the Chairperson of National Shelter.

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STATE OF HOUSING IN AUSTRALIA

Insight asked the heads of housing departments from each State and Territory: 1. What are the biggest challenges?

2. What’s your housing plan?

3. What are your best initiatives?

Queensland THE BIGGEST CHALLENGES? A range of supply-side and demandside factors, including particular pressures for booming resource communities, have seen a broader cross-section of the community look to us for help with deteriorating affordability.

Despite significant reform, the costs of providing housing assistance continue to rise. We need new, financially sustainable options to assist households across a geographically dispersed population.

YOUR HOUSING PLAN? In 2006, the Queensland Government launched the One Social Housing System to better integrate service delivery. This strategic direction shapes our current and future activity through: • simple entry points for clients to all housing assistance, • one register of need, • one common set of eligibility criteria for long-term housing assistance, • provision of housing assistance for the duration of the clients’ need, and • new products and pathways through, from and around social housing into the private rental and ownership markets.

The Queensland Government has been seeking to put the social housing system on a more sustainable footing into the future, including an expansion of the role of not-for-profit providers.

A critical challenge is the diversity and geographic spread of the state’s community housing providers which range from very small local providers to large and sophisticated organisations.

YOUR BEST INITIATIVES? • RentConnect: helps people in housing stress to understand the rental application process and to find and secure a private rental tenancy.

Delivering services in 14 locations statewide.

• Brisbane Common Ground: will feature support to help people end years of living rough. The facility will open in mid 2012 and will provide 146 apartments for social housing tenants with on-site support services delivered by a not-for-profit organisation.

• Housing and Employment Program pilot: will provide jobless households with a home in the private rental market, plus training and case management.

• National Rental Affordability Scheme (NRAS): Queensland will deliver over 11,000 incentives for rental properties, available for up to 10 years at the discount rate of 80 cent of market rent.

• Remote Indigenous Housing National Partnership Agreement: the provision of a large number of new and upgraded dwellings for remote Indigenous communities which, together with land planning

and administration reform, will substantially reduce the level of housing disadvantage in these communities.

Tony Waters, Deputy Director-General, Housing and Homelessness Services, Department of Communities.

NEW SOUTH WALES THE BIGGEST CHALLENGES? Declining housing affordability in New South Wales is demonstrated by the 53,704 people on the state’s social housing waiting list as at February 2012. As a result, there is increasing pressure from lower income families for private rental assistance products, subsidised social housing and affordable housing.

YOUR HOUSING PLAN? The NSW Government’s strategic directions for housing include: • action to address homelessness, • supporting the capability and capacity of not-for-profit community housing providers, • addressing disadvantage on social housing estates, and • promoting innovative approaches to attracting private sector investment into affordable housing.

YOUR BEST INITIATIVES? Housing Pathways: improves access for people to social housing and other rental assistance products. Clients can apply for housing assistance through a range of providers (government and not-for-profit) and be placed on a common register to access social housing.

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Community housing regulation: the coming National Regulatory System to ensure community housing providers are viable, well-managed, and provide high quality services will be similar to the existing NSW approach which is outcomes-based and reflects international best practice. This will allow a seamless transition.

Social Housing Public Private Partnerships: for the renewal of disadvantaged social housing estates.

The first project is underway at Bonnyrigg in south-western Sydney; Expressions of Interest have been called for a second project in AirdsBradbury, also in Sydney’s south west.

Debt finance: capital grants for community housing providers, which they combine with their own equity contributions and debt finance.

Increased rental supply: NSW participation in the National Rental Affordability Scheme (NRAS) will deliver below-market rentals for some 7,800 lower income households. The NSW Government has also established the Affordable Housing Taskforce to consider how the planning system can increase supply.

The Camperdown Project: initiated through the NSW Homelessness Action Plan, this inner city project, based on the Common Ground model, provides long-term accommodation for 62 people who were homeless or at risk of homelessness, accompanied by on-site support services, plus 42 affordable housing units for people on low to moderate incomes.

Mike Allen, Chief Executive, Housing NSW, a Division of the Department of Family and Community Services.

AUSTRALIAN CAPITAL TERRITORY THE BIGGEST CHALLENGES? The ACT shares many of the ‘wicked’ national issues of housing affordability, but also has its own unique challenges, including that Canberra has never had a low cost rental market of any scale.

Partly because of that, the ACT has kept a higher than average proportion of public housing stock (11,853 properties or 8.2 per cent of the total housing stock), but higher numbers of disadvantaged clients with complex needs have increased the cost of managing tenancies and the likelihood they will remain in public housing.

Those factors are reflected in declining overall rental revenue for Housing ACT. The ACT’s public housing portfolio is also the oldest in Australia – built to house the public service which founded Canberra. Its high numbers of multi-unit properties are not suitable for current tenants and contribute to pockets of disadvantage and highdensity stigmatised communities.

YOUR HOUSING PLAN? The ACT Government’s Affordable Housing Action Plan (Phase 1 and 2) provides the framework to address these issues. A third Strategy is currently in development.

YOUR BEST INITIATIVES? Public housing eligibility: increased targeting to those most in need means income is now no longer the key driver of eligibility, but is considered alongside: • homelessness, • mental health or medical issues, • disability, including frail-aged carers, • women and children escaping domestic violence, • Aboriginal and Torres Strait Islander people facing complex issues and private rental market discrimination or exclusion, and • children at risk and their carers.

Eligibility for priority housing is assessed by a Multi-Disciplinary Panel which draws expertise from government and the community sector.

Public housing stock: The Public Housing Asset Management Strategy looks to realign the public housing portfolio to better meet the needs of the applicant base, through diverse housing options. The size of the ACT works to support this, as proximity to clients and welfare agencies enables effective consultation and collaboration which deliver responsive built form.

Partnership with community agencies: to help support people from homelessness through to stable housing. Housing ACT’s flagship partnership, the Central Access Point, co-locates First Point, the central intake service for homelessness and other specialist community services, and generates a common waiting list (the Social Housing Register) with access to both public and community housing.

Land for housing: the ACT Government contributed under-utilised land in well-established suburbs worth almost $20 million to build 421 new dwellings under the ACT’s Nation Building and Jobs construction program. These units were offered to older residents of public housing who no longer needed bigger homes; in turn, theirs were then allocated to homeless families.

New housing properties were also targeted to older people who were not eligible for public housing but were struggling with private rents, available either as affordable rental or ‘sale’ through a lease/licence arrangement.

Inclusionary zoning: Consideration is being given to 20 per cent of all new housing developments being quarantined for affordable housing.

Maureen Sheehan, Executive Director, Housing & Community Services, Community Services Directorate.

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Victoria

YOUR BEST INITIATIVES

Tasmania

THE BIGGEST CHALLENGES?

The Victorian Homelessness Action Plan (2011-2015): sets the foundation for reform of the homelessness system, committing $76.7 million to initiatives focused on prevention and early intervention; and innovation and partnerships to break the cycle of homelessness.

THE BIGGEST CHALLENGES?

The public housing system in Victoria is not effectively meeting the needs of low income Victorians. Challenges include a mismatch between our stock profile and current demand; ageing stock that is expensive to maintain; concentrations of disadvantage; and an unsustainable financial model.

The Housing portfolio within the Department of Human Services also faces broader challenges: • a fragmented system that needs better coordination, • a focus on program and problem rather than people and place, • a focus on immediate problems rather than on what causes and prevents disadvantage, and • a system that drives dependency rather than builds resilience.

YOUR PLAN? The Victorian Government is developing a Housing Framework to address current and future housing needs of low income and socially disadvantaged Victorians.

Discussion papers on key issues – such as public housing waiting lists, the allocation of housing based on need, management and maintenance of public housing stock, rent, tenure and the role of community housing – will be released for consultation during 2012.

Community housing: the sector has grown considerably in Victoria in recent years, driven largely by government investment through capital funding including Nation Building funding; stock transfers; and the sector’s co-contribution of debt finance and philanthropy.

Work and Learning Centres: A $4.1 million partnership between Government, the Brotherhood of St Laurence, and community and employment organisations that identifies tailored employment and/ or training opportunities for public housing tenants. The first centres will open in Carlton and Geelong in early 2012, with three more to follow in the next few years.

Youth Foyers: Three 40-bed youth foyers will be built over the next three years in Melbourne and regional Victoria, to provide education, training and general support in a safe and supportive environment for up to two years for young people who are homeless or at risk.

Neighbourhood renewal: Since 2001, $420 million has been invested in Neighbourhood Renewal projects in 21 areas across Victoria, to reduce unemployment, school absenteeism, and crimes against property.

Doug Craig, Acting Director of Housing and Executive Director, Housing and Community Building, Department of Human Services Victoria.

The biggest housing affordability challenge facing Tasmania has been to develop a sustainable and responsive social housing system that will increase tenant choice, support future growth and renew communities.

YOUR PLAN? The Tasmanian Government launched the Better Housing Futures strategy in February 2012, aiming to change the way social housing is delivered. The Government will transfer the property and tenancy management of up to 4,000 properties or 35 per cent of the public housing portfolio to selected organisations in the community housing sector. This will be done over two stages: starting with around 500 properties in the Hobart suburbs of Clarendon Vale and Rokeby, with the balance of properties to be released in three packages in the second half of 2012.

The Better Housing Futures strategy will be more responsive to tenants with more choice, new services and better engagement. It will be more sustainable by providing improved maintenance, reducing the decline of the portfolio and increasing the social housing options and liveability of participating communities.

YOUR BEST INITIATIVES Choice of landlords: Initially, selected community housing organisations will have up to two years to demonstrate their approaches to managing public housing leases on behalf of Housing Tasmania.

At the end of that period, tenants will be asked to choose their preferred landlord by either signing a new lease with the community housing organisation or remaining with Housing Tasmania. They will stay in the same house regardless of which landlord they choose.

Local presence: Clarendon Vale and Rokeby residents have limited transport options and are geographically isolated. A Better Housing Futures office at the new Child and Family Centre will ensure a local presence and support more coordinated service delivery through co-located services.

Improved maintenance: Housing Tasmania has not been able to keep pace with maintenance needs. The selected community housing agency will have established performance measures for providing better maintenance.

Land release: Most Housing Tasmania stock is located within broad-acre estates, with high public housing density and residual vacant land parcels. Better Housing Futures will also include the release of vacant land for social and affordable housing development. On-selling for private ownership and reconfigured social housing will also be considered.

All new property developments will have to meet six star energy efficiency ratings and address the liveability principles outlined in the State Architect draft Residential Development Strategy. Housing Tasmania’s profits from land development or sales will help address the public housing maintenance liability and result in some new growth.

Skye Fraser, Coordinator Change Management and Communications, Housing Tasmania.

South Australia YOUR HOUSING PLAN? In mid 2012, South Australia will launch its new long-term Housing Strategy, following six months of consultation across the state. South Australians expressed a clear desire to live in safe, connected and enriching communities.

This means building neighbourhoods that make the link between location, housing and amenity, so that people have access to services, jobs, schools, hospitals and recreation.

The Strategy will support South Australia’s Planning Strategy that adopts one of the highest infill targets nationally with 70 per cent to be built within the existing urban areas in the next 30 years.

On 1 March 2012, a new Urban Renewal Authority was established to advance renewal and development to create high quality neighbourhoods and vibrant mixed use nodes. It combines activities of the former Land Management Corporation, significant projects of SA Housing Trust and Defence SA. YOUR BEST INITIATIVES? Urban renewal: major redevelopments underway of former public housing estates in Playford, Westwood, and Woodville West. We work with local government, private sector and the community to create mixed, more inclusive communities that:

than 900 families have purchased through the program since inception in mid 2007.

Shared equity loan products: a group of home loan products (Equity Start, Breakthrough, and Shared Value) that boost the purchasing power of lower income home buyers by deferring payment on a portion of the property until the property is eventually resold.

Mixed tenure apartment housing construction: under the Nation Building economic stimulus program, Housing SA is nearing the completion of the Uno Apartments (unique innercity mix of 146 private, affordable and social housing options) plus new medium density demonstration projects at Inspire Noarlunga and in Christies Beach (23 apartments each), and at Findon (47 dwellings).

• offer a range of affordable housing for rent or sale,

National Rental Affordability Scheme: 3,800 affordable rental dwelling incentives (SA’s per capita share) have been awarded under the scheme.

• increase community pride and participation,

Philip Fagan-Schmidt, Executive Director, Housing SA.

• improve employment, learning and local economic activity,

Western Australia

• decrease levels of crime and improve personal safety, • facilitate better health and wellbeing, and • increase access to services.

Inclusionary zoning: SA was the first state to require at least 15 per cent affordable housing in all new significant developments, including a third for customers with high needs.

As a result, more than 3,000 new affordable dwellings have been built for social housing, sold as affordable homes or secured for affordable rental.

Importantly, this increases choice to low and moderate income households in areas they might previously have been denied.

Affordable Homes Program: unique to SA, it allows eligible low and moderate income households to buy a home during an exclusive listing period ahead of it going to the market. More

THE BIGGEST CHALLENGES? Housing affordability challenges in WA are significant, especially in the booming north-west and remote Indigenous communities. Households earning less than $40,000 a year can afford to rent only 5 per cent of rental properties in Perth; those on (the median) $81,700 a year can afford to buy only 11 per cent of properties. Private market pressures have caused a huge spike in demand for public housing.

YOUR HOUSING PLAN? The State’s Affordable Housing Strategy targets the whole housing continuum – from homelessness to home ownership – as well as supply and demand side factors.

Central to the Strategy is a Housing Authority that integrates land development, housing construction and affordable home ownership products in a single agency – helping

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people to move through the housing continuum as their circumstances change, and allowing government to influence affordable housing outcomes rather than just manage public housing.

With private, government and community partners, WA is increasing affordable housing supply and diversity through innovations in built form, tenure, construction, finance and partnership arrangements, and offering viable alternatives to people who might otherwise see public housing as their only option.

YOUR BEST INITIATIVES: Minimum targets: to deliver at least 20,000 more affordable homes by 2020, through: • 8,300 more low-deposit and sharedequity home loans, • 5,500 subsidised private rental opportunities, • 3,500 more social houses (by 2013), • 1,000 more social and affordable dwellings through growth of the community housing sector, • 32,000 more affordable housing lots through the Housing Authority, and • more affordable housing for key workers in the regions.

Aided significantly by the Nation Building economic stimulus plan and the National Rental Affordability Scheme (NRAS), around 5,000 affordable homes have been delivered so far.

Mixed tenure initiatives: developed in good locations within commercially profitable transactions, for example: • an initial investment of $6.4 million in land value will see a $72 million development built in the Perth CBD incorporating social housing, NRAS, shared equity, concessional purchase opportunities and ordinary market sales – with a 30 per cent return on equity for Government

• the award-winning Stella Orion project is trialling new finance models and built form, with returns reinvested over a 10 years to achieve a master-planned development of 850 to 1,000 units.

Industry incentives: to deliver modest entry-level homes that have all but disappeared from the local market.

More than 580 dwellings have been sold at below the lowest quartile price of $370,00, with a further 652 under discussion (at time of publication).

Most are offered to modest income households, including interested public housing tenants, under shared equity arrangements – with an aspirational target of 2,000 loans over two years.

Grahame Searle, Director General, Department of Housing.

Northern Territory YOUR BIGGEST CHALLENGES? The Territory as a whole is growing faster than most other places in Australia and growth in Greater Darwin, Palmerston and the Litchfield area is at record levels.

One of the factors driving this growth is the major projects and resources boom, which will see more interstate migration and the need to house workers.

The Territory is also experiencing an increase in demand from high and complex needs clients. As health services improve and we are living longer there is more demand for aged care, as well as housing for people with disabilities and those needing to access complex health treatments.

Population growth in remote communities is also pushing the need for more housing.

YOUR HOUSING PLAN? The Territory Government’s 2030 vision is for every Territorian to have access to appropriate accommodation.

Under that vision, a Housing the Territory strategy provides a comprehensive package of initiatives to address the challenges.

The strategy aims to achieve a balanced housing market, which offers good value for money and affordability, ultimately becoming one of Australia’s most affordable housing markets, across all market segments.

It has four main elements, which are outlined below: To continue to provide housing for the diverse needs into the future, the Territory Government is dedicating 15 per cent of all land releases to social and affordable housing.

YOUR BEST INITIATIVES? Land to grow: the Government is fast-tracking land release to meet the increased demand, with land being released at a faster rate than ever before.

More places to buy: a suite of policies and actions to encourage more investment in housing through the BuildBonus grant, stamp duty concessions, HOMESTART NT and the First Home Owner’s Grant.

New places to rent: the Government is providing significant support to establish an affordable housing rental company. Venture Housing will provide Territorians on low to moderate incomes with properties to rent at below market rates. It will target workers who are vital to the Territory’s economy, such as those in retail, trades and hospitality.

More public and social housing: the Government has committed $49 million over three years to build 150 new public and social housing units across the Territory.

Ken Davies, Chief Executive, Department of Housing, Local Government and Regional Services

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SAUL ESLAKE

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DOOR SHOULD CLOSE ON FIRST HOME OWNER GRANT First home owners’ grants simply exacerbate the imbalance between underlying housing supply and demand and should be replaced by measures to increase the supply of low-cost housing, argues economist Saul Eslake.

It’s hard to think of any government policy that has been pursued for so long, in the face of such incontrovertible evidence that it doesn’t work, than the policy of giving cash to first home buyers in the belief that doing so will promote home ownership.

The Federal Government began giving cash grants to first home buyers in 1964 when, at the urging of the New South Wales Division of the Young Liberal Movement (whose President at the time was a young John Howard), the Menzies Government began paying Home Savings Grants of up to $500 to ‘married or engaged couples under the age of 36’ on the basis of $1 for every $3 saved in an ‘approved form’ (generally, with a financial institution whose major business was lending for housing) in the three years prior to buying their first home, provided that the home was valued at no more than $14,000.

This scheme was abolished by the Whitlam Government in 1973 (in favour of an income tax deduction for mortgage interest payments by persons with a taxable income of less than $14,000 per annum); re-introduced under the name of Home Deposit Assistance Grants (without the age or marriage requirements and the value limits and with a larger maximum grant of $2,500) by the Fraser Government in 1976; replaced by the Hawke Government in 1983 with the First Home Owners Assistance Scheme, initially with a maximum grant of $7,000 (later reduced to $6,000) and subject to an income test; abolished by the Hawke Government in 1990; and then reintroduced as the First Home Owners Grant (FHOG) by the Howard Government in 2000, without any income test or upper limit on the purchase price of homes acquired, ostensibly as ‘compensation’ for the introduction of the GST (even though the GST only applied to the purchase of new homes, and not

to existing dwellings which the majority of first-time buyers purchase). On two occasions since 2000, the FHOG has been temporarily increased in response to an actual or feared slump in housing activity (and in 2008, in response to a feared decline in house prices).

Over the past decade, most state and territory governments have ‘topped up’ the basic FHOG payments to first-time buyers with grants from their own resources, with some states providing even larger grants to buyers meeting certain additional criteria (for example, the Victorian Government provides an additional $5,000 for buyers of new homes in rural and regional areas). State and territory governments also provide indirect financial assistance to first-time buyers by partially or totally exempting them from the stamp duty they would otherwise pay on their purchases.

Governments have thus been providing cash handouts to first-time home-buyers for almost half a century. Yet, strikingly, the home ownership rate has never been higher than the 72 per cent recorded at the time of the 1961 Census, three years before the first of these schemes began. At every Census since then, it has fluctuated between a low of 68 per cent (in 1976) and 72 per cent (in 1971). At the past two Censuses (in 2001 and 2006) it stood at 70 per cent.

Indeed the apparent stability of the overall home ownership rate conceals a substantial decline in home ownership rates among every age group below 50.

Research by Sydney University’s Judy Yates and Hal Kendig, and more recently by Flinders University’s Joe Flood and Emma Baker, undertaken for the Australian Housing and Urban Research Institute, has shown that between the 1991 and 2006 censuses, home ownership rates dropped by between 5 and 7 percentage points among households headed by each of the five-year age cohorts between 2529 years and 45-49 years, by 4 percentage points among households headed by 50-54 year-olds, and by 2 percentage points among households headed by 55-59 year-olds. The only reason the overall home ownership rate hasn’t fallen more dramatically is the

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‘The billions of dollars spent on cash grants to first home buyers have spectacularly failed to achieve the objective of increasing home ownership rates.’

substantial increase in the proportion of households headed by people aged 45 and over, among whom home ownership rates have always been significantly higher than among younger age groups.

In other words, the billions of dollars spent on cash grants to first home buyers (and for the first nine years of the FHOG Scheme’s operations, expenditure on those grants exceeded $10 billion) have spectacularly failed to achieve the objective of increasing home ownership rates.

And it’s pretty obvious why. Cash grants and other forms of assistance to first-time home buyers have served simply to exacerbate the already substantial imbalance between the underlying demand for housing and the supply of it – an imbalance which, according to the National Housing Supply Council, amounted to a shortfall of more than 200,000 dwellings as at June 2010. In those circumstances, cash handouts for first home buyers have simply added to upward pressure on housing prices, enriching vendors (and making those who already own housing feel richer) whilst doing precisely nothing to assist young people (or anybody else) into home ownership.

Contrast this with what happened when during the 1950s and early 1960s, when the Commonwealth Government provided low-interest loans to State Governments to construct dwellings for sale to eligible first home buyers. The home ownership rate rose from just under 53 per cent at the time of the 1947 Census (a level unchanged from that reported in the first Commonwealth Census in 1911) to (as noted earlier) 72 per cent at the time of the 1961 Census.

In other words, policies which added directly to the supply of housing worked. Policies which have, in effect, added only to the demand for housing (or, more strictly, increased the amount which people can afford to pay for housing), have conspicuously failed.

Why, then, have governments persisted with policies which have so miserably failed to meet their ostensible goals? The answer is, surely, that since around 70

per cent of Australians live in homes which they (or members of their immediate family) already own, policies which make them feel richer (by inflating the value of what for most of them is their most important single investment) are much more popular than policies which might allow the small minority of Australians who don’t currently own their own home, but would like to, to join them.

If governments really wanted to do something about housing affordability, they would abolish cash grants to first home buyers, and ‘quarantine’ tax deductions for interest paid by landlords to the value of the rent received in any given financial year (with any excess carried forward against the capital gains tax liability when the property is sold) and use the resulting savings to assist local governments to reduce up-front charges imposed on developers, and in various other ways increase the supply of low-cost housing.

Saul Eslake is Chief Economist of Bank of America Merrill Lynch Australia. This article was first published in The Age and by the Sydney Morning Herald on March 16, 2011. The opinions expressed in the article do not necessarily represent those of Bank of America Merrill Lynch Australia.

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GAVIN WOOD AND IAN WINTER

Scrapping stamp duties for a land tax Last year’s National Tax Forum highlighted the importance of tax reform for housing affordability. Gavin Wood and Ian Winter show how reforming stamp duties and land tax would be a realistic first step to bring greater equity and efficiency to the market – and cut land prices by up to 10 per cent.

There are many reasons why Australian house prices and rents have skyrocketed ahead of average earnings over the last 25 years, tipping more and more households into housing affordability stress1.

Among the drivers are the usual suspects: population increases, deregulation of mortgage markets, buoyant labour markets and inflexible planning systems. But underpinning them is a set of federal and state tax arrangements that stop housing markets operating efficiently and push affordable housing further out of the reach of lower income Australians.

Some call for the Federal Government to address the distortionary impacts of negative gearing tax benefits and the discount on capital gains tax 2 but these are reforms that appear beyond the current political horizon. State government stamp duties and land taxes offer more realistic opportunities for reform as there is growing cross-sectoral support for changes that could boost housing affordability and improve the efficiency of housing and land markets.

At present stamp duties are levied at different rates by all state and territory governments on each housing purchase (by landlords and owner occupiers), with each state employing a sliding rate schedule (that increases with price); land taxes are paid by landlords on the accumulated value of their total land holdings,

1. AHURI research shows median house prices are outstripping borrowing capacity of average workers by more than $250,000. Those who can enter the market are forced to city fringes, far from employment centres, increasing the strain on transport and other infrastructure, from J Yates, Tax expenditures and housing, Australian Housing and Urban Research Institute (AHURI) for the Brotherhood of St Laurence, Melbourne, September 2009.

2. See ‘Crunch time for negative gearing’ by Saul Eslake in Insight edition 4, Fair share: tax reform, July 2011, available at http://issuu.com/vcoss/docs/insight

but not by owner occupiers. The report on Australia’s Future Tax System by former Treasury Secretary Ken Henry3 advocated the replacement of stamp duties by a broad-based land tax that would apply in a uniform way, regardless of land use. It recommended: • extending land tax to owner-occupiers whilst removing stamp duties, and • levying land tax annually, according to tax rates determined by the price per square metre of land, which are then multiplied by the value of each land plot.

The current arrangements reduce the supply of rental housing, because the after-tax returns on land used for rental housing are lower relative to untaxed land occupied by home owners. Resources will tend to flow into untaxed uses, and housing markets are no exception. This distortion aggravates shortages in the supply of rental housing, raises rents and makes rental housing less affordable. Moreover, the current land tax and stamp duty arrangements encourage the over-consumption of housing and land, and therefore promote urban sprawl.

Matters are made worse by the fact that stamp duties raise the price of housing and thus add to the amount of money home buyers have to borrow and the mortgage repayments they have to meet. Having to pay a stamp duty with every real estate purchase also deters residential moves – a risk to labour market efficiency if it makes people less likely to take jobs in new areas. ‘Empty nesters’ are also discouraged from trading down to smaller dwellings, so housing stocks are underutilised, and some retired home owners prevented from releasing housing wealth to supplement pensions.

3. Commonwealth of Australia, Australia’s future tax system, Report to the Treasurer, December 2009, Canberra, Australian Government, http://taxreview.treasury.gov.au/content/FinalReport.aspx

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THE CASE FOR REFORM There is then a strong case for reform on both equity (improving housing affordability for low and moderate income Australians) and efficiency grounds. This was recognised at last year’s National Tax Forum which highlighted the importance of tax reform for housing affordability. Speakers from diverse sectoral interests recognised the benefits of such reforms, suggesting that the opportunity for reform is closer, if not close.

In a recent Australian Housing and Urban Research Institute (AHURI) research project,4 Wood et al modelled a broad-based land tax schedule to replace the revenue lost on removing stamp duties, and estimated the formal incidence of land taxes and the capitalisation effects into land prices5. The findings are compelling. Removing stamp duties on residential property transactions and extending land tax to owner occupiers would, on a per property basis: 1. put downward pressure on house prices, 2. ease entry to home ownership for first home buyers, 3. reduce the number of taxes (by one), and 4. shift the overall tax burden from low to highincome communities.

The modelling showed that scrapping stamp duties for a broad-based land tax could reduce land prices by up to 10 per cent, with prices in the inner city dropping the most. The cost of a $335,000 plot of land in Melbourne (the average price in 2006) would drop by $21,000, or roughly 6 per cent.

4. Wood, G, Ong, R, Cigden, M & Cigden and E Taylor, The spatial and distributional impacts of the Henry Review recommendations on stamp duty and land taxes, AHURI Final Report No. 182, Australian Housing and Urban Research Institute (AHURI), February 2012.

5. The modelling drew on 2006 property valuations and sales data in metropolitan Melbourne to map the effects of the recommendations. Rates and thresholds were set to match the revenue lost from abolishing stamp duty, ensuring the reform would be a cost neutral exercise for state governments.

Downward pressure comes from the fact an annually levied land tax is hard to avoid. Land is immobile and fixed in supply. So when a broad-based land tax is introduced, potential buyers reduce how much they are willing to pay by the expected value of the land tax liabilities. The price of land is thus reduced to the point where the after-tax return is equal to the return on other investments.

Whereas stamp duty is only payable when a property is purchased, the land tax is paid annually and would make holding on to unused property a more expensive exercise that could tighten the liquidity position of owners of undeveloped land and vacant property. This would encourage more rapid development of greyfield sites in inner areas were housing pressures are most acute.

HOW TO MAKE THE CHANGES Clearly changes to the system would create issues for state governments and territories (with the loss of lucrative stamp duties) and existing home owners (who have already paid stamp duties but could become liable to pay land tax). But it can be done via a set of transitional arrangements that would ‘smooth the path’ for these potential ‘losers’.

To this end we propose that properties move from the current stamp duty regime to the new land tax regime when they are next sold. With this transition model no current home owner would pay land tax on a property on which they had already paid stamp duty. Current home owners would be asked to substitute a recurrent annual tax for an upfront transaction tax when they next purchase.

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The timing of this substitution would be at the discretion of current home owners. Our modelling indicates that the typical homeowner (in Melbourne) will, on moving, begin paying an average annual land tax of $1,458 instead of an average up-front stamp duty of $18,900 (at 2006 prices).

We estimate that 75 per cent of dwellings would be on the new land tax regime within 10 years. This gradual transition would guard against the possible disruption to land and housing markets that could be triggered when there is ‘overnight’ replacement of stamp duty by a broad-based land tax.

A potential disadvantage of gradual transition would be a shortfall in tax revenues for state governments as they moved from upfront stamp duty payments to annual land taxes. The more gradual the transition to a broad based land tax, the greater the shortfall in tax revenue to a state government in the interim. Given the importance of stamp duty as a source of revenue for state governments, it would seem reasonable, in a federation where taxation powers and service provision are shared across levels of government, for the Federal Government to assist in bridging revenue shortfalls. Assistance would enable a tax reform package that, unusually, offers both efficiency gains in the operation of housing and land markets, and equity gains by improving housing affordability for future generations of Australians.

Scrapping stamp duties in favour of a broad-based land tax could reduce land prices by up to 10 per cent, with prices in the inner city dropping the most.

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Who currently pays land tax?

• Land tax is currently only levied on private rental housing and commercial or industrial use property, not on owner occupier housing or primary production.

• Land taxes are paid by a landlord once the cumulative value of land occupied by his/her investment properties exceeds a threshold (that differs across state and territory governments).

• While single property owners typically have a small or more often zero tax liability, multiple property owners have relatively high tax burdens, creating a disincentive for ownership of multiple rental properties – and consequently constraints on the supply of rental housing.

What do we recommend?

• Tax applied to all land uses except primary production.

• Tax rate determined by the price per square metre of land.

• Tax calculated per land holding.

What would be the impact?

• Annual land tax is hard to avoid because land is immobile and fixed in supply.

• Potential buyers will reduce how much they are willing to pay for a house by the expected value of the land tax liabilities, thereby reducing house prices overall.

• Typical homeowner (in Melbourne) will, on moving, begin paying an average annual land tax of $1,458 instead of an average up-front stamp duty of $18,900 (at 2006 prices).

• The land tax would make it expensive to hold onto unused property, thus encouraging development of inner city greyfield sites where housing pressures are most acute.

Dr Ian Winter is the Executive Director of the Australian Housing and Urban Research Institute (AHURI). Professor Gavin Wood is at the School of Global Studies, Social Science and Planning at RMIT University in Melbourne. AHURI is a national, not-for-profit organisation that funds, conducts and disseminates high quality research on housing, homelessness and cities.

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CARYN KAKAS

Investing in infrastructure Urban expansion on Australia’s city fringes is running rife but government investment in community infrastructure is only limping along. Caryn Kakas argues that we need to find a different funding model.

Housing affordability is a puzzle that remains unsolved by all levels of government with Australians continuing to have only limited and unaffordable housing options in both the rental and home purchase markets.

In fact, Australia ranks only behind Hong Kong as being the least affordable housing market in the world, according to the 2012 Demographia International Housing Affordability Survey. This report found that homes in Australia cost 5.6 times the average salary, compared to the broadly accepted standard for affordability of three times annual income to buy a home.

This means that families without at least two full-time employed members are often priced out of home ownership.

The loss of affordability has been progressive over the past 20 years. In 1986 it took almost four times annual earnings to purchase a home; in 1996, it was almost five times salary and in 2006 it peaked at around seven times.

Various factors have contributed to Australia’s lack of housing affordability, including: • areas identified for growth in and around cities have not been matched with commitments to deliver infrastructure, amenity and employment opportunities, • investment in both hard and soft infrastructure – such as road and rail connections, schools and other community amenities – has significantly decreased, • planning systems are complex, adding time, uncertainty, and, ultimately, cost to the final price of housing, and

• the cost of infrastructure delivery is being passed onto the price of new homes rather than being funded by the government.

The Residential Development Council (RDC) has long advocated the need to reform the systems surrounding residential housing development. These reforms include: • forward planning for housing supply in both greenfield and infill locations to ensure the total level of supply is right, • removing the burden of taxes and charges from home buyers, which shift infrastructure costs from governments to home purchasers (and ultimately renters), • reviewing the planning system to allow for smaller lots and more innovative housing products to better match Australians’ needs, and • better consulting with communities to provide a clear picture of the future shape of their cities.

Underpinning these reforms is the need to invest heavily in infrastructure. Historically, the cost of infrastructure for roads and public transport was borne by the public purse rather than the current, inefficient system of development contributions.

Soon to be released research by The Allen Consulting Group on behalf of the RDC has found that infrastructure charges imposed an additional $67,300 for a block of land in Sydney. To make matters worse, when these extra costs are extrapolated over the 25 or 30 year life of the mortgage, the home buyer ends up footing a bill that is thousands of dollars more than upfront costs, due to interest payments.

The RDC argues that alternative funding arrangements should be adopted to fund new critical infrastructure.

One opportunity to improve housing outcomes and deliver infrastructure would be the introduction of Growth Area Bonds (GABs).

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GROWTH AREA BONDS (GABS) What are they?

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GABs have a number of distinct advantages relative to existing public infrastructure funding approaches in that they:

GABs have been used in the United States for over 50 years in a wide range of projects ranging from relatively small and localised activities such as streetscape restorations, to large infrastructure provisions including railway stations and mixed-use developments.

• provide a market test and added rigour around infrastructure selection,

GABs are financed based on hypothecated tax revenues from property taxes derived from property appreciation within a prescribed growth area – or a GAB district. These districts can be in both greenfield and infill areas.

• deliver infrastructure quickly by tying its delivery to revenue, creating an incentive to ensure it is not delayed,

How do they work?

• provide an equitable approach to sharing infrastructure costs,

A government authority designates an area as a suitable GAB district, establishing a GAB development authority in the process. A growth, or renewal, plan is then prepared for the district in which the infrastructure and development needs are outlined and costed upfront.

Existing property tax revenues for the GAB district are calculated, and then set as the tax ‘base’ for the district. This base is frozen at the pre-GAB level, usually in real terms, and continues to be delivered to the taxing authority for the life of the project.

The sponsoring government authority issues bonds, with the option of government-backing, to the value needed to fund the necessary infrastructure.

Infrastructure delivery can occur at varying levels of public and private funding, allowing for the use of public private partnerships as necessary.

Over time, the infrastructure invested into a district increases its economic activity and leads to property appreciation, which in turn leads to increased property taxes across the district. GABs are repaid from the incremental increases in property taxes; that is, rates.

Once the bonds are repaid, the GAB ceases to exist and all property taxes associated with the district are returned to the government.

GABs can be tailored to suit specific needs and governance arrangements, enabling them to be easily applied to local infrastructure projects.

• provide an upfront and sustained commitment to specified infrastructure provision, independent of political cycles,

• provide a transparent process for infrastructure selection and provision,

• limit the front-end loading of costs onto homeowners, and • avoid the inefficiencies, adverse market outcomes and unpopularity associated with revenue raising tools such as taxes or levies.

How would they work in Australia?

Several necessary elements would be required to make GABs an effective infrastructure funding tool in Australia: • Enabling legislation to establish the necessary governance arrangements, such as for the operation of GAB development authorities and the conditions surrounding the bonds themselves.

• Schemes are recommended to be initiated by a state government agency, rather than at the local government level, as most councils would not have the sufficient expertise or resources to manage a GAB scheme.

• Bonds would need to be issued through respective state financing agencies.

• The associated tax revenues involved would be state based, primarily land tax and stamp duty, not local council rates.

The introduction of GABs won’t solve the housing puzzle, but it is one important part of delivering the solution. It provides the opportunity to reduce housing costs and deliver community amenity.

What are the benefits?

Experience from the US shows the effectiveness of GABs tends to depend heavily on their application to suitable infrastructure projects and districts, as well as the support of an appropriate governance framework.

Caryn Kakas is Executive Director of the Residential Development Council, a national policy division of the Property Council of Australia.

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MICHAEL BUXTON

Tale of two cities: supply and demand The divide between the ‘haves’ and the ‘have nots’ is ever more entrenched in Australian cities, with lower income households consigned to live in poor, low density, new outer suburbs. Professor Michael Buxton says the solution is to return to integrated and more regulated land use – but that time is running out.

Land use planning is a potentially powerful tool for increasing housing affordability. However, in Australia it remains largely unused for this purpose.

The current deregulated planning systems in fact decrease affordability and increase spatial inequality.

Everyone wants improved housing affordability but it remains an orphan.

Development companies and their lobby groups have developed the dominant affordability paradigm.

Their spatial narrative has convinced governments through consistent lobbying, publicity and scare tactics. Simply put, this narrative is that housing affordability is directly related to outer urban land supply, that governments control the supply of land and any regulatory intervention to redirect or otherwise control demand and supply of land, or housing performance or type, will raise house-land costs. Governments therefore must make large areas available for housing on a continuing basis or suffer serious electoral implications.

Every element of this paradigm is false. Well targeted regulation can reduce land and house price and increase affordability. Some European countries have used land use regulation and economic policies to minimise differences between outer and inner urban land prices. Some key United States studies show that land use regulation, such as the use of urban growth boundaries (UGBs), does not increase land price where land is available in a wide number of locations such as greenfield and

brownfield sites, or where policies achieved higher average land densities and varied house sizes and types1. Some US cities have accompanied urban containment with proactive affordable housing policies such as inclusionary zoning and housing programs, and mandated increased minimum density targets. Similarly, the 2002 introduction of a Melbourne UGB could not have caused any increase in outer urban land price2.

THE COSTS OF OUTER URBAN LIVING Infrastructure costs grow disproportionately as cities spread, adding considerably to land price.

In Australia, although governments designate land for future urban use, a small number of developers control land release, generally restricting outer urban land supply and creating artificial scarcities.

Land release, not the overall supply designated, is the major price determinant. Outer urban density and house types are critical elements in affordability and, again, these are controlled by development companies. A range of lot densities would lower average land price, force development companies to redesign housing types to match smaller lot sizes and reduce the cost of both land and housing. This approach would have other beneficial impacts, such as more efficient and cost effective infrastructure provision, better social and environmental outcomes, and higher densities concentrated within walking distance to public transport and services.

1. Nelson, A, Dawkins, C, Sanchez, T, The Social Impacts of Urban Containment, Aldershot, Hampshire, 2010; Pendall, R, “Do Land-use Controls Cause Sprawl?”, Environment and Planning B: Planning and Design, 26(4), pp 555571, 1999; Ihlanfeldt, K,“The effect of land use regulation on housing and land prices”, Journal of Urban Economics, 61(3), pp 420-435, 2007; Glaeser, E. and Ward, B, “The causes and consequences of land use regulation: Evidence from Greater Boston”, Journal of Urban Economics, 65(3), pp 265-279, 2009.

2. Buxton, M. Taylor, E, “Urban Land Supply, Governance and the Pricing of Land”, Urban Policy and Research, Vol. 29, Issue 1, pp 5-27, 2011.

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Many outer urban areas will become places of last resort for low income households, beset by unaffordable living costs, traffic congestion, and poor access to employment, educational and other services.

Average Australian outer urban house and lot sizes are the world’s largest, with little diversity apparent. There is now a major mismatch between average household size (2.6 people per household) and dwelling size (Australian homes now have the largest average floor size in the world, 245.3 square metres in 2008-09, with an average 3.1 bedrooms per dwelling3). Again, because of a failure of government, development companies determine the prevailing pattern of urban design. This conventionally takes the form of large detached houses in single use subdivisions poorly served by public transport, kilometres from retail and other services, and long distances from employment. This has major implications for housing consumers.

Firstly, relatively large, uniform housing and land products cost more to buy. Secondly, the dominant urban form of Australian outer suburbs leads to high social and other costs to residents.

Outer urban household operating costs are rising alarmingly. Home energy costs are significant and will increase substantially. For many people, transport costs in new car-based suburbs are the second highest household operating cost.

Development companies and their lobbyists constantly speak of housing affordability in terms of comparative price. They argue that average house-land packages in outer urban land areas costing almost half the price of a two-bedroom apartment and between one third and one sixth of a comparative housing product in the established city proves affordability. The dominant development model for Australian cities – outer urban sprawl and inner urban intensification – has led to dramatic price variability between outer suburbs and inner-middle ring suburbs. In the 3. Commonwealth of Australia, State of Australian Cities 2011, Department of Infrastructure and Planning Major Cities Unit, Canberra, 2011.

1970s, and even into the 1980s in Melbourne, house/land prices between inner, middle ring and some outer urban areas were generally comparable. But no longer.

Some developers claim that building costs are responsible for high inner/middle ring apartment costs. Although partly true, deregulation is adding to higher prices and lower affordability also in the middle and inner ring suburbs. In particular, the lack of controls on density, height and building type is leading to unprecedented levels of inner and middle ring land speculation and higher developer costs which are passed onto consumers. Rising inner and outer urban land-dwelling prices and spatial price disparity, therefore, are being fuelled by exactly the same governance model.

DEEPENING DISPARITIES Spatial characteristics powerfully reinforce social difference whenever deregulated statutory planning systems are left to determine urban form. Australian cities are increasingly being characterised by two city types as a result of the private sector determining the shape of cities, the type and scale of housing and other uses, the rate of development and ultimately the way cities function. Higher income, tertiary educated, professionally employed households are concentrated in service rich, higher density, inner and middle ring suburbs of Australian capital cities and selected outer urban areas, while lower income households without tertiary qualifications are concentrated primarily in service poor, low density, new outer suburban areas. A range of other public policy measures, such as taxation and incentive programs, have reinforced the disparities in wealth across different areas of cities.

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The former Victorian Labor Government’s metropolitan planning policy, Melbourne 2030, attempted to exercise a fundamental change to the operation of housing markets by reducing the proportion of outer urban housing from 38 per cent to 31 per cent. Eventually, the government intended to shift almost 50 per cent of the trend rate of outer urban housing to the established city, mainly to over 100 ‘activity centres’. But the government had no idea how to implement its plan. It expanded the urban growth boundary three times, contradicting the plan’s fundamental intent.

Its 2010 expansion of the designated urban area by 41,000 hectares was the result of panic principally by the Labor architect of deregulation, Premier John Brumby, and his advisers. They accepted the fiction of the developer narrative and returned to business-as-usual outer growth precisely at the time outer urban growth rates were starting to collapse in Melbourne. Outer growth has remained stagnant and, as a result, some large developers are finally beginning to include a range of smaller lot sizes and even new matching house types. This combination of higher densities and housing and lot diversity is precisely what was needed instead of further growth boundary expansion. It is starting to happen now – almost 20 years after the Kennett government removed the Cain government regulation for higher outer densities – because development companies finally would rather change their business model than go broke.

Victorian State government planning policy has been deliberately non-interventionist and vague.

It contains pronouncements about housing affordability that no one in government intended to implement, such as ‘housing affordability will be improved by increasing choice in housing type, tenure and cost to meet the needs of households as they move through life cycle changes and to support diverse communities’.

The current metropolitan development model is rapidly making Melbourne dysfunctional. Lower income groups will finally be driven out of the inner city by rampant redevelopment which will destroy Melbourne’s best economic asset – its

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heritage of pre-1945 buildings. Many outer urban areas will become places of last resort beset by unaffordable living costs, traffic congestion, and poor access to employment, educational and other services. The solution is to return to integrated and more regulated land use, and social, economic and environmental planning.

This is not a radical solution. The true radicals are those who have smashed the tradition of a strong government role aimed at achieving socially equitable and properly functioning cities and communities. There is still time to return to this model, but time is running out.

Michael Buxton is Professor of Environment and Planning at RMIT University in Melbourne.

NATIONAL PLANNING ‘CONSISTENCIES’ A remarkable consistency exists between Australian state deregulated planning systems, including an exclusion of broader social and environmental agendas, a narrow, short term approach to decision making, and the legislated transfer of power and control to the private sector.

At a national level, state and territory planning ministers in 2005 endorsed the Leading Practice model developed by the Development Assessment Forum which comprises representatives of governments, the development industry and professions.

This model emphasised increased private sector involvement through self assessment of applications and planning scheme amendments, certification of compliance and decision making under delegation, substantial reductions in third party rights, and professional determination of applications through the use of codes.

States are progressively introducing these principles into planning systems.

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JUDITH YATES

Housing bonds: back on the agenda It could cost $7 billion a year to fund the affordable housing stock needed in Australia. Housing economist Judith Yates explains why housing bonds could be the answer to sourcing those funds.

National Housing Supply Council estimates suggest that up to 20,000 new affordable dwellings are needed each year for the next 10 years just to retain a 5 per cent share of the social and affordable stock in Australia. At a very modest cost of $250,000 per dwelling, adding 20,000 dwellings to the affordable housing stock each year implies an annual need of $5 billion; at a more realistic cost of $350,000 per dwelling, it implies a $7 billion total – greater each year than the one off social housing stimulus provided in 2008-09.

The cheapest – and simplest – way to finance any increase in affordable housing is for governments to provide direct grants or loans to public or community housing providers. But this solution would transform an ambiguous government budget balance into an unambiguous deficit. In the current political climate most governments are very reluctant to take this path.

Direct government funding of this magnitude would also present its own risks, since any large expenditures would be an obvious target for any government seeking to rein in the budget.

Once government budget constraints are seen as immutable, raising finance in the private market, such as from banks, individual investors and superannuation funds becomes the only feasible solution. However, experience has shown that accessing private finance for community housing brings its own challenges.

Banks have been willing to provide limited sources of funds, but availability has been constrained and costly.

Currently mortgage finance provided to community

housing providers requires an interest cover ratio of around 1.5 to 2.0 (this means the borrower has to have an income stream that exceeds the interest repayments by more than 50 per cent) and loan to valuation ratios of less than 70 per cent. New post global financial crisis (GFC) regulatory requirements on banks are likely to reinforce these current constraints.

A second option is to continue to rely on individual (‘mum and dad’) investors, the current mainstay of the private rental market. However, while experience shows that individual investors are willing to invest in rental housing, Australia’s tax settings mean that most of this investment has been in existing rather than new dwellings, and relatively high value, rather than affordable housing. This notwithstanding, there are a number of examples of for-profit and not-for-profit schemes that have relied on individual investment in conjunction with the National Rental Affordability Scheme (NRAS).

This leaves the financial might of institutional investors, such as superannuation funds, which hold $1.3 trillion ($1,300 billion) in funds, a sum anticipated to grow to $3.2 trillion by 2035. Superannuation funds are currently almost entirely absent from investment in residential property for reasons that include: a lack of scale (super funds need to invest large sums of money in each transaction – in housing that means developments with thousands of housing units at a time, a scale that no Australian community housing providers have been able to undertake), low returns combined with high perceived risks, high management costs, illiquidity, poor market information about what is a new asset class, and no track record on which to base decisions.

Housing bonds, as a debt rather than an equity instrument, can address some of these constraints.

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WHAT IS A BOND? A bond is a debt security (essentially a loan) which can be issued by the government, a financial institution or a company and sold to an investor (or bond holder).

Bonds are generally assigned a credit rating (by agencies such as Standard and Poor’s or Moody’s).

Higher rated bonds offer lower returns than lower rated bonds, and longer term bonds generally have higher rates than shorter term bonds. In Australia, government bonds have a AAA rating, and so have a low interest rate. Privately issued bonds generally have a lower rating and a higher interest rate.

Institutional investors have indicated1 that risk adjusted returns are more important to them than social dividends. They generally are not prepared to put social investment ahead of returns. As they move out of their accumulation phase and into their pension phase (in other words, as they start to pay out), they are interested in instruments that match their pending liabilities. This generally means that long term fixed income bonds are likely to be attractive (as are inflation indexed bonds). They are looking to the income stream from investment in rental property and are not interested in the capital gains available from equity investment. They aren’t particularly interested in tax incentives because their tax rates are so low.

What they are looking for is security and an investment grade asset (preferably an AAA rated bond) that will act as an alternative to government bonds. To get this, they need some form of credit enhancement to secure any instrument relying on the income from investment in affordable rental housing.

INSIGHT 6

the Netherlands which is co-funded by government and housing associations. If funds raised by a bond issue are used to finance loans only to regulated affordable housing providers with financially viable (and audited) business plans, such a guarantee is likely to be an extremely cost effective way of developing an instrument with a AAA credit rating, as defaults on loans obtained by regulated housing providers are likely to be extremely low.

Other proposals in the Lawson et al report suggest housing bonds targeted at retail investors and use of a housing bond as a means of converting government grants into a revolving loan. The report also discusses the need for an appropriately regulated specialist financial intermediary to issue bonds and on-lend funds raised.

HOW CAN GOVERNMENT SUPPORT BONDS? Two recent inquiries2 have argued the case for government involvement in the development of appropriate instruments to channel investment towards socially useful forms of investment and for the development of specialist financial intermediaries to issue these. To this end, the Lawson et al report proposes establishment of a cross sectoral high level industry and government Housing Supply Bonds Task Force (HSBTF) to provide advice to governments on the potential for a Housing Supply Bond in Australia.

The proposal by the Senate Economics References Committee for the establishment of a Social Finance Taskforce to take forward development of a capital market for social investment in Australia provides an obvious springboard for such a role.

WHAT SHOULD A BOND LOOK LIKE? The Housing Supply Bonds proposed in the Lawson et al report have been designed to meet these requirements. One of the proposals is for a government guarantee that interest and principal repayments would be met, in order to enhance the credit rating of the housing bond. There are a number of precedents for such a proposal, such as the guarantee fund in

1. Lawson, J, Milligan, V, and Yates, J, Housing Supply Bonds – a suitable instrument to channel investment towards affordable housing in Australia, forthcoming at http://www.ahuri.edu.au, 2012.

Judy Yates is currently an Honorary Associate in the School of Economics at the University of Sydney after a long career in academia. Her research has been in the fields of housing economics, finance and policy.

She is currently a member of the Federal Government’s National Housing Supply Council.

2. Productivity Commission, Contribution of the not-for-profit sector, Research Report, Commonwealth of Australia, 2010. At http://www.pc.gov.au/ projects/study/not-for-profit/report.; The Senate Economics References Committee (2011) Investing for good: the development of a capital market for the not-for-profit sector in Australia, Report, at http://www.aph.gov.au/ Parliamentary_Business/Committees/Senate_Committees?url=economics_ctte/ capital_market_2011/report/index.htm. Accessed 14 December 2011

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INSIGHT 6

TANIA LOOSLEY-SMITH

SHARED EQUITY: new models at work in WA Western Australia is leading the way in Australia with affordable housing initiatives. Tania Loosley-Smith outlines its thinking and practice.

That’s not to say the West doesn’t have its problems – but some of these solutions have led the nation and enjoyed significant success.

Affordable housing is one of the pressing issues of our time. Without it there is little security for families, limited certainty about the future, and no long-term financial independence.

Keystart

And it doesn’t necessarily help to live in a booming part of the country. If you’re on a modest income and the supply of affordable entry points is falling, or if you’re being crowded out by others, the scope of the challenge – and its consequences – are just as serious.

While part of the solution relies on an adequate supply of affordable rentals, for many families the best option is a home they can buy – and eventually own.

Why? For most people, owning their own home provides a safety net for the whole family. It offers a sense of stability and control, with more security and independence. As a form of saving it starts families up the economic ladder, giving them a very real stake in the prosperity of the nation. And the more households that move into home ownership, the more opportunities there are for renters.

Western Australia has long recognised the advantages of home ownership and the challenge it presents for some households. Our approach is focused on a whole housing ‘continuum’ – not just asking for public money to address the symptoms of market failure for key groups, but looking to thoughtful, self-funded and highlytargeted market interventions that can help to mitigate the worst aspects of the affordable housing challenge.

The State has tried to broaden the entry points to and opportunities for home ownership for those on modest incomes, but always with an eye to solutions that don’t rely exclusively on the public purse.

As the State Government’s low entry-cost home loan provider, Keystart allows those on modest incomes to own homes. It provides direct pathways from social housing and rental stress by providing mortgage finance to eligible borrowers who would otherwise have difficulty meeting the loan entry requirements of private lenders (e.g. high deposit requirements, elevated savings hurdles, mandatory mortgage insurance, and loan application fees).

What’s needed to access a Keystart loan: 2 per cent deposit 1 per cent genuine savings no mortgage insurance other debt repayments no more than 7 per cent of gross income (8 per cent for families), and house value of no more than $400,000 (metro) and $500,000 (above the 26th parallel1).

As an instrument of social policy, the organisation focuses on households between 75–125 per cent of median incomes in the metro area, and higher in highcost regional locations.

Thus Keystart helps bridge the gap between the rental system and commercial home finance. This doesn’t mean that its operation is riskier than other financial institutions. On the contrary, its strong governance, robust loan-serviceability assessments and early intervention have produced loan arrears, defaults and mortgagee-in-possessions around half that of industry standards.

1. The 26th parallel (south) refers to all areas of Western Australia north of the town of Denham.

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While run on a commercial basis, its services help the State Government achieve key policy objectives such as: • providing accommodation pathways other than social housing, • helping low-to-moderate income earners move from public and private rentals into affordable ownership, • helping shape first homebuyer choices and market innovation by focusing on affordable products, • supporting the local home building industry and acting counter-cyclically as needed to bolster the State’s economy, and • supporting home ownership in regional locations where mainstream financiers are not lending.

Since its inception, Keystart has provided almost 50,000 loans (and aims to provide 1,400 per year), at no direct cost to government, and on arrangements that have provided dividends back to the Housing Authority for reinvestment into social housing programs.

Shared equity Keystart also manages the loan component of the State’s shared-equity programs, offering mortgage finance with savings requirements even lower than its general settings. Discrete shared-equity products are targeted at particular disadvantaged groups including public housing tenants, Aboriginal and Torres Strait Islanders, people with disabilities and sole parents.

The shared-equity concept involves the Housing Authority taking a minority co-ownership position in each applicant’s home (between 20 and 40 per cent, depending on the target group), which is then generally sold down to them over time as their circumstances allow.

After providing around 11,000 loans over the last 25 years, this approach was supplemented last year by SharedStart. This new scheme focuses specifically on new construction procured through the Housing Authority and is available to Keystart clients on lowmoderate incomes who are excluded from traditional home ownership opportunities.

SharedStart offers both fixed and flexible sharedequity options. With fixed shared-equity, the Housing Authority retains its share in key locations ‘in perpetuity’, providing affordable opportunities to other applicants as original co-owners trade-up and sell their portion back to the Authority. Flexible shared-equity resembles the traditional scheme where co-owners are encouraged to buy the Authority’s share as soon as possible, with annual reviews and early exit incentives.

The new approach is based on an innovative open EOI (Expression of Interest) where the Authority is seeking to procure up to 2,000 shared equity properties at ‘wholesale’ prices by buying in bulk from the market.

The difference between the price paid and the market value is captured as the government’s equity (rather than taken as profit), meaning that borrowers only need to find around 80 per cent of the market value themselves.

Since SharedStart’s launch in September 2011, 18 properties have been sold, 34 are under offer and 94 properties are available.

This is delivering new affordable housing in volume and allowing the Government’s SharedStart equity component to be self-funding. Linking SharedStart with the EOI Program is not only facilitating much-needed entry level housing, but also creating new supply and stimulating activity in the local building industry.

Importantly, all the properties built under the EOI are below the lowest quartile house price in Perth – effectively re-creating a market segment that had all but disappeared from the market.

Other initiatives A number of collaborative public/private equity projects are also underway where the Housing Authority has used its land as equity, or leveraged government funding, to bring in significant private capital to build affordable mixed tenure projects. Typically its role as an equity partner has enabled policy influence over the size and mix of dwellings ,with the majority of units sold to private buyers, National Rental Affordability Scheme (NRAS) investors, shared-equity participants and key workers (such as emergency services providers, social workers, not-for-profit workers, police, teachers and nurses). The cost of the latter two is met from the Authority’s share of development profits, while a social housing component is also retained in each development. For example, 70 per cent of the inner city One on Aberdeen development will be affordable housing. Out of 161 apartments there will be: • 15 units for social housing • 50 discounted rentals via NRAS • 22 shared equity opportunities.

Tania Loosley-Smith is General Manager of the Strategy and Policy Division of Western Australia’s Department of Housing.

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INSIGHT 6

TOBY ARCHER

Fixing rent assistance The Commonwealth Rent Assistance program is failing those who need it most. Toby Archer argues that housing assistance is not only about decent payment levels but the impact it has on other parts of the housing paradigm.

Moreover, the problems are becoming worse. Because maximum payments are indexed to general inflation (CPI) rather than rent levels, and rent levels have been increasing much faster than inflation in recent years9, the gap between rents and Rent Assistance has been growing (see Figure 1).

Between 1995 and 2009 all household types in all capital cities experienced a significant decline in the proportion of rent covered by Rent Assistance.10

Commonwealth Rent Assistance (Rent Assistance) is the largest direct program expenditure on housing by the Federal Government – at over $3 billion per year, compared to public housing expenditure of $2.2 billion.1 Yet, despite the program’s magnitude, assistance to private renters remains defined more by inertia than innovation.

And ever declining effectiveness at addressing housing stress has been the outcome.

Most recently these calls to arms gained further validation from the Harmer Pension Review 2 and the Henry Review3 which both noted that Rent Assistance is proving inadequate and recommended fundamental reform.

Successive governments remain reluctant to respond to address this failure.4 How Rent Assistance fails Unlike housing payments in many other nations, Rent Assistance is provided as an income support payment and is only intended to improve affordability for recipients rather than guarantee that they avoid housing poverty.5 Generally, Rent Assistance achieves this all too modest objective, reducing the percentage of all recipients in rental stress from 71 per cent before receipt of Rent Assistance to 42 per cent after. However, this means that more than two out of five recipients remain in housing stress6, and more than one in ten still pay over 50 per cent of income on rent7, even though almost 75 per cent of recipients now receive the maximum Rent Assistance payment.8

1. Commonwealth of Australia, Report on Government Services 2012. Canberra: Productivity Commission, 2012.

2. Harmer, J Dr, Pension Review Report, Department of Families, Housing, Community Services and Indigenous Affairs, Commonwealth of Australia, February 2009; Commonwealth of Australia, Australia’s future tax system Report to the Treasurer, December 2009.

3. Also see Hulse, K, ‘Rent Assistance: Time for a Policy Review?’, Just Policy, 13–25, Victorian Council of Social Service, Melbourne, 2002; Hulse, K, Demand subsidies for private renters: a comparative review: final report, AHURI, 2002.

4. The Australian, 9 February 2012, ‘Ministers rule out rise in welfare payments’.

5. Rent Assistance is paid to tenants in the private market and community housing, meeting 75 cents in the dollar for rent payments above a minimum threshold up to a maximum threshold. The maximum payment rates and rent thresholds vary according to household situation and number of children. Maximum weekly Rent Assistance payment rates range from $38.40 for singles sharing accommodation and $57.50 for singles not sharing to $76.44 for singles or couples with three or more children.

Those in shared housing have their Rent Assistance payments reduced by one third.

Rent thresholds and maximum rates are indexed twice a year in line with CPI. 6. ‘Housing stress’ is deemed to occur when low income earners (those on the lowest 40% of incomes) pay over 30 per cent of their housing costs on housing costs.

7. Productivity Commission Report on Government Services 2012, Commonwealth of Australia, Canberra, 2012 8. ibid.

median weekly rent (all) max CRA (couple with < 2 children $250

$200 (1995 dollars)

The past decade has seen mounting evidence of a sharp decline in private rental affordability and an associated increase in housing stress among renters. This has prompted calls for increased income support and Rent Assistance.

Figure 1: Weekly median rent compared to maximum Rent Assistance, 1995 to 2009

$150

$150

$100

$50 Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Colic-Piesker, V, Ong, R, and McMurray, C (2010).

Who Rent Assistance fails All household types suffer from the reduced effectiveness of Rent Assistance, but some more so than others.

Young people are among the hardest hit. Most independent young people who are either studying or seeking work receive Austudy or Youth Allowance payments and, of these young people, more than two in three are still in rental stress after receiving Rent Assistance.11 Young people are also penalised because those living in shared accommodation receive a reduced rate of Rent Assistance, compounding the impact of also receiving the lowest income support payments.

People who are unemployed and single parents fare little better, with 63 per cent of Newstart recipients and nearly Couples without 40 per cent of single parents (Rent Assistance recipients children 9% whose primary payment is the Parenting Payment for single parents) in housing stress.12 This is concerning because the Couples with vast majority of Rent Single no children 17% Assistance recipients are either single children 52% or single parents (Figure 2).

9. Colic-Piesker, V, Ong, R, and McMurray, C, Falling Behind. The growing gap between rent Single parents and rent assistance 1995-2009, Prepared by RMIT AHURI Research Centre for the Tenants Union of Victoria, 23% 2010, available at http://www.tuv.org.au/policy+and+research/research.

10. ibid 11. Data provided by the Department of Families, Housing, Community Services and Indigenous Affairs (FAHCSIA) to the Answers to estimates questions on notice, FAHCSIA Portfolio 2011-12 Budget Estimates Hearings Question No: 246 12. ibid

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Figure 2: Rent Assistance by household type Couples without children 9% Couples with children 17%

Single no children 52%

Single parents 23%

Source: Australian Institute of Health and Welbeing analysis of Australian Government Housing Dataset, June 2010; unpublished data from the ABS 2007–08 Survey of Income and Housing.

Low income working households without children are not eligible for Rent Assistance despite the ample evidence of affordability problems and housing stress experienced by low income workers across Australia. Median rents in Brisbane, Darwin, Melbourne and Perth generally consume around 50 per cent of income for a low-paid single worker.13 Meanwhile, higher income working households receiving Family Tax Benefit payments are eligible for Rent Assistance although they are the least likely to be experiencing housing stress – after Rent Assistance, 18 per cent devote more than a third of their income to rent.14 While Rent Assistance provides welcome additional income for many low income rental households, it is clear that it does not make renting affordable for many recipients. It also has different affordability outcomes in different parts of Australia, with much less effectiveness in cities and towns with very high rents, and greater impact in cheaper locations.

The consequences of this for individual households are serious. Affordability problems require households to adapt to their circumstances. Low income households, particularly those dependent on income support payments, are more likely to resort to trade-offs considered unacceptable in an affluent society, including cutting back on food, heating and cooling, going without health or dental care, withdrawing from children’s educational activities, and selling or pawning possessions, each of which affect people’s health and wellbeing.15 Beyond failure There are several incremental improvements which, in combination, could move Rent Assistance from being a payment that fails most recipients to one which more effectively reduces rental stress.

Firstly, increasing the maximum payment by 30 per cent would be a significant first step that would provide immediate relief to those already receiving the maximum rate. Such an increase equals between $15 and $25 per week for most recipient groups. An increase in payments of $15 per week across all payment types would reduce the numbers of Rent Assistance recipients currently in housing stress by almost 65,000, at a cost of $596 million.

An increase of $25 per week would reduce the numbers by 100,000, at a cost of $932 million per annum. Such a proposal has yet to win support from the Government.16 Secondly, Rent Assistance could be indexed to rents as recommended by both Harmer and Henry. This would improve affordability for those paying rent above the current maximum thresholds.

As a final improvement, eligibility for Rent Assistance could be broadened to assist all low-income households irrespective of source of income or tenure. This would recognise the centrality of housing and the fact that there are a number of situations in which a housing payment intervention would lead to positive social outcomes.

Ultimately, Rent Assistance requires wholesale reform. All housing assistance should be viewed and provided in the context of an integrated housing system where activity in one sector, intended or otherwise, has an effect on other parts of the system. To do so Australian housing policy needs to be sophisticated enough to combine supply and demand subsidies into a comprehensive and cohesive response to the housing needs of the nation generally and struggling low income tenants in particular.

Benchmarking Rent Assistance against an agreed indicator would have the benefit of ensuring housing affordability for all recipients regardless of household type or location.

Genuine reform would reconceptualise Rent Assistance as a comprehensive housing assistance payment and would not leave the program and its recipients languishing in the broader income support system.

Recommendation 102: The maximum rate of Rent Assistance should be increased to assist renters to afford an adequate standard of dwelling. To ensure that Rent Assistance can be maintained at an adequate level over time, the rent maximum should be indexed by movements in national rents, which could be measured by an index of rents paid by income support recipients.

Ken Henry, Australia’s Future Tax System, Final Report, 2009

Toby Archer is Policy and Liaison Worker at the Tenants Union of Victoria.

13. Tenants Union of Victoria, Private Rental Affordability Bulletin September Quarter 2011, available http://tuv.org.au/policy+and+research 14. Op cit FAHCSIA 15. T Burke, S, Pinnegar, P Phibbs, C Neske, M Gabriel, L Ralston, and K Ruming, Experiencing the housing affordability problem: blocked aspirations, trade-offs and hardships, Final Report, AHURI, Melbourne, 2007.

16. O p cit FAHCSIA

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NICOLE LAWDER, TRAVIS GILBERT

INSIGHT 6

The Road Home: how are we travelling?

The 2008 White Paper on Homelessness, The Road Home, promised an unprecedented whole-ofgovernment commitment to reducing homelessness.

Three years on, Nicole Lawder and Travis Gilbert from Homelessness Australia look at how far we have come.

The Road Home, Australia’s first ever White Paper on homelessness, was hailed – when announced by the Rudd Government in 2008 – as a breakthrough in the approach to one of the nation’s intractable issues. It breathed fresh air and real excitement into the homelessness sector, which was consulted and engaged in the Paper’s development.

Declaring that ‘homelessness is everyone’s responsibility’, it set two headline goals for 2020: to halve overall homelessness, and offer supported accommodation to all rough sleepers who need it.

It then offered a number of interim targets, aiming by 2013 to: • cut overall homelessness by 20 per cent, • cut primary homelessness by 25 per cent, and • cut recurring homelessness (that is, the proportion of people seeking specialist homelessness services more than three times in 12 months) by 25 per cent.

Three years on and just short of the interim target date, how have we travelled on The Road Home?

Homelessness Australia recently undertook extensive consultation with its members and stakeholders and studied progress reports from state and territory governments to analyse the implementation, with the goal of producing an interim ‘report card’.

It’s clear we are heading in the right direction, with over 80 per cent of initiatives, programs and service models promised in the White Paper delivered or in progress.

But findings were difficult to quantify as the data collected is not consistent.

White Paper strategy The White Paper was underpinned by three strategies: 1. Turning off the tap: aiming to prevent homelessness by tackling its structural drivers: such as entrenched disadvantage, unemployment and the shortage of affordable housing; and targeting at-risk groups such as older people in housing stress, women and children leaving violence, Indigenous Australians and people leaving state care.

2. Improving and expanding services: ensuring there should be ‘no wrong doors’ for people when they seek help.

3. Breaking the cycle: moving people quickly through the crisis system to supported stable housing so homelessness does not re-occur1.

Critical to the strategy was the new 2009 National Affordable Housing Agreement (NAHA), which committed $6.2 billion over five years for homelessness support and accommodation, social housing, and assistance to private market renters and homebuyers.

The White Paper promised a 55 per cent increase on the then investment in homelessness, an additional $800 million over four years which was termed a ‘down payment’ on the 12 year reform agenda. It also included a commitment to additional social housing for homeless people of $400 million over two years.

The report card Assessing progress against implementation plans has been a problem with the White Paper, as with many Commonwealth/State and Territory agreements, due to lack of access to more comprehensive data. For example, there is no readily available data from states and territories on the number of people for whom evictions have been prevented under new or existing tenancy support.

1. Australian Government White Paper, The Road Home: A national approach to reducing homelessness, FaHCSIA, pp.ix-xi, 2008.

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The impact of some initiatives is easier to quantify; for example, we understand that 770 housing and support packages will be allocated under A Place to Call Home, more than the start-up target of 600.

Other service models such as the Foyer integrated accommodation developments for young people are providing good data.

There is also some evidence of more integrated responses to homelessness, particularly with agencies such as Centrelink, which has implemented a range of initiatives such as weekly income support payments, better access to social work services, and pilots of colocated offices with state/territory housing department offices. A more concerted effort is still needed from other departments and agencies such as correctional services, health and ageing and youth.

It has been harder to obtain concrete data about other initiatives of the National Partnership Agreement on Homelessness (NPAH), although we know some jurisdictions used Nation Building economic stimulus Plan funds for the bricks and mortar of new service models and that 52 per cent of social housing dwellings constructed under the stimulus plan were allocated to people for whom homelessness and/or domestic violence are identified issues2.

What’s on the road ahead?

Building social housing involves a high initial cost but international research demonstrates that it is less expensive to house people rapidly and keep them housed than it is to keep them homeless.3 The White Paper has provided a framework for a whole-of-government, whole-of-community response to homelessness. There is concern that the scale of its initiatives won’t be adequate to meet its ambitious goals and targets, and cynicism that 2011 Census methodology will artificially reduce the recorded homeless population. But the framework is sound and needs to be strengthened. This requires: 1. Re-funding of the National Partnership Agreement on Homelessness (NPAH) and the A Place to Call Home initiative with a minimum of $1.2 billion in new funding for 2013-17.

2. Developing an overarching affordable housing strategy with short, medium and long term targets to match the supply of safe, secure, affordable housing with people’s needs.

2. http://www.economicstimulusplan.gov.au/housing/pages/default.aspx 3. Culhane, D P, The cost of homelessness: a perspective from the United States, School of Social Policy and Practice Journal 1/1/2008, University of Pennsylvania, p6, 2008.

3. Including an affordable housing growth fund in the next NAHA of at least $2.4 billion per year to begin to meet the chronic housing shortages consistently identified in the National Housing Supply Council State of Supply reports.

4. Fully funding existing specialist homelessness services, including accommodation, supported housing and support services in the next NAHA: • to meet existing demand, • to resource service enhancements where they’ve been proven to be successful, and • to keep pace with increased costs, including wages.

5. Clarity around whether States and Territories are committed to a 7 per cent reduction in overall homelessness by 2013 as agreed to in the NPAH, or a 20 per cent reduction as stated in the White Paper.

6. Publishing the findings of State and Territory Government evaluations of the NPAH, and using them to determine new programs and service priorities in the next funding round.

7. Achieving agreement between governments and the homelessness sector around the terms ‘early intervention’ and ‘prevention’ and how they are applied to particular client groups.

8. Fully disseminating the findings from the publicly funded national homelessness research agenda.

9. Implementing national standards to reverse systemic policy failures in institutional care.

10. Urgent work to track exits from correctional services and state care to determine whether or not the ‘no exits’ policy is improving housing and support outcomes.

11. Attention on reducing overall homelessness, not only prioritising ‘rough sleepers’.

12. Improving the evidence base on the pathways into and out of homelessness for people from culturally and linguistically diverse (CaLD) backgrounds as a priority.

Nicole Lawder is Chief Executive Officer at Homelessness Australia. Travis Gilbert is Policy and Resarch Officer.

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INSIGHT 6

BENJAMIN LAW

Generation Rental

With his generation increasingly locked out of home ownership, acclaimed Australian author Benjamin Law ponders a makeover for the ‘Australian Dream’.

When I was a kid, scoring a luxurious $5-per-week in pocket money, I thought millionaires were the richest people in the world. “One million dollars!”

I’d think to myself. It was my personal yardstick of astronomical wealth, a sum only Rupert Murdoch, Donald Trump and Scrooge McDuck — suitedup white men and cartoon birds — could have possibly earned. For the rest of us, it was a nice daydream. Sometimes I’d list all the things I’d buy with a million dollars, like a vending machine in every room, or a pet dolphin in my waterfall pool.

A million dollars: it was a dizzying amount of money that bordered on the ridiculous.

I never thought I’d see houses regularly go on sale for a million dollars. But lately, in my inner-city Brisbane suburb, this seems to be the going price for most places. Most of them are two level family homes with a yard, stainless steel appliances and no discernible traces of asbestos. They’re nicely renovated houses, but not mansions by any stretch. Of course, you don’t need to spend a million dollars to own a home in a capital city.

In Melbourne, the current average house price is $533,524. In Brisbane, it’s $427,148, and if you’re hunting in Sydney, you’re looking at $634,326, give or take*. In young people’s terms, that’s 338 round-the-world flights or four black-market human livers. (I actually researched this).

Needless to say, I’m getting the feeling that I’m going to be renting for the rest of my life. Emilio, an architect buddy of mine, blogged about this recently, and it hit a nerve with me. “You can beg your way into a six or 12 month lease with the constant reminder your stay is temporary and precarious,” he wrote, “or you can take your chance on the ‘Australian Dream’ – wherever that may be.” Temporary and precarious: that probably sums up a lot of our living situations right now. We’re the generation who lives in fear of mid-year letters from our real estate agents, and we all masochistically pray for rent increases, rather than the alternative horror of an eviction notice.

Renting is cool, but it can also be a drag.

My first rental was an old Queenslander, a wooden, south-facing beast of a thing. It had its own charm, but it also had shower pipes that burst open with seasonal changes, causing mushrooms to sprout up through the lino. My bedroom’s walls were decorative rather than functional: in winter, cold air blew in through the corners; in summer, ants climbed through and marched into my jocks. My sisters’ last share

* Figures updated for 2012

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house was advertised as “furnished” – a good deal, they thought, until they discovered the blood stains on the mattresses.

We endure these places because we hold onto some firmly-held conviction that renting is only temporary, a young person’s thing, and that we’ll eventually have a place to call our own. Less and less of us are hanging onto that dream, though. In April this year, one survey found a third of Australian respondents born after 1980 felt permanently locked out of the housing market.

Why? Well, there are a whole lot of reasons — skewed property taxation regimes; national real estate prices outstripping average wage increases; government incentives for investment properties — things I can barely understand without the aid of pie charts and Alan Kohler.

But hey: maybe the Australian dream needs a makeover too. My cousins in Hong Kong would never dream of buying a place of their own, and I’m starting to question why I should feel entitled to own a massive house with a lawn. I don’t even like lawns. They’re expensive to maintain, constantly require water, and a dedicated mower who isn’t a lazy bastard like me. And I sort of like the fact that my rented apartment doesn’t require insulation: the fact I have upstairs neighbours insulates it for me.

INSIGHT 6

If I really want to own my own place, I still have a few options. I could wait for my parents to die, although this is slightly ghoulish and would start a fight between my siblings. On the other hand, I could set my sights on becoming a millionaire.

The only question is how? Wait a minute, don’t tell me. I know this one. Because most people tell me the same thing: apparently, there’s a lot of money to be made in real estate.

Benjamin Law (http://www.benjamin-law.com/) is a Brisbane-based writer. His essays have been anthologised in The Best Australian Essays twice, and his debut book The Family Law (2010) was shortlisted for Book of the Year at the Australian Book Industry Awards (ABIAs). He’s working on his second book, out in 2012.

This is an edited version of an article originally published in frankie magazine, edition #36 (July/ August 2010).

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AN INVITATION TO ATTEND AUSTRALIA’S LEADING MENTAL HEALTH CONFERENCE

The biennial VICSERV conference is a key event on the national community mental health calendar, setting the standard for Australian mental health conferences with challenging content, provocative speakers and cutting-edge thinking.

The 2012 conference theme – Reframing Mental Health: a new state of mind – reflects the fact that community managed mental health services are on the brink of major change. Strategic thinkers from the UK, the US, New Zealand and Australia will lead a range of discussions and stimulate debate during presentations and workshops on the following sub-themes: •

Housing sector development

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Dual diagnosis

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Service improvement

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Creativity and wellbeing

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Consumer leadership

We invite you to learn how community managed mental health services are reframing their approach to service delivery and policy development, building on research evidence and implementing new partnerships to create quality client outcomes. Be inspired by fresh approaches and innovative solutions to common dilemmas that all community and social services can learn and benefit from.

Early bird registrations close on 6 April 2012.

For more information, please visit WWW.VICSERV.ORG.AU