Revised Proof

Housing Policy in Australia

“Australia has avoided a recession in its economic system for nigh on 30 years. Good management our political leaders claim. But Australia’s housing system has failed throughout this time: homelessness has risen; insecure and unaffordable rental are common-place; the over-valuing of homeownership has escalated; and a massive shortage of social and affordable housing has been allowed to develop. How is such neglect or mismanagement of Australians’ housing dreams possible? This book explains why and what to do about it. Pawson, Milligan and Yates carefully document compelling evidence on these issues to provide a contemporary and robust analysis of the when, where, how and why of housing problems in Australia. Moreover, the authors provide the policy solutions and actions to be taken by Federal, State and local governments, as well as the development, fnance and property management industries. Pawson, Milligan and Yates are Australia’s foremostPROOF housing analysts. This book is essential reading for anyone with an interest or a care in reforming Australia’s housing system to be once again ft for all Australians.” —Ian Winter, Housing consultant, and Director, Australian Housing and Urban Research Institute 2000–17

“Housing policy and housing systems are rapidly changing and profoundly reshaping access to affordable and high quality housing across all Australia’s cities and regions. Housing Policy in Australia superbly harnesses international evidence and more than two decades of experience to not only analyse but also provide potential solutions to the current housing policy impasse. The book’s comprehensive canvassing of housing system diversity—tenures, social differentiation, historical trends—will become necessary reading for housing practitioners and students. The ambitiousREVISED reform agenda proposed by the book deserves to be carefully digested and implemented by professionals working across the housing sector.” —Robyn Dowling, Professor of Planning and Dean of Architecture, Design and Planning, University of Sydney “Despite 27 years of uninterrupted economic growth, Australia confronts a crisis of structurally-embedded housing unaffordability and insecurity across all tenure types. Debt-fuelled speculative investment has driven high rates of after-housing poverty and declining access to home ownership, particularly for young Australians. The nation’s growing ranks of renters, most seriously those on low and moderate incomes, are trapped in a cycle of housing stress, at increasing risk of homelessness. In this important book, three leading Australian scholars combine their respective and collective research and deep, industry-engaged policy expertise to explain how and why the bipartisan post-war commitment to secure, affordable housing as a fundamental platform for social and economic participation, has collapsed. They present a searing indictment of the very real and profound consequences of three lost decades of housing policy reform for all Australians, not only the most vulnerable. Underpinned by a sophisticated analysis of the evolution and dynamics of housing policy, the institutions and systems in which it is embedded and with which it interacts, and informed by comparative analysis, this volume is an exem- plar not only for housing and urban studies, but for policy studies more broadly. The authors’ present an urgent and compellingPROOF case for a transformational national housing strategy—including enhancements to the policy-making framework, phased reforms to alleviate the worst of current affordability pressures and coordinated, longer-term measures to tackle structural challenges. It is essential reading for policy-makers and those who advise them, including researchers, whose collective failures have created and sustained Australia’s housing policy vacuum. The book is accessible to all Australians concerned about future pros- perity, social cohesion and wellbeing.” —Anne Tiernan, Dean (Engagement), Griffth Business School, Griffth University, Australia REVISED Hal Pawson · Vivienne Milligan · Judith Yates Housing Policy in Australia

A Case for System ReformPROOF

REVISED Hal Pawson Vivienne Milligan UNSW Sydney UNSW Sydney Kensington, NSW, Australia Kensington, NSW, Australia

Judith Yates University of Sydney Sydney, NSW, Australia

PROOF

ISBN 978-981-15-0779-3 ISBN 978-981-15-0780-9 (eBook) https://doi.org/10.1007/978-981-15-0780-9

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2020 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifcally the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microflms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specifc statement, that such names are exempt from REVISEDthe relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affliations.

Cover illustration: © www.gograph.com/[Kudryashka]

This Palgrave Macmillan imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore Foreword

For a country that has long considered itself to be relatively well housed, it may come as a surprise that Australia has arguably never had a coherent housing policy, or at least not so you’dPROOF notice. One exception is probably the decades after World War Two when, in line with other comparable countries, the Federal government took up the challenge of housing Australians with gusto. The 1945 Commonwealth-State Housing Agreement heralded the advent of a generally comfortably housed population in the thirty years that followed. Housing became a prominent component of the now long-lost contract between what used to be called ‘capital’ and ‘labour’ with overt government support for housing being a ‘fourth pillar’ of the post-war political settlement, alongside wages growth, social security and trade protection. Fast forward to 2019 and a national policy framework for housing is just a faded memory. As the authors of Housing Policy in Australia note, the lastREVISED intellectual fowering of such an approach was the 1991– 1992 National Housing Strategy, which at least attempted to conceive of housing as a holistic policy domain. Any hope that this might result in innovative policy reform quickly dissipated, however, and by the mid- 1990s political interest in housing policy had collapsed. Hopes for positive reform were swept away by the neo-liberal ‘turn’ in policymaking. Essentially this saw any direct involvement by government in housing dwindle to that of offering accommodation, on an increasingly temporary basis, to the most needy or homeless, or as a booster for the private market through increasingly generous taxation subsidies and permissive

v vi FOREWORD planning systems. In the process, housing has been tuned into a fnancialised and debt-fuelled speculative asset class in which prices have decoupled from household incomes. In effect, the market became the policy. With the Australian Federal Opposition fghting, and losing, the 2019 general election in part around proposals for modest housing reforms, prospects for a more coherent approach to the deepening problems in housing Australians seem bleak. This book spells out these problems in graphic detail: housing debt and housing unaffordability at unheralded and unsustainable levels; rising homelessness and levels of housing stress; a residualised and degraded public housing sector; a failing home ownership market; growing reliance of the younger generation on insecure private renting; and the latest crisis of confdence in the quality of high rise multi-unit housing (which was meant to provide a lasting solution to housing supply in our expanding cities). Together with the looming need to somehow retool our housing stock to deal with the challenge of climatePROOF change, you might have thought governments across Australia would be pursuing every option to develop new policies to deal with the complex and interrelated issues that have emerged as the housing market has failed. But no. It’s business as usual and don’t whatever you do disturb the housing market money- go-round. The words ‘ostrich’, ‘head’ and ‘sand’ come to mind. The current Australian national housing policy vacuum is hardly surprising given that, as this book clearly describes, responsibility for the diverse policy domains related to the housing system is fragmented across a range of federal and state government departmental fefdoms. Local government, meanwhile, is effectively disengaged from policy debates in this area (other than as the whipping boys for developer griev- ances aboutREVISED planning ‘delays’). Moreover, that debate has been increasingly driven by vested interest groups outside government, in particular, a highly organised, resourced and vocal property lobby which never wastes an opportunity to press for less regulation, less oversight and greater tax breaks for private sector interests. In the process, the capacity of Australian governmental process to adequately address the complex issues the country faces over housing has been steadily eroded. But we all share some blame for this state of affairs. The Australian Academy has played its own part in creating this housing policy vacuum. Despite 20 years of the Australian Housing and Urban Research Institute, whose funding in large part has supported the research that FOREWORD vii underpins this volume, housing policy receives only limited and disjointed support in our major tertiary institutions. Where it is recognised, it is tackled as a subsidiary to other major degree subjects or squeezed into accredited courses supporting the various built environment professionals (architects, quantity surveyors, planners, civil engineers, etc.) for whom housing policy remains a tangential interest. This is a systemic failure and one that greatly contributes to the low level of informed engagement with housing as a central policy concern in Australia. Despite this unpromising situation, it is worth asking what a national housing policy might look like. This is what the authors of this volume, comprising three of the most eminent scholars in their feld, have attempted to do. The book offers policymakers and practitioners a framework to help them ‘join the policy dots’ and develop a coherent response. Firstly, it addresses the policy fragmentation issue by taking a system-wide view of the interrelated aspects of housing supply, demand and regulation that constitute the way in which housing is developed,PROOF fnanced, managed and consumed. Secondly, it moves well beyond the limitations of seeing housing as simply some natural outcome of the working of a mystical market in which prices signal appropriate responses from both consumers and producers. Instead the authors adopt a much more nuanced framework focusing on the governance arrangements, institutions and stakeholders that in reality actively shape the housing system. Thirdly, based on the evidence mounted, it proffers a high-level direction and staged process to achieve fundamental reform. Housing Policy in Australia enters the conversation at a highly inaus- picious, yet critical time. It offers an evidence-based and detailed analysis for anyone interested in understanding how we have found ourselves in this increasinglyREVISED unsustainable policy void. A key take-away from this book is that the malaise at the heart of the Australian housing system is also a problem for many other jurisdictions, not least those of the Anglosphere. However, unlike Australia, other national governments have at least found partial solutions to some of these problems. In Australia, the standard ministerial reaction is to hope the next property boom gets underway as fast as possible. The authors conclude with a set of principles and carefully considered reforms that should guide any long-term attempt to address Australia’s failing housing system, with a primary focus on unaffordability. The proposals are both sensible and achievable, but will require political viii FOREWORD willpower and bipartisanship to deliver. It is surely not beyond our political class and those who advise them to recognise the benefts of adopting a coordinated approach to unravelling the tax-fuelled speculative spi- ral that has ensnared our housing system. A more rational approach to housing policy is possible, but only by tackling the issue holistically. Our political leaders would do us all a huge favour by reading this book and beginning to implement its proposals. As the authors rightly conclude: “There is no responsible ‘business as usual’ option”.

Professor Bill Randolph UNSW Sydney Kensington, Australia

PROOF

REVISED Acknowledgements

We are indebted to the many colleagues and partner organisations who helped to make this book possible. Credit for much of the underlying evidence base is due to the Australian HousingPROOF and Urban Research Institute (AHURI). Over the past 20 years the AHURI network, supported by government and member university funding, has generated a huge research trove valued by policymakers and academics not only in this country but across the world. Much of our own research supporting the arguments in this book originates from AHURI-commissioned work. We also acknowledge the evidence-based contribution of the Grattan Institute through their many powerful analyses of housing and urban issues published in recent years. Special thanks are due to certain esteemed academic colleagues whose work has richly informed individual chapters in the book. Among the Australian housing research community, we pay particular tribute to Keith Jacobs,REVISED Kath Hulse and Nicole Gurran for their scholarship as it has contributed to Chapters 2, 6 and 9, respectively, and to Gavin Wood and Rachel Ong Viforj for Chapters 3 and 5. Chapter 7 benefted signifcantly from Daphne Habibis’ Indigenous housing expertise and Chapter 8 owes much to Julie Lawson’s research leadership on affordable housing fnancing. As well, the insights of Peter Phibbs, Terry Burke and Mike Berry have informed many of our perspectives. Among overseas-based colleagues, special mention is due to Glen Bramley for his contributions in inspiring Chapter 2 and inputting to Chapter 9, and to Duncan Maclennan for his infuence on Chapters 2 and 10.

ix x ACKNOWLEDGEMENTS

Much of our own research has profted from the lively and supportive intellectual environment of UNSW’s City Futures Research Centre. We especially acknowledge the respected leadership and encouragement of Bill Randolph, Centre Director and renowned Australian urban policy guru. Thanks are also due to our Editor, Per Håkan Arvidsson, to our publisher Palgrave Macmillan and to the publisher’s anonymous reviewer of our book proposal. Likewise, UNSW Built Environment Faculty support for editing costs has been greatly appreciated. Finally, we cannot thank enough our partners Wendy, Gary and Warren for their enduring support.

PROOF

REVISED Contents

1 Introduction 1 1.1 The Rising Prominence of Housing Policy Debates 1 1.2 Objectives and Exploratory ThemesPROOF 3 1.3 What Is Housing Policy? 8 1.4 Key Concepts in Housing Policy and Analysis 12 1.5 Governance, Institutions and Geography 21 1.6 Structure of the Book 25 References 25

2 Why Governments Intervene in Housing 31 2.1 Effciency Motivations 32 2.2 Equity Motivations 37 2.3 Financial Stability and Economic Productivity 38 2.4 Critical Perspectives on Housing Policy Interventions REVISEDand Their Underlying Dynamics 40 2.5 Conclusions 46 References 46

3 Unpacking Australia’s Housing Affordability Problem 51 3.1 Introduction and Overview 51 3.2 Home Ownership Affordability 52 3.3 Housing Affordability More Broadly Defned 58 3.4 Explaining Rising Unaffordability 69

xi xii CONTENTS

3.5 Conclusions 78 References 79

4 Social Housing in Australia: Evolution, Legacy and Contemporary Policy Debates 87 4.1 Introduction 87 4.2 Australia’s Social Housing in an International Context 89 4.3 Social Housing in Australia: The Rise and Fall of Public Housing 92 4.4 Social Housing Diversifcation 113 4.5 Public Housing Transfers 122 4.6 Conclusions 125 References 126

5 Home Ownership and the Role of Government 135 5.1 Home Ownership in a Comparative Context 136 5.2 Home Ownership in Australia PROOF 138 5.3 What Makes Home Ownership Different from Other Tenure? 156 5.4 Conclusions 165 References 166

6 Private Rental Housing: Market Roles, Taxation and Regulation 177 6.1 The Private Rental Policy Challenge 177 6.2 Australia’s Private Rental Sector 180 6.3 Tax and Regulatory Settings Affecting PRS Investment 188 6.4 REVISEDRegulation of Landlord–Tenant Relations and Rental Property Management 199 6.5 Demand-Side Private Rental Assistance 206 6.6 Conclusions 209 References 209

7 The Indigenous Housing Policy Challenge 217 7.1 Introduction 217 7.2 Key Factors Contributing to Indigenous Housing Disadvantage 220 CONTENTS xiii

7.3 Indigenous Housing Policy Approaches 223 7.4 Australian Indigenous Housing Policy Eras and Their Governance 228 7.5 Forms of Housing Assistance for Indigenous Australians 239 7.6 Conclusions 250 References 252

8 Financing and Governing Affordable Rental Housing 259 8.1 Introduction 259 8.2 The Shift to Private Financing of Affordable Housing 262 8.3 The Affordable Housing Business Model 265 8.4 International Financing Models and Trends 272 8.5 Affordable Housing Financing in Australia 281 8.6 Conclusions 292 References PROOF 293 9 Roles of Land Use Planning Policy in Housing Supply and Affordable Housing 299 9.1 Introduction 299 9.2 Land Use Planning, Land Economics and Value-Capture 301 9.3 Land Use Planning and Affordable Housing: Principles and Practices 306 9.4 Land Use Planning in Australia 312 9.5 Planning for Affordable Housing in Australia 316 9.6 How Far Does Planning Constrain Housing Affordability? 327 9.7 REVISEDConclusions 330 References 331

10 Housing Policy in Australia: A Reform Agenda 339 10.1 The Case for Urgent Action 339 10.2 Revisiting Our Exploratory Themes 342 10.3 Current Housing Challenges in 2020 344 10.4 A Reform Agenda 346 10.5 Possible Stage One Reforms 354 xiv CONTENTS

10.6 Unfnished Business 355 10.7 Conclusion 356 References 357

Index 359

PROOF

REVISED List of Figures

Fig. 1.1 Institutions in the housing system and their interactions 7 Fig. 1.2 Housing tenure trends, 1947–2016 14 Fig. 2.1 Ratio of household and housing debt PROOFto disposable income, 2000–2018 38 Fig. 3.1 Increases in house price to income ratios, selected OECD countries: 1985–2015 53 Fig. 3.2 Real housing price and income indexes, Australia: 1985–2018 54 Fig. 3.3 House price to income ratios, Australian capital cities: 2001 and 2018 54 Fig. 3.4 Indicative mortgage interest rates in Australia: 1985–2018 56 Fig. 3.5 Deposit requirements and deposit gap as a multiple of income, Australia: 1985–2018 57 Fig. 3.6 Incidence of housing stress for lower-income households under different measures, Australia: 2002–2003 63 Fig. 3.7 Housing cost ratios by income quintiles, Australia: 1995–2016 65 Fig. 3.8 REVISEDProportion of lower-income renters in rental stress, Australia: 2008–2016 66 Fig. 3.9 Incidence of before- and after-housing poverty by housing tenure, 2015–2016 68 Fig. 3.10 Real rent indexes, Australian capital cities: 1985–2018 70 Fig. 3.11 Distribution of private rental dwellings by weekly rent, Australia: 1996–2016 77 Fig. 3.12 Indicators of supply shortage of rental dwellings for Q1 households: 1996–2016 78 Fig. 4.1 Social housing in Australia and in OECD countries 88

xv xvi LIST OF FIGURES

Fig. 4.2 State and territory government housing completions for rent between 1945 and 2018 95 Fig. 4.3 National social housing provision between 1991 and 2018 96 Fig. 4.4 Social housing in management 2001–2018: breakdown by social landlord type 118 Fig. 5.1 Home ownership rates: selected OECD countries, circa 2014 137 Fig. 5.2 Home ownership rates by age, Australia: 1985–2016 142 Fig. 5.3 Home ownership rates by age and income, Australia: 1984–2016 143 Fig. 5.4 Household net wealth by tenure and age of household, Australia: 2015–2016 162 Fig. 5.5 Household net worth by tenure, age and income, Australia: 2015–2016 162 Fig. 5.6 Housing costs as a share of household disposable income by age and tenure, 2015–2016 163 Fig. 6.1 Private rental dwellings in Australia by ownership in 2015–2016 183 Fig. 6.2 Distribution of private rental housing and other forms of housing by building types in AustraliaPROOF (2016) and Germany (2013) 184 Fig. 6.3 Household composition of PRS and non-PRS tenures in Australia (2016) and Germany (2017) 186 Fig. 6.4 Housing fnance issued to investor landlords between 1985 and 2018 (net of re-fnancing) 189 Fig. 7.1 Housing tenure of Indigenous and non-Indigenous households, Australia 2016 218 Fig. 8.1 Affordable housing project costs and fnancing mix 266 Fig. 9.1 Valuation of additional development rights upon rezoning 303 Fig. 9.2 Impact on land value resulting from affordable housing REVISEDobligation 310 List of Tables

Table 1.1 Housing policy classifcation: Australian exemplifcations and chapter positioning 10 Table 1.2 Housing tenure archetype features PROOF 13 Table 1.3 Housing policy intervention types and responsible Australian government agencies 22 Table 2.1 Perfect competition assumptions and common violations in the housing context 35 Table 2.2 Australian interest groups active in housing policy, and their motivations 44 Table 3.1 Impact of affordability measure on estimated incidence of housing stress, Australia: 2002–2003 67 Table 5.1 Indicative government support for home ownership: c.2018 154 Table 6.1 Australian private rental typology 181 Table 6.2 Tax treatment of private landlord income and capital gains in ten countries 195 Table 6.3 Security of tenure: Australasia, Europe, North America REVISED(selected countries) 202 Table 7.1 Historical summary: Indigenous housing policies: pre-1970s–2019 225 Table 7.2 Provision of social housing to Indigenous Australians 2017/2018 241 Table 8.1 Government fnancial support for affordable housing 269 Table 9.1 Australian approaches to supporting affordable housing through the planning process 317

xvii CHAPTER 1

Introduction

1.1 The Rising Prominence of Housing Policy Debates Australia has traditionally been seen as a relatively egalitarian country supported by a well-functioning housing PROOFsystem. However, the effcacy of Australia’s housing policy now faces mounting scrutiny. While acknowledging that most Australians remain well housed, one of the nation’s leading housing economists declared not long ago that “it can no longer be said that we are, in general, affordably housed; nor can it be said that the ‘housing system’ is meeting the needs and aspirations of as large a proportion of Australians as it did a quarter of a century ago” (Eslake 2013, p. 7). Such developments have undermined prevailing complacency about the nation’s housing system—and with it, Australia’s traditional housing narrative. Australia’s time-honoured ‘housing story’ has been facing a growing challenge, not just in the very recent past, but arguably for at least 30 years. TheREVISED ideal of ever-expanding suburban home ownership is incompatible with the compact city notion that has infused metropolitan planning orthodoxy since the 1990s. At least since the early 2000s, access to home ownership (suburban or otherwise) has become an increasingly remote prospect for many aspirant frst home buyers, as property prices have escalated ahead of wages. Sharply falling home ownership rates among young people, and the virtual exclusion of even middle-income frst home buyers from extensive areas of our largest

© The Author(s) 2020 1 H. Pawson et al., Housing Policy in Australia, https://doi.org/10.1007/978-981-15-0780-9_1 2 H. PAWSON ET AL. cities, have provoked widespread concern. Such anxieties often crowd out media coverage of the arguably more important issues: rising rental stress and homelessness. Yet those concerns have also triggered growing popular unease. Increasingly, there is disquiet about structurally embedded housing unaffordability as this impacts on economic productivity when workers are locked out of housing markets close to employment growth centres (Maclennan et al. 2018, 2019). Another feature of Australia’s housing tradition increasingly viewed as problematic is the way that tax-subsidised cultural preference for home ownership and property investment has posed growing risks to Australia’s economic stability. In 2019, for example, Australia’s central bank (the Reserve Bank of Australia) warned that the nation’s high household indebtedness posed a “vulnerability” in relation to fnancial stability (RBA 2019). All this needs to be viewed within the context of housing system challenges posed by Australia’s sustained population growth, refecting both natural increase and international migration.PROOF Over the last two decades respectively, annual population growth rates have averaged 1.6% (2010s) and 1.4% (2000s) (ABS 2018). In comparator countries, Canada, the UK and New Zealand, equivalent rates for 2017 were 1.2, 0.6 and 1.9%, respectively (World Bank 2019). For all of the above reasons, housing policy has acquired growing popular and political prominence in Australia after decades of near invis- ibility. Housing affordability has emerged as a dominant issue in three of the last fve federal elections (2007, 2016, 2019). Numerous parliamentary and other offcial inquiries have focused on this issue over the past decade (Dodson et al. 2017, pp. 22–28). Thus, it seems that Australia is now fully embedded in an era where housing challenges are consistently at the forefrontREVISED of public consciousness and popular policy debate. The wide-ranging implications of housing system concerns are refected in discussions on broader contemporary themes including tenure inequality, mortgage indebtedness and asset-based welfare, as well as urban design and residential development. It is with all of these considerations in mind that we believe the time is ripe for a book which overviews and critiques housing policy in Australia, compares and contrasts Australian approaches with those of comparator countries, and identifes possible reform directions. 1 INTRODUCTION 3

1.2 objectives and Exploratory Themes This book’s central aim is to present a broad picture of Australia’s contemporary housing policy landscape, its recent and historical development and its possible future evolution. Historically, it is important to recognise that housing systems in specifc countries function within distinctive cultural, political and institutional traditions. These both frame and constrain policy choices and, thereby, the likely progression of policy and scope for policy reform. This refers to path dependency: the idea that “if, at a certain point in time … [policy] takes one direction instead of another, some, otherwise feasible, alternative paths will be closed—or at least diffcult to reach—at a later point” (Bengtsson and Ruonavaara 2010, p. 193). A book seeking to understand and explain policy settings, therefore, faces the practical dilemma of settling on a starting point for analysis. For housing, as for many other aspects of Australian domestic policy, a case can be made for the overriding signifcance of 1945 and the immediate post-war years as a foundational era. ThisPROOF is strongly exemplifed in the story of Australia’s public housing system as recounted in Chapter 4. Other moments or short periods in subsequent history with important housing policy signifcance would include the middle to late 1980s, when broader fnancial deregulation formed a radical breakpoint in the fnancing of private housing investment, as elaborated in Chapters 5 and 6. Deregulation itself featured in the dawning era of neo-liberal ascendancy, a policy paradigm within which arguably all housing strategy thinking and interventions have been subsequently contained, as further discussed in Chapter 2. In the realm of metropolitan planning, the rapid rise to prominence of ‘sustainability’ in the late 1980s led to the emergence of an urban consolidation ethos as an important framing role for house REVISEDbuilding from the 1990s onwards, as covered in Chapter 9. Therefore, while a degree of historical context is important in every story, the pertinent extent of it will vary, as refected in the scope of the chapters that follow. In attempting a comprehensive review of national and state/territory-based policy instruments and programs, we discuss the institutional framework within which housing is provided and the main subsidy, tax and regulatory measures that impact on the housing system. In doing so, we aim to familiarise readers with housing system structures and market processes, as well as with key housing institutions 4 H. PAWSON ET AL. and stakeholders, their roles and interactions. We also seek to engage with associated contemporary debates including those focused on housing affordability and housing tax reform, as well as contestation around the role of the land use planning system in its infuence on housing supply and affordability, and affordable housing provision. We acknowledge that the housing-related challenges faced by contemporary Australian governments include numerous issues we have determined are beyond our remit. These include, for example, the typically poor energy performance of residential dwellings and the fawed systems of regulation on construction standards brought sharply into focus in Sydney in 2019 (Hanmer 2019). They also include Australia’s ongoing, environmentally unsustainable, urban sprawl and the widespread public antipathy towards the densifed urban renewal being undertaken to limit this. Readers with a particular interest in any of these topics will need to extend their research beyond this volume. Alongside the book’s focus on identifying and interpreting the policies and institutions that have shaped the AustralianPROOF housing scene, we have interwoven three exploratory themes, as explained below. These themes are intended to generate questions and debate about why and how Australia’s housing system has become more problematic.

1.2.1 An International Comparative Perspective Cross-country comparison can facilitate understanding of both similarities and differences in national housing systems as well as stimulating debate and learning about policy possibilities and policy consequences. Using a comparative analysis, Australia, like other Anglophone nations, has been characterised as a liberal welfare regime where policies favouring home ownershipREVISED (over social rental housing) and market-based provision have been preferred over a long period. This policy model can be contrasted with the housing policies of social democratic regimes of Western European nations that have favoured tenure neutral housing policies and larger government housing programs (Esping-Andersen 1990; Kemeny 1995). By including examples of housing policy approaches across a selection of broadly comparable Anglophone and Western European nations throughout this book, we aim to illuminate Australia’s housing policy choices, especially in the prevailing context of increasing pressures on housing systems and heightened debate about future 1 INTRODUCTION 5 policy directions, evident both here and abroad. In choosing comparator countries to elucidate particular housing topics, we have opted for diversity, sometimes including instances of policy approaches similar to those of Australia and at other times focussing on divergent examples. The aim is to enhance awareness of typical and atyp- ical national housing policy instruments and institutional settings, and to provoke debate about the possible implications of policy decision-making.

1.2.2 The Governance of Housing Policy The governance of housing policy most obviously concerns the ways that governments at different levels attempt to manage offcial policymaking. However, modern liberal democratic countries like Australia do not run as command economies, and the concept of governance recognises that the policymaking process encompasses (and operates through) many agencies, institutions and interestPROOF groups both within and beyond government itself. Milligan and Tiernan (2012, p. 392) defne the Australian housing policy community as including “industry bodies, not-for-proft organisations, universities, private consultancy frms (both large generalists and smaller specialists) and high-level independent authorities, such as the Reserve Bank of Australia and the Productivity Commission”. How any particular policy is shaped, implemented and reformed, therefore, depends on the responsibilities, power, capacities and interactions of these myriad actors and institutions. We describe the contemporary governance of housing in Australia in Sect. 1.5. REVISED1.2.3 The Growing Financialisation of Housing The term fnancialisation describes “…the increasing dominance of fnancial actors, markets, practices, measurements and narratives…” (Aalbers 2016, p. 2). More specifcally within the context of this book’s focus, fnancialisation refers to “… structural changes in housing and fnancial markets and global investment whereby housing is treated as a commodity, a means of accumulating wealth and often as security for fnancial instruments that are traded and sold on global markets” as defned by a UN Special Rapporteur on Adequate Housing (Farha 2017, p. 3). The associated commodifcation of residential property has brought with it a growing tendency for dwellings to be viewed primarily 6 H. PAWSON ET AL. as tradeable assets rather than being valued according to their utility. This is part of a broader case arguing that, due to its integration within a globalised mortgage fnance system, housing has played a key role in the modern reconfguration of welfare states across the developed world (Lowe 2011).

1.2.4 A Systems Approach to Housing Policy Analysis Throughout the book our analysis focuses on the infuence of government policy (or intervention) as it affects all aspects of the housing system. An idealised representation of this, emphasising the roles of the various institutional players, is presented in Fig. 1.1. Burke (2012, p. 36) feshes out the components of a housing system by differentiating four distinct subsystems that make up the overall system in a ‘liberal market’ high-income country such as Australia:

• Production subsystem: land ownership PROOFstructures and rights, land assembly and housing construction • Consumption subsystem: the ways that housing is consumed by individuals and households • Exchange subsystem: how dwellings are traded and rented • Management subsystem: housing system management, including relevant housing and housing-related policy and planning at all levels of government.

The housing system fts within a broader societal system; thus, its different components are infuenced by wider social, economic and demographic contexts. Housing system outcomes impact on this broader societal settingREVISED and vice versa (van der Heijden 2013). Consistent with the housing system concept outlined above, the book’s scope extends across all of the interventions that impact on the production, fnancing, use and management of residential property; irrespective of whether these are offcially or popularly acknowledged as housing policy. Here, we are referring to the fact that contributions to housing policy are spread across numerous spheres and agencies of government at all levels, and may either be explicit or indirect/unintended. As such, the book adopts an institutional approach to examining housing policy, i.e. an approach which accords prime importance to governance structures, system stakeholders and their interrelations. 1 INTRODUCTION 7 QDQFLQJ %DQNV KRXVLQJ )L ODQGORUGV DOORZDQFHV +RXVHKROGV FRQVXPSWLRQ DWH HUV VW \ DJHQWV ODZ\ YDOXHUV H[FKDQJH 5HDOH 3XUFKDVHDQG 3URSHUW RZQHUVKLSUXOHV DQGWUDQVDFWLRQ WD[HV PROOF 5HVHOOLQJKRXVHKROGPRELOLW\ +RXVHKROGV KRXVLQJ QWSROLFLHVDIIHFWLQJ PH VWRFN +RXVLQJ *RYHUQ 6WDWHSURYLGHG DQGRUILQDQFLDOO\ VXSSRUWHGKRXVLQJ 1HZ KRXVLQJ REVISED QQHUV SURGXFWLRQ 3OD QJ YHORSHUV &DSLWDO /DERXU %XLOGHUV 'H /DQG 1HZKRXVL )LQDQFLDOLQVWLWXWLRQV Adapted from Bassett and ShortInstitutions in the housing system and their interactions ( Source [ 1980 ]) /DQGRZQHUV Fig. 1.1 8 H. PAWSON ET AL.

The case for an institutional perspective as described above is broadly summarised in the contention that “…the pursuit of [actors’] goals is embedded in, and constrained by systems of rules, meanings and values” (Pierre 2011, p. 10). A similar approach is evident in the work of other leading scholars in the feld including Bourne (1981), Kemeny (1988), Burke and Hulse (2010), and Lowe (2011). The remainder of this chapter is structured in three sections that aim to establish a foundation for the chapters that follow. First, we briefy review the concept of housing policy and its dimensions. Second, we outline key analytical concepts in the study of housing and housing policy including housing tenure, housing need and homelessness, housing affordability, and affordable and social housing. Third, we provide an overview of the Australian institutional landscape within which housing policy is developed and implemented, locating where housing responsibilities sit within governmental structures, as well as detailing the range of key interest groups and stakeholders that play a part in the housing policymaking process. PROOF

1.3 What Is Housing Policy? As succinctly defned by King (2009, p. 42), housing policy is “the concern for the production, consumption, management and maintenance of a stock of dwellings”. Donnison and Ungerson (1982, p. 13) describe housing policy as “any sustained course of action designed to affect housing conditions”. While not explicit in these formulations, it is important to note the imperative for infuencing the distribution of housing opportunities, services and wealth accumulation as a signifcant component of many housing policy interventions. SomewhatREVISED more broadly, Clapham (2018 , p. 164) sees housing policy as “any action taken by any government or government agency to infuence the processes or outcomes of housing”. He acknowledges that, from a governance perspective, it is accepted that many actors other than government or government entities infuence the processes or outcomes of housing. At the same time, however, a primary focus on government actions reasonably follows from the conventional assumption that “the state holds a special place in this network and in many countries it is expected that the state takes ultimate responsibility for the outcomes of the housing system” (ibid.). 1 INTRODUCTION 9

Consistent with this reasoning, we defne housing policy as government actions or policy settings that infuence (a) the supply of dwellings and its spatial distribution, (b) the characteristics and management of housing stock, and (c) who gets access to housing and on what terms. However, as provocatively argued by Madden and Marcuse (2016), the very term housing policy may be subject to question. In their view, it “suggests the existence of consistent governmental efforts to solve the housing problem … [portraying] an artifcially clear picture of what the state actually does in myriad unco-ordinated and at times contradic- tory ways” (ibid., p. 119). Such reasoning is part of a broader argument about the motivations and drivers of housing policy, which we discuss in Chapter 2. Nevertheless, within the narrow context of defning the term itself, their comments usefully highlight the diffuse nature of what might be broadly classed as housing policy. Our chosen defnition as above unquestionably captures a range of offcial programs and policy settings far wider than would normally be considered by any government as a part of its housing policy. To explore this a littlePROOF further we consider the possible forms housing policy may take. An overarching distinction can be made between direct and indirect housing policy measures, i.e. those policies deliberately intended to impact on housing (and badged as such), and other policies that may exert signifcant infuence on housing systems and outcomes while badged under other headings. The simplest example of a direct housing policy might be the state provision of rental accommodation, as in Australia’s traditional public housing model (see Chapter 4). Many indirect housing policies are embedded within the tax system, e.g. the tax treatment of capital gains accruing to residential property owners (see Chapters 5 and 6). Signifcant housing impacts, often unintended, may also arise fromREVISED infrastructure and transport policies, population and settlement policies, social welfare programs and other diverse policy arenas. Table 1.1 elucidates the major recognised forms of direct and indirect housing policy intervention in Australia using a classifcation of whether each impacts on the demand side or supply side, or is a regulatory measure; whether it is tenure specifc or generic; and the administering government level/agency. 10 H. PAWSON ET AL. (continued) Chapter 4 Chapter 8 Chapter 8 Chapter 5 Chapter 7 Chapter 6 Details

PROOF National Housing and Homelessness Agreement 2018 and predecessor programs State government capital/land grant or recurrent housing providers payments to not-for-proft National/state direct public investment and grants/loans for site works National Rental Affordability Scheme annual tax offset/ grant Loan guarantees—underpinning CHP affordable housing investment via National Housing Finance and Investment Corporation Subsidies for specialist disability and aged care accommodation supply via Commonwealth and National Disability Insurance Agency State govt. rent assistance programs (e.g. grants/bond loans, rent subsidies/guarantees) • • • • • • • State frst home buyer grants, stamp duty exemptions • State govt. home loan assistance • Indigenous Business Australia home loans • Rent Assistance payments to low-income private renters • Foremost instruments/responsible agencies in Australia instruments/responsible Foremost Direct provision of public housing Subsidies/tax incentives for non-government housing investment Infrastructure provision to support residential development First home owner assistance Government loans to promote low-income home ownership Income support for low-in - come renters Intervention form REVISED Rental Generic Home purchase Rental Target sector Target Housing policy classifcation: Australian exemplifcations and chapter positioning Supply side Demand side Intervention type 1.1 Table 1 INTRODUCTION 11 Chapter 5 Chapters 6 and 9 Chapters 4 and 8 Chapter 6 Details

PROOF State property laws, land title legislation and restrictive covenants on titles National rules affecting mortgage lenders and borrowers via Australian Prudential Regulatory Authority and the Australian Securities and Investment Commission Restrictions on foreign investor residential property acquisition State urban development residential development plans, zoning controls and local government development approval processes state-mandated, negotiated or voluntary planning Various agreements and policies for inclusion of affordable hous - ing in residential development National minimum building standards/guidance and effciencystate building/design codes; includes energy and licensing of building professionals Negative gearing tax beneft and Capital Gains Tax dis - Negative gearing tax beneft and Capital Gains Tax count provisions for private landlords State-based residential tenancies legislation affecting ten - ancy terms, consumer rights, rent setting, disputes, et cetera • • Capital gains and land tax exemptions for homeowners • Pensioner assets test exemptions for home owners • Reserve Bank monetary policy and guidance • • • • • • State government fair trading/consumer rights agencies • National Regulatory System for Community Housing • • State land tax exemption for small-scale rental investors • Foremost instruments/responsible agencies in Australia instruments/responsible Foremost Property rights and rules of exchange. Rules governing tax treat - ment of own home Interest rate controls Macro-prudential regulation Foreign investment rules Land use planning controls Developer levies or non-fnancial incentives for affordable housing Building regulations Real estate agent regulation Regulatory oversight of social/affordable housing providers Concessional tax treatment of rental investment Regulation of landlord and tenant relations Intervention form REVISED System-wide Home ownership/ home lending Rental Target sector Target Regulation Intervention type 1.1 (continued) Table Authors Source 12 H. PAWSON ET AL.

1.4 Key Concepts in Housing Policy and Analysis

1.4.1 Housing Tenure Housing tenure is perhaps the most widely utilised concept or classifcation in housing systems analysis as is refected in the structure of this book. Simply put, tenure refers to the legally defned terms and conditions on which people occupy their homes. From one widely accepted viewpoint, housing tenures are “the most important political institutions of housing provision … because they defne the formal position of residents in their capacities as owners, co-owners and users of their dwellings, and thus set up the rules of the games between actors in the housing market” (Bengtsson 2012, pp. 209–210). Classically, housing tenure typologies differentiate dwellings and their occupants according to property ownership, dividing those holding title to their house or apartment (owner-occupiers) from renters (non-owners with a contractual right to occupy the home, albeit often for a specifed period only). Beyond this, distinctions are conventionallyPROOF made between:

• owner-purchasers in the process of paying off a loan or mortgage on their home, versus outright owners who have no outstanding housing debt • renters in terms of the legal/administrative status of their landlord (private or social).

Housing tenure archetypes, particularly as they are constructed in liberal welfare regimes, are used to fesh this out a little further in Table 1.2. As shown in Fig. 1.2, Australia has seen a gradual decline in owner-occupation and in public housing over the past two decades, while the rate of privateREVISED rental has signifcantly increased. Since the millennium, similar trends have been seen in many comparator countries, e.g. New Zealand, the United States and the United Kingdom. What this means for Australia is that the number of private rental dwellings has grown substantially faster than the overall rise in the number of households over the period. At the same time, there has been a proportionate decline in social housing which has failed to keep pace with household growth. The enduring focus on housing tenure as an analytical frame in housing studies partly attests to the ways that the popularly defned tenure categories serve as shorthand for residents’ housing rights and market position. Crucial here is the de jure security of tenure concept which 1 INTRODUCTION 13

Table 1.2 Housing tenure archetype features

Dwelling tenure Ownership Resident rights

Owner-occupied Resident • Largely unqualifed for outright owners. Restricted by loan conditions for owners buying with a mortgage (e.g. security of tenure subject to maintaining loan covenants) • Rights restricted by strata owners’ corporation rules for apartment owners in multi-occupied blocks Private rented Private • Tenant selection and rent level subject to mar- landlord or ket processes. Security of tenure often limited company (in Australia usually restricted to no more than 6–12 months) • Dwelling alterations, pet ownership may be allowable only with landlord consent • Continuing occupation also dependent on maintaining terms of tenancy contract (e.g. on timely rentPROOF payment and refraining from anti-social behaviour) Social rented Government • Tenancy allocation according to administrative agency or processes (usually including prioritisation accord- not-for-proft ing to urgency/severity of assessed housing need) entity • Rents normally related to tenant income or costs of service provision, rather than market levels • Security of tenure may be open-ended or for a specifed term. Continuing occupation also dependent on maintaining terms of tenancy contract

Source Authors refers to a REVISEDresident occupier’s legal right to remain in the dwelling or to the level of risk that an occupier may be legally removed (formally evicted) from their home. Generally speaking, ownership, which includes the right to trade the dwelling and to beneft from any appreciation in its value as an asset, conveys more rights than renting. However, while security of tenure is more or less unqualifed for an outright owner, it is less so for an owner buying with a mortgage. Typically a mortgage provider requires a housing loan to be secured against the value of the property and, in the event of loan repayment default, has the right to take possession of the dwelling to recover the unpaid debt. This de jure, or formal, position of occupiers in various housing tenures can differ from the de facto (practical) position. In lightly regulated 14 H. PAWSON ET AL.

2ZQHURFFXSLHG 3ULYDWHUHQWDO 3XEOLFUHQWDO

Fig. 1.2 Housing tenure trends, 1947–2016 (Source 1947–2006: Kryger [2009]; thereafter ABS Quickstats. Derived from ABS census data based on occupied private dwellings; excluding not stated. Public rental was historically the only form of social housing and remains the dominant form of such provision, alongside not-for-proft community housing which has gradually expanded since the 1980s—in this graph included within publicPROOF rental) systems such as in Australia, the vast majority of private tenants may be required to vacate their dwelling at fairly short notice. In practice, though, most landlords tend to value tenant stability and only a relatively small proportion of terminations are landlord-initiated (Fitzpatrick and Pawson 2014; Pawson et al. 2017). Housing security-related conditions that infuence a renter’s quality of life, however, extend beyond the legally binding clauses of tenancy contracts. As more fully discussed in Chapter 6, this suggests need for the broader concept of secure occupancy as employed by Hulse and Milligan (2014, p. 643). Within the overarching category of rental housing, differentiating tenants according to the status of their landlord traditionally has been consideredREVISED a useful proxy in distinguishing between population cohorts with contrasting degrees of property-related rights, as well as differences in housing costs. Generally speaking, tenants of social landlords (state governments or not-for-proft housing providers) enjoy stronger rights of occupation as well as lower rents than their counterparts renting from private landlords (see Chapters 4 and 6). As further discussed in Chapter 5, important distinctions are often drawn between owner-occupiers according to whether buying with a mortgage or an outright owner. Another important divide is between holders of free-standing houses, on the one hand, and apartments contained within blocks in multiple ownership, on the other. For owners in 1 INTRODUCTION 15 multi-owned properties (called strata title in Australia and condomin- ium elsewhere), which includes most private apartments and townhouse developments in Australia, the duality of issues concerning responsibilities for the dwelling and the building mean that ownership rights are inherently subject to limitation (Easthope and Randolph 2009; Sherry 2018; Easthope 2019). Since much of housing policy consists of tenure-specifc interventions a tenure-framed structure is appropriate for a book of this kind. Bearing this in mind, it is important for a book like this to ask:

• What are the characteristics of each tenure; who do they serve; can they be altered? • What are the implications of supporting one tenure over another? • Should preference be given to any specifc tenure? Why? These questions raise issues that are revisited PROOFthroughout the book. Shortcomings of Tenure Analysis In adopting tenure-based housing analysis there is a need to avoid implying that each traditionally labelled category (e.g. private renter) embodies a fxed set of rights and obligations in a package that is standard and immutable across time and space (Hulse 2008; Stephens 2011). Thus, housing tenures, and the property rights that underlie them, must be understood as socially defned institutions; and there need be nothing natural or permanent about them (Hulchanski 1988). Historical and international comparative study helps to demonstrate the socially constructed nature of tenure characteristics. For example, the bundle of rights typically associated with being a private renter in Northern EuropeanREVISED countries, such as Germany and the Netherlands, is quite different (generally superior) to that usually enjoyed by tenants of private landlords in Australia (Hulse and Milligan 2014). Within Australia, the bundle of rights nowadays standard in public housing is increasingly different from that which prevailed historically. For instance, NSW Government tenancies initiated since 2006 have been subject to fxed-term agreements in contrast with the open-ended contracts retained by longer-standing tenants (Fitzpatrick and Pawson 2014). Equally, as further discussed in Chapter 6, 2018 reforms have somewhat enhanced security of tenure in Victoria’s private rental market. 16 H. PAWSON ET AL.

Aside from the modifed form of dwelling ownership applicable to apartment proprietors, there are other notable limitations to the utility of tenure-based analyses; especially when using the traditional categories identifed in Table 1.2. Firstly, tenure diversity limits the generalisation value of the broad-brush tenure classifcations typically used. Australia’s increasingly diverse private rental sector, for example, encompasses both high-end luxury apartments and marginal rental housing, such as boarding houses or caravan park units (Goodman et al. 2012). The latter may be made available at relatively low rents, albeit at the cost of particularly limited legal (and possibly physical) security (Dalton et al. 2015). Secondly, there is the question of what (if any) tenure status to attrib- ute to temporary residents such as the growing numbers renting on a strictly short-term basis via platforms like AirBnB. Thirdly, there is the ambiguity associated with hybrid tenures such as shared ownership where the resident is part-owner, alongside another entity, e.g. a not-for-proft housing provider or developer. Finally, a sole focus on tenure can be criticisedPROOF for its attention to how housing is consumed rather than how it is produced. From this viewpoint, perspectives such as that of Bengtsson (cited in Sect. 1.4.1) could be seen as a consumer-focused view of a housing system that accords too little signifcance to the role and power of developers, fnanciers and landowners (Ball et al. 1988). Applying a systems framework, which incorporates government roles in shaping all aspects of a housing system (Fig. 1.1), helps to overcome this concern.

1.4.2 Housing Need and Homelessness Concerns with housing need and homelessness underlie much housing policy andREVISED analysis. These essentially normative concepts are anchored by the notion of clearly defnable minimum acceptable housing standards. Thus, individuals in housing need are those lacking housing of any kind (street homeless) or residing in unsatisfactory accommodation, i.e. not meeting prevailing community standards. A dwelling might be substandard in relation to its physical condition or state of repair, its suitability for the household concerned (e.g. size, design, location), or its affordability given the occupying household’s income. Whether an individual or household is in housing need (when judged against a periodically adjusted, multi-dimensional administratively defned standard) will determine their eligibility for government housing assistance. 1 INTRODUCTION 17

A case-by-case assessment of need may be used to decide whether one applicant’s need is greater or more urgent than that of another applicant and hence their level of priority for allocation of a housing vacancy. Measures of aggregate housing need are often used as a benchmark for housing system performance and/or to inform policymaking relevant to the required scale of house building. In Australia, offcial attention to related measures has tended to focus on overall housing requirements, i.e. the simple relationship between household numbers and dwelling provision. The former National Housing Supply Council (NHSC) (2008–2013), for example, estimated that a cumulative defcit of 186,000 dwellings had built up between 2001 and 2010, taking into account the underlying (or latent) demand and supply over the period (NHSC 2011). The fnal NHSC report noted the sensitivity of these estimates to the assumption that past rates of household formation would continue (NHSC 2014). However, as the Council noted, households cannot form if they are constrained by a lack of housing or by high housing costs relative to income. In broad terms, PROOFaggregate estimates of housing shortage generally indicate a lack of available and affordable housing. More nuanced analyses of aggregate housing need attempt to cali- brate the numbers of persons (or households) lacking access to housing that meets defned minimum acceptable standards. Housing need statistics of this kind may be used to indicate the scale of additional low cost housing provision required at a point in time or within a given period, e.g. 10–20 years (Lawson et al. 2018). Alternatively, such metrics may emphasise ‘expressed need’, most often exemplifed in Australia by reference to the number of households registered on a state or territory government’s social housing register or waiting list. Homelessness, a key component of many housing needs analyses, may be thoughtREVISED of as the most extreme form of housing stress; particularly for those rough sleepers whose lack of accommodation is enduring or recurrent rather than transitory. However, although rough sleeping is the most visible and easily defned manifestation of homelessness, there is wide-ranging agreement in Australia and internationally that homelessness should be more broadly defned and measured (Chamberlain and McKenzie 1992; Pawson and Davidson 2006). This understanding informs the way that homelessness is calibrated in the fve-yearly Australian Bureau of Statistics (ABS) census of population and housing that forms the prime data source used to quantify the problem in Australia. 18 H. PAWSON ET AL.

Taking inspiration from the groundbreaking work of Chamberlain and McKenzie (1992), homelessness is conceptualised by the ABS (2012) as referring to a range of situations affecting people lacking accommodation alternatives, and where their current living arrangement:

• Is in a dwelling that is inadequate • Has no tenure, or short, non-extendable tenure • Does not allow them to have control of, and access to, space for social relations.

ABS census homelessness statistics are built up from the ways that census respondents describe their living situation and from a direct count of rough sleepers (ABS 2012). As well as rough sleepers, the six ABS- defned operational groups include persons subject to severe overcrowding, or living in non-self-contained (boarding/rooming house) accommodation.1 At the individual level, homelessness can resultPROOF from personal vulnerability, e.g. mental ill-health or substance addiction. At a population level, however, changes in homelessness rates, such as the large increases seen in parts of Australia over the past decade, can be substantially attributed to changing housing market conditions and/or the (in)adequacy of policy responses to these (Pawson et al. 2018). Hence, while often treated as a somewhat distinct policy arena, we would argue that the policy challenge posed by homelessness should be largely addressed within the housing policy realm.

1.4.3 Housing Affordability and Affordable Housing Housing affordabilityREVISED refers to the relationship between a household’s (or a person’s) income and the amount spent on housing. Thus:

‘Affordability’ is concerned with securing some given standard of housing (or different standards) at a price or rent which does not impose, in the eyes of some third party (usually government), an unreasonable burden on household incomes. (Maclennan and Williams 1990, p. 9)

1 The other three groups are: Persons in supported accommodation for the homeless; Persons staying temporarily with other households; Persons living in ‘severely’ crowded dwellings. 1 INTRODUCTION 19

Underlying this conception is the understanding that adequate housing is fundamental for achieving health, safety and well-being. Thus, housing costs become ‘unaffordable’ at the point where, insuffcient income remains to meet other expenditures regarded as essential (e.g. food, clothing). In this sense, high housing costs can drive low-income households into a condition of material deprivation or poverty (Stone 1993; Burke et al. 2011). This concept of housing affordability differs from that used in much popular and media discourse in Australia where housing affordability concerns most commonly refer to the problems faced by marginal frst home buyers in gaining access to home ownership. In principle, however, housing affordability is a tenure neutral concept applicable to both renters and buyers (see Chapter 3). Reference to affordability in the context of low-income renters became integral to Australian academic and policymaker debates only from the late 1980s. Gabriel et al. (2005) suggest that the emergence of rental affordability concerns in Australia refected the contemporary change in government policy involving “[increased] reliance on the PROOFprivate market … to provide and manage low cost housing, and less reliance on subsidy for public housing provision” (ibid., p. 4). Low-income housing provision was now offcially designated as primarily a private sector activity in a lightly regulated market setting (see Chapter 6). As such, and bearing in mind the ‘geared to income’ rent-setting system that has continued to prevail in public housing (see Chapter 4, Box 4.3), this was a move away from a system of rental housing provision in which affordability problems for low-income households were under direct government control. With the post-1996 abandonment of a signifcant public house building program (see Chapter 4), and with a growing proportion of Australia’s expanding low-income population coming to rely on private rental provision,REVISED housing affordability for the poor and, increasingly, the not-so-poor became a pressing policy concern. The post-1980s centrality of housing affordability in Australian debates as it relates to low-income private renters also refects the design of national social security benefts, in particular the provision of housing assistance for this cohort mainly through the social security payment known as (Commonwealth) Rent Assistance (RA). By comparison with housing allowances operational in some European countries, RA provides less protection from the housing unaffordability liable to affect low-income renters; especially in high-cost housing markets (Hulse 2002; Stone et al. 2016). 20 H. PAWSON ET AL.

The inadequacy of this form of protection has been compounded over time, largely due to the capped and inadequately indexed confguration of the beneft (Productivity Commission 2017; Yates 2019). Similarly, the recently proliferating references to housing affordability in UK housing debates (e.g. Fitzpatrick et al. 2018; CIH 2018) partly refect the fact that extensive cuts to Housing Beneft (HB) entitlements under the UK Government’s post-2010 austerity program have seriously weakened the previous effectiveness of HB in cushioning low-income renters from housing cost-induced poverty. Housing affordability metrics, trends and underlying infuences are further discussed in Chapter 3. The term affordable housing, while closely related to housing affordability, has a specifc and distinct meaning in a policy context. In Australia, for example, it is used for accommodation intended to meet the needs of people whose incomes are insuffcient to access appropriate market price housing. In principle, as defned by Milligan et al. (2016, p. 2), such accommodation is “provided subject to accessPROOF and affordability requirements set by government” and may take the form of:

• Rental housing (usually via public or community housing) priced at below-market rents and earmarked for eligible low-to-moderate-income households • Owner-occupied housing provided to eligible households under a subsidised loan or shared-equity arrangement and/or with a legal encumbrance (covenant) to preserve affordability.

In the Australian context the term affordable rental housing is also used to describe a more specifc rental accommodation product targeted at householdsREVISED on low to moderate (as opposed to ‘very low’) incomes. Such ‘affordable housing’ (e.g. as delivered under the 2008 National Rental Affordability Scheme; see Chapter 8) is usually made available at rents discounted in relation to market prices. Under this framework, rents are typically set at 80% of market rent for private providers and less than 75% for not-for-proft (NFP) providers, rather than being geared to tenant incomes. Similar products exist in comparator countries: examples include ‘mid-market’ or ‘intermediate’ rental housing in the UK and affordable rental housing generated by the United States’ Low Income Housing Tax Credit program (see Chapter 8). 1 INTRODUCTION 21

1.5 governance, Institutions and Geography Crucial in understanding housing policy making in Australia is an appreciation of system governance, its overarching structure and the range of institutions or ‘stakeholders’ involved. This includes the respective responsibilities and policy levers associated with the main tiers of government within Australia’s federal system. This section therefore frst outlines the respective responsibilities of various governmental entities. We then identify the key players involved in the housing system, as conceptualised by Burke (2012), before briefy summarising key aspects of the nation’s settlement geography that have important housing policy implications.

1.5.1 Housing Responsibilities and Levers of Governmental Entities Australia’s federation comprises the Commonwealth Government, six self-governing states (of which New South Wales is the most populous, followed by Victoria, Queensland, WesternPROOF Australia, South Australia and Tasmania) and two smaller self-governing territories (the Australian Capital Territory and the Northern Territory). Constitutional responsibility for local government rests with the states. At the time of Australia’s 1901 federation “Housing was not identifed as a Commonwealth head of power in the Australian Constitution” (Australian Government 2014, p. 4). Constitutionally, therefore, housing matters (along with land use planning and homelessness) are formally the responsibility of the eight states and territories, rather than the national government. However, at least since 1945, the Commonwealth has in fact played a signifcant, and sometimes leading, role in housing policymaking. This was most recently manifest in the brief ‘comeback of housing policy’ REVISEDwitnessed in 2007–2010 (Milligan and Pinnegar 2010). As illustrated in Table 1.3, the way that housing and homelessness policies are formulated and delivered in Australia is a complex form of multi-level governance (Daniel and Kay 2017; Dodson et al. 2017). In this respect Australian housing governance is similar to that of other federated nations, e.g. Canada, where responsibilities for housing, while shared, often feature signifcant devolution to lower levels of government. By contrast, unitary governments, e.g. New Zealand, retain cen- tralised housing policymaking. 22 H. PAWSON ET AL.

Table 1.3 Housing policy intervention types and responsible Australian government agencies

Intervention Department/agency

Australian • Supply-side subsidies (social Treasury, Social Services, Government housing and remote Indigenous Prime Minister and Cabinet housing) • Social Security policy and income Social Services/Human support payment system Services • Personal and company tax settings Treasury (e.g. income tax, capital gains tax, trusts) • Migration policy Home Affairs • Major infrastructure and other Infrastructure, Regional urban policy Development and Cities States/territories • Land use planning policy/ Planning framework • Metropolitan planning strategy Planning • Residential building codes/ PROOFConsumer Affairs/Planning building regulation/consumer protection • Public housing provision Human Services (or housing departments) • Property-related tax settings (e.g. Treasury/Revenue/Finance stamp duty, land tax) • Regulation of not-for-proft Human Services (except housing Finance in Victoria) • Urban renewal Planning, state/territory land development agency, housing • Homelessness responses Human Services Local • Land use planning: development Planning government REVISEDcontrol Note Department names are generic approximations Source Authors

As further discussed in Chapter 4, a fulcrum around which offcial housing policy directions have been formulated over the past 75 years has been the series of intergovernmental compacts frst termed Commonwealth-State Housing Agreements (CSHAs). Initiated in 1945, these embodied “the mechanism … under S96 of the constitution 1 INTRODUCTION 23

[by which] the Commonwealth made funds available to the States for a public housing program” (Troy 2012 p.85). The justifcation for such a funding agreement rests partly on the high degree of vertical fscal imbalance in Australia, i.e. the limited tax-raising powers/capacities of state/territory governments in relation to the size of the budget outlays required to meet their service delivery responsibilities (Australian Government 2015). Moreover, the provision of social housing and homelessness services is increasingly intertwined with social security obligations (e.g. in the form of rent rebates for public housing tenants; see Box 4.3). Thus, there is a specifc logic in the constitutionally responsible arm of government (Federal) providing funding for the service delivery tier (state/territory). Each CSHA (or equivalent agreement) has provided a vehicle for the national government to propose a policy agenda intended to infuence state/territory housing and homelessness practice (although homelessness responses were subject to separate agreements until 2008). Under the 2018 National HousingPROOF and Homelessness Agreement (NHHA), the Commonwealth advocated the following policy directions, corresponding with a set of performance measures (Milligan 2018):

• Enhanced effciency, responsiveness and management of state/ territory social housing systems • Support for community housing and affordable housing models that can viably increase housing supply • Tenancy reform that encourages security of tenure in the private rental market • Strategies to promote market supply and effciency, including planning systemREVISED reforms, land-release initiatives and support for home ownership.

However, NHHA funding for state/territory housing activities is nowadays dwarfed by government expenditure through Rent Assistance, and even more so by the housing tax expenditures channelled to owner-occupiers and private landlords through income tax exemptions (see Chapters 5 and 6). 24 H. PAWSON ET AL.

1.5.2 Non-governmental Actors and Institutional Contributors In terms of their roles as active contributors to Australia’s housing policy process, perhaps the most important players and institutions outside of government itself include:

• Quasi-autonomous advisory entities (some statutory), e.g. the Productivity Commission, and the Auditor-General • Parliamentary Committees of Inquiry commissioned either by the government of the day or by other Members of Parliament • Quasi-autonomous regulatory bodies, e.g. the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA) • Peak bodies representing industry sectors, e.g. Infrastructure Partnerships Australia, the Property Council of Australia, the Community Housing Industry Association • Advocacy organisations, e.g. the Australian Council of Social Service (ACOSS), National Shelter, faith-based and civil society organisations • Think tanks or research organisations,PROOF e.g. the Grattan Institute, the Australia Institute, the Australian Housing and Urban Research Institute (AHURI).

The ways that organisations of these kinds may infuence offcial housing policy are considered in our discussion of housing policy motivations and drivers in Chapter 2.

1.5.3 Geography and Demography Allied to Australia’s governance structure as summarised above, the nation’s geography and settlement distribution is of course another crucial contextualREVISED factor for housing policy. Notably, despite the nation’s vast land area, the bulk of the national population is not only urban and coastal, but also resident in the capital cities of the eight states and territories. The largest three cities, Sydney (4.5 million), Melbourne (4.4 million) and Brisbane (2.2 million), account for almost half of Australia’s total population (24.1 million). Thus, most Australians live in large, low-density urban agglomerations. Moreover, it is in these capital cities that recent rates of population growth have been generally fastest. As further explained in Chapter 3 (Sect. 3.4.1), the nation’s settlement pattern, which is somewhat unusual among standard comparator countries, has direct implications for housing market performance. 1 INTRODUCTION 25

1.6 structure of the Book Refecting its title, the book’s content is shaped by a policymaker rather than a practitioner (policy implementation) perspective. It is structured in three main parts. The frst section (Chapters 1–3) frames the main body of the text through both conceptual and historical lens. Chapter 3 also forms the problem statement for the remainder of the book. The second section (Chapters 4–7) focuses on contemporary policy approaches to the main housing tenures, discussing in turn policies related to social housing, owner-occupation, private renting and the specifc case of housing for Australia’s frst peoples. In the third section (Chapters 8–9) we focus more on the mechanics of how affordable housing can be generated through subsidy programs of different types or through regulatory powers deployed via the land use planning system. Then, in Chapter 10, we consider future policy directions.

References PROOF Aalbers, M. (2016). The Financialization of Housing: A Political Economy Approach. Abingdon: Routledge. ABS. (2012). Information Paper—A Statistical Defnition of Homelessness [Internet] (Cat. No. 4922.0). Canberra: Australian Bureau of Statistics. Available from: http://www.ausstats.abs.gov.au/ausstats/subscriber.nsf/0/ B4B1A5BC17CEDBC9CA257A6E00186823/$File/49220_2012.pdf. Accessed 16 July 2019. ABS. (2018, December). Australian Demographic Statistics [Internet] (Cat. No. 3101.0). Canberra: Australian Bureau of Statistics. Available from: https:// www.abs.gov.au/household-income. Accessed 8 August 2019. Australian Government. (2014). Roles and Responsibilities in Housing and HomelessnessREVISED (Reform of the Federation White Paper, Issues Paper 2). Canberra: Commonwealth of Australia. Australian Government. (2015). COAG and Federal Financial Relations (Reform of the Federation White Paper, Issues Paper 5). Canberra: Commonwealth of Australia. Ball, M., Harloe, M., & Martens, M. (Eds.). (1988). Housing and Social Change in Europe and the USA. London: Routledge. Bassett, K., & Short, J. (1980). Housing and Residential Structure: Alternative Approaches. London: Routledge & Kegan Paul. Bengtsson, B. (2012). Housing Politics and Political Science. In D. Clapham, W. A. V. Clark, & K. Gibb (Eds.), The Sage Handbook of Housing Studies (pp. 206–229). London: Sage. 26 H. PAWSON ET AL.

Bengtsson, B., & Ruonavaara, H. (2010). Introduction to the Special Issue: Path Dependence in Housing. Housing, Theory and Society, 27(3), 193–203. Bourne, L. (1981). The Geography of Housing. London: Edward Arnold. Burke, T. (2012). The Australian Residential Housing Market: Institutions and Actors. In R. Tomlinson (Ed.), Australia’s Unintended Cities (pp. 35–50). Collingwood, VIC: CSIRO. Burke, T., & Hulse, K. (2010). The Institutional Structure of Housing and the Sub-prime Crisis: An Australian Case Study. Housing Studies, 25(6), 821–838. Burke, T., Stone, M., & Ralston, L. (2011). The Residual Income Method: A New Lens on Housing Affordability and Market Behaviour (AHURI Final Report No. 176). Melbourne: AHURI. Chamberlain, C., & MacKenzie, D. (1992). Understanding Contemporary Homelessness: Issues of Defnition and Meaning. Australian Journal of Social Issues, 27(4), 274–297. CIH. (2018). Missing the Target: Is Targeted Affordability Funding Doing Its Job? Coventry: Chartered Institute of Housing. Clapham, D. (2018). Housing Theory, Housing Research and Housing Policy. Housing, Theory and Society, 35(2), 163–177. Dalton, T., Pawson, H., & Hulse, K. (2015). RoomingPROOF House Futures: Governing for Growth, Fairness and Transparency (AHURI Final Report No. 245). Melbourne: AHURI. Daniel, K. A., & Kay, A. (Eds.). (2017). Multi-Level Governance: Conceptual Challenges and Case Studies from Australia [Internet]. Canberra: ANU Press. Available from: https://press.anu.edu.au/publications/series/australia-and-new-zealand-school-government-anzsog/multi-level-governance. Accessed 16 July 2019. Dodson, J., de Silva, A., Dalton, T., & Sinclair, S. (2017). Housing, Multi-Level Governance and Economic Productivity (AHURI Final Report No. 284). Melbourne: AHURI. Donnison, D., & Ungerson, C. (1982). Housing Policy. Harmondsworth: Penguin. Easthope, H. (2019). The Politics and Practices of Apartment Living. Cheltenham,REVISED UK: Edward Elgar. Easthope, H., & Randolph, B. (2009). Governing the Compact City: The Challenges of Apartment Living in Sydney, Australia. Housing Studies, 24(2), 243–259. Eslake, S. (2013). Australian Housing Policy: Fifty Years of Failure [Internet]. Submission to Senate Economic References Committee Inquiry on Housing Affordability. Available from: https://www.aph.gov.au/Parliamentary_Business/ Committees/Senate/Economics/Affordable_housing_2013/Submissions. Accessed 13 July 2019. Esping-Andersen, G. (Ed.). (1990). The Three Worlds of Welfare Capitalism. Cambridge: Polity Press. 1 INTRODUCTION 27

Farha, L. (2017). Report of the Special Rapporteur on Adequate Housing [Internet]. United Nations General Assembly, Human Rights Council, 34th Session, 27 February–24 March. Available from: https://documents.un.org/ prod/ods.nsf/xpSearchResultsM.xsp. Accessed 13 March 2017. Fitzpatrick, S., & Pawson, H. (2014). Ending Security of Tenure for Social Renters: Transitioning to ‘Ambulance Service’ Social Housing? Housing Studies, 29(5), 597–615. Fitzpatrick, S., Pawson, H., Bramley, G., Wilcox, S., Watts, B., & Wood, J. (2018). The Homelessness Monitor, England 2018. London: Crisis. Gabriel, M., Jacobs, K., Arthurson, K., Burke, T., & Yates, J. (2005). Conceptualising and Measuring the Housing Affordability Problem (AHURI Research Paper No. NRV3-1). Melbourne: AHURI. Goodman, R., Dalton, T., Gabriel, M., Jacobs, K., & Nelson, A. (2012). Marginal Rental Housing in Australia (AHURI Positioning Paper No. 148). Melbourne: AHURI. Hanmer, G. (2019, June 20). Buck-Passing on Apartment Building Safety Leaves Residents at Risk [Internet]. The Conversation. Available from: https://theconversation.com/buck-passing-on-apartment-building-safety- leaves-residents-at-risk-119000. Accessed 15 JulyPROOF 2019. Hulchanski, D. (1988). The Evolution of Property Rights and Housing Tenure in Postwar Canada: Implications for Housing Policy. Urban Law and Policy, 9(2), 135–156. Hulse, K. (2002). Demand Subsidies for Private Renters: A Comparative Review (AHURI Final Report No. 24). Melbourne: AHURI. Hulse, K. (2008). Shaky Foundations: Moving Beyond “Housing Tenure”. Housing, Theory and Society, 25(3), 202–219. Hulse, K., & Milligan, V. (2014). Secure Occupancy: A New Framework for Analysing Security in Rental Housing. Housing Studies, 29(5), 638–656. Kemeny, J. (1988). Defning Housing Reality: Ideological Hegemony and Power in Housing Research. Housing Studies, 3(4), 205–218. Kemeny, J. (1995). From Public Housing to the Social Market: Rental Policy StrategiesREVISED in Comparative Perspective. London: Routledge. King, P. (2009). Using Theory or Making Theory: Can There Be Theories of Housing? Housing, Theory and Society, 26(1), 41–52. Kryger, T. (2009). Home Ownership in Australia—Data and Trends [Internet] (Parliament of Australia, Parliamentary Library Research Paper No. 21). Available from: https://www.aph.gov.au/About_Parliament/Parliamentary_ Departments/Parliamentary_Library/pubs/rp/rp0809/09rp.21. Accessed 16 July 2019. Lawson, J., Pawson, H., van den Nouwelant, R., Troy, L., & Hamilton, C. (2018). Social Housing as Infrastructure: An Investment Pathway (AHURI Final Report No. 306). Melbourne: AHURI. 28 H. PAWSON ET AL.

Lowe, S. (2011). The Housing Debate. Bristol: Policy Press. Maclennan, D., Crommelin, L., van den Nouwelant, R., & Randolph, B. (2018). Making Better Economic Cases for Housing Policies [Internet]. City Futures Research Report. Sydney: UNSW. Available from: https://cityfutures. be.unsw.edu.au/documents/476/Making_better_economic_cases_for_hous- ing_policies_main_report.pdf. Accessed 16 July 2019. Maclennan, D., & Williams, R. (Eds.). (1990). Affordable Housing in Britain and America. York: Joseph Rowntree Foundation. Maclennan, D., with Randolph, B., Crommelin L., Witte, E., Klestov, P., Scealy, B., & Brown, S. (2019). Strengthening Economic Cases for Housing Policies [Internet]. City Futures Research Report. Sydney: UNSW. Available from: https://cityfutures.be.unsw.edu.au/documents/515/Full_Report_Final_ edited_logos.pdf. Accessed 16 July 2019. Madden, D., & Marcuse, P. (2016). In Defence of Housing. New York: Verso. Milligan, V. (2018, July 17). The New Housing Agreement Won’t Achieve Its Goals Without Enough Funding [Internet]. The Conversation. Available from: https://theconversation.com/the-new-national-housing-agreement-wont- achieve-its-goals-without-enough-funding-99936. Accessed 16 July 2019. Milligan, V., Martin, C., Phillips, R., Liu, E., Pawson,PROOF H, & Spinney, A. (2016). Profling Australia’s Affordable Housing Industry (AHURI Final Report No. 268). Melbourne: AHURI. Milligan, V., & Pinnegar, S. (2010). The Comeback of National Housing Policy in Australia: First Refections. International Journal of Housing Policy, 10(3), 325–344. Milligan, V., & Tiernan, A. (2012). No Home for Housing: The Situation of the Commonwealth’s Housing Policy Advisory Function. Australian Journal of Public Administration, 70(4), 391–407. NHSC. (2011). State of Supply Report 2011 [Internet]. Canberra: Commonwealth of Australia. Available from: https://treasury.gov.au/node/2076. Accessed 16 July 2019. NHSC. (2014). State of Supply Report: Changes in How We Live [Internet]. Canberra:REVISED Commonwealth of Australia. Available from: https://treasury.gov. au/publication/state-of-supply-report-changes-in-how-we-live/. Accessed 16 July 2019. Pawson, H., & Davidson, E. (2006). Fit for Purpose? Offcial Measures of Homelessness in the Era of the Activist State. Radical Statistics, 93, 7–29. Pawson, H., Hulse, K., & Morris, A. (2017). Interpreting the Rise of Long- Term Private Renting in a Liberal Welfare Regime Context. Housing Studies, 32(8), 1062–1084. Pawson, H., Parsell, C., Saunders, P., Hill, P., & Liu, E. (2018). Australian Homelessness Monitor 2018 [Internet]. Melbourne: Launch Housing. Available from: https://www.launchhousing.org.au/site/wp-content/uploads/2018/05/ LaunchHousing_AHM2018_Report.pdf. Accessed 16 July 2019. 1 INTRODUCTION 29

Pierre, J. (2011). The Politics of Urban Governance. Basingstoke: Palgrave. Productivity Commission. (2017). Introducing Competition and Consumer Choice into Human Services [Internet]. (Inquiry Report No. 85). Melbourne: Productivity Commission. Available from: https://www.pc.gov.au/inquiries/ completed/human-services/reforms/report. Accessed 16 August 2019. RBA. (2019). Financial Stability Review—April 2019 [Internet]. Sydney: Reserve Bank of Australia. Available from: https://www.rba.gov.au/publications/fsr/2019/apr/household-business-fnances.html. Accessed 23 July 2019. Sherry, C. (2018). Confict Between Private and Public Restrictions. In E. Altman & M. Gabriel (Eds.), Multi-Owned Property in the Asia-Pacifc Region: Rights, Restrictions and Responsibilities (pp. 105–118). London: Palgrave Macmillan. Stephens, M. (2011). Comparative Housing Research: A ‘System-Embedded’ Approach. International Journal of Housing Policy, 11(4), 337–355. Stone, M. (1993). Shelter Poverty: New Ideas on Housing Affordability. Philadelphia: Temple University Press. Stone, W., Parkinson, S., Sharam, A., & Ralston, L. (2016) Housing Assistance Need and Provision in Australia: A Household-BasedPROOF Policy Analysis (AHURI Final Report No. 262). Melbourne: AHURI. Troy, P. (2012). Accommodating Australians. Sydney: Federation Press. van der Heijden, H. (2013). West European Housing Systems in a Comparative Perspective. Amsterdam: IOS Press. World Bank. (2019). Population Growth Database [Internet]. The World Bank Group. Available from: https://data.worldbank.org/indicator/SP.POP. GROW. Accessed 12 July 2019. Yates, J. (2019). Housing, Housing Costs and Poverty. In P. Saunders (Ed.), Revisiting Henderson: Poverty, Social Security and Basic Income (pp. 215–236). Carlton: Melbourne University Press. REVISED CHAPTER 2

Why Governments Intervene in Housing

In this chapter, we examine the motivations and justifcations that underlie housing policy measures or ‘interventions’. The frst part of the chapter discusses the classic stated reasonsPROOF for government action in this sphere: measures to promote effciency (countering market failure), to enhance equity (addressing social justice concerns) and to ensure stability. In introducing the concept of market failure as a justifcation for pro-effciency interventions, we begin by briefy outlining the key tenets of the neo-liberal paradigm that underlie much of the approach to economic and housing policy at both national and state/territory levels of government in Australia. This provides a basis for the subsequent discussion of market failure in a housing policy context, illustrating the many ways that housing system operation typically violates the assumptions of perfect competition. We thenREVISED move on to discuss conventional justifcations for housing policy intervention in the interests of socio-economic equity and economic/fnancial stability. In the chapter’s fnal main section, we review more critical perspectives on housing policy motivations and drivers: namely political party ideologies, electoral imperatives, interest group politics and a broader political economy critique.

2.1 Efficiency Motivations

2.1.1 The Neo-Liberal Paradigm Pro-effciency motivations for housing policy are grounded in the neo-liberal paradigm that has dominated economic thinking in Australia and much of the western world since the 1980s. The precise meaning of neo-liberalism is contested. In broad terms, however, it describes a governance approach that prioritises the optimal use of resources as a key objective, emphasises the importance of individual consumer choice and is underpinned by “an overriding belief, verging on the theological, in the effciency of free markets” (Berry 2014, p. 2). Neo-liberalism as a policy approach is, therefore, aligned with a belief in free market capitalism and a neoclassical view of the economy built on a certainty that perfect competition ensures effcient allocation of resources. This refers to a situation where no additional output can be obtained from the inputs currently being used in production (i.e. that production takes place at the lowest possiblePROOF cost) and that no one can be made better off without someone else being made worse off. At its simplest, this conclusion derives from a model based on assumptions, some of which are:

• Large numbers of buyers and sellers who cannot affect prices. • Perfect mobility of goods and factors of production. • Free entry and exit of frms implying no transaction costs and no economies of scale. • Perfect knowledge or information. • Homogeneous products.

A simply statedREVISED justifcation for adopting a neo-liberal approach to policy, is the belief that “an unfettered competitive market system in which both consumers and producers are intent on maximising their individual net benefts will lead to the maximisation of society’s net beneft” (Le Grand et al. 2008, p. 22). Neo-liberalism, or an economic rationalist approach as it has been historically termed in Australia (Pusey 1991), has resulted in fnancialisation (associated with deregulation and opening up of domestic and international capital markets) as well as in fscal austerity measures (associated with declared aims for a smaller role for the state). 2 WHY GOVERNMENTS INTERVENE IN HOUSING 33

In the idealised framework described above, government actions that constrain or shape the operation of free market processes, e.g. through administratively-set prices for goods or services, are considered as interventions liable to problematically distort market outcomes. Such measures can be supported only when backed by a convincing case that posited benefts of the proposed governmental action justify both the measure’s direct (fscal) costs and those associated with the resulting ‘market distortion’. In the housing context, neo-liberal thinking regards government intervention as usually undesirable, and considers market imperfections and their problematic effects to be relatively insignifcant “…as compared to the administrative failures [of] regulation and the direct allocation of housing resources” (Whitehead 2012, p. 114). As noted by critics, however, this neo-liberal view tends to be based on a presumption that what are termed ‘free markets’ represent a natural state of affairs where any government involvement is not only unnecessary, but inherently problematic (Ryan-Collins et al. 2017). In the context of this book’s policy focus, such a narrativePROOF is one in which government is misleadingly portrayed “as an alien intruder into an autonomous housing market” (Madden and Marcuse 2016, p. 142). In reality, all markets are socially created with state participation. Active state facilitation and involvement is critical to the effective operation of markets, e.g. via provision of orderly legal and regulatory frameworks (Aalbers 2009). State activities fundamentally important in the housing sphere involve:

• Land use planning and provision of basic utilities and other essential infrastructure. • Regulation of building standards. • ProvisionREVISED and operation of the legal frameworks that underpin property fnance, investment, use and exchange.

As some would see it, the unqualifed global dominance of neo-liberal thinking may have been tempered by the US market crash of 2008 and the Global Financial Crisis (GFC) that followed (Jacques 2016). As Stiglitz (2010, p. xvi) has argued “when the world economy went into freefall in 2008, so too did our beliefs [regarding] long-standing views about economics”. Thus, within the context of housing and planning issues, it has been recently argued by two leading experts that “Informed and political discourse across a fairly broad spectrum is once again 34 H. PAWSON ET AL. adopting a potentially critical stance towards markets, deregulation, low taxation and fscal orthodoxy” (Gurran and Bramley 2017, pp. 59–60). How far perspectives of this kind have yet fltered through into offcial thinking in Australia is, however, open to question.

2.1.2 Responding to Market Failure Market failure is the specifc term that originates in mainstream economics and is central to the neo-liberal paradigm. In the broadest terms, it describes any situation where the actions of individuals do not result in what is best for the group. Systemic failures violate the assumptions underpinning the model of perfect competition. Table 2.1 highlights instances of violations of standard economic assumptions in the housing context that may provoke (justify) intervention. As indicated in Table 2.1, most of the categories of market failure currently can apply in the housing context, or have historically applied, to some degree. Part of the reason for this is the special PROOFfeatures of housing as a commodity, which limit the applicability of standard economics considerations, e.g. where supply responsiveness to changes in demand is relatively uncon- strained. These special features, each more or less relevant to the problem of housing market failure (Bourne 1981; Smith et al. 1988), include:

• Spatial immobility—interfering with product homogeneity and supply elasticity. • Durability—thus the overwhelming bulk of housing stock is a legacy of past production. • Limited adaptability—above features limit housing responsiveness to changing demands. • High REVISEDcost (relative to earnings)—thus housing cannot be purchased for cash. • Multi-dimensional heterogeneity—housing is a package of many salient attributes (including size, type, condition, location, external space and features). • Susceptibility to neighbourhood infuences—local environmental infuences can have major impacts on a dwelling, block or estate. • Susceptibility to exogenous infuence—sensitive to economy-wide changes.

In the terms discussed above, a powerful justifcation for an active government role in housing is the case that: 2 WHY GOVERNMENTS INTERVENE IN HOUSING 35

Table 2.1 Perfect competition assumptions and common violations in the housing context

Assumption Violation(s) in the housing context

Many sellers and buyers—no • Domination of mortgage market by small barriers to market entry, no seller number of very large lenders with suffcient market share to set • Inherent monopoly qualities of land (given ‘unjustifable’ prices fxed supply) No increasing returns to scale—no • In principle advantages enjoyed by larger advantage to larger operators players in certain stakeholder classes (e.g. developers, social landlords) potentially able to spread fxed costs across larger-scale operations Product is homogeneous • Limited comparability of housing products and inherent uniqueness of locational attributes No externalities (closed cost/beneft • Impacts of poorly managed rental properties or system, i.e. no cost/beneft to neighbourhood stigma on surrounding locality non-actors) PROOF Responsive supply • Inherent inelasticity of housing supply response to changing demand, resulting from complexity of development process and fxed supply of land Perfect information (e.g. suppliers • Many housing consumers ignorant of rights or and consumers are fully aware of lacking in power to exercise such rights product quality) • Limited transparency about product features/ defects (e.g. condition of dwelling made available for purchase or letting) Source Based on Table 3.1 in Gurran and Bramley (2017)

…in effciency terms, …housing markets are so beset with …market failure, arising from long product life, slow supply adjustment, information imperfections and external effects that markets operating without a socially- determinedREVISED ‘game plan’ to orient them are bound to be sub-optimal. (Maclennan 1991, as cited in O’Sullivan 2003, p. 218)

Elaboration of all housing system realities that violate perfect competition assumptions (see Table 2.1) would leave little space for discussion of the other perspectives on housing policy drivers that this chapter needs to cover. Partly for illustrative purposes, therefore, we focus below on just one of the seven tabulated perfect competition assumptions, namely ‘No externalities’. The reality is that there are negative impacts borne by others resulting from the activities of market actors. Perhaps the prime example in housing would be the way that the existence of poor quality or insanitary (slum) accommodation may pose public health risks for 36 H. PAWSON ET AL. the broader urban population. In developed countries such as Australia, however, a better modern example may be the traffc congestion liable to result from increased housing density. Le Grand et al. (2008) cite rough sleeping as another possible instance of housing-related ‘market failure’ in the sense of externalities imposed on others. This contention rests on an assumption (albeit questionable) that government-provided benefts are suffcient to cover basic housing costs. If, in these circumstances, an individual “decide[s] not to spend their money on accommodation, the fact that they are [as a result] living on the street may impact directly on others living in the area” (p. 91). Albeit that this may have been strongly motivated by political embarrassment, it arguably chimes with the way that authorities in 2017 acted to clear away city centre homeless encampments in both Melbourne and Sydney (Dow 2017; Saulwick 2017). So-called neighbourhood effects are claimed by some as another form of housing-related externality and, as such, a market failure that potentially justifes policy intervention within the PROOFneo-liberal policy paradigm. Neighbourhood effects are conceptualised according to the thesis that:

…deprived people who live in deprived areas may have their life chances reduced compared to their counterparts in more socially mixed neighbourhoods … living in a neighbourhood which is predominantly poor is itself a source of disadvantage. (Atkinson and Kintrea 2001, pp. 3–4)

This supposedly comes about due to “negative peer/role modelling, weak social norms/control, limited resource-networks, and stigmatiza- tion mechanisms” (Galster 2010, p. 25). This line of argument is contentious, partly because of the implication that individualsREVISED living in poverty are “culpable for their own predicament” (Arthurson 2013, p. 254). However, perhaps the least debatable example of such a neighbourhood effect is the way that an individual may face discrimination in the job market because of employer prejudice about the social reputation of their home area (Peel 2003; Hastings and Dean 2003). Such impacts are of course very diffcult to evidence in a rigorous way. Finally, it is appropriate to note the important point that, where motivated by market failure concerns, the types of intervention considered appropriate will tend to be indirect or regulatory, or reliant on better-informed consumers (Gurran and Bramley 2017). In other words, 2 WHY GOVERNMENTS INTERVENE IN HOUSING 37 measures aimed at enhancing market effectiveness (rather than, for example, instituting market substitutes).

2.2 Equity Motivations The notion that governments have an obligation to promote equity, or at least to mitigate glaring inequality, is one that is widely accepted even in the age of neo-liberalism. The need for active pro-equity public policy can be justifed, according to Rawls (2001), by the need to counter the inherent tendency of markets to generate property and wealth concentrations. The imperative for such action has been recently boosted by observations that, as highlighted by Piketty (2014), the post-1980 period has seen a global tendency towards rising inequality of wealth, as well as income. More importantly, recent contributors to such debates have highlighted that inequality has damaging consequences for social outcomes (Wilkinson and Pickett 2009), economic performance (IMF 2014) and public health (Marmot 2015). PROOF In Australia, as in other countries, inequalities in housing have been on the rise, as demonstrated by the emerging intergenerational divide between baby-boomers with housing wealth and the millennial cohort (Yates 2017). The recent coincidence of rising homelessness (ABS 2018) with growing numbers of grossly under-occupied homes (ABS 2017) is another symptom of the growing polarisation of housing circumstances. Moreover, housing has been increasingly contributing to inequality in living standards as well as wealth. This is well-demonstrated by the recent observation that when housing costs are factored into the equa- tion, there has been a much larger divergence between the incomes of Australia’s REVISEDmost and least economically advantaged households than when raw (before-housing costs) incomes are compared. As shown by Wiesel et al. (2018), equivalised disposable incomes for income decile 1 households (the poorest) rose by 54% over the period 1988–2015, as compared with 85% for income decile 10 households. Factoring in housing costs, however, the gap in gains is substantially widened (a 30% increase for decile 1 as compared with 81% for decile 10). Various forms of housing policy intervention can be seen as motivated by a concern for the mitigation of inequality. These include the promotion of minimum housing standards (e.g. as in rules on boarding house 38 H. PAWSON ET AL. conditions) and the application of needs-related rules for prioritising access to social housing (see Chapter 4).

2.3 financial Stability and Economic Productivity Increasingly, property markets have been seen as a potential source of risk to economic and/or fnancial stability (Heath et al. 2012). Such a view was strongly reconfrmed by the experience of the 2008 Global Financial Crisis, an event widely recognised as stemming from the dys- function of the US housing system (Kim and Renaud 2009; Burke and Hulse 2010). Measures to counter such problems so as to minimise broader economic disturbance are, in a sense, motivated by the wider concern about redressing market failure. However, housing policy interventions in the interests of maintaining stability have their own logic and may not rest on the ‘countering market failure’ justifcation. In Australia, as in many other counties, the past 20 years have seen substantial real increases in residential propertyPROOF prices that, supported by an increased fow of mortgage lending after fnancial deregulation (see Chapter 5), have led to a marked rise in household indebtedness. As shown in Fig. 2.1, largely driven by rising housing debt, Australia’s overall household debt as a proportion of annual disposable income rose from 114 to 190% in the period 2000–2018. This amounts to a signifcant increase in the scale of housing indebtedness in relation to the size of the entire economy. Indeed, on the standard measure used by the Organisation for Economic Cooperation and Development (OECD), Australia’s household debt rate was the ffth highest in the industrialised

REVISED

+RXVHKROGGHEWLQFRPH

+RXVLQJGHEWLQFRPH

Fig. 2.1 Ratio of household and housing debt to disposable income, 2000– 2018 (Source Reserve Bank of Australia statics Table E2—Household Finances) 2 WHY GOVERNMENTS INTERVENE IN HOUSING 39 world in 2017. Moreover, it was one of only two of the ‘top fve’ countries where such debt remained on an upward path (household debt statistics, OECD website). House price volatility poses a threat to macro-economic stability because when an overheated property market is subject to a ‘price cor- rection’ this can depress demand and consumption throughout the economy, as well as potentially threatening the stability of the banking system (IMF 2017). This latter issue is of particular salience for Australia since, as reportedly demonstrated by IMF loan book profle data, Australian banks’ exposure to residential property is the highest in the developed world (Cadman 2017). Elsewhere in the economy, sectors directly related to the property market, such as construction, are likely to be particularly hard-hit in any sustained housing market downturn (and, by the same token, highly stimulated by a rising property market). Commercial property interests may also suffer if the value of land and property used as debt collateral is depressed by a housing market slump (Thornley 2016). One mechanism that has facilitated the PROOFrecently strengthened link between housing wealth, indebtedness and consumer spending is ‘housing equity withdrawal’ (HEW), i.e. the extraction of housing wealth by property owners (Lowe 2011). One form of HEW, made possible through mortgage market deregulation, involves a homeowner taking out a second mortgage so that asset value can be released through leveraging the property against newly issued debt. In this way, an owner- occupied home can be ‘used as a bank’ that can yield investable cash without any need for the property to be traded (e.g. through an owner- occupier downsizing move). As this practice began to proliferate during the 2000s, owner-occupiers in countries like Australia were increasingly “[coming to] think of their home literally as an institutional resource from whichREVISED from time to time they could draw” (Lowe 2011, p. 168). Hence, high levels of privately held housing equity and relatively lightly regulated mortgage markets can combine to place modern economies at enhanced risk of volatility where underlying economic cycles may be compounded by homeowner responsiveness to such cycles. This refers to a scenario where reactions to a housing market downturn may include the rapid scaling-back or reversal of HEW-funded consumption expenditure as dramatically exemplifed in the UK in the period 2007–2010 (Pawson and Wilcox 2012, Table 7). The evident need to minimise the threat to fnancial stability resulting from housing market volatility has clearly emerged as a major motivation 40 H. PAWSON ET AL. for governments (or their central banks and regulatory agencies) to intervene in housing markets, not only through interest rate adjustments but also, as has applied in Australia since 2017, placing stricter controls on bank lending and tightening foreign investor rules (RBA 2018). Beyond the concerns that housing market volatility can constitute a threat to overall economic stability, and more related to the ‘maximising effciency’ motivation for government attention to housing, there is growing awareness that housing system performance has important implications for overall economic productivity (Maclennan et al. 2018, 2019). More specifcally, it is becoming increasingly apparent that the suboptimal operation of housing markets can impair the effciency of urban systems. Emerging research evidence demonstrating such impacts in Australia and elsewhere is attracting the concern not just of poverty lobbyists but also business leaders and fnancial regulators. Moreover, as exemplifed by the reported remit of the recently established NSW Productivity Commission (Wade 2018) it appears that there is growing policymaker recognition of housing system performancePROOF as a key concern within this agenda. Productivity-damaging impacts associated with housing system operation arise from, for example, growing numbers of families accommodated in insecure private rental housing liable to result in frequent moves, impacting on children’s educational performance. In adulthood, many outer metro workers face long commutes from the ‘affordable edge’ of Australia’s major cities, thus imposing growing congestion costs. Moreover, the restricted consumption that results from excessive housing cost burdens has a damaging effect on output and productivity. Thus, in Australia and similar countries there is a dawning realisation that housing outcomes have not only driven the major shifts in wealth andREVISED income (after-housing costs) highlighted by Thomas Piketty (2014), but are coming to threaten the productivity gains that orthodox economists identify as accruing from urban agglomeration (Glaeser and Gottlieb 2009).

2.4 critical Perspectives on Housing Policy Interventions and Their Underlying Dynamics Sections 2.1–2.3 have put forward an orthodox view of government motivations for social policy (including housing) measures in a liberal democratic setting as embodying the promotion of effciency, equity 2 WHY GOVERNMENTS INTERVENE IN HOUSING 41 and economic/fnancial stability. In a similarly idealistic vein, it might be imagined that, in housing and other policy arenas, government decisions embody the principles of evidence-based policymaking (Head 2014). In practice, of course, these explanations and understandings are at the very least incomplete. The following sections therefore review a number of critiques that advance other contentions on the motivations and processes that underlie housing policy.

2.4.1 Party Ideologies and Electoral Politics Partly because of its implications for the distribution of income and wealth, housing policy is an inherently political matter, which has historically formed a component of party belief systems and election platforms. For example, it has been colourfully claimed that “[UK] housing policy has been governments’ favourite political football for more than a hundred years, with periodic shifts between private and public provision depending on party biases” (Gallent 2001, PROOFp. x). This comment hints at what may be ideological motivations for housing policy interventions (or for distinct policy directions) associated with specifc political parties. Classically, these rest on philosophical attachments to market mechanisms on the one hand, versus state provision, on the other. During the early post-war period, for example, Australia saw some- thing of a contrast between Liberal/National and Labor governments in terms of the priority attached to expanding home ownership as opposed to public housing for rent (Troy 2012). Arguably, policy differences here were more a matter of degree rather than refecting any kind of diametric distinction between contrasting world views (Hayward 1996). Moreover, while aspirations to create a ‘property-owning democracy’ are conventionally seenREVISED as ideologically in tune with the conservative side of politics it is a striking fact that Australian offcial post-war promotion of home ownership enjoyed active support from the political left beyond the Australian Labor Party. A document of that pre-housing-fnancialisation era, for example, reasoned that “…ownership of property, for the purpose of extracting a proft out of others causes injustice, but not the ownership of property for one’s own use” (Communist Party of Australia 1957, p. 16, as cited in Hayward 1996). In the post-2000 era, when housing unaffordability has become a policy concern largely shared across Australia’s major parties (at least at the level of stated priorities), Australian Labor has tended to identify itself 42 H. PAWSON ET AL. with policies somewhat more interventionist in tone than the (Liberal/ National) Coalition. This was most clearly apparent under the 2007– 2010 Rudd Government (Milligan and Pinnegar 2010). On the face of it, a specifc case in point might be the National Rental Affordability Scheme (NRAS); see Chapter 8. Launched in 2008, this major supply-side affordable rental housing initiative was terminated by the successor Coalition Government in 2014. Even here, however, the contrast between party positions is easily overstated since, at its inception, the scheme commanded support across the political spectrum in the national parliament (Milligan et al. 2015, p. 9). In their post-millennial stances towards the public housing system, it would be diffcult to identify any distinct ideologically inspired policy difference between governments of Labor and Liberal/National hue at either Federal or state/territory level. Administrations of both colours have dabbled with small-scale management transfers to not-for- proft community housing providers, which (in some interpretations) could possibly form a pathway to system reinvigorationPROOF (Pawson et al. 2013, 2016). Similarly, state/territory governments from both sides of the political aisle have progressed ‘renewal projects’ focused on certain estates—albeit that such schemes are nowadays generally restricted to well-located sites where rising land values can fund social housing replacement without incurring any on-balance-sheet expenditure (see Chapter 4). Both major parties have increasingly identifed with the view that a social rental allocation should be seen as a temporary provision limited to the duration of need—however that might be defned. Thus fxed-term agreements have progressively replaced open-ended tenancies in public housing across the country (Fitzpatrick and Pawson 2014; Wiesel et al. 2014). These issues are further discussed in Chapter 4. In representativeREVISED democracies, of course, political parties with serious ambitions to govern must temper any ideological preferences (in housing just as in other realms) according to electoral imperatives. With this in mind, it has been widely observed that in home ownership majority societies such considerations will incline governments (and opposition parties aspiring to replace them) away from any policy direction that could be portrayed as a threat to property owner interests. Thus, any action that might beneft marginal frst home buyers in a serious way by dampening property values (e.g. through taxation reforms of the kind recommended in the Henry Review [Henry 2010]) is a hard ask. In a 2 WHY GOVERNMENTS INTERVENE IN HOUSING 43 particularly pointed exposition of this argument, the respected economist Saul Eslake commented:

While political parties and governments profess to care about frst home buyers, the reality is that in a typical year fewer than 100,000 people suc- ceed in attaining home ownership for the frst time; whereas there are some 5.8 million households (and over 8 million people) who already own at least one property. Hence there are 100,000 votes for policies which might result in lower house prices, and over 8 million votes against policies which might result in lower house prices (or in favour of policies which result in higher house prices). As the Americans say: ‘do the math’. (Eslake 2013)

The political mentality that underlies this scenario is well summed-up in former Prime Minister John Howard’s famous phrase that “I haven’t found anybody who owns a home complaining to me that the value of it has gone up” (Howard 2003). If housing policymaking is, in fact, dominated by such thinking, it would be unsurprising if it was merely “tokenistic and intended primarily to indicatePROOF policy change, rather than to provide it” (Jacobs 2015a, p. 54). Jacobs’ perspective is further articulated by Gurran and Phibbs (2015), who document a sequence of post-millennial housing policy deliberations by Australian governments in response to popular concerns. As they persuasively argue, such activity has “come to resemble busy work, exhibiting and absorbing policy energy while at the same time constraining the suite of policy options and tools able to really address the housing affordability problems affecting low-income renters and aspiring owners in Australia” (p. 713).

2.4.2 Interest Group Politics Interest groupREVISED politics refers to a view of government decision-making as infuenced or driven by the desire to favour or reward distinct lobby groups or constituencies. This thinking is related to explanations of policy change that highlight ideological and electoral considerations. It is also compatible with the institutional governance analysis that highlights the signifcance of stakeholders. However, extending beyond these perspectives, an ‘interest group politics’ view emphasises the mechanisms through which such identifable constituencies may wield such infuence. These include, for example, lobbying, bargaining and campaigning (Binderkrantz 2005). 44 H. PAWSON ET AL.

Underlying the interest group politics perspective is the recognition that in a country like Australia there are a number of such groups that play into the policymaking process in housing, as in other domains. Moreover, such constituencies may be often advancing positions in confict with those of others in a context where the distribution of power across such groups is highly unequal. Sometimes such players are differentiated as producer and consumer interests. Symptomatic of the increasingly fnancialised status of housing (see Chapter 1), residential property owner, or investor, interests are becoming more commonly highlighted in such analyses. A number of the interest groups most commonly involved in the Australian housing context are cited in Table 2.2. Adopting an approach of this sort, Jacobs (2015b) revealingly analyses the policy-infuencing activities of what he terms welfare agencies and industry lobbyists. Important examples of Federal level housing policymaking where interest group lobbying reportedly played a signifcant role are identifed as including: the 1987 reversal of restrictions to ‘negative gearing’ for rental investors andPROOF the 2007 commitment

Table 2.2 Australian interest groups active in housing policy, and their motivations

Interest group Motivation(s)

Politicians • Ideological and/or electoral Government economists • Minimise welfare and other cost to government and promote economic growth Residential developers • Maximise housing demand and minimise tax and regulatory exposure Home-owners—including rental • Retain tax-advantaged status, minimise interest investors REVISEDrates and preserve neighbourhood ‘amenity’ status Real estate industry • Maximise transactions and boost market expectations/confdence Finance industry—e.g. mortgage • Seek opportunities for proft providers Social welfare/housing advocacy • Raise awareness of housing affordability chal- agencies lenges and argue for remedial action (especially in relation to disadvantaged groups) Trades unions • Representation of government staff directly engaged in the management of public housing

Source Adapted from Table 1 in Gurran and Phibbs (2015) 2 WHY GOVERNMENTS INTERVENE IN HOUSING 45 to introduce the NRAS (pp. 701–704); see also Milligan and Tiernan (2012). In highlighting the infuence wielded in these and other policymaking instances, Jacobs justifably argues that “a greater appreciation of …[lobbyists’] role is essential if we are to understand, in more pres- cient ways, the pressures and tensions that inform Australian housing policy-making and the barriers that impede structural reform” (p. 707).

2.4.3 A Political Economy Critique A more comprehensive critique that largely encompasses those discussed above is what could be termed the political economy perspective. In this world view, the state’s primary role in capitalist societies is in the advance- ment of so-called ruling class or business sector interests, in housing as in other policy realms. Thus, as seen by Madden and Marcuse (2016), an understanding of housing policy as being about the maximisation of public welfare rests on a misplaced belief in ‘the benevolent state’. In fact, according to this critique, “motivations for PROOFstate action in the housing sector have more to do with maintaining the political and economic order than with solving the housing crisis” (ibid., pp. 119–120). Accordingly, for instance, Madden and Marcuse question the conventional portrayal of the Housing Act 1949 post-war US slum-clearance program as “primarily concerned with the conditions being endured by slum residents” (ibid., p. 131). Rather, in their view, the program was “decisively shaped by the agendas of the real estate and fnance industries” (ibid.). In a similar vein, housing policy decision-making in Australia prioritises the maintenance of “conditions that enable home owners, rental investors, the fnance industry and real estate agencies to reap large prof- its from housing” (Jacobs 2015a, p. 63). A straightforward justifcation for this viewREVISED is the fact that (as detailed in Chapter 5) both in absolute and per capita terms, effective housing subsidies in Australia fow in substantially larger amounts to homeowners and private landlords than to low-income renters (Yates 2010). Similar arguments have been mounted in relation to housing policy directions in the UK (Dorling 2014) and the United States (Madden and Marcuse 2016). Such observations can be interpreted as illustrating that, “in budgetary terms, [Australian] housing policy is primarily orientated towards the well off or better off rather than the socially disadvantaged” (Jacobs 2015b, p. 695). From this perspective, therefore, the economic policy imperative of facilitating steadily appreciating housing markets is not just about promoting macro-economic stability or social welfare, but also about 46 H. PAWSON ET AL. enabling the accumulation of asset wealth on the part of private property owners. More provocatively, according to this view, “[it is] policy success, not failure, [that] has driven Australia’s housing crisis” (Jacobs 2016, p. x). That is, housing market impacts generally seen as socially problematic, such as homelessness, can be attributed to policy effectiveness, rather than a symptom of ineffectual or insuffcient government action as more conventionally perceived.

2.5 conclusions The notion that housing policy is primarily concerned with facilitating the smooth operation of markets is deeply ingrained within policymaker thinking in contemporary Australia, as in other comparable countries. Considering the extent of such infuence, it is essential to understand the logic of this mentality and its embedded assumptions. In our view, however, such thinking often mistakenly implies that what are considered market imperfections are rare departures fromPROOF a ‘natural state of affairs’ in which system processes would operate most effectively and effciently without interference. Moreover, any effort to understand and explain housing policy actions that fails to fully recognise the inherently political quality of housing and the relevance of the fundamentally unequal distribution of income, wealth and power in a country like Australia is doomed to failure.

References Aalbers, M. (2009). The Sociology and Geography of Mortgage Markets: Refections on the Financial Crisis. International Journal of Urban and RegionalREVISED Research, 33(2), 281–290. ABS. (2017). Housing Occupancy and Costs, 2015–16 [Internet] (Cat. No. 4130.0). Canberra: Australian Bureau of Statistics. Available from: http:// www.abs.gov.au/ausstats/[email protected]/Lookup/by%20Subject/4130.0~2015- 16~Main%20Features~Housing%20Occupancy%20and%20Utilisation~4. Accessed 16 July 2019. ABS. (2018). Census of Population and Housing: Estimating Homelessness, 2016 [Internet] (Cat. No. 2049.0). Canberra: Australian Bureau of Statistics. Available from: http://www.abs.gov.au/AUSSTATS/[email protected]/allprimary- mainfeatures/ED457E1CF56EA15ECA257A7500148DB3?opendocument. Accessed 16 July 2019. 2 WHY GOVERNMENTS INTERVENE IN HOUSING 47

Arthurson, K. (2013). Neighbourhood Effects and Social Cohesion: Exploring the Evidence in Australian Urban Renewal Policies. In D. Manley, M. van Ham, N. Bailey, L. Simpson, & D. Maclennan (Eds.), Neighbourhood Effects or Neighbourhood-Based Problems? (pp. 251–268). Dordrecht: Springer. Atkinson, R., & Kintrea, K. (2001). Neighbourhoods and Social Exclusion: The Research and Policy Implications of Neighbourhood Effects. Glasgow: University of Glasgow. Berry, M. (2014). Neoliberalism and the City: Or the Failure of Market Fundamentalism. Housing, Theory and Society, 31(1), 1–18. Binderkrantz, A. (2005). Interest Group Strategies: Navigating Between Privileged Access and Strategies of Pressure. Political Studies, 53(4), 694–715. Bourne, L. (1981). The Geography of Housing. London: Edward Arnold. Burke, T., & Hulse, K. (2010). The Institutional Structure of Housing and the Sub-prime Crisis: An Australian Case Study. Housing Studies, 25(6), 821–838. Cadman, E. (2017, June 20). Moody’s Move Shines Light on Australia’s Home Loan Risks [Internet]. Sydney Morning Herald. Available from: https://www. smh.com.au/business/the-economy/moodys-move-shines-light-on-australias-home-loan-risks-20170620-gwufh4.html. Accessed 16 July 2019. Dorling, D. (2014). All That Is Solid: The GreatPROOF Housing Disaster. London: Penguin. Dow, A. (2017, January 11). Council Insists It Is Not Clearing Homeless Camps Because of Australian Open [Internet]. The Age. Available from: https://www.theage.com.au/national/victoria/council-insists-it-is-not-clearing-homeless-camps-because-of-australian-open-20170111-gtpc2n.html. Accessed 16 July 2019. Eslake, S. (2013). Australian Housing Policy: Fifty Years of Failure [Internet]. Submission to Senate Economics References Committee Inquiry on Housing Affordability. Available from: https://www.aph.gov.au/Parliamentary_ Business/Committees/Senate/Economics/Affordable_housing_2013/ Submissions. Accessed 13 July 2019. Fitzpatrick, S., & Pawson, H. (2014). Ending Security of Tenure for Social Renters: REVISEDTransitioning to ‘Ambulance Service’ Social Housing? Housing Studies, 29(5), 597–615. Gallent, N. (2001). Sustainable Housing and Homes—Alternative Scales and Meanings. In A. Layard, S. Davoudi, & S. Batty (Eds.), Planning for a Sustainable Future (pp. 117–128). London: Spon Press. Galster, G. (2010, June). Neighbourhood Social Mix: Theory, Evidence and Implications for Policy and Planning. Paper presented at International Workshop at Technion University ‘Planning for/with People’, Haifa, Israel. Glaeser, E., & Gottlieb, J. (2009). The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States. Journal of Economic Literature, 47(4), 983–1028. 48 H. PAWSON ET AL.

Gurran, N., & Bramley, G. (2017). Urban Planning and the Housing Market. Basingstoke: Palgrave Macmillan. Gurran, N., & Phibbs, P. (2015). Are Governments Really Interested in Fixing the Housing Problem? Policy Capture and Busy Work in Australia. Housing Studies, 30(5), 711–729. Hastings, A., & Dean, J. (2003). Challenging Images: Tackling Stigma Through Estate Regeneration. Policy and Politics, 31(2), 171–184. Hayward, D. (1996). The Reluctant Landlords? A History of Public Housing in Australia. Urban Policy and Research, 14(1), 5–35. Head, B. (2014). Public Administration and the Promise of Evidence-Based Policy: Experience in and Beyond Australia. Asia Pacifc Journal of Public Administration, 36(1), 48–59. Heath, A., Packer, F., & Windsor, C. (2012). Property Markets and Financial Stability. Sydney: Reserve Bank of Australia. Henry, K. (2010). Australia’s Future Tax System—Report to the Treasurer [Internet]. Australia’s Future Tax System Review. Canberra: Treasury. Available from: http://taxreview.treasury.gov.au/content/Content.aspx?- doc html/pubs_reports.htm. Accessed 16 July 2019. = Howard, J. (2003, September 19). Interview PROOFwith Steve Austin [Internet], Transcripts from the Prime Ministers of Australia. ABC Radio. Available from: https://pmtranscripts.pmc.gov.au/release/transcript-20920. Accessed 16 July 2019. IMF. (2014, April 12). Inequality Seriously Damages Growth [Internet], International Monetary Fund Seminar Hears. IMF Survey. Available from: https://www.imf.org/en/News/Articles/2015/09/28/04/53/ sores041214a. Accessed 8 August 2019. IMF. (2017, October 17). Is Growth at Risk? (Global Financial Stability Report). Washington, DC: International Monetary Fund. Jacques, M. (2016, August 21). The Death of Neoliberalism and the Crisis in Western Politics [Internet]. The Guardian. Available from: https://www. theguardian.com/commentisfree/2016/aug/21/death-of-neoliberalism-crisis-in-western-politicsREVISED. Accessed 4 August 2019. Jacobs, K. (2015a). A Reverse Form of Welfarism: Some Refections on Australian Housing Policy. Australian Journal of Social Issues, 50(1), 53–68. Jacobs, K. (2015b). The ‘Politics’ of Australian Housing: The Role of Lobbyists and Their Infuence in Shaping Policy. Housing Studies, 30(5), 694–710. Jacobs, K. (2016, February 5). How Policy Success, Not Failure, Has Driven Australia’s Housing Crisis [Internet]. The Conversation. Available from: https://theconversation.com/how-policy-success-not-failure-has-driven-australias-housing-crisis-53751. Accessed 16 July 2019. Kim, K., & Renaud, B. (2009). The Global House Price Boom and Its Unwinding: An Analysis and a Commentary. Housing Studies, 24(1), 7–24. 2 WHY GOVERNMENTS INTERVENE IN HOUSING 49

Le Grand, J., Propper, C., & Smith, S. (2008). The Economics of Social Problems (4th ed.). Basingstoke: Palgrave Macmillan. Lowe, S. (2011). The Housing Debate. Bristol: Policy Press. Maclennan, D., Crommelin, L., Van Nouwelant, R., & Randolph, B. (2018). Making Better Economic Cases for Housing Policies [Internet] (City Futures Research Report). Sydney: UNSW. Available from: https://cityfutures. be.unsw.edu.au/documents/476/Making_better_economic_cases_for_hous- ing_policies_main_report.pdf. Accessed 16 July 2019. Maclennan, D., with Randolph, B., Crommelin, L., Witte, E., Klestov, P., Scealy, B., & Brown, S. (2019). Strengthening Economic Cases for Housing Policies [Internet] (City Futures Research Report). Sydney: UNSW. Available from: https://cityfutures.be.unsw.edu.au/documents/515/Full_Report_Final_ edited_logos.pdf. Accessed 16 July 2019. Madden, P., & Marcuse, P. (2016). In Defense of Housing. New York: Verso. Marmot, M. (2015). The Health Gap: The Challenge of an Unequal World. London: Bloomsbury. Milligan, V., Pawson, H., Williams, P., & Yates, J. (2015). Next Moves? Expanding Affordable Rental Housing in Australia Through Institutional Investment [Internet] (City Futures ResearchPROOF Report). Sydney: UNSW. Available from: https://cityfutures.be.unsw.edu.au/documents/81/Next_ moves_report.pdf. Accessed 8 August 2019. Milligan, V., & Pinnegar, S. (2010). The Comeback of National Housing Policy in Australia: First Refections. International Journal of Housing Policy, 10(3), 325–344. Milligan, V., & Tiernan, A. (2012). No Home for Housing: The Situation of the Commonwealth’s Housing Policy Advisory Function. Australian Journal of Public Administration, 70(4), 391–407. O’Sullivan, T. (2003). Economics and Housing Planning. In T. O’Sullivan & K. Gibb (Eds.), Housing Economics and Public Policy (pp. 218–234). Oxford: Blackwell. Pawson, H., Martin, C., Flanagan, K., & Phillips, R. (2016). Recent Housing Transfer REVISEDExperience in Australia: Implications for Affordable Housing Industry Development (AHURI Final Report No. 273). Melbourne: AHURI. Pawson, H., Milligan, V., Wiesel, I., & Hulse, K. (2013). Public Housing Transfers in Australia: Past, Present and Prospective (AHURI Final Report No. 215). Melbourne: AHURI. Pawson, H., & Wilcox, S. (2012). UK Housing Review 2011/12. Coventry: Chartered Institute of Housing. Peel, M. (2003). The Lowest Rung: Voices of Australian Poverty. Cambridge: Cambridge University Press. Piketty, T. (2014). Capital in the Twenty First Century. Cambridge: Belknap Press. 50 H. PAWSON ET AL.

Pusey, M. (1991). Economic Rationalism in Canberra: A Nation Building State Changes Its Mind. Cambridge: Cambridge University Press. Rawls, J. (2001). Justice as Fairness: A Restatement (E. Kelly, Ed.). Cambridge: Harvard University Press. RBA. (2018). Financial Stability Review, October. Sydney: Reserve Bank of Australia. Ryan-Collins, R., Lloyd, T., & Macfarlane, L. (2017). Rethinking the Economics of Land and Housing. London: Verso. Saulwick, J. (2017, June 25). After Six Months, Clover Moore’s Council Breaks Up Martin Place Homeless Camp [Internet]. Sydney Morning Herald. Available from: https://www.smh.com.au/national/nsw/after-six-months- clover-moores-council-breaks-up-martin-place-homeless-camp-20170624- gwxqob.html. Accessed 16 July 2019. Smith, L., Rosen, K., & Fallis, G. (1988). Recent Developments in Economic Models of Housing Markets. Journal of Economic Literature, 26(1), 29–64. Stiglitz, J. (2010). Freefall: Free Markets and the Sinking of the Global Economy. London: Allen Lane. Thornley, M. (2016). Financial Stability Risks from Housing Market Cycles. Wellington: Reserve Bank of New Zealand. PROOF Troy, P. (2012). Accommodating Australians. Sydney: Federation Press. Wade, M. (2018, February 19). NSW to Get Its Own Productivity Commission to Lower Living Costs. Sydney Morning Herald. Whitehead, C. (2012). The Neo-Liberal Legacy to Housing Research. In D. Clapham, W. A. V. Clark, & K. Gibb (Eds.), The Sage Handbook of Housing Studies (pp. 113–130). London: Sage. Wiesel, I., Pawson, H., Stone, W., Herath, S., & McNelis, S. (2014). Social Housing Exits: Incidence, Motivations and Consequences (AHURI Final Report No. 229). Melbourne: AHURI. Wiesel, I., Ralston, L., & Stone, W. (2018, September 7). How the Housing Boom Has Driven Rising Inequality [Internet]. The Conversation. Available from: https://theconversation.com/how-the-housing-boom-has-driven-rising-inequality-102581REVISED. Accessed 16 July 2019. Wilkinson, R., & Pickett, K. (2009). The Spirit Level: Why More Equal Societies Almost Always Do Better. London: Allen Lane. Yates, J. (2010). Tax Expenditures and Housing. In M. Stewart (Ed.), Housing and Tax Policy (Conference Series No. 26) (pp. 39–91). Sydney: Australian Tax Research Foundation. Yates, J. (2017). Housing Australia. In CEDA (Ed.), Housing Australia [Internet] (pp. 15–34). Melbourne: Committee for Economic Development of Australia. Available from: http://www.ceda.com.au/Research-and-policy/ All-CEDA-research/Research-catalogue/Housing-Australia. Accessed 16 July 2019. CHAPTER 3

Unpacking Australia’s Housing Affordability Problem

3.1 Introduction and Overview As highlighted in Chapter 1, concerns surrounding affordability have become central to Australian housing debates.PROOF Indeed, many commentators, analysts and academics refer to Australia’s ‘housing affordability crisis’ (Yates 2008; Nicholls 2014; Robertson 2017; Birrell and Healy 2018; Mares 2018; Ryan-Collins 2019). Over the past few decades such anxieties have been voiced mainly in relation to the falling rate of home ownership, especially among younger adults; a trend generally attributed to house price infation outstripping income growth and borrowing capacity. However, it could be argued that intensifying rental affordability pressures affecting lower-income renters provide an even greater challenge for housing policy (Yates and Milligan 2007; Yates 2016; Jericho 2017; Daley et al. 2018). The existence of a housing affordability problem in Australia (and in many comparableREVISED countries) is widely acknowledged among governments, commentators and the public at large, as is the desire to address this by policy intervention. The broadly accepted view that housing unaffordability is a growing phenomenon raises important questions about the contributory role of housing production systems and housing market processes. It also raises questions about the extent to which housing policy can and does affect affordability outcomes. Only when both the housing affordability problem and its contributory factors are properly understood is there a chance that effective policy solutions can be devised.

This chapter is structured in three main sections. In Sect. 3.2, we begin by describing the housing affordability issues that have been the focal point of what is popularly seen as Australia’s housing crisis, i.e. the growing hurdles faced by many would-be frst home buyers. This description focuses on the broad trends that have given rise to affordability concerns. In Sect. 3.3, we review the conceptual and practical issues of defning housing affordability and examine affordability outcomes across all tenures using a range of measures. We use this discussion to identify the extent and distribution of housing affordability problems in Australia. Finally, in Sect. 3.4, we outline some of the key factors seen as contributing to declining affordability and briefy review debates concerning their relative importance.

3.2 Home Ownership Affordability As noted above, political, policymaker and media attention on housing affordability has tended to focus on thePROOF constraints that have made access to home ownership increasingly diffcult for aspiring frst home buyers over recent decades. We therefore start with this accessibility issue at the point of entry into the housing market. Section 3.3 covers broader affordability challenges associated with the burden of housing costs that can arise in any tenure at any point during a household’s life cycle. Another reason for frst considering home purchase affordability follows from our system-oriented perspective. Because owner-occupied housing and rental housing are both part of the same housing system, affordability problems affecting renters are not independent of those affecting home buyers. The housing system can be seen as consisting of a series REVISEDof housing sub-markets of which rental and owner-occupied housing are 2 components. Sub-markets, which may be characterised by geography, dwelling type and/or by dwelling prices or rents, add to the complexity of analysing housing systems; see Watkins (2001). They also add to the complexity of identifying housing affordability problems because of the potential price-driven trade-offs households make between tenure, location and dwelling type. Indeed, rental affordability problems can be exacerbated by the additional pressure placed on the rental market when young people, who once would have become homeowners, remain in the rental market longer than did their cohorts in earlier decades (Yates 2017). 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 53

/X[HPERXUJ %HOJLXP $XVWUDOLD &DQDGD 1HZ=HDODQG 8. 1HWKHUODQGV )UDQFH ,UHODQG 6ZHGHQ 1RUZD\ ,WDO\ 'HQPDUN )LQODQG 6SDLQ 86 6ZLW]HUODQG *HUPDQ\ LQFUHDVH

Fig. 3.1 Increases in house price to income ratios, selected OECD countries: 1985–2015 (Source Yates [2016], based on the dataset described in Mack and Martínez-García [2011])

3.2.1 Aggregate Trends The central focus in determining home ownershipPROOF affordability concerns the cost of entry for the aspirant frst home buyer. One global indicator of decreasing housing affordability is an increasing house price to income ratio. Figure 3.1 shows the percentage increase in house price to income ratios for the three decades to 2015 for selected OECD countries. On this measure, Australia lies uncomfortably close to the top of the OECD league in terms of worsening housing affordability. However, most of its fellow Anglophone countries are not far behind. The increase in Australia’s house price to income ratio over the past three decades results from a trebling of real housing prices (adjusted for infation) at a time when real earnings increased by only 50%. As shown in Fig. 3.2, real housing prices in Australia have followed a rising trend since the mid-1980s,REVISED but their growth escalated from around the turn of the millennium. This disproportionate rise in housing prices over earnings has been a key policy concern for close to two decades. The sharp rise in the ratio from the mid-1990s was given prominence, for example, in the 2008 Senate Inquiry on Housing Affordability in Australia (Senate Select Committee on Housing Affordability in Australia 2008), and was highlighted by Fox and Finlay (2012) in an analysis undertaken for the Reserve Bank of Australia. While the strength of the underlying price trend has been stronger in metropolitan compared with regional housing markets, all have experienced real growth. 54 H. PAWSON ET AL.

5HDOKRXVLQJSULFHV 5HDOZDJHV

Fig. 3.2 Real housing price and income indexes, Australia: 1985–2018 (Source Updated from Yates [2008]; housing prices based on ABS residential property price index data from 2003 and established house price index data from 1985; earnings based on average weekly ordinary time earnings for full-time adults; all data CPI adjusted) PROOF

6\G 0HO$GH %UL3HU +RE &DQ 'DU$XV Fig. 3.3 HouseREVISED price to income ratios, Australian capital cities: 2001 and 2018 (Note Based on median dwelling prices and median household incomes. Source CoreLogic [2018, p. 9])

Increases in house price to income ratios in Australia’s high-cost capital cities have been even more dramatic than the Australia-wide ratios illustrated in Fig. 3.1 and implied by Fig. 3.2. Annual Demographia reports, for example, have used these measures of housing affordability to rank Australia’s capital cities as among the least affordable in the English-speaking world (Cox and Pavletich 2019). Figure 3.3 highlights the extent to which house price to income ratios have increased markedly over the past two decades in each of Australia’s capital cities. It also 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 55 highlights the extent to which they are signifcantly greater in Sydney and Melbourne, the two largest capitals. Further spatially differentiated analysis highlights a second important aspect of Australia’s evolving affordability problem: the ongoing spatial restructuring of housing markets within the nation’s capital cities as well as between them. As demonstrated by Ellis (2015), residential property centrally located within Australia’s major cities is not only more expensive than equivalent outer suburban real estate, but has appreciated disproportionately in the last decade. In Sydney in 2006, for example, a detached house in inner ring suburbs typically fetched a price equal to twice that of the equivalent property in outer ring suburbs. By 2014, this differential had increased by 20%. In other capitals, the differentials between inner and outer ring prices are not as high as in Sydney, but all have increased over the decade to the point where prices of inner ring properties are at least twice those of in the outer ring. Similar increasing differentials between inner and outer locations within Australia’s capital cities were also seenPROOF in the two decades to the mid-2000s (Yates 2011a).

3.2.2 Affordability Constraints on First Home Buyers in Australia House price to income ratios can be valuable and meaningful for ‘point in time’ comparisons across cities or regions and for international comparisons. However, when aggregated at the national level (Fig. 3.2), they conceal regional nuances (Fig. 3.3) and, in Australia’s case, the growing spatial disparity in housing prices within its cities. More importantly, they can be problematic when they are used as evidence of changing access to home ownership over time, primarily because they ignore the impact of variations inREVISED mortgage interest rates and institutional changes affecting borrowing capacity but also because they ignore relative changes in the distributions of housing prices and household incomes. Temporal house price to income ratio analyses ignore, for example, the signifcant downward trend in interest rates from the 1990s which effectively increased household borrowing capacity and enabled borrowers to secure a much larger mortgage for any given income (see Fig. 3.4). They also ignore institutional changes, such as those arising from 1980s fnancial deregulation, which had a similar impact on borrowing capacity. Institutional changes and regulatory rules that affect maximum borrowing capacity in Australia are covered in Chapter 5. 56 H. PAWSON ET AL.

Fig. 3.4 Indicative mortgage interest rates in Australia: 1985–2018 (Source Reserve Bank of Australia, Economic and Financial Statistics, Table F5. Rate shown is for a standard variable rate owner-occupier housing loan)

Assessment of borrowing capacity for a given household income will be affected by how housing affordability is defned. In broad terms, the maximum loan approved will depend on lenderPROOF assessment of a borrower’s loan servicing capacity, which, in addition to household income, will depend on household circumstances, current (and expected future) mortgage interest rates and the loan term. Income (and borrowing capacity) in relation to house prices, however, is not the only constraint affecting access to home ownership. Access is affected by both income and wealth constraints. Income constraints affect the maximum size of the mortgage loan on offer (see Chapter 5). Wealth constraints, covered here, describe: the conditions imposed by lenders in terms of deposit or down-payment requirements and the shortfall between dwelling price and maximum loan permitted, otherwise described as ‘the deposit gap’. In Australia,REVISED mortgage loan approval is normally dependent on the borrower providing a substantial deposit or down-payment of around 20% of property value. While smaller deposits are allowed, they generally come at a cost of upfront mortgage insurance charges (Daley et al. 2018). For most low-to-middle-income households, however, the deposit requirement imposed by lenders is academic. This is because the gap between the price of housing that meets borrower needs and their maximum borrowing capacity generally far exceeds any down-payment requirement imposed by lenders. As property prices have risen ahead of incomes, the necessary savings threshold has been pushed higher as a multiple of income. 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 57

'HSRVLWJDS GHSRVLWUHTXLUHPHQW

Fig. 3.5 Deposit requirements and deposit gap as a multiple of income, Australia: 1985–2018 (Notes [1] Deposit requirement based on 20% of median property price; [2] Deposit gap based on difference between median dwelling price and borrowing capacity for a household on AWE, assuming repayment capacity for a 25 year loan at current standard bank variable interest rate is based on 30% of gross household income. Source As for PROOFFig. 3.2) Figure 3.5 shows that a 20% deposit requirement on a median-priced dwelling increased the savings requirement for a household on average earnings from the equivalent of 6 months earnings in the mid-1980s to 15–18 months earnings by the mid-2010s. It also shows that, for most of the period, the deposit gap between a median-priced dwelling and the maximum loan affordable for a household on average earnings was generally much higher than the institutionally imposed deposit requirement. At its peak of around 3, the deposit gap implies that a household on average earnings would take 15 years to save enough to afford a median-priced dwelling if able to save 20% of its gross household income. This savings rate is possibly an ambitious target for households paying rent, particularly for householdsREVISED with children whose needs make signifcant demands on household income in addition to those made by rental costs. As shown in Chapter 5, such constraints have substantially reduced home ownership rates for low- to-middle-income households over the past two decades. Increasingly over the past 20 years, therefore, wealth rather than income has presented the major stumbling block to home ownership entry for low-to-moderate-income households (Wood et al. 2006; Yates 2008; Daley et al. 2018).1 This has important equity implications

1 Deposit gaps also were a signifcant constraint in the late 1980s and early 1990s when high interest rates imposed considerable limits on borrowing capacity (as can be seen in Fig. 3.5). 58 H. PAWSON ET AL. because it underscores the divide between the minority of aspirant frst home buyers with access to family wealth to assist in meeting the deposit gap and those without such access. Signifcantly, the proportion of frst home buyers receiving fnancial assistance from friends and family steadily increased between 2001 and 2015 from 6% in the 1970s to 14% in the period 2011–2014 (Simon and Stone 2017) but the share of frst home buyers receiving help of this kind remains low. Similar outcomes have been noted in the UK (Scanlon et al. 2019).

3.3 Housing Affordability More Broadly Defined There is a broader notion of housing affordability consistent with, but not focused specifcally on, access to home ownership. Fundamentally this concerns the relationship between housing costs and household incomes. A housing affordability problem exists when obtaining appropriate housing imposes an excessive burden PROOFon household income (see Chapter 1). On the face of it, this sounds conceptually simple. However, measuring and monitoring housing affordability in practice is challenging, especially when considering affordability across different housing tenures. This challenge is the focus of this section.

3.3.1 Measuring and Monitoring Affordability Conceptual Issues Some of the issues relating to measuring and monitoring housing affordability can be illustrated by changes in the ways in which loan service capacity for home buyers has been assessed over time. As discussed moreREVISED fully in Chapter 5, prior to the 1980s, a rule of thumb set maximum mortgage repayments at 30% of breadwinner income. More recently, however, assessment of repayment capacity commonly varies according to household income and estimates (or self-declaration) of expenditure needs, which vary with household size and structure. Issues can also be illustrated by the changes in rent-setting policies in public housing. As covered in Chapter 4 (Box 4.3), public housing rents in Australia are geared to income on the presumption that this would guarantee housing affordability. These were initially set at 18–20% of gross household income, but currently are usually fxed at 25% of income, 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 59 regardless of household size and structure or dwelling size, amenities and location. These approaches exemplify two of the popular ways of measuring housing affordability: ratio and residual measures (see Box 3.1). In broad terms, ratio measures are based on the proportion of income spent on housing and residual measures on what is left for non-housing expenditure after-housing expenditure is taken into account. The periodic changes in the benchmark ratio employed for the setting of public housing rents, and in the change from a ratio measure to a residual measure in determining repayment capacity, highlight the subjectivity associated with these metrics. With ratio measures, the proportion chosen is seen as being somewhat arbitrary. In Canada, for example, a 20% rule was used until the 1950s when it was replaced by a 25% rule and a 30% rule in the 1980s (Hulchanski 1995). Such an approach ignores differences in capacity to pay between different households: Devoting 30% of income to housing, for example, is more affordable for householdsPROOF with low rather than high non-housing spending needs, such as small rather than large households. It is also more manageable for high-income households than low-income households. Modifed ratio measures which limit consideration to lower-income households (e.g. the 30:40 rule, see Box 3.1) attempt to better identify households with affordability problems that do not arise from choice but, as with the 30% rule, they are insensitive to differences in household size and composition. Implicitly the 30:40 rule assumes that households paying more than 30% on their housing in the top three quintiles of the income distribution are choosing to do so because they can afford it. However, increasing affordability problems for moderate-income frst home buyersREVISED raise questions as to whether this modifed ratio measure could be extended to a 30:50 rule. Residual measures (whether a residual income or an after-housing poverty measure) presume that, because households of a similar size and type are likely to need similar amounts of income to meet their non-housing needs, low-income households can only afford to spend lower proportion of their income on housing. A similar presumption applies for larger households with the same level of income as smaller households. Problems remain, however, in determining a socially defned minimum standard of adequacy for non-housing consumption. 60 H. PAWSON ET AL.

Box 3.1 Commonly employed housing affordability indicators Ratio measures 1. The 20%, 25% or 30% rule: Households are assumed to have a housing affordability problem if more than 30% (or 20% or 25%) of income is spent on housing. These rules of thumb are thought to have their origins in nineteenth-century studies of household budgets and in common parlance as “one week’s pay for one month’s rent” (Hulchanski 1995). In the latter part of the twentieth century they were commonly employed as benchmarks for housing policy and by mortgage lenders for assessing loan serviceability capacity (see Chapter 5). Households with mortgage payments in excess of 30% of income are often described as being in ‘mortgage stress’. 2. The 30:40 rule: This measure modifes the 30% rule by constraining it to households in the bottom 40% of the income distribution. Any household in the bottom two quintiles whose housing costs exceed 30% of their income is said to be in ‘housingPROOF stress’ (or ‘rental stress’). This measure was frst popularised in Australia through the Hawke Government’s 1991–1992 National Housing Strategy (NHS 1991) and is widely used to this day. The ABS, for example, regularly reports data on housing cost ratios for lower-income households and on the propor- tions of lower-income renters in rental stress (ABS 2017). Residual measures 3. Residual income measure: Ratio measures are problematic in that unaffordability is independent of the level of income. The residual income approach addresses this by focusing, instead, on the difference between incomes and housing costs. A household can be seen as having a housing affordability problem if insuffcient income remains for essential non-housingREVISED needs (e.g. food, transport, health) after housing needs are met (Stone 2006). Stone describes this as ‘shelter poverty’. 4. After-housing poverty measure: A household is deemed to be in after-housing poverty if the income remaining after paying for housing is below a pre-determined after-housing poverty line, commonly defned as 50% or 60% of median (equivalised disposable) household income after housing costs (Saunders 2017). The after-housing poverty line defnes the “socially defned minimum standard of adequacy for non-housing items” on a relative rather than absolute basis. 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 61

Practical Issues All ratio or residual measures face technical issues on how they are to be operationalised. These include what defnition of income should be employed (gross or disposable, current or permanent, including or excluding in-kind income; equivalised or not), what housing costs should be considered (for buyers, repayment of principal or not; for renters, net of rent assistance or not) and so on. Milligan (2003) argues for net measures of both income and housing costs that exclude explicit housing subsidies from each in order to facilitate cross-national or cross-tenure differences in the way in which subsidies are provided. Technical issues are covered in more detail in Gabriel et al. (2005, Chapter 3 and Technical Appendix).2 Other issues arise in relation to whether the duration of housing affordability problems should be taken into account. Should a household facing a housing affordability problem (however measured) for, say, six months be treated in the same way as one whose housing affordability problem has been long-standing? Rowley etPROOF al. (2015) show that the addition of a duration component to their housing stress measure (based on a 30:40 rule) signifcantly improves the relationship between housing stress and fnancial hardship or cash fow problems. The longitudinal survey data that informed their analysis, indicates considerable churn in and out of housing defned as being unaffordable and, hence, in and out of housing stress. Because of this, Rowley et al. suggest that defnitions of housing stress be limited to households experiencing affordability problems for a sustained period. However, this raises signifcant challenges in relation to data availability. It would also impose considerable delays in identifying households in need of assistance as well as effectively denying the reality of severe short-run problems. The suggestion, however, does highlight theREVISED possibility that appropriate policy responses could differ for affordability problems that may be short-term and those that are likely to be more protracted. Both ratio and residual measures are generally controversial because of both conceptual weaknesses and practical issues in measurement. There

2 One point not covered in Gabriel et al. is that, unlike the other three measures in Box 3.1, by comparing before- with after-housing poverty rates, the after-housing poverty rate provides a way of determining the extent to which it is high housing costs, rather than low income, that contributes to after-housing poverty. 62 H. PAWSON ET AL. have been long-running and still unresolved debates over their relative advantages and disadvantages (Bramley 2012; Gabriel et al. 2005). Both ratio and residual measures refect only one dimension of housing problems. Neither takes into account the appropriateness of housing services consumed (in terms of size, quality or location of housing). Stone et al. (2011) highlight the limitations of popular affordability measures by pointing out that so-called affordability can be achieved by living in overcrowded conditions, with insecure tenure or in unsafe or inaccessible locations. These concerns are often encapsulated by subtly amending the defnition of housing affordability to a household’s capacity to pay for accommodation appropriate to its needs. The broader point is that “housing affordability is not really separable from housing standards” (Stone et al. 2011, p. 13), which suggests that “housing affordability can never be defned in any objective sense; it will always be subject to reinterpretation and critical analysis” (Gabriel et al. 2005, p. 5). For this reason, ratio and residual measures should be treated as indicators rather than accurate measures of housingPROOF affordability problems. With the proviso that they are used properly, so-called affordability measures can be valid and helpful. On their own terms, they accurately describe what is happening and how this is changing over time. Subjectivity arises only in how this information is interpreted. They can, for example, be helpful in defning administrative rules about eligibility for means-tested programs that, by their very nature, are based on sub- jective judgements. Improper and inappropriate use, however, can arise if they do not measure what users claim they are measuring. They do not, for example, provide an objective yardstick of housing need and the choice of one measure over another can signifcantly affect assessments of the size and distribution of affordability problems (Hulchanski 1995). This notwithstanding,REVISED housing affordability measures are widely used in Australia and elsewhere, with ratio measures tending to be favoured over residual despite strong arguments being made for the latter by its proponents (for example, Hancock 1993; Stone 2006; Burke et al. 2011; Heylen and Haffner 2013). As indicated in Box 3.1, in Australia ratio measures are part of the formal reporting of housing cost outcomes provided by the Australian Bureau of Statistics. They are also reported by Eurostat, the Statistical Offce of the European Union and widely used in Europe (Rowley et al. 2015). In the United States, affordability targets based on the percentage of income spent on housing have been a key component of housing policy since the 1970s and were legislated in the National Affordable Housing Act (1990) (Linneman and Megbolugbe 1992). 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 63

5HVLGXDO /&%6 5HVLGXDO 3/ 5DWLR 3ULYDWHUHQWHUV 3XUFKDVHUV $OOKRXVHKROGV

Fig. 3.6 Incidence of housing stress for lower-income households under different measures, Australia: 2002–2003 (Source Yates and Gabriel [2006, p. 40])

A comprehensive analysis of various affordability measures was undertaken by Yates and Gabriel (2006) using data for the early 2000s in Australia.3 Illustrative results are displayedPROOF in Fig. 3.6 for alternative residual income measures and the 30:40 rule. Non-housing expenditure needs for the two residual measures are based on a low cost budget standard (LCBS) and on the Henderson poverty line (PL).4 Figure 3.6 shows the same broad pattern by tenure for each measure: lower-income private renters and buyers both have a signifcantly greater incidence of housing stress compared with other lower-income households. Also, for the specifc time period chosen and at the level of aggregation illustrated, the 30:40 ratio measure that underpins much of the policy development in Australia appears to be a compromise between the two residual income estimates. REVISED 3 Burke et al. (2011) undertake a similar but more selective analysis for the mid-2000s. One relevant result is that only households in the bottom two quintiles of the (equivalised disposable) income distribution were shown to have affordability problems on the basis of residual income measures using a low cost budget standard to defne non-housing expenditure needs. 4 These were seen as the only two options available in Australia at the time. The (Henderson) poverty line was established in 1974 by the Commission of Inquiry into Poverty (Henderson 1975). The low cost budget standard was developed by the Social Policy Research Centre in the late 1990s (see Saunders et al. 1998). Residual income is derived by subtracting all housing costs from household disposable income. When this residual income is less than the chosen benchmark for non-housing needs, the household is defned as being in housing stress. 64 H. PAWSON ET AL.

Despite their disadvantages, ratio measures continue to be used by policymakers on the grounds of pragmatism (over purity), accessibility in terms of ease of calculation, understanding and simplicity. They are also valued for their timeliness, as they rely on a relatively few, readily available variables (Gabriel et al. 2005). They are supported by the availability of historic and ongoing data and, providing they are consistently applied in relation to technical issues, can be easily compared over time and space (Bogdon and Can 1997). On the basis of UK data, Bramley (2012, p. 133) concluded that traditional affordability ratios remain “probably the best objective measure [of housing affordability]” available. That said, it is important to recognise the limitations of any affordability measure and to be cognisant of the implications of decisions households make in order to manage their housing costs. This is a highly relevant consideration in an era when urban employment has been undergoing centralisation in parallel with the increasingly decentralised distribution of lower cost housing towards the metropolitan fringe of Australia’s major cities (Pawson et al. 2015).PROOF Some of the non-housing costs so incurred can be taken into account by supplementing ratio measures, for example, by combining transport with housing costs as done by Vidyattama et al. (2013) for Australia and Lipman (2006) for the United States. However, the issues that arise in defning standards for non-housing costs in residual income measures also arise in deciding which non-housing costs should be candidates for inclusion in an expanded measure. Use of housing affordability measures, therefore, comes with a strong caveat emptor. REVISED3.3.2 Affordability Trends One of the less contested uses of a consistent affordability measure is for identifying trends in housing affordability over time and in the distribution of who is affected, providing it is recognised that fndings are affected by which measure is employed. Figure 3.7 shows that, on average, households in Australia have been spending an increasing proportion of their income on housing over the past two decades. This growth represents a continuation of a longer-term trend, which has seen average ratios increasing from around 11% in the mid-1970s and early 1980s to 14% by 2016 (Yates and 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 65

/RZHVWTXLQWLOH 4 4 $YHUDJH 4 +LJKHVWTXLQWLOH

Fig. 3.7 Housing cost ratios by income quintiles, Australia: 1995–2016 (Note Housing cost ratios based on gross household income; income quintiles based on equivalised disposable household income. Data interpolated for missing years. Source ABS Survey of Income and Housing [2017, Table 1.2])

Milligan 2007). The relative stability of this average ratio over the past decade can be explained by the aggregationPROOF process, which results in increases in housing costs ratios for some households being offset by decreases for others. In 2015–2016, for example, housing cost ratios for outright owners (without a mortgage) averaged just 3% whereas those for home buyers (owners with a mortgage) averaged 16 and 21% for private renters. The change in the average ratio also disguises the notable (and increasingly divergent) impact of housing costs on household budgets for different income quintiles. As shown in Fig. 3.7, housing expenditures of the most affuent households have remained virtually stable in relation to incomes over the time period shown. However, households in the lowest 20% of Australia’s income distribution not only devote far more of theirREVISED limited incomes to housing than more affuent groups, but their housing costs have become relatively more burdensome. This has been particularly noticeable over the decade to 2015–2016 when their housing cost ratios rose from 23 to 28%, while those for the highest income quintile remained close to 10%. National analyses can, likewise, obscure signifcant variations at a subnational level. In Australia, capital city housing markets have tended to be more pressured (and less affordable) than regional markets. Figure 3.8 disaggregates rental stress results for lower-income private 66 H. PAWSON ET AL.

&DSLWDOFLWLHV %DODQFHRIVWDWH

Fig. 3.8 Proportion of lower-income renters in rental stress, Australia: 2008– 2016 (Note Stress measures are based on net housing costs and income [both exclude rent assistance] and equivalised disposable household income quintiles [excluding RA] are calculated for capital city and balance of state, on a state- by-state basis. Both measures differ from the Australia-wide estimates used in Fig. 3.7. Source ABS Survey of Income and HousingPROOF [2017, Tables 22.1–22.5]) renters into outcomes for capital cities and the other regions, demonstrating higher levels of rental stress in Australia’s capital cities than elsewhere and a widening gap between these over the past decade.5

3.3.3 Affordability for Lower-Income Australians Regardless of what housing affordability measures are employed, generalisations can be drawn about the characteristics of households at greatest risk of housing stress. A number of these are reported in Table 3.1, drawing on the same data used for Fig. 3.6. The types of households with an above averageREVISED incidence of housing stress on each measure respectively are highlighted by the shading. With just one exception, each measure identifes the same types of household as having an above average incidence of housing stress. Of all lower-income households, those most at

5 The estimates of stress in Fig. 3.8 are not directly comparable with those in Fig. 3.7 because they are based on net rather than gross housing costs and income (that is, they exclude RA from both costs and income). This has the effect of generating lower estimates of stress. A recent Report on Government Services shows the proportion of social security recipients units receiving Commonwealth Rent Assistance in 2018 decreased from 68% in rental stress when RA was included to 40% when excluded (Steering Committee for the Review of Government Service Provision 2019, Table GA.13). 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 67

Table 3.1 Impact of affordability measure on estimated incidence of housing stress, Australia: 2002–2003

Residual Residual (PL) Ratio (30:40)

(LCBS) (%) (%) (%)

Age < 65 years 55 42 38

Age 65+ years 26 10 10

Single person age < 65 81 57 53

Single person age 65+ 34 10 12

Couple households 28 21 16

Couple with children 48 38 30

Sole parents 46 PROOF38 36

Outright owner 22 13 6

Home buyer 57 49 49

Private renter 71 55 65

Public renter 68 28 13

Urban households 47 33 32

Non-urban households 41 28 23 All lower-incREVISEDome households 44 31 28 Note In this table, urban covers only capital cities. Source Yates and Gabriel (2006, p. 38) risk are the young, households with children, home buyers, private renters and households living in capital cities. In other words, the same households identifed by the trends covered in the previous section.6

6 One signifcant result not reported in Table 3.1 is that highlighted in the (LCBS residual income) analysis undertaken by Burke et al., viz., an extremely high level of incidence of affordability problems among older, lower-income single persons in private rental (Burke et al. 2011). 68 H. PAWSON ET AL.

%HIRUHKRXVLQJFRVWV $IWHUKRXVLQJFRVWV

2XWULJKWRZQHU 3XUFKDVHU 3ULYDWHUHQWHU3XEOLFUHQWHU7RWDO

Fig. 3.9 Incidence of before- and after-housing poverty by housing tenure, 2015–2016 (Source Yates [2019, p. 226])

At the level of aggregation employed in Table 3.1, the only exception to this generalisation is the identifcation of a disproportionate share of public renters as having an above averagePROOF incidence of housing stress under a residual measure based on a low cost budget standard. This fnding, supported by Burke et al. (2011) using more recent data, implies their incomes are too low or their (income geared) rents are too high to leave suffcient income after housing costs to meet their non-housing needs. This result for public renters is reinforced by measures based on comparing poverty before and after housing costs. Over the past 25 years the number of people in after-housing poverty has consistently exceeded the number in before-housing poverty. However, while the incidence of before-housing poverty has been falling in recent decades, the after-housing poverty rate has trended up (Yates 2019, Figure 10.5). This outcome is in marked contrast from the results of the 1975 PovertyREVISED Inquiry, which showed that the aggregate incidence of poverty after-housing was lower than that before-housing (Yates 2019). Figure 3.9 illustrates the impact of housing costs on poverty outcomes for 2015–2016. It shows that not only public renters, but also private renters and buyers, experienced greater levels of after-housing poverty than before-housing poverty. More detailed analysis provided in Yates (2019, Table 10.1) shows that, by 2015–2016, more than three million Australians were living in poverty after taking their housing costs into account. Of those, 1.3 million were not in before-housing poverty but had been pushed into after-housing poverty by their housing costs. Of these, 45% were renting privately and 40% were buying their home. Only outright owners, most 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 69 of whom are older households with low housing costs, were protected from this perverse effect of housing on poverty. This highlights the adverse impact of housing costs on low-income households who do not have the safeguards offered by outright home ownership. These issues are returned to in Chapters 4, 5, and 10.

3.4 explaining Rising Unaffordability If policies are to address housing affordability problems, it is important to know not only which groups are most in need of assistance, but also the underlying causes of such problems and their growing incidence.

3.4.1 Structural Pressures As highlighted in Sect. 3.2.1, a key factor in explaining rising housing unaffordability for potential frst home buyers has been the growth in the house price to income ratio as housing pricesPROOF have grown more rapidly than household incomes. Figure 3.10 shows that renters have faced a similar outcome with rents rising ahead of incomes, which, likewise, contributes to growth in the rent to income ratio.7 In general, rents will increase as dwelling prices increase. However, as can be seen by comparing Figs. 3.2 and 3.10, the growth in rents in Australia has been more sub- dued than that in housing prices since the mid-1980s, as capital gains from rental investments have offset returns from rental income (see Chapter 6). Explaining why house prices (and, by implication, rents) have increased, therefore, must underpin any explanation of why housing affordability has worsened over time and, importantly, any assessment of what policies might assist in ameliorating declining affordability. The factors that have contributedREVISED to rising house prices have been well-rehearsed. In Australia, as in most OECD countries, real prices were relatively constant until the mid-twentieth century, and then rose rapidly (Stapledon 2017). At a global level, more than 80% of the increase from 1950 has refected rising land prices (Knoll et al. 2017). Similar results hold for Australia (ibid online Appendix Fig. 16). Both in Australia and elsewhere, this trend has been most pronounced in its capital cities, but it is not exclusively an urban phenomenon. These long-term trends in real housing prices are driven by

7 Stapledon’s derived data are used here to illustrate the growth in private rents in preference to the rent component of the CPI because the latter includes rents paid by social renters (who are insulated from market forces by being charged income-related rents on typically very low incomes) as well as private renters. 70 H. PAWSON ET AL.

$OOFDSLWDOFLWLHV 6\GQH\ 0HOERXUQH UHDOZDJHV

Fig. 3.10 Real rent indexes, Australian capital cities: 1985–2018 (Source Stapledon [2016]. Rents have been benchmarked to 5-yearly Household Expenditure Survey data, defated by household fnal consumption defator and interpolated using the rent component of the CPI for intervening years; other data as for Fig. 3.2) underlying demand and supply fundamentals PROOF(for example, Andrews et al. 2011; Geng 2018; Tsatsaronis and Zhu 2004 and, for Australia, Abelson and Chung 2005; Carrington et al. 2019). A summary of the drivers highlighted in Australia is given in Box 3.2 (sourced from AIHW, 2017, p. 205). On the demand side, house price drivers operate through demographic trends (such as population growth and household formation rates), economic drivers (such as income and wealth, infation, and returns/expected returns to housing) and fnancial factors (such as the cost and availability of mortgage fnance). On the supply side, they operate through the cost of construction and land acquisition, with the latter being affected by regulatory and geographic constraints and representing the major contributor to the often signif- icant spatialREVISED variation in dwelling prices. In Australia, variations in the cost of land acquisition can also be attributed to the impact of structural change associated with the decline in manufacturing (and loss of low paid jobs) and the growth of the fnance and service sectors (and growth of high paid jobs).8 This has put pressure on urban land prices generally and even greater pressure on prices of scarce high-amenity land within its capital cities (see Box 3.3).

8 Gyourko et al. (2013) provide a similar argument in relation to increasing urbanisation at a global level. 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 71

Box 3.2 Determinants of housing prices in Australia Housing demand is infuenced by many factors:

• Population growth. • Changes in household composition. • Economic circumstances, such as household income and the number of income earners in the household. • Interest rates and access to affordable fnance. • Taxes and subsidies. • Attractiveness to investors (proftability and percentage returns) compared with other asset classes. • Rental prices and availability. • Consumer preferences for the size, location, tenure and quality of housing; the balance between housing costs and the costs of transport; and demand for second/holiday homes.

Housing supply is infuenced by factors such as:PROOF

• Land availability, e.g. zoning and restrictions on land tenure that do not readily permit land to be developed, sold, or individually owned. • Land release and development processes, including fees and regulation. • Costs of construction and essential infrastructure, such as water, power, and sewerage. • Availability of skilled labour in the construction industry. • Levels of services (e.g. public transport) and employment required to attract households into locations. • Taxes and subsidies. • InterestREVISED rates and access to affordable sources of development fnance.

Within the Australian context, explanations for house price infation are highly contested. Given the inherently inelasticity of housing supply associated with Australia’s settlement pattern (see Chapter 2), population growth is clearly an important contributor to housing demand and hence to pressure on house prices. Annual population growth since 2000 has averaged around 1.5%, almost 50% higher than the previous two decades. The contribution of new entrants to Australia to more than half 72 H. PAWSON ET AL. of this growth appears to have played a role in the narrow perception among some sections in the community that immigration alone has been the major driver of increases in housing prices (for example, Sloan 2017; Macaulay 2019). While population growth in general can be a major contributor to demand for housing, singling it (or even one component of it) out as the primary cause of housing price infation is misleading (Burgess 2017). Firstly, the ability to pay for housing has been boosted by economic growth and an associated increase in household income. As illustrated in Fig. 3.2, real annual weekly ordinary time earnings for full-time adults in Australia rose by 38% in the twenty years from 1995. The increase in average (gross) household incomes, however, has been substantially greater with a 60% increase over the same 20 years (ABS 2018).9 In part this can be attributed to increasing female workforce participation, but primarily it is associated with increasing income inequality and a disproportionate growth of incomes at the top of the income scale (Whiteford 2019).10 PROOF Secondly, housing demand has been expedited by important changes in the supply and cost of housing fnance, as discussed in Chapter 5. Linked with this, and also refecting the global savings glut developing during the decade (Kemp 2015), mortgage interest rates in Australia fell substantially during the 1990s (see Fig. 3.4). According to an international study of the period 1980–2005, the expansion of housing credit made a much larger contribution to rising house prices than other potentially infuential variables (Andrews et al. 2011). For Australia, see Williams (2009). Thirdly, a factor identifed by some as signifcantly infating housing demand (see Chapter 5) is the growing fnancialisation of housing (Rogers andREVISED Power 2017). As discussed in Chapter 1, this refers to the way that dwellings are increasingly viewed as tradeable assets with capital value rather than homes with utility value. Fundamentally, the

9 This marginally overstates the growth in household incomes since 1995 because of improvements made to measuring income in 2007–2008, which broadened coverage (and increased measured income by about 5%). 10 Whiteford (2019) also reports that the ratio of the earnings of a worker in the ninth decile to the earnings of a worker in the frst decile grew from 7.75 times in 2008 to 8.24 times in 2016 (attributed to widening wage differentials for both full-time and part-time workers and an increase in the proportion of part-time workers). 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 73 fnancialisation of housing refects the change to housing being treated as a means of accumulating wealth and land as a form of collateral (Ryan- Collins 2019). Fourthly, a related factor that received considerable attention in the post-GFC era is the impact of demand from Chinese and other non- resident buyers of residential housing looking to invest in low-risk assets. Although popularly seen as a signifcant cause of house price infation, Treasury analysis suggests this potential driver has had only a negligible impact (Wokker and Swieringa 2016). A hotly contested factor seen naively by some as the primary, and possibly, only cause of Australia’s growing housing affordability problem is the adequacy of the total supply of housing. The claim that a housing shortage is the cause of rising house prices is strongly supported by the property lobby and underpinned by an ‘Economics 101’ argument that an increase in supply will lower prices and “a greater supply of dwellings will mean that both buyers and renters will be met with lots of choice” (Koukoulas 2016). Critics of this solution PROOFquestion whether new supply will increase affordable opportunities for lower-income households (Gurran et al. 2018; Phibbs and Gurran 2017), or whether it is realistic to assume that the private development industry will maintain output in conditions of stable or falling prices (Leishman 2017). An alternative supply-based explanation for Australia’s relatively expensive housing (if not so much for its particularly rapid price escalation) is the country’s pattern of urban settlement. Australia has a highly urbanised population uncommonly concentrated in a small number of large cities (Ellis and Andrews 2001). The increasing concentration of Australia’s population in state capital cities (particularly Sydney and Melbourne) is seen as adding to price pressures within these cities. As indicatedREVISED at the start of this section, the vast bulk of housing value appreciation results from land price infation. The greater constraints on well-located land in Australia’s largest cities provides part of the reason why urban housing prices, and particularly prices of centrally located housing, are more pronounced than housing in regional or outer-metropolitan regions. See Box 3.3. Some suggest this pressure on well-located land could be relieved by greater government commitment to transport and other infrastructure investment (for example SGS Economics and Planning 2013). Such explanations move from broad aggregate trends to more nuanced factors covered in Sect. 3.4.2. Other suggestions, such as expansion at the fringe, 74 H. PAWSON ET AL. are limited not just by a lack of infrastructure, but also by physical constraints on expansion because of the coastal location of many of its cities. The result is that, by comparison with countries that have less concentrated settlement patterns (e.g. the United States and Canada), Australia has a proportionately smaller stock of peripheral land surrounding existing settlements (where expansion of the dwelling stock tends to occur).

Box 3.3 Changing intra-urban housing affordability: underlying factors The changing intra-urban housing market geography (described in Sect. 3.2.1) that has seen the rapid post-millennial escalation of inner city house prices relative to prices elsewhere has been, in part, an outcome of wider economic restructuring, which has seen the rise of ‘knowledge economies’ in which high-value economic activity has reconcentrated in such areas with increasing spatial wage dispersion. In this respect, Sydney, Melbourne and Brisbane have been experiencingPROOF similar processes to those observed in many North American cities over the past 10–20 years (Hsieh and Moretti 2019). “Prices increase most in locations where people with the greatest capacity to pay want to live. Highly skilled workers are attracted to areas with good amenities and deep labour markets and, to the extent that these are geographically constrained, this contributes to differential increases in real house prices” (Yates 2017, p. 18). Thus, the geography of urban house prices has also changed markedly over time, refecting economic restructuring and housing choices, as well as government decisions to invest (or not) in transport infrastructure. A second-order outcome of the growing house price gradient in Australia’s major cities is the growing tendency for middle- and higher-income households to rent in their preferred (inner urban) location rather than buyREVISED in middle or outer suburbs where home purchase is affordable (Hulse and Yates 2017). This puts further upward pressure on rents affordable to lower-income renters who, as a result, increasingly are displaced to less accessible and less advantaged locations.

Finally, as discussed in later chapters, it has also been argued that other aspects of government policy have contributed to rising dwelling prices. Policies that are seen to have had an impact on infating housing demand, such as those that assist frst home buyers and provide tax concessions to established owners, are discussed in Chapter 5. A frequently 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 75 cited example in the Australian context is the change to tax liabilities for individual investors in 1999, when a 50% discount on Capital Gains Tax (CGT) was introduced (discussed in Chapter 6). Policies that are seen to impose constraints on supply, such as land use planning restrictions which impede higher density development in capital city inner and middle suburbs where land values are high, are discussed in Chapter 9.

3.4.2 Distributional Issues At an aggregate level, each of the above explanations of decreasing affordability is likely to embody some element of empirical validity. However, arguments at this level of aggregation tend to obfuscate affordability issues. As is often stated, an overwhelming majority of Australians are well housed “in ways that reach and extend beyond a benchmark that can reasonably be described as adequate and affordable” (Dalton 2014, p. 172). However, as shown in Sect. 3.3, affordability issues generally arise for particular subsets of PROOFhouseholds, primarily at the point of entry into home ownership for middle-income households and in private rental for lower-income households. For some, affordability problems arise primarily because their incomes are too low. For others, they refect the housing market’s failure to produce an adequate supply, not of housing in general, but of affordable housing (as defned in Sect. 1.4.3). The analysis in Sect. 3.2.2 highlighted the worsening income and wealth constraints on aspiring frst home buyers in terms of Australia- wide medians or averages. More detailed analysis undertaken by the Australian Institute of Health and Welfare (AIHW) takes differences in household income in each capital city into account and focuses specifcally onREVISED the income distribution only of those currently renting. Consistent with the aggregate analysis earlier in this Chapter, their results showed that, in 2013–2014, both median house and unit price exceeded the maximum affordable dwelling price for the median income renter household (AIHW 2017).11 The proportion of dwellings sold in 2013–2014 that were technically affordable to these renter households ranged from a low 9.4% in Sydney to just over 30% in Darwin.

11 See AIHW (2017, p. 406) for details of assumptions made in determining affordable price points. 76 H. PAWSON ET AL.

The median dwelling price in Sydney, in fact, was higher than the affordable price point even for renters in the highest income quintile and only 55% of dwellings sold in 2013–2014 were affordable even for this group of renter households. At the other end of the income distribution, the proportion of dwellings affordable for renter households in the lowest income quintile sold in each of the capital cities, was generally less than 1.5%. A similar study undertaken by van den Nouwelant et al. (2015) showed that only seven (of 81) postcodes within 10 km of Sydney’s CBD remained affordable to aspiring middle-income homeowners in 2005.12 By 2015, there were none. Similar outcomes can be observed in the private rental market. Anglicare, for example, produces an annual rental affordability report that identifes the proportion of dwellings advertised for rent at a given date that are affordable (on a 30% of income measure) and appropriate (based on size) for various household types on government income support payments and therefore most likely to be in the lowest quintile of an equivalised income distribution. Their 2019PROOF report found that there were no suitable dwellings affordable for a person on Newstart allowance anywhere in Australia, only 0.5% for those on the parenting payment and less than 1% for a single person on the Aged Pension (Anglicare 2019). Outcomes are only marginally better for single people earning the minimum wage. When available, the dwellings that are affordable are generally poorly located on the fringes of the capital cities (SGS Economics and Planning 2018). Anglicare argue this lack of affordable rental housing explains the dramatic rise in homelessness in Australia (see also Pawson et al. 2018). All of these fndings are consistent with the long-established suburbanisation of disadvantage affecting metropolitan Australia (Randolph and Holloway 2005). Work undertakenREVISED by Hulse and colleagues highlights the problems faced by lower-income households in the private rental market.13 Figure 3.11 shows the real rent distribution of dwellings in the private rental sector at each of the censuses from 1996 through to 2016 (adjusted to $2016). It shows rents were strongly clustered around

12 These were most likely to be small apartments rather than family houses. 13 This framework was frst developed in the 1990s by the US Department of Housing and Urban Development (Nelson 1994) and enhanced in later US studies (Vandenbroucke 2007). The initial Australian application of this approach was undertaken by Wulff et al. (2001). See also Yates and Wulff (2000). 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 77

:HHNO\UHQW

Fig. 3.11 Distribution of private rental dwellings by weekly rent, Australia: 1996–2016 (Source Hulse et al. [2019, Figure 6])

$200–$250 per week from 1996 to 2006, but, as the sector increased in size, the rent distribution has shifted up with rents clustered between $300 and $500 per week in 2011 and 2016.PROOF Figure 3.11 also highlights the absolute and relative loss of low rent stock over this period. As Hulse et al. (2019) argue, rent increases need not result in increased housing affordability problems if private tenant incomes increase commensurately. This, however, has not been the case. In other words, Australia is not producing suffcient affordable housing either for purchase by potential frst home buyers or for rent by those unable or unwilling to buy. The outcomes of this in relation to lower- and middle-income households show up in declining home ownership rates (discussed in Chapter 5) and in high rates of mortgage stress among those who do become home buyers, discussed in Sect. 3.3. The outcomes for lower-income households in the rental sector are shown in Fig. 3.12. ThisREVISED shows that the number of very low-income private renter households (in the lowest income quintile of the income distribution) grew by nearly 75% in the 20 years from 1996 to 2016. Over the same period, the number of private rental dwellings that were affordable for these households (based on a 30% of income measure) was virtually the same in 2016 as it was in 1996 despite considerable growth in the private rental sector over this period (see Chapter 6). There was, therefore, an absolute shortage of rental dwellings affordable for renters in the lowest income quintile. As Hulse et al. (2019) show, there are even fewer dwellings that are affordable and available for this group. The shortage is made worse by the reality that many renters with 78 H. PAWSON ET AL.

4SULYDWHUHQWHU KRXVHKROGV V

3ULYDWHUHQWDOGZHOOLQJV DIIRUGDEOHWR4UHQWHUV V 3ULYDWHUHQWDOGZHOOLQJV DIIRUGDEOHDQGDYDLODEOH WR4UHQWHUV V

Fig. 3.12 Indicators of supply shortage of rental dwellings for Q1 households: 1996–2016 (Source Hulse et al. [2019, Figure A4]) higher incomes occupy low rent dwellings. In 1996, only 33% of very low-income renters were accommodated in ‘affordable’ rental dwellings. By 2016, this had declined to 21%. To put this another way, the shortfall of affordable and available private rental dwellingsPROOF for low-income renters more than doubled from 148,000 to 305,000 over the period. Embedded in the ‘available’ component is the notion of misallocation, with better-off households potentially crowding out their lower-income counterparts by occupying the low rent dwellings on which most of the latter must rely for affordable accommodation.

3.5 conclusions While Australia has seen substantial growth in the cost of housing over the past 20–30 years, both in real terms and in relation to incomes, this book has been written over a period when most house prices have been declining, REVISEDparticularly in the major capitals, and where rents have stabi- lised or fallen. This raises the question of the extent to which Australia’s housing affordability problems are structural rather than cyclical (Yates 2011b). This matters because it infuences (or should infuence) offcial judgements on what type of government actions are advisable to counter housing affordability stress. The analysis in this chapter suggests that affordability problems in Australia, and the factors that have contributed to them, have been in train for decades rather than years. While a cyclical downturn in prices and/or rents (providing it is not accompanied by an economic downturn) might suggest an improvement in affordability, aspiring 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 79 homeowners and renters priced out of the market are likely to fnd that there are fewer dwellings available. As long as they can cope fnancially, existing homeowners tend to just sit tight and wait until prices improve (Leishman 2019). Market downturns are also likely to have a signifcant impact on the economy. Loans may be harder to get. If unemployment and underemployment increase, households on the margin of purchase and those facing affordability problems in the private rental market are most likely to be affected. Housing affordability is not an issue where causes and effects are limited to the housing market alone.

References Abelson, P., & Chung, D. (2005). The Real Story of Housing Prices in Australia from 1970 to 2003. Australian Economic Review, 38(3), 265–281. ABS. (2017). Housing Occupancy and Costs, 2015–16 [Internet] (Cat. No. 4130.0). Canberra: Australian Bureau of Statistics.PROOF Available from: http:// www.abs.gov.au/ausstats/[email protected]/Lookup/by%20Subject/4130.0~2015- 16~Main%20Features~Housing%20Occupancy%20and%20Utilisation~4. Accessed 16 July 2019. ABS. (2018). Household Income and Wealth, Australia, 2017–18 [Internet] (Cat. No. 6523.0). Canberra: Australian Bureau of Statistics. Available from: https://www.abs.gov.au/household-income. Accessed 8 August 2019. AIHW. (2017). Australia’s Welfare 2017: The Changing Shape of Housing in Australia. Canberra: Australian Institute of Health and Welfare. Andrews, D., Sanchez, A., & Johansson, A. (2011). Housing Markets and Structural Policies in OECD Countries (Economic Department Working Paper No. 836). Paris: Organisation for Economic Co-operation and Development. Anglicare. (2019, April). Rental Affordability Snapshot [Internet] (National Report). REVISEDAinslie: Anglicare Australia. Available from: https://www.anglicare.asn.au/our-work/research-reports/the-rental-affordability-snapshot. Accessed 1 June 2019. Birrell, B., & Healy, E. (2018, July). Immigration and the Housing Affordability Crisis in Sydney and Melbourne (TAPRI Research Report). Middle Camberwell: The Australian Population Research Institute. Bogdon, A., & Can, A. (1997). Indicators of Local Housing Affordability: Comparative and Spatial Approaches. Real Estate Economics, 25(1), 43–80. Bramley, G. (2012). Affordability, Poverty and Housing Need: Triangulating Measures and Standards. Journal of Housing and the Built Environment, 27(2), 133–151. 80 H. PAWSON ET AL.

Burgess, R. (2017, March 21). A Population Crush Is Pushing Up Australian House Prices. The New Daily. Burke, T., Stone, M. E., & Ralston, L. (2011). The Residual Income Method: A New Lens on Housing Affordability and Market Behavior (AHURI Final Report No. 176). Melbourne: AHURI. Carrington, S., Li, B., & Larkin, M. (2019). The Role of Tax and Subsidy Policy in Driving Australian House Prices. Economic Record, 95(309), 227–247. CoreLogic. (2018). 25 Years of Housing Trends [Internet]. Sydney, Australia: Aussie. Available from: https://www.aussie.com.au/home-loans/property-reports/25years.html. Accessed 17 July 2019. Cox, W., & Pavletich, H. (2019). 15th Annual Demographia International Housing Affordability Survey—Rating Middle-Income Housing Affordability [Internet]. St. Louis: Demographia. Available from: http://www.demographia.com/dhi.pdf. Accessed 21 January 2019. Daley, J., Coates, B., & Wiltshire, T. (2018). Housing Affordability: Re-imagining the Australian Dream. Melbourne: Grattan Institute. Dalton, T. (2014). Housing Policy: Changes and Prospects. In A. McClelland & P. Smyth (Eds.), Social Policy in Australia: Understanding for Action (3rd ed., pp. 172–189). South Melbourne: Oxford UniversityPROOF Press. Ellis, L. (2015, September 8). Property Markets and Financial Stability: What We Know So Far [Internet]. Speech to University of New South Wales Real Estate Symposium. Available from: http://www.rba.gov.au/speeches/2015/sp-so- 2015-09-08.html. Accessed 21 June 2016. Ellis, L., & Andrews, D. (2001). City Sizes, Housing Costs, and Wealth (RBA Discussion Paper). Sydney: Reserve Bank of Australia. Fox, R., & Finlay, R. (2012, December). Dwelling Prices and Household Income [Internet]. RBA Bulletin, pp. 13–22. Sydney: Reserve Bank of Australia. Available from: https://www.rba.gov.au/publications/bulletin/2012/dec/2.html. Accessed 8 August 2019. Gabriel, M., Jacobs, K., Arthurson, K., Burke, T., & Yates, J. (2005). Conceptualising and Measuring the Housing Affordability Problem (AHURI ResearchREVISED Paper No. NRV3-1). Melbourne: AHURI. Geng, N. (2018). Fundamental Drivers of House Prices in Advanced Economies [Internet] (IMF Working Paper No. 18/164). Washington, DC: International Monetary Fund. Available from: https://www.imf.org/en/ Publications/WP/Issues/2018/07/13/Fundamental-Drivers-of-House- Prices-in-Advanced-Economies-46053. Accessed 17 July 2019. Gurran, N., Randolph, B., Phibbs, P., Ong ViforJ, R., & Rowley, S. (2018, March 15). Affordable Housing Policy Failure Still Being Fuelled by Flawed Analysis [Internet]. The Conversation. Available from: https://theconversation.com/affordable-housing-policy-failure-still-being-fuelled-by-fawed-analysis-92993. Accessed 8 August 2019. 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 81

Gyourko, J., Mayer, C., & Sinai, T. (2013). Superstar Cities. American Economic Journal: Economic Policy, 5(4), 167–199. Hancock, K. (1993). Can Pay? Won’t Pay? or Economic Principles of ‘Affordability’. Urban Studies, 30(1), 127–145. Henderson, R. (1975). Poverty in Australia: First Main Report, April 1975. Canberra: Australian Government Publication Service. Heylen, K., & Haffner, M. (2013). A Ratio or Budget Benchmark for Comparing Housing Affordability Across Countries. Journal of Housing and the Built Environment, 28(3), 547–565. Hsieh, C.-T., & Moretti, E. (2019). Housing Constraints and Spatial Misallocation. American Economic Journal: Macroeconomics, 11(2), 1–39. Hulchanski, D. (1995). The Concept of Housing Affordability: Six Contemporary Uses of the Housing Expenditure-to-Income Ratio. Housing Studies, 10(4), 471–491. Hulse, K., Reynolds, M., Nygaard, A., Parkinson, S., & Yates, J. (2019). The Supply of Affordable Private Rental Housing in Australian Cities: Short and Longer Term Changes (Final Report). Melbourne: AHURI. Hulse, K., & Yates, J. (2017). A Private Rental Sector Paradox: Unpacking the Effects of Urban Restructuring on HousingPROOF Market Dynamics. Housing Studies, 32(3), 253–270. Jericho, G. (2017, April 27). Rental Affordability at Crisis Point for Low-Income Families. The Guardian. Kemp, P. (2015). Private Renting After the Global Financial Crisis. Housing Studies, 30(4), 601–620. Knoll, K., Schularick, M., & Steger, T. (2017). No Place Like Home: Global House Prices, 1870–2012. American Economic Review, 107(2), 331–353. Koukoulas, S. (2016, October 27). House Prices Are Surging Because of Low Supply—It’s Economics 101. The Guardian. Leishman, C. (2017). Is Australian Housing Supply Adequate? In CEDA (Ed.), Housing Australia [Internet] (pp. 51–66). Melbourne: Committee for Economic Development of Australia. Available from: http://www.ceda.com. au/Research-and-policy/All-CEDA-research/Research-catalogue/Housing-REVISED Australia. Accessed 22 August 2018. Leishman, C. (2019, February 20). Why Falling House Prices Do Less to Improve Affordability Than You Might Think [Internet]. The Conversation. Available from: https://theconversation.com/why-falling-house-prices- do-less-to-improve-affordability-than-you-might-think-111267. Accessed 8 August 2019. Linneman, P., & Megbolugbe, I. (1992). Housing Affordability: Myth or Reality? Urban Studies, 29(3–4), 369–392. Lipman, B. (2006). A Heavy Load: The Combined Housing and Transportation Burdens of Working Families. Washington, DC: Centre for Housing Policy. 82 H. PAWSON ET AL.

Macaulay, J. (2019, February 7). Immigration: The House Price Elephant in the Room [Internet]. Spectator Australia. Available from: https://www.spectator.com.au/2019/02/immigration-the-house-price-elephant-in-the-room/. Accessed 8 August 2019. Mack, A., & Martínez-García, E. (2011). A Cross-Country Quarterly Database of Real House Prices: A Methodological Note [Internet] (Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper No. 99). Available from: https://www.dallasfed.org/~/media/documents/institute/ wpapers/2011/0099.pdf. Accessed 9 August 2019. Mares, P. (2018). No Place Like Home: Repairing Australia’s Housing Crisis. Melbourne: Text Publishing. Milligan, V. (2003). How Different? Comparing Housing Policies and Housing Affordability Consequences for Low-Income Households in Australia and the Netherlands (Netherlands Geographical Studies No. 318). Utrecht: Utrecht University. Nelson, K. (1994). Whose Shortage of Affordable Housing? Housing Policy Debate, 5(4), 401–442. NHS. (1991). The Affordability of Australian Housing (National Housing Strategy Issues Paper No. 2). Canberra: Australian GovernmentPROOF Publishing Service. Nicholls, S. (2014). Perpetuating the Problem: Neoliberalism, Commonwealth Public Policy and Housing Affordability in Australia. Australian Journal of Social Issues, 49(3), 329–347. Pawson, H., Hulse, K., & Cheshire, L. (2015). Addressing Concentrations of Disadvantage in Urban Australia (AHURI Final Report No. 247). Melbourne, AHURI. Pawson, H., Parsell, C., Saunders, P., Hill, P., & Liu, E. (2018). Australian Homelessness Monitor 2018 [Internet]. Melbourne: Launch Housing. Available from: https://www.launchhousing.org.au/site/wp-content/uploads/2018/05/ LaunchHousing_AHM2018_Report.pdf. Accessed 16 July 2019. Phibbs, P., & Gurran, N. (2017, February 14). Why Housing Supply Shouldn’t Be the Only Policy Tool Politicians Cling To [Internet]. The Conversation. AvailableREVISED from: https://theconversation.com/why-housing-supply-shouldnt- be-the-only-policy-tool-politicians-cling-to-72586. Accessed 8 August 2019. Randolph, B., & Holloway, D. (2005). The Suburbanisation of Disadvantage in Sydney: New Problems, New Policies. Opolis, 1(1), 49–65. Robertson, J. (2017, May 3). ‘Eye-Watering Prices’: Australia’s Housing Affordability Crisis Laid Bare. The Guardian. Rogers, D., & Power, E. (2017, March 23). Explainer: The Financialisation of Housing and What Can Be Done About It [Internet]. The Conversation. Available from: https://theconversation.com/explainer-the-fnancialisation- of-housing-and-what-can-be-done-about-it-73767. Accessed 8 August 2019. Rowley, S., Ong, R., & Haffner, M. (2015). Bridging the Gap Between Housing Stress and Financial Stress: The Case of Australia. Housing Studies, 30(3), 473–490. 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 83

Ryan-Collins, J. (2019). Why Can’t You Afford a Home? Cambridge: Polity Press. Saunders, P. (2017). Housing Costs, Poverty and Inequality in Australia. Housing Studies, 32(6), 742–757. Saunders, P., Chalmers, J., McHugh, M., Murray, C., Bittman, M., & Bradbury, B. (1998). Development of Indicative Budget Standards for Australia (Research Paper No. 74). Canberra: Department of Social Security. Scanlon, K., Blanc, F., Edge, A., & Whitehead, C. (2019). The Bank of Mum and Dad: How It Really Works [Internet] (Report for Family Building Society). London: London School of Economics. Available from: http://lselondon- housing.org/wp-content/uploads/2019/01/FBS-parental-help-fnal-report- WEB.pdf. Accessed 17 July 2019. Senate Select Committee on Housing Affordability in Australia. (2008). A Good House Is Hard to Find: Housing Affordability in Australia (Parliamentary Paper No. 304). Canberra: Select Committee on Housing Affordability in Australia. SGS Economics and Planning. (2013). Infrastructure Investment and Housing Supply [Internet]. Paper Commissioned for the National Housing Supply Council. Canberra: SGS Economics and Planning. Available from: https:// treasury.gov.au/sites/default/fles/2019-03/infrastructure-investment-housPROOF - ing-supply.pdf. Accessed 31 May 2019. SGS Economics and Planning. (2018). Rental Affordability Index November 2018 [Internet]. Canberra: SGS Economics and Planning. Available from: https://www.sgsep.com.au/application/files/8015/4336/9561/RAI_ Nov_2018_-_high_quality.pdf. Accessed 21 March 2019. Simon, J., & Stone, T. (2017). The Property Ladder After the Financial Crisis: The First Step Is a Stretch But Those Who Make It Are Doing OK (RBA Research Discussion Paper). Sydney: Reserve Bank of Australia. Sloan, J. (2017, April 8). Cut Immigration by Half to Improve Housing Affordability. The Australian. Stapledon, N. (2016). The Inexorable Rise in House Prices in Australia Since 1970: Unique or Not? Australian Economic Review, 49(3), 317–327. Stapledon, REVISEDN. (2017). Is the Current Period of Price Movement Unusual? In CEDA (Ed.), Housing Australia [Internet] (pp. 35–50). Melbourne: Committee for Economic Development of Australia. Available from: http:// www.ceda.com.au/Research-and-policy/All-CEDA-research/Research- catalogue/Housing-Australia. Accessed 9 August 2019. Steering Committee for the Review of Government Service Provision. (2019). Report on Government Services, Part G: Housing and Homelessness [Internet]. Canberra: Productivity Commission. Available from: https://www.pc.gov. au/research/ongoing/report-on-government-services/2019/housing-and-homelessness#attachtables. Accessed 27 May 2019. Stone, M. (2006). What Is Housing Affordability? The Case for the Residual Income Approach. Housing Policy Debate, 17(1), 151–184. 84 H. PAWSON ET AL.

Stone, M., Burke, T., & Ralston, L. (2011). The Residual Income Approach to Housing Affordability: The Theory and the Practice (AHURI Positioning Paper No. 139). Melbourne: AHURI. Tsatsaronis, K., & Zhu, H. (2004, March). What Drives Housing Price Dynamics: Cross-Country Evidence. BIS Quarterly Review, pp. 65–78. Vandenbroucke, D. (2007). Is There Enough Housing to Go Around? Cityscape: A Journal of Policy Development and Research, 9(1), 175–188. van den Nouwelant, R., Pawson, H., & Troy, L. (2015, March 24). Where Is Housing ‘Affordable’ in Sydney? [Internet]. City Futures Blog, blog post. Available from: http://blogs.unsw.edu.au/cityfutures/blog/2016/03/ where-is-housing-affordable-in-sydney/. Accessed 17 July 2019. Vidyattama, Y., Tanton, R., & Nepal, B. (2013). The Effect of Transport Costs on Housing-Related Financial Stress in Australia. Urban Studies, 50(9), 1779–1795. Watkins, C. (2001). The Defnition and Identifcation of Housing Submarkets. Environment and Planning A, 33(12), 2235–2253. Whiteford, P. (2019, May 31). A Rising Tide That Hasn’t Lifted All Boats. Inside Story. Williams, D. (2009). House Prices and FinancialPROOF Liberalisation in Australia [Internet] (Oxford University Department of Economics Working Paper Series No. 432). Available from: http://www.economics.ox.ac.uk/materials/ working_papers/paper432.pdf. Accessed 10 July 2019. Wokker, C., & Swieringa, J. (2016). Foreign Investment and Residential Property Price Growth (Treasury Working Paper). Canberra: Treasury. Wood, G., Watson, R., & Flatau, P. (2006). Microsimulation Modelling of Tenure Choice and Grants to Promote Home Ownership. Australian Economic Review, 39(1), 14–34. Wulff, M., & Yates, J., with Burke, T. (2001). Low Rent Housing in Australia, 1986 to 1996: How Has It Changed, Who Does It Work for and Who Does It Fail? (Australian Housing Research Fund Project No. 213). Canberra: Commonwealth of Australia. Yates, J. (2008).REVISED Australia’s Housing Affordability Crisis. Australian Economic Review, 41(2), 200–214. Yates, J. (2011a). Housing in Australia in the 2000s: Too Late on the Agenda. In H. Gerard & J. Kearns (Eds.), The Australian Economy in the 2000s (Conference Volume 2011, pp. 261–296). Sydney: Reserve Bank of Australia. Yates, J. (2011b). Cyclical Versus Structural Sustainability of Home Ownership: Is Counter-Cyclical Intervention in Housing Markets Enough? Housing Studies, 26(7–8), 1059–1080. Yates, J. (2016). Why Does Australia Have an Affordable Housing Problem and What Can Be Done About It? Australian Economic Review, 49(3), 328–339. 3 UNPACKING AUSTRALIA’S HOUSING AFFORDABILITY PROBLEM 85

Yates, J. (2017). Housing Australia. In CEDA (Ed.), Housing Australia [Internet] (pp. 15–34). Melbourne: Committee for Economic Development of Australia. Available from: http://www.ceda.com.au/Research-and-policy/ All-CEDA-research/Research-catalogue/Housing-Australia. Accessed 16 July 2019. Yates, J. (2019). Housing, Housing Costs and Poverty. In P. Saunders (Ed.), Revisiting Henderson: Poverty, Social Security and Basic Income (pp. 215– 236). Carlton: Melbourne University Press. Yates, J., & Gabriel, M. (2006). Housing Affordability in Australia (Research Paper No. NRV3-3). Melbourne: AHURI. Yates, J., & Milligan, V. (2007). Housing Affordability: A 21st Century Problem (AHURI Final Report No. 105). Melbourne: AHURI. Yates, J., & Wulff, M. (2000). W(h)ither Low Cost Rental Housing. Urban Policy and Research, 18(1), 45–64. PROOF

REVISED CHAPTER 4

Social Housing in Australia: Evolution, Legacy and Contemporary Policy Debates

4.1 Introduction In Australia, as in many other developed countries, direct government provision (public housing) formed a core componentPROOF of housing policy for low-to-moderate-income earners for much of the twentieth century post-1945. Australian governments oversaw a public housing construction program that effectively ran for 50 years during this period (Troy 2012). In all, to 2017 this generated at least 607,000 homes for ongoing rent.1 Following extensive property sales and some demolitions, some 430,000 (mainly) state-built homes remain in social housing use today; most of them still under direct government control (Steering Committee for the Review of Government Service Provision 2019). Currently social housing represents less than 5% of Australia’s total stock (see Fig. 1.2). Despite its proportionately small and shrinking size, the sector’s vital social role and its status as directly government-run or indirectly enabled makes it a REVISEDcontinuing central concern in many housing and social policy debates. Today, public housing remains the major component of Australia’s social housing provision (see Fig. 4.1a). Social housing (see Table 1.2)

1 Derived from Monro (1998) and ABS (2019a). Data for earlier years may be less than comprehensive. As discussed in Chapter 1, between 1956 and 1996 under successive CSHAs there was also extensive publicly fnanced construction of dwellings for sale to home buyers.

D $XVWUDOLD6RFLDOKRXVLQJVWRFN E 6RFLDOKRXVLQJDVDOO V GZHOOLQJV2(&'FRXQWULHV

1HWKHUODQGV $XVWULD 'HQPDUN )UDQFH 8QLWHG.LQJGRP )LQODQG ,UHODQG 1HZ=HDODQG $XVWUDOLD 1RUZD\ 8QLWHG6WDWHV &DQDGD *HUPDQ\ 3XEOLFKRXVLQJ 3RUWXJDO &RPPXQLW\KRXVLQJ /X[HPERXUJ ,QGLJHQRXVKRXVLQJ

Fig. 4.1 Social housing in Australia and in OECD countries (Sources Steering Committee for the Review of Government Service Provision [2019] and OECD [2016]) PROOF refers to rental accommodation usually provided by government or by a government-authorised not-for-proft organisation. The dwellings concerned are:

• Provided at an administratively-set rent below the market level • Allocated according to administrative rules typically privileging competing applicants according to some measure of need in terms of severity and urgency (rather than through a market process on the basis of ability to pay) • Usually subsidised by government to underpin the cost of initial development or ongoing management and maintenance (enabling a discountedREVISED rent to be charged).

In addition to public housing (dwellings directly owned and managed by state/territory governments), the other components of Australia’s social housing sector comprise the not-for-proft community housing cohort (88,000 dwellings in management in 2018) and the Indigenous-specifc housing (31,000 dwellings in management), see Fig. 4.1a. The former is discussed later in this chapter, while the latter is covered within the wider discussion of Indigenous housing policy in Chapter 7. Following a context-setting introduction to frame the Australian social housing story (Sect. 4.2), this chapter is structured in three main parts. In Sect. 4.3, we review the history of public housing in Australia 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 89 from 1945 to the present. Here we highlight the sector’s emergence, evolution and changing roles, its progressive residualisation, its increasingly fnancially stressed condition and recent renewal strategies. In Sect. 4.4, we analyse post-1980s (primarily post-2007) policy moves to diversify social housing through the offcial promotion of not-for-proft community housing providers (CHPs). Finally, in Sect. 4.5, we explain the experimentation with public housing transfers to CHPs, a development which contributes to social housing diversifcation.

4.2 Australia’s Social Housing in an International Context

4.2.1 Scale of Provision At less than 5% of the overall housing stock, social housing in Australia is very limited by comparison with countries such as the Netherlands and Austria (see Fig. 4.1b). However, its share isPROOF by no means the smallest among the developed nations that make up the OECD cohort. The diverse scales of provision shown in Fig. 4.1b refect many social, political and historical factors, as well as defnitional issues around housing tenure (see Chapter 1). As a specifc example, the unusually large social housing sector in the Netherlands has been explained as partly a legacy of a post-war economic competitiveness strategy whereby state-provided and subsidised housing at scale would facilitate reasonable living standards at relatively low-wage rates. By contrast, Australia in the same era opted more for strategies that supported higher wages for working people and, thereby, assisted their access to debt-fnanced home ownership, as discussed in Chapter 5 (Milligan 2003). In manyREVISED European countries, lasting effects have resulted from the mass public housing programs of the late 1940s and 1950s, which countered wartime devastation. In contrast, the incidence of social housing in Australia is similar to that of the other Anglophone settler states that were equally remote from such destruction and subscribed to a liberal market economic model in the post-war era. In some of the old world countries listed in Fig. 4.1b, large-scale twentieth-century public housing programs were a chosen policy response to the problem of widespread slum housing; an issue of only limited signifcance in Australia. Path dependency impacts can be clearly seen in the contrasting evolution of housing systems in Australia and comparator countries (see Box 4.1). 90 H. PAWSON ET AL.

4.2.2 Roles of Social Housing in the Broader Housing System Notwithstanding some of the very low numbers classed as social housing in certain jurisdictions under national/OECD defnitions (see Fig. 4.1b), “in practice all developed and many developing countries have social housing in some form” (Stephens and Perry 2018, p. 30). Nevertheless, social housing system roles vary across countries and over time. A helpful typology of social housing is offered by Stephens (2009), who identifes four possible roles of the sector.

• In circumstances where there is a general undersupply of housing, particularly where the private housebuilding industry is lacking in capacity, social housing investment can fulfl a ‘supply role’. • In countries where it is relatively large and/or poverty levels are relatively low, social housing can play a wider ‘affordability role’. This is exemplifed in Scandinavia, the Netherlands and France. • Where social housing functions as a ‘safety net’ it is integral to the welfare state and prioritises access for peoplePROOF less able to compete effectively for market housing. At least until recently, this model was exemplifed by the UK’s needs-based priority system, especially by its inclusion of enforceable accommodation access rights for certain homeless households (Fitzpatrick et al. 2009). • ‘Ambulance service’ social housing has a role more narrowly limited to assisting those in acute or emergency need, such that “once the emergency is over, eligibility may be withdrawn” (Stephens 2009, p. 32). Thus, the key difference between the ambulance service role and safety net roles is the temporary versus ongoing nature of housing assistance provided.

In additionREVISED to the above, a ffth possible role is the provision of dwellings offering design features and/or support services for people with particular/special needs. Examples include: accessible and adaptable housing for the frail aged and those with physical disabilities, support for people lacking suffciently developed independent living skills (including people with drug and alcohol addictions, those with acquired brain injuries and people with mental health problems) and the provision of refuges for women and children feeing domestic violence. The need for culturally sensitive housing for Indigenous peoples (see Chapter 7) and ethnic groups can also be included in this category. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 91

Social housing system designation is not necessarily fxed and unchanging. A comparator country case in point here has been the UK where the past ten years or so have seen moves to shift towards an ambulance service model in England, while policy moves in Scotland have by contrast reinforced the safety net quality of provision (Stephens and Perry 2018).

Box 4.1 Path dependency and housing systems effects in Australia and the Netherlands Different housing system characteristics in countries can refect path dependency. As explained in Chapter 1, this is where historical junctures in particular nations can result in long-term structural and cultural divergence. This may lead to the kind of dramatically contrasting tenure patterns shown in Fig. 4.1b. PROOF Path dependency can be illustrated through comparison of Australia and the Netherlands, each of which made a distinctive set of policy choices to address their sizeable respective shortages of housing following WW2. Some seven decades later, as illustrated in Fig. 4.1b, the two countries’ housing systems had markedly diverged. The Netherlands post-war policy choice centred on mass provision of social housing, which was regarded as an integral part of a social protection system designed to support economic recovery. Consequently, by the 1980s, 42% of Dutch households lived in social housing, largely owned and managed by local and regional not-for-proft housing associations (see Box 4.4). Facing aREVISED similar post-war housing shortage, Australia initially also chose large-scale construction of public housing, but from 1955 changed course to give priority to government-assisted home ownership, including the sale of large amounts of former public housing to sitting tenants (Sect. 4.3.3). In what has been dubbed the ‘wage earners’ welfare state’, this choice refected the way that union-negotiated wage levels and full employment policies enabled mortgage-fnanced home ownership to become a viable mass tenure (Castles 1994). As a result, by the 1960s over 70% of Australian households lived in a home that they were buying or already owned and less than 6% lived in state-run public housing (Fig. 1.2). 92 H. PAWSON ET AL.

From these beginnings, distinctive systems of housing provision have evolved. In the Netherlands housing associations have had support from across the political spectrum especially via the infuence of the Christian Democratic Party in successive coalition governments. Through this patronage and their own infuence, the NFP sector has continued to play a signifcant role, producing and maintaining social housing, as well as developing lower cost and high-end housing for sale, renewing dilapidated housing areas, and offering a range of other social and community services. Even after less favourable social housing policies in recent decades, 35% of Dutch households remained in secure, rent-moderated social housing in 2011, and in that year NFPs built over 60% of new dwellings sup- plied in the Netherlands (Aedes 2013). By contrast, market-based institutions dominate in Australia where housing is 95% privately procured and owned, and a preference for home ownership has become deeply culturally engrained. This has come at the expense of the standing of public housing, which lacks a political con- stituency and has become residualised and stigmatisedPROOF (as explained in Sect. 4.3.5). As a result public housing institutions have become unviable. Less than 1% of all housing, however, is managed by NFPs, whose infuence in the Australian housing system is minor. Moreover, opportunities for home ownership among the next generation have also declined in the context of rampant house price infation (see Fig. 5.2). The distinctive housing policy and institutional paths chosen by the Netherlands and Australia have led to different long-term outcomes, and have been formative in shaping subsequent national policy challenges. Main source: Milligan (2003) REVISED 4.3 social Housing in Australia: The Rise and Fall of Public Housing

4.3.1 Commonwealth-State Housing Agreements and Public Housing Construction The frst Commonwealth-State Housing Agreement (CSHA) in 1945 marks a clearly defned starting point for a national public housing program in Australia. The Agreement specifed a series of ambitious housing objectives, defned the means by which these could be progressed by 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 93 the states, and committed federal funds to the enterprise (Troy 2012). As noted in Chapter 1, the 1945 Agreement and its successors have, to this day, provided “the primary policy instrument for social housing in Australia …[in terms of] the institutional, fnancial and policy frameworks within which social housing has developed and operated” (Jones et al. 2007, p. 14). However, while marking a step change in Australian offcial attitudes to housing as a legitimate arena for intervention, the CSHA did not appear from nowhere. Its emergence was pre-fgured by earlier related activity in certain states. Housing Commissions had been set up in South Australia (1936), Victoria (1938; abolished 1984) and NSW (1942; abolished 1986). In South Australia, this was motivated partly by economic development aspirations, while slum-clearance intentions were the main motivators in the other two states. Among earlier state projects was the NSW Government’s 1920s construction of the famous Daceyville estate which adopted ‘garden city’ principles (Freestone 1986; Hayward 1996). This early emergence of a form of publicPROOF housing has been interpreted as being symptomatic of “social-liberal reformism which proposed solutions to governmental problems not through laissez faire or philan- thropy or well-meaning amateurs, but instead through greater interventions by the state and technocratic experts in planning, social security and other programs” (Martin 2016, p. 13). The 1945 CSHA was underpinned by the powerful, groundbreaking 1944 report of the wartime government’s Commonwealth Housing Commission (CHC). This articulated a newly recognised offcial responsibility for ensuring adequate housing for all income groups, as well as a rationale and inclusive approach to developing the means for achieving this (Troy 2012). Equally important in the Australian federal setting was theREVISED new assertion of a national ministerial responsibility for this policy area (see discussion on governmental responsibilities for housing matters in Sect. 1.5). Prior to WW2, state administrations (not the Commonwealth Government) had been considered the sole legitimate operators in most social policy matters (including housing). For further discussion of the post-war governance of social housing in Australia see Box 4.2. The emergence of an Australia-wide public housing program in the immediate aftermath of WW2 closely paralleled similar developments across many European countries, as well as in North America and New Zealand. This can be seen as integral to the emergence of the Keynesian 94 H. PAWSON ET AL. welfare state in which large-scale housing intervention was newly accepted as a legitimate government response to (what would nowadays be termed) market failure (see Chapter 2). The 1945 CSHA’s central emphasis on public housing construction enacted a supply-side response to the intensifying housing shortage of the war years, a challenge to be imminently compounded by the mass post-war return of service personnel and growing numbers of incoming migrants. The immediate shortage (estimated by the CHC as 300,000 dwellings in 1945) was largely the result of prolonged low house building activity; not only since the outbreak of war, but also through the 1930s depression (Hayward 1996). Specifcally, the new post-war public housing program was targeted towards returning soldiers, factory workers and people displaced by slum clearance. Under the 1945 CSHA, which remained in force until 1955, some 96,000 homes for rent were completed by the State Housing Authorities (SHAs) set up in each jurisdiction to deliver their programs (Troy 2012, Table 3). Indeed, SHA-built housing duringPROOF this decade and through to the 1960s (when build for sale was added) formed a signifcant proportion of total national residential construction. This averaged 16% of annual completions between 1945 and 1970 (ABS 2019a). From the mid-1990s, however, the average contribution by government fell to 3% (ABS 2019a). Australia’s public housing construction program was effectively cur- tailed by the 1996 and 1999 CSHAs. In part, this resulted from the 24% real terms cut in base funding in the 1996/1997 budget by comparison with the 1989/1990 level (Gilmour 2018, p. 241). A fundamental change in the terms of the deal under the 1996 Agreement was also critically important. Instead of most funds being mandated to support additional REVISEDrental supply, they could now be utilised more fexibly by states/territories. With SHAs experiencing growing pressure in balancing annual housing income and expenditure (see Sect. 4.3.6) this change would have been welcome to state Treasuries, despite its problematic long-term strategic implications. A fnal burst of public house building is directly attributable to the inclusion of social housing construction within the Rudd Government’s 2008 Nation Building Economic Stimulus Plan (NBESP), implemented in response to the Global Financial Crisis (see Fig. 4.2). Within the NBESP the Social Housing Initiative (SHI) allocated $5.2 billion to a rapid construction program that generated some 19,700 new social 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 95

Fig. 4.2 State and territory government housing completions for rent between 1945 and 2018 (Notes (1) 1945–1984 data include ‘CSHA Service’ completions. (2) 1984–2018 data include all state/territory-built and other government-built residential properties [but not community housing provider-developed dwellings]. Sources 1945–1984, Troy [2012]; 1984–2018, ABS [2019a] [total completions minus private sector]) PROOF housing dwellings over a three-year period (KPMG 2012; Yates 2013; Ruming 2015).2 Despite this post-crisis boom, since 1996 the level of social housing construction (typically around 3–4000 units per year) has been barely suffcient to keep pace with sales and demolitions. National population expanded by 30% in the period 1996–2016, whereas the social housing stock grew by just 4%, illustrated by the proportionate decline apparent in Fig. 4.3.

4.3.2 Public Housing Built Form and Geographical Setting Most of the public housing stock built in the early post-war decades consisted ofREVISED detached or semi-detached dwellings. This refected the ‘family household’ target group, the preference for architectural consistency with contemporary urban form, and the relatively low land costs that prevailed in the places where state governments wanted to build (Groenhart and Burke 2014). High rise housing was also a small part of Australia’s twentieth- century public house building mix, although the Housing Commission

2 It should be noted that the component of this program developed directly by not-for- proft community housing providers (approximately 3000 dwellings), will not have been captured by the statistics as graphed in Fig. 4.2 (KPMG 2012). 96 H. PAWSON ET AL.

ϴ͘Ϭ ϰϬϬϬϬϬ ϳ͘Ϭ ϯϱϬϬϬϬ ϲ͘Ϭ ϯϬϬϬϬϬ ϮϱϬϬϬϬ ϱ͘Ϭ ϮϬϬϬϬϬ ϰ͘Ϭ ϭϱϬϬϬϬ ϯ͘Ϭ ϭϬϬϬϬϬ Ϯ͘Ϭ ϱϬϬϬϬ ϭ͘Ϭ ʹ Ϭ͘Ϭ ϭϵϵϭ ϭϵϵϮ ϭϵϵϯ ϭϵϵϰ ϭϵϵϱ ϭϵϵϲ ϭϵϵϳ ϭϵϵϴ ϭϵϵϵ ϮϬϬϬ ϮϬϬϭ ϮϬϬϮ ϮϬϬϯ ϮϬϬϰ ϮϬϬϱ ϮϬϬϲ ϮϬϬϳ ϮϬϬϴ ϮϬϬϵ ϮϬϭϬ ϮϬϭϭ ϮϬϭϮ ϮϬϭϯ ϮϬϭϰ ϮϬϭϱ ϮϬϭϲ ϮϬϭϳ ϮϬϭϴ

^ŽĐŝĂůƌĞŶƚĂůĚǁĞůůŝŶŐƐŝŶŵĂŶĂŐĞŵĞŶƚͲŶŽ͘;>,ƐĐĂůĞͿ ^ŽĐŝĂůŚŽƵƐŝŶŐĂƐйŽĨĂůůŚŽƵƐŝŶŐ;Z,ƐĐĂůĞͿ

Fig. 4.3 National social housing provision between 1991 and 2018 (Note ‘Social housing’ defned as public housing plus PROOFcommunity housing; excludes Indigenous-specifc housing. Sources AIHW [1997]; Steering Committee for the Review of Government Service Provision; Report on Government Services [Housing]—various years; ABS [2019b]) of Victoria constructed 47 high rise towers containing nearly 8000 apartments in Melbourne during the period 1962–1974 (Tibbits 1988). Utilising the ‘system build’ model of pre-fabricated concrete panels, the program drew on the Commission’s own Holmesglen factory. However, despite their still highly visible presence in inner Melbourne, high rise apartment blocks currently account for only 10% of the state’s public housing dwellings (Victorian Auditor-General 2017, Figure 1C). In Victoria, justREVISED as elsewhere in Australia, public housing has, throughout its history, been predominantly made up of suburban houses and low-rise fats, villas and townhouses. As Housing Commissions were transformed from housing development agencies to housing service providers from the late 1970s, procurement methods shifted from purpose-built public construction to purchase or lease of new privately built dwellings and established homes. This approach was in part intended to diversify the location and forms of public housing but, being introduced during a time of historically low new acquisitions, it has had little impact on today’s stock profle or tenant locational options. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 97

From the 1980s, a new feature of the public housing profle was purpose-built medium density housing for the elderly. Often utilising special planning provisions,3 state housing departments initiated much of the earliest development of aged housing complexes dedicated to this cohort. The spatial confguration of Australia’s twentieth-century public housing program has also resulted in important legacy impacts. Firstly, consistent with practice in much of Europe and North America, a large proportion of Australian public housing has been geographically concentrated. According to Arthurson and Darcy (2015), about half is contained within estates of more than 100 dwellings. This factor is important in relation to the socio-spatial impact of public housing ‘residualisation’ as described below. Secondly, some of Australia’s post-war public housing estates incorporated built form features later considered problematic. A notable example is the prevalence of the “notorious” Radburn layout of numerous public housing developments across AustraliaPROOF from the 1960s to the 1980s (Jones and Evans 2014, p. 153). Radburn, a suburban estate for- mat imported from the United States, prioritised separation of cars from pedestrians. Among the model’s key components are ‘back to front’ house orientations, extensive areas of little-valued public open space, and high fences limiting surveillance. Such design features have been seen as leaving Radburn estates particularly prone to crime and antisocial behaviour, as well as to stigmatisation (Woodward 1997). Thirdly, the metropolitan fringe situation of many public housing estates later became problematic. Especially in Adelaide, Hobart, Melbourne and Sydney, many large public housing projects of the 1960s and 1970s were located in outer suburbs, drawn in part by lower land costs, but REVISEDalso in certain instances deliberately sited for proximity to large-scale industrial plants such as Melbourne and Adelaide’s car facto- ries. Estates positioned in such places have been vulnerable to post-1970s deindustrialisation and recent tendencies towards the reconcentration of employment in well-connected inner-urban locations (Groenhart and Burke 2014; Rawnsley and Spiller 2012); a development consistent with trends in many developed countries (Moretti 2012).

3 Such as State Environmental Planning Policy (SEPP) 5 introduced in 1982 in NSW. 98 H. PAWSON ET AL.

4.3.3 Historic Housing Privatisation The National Housing and Homelessness Agreement (NHHA) struck in 2018 forms the fourteenth in the almost continuous series of housing agreements between the Commonwealth and the States that commenced in 1945 (Milligan 2018). As noted in Chapter 1, each such agreement or accompanying parliamentary debate has provided a statement of national policy objectives and priorities, as well as annual funding commitments to individual jurisdictions. The second (1956–1961) CSHA has been considered of particular importance because, under the infuence of the incumbent Menzies Government, it complemented 1945 policy objectives with the aspiration to provide a path into home ownership for lower-paid workers (Jones 1972). Not only was 30% of CSHA funding mandated to home purchase assistance, but state governments were permitted to implement sitting tenant sales (Hayward 1996). These provisions were retained in the subsequent Agreements that ran through to the 1970s. At the same time, “building for sale …[also] became a central focus of the activities of SHAs” (Jones et al. 2007PROOF, p. 14). Around two-thirds of the housing stock built or funded by SHAs in the period 1945–1996 appears to have been sold on completion to frst home buyers or sold later to sitting tenants. Monro (1998) shows some 969,000 dwellings were delivered through SHAs over that period,4 but only 342,500 dwellings remained in their ownership by 1996. Of the 626,500 dwellings sold, some 177,000 were identifed as formerly public housing.5 While the above fgures are subject to some uncertainty, there is no doubt that this era saw a “large-scale, long-term privatisation program” in Australia (Jones et al. 2007, p. 15) that predated the more celebrated sell-offs of public housing elsewhere, e.g. the UK’s post-1980 Right to Buy program. Nevertheless, from 1973, the discounted sale of newly built public housingREVISED largely ended and SHAs began to take a more cautious approach to the disposal of existing rental dwellings (Milligan 2003). In some states, the ownership of public housing schemes subsequently constructed was often registered on a collective (superlot) basis rather than

4 Total as stated here includes privately developed homes where commissioning/purchase was facilitated by state/territory government fnancial assistance to private home buyers. 5 Crudely summing public housing stock as at 1996 and formerly rented public housing dwellings sold by that time it is implicit that sales could have accounted for up to 34% of dwellings built for rent up until that time (without allowing for any demolitions). 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 99 as individual dwellings with specifc titles. In this way, individual sitting tenant sales were made virtually unfeasible in those developments. Open market sales have, however, continued on a modest scale in some states; mainly in the interests of generating liquidity in an increasingly underfunded system (see Sect. 4.3.6). The way that the immediate post-war public rental push gave way to a more home ownership-oriented policy era from 1956 has been highlighted as a sharp policy disjuncture. In this view, the CSHA of that year terminated a process that could have otherwise led to state governments establishing mass rental housing portfolios (Kemeny 1983). On the other hand, as argued by Hayward (1996, p. 5), “the long term history of public housing in Australia is [in fact] one in which successive Governments have at best been reluctant landlords, and the period from 1945 to 1956 is best understood as [only] a partial exception to this general trend”. PROOF Box 4.2 Australia’s governance of social housing Under the successive intergovernmental agreements that have shaped the funding and delivery of social housing in Australia since 1945, both Commonwealth and state/territory governments share primary policy and funding responsibilities, while the latter are solely responsible for implementation. Effective operation of this model relies on robust cooperation between governments as housing agreements are not legally enforceable. In practice, jurisdictional responses to national objectives have rarely been consistent. This situation has produced complexities and political tensions that from time to time have threatened to disrupt the social housing system. ProblemsREVISED attributed to the governance model include blurring of accountability for outcomes across levels of government, overlap and duplication of administrative effort, intergovernmental differences in political and policy priorities (in the context of diverse housing markets and housing needs), inequity between the levels of support given to low-income public and private tenants, and cross-program coordination problems (Australian Government 2014). Pressures for reform of historic arrangements intensifed from the 1990s as the Commonwealth cut housing funding to the states and increasingly 100 H. PAWSON ET AL.

shifted their budget outlays towards rent assistance paid to individual clients through the social security system (Parkin 1992; Caulfeld 2000). In 1995, 1996/1997, 2003, 2008, 2014 and 2018, successive Commonwealth Governments sought to make fundamental changes to the arrangements governing housing assistance in Australia.6 Most of these reform proposals were either never agreed between governments or only partially adopted. A key proposal that gained ascendancy in the mid-1990s concerned the Commonwealth becoming responsible for providing rent subsidies to low-income private and public tenants, and states/territories being solely responsible for any social housing supply. Following extended negotiations, this plan for greater separation of roles and responsibilities was rejected by the Council of Australian Governments (COAG)7 in 1997 in favour of maintaining the historic model of shared responsibility, albeit that social housing supply has remained manifestly underfunded (see Sect. 4.3.6). PROOF Overall, while shared responsibility for social housing has endured, both levels of government have balked at putting its future on a sustainable footing.

4.3.4 Allocations and Management As noted above, administratively-determined rules for tenancy allocation and rent setting are defning hallmarks of social housing. Under the initial CSHA, SHAs were free to allocate tenancies at their own discre- tion. From 1956, however, and especially from the 1970s, they were increasingly enjoined by the Commonwealth to prioritise low-income applicants.8REVISED Such an objective can be pursued through ‘allocations

6 Some of the reform proposals (e.g. in 1995, 1996/1997 and 2003) were specifc to housing; others (e.g. in 2008 and 2014) were part of wider proposals to reform the model of federalism in Australia. 7 COAG was established in 1992 as a forum of the heads of the Commonwealth, state and territory governments and the Australian Local Government Association. It promotes intergovernmental cooperation and policy reform in the national interest. 8 As discussed in Chapter 5, this was the period when CSHA funding was also substantially redirected to assisting Australian households to achieve home ownership. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 101 policy’ rules on applicant eligibility (entitlement to register for housing) and prioritisation of lettings (landlord ranking of applicants for allocation to vacant dwellings) (Pawson and Mullins 2003). Critically, in terms of public housing policy evolution, eligibility rules specifying formal income ceilings were introduced under the 1973 CSHA; the frst agreement to refer to public housing as ‘welfare housing’ (Monro 1998; Yates 2013). Subsequently, targeting has increasingly favoured not only low-income households (e.g. those with incomes below an administratively determined percentage of average weekly earnings), but also vulnerable and/or complex needs applicants, such as those affected by personal crisis, ageing and frailty or mental ill-health and/or other disabilities. Intensifed targeting from the 1990s was achieved by replacing an allocation system largely based on so-called wait turn (housing offers made in date order of entry onto the applicant register) to one based mainly on prioritising tenancy offers to those in highest or most urgent need. There were, nevertheless, wide variations between the states in their adoption of this approach,PROOF for example, South Australia resisted targeting and prioritisation for many years. Long-term changes in the public housing demographic profle refect economic cycles and broad social changes, as well as government priorities in responding to these developments. An early infuence in the emerging shift to targeting public housing to households on low incomes was the 1975 Report of The Commission of Inquiry into Poverty (the Henderson Report). In common with a concurrent policymaker review, Henderson criticised the effectiveness of the state Housing Commissions, highlighting that nearly three quarters of public housing tenants at this time received incomes higher than 120% of the poverty line. Meanwhile disproportionate numbers of disadvantaged people experiencedREVISED poor conditions in the private rental market (Henderson 1975; Priorities Review Staff 1975; Paris et al. 1985). This situation generated a long-running public debate on the respective merits of public housing versus cash payments to individuals in providing housing assistance, a question we revisit throughout the book. In a view that diverged from policy orthodoxy at the time, a 1993 Industry Commission9 inquiry concluded that public housing was more cost-effective (than cash assistance) in meeting the government’s housing

9 The Industry Commission was a predecessor of the Productivity Commission, which was founded in 1998. 102 H. PAWSON ET AL. objectives and argued for an increase in funding for new supply and a more inclusive approach to who was housed (Industry Commission 1993). The fndings were not implemented (Troy 2012). Meanwhile, one of the most signifcant impacts on the profle of public housing applicants arose from the widely adopted state de-institu- tionalisation policies of the 1980s. These aimed to replace institutional care for people with disabilities, especially mental illness, with community-based care (Burke 1998). However, in the absence of public investment in alternative housing models, public housing became the default tenure for many of those affected by the closure of the institutions. The scale of impact is apparent from NSW data showing the proportion of tenants on rebated rents (see Box 4.3) receiving a disability pension as their main income source rising from 10% in 1987 to 34% in 2011 (Carter et al. 1988; NSW Auditor-General 2013). As the pre-1980s public housing portfolio was not designed for this purpose, problematic consequences have arisen that variously affect the security of tenants who require personal support,PROOF neighbourhood cohesion in public housing estates and SHA costs of service provision. As noted in Chapter 1, it is often policies implemented outside the realm of housing that have major consequences, perhaps unforeseen or unintended, within the feld. As briefy mentioned in Chapter 2, the twenty-frst century has seen another turn of the screw in public housing management policy whereby new tenancies are offered on a fxed-term (rather than open-ended or ‘secure’) basis. Since 2006 such moves have been made by NSW, Queensland, South Australia and Tasmania (Wiesel et al. 2014). In terms of the Stephens (2009) social housing system typology (see Sect. 4.2), this could be interpreted as effecting a transition from a ‘safety net’ to an ‘ambulanceREVISED service’ model (Fitzpatrick and Pawson 2014). The work disincentive impact of the rent geared to income model (see Box 4.3) has been compounded under the fxed-term tenancy rules as these operate in states such as NSW. Here, a tenant qualifying for social housing on grounds of low income may increase earnings by only a limited amount before making themselves ineligible for tenancy renewal at the end of their two-, fve- or ten-year term. These rules were recently criticised in an offcial NSW Government-commissioned review, which recommended their withdrawal given the need to overcome tenants’ “fear that they could lose their social housing place if their income increases” (IPART 2017b, p. 64). 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 103

Management Not unlike counterpart public housing supply agencies in comparator countries, such as the UK and United States, Australia’s post-war housing commissions were hierarchical organisations that established a highly bureaucratic and paternalistic management culture. Until well into the 1980s, staff profles were also dominated by building professionals rather than service providers, and, as a result, SHAs were not needs- or client-focused (Mant 1992). Federal Government aspirations to encourage a somewhat more inclusive approach to public housing management were embodied in the 1978, 1981 and 1984 CSHAs. From 1981 the agreements committed state governments to maximising tenants’ opportunity to participate in both housing management and policy development. Such motivations were later refected in state legislation and, in some states, small funding programs designed to enable participation and build tenant organisational capacities. While aspirations of this kind generated aPROOF certain amount of consul- tative activity on the part of SHAs in some jurisdictions, especially during the 1980s and 1990s, the extent of tenant participation has remained generally low, except in the case of certain estate renewal projects (Pawson and Pinnegar 2018). Similarly, measures to consumerise social housing, infuential in the UK in the 2000s (Pawson et al. 2012), have been only very weakly represented. The 1989 CSHA was one worthy exception in that it required states to establish applicant/tenant complaints and appeals mechanisms that would enable independent review of SHA decisions. The very limited scope afforded to Australian public housing residents for the exercise of either ‘choice’ or ‘voice’ is exemplifed by our research on tenant REVISEDagency in public housing transfers (Pawson and Wiesel 2014; see also Sect. 4.5). A new set of infuences on the culture of the public housing system have made themselves felt over the past 10–20 years as most state and territory governments have progressively transferred administrative responsibility from public works agencies into human services departments. Similarly, at Commonwealth level, social housing was transferred to the Social Security department (in 1996). These changes refect the system’s changing role as social policy objectives have come to the fore, with public housing thus increasingly regarded as primarily a component of the welfare system, subsidiary to social work services. Arguably, 104 H. PAWSON ET AL. in prioritising individual ‘client’ welfare, the dominant ethos of such departments de-emphasises collective representation and community empowerment objectives that have been historically important goals.

4.3.5 The Changing Role of Public Housing Summing up the evolving roles of Australia’s public housing since 1945, as resulting from changing allocations and rent setting, Jones et al. (2007) identifed three distinct phases:

• 1940s–1960s—housing for low-wage workers and their families • 1970s–1980s—affordable rental housing for low-income earners, mainly income security recipients • From 1990s—highly targeted, supportive housing for people with high and/or complex needs, many permanently outside the workforce. PROOF Perhaps the single word that best captures post-1970s change as characterised here is residualisation. This describes a process of socio-economic change whereby the tenant population of social housing has become increasingly confned to those unable to compete effectively for market housing (Morris 2018). This change is starkly highlighted by offcial statistics revealing that the proportion of NSW public housing tenants for whom wages are the main source of household income fell from 85% in 1960 to just 5% by 2013 (NSW Government 2014). Because much of Australia’s public housing portfolio is spatially concentrated in estates, the tenure-specifc process of residualisation also implies the emergence and gradual intensifcation of geographical concentrations of disadvantage.REVISED Another consequence of the profound change to the public housing tenant cohort has been a growing mismatch between dwelling and household sizes. In the context of the largely ‘frozen’ state of investment in public housing, this disparity has resulted from having excess family housing of three and four bedrooms when increasing numbers of applicants are small households requiring one or two bedrooms. In the context of governments’ long-term reduction in social housing expenditure, it could be said that the residualisation of social housing has largely resulted from a deliberate policy choice to align government- supported housing provision with a limited set of prescribed housing needs. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 105

As noted above, this has been pursued progressively through increasingly restrictive eligibility and allocations policies, limiting tenure terms and the market rent regime, whereby rents charged to tenants improving their economic circumstances will rise, ultimately to market equivalent levels. Continuation and intensifcation of these policies partly refects a stated policymaker belief that there remains signifcant scope to free-up social rental dwellings for future applicants and that alternative forms of assistance (e.g. rental subsidy) will be more cost-effective in meeting housing needs. Thus, the NSW Government’s 2016 ‘Future Directions for Social Housing’ paper highlighted as one of its three strategic priorities the aspiration to provide “more opportunities, support and incentives [for households] to avoid and/or leave social housing” (NSW Government 2016a, p. 5). Realistically, the Future Directions paper recognised that only a limited proportion of tenants were likely to be socio-economically mobile, an obvious corollary of the fact thatPROOF more than two thirds of NSW public housing tenants are age or disability pensioners (NSW Government 2014). Even so, research evidence shows that the prospect of ‘transitioning’ out of social housing commands little attraction for most tenants who might theoretically have the capacity to do so, especially given the likelihood that this will result in their relegation to a much less secure and often higher cost private tenancy (Wiesel et al. 2014). Taking a longer-term view, however, social landlords aspiring to offset intergenerational dependency have become increasingly focused on supporting education and training for school-age children and youth living in social housing to promote their upward mobility. Such approaches and their underpinning thinking are common to social landlordsREVISED across Australia. The capacity of a social housing system to accommodate new tenants in any time period is a function of two factors: tenancy turnover and additions to the stock through new construction (or other acquisition). In Australia, for much of the past 25 years these two factors have had a compounding effect in suppressing the fow of dwellings becoming available for letting. Until the 1980s many public housing tenants, particularly families, became home buyers. This was often facilitated by government assistance in the form of help for a tenant to purchase their existing state-owned dwelling or through other forms of home ownership assistance (see Chapter 5). 106 H. PAWSON ET AL.

Latterly, the above route to home ownership for public tenants has collapsed, refecting a combination of factors, including the higher cost of buying a home, less public assistance for home purchase and the poorer circumstances of most tenants who, as a result, remain in social housing. An indication of the signifcance of these trends is given by offcial data showing the number of new tenants housed in public housing and community housing in 2017 as 35,000, down from 52,000 public housing lets in 1991 (Steering Committee for the Review of Government Service Provision 2019, Tables 18A.5, 18A6, 18A7; AIHW 1993, Table 3.22). Under Australia’s sustained rate of population growth, an important consequence of the declining capacity of the social housing system (and therefore a greater reliance on the private housing market) has been a rise in the incidence of after-housing poverty. Counts of persons whose income falls below the poverty line10 are used to determine the incidence of poverty. Comparison of ‘before- housing’ and ‘after-housing’ poverty numbers offer a means of isolating the impact of housing costs on poverty rates (see Chapter 3). PROOF

Box 4.3 Rent policy in public housing Complementing tenancy allocation priorities, rent policy provides a powerful instrument at the disposal of social landlords to infuence the socio-economic profle of the tenant population. Under the fnancial settlement incorporated within the 1945–1955 CSHA states were expected to set rents at ‘economic levels’ (Hayward 1996), sometimes termed ‘cost rents’. In this regime, individual dwelling rents are calibrated so that total revenue is suffcient to meet the landlord’s cost of provision, i.e. loan repaymentREVISED and interest outgoings, allowance for untenanted properties and uncollectable rent arrears, and other necessary management and maintenance expenditures. Under the system as it operated in Australia at this time, however, state governments offered rebates to low-income tenants for whom the dwelling-specifc cost rent would be unaffordable.

10 The poverty line is conventionally set at 50% of median equivalised household disposable income. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 107

Nevertheless, even as late as 1968–1969 the vast majority of tenants were full ‘cost rent’ payers (Jones 1972). In a marked policy shift enacted in 1978, the ceiling on rent chargeable for any dwelling was reset according to the market rent equivalent for a similar dwelling in the same locality (Yates 2013). Implicit here was the understanding that prevailing cost rents were providing an effective (and unjustifed) subsidy for moderate-income earners still strongly represented in the tenant population. Thus, the new policy was “intended to provide an incentive for those with higher incomes to fnd their housing solutions in the private rental market” (ibid., p. 114). Acting as a rational consumer, a tenant paying a market rent for their social rental unit was presumed to naturally recognise the advantage in switching into a private rental market where they could benefcially exercise greater residential choice than available in the inherently highly constrained, administratively governed, public housing system. Poorer tenants continued to be eligible for PROOFrebates if the market rent for their dwelling exceeded a specifed proportion of their gross household income (historically 18–20%, today usually 25%). From the 1970s an increasing, and eventually overwhelming, proportion of tenants were receiving rental rebates whereby the rent they paid represented a set fraction of their household income and bore no relation to the size or other characteristics of their home. The ‘rent geared to income’ (RGI) model described above is consistent with public housing policy and with policymaker thinking in some comparator countries, notably the United States (Fitzpatrick and Pawson 2011). However, while benefcially safeguarding affordability, this rent- setting model also discourages the improvement of a tenant’s economic position by effectively clawing back part of tenant income gain from entering, expandingREVISED or otherwise improving employment. Thus, “high effective marginal tax rates associated with income-related rents [create] poverty traps and strong disincentives to work” (Yates 2013, pp. 114–115). The 1970s switch from cost rents to market rents can also be viewed as a harbinger of a more general shift, subsequently seen both in Australia and in most comparator countries, towards targeting subsidy to the individual (in this case via a personalised rebate) rather than to the dwelling (by setting rents for all properties at levels discounted to the market) (Whitehead 2015). 108 H. PAWSON ET AL.

4.3.6 Public Housing Finances Crucial in understanding the changing position of Australia’s public housing system is an appreciation of the sector’s fnancial condition and the way that it has become increasingly unsustainable. The funding framework for public housing laid down in the frst CSHA was intended to fnance new housing supply with each state receiving a per capita share of Commonwealth construction loans. States were expected to meet management and maintenance costs, and also to repay Commonwealth loans from rent revenue. Subsequent changes to both funding rules and levels, along with changes to allocations and rent setting, have gradually undermined the long-term fnancial sustainability of this model. SHA fnances became increasingly stressed from the 1970s. There have been four main contributing factors:

• The declining rent-paying capacity of an increasingly disadvantaged public housing tenant population • Rising costs of supporting residents to PROOFsustain their tenancies, associated with residualisation • Greater costs of maintenance and modernisation in an ageing property portfolio • Current CSHA (or equivalent) subsidy levels for state/territory housing deriving from historic funding levels that take no account of the true costs of public housing provision.

As a result of the pressures listed above and despite some funding reform,11 all but two of the eight SHAs had fallen into defcit by 2000– 2001, with operational expenditures exceeding income (before federal subsidies). A decade earlier, this was true for only one state (Hall and Berry 2007REVISED). While no specifc national fgures are available to chart subsequent change, it is widely recognised that pressures on public housing budgets will have been maintained, pushing SHAs towards deeper defcits. Current national funding levels no longer cover the extent of these defcits, requiring state and territory governments to subsidise public housing operations from consolidated revenue. A measure of the

11 For example, from the 1980s the Commonwealth offered the states/territories grant funding rather than loans. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 109 scale of the funding gap is provided for NSW public housing by that state’s Independent Pricing and Regulatory Tribunal (IPART), which calculated that in 2015–2016 “the additional explicit subsidy required to fund the current difference between tenant rent contributions plus government subsidies and market rent is $950 million per annum” (IPART 2017a, p. 4).12 Couched in the understated language of accountancy, IPART also noted that the identifed funding gap is already “implicitly [funded by the NSW Government and taxpayers] through a combination of operating losses, deferred maintenance, unfunded depreciation and forgone returns on assets” (ibid.). In part this speaks of ‘managerial coping measures’ that, beyond the short-term, are untenable. In varying combina- tions across state and territory public housing systems, such measures include the market sale of housing properties and the deferral of some non-emergency maintenance. This situation also helps to explain why state treasuries have been averse to the provision of additional public housing; because each new dwelling operatesPROOF at a loss which they have to fnance. Managerial responses of the kind described above have led to shrinking public housing portfolios and declining physical condition of remaining stock. The latter point is exemplifed by the NSW experience where, as acknowledged by the NSW Government in 2013, “30-40 per cent” of the state’s public housing had fallen below its benchmark acceptable physical standard (NSW Auditor-General 2013). Commenting on Victoria’s public housing system it was more recently observed that:

[the public housing authority] has managed its cash position … partly by postponing renewal programs, which has accelerated deterioration of public housingREVISED stock and increased the maintenance backlog liability; [by] postponing stock acquisitions and [by] disposing of inappropriate public housing stock… (Victorian Auditor-General 2017, p. 13)

12 This was subsequently revised to $945 million after allowing for additional rent collection recommended by IPART (2017b). It should be noted that these estimates treat market rent as a proxy for cost rent, i.e. the true cost of providing social housing. This is on the basis that “the total market rent for social housing provides a reasonable estimate of the effcient costs of providing social housing, as this is the amount than an investor would expect to receive to cover the costs of renting out a dwelling on the private market” (IPART 2017b, p. 4). 110 H. PAWSON ET AL.

Using a consistent metric applied to all states and territories13, it is estimated that some 20% of Australia’s total public housing was physically unsatisfactory in 2018 (Steering Committee for the Review of Government Service Provision 2019, Table 18A.36). In some instances, the sale of public housing dwellings has operated as a signifcant revenue-generating device. By far the most well-publicised instance has been the NSW Government’s 2014 decision to sell off 300 unusually valuable homes at Millers Point, Sydney.14 By 2017, with only just over half of the properties sold, the program had generated $467 million in capital receipts (Morris 2017). On the basis that each property sold could fund up to fve (albeit less favourably located) newly built replacement public housing dwellings, NSW committed to ring-fenc- ing the proceeds for this purpose.15 The South Australian Government, meanwhile, sold 4482 dwellings to repatriate debt under the State’s ‘fnancial viability sales program’ over the 10 years to 2016–2017 (PWC 2018) equivalent to just over 10% of the state’s total public housing stock at the start of this period.16 PROOF

4.3.7 Public Housing Renewal Strategies By the late 1990s most state and territory governments had begun to acknowledge that the condition of many large public housing estates called for substantial re-investment (Arthurson 1998; Randolph and Judd 2000). More recently, growing awareness of the scope to unlock equity tied up in public housing land has provided another estate renewal stimulant in certain locations.

13 A dwelling is defned as being in satisfactory condition if it has “at least four working facilities and not more than two major structural problems” (Steering Committee for the Review of GovernmentREVISED Service Provision 2019, Box 18.9). 14 Many of these consisted of late nineteenth century large terrace-houses in a prime location close to Sydney’s CBD and its iconic harbour. Other, smaller, dwellings had 180 degree harbour views. 15 However, although lucrative, this instance constitutes only a numerically small fraction of the wider sales program in a state that saw some 4000, mostly low value dwellings, sold in the period 2011–2016 (Robertson 2017). 16 It should be noted that these fgures relate solely to public housing disposals to private owners—in the main vacant homes sold at market prices, but also including sitting tenant sales in certain jurisdictions. Uncounted here are the public housing transfers to community housing providers where state/territory governments usually retain property titles or, where these are passed to CHPs normally expect to do so at nil return. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 111

Over the past 20 years numerous long-established concentrations of public housing have, been sites of major regeneration or renewal projects offcially portrayed as breathing new life into formerly ‘problematic places’. Estates such as Minto and Bonnyrigg in NSW, Rosewood and Hillcrest in South Australia, Kensington and North Carlton in Victoria and Kwinana and Midland in Western Australia have experienced substantial investment under projects usually featuring large-scale clearance, build for private sale and estate reconfguration. The stated justifcations for schemes of this type often highlight existing social as well as physical problems and emphasise a central aspiration to enhance residents’ quality of life. Nowadays citation of the neighbourhood effects thesis is routinely incorporated within such narratives. This is based on the argument that concentrations of disadvantaged people are inherently problematic and that a policy-assisted dilution will be benefcial to all. Despite the somewhat debatable claims that underlie such arguments (Arthurson 2013; Arthurson and Darcy 2015) (see Chapter 2) they have become an unquestionedPROOF component of many such offcial discourses. As discussed in greater depth in Pawson and Pinnegar (2018), the estate renewal policy orthodoxy that has emerged over the past 10–20 years in Australia is substantially in keeping with international thinking in its adherence to three key policy principles. The frst is a commitment to ‘social mix’ which, from a project planning perspective, translates as ‘mixed-tenure redevelopment’. This process transforms a locality from being predominantly public housing to one with public (or social) housing as a minority tenure within a primarily private housing market. Doubts that the faith placed in such a principle is soundly based (ArthursonREVISED 2012) were echoed in a 2018 Parliamentary Inquiry report that stated that “[t]here is no clear evidence of the benefts of the ‘social mix’ from public and private housing on each site desired by the Victorian Government” (Parliament of Victoria 2018, p. 10). In NSW, meanwhile, reduction of public housing to 30% of a renewed/redeveloped estate has become a foundational tenet of such schemes. Such a model is, in fact, fnancially essential within a context where it is understood that renewal projects must be largely or wholly self-fnanced, but is also offcially justifed by a ‘poverty de-concentration’ ethic (neighbourhood effects thesis). 112 H. PAWSON ET AL.

The second contemporary estate renewal consensus principle, at least at the level of stated claims, is the commitment to ‘partnership working’. Inherently, since the state government is initially the owner and manager of most if not all of an estate’s land and buildings, it must be the estate renewal initiator. However, the recognition that other stakeholders will be necessarily involved is about moving away from control exercised by hierarchical authority to infuence exercised through a more diverse distribution of power involving “various forms of co-production with other agencies and with citizens themselves” (Newman et al. 2004, p. 204). In the Australian estate renewal context, for example, other agencies may include public sector players such as the police service, the local school and the local council. The third contemporary estate renewal consensus principle is resident and community involvement in urban design and place management, upholding the ethic that “all area regeneration programs now have a faith that involving ‘the community’ will give rise to more effective and sustainable … solutions [and] help local peoplePROOF exert control over social problems …as well as contribute to democratic renewal” (Atkinson and Kintrea 2002, p. 160). As noted above (see Sect. 4.3.4), this cuts somewhat against the grain of Australian public housing management culture, but is infuenced by resident and community participation requirements embedded in state/territory land use planning frameworks with which a large-scale renewal project must comply. Recent years have seen the inauguration of long-term multi-site estate renewal programs by the governments of NSW (in 2016) and Victoria (in 2017). Objectives shared across the two programs include the intention to wholly clear and redevelop chosen sites at higher densities; and, in the process, to generate a net social housing gain. The NSW Government’s CommunitiesREVISED Plus program announced as being rolled out over 10 years from 2016 targets seven large estates and 21 neighbourhood sites for clearance and construction of 23,000 new social housing dwellings (NSW Government 2016a, b). Taking account of planned demolitions, it was said that this program would generate a net gain of 6000 homes—a 35% gain on the homes cleared. Under Victoria’s Public Housing Renewal Program nine estates are initially targeted for replacement, with the aspiration for a 10% net social housing gain (Parliament of Victoria 2018). Assertions that estate renewal schemes on this basis constitute a supply program (as claimed by the NSW Government for Communities Plus) are distinctly overblown in relation to their (potential) net contribution 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 113 of new dwellings (Pawson 2018), particularly given the vulnerability of such (long-term) projects to delay and/or collapse (Pawson and Pinnegar 2018). It is, nevertheless, signifcant that there remains a general state/territory adherence to a principle that renewal projects should enable the (on-site) retention/replacement of social housing on at least the same scale as pre-existing provision. This contrasts with similar estate renewal programs in some familiar comparator countries. In the United States, for example, the HOPE VI program of the 1990s and 2000s involved the demolition of some 150,000 public housing apartments, with a net loss of 55% of deeply subsidised units affordable to very low-income households (Schwartz 2015, p. 187). In the UK, meanwhile, council housing estate renewals in London 2004–2014 resulted in the net loss of around a quarter of original social rental stock (London Assembly 2015). The fnancial model underlying the NSW and Victoria programs revolves around the extraction of land value at sites where existing estates can be redeveloped at substantially increasedPROOF density; thus enabling land value release. The higher density redevelopment of public housing frees up part of the site that can be sold for private housing development with the land sale capital receipt underwriting the cost of replacement social housing construction. As offcially explained, this approach refects the imperatives of “an asset management framework that leverages the value of the existing portfolio to accelerate supply” (NSW Government 2016b). Implicit but given too little recognition is that this is a fnancial model that can ‘stack up’ only where land values are high and existing development density relatively low. The resulting geographical targeting will naturally privilege well-located estates, rather than according to their level of disadvantageREVISED as might be expected under a program primarily informed by a social inclusion ethic.

4.4 social Housing Diversification From small beginnings in the 1980s, but more substantively from the late 2000s, Australian governments have taken steps to diversify social housing through the promotion of a non-government not-for-proft community housing provider (CHP) model. A key milestone in this process was the Australian Government-initiated 2009 intergovernmental agreement to expand community housing provision to “up to 35 per cent” of all 114 H. PAWSON ET AL. social housing by 2014 (Housing Ministers’ Conference 2009). At that time CHPs accounted for just 11%. In the sections that follow, we discuss the motivations that have inspired this change in direction and the policy measures implemented by both Commonwealth and state/territory governments that, directly or indirectly, have furthered the process. Historically, some inspiration for expanding the role of not-for-proft (NFP) housing providers in Australia has been drawn from the experience of a number of European countries where entities of this kind (as opposed to state-managed housing) predominate. Two of the most notable of these are the UK and the Netherlands (see Box 4.4).

4.4.1 Motivations for Sector Diversifcation The promotion of a ‘multi-provider social housing system’ can be seen within the context of the neo-liberal policy orthodoxy that has framed government thinking in Australia since the 1980s. As noted in the discussion of the neo-liberal paradigm in Chapter 2, thisPROOF has been associated with a standard array of policy preferences often termed New Public Management (Hood 1995). Central within this thinking is the desirability of contestable service provision frameworks where effcient providers can gain advantage over competing peer organisations (Hilmer 1993). This is allied to the broader view that government service provision is inherently ineffcient and that this should be therefore minimised in all circumstances. Thus, the view that social housing (especially since it involves valuable and long-lasting physical assets) should be run as a business with decision-making motivated by rationally based commercial considerations. The priority attached to such thinking was re-emphasised in Australia through the 2015 Competition Policy Review (the Harper Report) and its claimsREVISED that competition policy was in need of reinvigoration and “should apply more broadly to government services”. Thus “governments should retain a stewardship function, separating the interests of policy, regulation and service delivery”, that “user choice should be placed at the heart of service delivery” and that “a diversity of providers should be encouraged” (Harper et al. 2015, p. 8). Subsequently, in applying these principles within the human services feld, the Productivity Commission has published recommendations for the reform of social housing among other such activities (Productivity Commission 2017). A second aspect of neo-liberal thinking that has conditioned government attitudes is the orthodoxy favouring private rather than 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 115 public debt. Thus, Treasuries generally have exercised a preference for debt-supported housing capital investment by non-government entities rather than by government itself (irrespective of the likely interest rate advantage enjoyed by the latter).17

Box 4.4 Not-for-proft social housing provision in comparator countries In the UK, NFP housing associations in 2008 overtook local councils as social housing providers, with their 2017 holdings amounting to well over 50% of social housing and some 10% of all housing stock (Stephens et al. 2018). Similarly, housing associations were responsible for 27% of 2017/2018 house building in England (National Housing Federation 2019; MHCLG 2018). Sector growth, taking place largely since the mid-1970s, had come about mainly through two processes. Firstly, the incremental acquisition of some 1.4 million former local council-owned dwellings over a 20 year ‘stock transfer’ processPROOF from 1989 (Pawson and Mullins 2010). Secondly, the grant-assisted construction of new housing under which some $93 billion (AUD) of government (and local government) funding leveraged $106 billion (AUD) in private fnance over the period 1990–2014. This funded the construction of 719,000 housing association dwellings; mainly social and affordable rental housing, but also including a small proportion of units for low cost sale.18 In the Netherlands, with proportionately the largest social housing sector in Europe (see Fig. 4.1b), the 1995 brutering settlement switched fnancing of the entire national social housing portfolio from public to private sources.19 This effectively resulted in housing associations owning, fnancing and managingREVISED the entire sector (Priemus 1995).

17 In 1994, 1998 and 2002 the NSW, ACT and Queensland Governments respectively established new arms-length housing companies for this purpose (Milligan et al. 2004, 2009). 18 Source of base data: UK Housing Review [various editions] Tables 19h and 59 (fgures for Great Britain). 19 The Brutering settlement (Grossing and Balancing Agreement) was a massive one-off fnancial deal (of nearly €16 billion) whereby all the subsidies the Dutch Government was liable to pay to housing associations in the future were cashed out and in return housing associations repaid all their outstanding loan debts to the government (Aedes 2013). 116 H. PAWSON ET AL.

Subsequently, Dutch associations have been largely self-fnancing, with a business model that saw them using their own massive reserves and developing new homes for sale to cross-subsidise core rental housing business. At the same time, they have continued to beneft from access to low cost private fnance under a loan guarantee program jointly funded by government and the associations, and revenue from housing allowances paid to tenants to help them afford cost-related rents. Under these arrangements annual social housing construction rates have continued to run at around 10,000 dwellings (Elsinga and Wassenberg 2014). Recently, the sector has seen a degree of re-regulation, in part a government response to an EU ruling that associations should limit their market housing activity potentially in competition with for-proft companies operating under less favourable tax settings (Hoekstra 2017).

Thirdly, there is the ‘better governance’ argument that mission-driven NFP housing providers working within (it PROOFis hoped) robust long-term business plans can potentially beneft from a stable regulatory investment framework somewhat insulated from the uncertainty inherent for a service under direct ministerial control and thereby subject to political volatility (as in the case of public housing). Equally, such considerations can be criticised as preferencing managerial effciency over democratic accountability (Ginsburg 2005). A fourth consideration has been the managerialist perception of public housing operations as problematically bureaucratic, unresponsive and resistant to change (Jones et al. 2007). In the Australian context, this has helped to drive bipartisan support for community housing, a locally rooted NFP model that has been historically seen as having “the potential to attractREVISED additional resources in the form of skills, land, funding and in-kind donations, especially from large charities, churches and local governments” (ibid., p. 25), and to more readily embrace an entrepreneurial and innovative service culture (Gilmour and Milligan 2012). Described as hybrid in the organisational literature, NFP housing entities are in this way considered to challenge conventional views of privatisation as their decision-making is infuenced by a dynamic blend of state-driven opportunities and regulatory requirements, market logic, commercial acumen and civil society values (Blessing 2012; Czischke et al. 2012). Beyond all of the above contentions, state and territory governments in particular have been infuenced by what could be termed instrumental 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 117 considerations that stem from national taxation and social security settings that have privileged CHPs over SHAs. Of particular importance here are the GST-exempt status of charitable not-for-proft organisations (but not government entities) and the social security ruling that treats CHPs as ‘private landlords’ in relation to the eligibility of their tenants for (Commonwealth Government-funded) Rent Assistance (RA). As a result of the latter policy, average revenue per tenancy of CHP landlords is around 48% (Pawson et al. 2016) higher than for public housing landlords. This additional revenue enables CHPs to service higher debt levels and/or to offer better services.

4.4.2 Implementing Sector Diversifcation: Promotion of Community Housing While continuing to account for only a relatively small proportion of Australia’s 430,000 social housing dwellings (as of 2017) community housing sector growth had, by this time, begunPROOF to dilute the historic monopoly supplier status of public housing. As shown in Fig. 4.4, the number of dwellings under community housing provider (CHP) management increased from 26,000 in 2001 to 83,000 in 2017, with a prospect of exceeding 100,000 by 2020.20 Although partly refecting open market sales (see Sect. 4.3.3), the parallel contraction of public housing shown in Fig. 4.4 is mainly explicable by the progressive handover of former public housing to CHPs in certain states and territories (see Sect. 4.5). As implied above, community housing expansion has been facilitated by policy measures enacted by Australian governments, albeit erratically over time and across jurisdictions. This can be traced back to the 1980s when, buildingREVISED on early experimental programs in certain states, a 1984 CSHA special purpose program provided early impetus (Jones et al. 2007). A program of ‘tied funds’ for community housing was retained

20 Factored in here are ongoing public housing transfers in NSW and South Australia, as well as a small pipeline of new social and affordable housing development. In interpreting these statistics it is, however, important to note that (unlike in many counterpart NFP housing systems in other countries) Australia’s community housing portfolio predominantly involves government-owned dwellings managed by CHPs under contract. Thus, although CHP-managed properties include some that are also CHP-owned, these organisations are for the most part asset-poor and consequently constrained in their ability to leverage investment against balance sheets (see also Chapter 8). 118 H. PAWSON ET AL.

V 3XEOLFKRXVLQJ &RPPXQLW\KRXVLQJ ,QGLJHQRXVKRXVLQJ

Fig. 4.4 Social housing in management 2001–2018: breakdown by social landlord type (Notes (1) ‘Indigenous housing’ includes both ‘state owned and managed Indigenous housing’ [SOMIH] and ‘Indigenous Community Housing Organisation’ [ICHO] managed dwellings. (2) Indigenous-specifc housing statistics unreliable pre-2009. Sources Productivity Commission Report on Government Services [Housing]—various years) PROOF in successive agreements until 2009 (Milligan and Pinnegar 2010). Additionally, and in the main since the mid-2000s, three main forms of policy/fnancial support have contributed to sector growth:

• Capacity-building • Supply subsidies • Public housing transfers.

Much of the remainder of this chapter explores each of the above mechanisms. Given its scale and potential social housing-wide signifcance, the third is discussed under its own heading (see Sect. 4.5) after consideration of theREVISED frst two below. Government-led approaches to the advance- ment of Indigenous community housing organisations are discussed in Chapter 7.

Capacity-Building In summarising capacity-building activity in this context we conceptualise capacity as “the ability of the [affordable housing] industry to perform the work and achieve the goals that governments and industry stakeholders, in collaboration, have envisaged for it” (Milligan et al. 2017, p. 13). Thus, capacity-building is “the activities, means and processes by which organisations develop or improve their ability to 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 119 perform” (AHURI 2017, p. 4). Government-initiated capacity-building activity21 that has contributed to community housing expansion can be divided into two forms: establishing appropriate institutional architecture, and enhancing capabilities of provider organisations. One of the most signifcant aspects of institutional architecture historically attributable to government action was the establishment of peak organisations to represent and lobby on behalf of the fedgling sector, with such bodies having been set up (with fnancial support) in all states and territories by 1992 (Bisset and Milligan 2004). Subsequently, starting from the early 2000s, the creation of purpose-designed regulatory frameworks marked another important facilitating step in sector development (ibid.). The main aim here was to build the confdence of industry stakeholders by providing assurance on management effectiveness and organisational viability (Travers et al. 2011). More specifcally, it was recognised that a signifcant CHP contribution to new housing supply would be dependent on access to private fnance (at reasonable rates), and that this, in turn,PROOF would necessitate building confdence among potential lenders that such loans would be of a low- risk nature. Importantly, NFP housing regulation also aims to protect the interests of tenants, governments and taxpayers. Components of such oversight include the establishment of minimum service delivery standards and assurance of provider compliance with overarching state/territory social housing policy, e.g. on tenancy allocation according to designated needs- based priority and rents set at specifed sub-market levels. Similarly, such regulation (including via contractual terms) restricts the circumstances in which CHP properties can be redeveloped and/or traded. CHP statutory regulation22 initially involved state-based frameworks inspired byREVISED the UK model. Central here is an initial registration assessment, with registered landlords subsequently expected to demonstrate ongoing compliance with defned criteria, termed performance standards. Participation in government-funded programs is dependent on the maintenance of registration. Building on this model, and initially led

21 It should be noted that in the sense that policy is conceptualised in this book as concerning government actions and expenditure decisions, capacity-building initiated by provider organisations themselves (and/or by their representative bodies) is not discussed here. For an account, see Milligan et al. (2017). 22 As opposed to regulation via contract associated with a particular tranche of housing. 120 H. PAWSON ET AL. by the Commonwealth Government, a National Regulatory System for Community Housing was developed in the period 2011–2014. This, it was argued, would help create a national market by enabling cross-jurisdictional operation by the larger and more ambitious CHPs, which had by this time begun to emerge (Australian Government 2010). However, partly stemming from the withdrawal of Commonwealth support, momentum problematically halted in 2014 and, at the time of writing, the national system remains incomplete (Milligan et al. 2017). A third instance of government-driven institutional capacity-building that appears to hold promise for the future has been the establishment of a government guarantee-backed fnancial intermediary for affordable housing fnance. In line with researcher recommendations in a succession of reports (Lawson et al. 2010, 2012, 2014), as well as a powerful offcials’ working group (AHWG 2017), the new structure (the Affordable Housing Bond Aggregator) was brought into being in 2018 under the National Housing Finance and Investment Corporation (NHFIC). It aims “[to] create an effcient private investmentPROOF pathway into social and affordable housing for super funds, insurance companies and other entities hungry for low-risk returns” (Lawson and Pawson 2017) (Box 8.5 has more detail). The NHFIC aims to overcome the problems faced by CHPs in accessing investment loan fnance. As CHPs are relatively small and undercap- italised organisations, they have historically had to rely on bank loans at relatively high rates of interest and of relatively short (e.g. 3–5 year) duration (Lawson et al. 2014). By aggregating the funding requirements of numerous CHPs it is anticipated that the fnancial intermediary (or bond aggregator) entity will be able to secure debt on signifcantly more favourable terms. Such an effcient source of fnance should enable the social/affordableREVISED funding gap to be reduced. However, as offcially acknowledged (AHWG 2017), additional government support (subsidy) will remain necessary to fully fll the gap; an issue further discussed in Chapter 8. Beyond the wider institutional capacity-building efforts described above, other such activity seen in recent years has been progressed through state-based industry development plans as in NSW (Housing NSW 2010) and Queensland (2015 Industry Development and Engagement Project). Under such strategies, some state/territory governments working with industry peak bodies have drawn up and funded customised industry development projects and other activities. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 121

The forms of industry capacity-building encompassed within such collab- orations are analysed in detail in Milligan et al. (2016, pp. 50–59).

Supply Subsidies Recent approaches to the fnancing of social and affordable housing are reviewed primarily in Chapter 8. It is relevant at this point to briefy note that a number of government funding programs initiated since the mid-2000s have provided important impetus for the enhancement of community housing sector capacity and scale of operation and, thus, to the wider diversifcation of Australia’s social housing system. The most important of these have been the above-mentioned 2009–2011 Social Housing Initiative (SHI) (see Sect. 4.3.1) and the 2008–2013 National Rental Affordability Scheme (NRAS) (see Chapter 8). Of the approximately 19,700 social housing units constructed under the SHI, the vast bulk were procured by state/territory governments and subsequently transferred to CHPs to own and/or operate. In Victoria and Queensland, a part of the state’sPROOF target supply was procured by CHPs themselves (KPMG 2012; Pawson et al. 2013, Table 3). More than half of the total (around 11,000 SHI dwellings built in NSW and Victoria) passed into CHP ownership (rather than management under contract). Moreover, receipt of completed SHI units by NSW CHPs was accompanied by an obligation to develop approximately 1200 affordable dwellings in addition over the next decade, largely through leveraging rental revenues and asset values of the original property tranche (KPMG 2012). Variants of this approach were adopted in some other states (ibid.). The overall impact of the SHI was a substantial boost to CHP sector managerial, fnancial and property development capacity. Under NRAS, Commonwealth and state/territory government funding underpinnedREVISED the construction of nearly 37,000 affordable rental dwellings through an assurance of annually receivable subsidies for a 10-year period from dwelling occupancy (for further details see Chapter 8). CHPs were major benefciaries under the program, which substantially enhanced their fnancial and organisational capacities. Over half of the total subsidies (some 19,300) were allocated to NFPs23 to directly procure new homes, which they retained in their ownership or sold to private investors (Department of Social Services 2018).

23 While NRAS incentives for NFPs were not restricted to state-registered and recognised CHPs, the majority of successful applicants were in the regulated CHP sector. 122 H. PAWSON ET AL.

Additionally, several larger CHPs entered into fee-for-service management arrangements for projects built by for-proft entities (Milligan et al. 2015). In addition to the national funding programs mentioned above, a number of smaller funding initiatives at state/territory level have also promoted community housing sector growth and, thereby, social housing system diversifcation (for details see Chapter 3 in Milligan et al. [2009] and Appendix 1 in Milligan et al. [2017]). Perhaps the single most important of these was the 2007/2008 Victorian Government’s $355 million capital grant allocation under that state’s Strategy for Growth in Housing for Low Income Victorians (Milligan et al. 2009, p. 42). To receive a funding allocation, CHPs had to contribute at least 25% in total project costs, effectively increasing the investment by a further $100 million (Victorian Auditor-General 2010). A fnal instance of housing capital works policy with the potential to contribute to future expansion of community housing sector capacity (and, thus, sector diversifcation) is the renewal of public housing estates (see Sect. 4.3.7). The NSW Government’sPROOF 2016–2026 Communities Plus program envisages that the mixed-tenure redevelopment of designated large estates will be progressed by developer-led consortia, in which CHPs will take on management (but not ownership) of rebuilt social housing. Some similar smaller scale opportunities have been provided to CHPs in WA and Victoria.

4.5 Public Housing Transfers

4.5.1 Forms of Public Housing Transfer The eight years to 2017 saw the near doubling in the community housing portfolioREVISED (see Fig. 4.4). The greater part of this resulted from the process known as ‘stock transfer’ or ‘public housing transfer’. This is where a state/territory government hands over a tranche of former public housing, typically complete with its existing tenant cohort, to a CHP successor landlord. In the Australian context, such transactions are of two general types.

• ‘Management outsourcing’ transfers where public housing management is contractually delegated to a CHP for continued use as social housing. • ‘Title transfers’ where the ownership of public housing assets is transferred to a CHP for use as social housing. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 123

The prospect of state and territory governments transitioning public housing into not-for-proft non-government control has been under discussion for many years (Bisset 2000; Jacobs et al. 2004; Berry et al. 2004; Spiller and Lennon 2009). Often advocated primarily as a route to a more diversifed social housing sector, the momentum for such housing transfers received substantial impetus from the Australian Government under the 2007–2013 Labor administrations. Albeit involving some earlier experimentation, but mainly from around 2009, most state and territory governments progressed some, usually small-scale, transfer projects (Pawson et al. 2013). By 2016, these had encompassed 26,600 dwellings (Pawson et al. 2016). By 2020, taking account of transactions in the pipeline in South Australia and NSW, the transfer tally will total nearly 45,000, equating to around 13% of 2009 public housing stock. Numerically, by far the largest-scale activity has been in NSW, where the cumulative transfers total will reach around 28,000 dwellings by 2020 and, by that stage, will contribute to a social housing sector in which community housingPROOF represents around 35% of all tenancies. Meanwhile in Tasmania, a succession of transactions 2012– 2014 boosted community housing to 46% of the social housing in that state, by far the largest in Australia (Pawson et al. 2016, Table 10). The transfer process, as exemplifed by recent practice, generally starts with state/territory government designation of a body of tenanted housing to be ‘hived off’ to CHP management (and possibly ownership). As yet, transfer tranches have been relatively small in scale, for example, in the 2016 NSW management transfer program, these averaged around 1600 dwellings. The right to take on management of a designated portfolio is determined through a competitive process open to registered CHPs. Unlike the UK stock transfer process there is no requirement for a proposedREVISED transfer to secure tenant majority support; indeed, there has been typically little if any tenant involvement in transfer specifcations and contract awards (Pawson and Wiesel 2014). In some other respects, the process being described here mir- rors the stock transfer-driven social housing sector reconfguration in the UK (Pawson and Mullins 2010)—albeit on a much smaller scale. Under that process, UK social housing was distanced from government and re-badged to perform a function very similar to its historic role. However, the predominance of the management transfer variant in Australia makes this a proposition substantially different from the full ownership handovers that have been the rule in England, Wales and Scotland. Under this standard Australian approach, tenants experience 124 H. PAWSON ET AL. a change of landlord, while the acquiring CHP takes ownership of the rental income stream and responsibility for tenancy management and virtually all property management matters for a specifed period, originally on a 3-year rolling basis, but now more usually 10–20 years. Asset ownership, however, remains with the project-initiating state/territory government.24

4.5.2 Transfer Motivations The transfer of public housing to non-government providers may appeal to state/territory governments in its general consistency with key tenets of neo-liberal and New Public Management thinking (see Sect. 4.4.1). It has also been advocated and used in Australia as a strategy for expanding the not-for-proft housing sector. There is also a purely instrumental dimension to this, in that current policy settings afford CHPs signif- icant fnancial advantages over public housing landlords (Pawson et al. 2013, 2016). In particular, CHP tenant eligibilityPROOF for RA, paid through the social security system, enables a CHP to collect a higher rent without reducing a tenant’s net income. Since RA is a Commonwealth Government responsibility, the transfer of public housing can be portrayed at the state/territory level as a means of securing additional nationally funded resources.

4.5.3 Public Housing Transfers as ‘Soft Privatisation’ Transferred public housing is intended to remain part of welfare state provision, allocated and priced according to need. By their very nature, however, public housing transfers weaken government control over this service, evenREVISED where asset ownership remains unaffected. Therefore, transfers can be portrayed as a form of privatisation and, hence, an inherently politically contentious proposition. Vociferous opposition involving tenants and others was credited with sinking a large-scale transfer contemplated by the Victoria State

24 A different approach to transfer undertaken in Victoria saw Aboriginal tenants being consulted about transfer of their tenancies to an Aboriginal controlled NFP organisation. Following tenant acceptance and a long transition period, that organisation, Aboriginal Housing Victoria, has also achieved ownership of the homes transferred. For more details see, Chapter 7, Box 7.2. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 125

Government in the early 2000s (Jacobs et al. 2004). Although subsequent Australian transfers have generated negligible grassroots opposition, the potential for political partisanship in such reform was re-emphasised in the Queensland Housing Minister’s 2016 late cancel- lation of a large planned transfer at Logan, near Brisbane (Pawson et al. 2016). As expressed by the Minister, the decision (which followed a change of government) was inspired by concerns of principle: “It’s not the policy of this government to privatise essential services and I want to make it very clear that this includes public housing” (de Brenni 2016). Associated misgivings often expressed about UK stock transfers have included concerns that such system restructuring will weaken landlord accountability and degrade tenants’ protection from market forces (Ginsburg 2005; Glynn 2007). However, the weight attaching to such concerns will depend on the terms of transfer contracts and other forms of regulation applicable to the successor landlord, e.g. in relation to managerial accountability and restrictions on property disposal. There is also a need to consider the counterfactualPROOF scenario: transfer critics pitch the principled argument that, faced with steadfast rejection of any form of privatisation, governments will reverse their historic policy of disinvesting from public housing. On the other hand, public housing transfers of the kind seen in Australia (and the UK) could represent a more acceptable (softer) form of privatisation than alternative paths that might otherwise become, in the end, inevitable. The way that former social housing has been traded into the market in Germany, for example, illustrates the kind of scenario to be avoided at all costs (Lawson et al. 2016; see also Sect. 8.4.1).

REVISED4.6 conclus ions The long-term trajectory of Australia’s social housing is similar to many comparable countries. In the terms defned by Stephens (2009), an early phase when it was fulflling a supply role gave way to a period when it formed more of a safety net, before more recently transitioning towards an ambulance service. Since the mid-1990s the public housing component of social housing has been in general decline in terms of its relative scale, physical condition and profle within government bureaucracies. The inclusion of social housing in the 2008 economic stimulus program, nevertheless, provided a temporary fllip to the wider system. And, albeit small in scale, there have been some subsequent signs that 126 H. PAWSON ET AL.

Australian governments continue to appreciate the potentially benefcial and unique contributions of social housing to the wider housing system. Hence, the range of modest growth strategies of most state/territory governments as at 2016 (see Milligan et al. 2017, Appendix 1). Arguably also demonstrating a level of ongoing in-principle commitment to social housing is the apparent offcial resolve to predicate estate renewal projects on the replacement of at least as many social housing dwellings as originally extant. This is in fairly sharp contrast with experience in certain comparator countries, e.g. the United States, where site regeneration has tended to result in extensive public housing losses. However, without active leadership and funding from the Commonwealth Government, it appears highly unlikely that state/territory administrations will aspire to do more than maintain or very slightly expand social housing portfolios in numerical terms in the foreseeable future. In these circumstances, the chances of production being ramped back up to levels that would come close to keeping pace with population growth (let alone starting to remedy still-accumulatingPROOF shortage) appear remote to non-existent.

References ABS. (2019a). Building Activity, Australia, Mar 2019 [Internet] (Cat. No. 8752.0). Canberra: Australian Bureau of Statistics. Available from: https:// www.abs.gov.au/ausstats/[email protected]/mf/8752.0. Accessed 13 August 2019. ABS. (2019b). Household and Family Projections, Australia, 2016 to 2041 [Internet] (Cat. No. 3236.0). Canberra: Australian Bureau of Statistics. Available from: https://www.abs.gov.au/ausstats/[email protected]/mf/3236.0. Accessed 13 August 2019. Aedes. (2013). Dutch Social Housing in a Nutshell [Internet]. The Hague: Aedes. AvailableREVISED from: http://www.iut.nu/wp-content/uploads/2017/03/ Dutch-Soical-Housing-in-a-Nutshell.pdf. Accessed 8 July 2019. AHURI. (2017). Ready for Growth? Inquiry into Australia’s Affordable Housing Industry Capacity (Visual Report). Melbourne: AHURI. AHWG. (2017). Supporting the Implementation of an Affordable Housing Bond Aggregator (Affordable Housing Working Group Report to Heads of Treasuries). Canberra: Council on Federal Financial Relations. AIHW. (1993). Australia’s Welfare 1993: Services and Assistance. Canberra: Australian Government Publishing Service. AIHW. (1997). Australia’s Welfare 1997: Services and Assistance. Canberra: Australian Government Publishing Service. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 127

Arthurson, K. (1998). Redevelopment of Public Housing Estates: The Australian Experience. Urban Policy and Research, 16(1), 35–460. Arthurson, K. (2012). Social Mix and the City. Collingwood: CSIRO Publishing. Arthurson, K. (2013). Neighbourhood Effects and Social Cohesion: Exploring the Evidence in Australian Urban Renewal Policies. In D. Manley, M. van Ham, N. Bailey, L. Simpson, & D. Maclennan (Eds.), Neighbourhood Effects or Neighbourhood Based Problems? (pp. 251–268). Dordrecht: Springer. Arthurson, K., & Darcy, M. (2015). The Historical Construction of ‘the Public Housing Problem’ and Deconcentration Policies. In R. Dufty-Jones & D. Rogers (Eds.), Housing in 21st Century Australia (pp. 173–186). Farnham: Ashgate. Atkinson, R., & Kintrea, K. (2002). Area Effects: What Do They Mean for British Housing and Regeneration Policy? European Journal of Housing Policy, 2(2), 147–166. Australian Government. (2010). Regulation and Growth of the Not-for-Proft Housing Sector (Discussion Paper). Canberra: Commonwealth of Australia. Australian Government. (2014). Roles and Responsibilities in Housing and Homelessness (Reform of the Federation White Paper, Issues Paper 2). Canberra: Commonwealth of Australia. PROOF Berry, M., Whitehead, C., Williams, P., & Yates, J. (2004). Financing Affordable Housing: A Critical Comparative Review of the United Kingdom and Australia (AHURI Final Report No. 72). Melbourne: AHURI. Bisset, H. (2000). Social Housing, Building a New Foundation: Social Housing Innovation Project (Consultants’ Report to the Offce of Housing Department of Human Services Victoria). Melbourne: Ecumenical Housing. Bisset, H., & Milligan, V. (2004). Risk Management in Community Housing (Report for the National Community Housing Forum). Sydney: NCHF. Blessing, A. (2012). Magical or Monstrous? Hybridity in Social Housing Governance. Housing Studies, 27(2), 189–207. Burke, P. (1998). The Poverty of Homelessness. In R. Fincher & J. Nieuwenhuysen (Eds.), Australian Poverty: Then and Now (pp. 293–313). Melbourne:REVISED Melbourne University Press. Carter, R., Milligan, V., & Hall, J. (1988). The Benefts and Costs of Public Rental Housing in NSW (Research and Policy Papers). Sydney: Department of Housing. Castles, F. (1994). The Wage Earners’ Welfare State Revisited: Refurbishing the Established Model of Australian Social Protection, 1983–93. Australian Journal of Social Issues, 29(2), 120–145. Caulfeld, J. (2000). Public Housing and Intergovernmental Reform in the 1990s. Australian Journal of Political Science, 35(1), 99–110. Czischke, D., Gruis, V., & Mullins, D. (2012). Conceptualising Social Enterprise in Housing Organisations. Housing Studies, 27(4), 418–437. 128 H. PAWSON ET AL. de Brenni, M. (2016, July 20). New Thinking for Logan Housing [Internet]. Queensland Government Media Statement. Available from: http://statements.qld.gov.au/Statement/2016/7/20/new-thinking-for-logan-housing. Accessed 16 July 2019. Department of Social Services. (2018, June 30). National Rental Affordability Scheme Quarterly Performance Report. Canberra: Commonwealth of Australia. Elsinga, M., & Wassenberg, F. (2014). Social Housing in the Netherlands. In K. Scanlon, C. Whitehead, & M. F. Arrigoitia (Eds.), Social Housing in Europe (pp. 21–40). Chichester: Wiley-Blackwell. Fitzpatrick, S., & Pawson, H. (2011). Security of Tenure in Social Housing: An International Review. London: Shelter. Fitzpatrick, S., & Pawson, H. (2014). Ending Security of Tenure for Social Renters: Transitioning to ‘Ambulance Service’ Social Housing? Housing Studies, 29(5), 597–615. Fitzpatrick, S., Quilgars, D., & Pleace, N. (Eds.). (2009). Homelessness in the UK: Problems and Solutions. Coventry: Chartered Institute of Housing. Freestone, R. (1986). Exporting the Garden City: Metropolitan Images in Australia, 1900–1930. Planning Perspectives, 1(1), 61–84. Gilmour, T. (2018). Champions of Change: ShelterPROOF NSW, Community Activism and Transforming NSW’s Housing System. Sydney: Shelter NSW. Gilmour, T., & Milligan, V. (2012). Housing Affordability, Affordable Housing and the Policy Agenda. In R. Tomlinson (Ed.), Australia’s Unintended Cities: The Impact of Housing on Urban Development (pp. 51–67). Collingwood: CSIRO Publishing. Ginsburg, N. (2005). The Privatisation of Council Housing. Critical Social Policy, 25(1), 115–135. Glynn, S. (2007). But We Already Have Community Ownership: Making Council Housing Work. In A. Cumbers & G. Whittam (Eds.), Reclaiming the Economy: Alternatives to Market Fundamentalism in Scotland (pp. 141–156). Glasgow: Scottish Left Review Press. Groenhart, L., & Burke, T. (2014). Thirty Years of Public Housing Supply and Consumption:REVISED 1981–2011 (AHURI Final Report No. 231). Melbourne: AHURI. Hall, J., & Berry, M. (2007). Operating Defcits and Public Housing: Policy Options for Reversing the Trend: 2005–06 Update (AHURI Final Report No. 106). Melbourne: AHURI. Harper, I., Anderson, P., McCluskey, S., & O’Brien, M. (2015). Competition Policy Review: Final Report [Internet]. Canberra: Commonwealth of Australia. Available from: http://competitionpolicyreview.gov.au/fnal- report/. Accessed 16 July 2019. Hayward, D. (1996). The Reluctant Landlords? A History of Public Housing in Australia. Urban Policy and Research, 14(1), 5–35. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 129

Henderson, R. (1975). Poverty in Australia: First Main Report, April 1975. Canberra: Australian Government Publication Service. Hilmer, F. (1993). National Competition Policy (Report by the Independent Committee of Inquiry). Canberra: Australian Government Publication Service. Hoekstra, J. (2017). Reregulation and Residualization in Dutch Social Housing: A Critical Evaluation of New Policies. Critical Housing Analysis, 4(1), 31–39. Hood, C. (1995). The ‘New Public Management’ in the 1980s: Variations on a Theme. Accounting, Organizations and Society, 20(2–3), 93–109. Housing Ministers’ Conference. (2009). Implementing the National Housing Reforms: A Progress Report to the Council of Australian Governments from Commonwealth, State and Territory Housing Ministers. Canberra: Commonwealth of Australia. Housing NSW. (2010). NSW Community Housing Industry Development Framework [Internet]. Sydney: Housing NSW. Available from: http://pandora.nla.gov.au/pan/122207/20100903-0245/www.housing.nsw.gov. au/NR/rdonlyres/4091BF7B-F168-41FD-A8E5-96B29C6C01FE/0/ IDFfnalversionMay2010tobeputonHNSWinternet.pdf. Accessed 16 July 2019. PROOF Industry Commission (1993). Public Housing Volume 1. Canberra: AGPS. IPART. (2017a). Review of Rent Models for Social and Affordable Housing (Draft Report). Sydney: Independent Pricing and Regulatory Tribunal. IPART. (2017b). Review of Rent Models for Social and Affordable Housing (Final Report). Sydney: Independent Pricing and Regulatory Tribunal. Jacobs, K., Marston, G., & Darcy, M. (2004). ‘Changing the Mix’: Contestation Surrounding the Public Housing Stock Transfer Process in Victoria, New South Wales and Tasmania. Urban Policy and Research, 22(3), 249–263. Jones, A., et al. (2007). Integration and Social Housing in Australia: Challenges and Options (AHURI Positioning Paper No. 102). Melbourne: AHURI. Jones, M. A. (1972). Housing and Poverty in Australia. Melbourne: Melbourne University Press. Jones, P., &REVISED Evans, J. (2014). Urban Regeneration in the UK. London: Sage. Kemeny, J. (1983). The Great Australian Nightmare. Melbourne: Georgian House. KPMG. (2012, September). Social Housing Initiative Review (Report for the Housing Ministers’ Advisory Committee). Sydney: KMPG. Available from: http://www.nwhn.net.au/admin/fle/content101/c6/social_housing_initia- tive_review.pdf. Accessed 16 July 2019. Lawson, J., Berry, M., Hamilton, C., & Pawson, H. (2014). Enhancing Affordable Rental Housing Investment via an Intermediary and Guarantee (AHURI Final Report No. 220). Melbourne: AHURI. Lawson, J., Gilmour, T., & Milligan, V. (2010). International Measures to Channel Investment Towards Affordable Rental Housing (AHURI Research Paper). Melbourne: AHURI. 130 H. PAWSON ET AL.

Lawson, J., Legacy, C., & Parkinson, S. (2016). Transforming Public Housing in a Federal Context (AHURI Final Report No. 264). Melbourne: AHURI. Lawson, J., Milligan, V., & Yates, J. (2012). Housing Supply Bonds—A Suitable Instrument to Channel Investment Towards Affordable Housing in Australia? (Final Report No. 188). Melbourne: AHURI. Lawson, J., & Pawson, H. (2017, December 5). Government Guarantee Opens Investment Highway to Affordable Housing [Internet]. City Futures Blog. Available from: https://blogs.unsw.edu.au/cityfutures/blog/2017/12/ government-guarantee-opens-investment-highway-to-affordable-housing/. Accessed 9 August 2019. London Assembly. (2015). Knock It Down or Do It Up? The Challenge of Estate Regeneration [Internet]. London: Greater London Authority. Available from: https://www.london.gov.uk/sites/default/fles/gla_migrate_fles_destina- tion/KnockItDownOrDoItUp_0.pdf. Accessed 19 July 2019. Mant, J. (1992). Inquiry into the Department of Housing [Internet] (Report of the Acting Commissioner). Available from: http://www.johnmant.com/gal- lery/pdf_125482571070944.pdf. Accessed 9 August 2019. Martin, C. (2016, March). Public Housing in NSW: A Brief History. Inner Sydney Voice, pp. 13–15. PROOF MHCLG. (2018). Live Tables on Housebuilding: Table 208 [Internet]. London, UK: Ministry of Housing, Communities and Local Government. Available from: https://www.gov.uk/government/statistical-data-sets/live-tables-on- house-building. Accessed 16 July 2019. Milligan, V. (2003). How Different? Comparing Housing Policies and Housing Affordability Consequences for Low Income Households in Australia and the Netherlands (Netherlands Geographical Studies No. 318). Utrecht: Utrecht University. Milligan, V. (2018, July 17). The New National Housing Agreement Won’t Achieve Its Goals Without Enough Funding [Internet]. City Futures Blog. Available from: http://blogs.unsw.edu.au/cityfutures/blog/2018/07/the- new-national-housing-agreement-wont-achieve-its-goals-without-enough- funding/REVISED. Accessed 16 July 2019. Milligan, V., Gurran, N., Lawson, J., Phibbs, P., & Phillips R. (2009). Innovation in Affordable Housing in Australia: Bringing Policy and Practice for Not-for-Proft Organisations Together (AHURI Final Report No. 134). Melbourne: AHURI. Milligan, V., Hulse, K., Pawson, H., Flatau, P., and Liu, E. (2015). Strategies of Australia’s Leading Not-for-Proft Housing Providers: A National Study and International Comparison (AHURI Final Report No. 237). Melbourne: AHURI. Milligan, V., Martin, C., Phillips, R., Liu, E., Pawson, H., & Spinney, A. (2016). Profling Australia’s Affordable Housing Industry (AHURI Final Report No. 268). Melbourne: AHURI. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 131

Milligan, V., Pawson, H., Phillips, R., & Martin, C., with Elton Consulting. (2017). Developing the Scale and Capacity of Australia’s Affordable Housing Industry (AHURI Final Report No. 278). Melbourne: AHURI. Milligan, V., Phibbs, P., Fagan, K., & Gurran, N. (2004). A Practical Framework for Expanding Affordable Housing Services in Australia: Learning from Experience (AHURI Final Report No. 61). Melbourne: AHURI. Milligan, V., & Pinnegar, S. (2010). The Comeback of National Housing Policy in Australia: First Refections. International Journal of Housing Policy, 10(3), 325–344. Monro, D. (1998). Two Cheers for Public Housing. Unpublished monograph, Department of Social Security. Moretti, E. (2012). The New Geography of Jobs. Boston: Mariner Books. Morris, A. (2017, October 27). Last of the Millers Point and Sirius Tenants Hang on as the Money Now Pours [Internet]. The Conversation. Available from: https://theconversation.com/last-of-the-millers-point-and-sirius-tenants-hang-on-as-the-money-now-pours-in-85754. Accessed 16 July 2019. Morris, A. (2018). The Residualisation of Social Housing in Australia and Its Impacts on Older Tenants. In E. Ní Shé, L. J. Burton, & P. A. Danaher (Eds.), Social Capital and Enterprise in thePROOF Modern State (pp. 45–61). Basingstoke: Palgrave Macmillan. National Housing Federation. (2019). How Many Homes Did Housing Associations Deliver in 2017/18? [Internet]. London: National Housing Federation. Available from: http://s3-eu-west-1.amazonaws.com/doc.housing.org.uk/Supply_briefng_note_201819.pdf. Accessed 16 July 2019. Newman, J., Barnes, M., Sullivan, H., & Knops, A. (2004). Public Participation and Collaborative Governance. Journal of Social Policy, 33(2), 203–223. NSW Auditor-General. (2013). Performance Audit: Making the Best Use of Public Housing (NSW Auditor-General’s Report, Performance Audit). Sydney: Audit Offce of New South Wales. NSW Government. (2014). Social Housing in New South Wales: A Discussion Paper for Input and Comment [Internet]. Sydney: NSW Government. Available from: https://www.facs.nsw.gov.au/__data/assets/file/0009/303030/Social-REVISED Housing-in-NSW_Discussion-Paper.pdf. Accessed 12 August 2019. NSW Government. (2016a). Future Directions for Social Housing in NSW. Sydney: NSW Government. Available from: http://www.socialhousing.nsw. gov.au/?a 348442. Accessed 16 July 2019. = NSW Government. (2016b). Communities Plus—An innovative approach to social housing [Internet], Sydney: NSW Government. Available from: [Accessed 16 July 2019]. OECD. (2016). OECD Affordable Housing Database (December 2016 Version) [Internet]. Paris: Organisation for Economic Co-operation and Development. Available from: http://www.oecd.org/social/affordable-housing-database. htm. Accessed 11 July 2019. 132 H. PAWSON ET AL.

Paris, C., Williams, P., & Stimson, R. (1985). From Public Housing to Welfare Housing? Australian Journal of Social Issues, 20(2), 105–117. Parkin, A. (1992). The Intergovernmental Politics of Housing Policy. Australian Journal of Political Science, 27(Special issue), 91–112. Parliament of Victoria. (2018, June). Inquiry into the Public Housing Renewal Program (Legal and Social Issues Committee Report). Pawson, H. (2018, May 8). NSW Is Overselling Its Social Housing Commitment [Internet]. City Futures Blog. Available from: http://blogs. unsw.edu.au/cityfutures/blog/2018/05/nsw-is-overselling-its-social-housing-commitment/. Accessed 12 July 2019. Pawson, H., Bright, J., Engberg, L., & van Bortel, G. (2012). Resident Involvement in Social Housing in the UK and Europe. London: Hyde Housing Group. Available from: https://tinyurl.com/y3ow7abe. Accessed 27 August 2019. Pawson, H., Martin, C., Flanagan, K., & Phillips, R. (2016). Recent Housing Transfer Experience in Australia: Implications for Affordable Housing Industry Development (AHURI Final Report No. 273). Melbourne: AHURI. Pawson, H., Milligan, V., Wiesel, I., & Hulse, K. (2013). Public Housing Transfers in Australia: Past, Present and ProspectivePROOF (AHURI Final Report No. 215). Melbourne: AHURI. Pawson, H., & Mullins, D. (2003). Changing Places: Housing Association Policy and Practice on Nominations and Lettings. Bristol: Policy Press. Pawson, H., & Mullins, D. (2010). After Council Housing: Britain’s New Social Landlords. Basingstoke: Palgrave. Pawson, H., & Pinnegar, S. (2018). Regenerating Australia’s Public Housing Estates. In K. Ruming (Ed.), Urban Regeneration in Australia: Policies, Processes and Projects of Contemporary Urban Change (pp. 311–332). London: Routledge. Pawson, H., & Wiesel, I. (2014). Tenant Agency in Australia’s Public Housing Transfers: A Comparative Assessment. International Journal of Housing Policy, 14(4), 344–367. Priemus, H.REVISED (1995). How to Abolish Social Housing. International Journal of Urban and Regional Research, 19(1), 145–155. Priorities Review Staff. (1975). Report on Housing. Canberra: Australian Government Publication Service. Productivity Commission. (2017). Introducing Competition and Consumer Choice into Human Services [Internet] (Inquiry Report No. 85). Melbourne: Productivity Commission. Available from: https://www.pc.gov.au/inquiries/ completed/human-services/reforms/report. Accessed 16 August 2019. PWC. (2018). Triennial Review 2013–14 to 2016–17 South Australian Housing Trust. Adelaide: PricewaterhouseCoopers. 4 SOCIAL HOUSING IN AUSTRALIA: EVOLUTION, LEGACY … 133

Randolph, B., & Judd, B. (2000). Community Renewal and Large Public Housing Estates. Urban Policy and Research, 18(1), 91–104. Rawnsley, T., & Spiller, M. (2012). Housing and Urban Form: A New Productivity Agenda. In R. Tomlinson (Ed.), Australia’s Unintended Cities (pp. 135–152). Melbourne: CSIRO. Robertson, J. (2017, September 4). Government’s Privatisation Push Extends to $9 Billion Property Sale Pipeline [Internet]. Sydney Morning Herald. Available from: http://www.smh.com.au/nsw/governments-privatisation-push-extends-to-9-billion-property-sale-pipeline-20170904-gyagew.html. Accessed 16 July 2019. Ruming, K. (2015). Reviewing the Social Housing Initiative: Unpacking Opportunities and Challenges for Community Housing Provision in Australia. In R. Dufty-Jones & D. Rogers (Eds.), Housing in 21st-Century Australia: People, Practices and Policies (pp. 187–203). Farnham: Ashgate. Schwartz, A. (2015). Housing Policy in the United States (3rd ed.). New York: Routledge. Spiller, M., & Lennon, M. (2009). Re-inventing Social Housing, a Once in a Generation Chance. Housing Works, 7(1), 20–22. Steering Committee for the Review of Government Service Provision. (2019). Report on Government Services, Part G: HousingPROOF and Homelessness [Internet]. Canberra: Productivity Commission. Available from: https://www.pc.gov. au/research/ongoing/report-on-government-services/2019/housing-and-homelessness#attachtables. Accessed 27 May 2019. Stephens, M. (2009). The Role of the Social Rented Sector. In S. Fitzpatrick & M. Stephens (Eds.), The Future of Social Housing (pp. 27–38). London: Shelter. Stephens, M., & Perry, J. (2018). How the Purpose of Social Housing Has Changed and Is Changing. In M. Stephens, J. Perry, S. Wilcox, P. Williams, & G. Young (Eds.), UK Housing Review 2018. Coventry: Chartered Institute of Housing. Stephens, M., Perry, J., Wilcox, S., Williams, P., & Young, G. (2018). UK Housing Review 2018. Coventry: Chartered Institute of Housing. Tibbits, G. REVISED(1988). The Enemy Within Our Gates: Slum Clearance and High- Rise Flats. In R. Howe (Ed.), New Houses for Old: Fifty Years of Public Housing in Victoria 1938–1988 (pp. 128–137). Melbourne: Ministry of Housing and Construction. Travers, M., Gilmour, T., Jacobs, K., Milligan, V., & Phillips, R. (2011). Stakeholder Views of the Regulation of Affordable Housing Providers in Australia (AHURI Final Report No. 161). Melbourne: AHURI. Troy, P. (2012). Accommodating Australians. Sydney: Federation Press. Victorian Auditor-General. (2010). Access to Social Housing (Victorian Auditor- General’s Report). Melbourne: Victorian Government. 134 H. PAWSON ET AL.

Victorian Auditor-General. (2017). Managing Victoria’s Public Housing (Victorian Auditor-General’s Report). Melbourne: Victorian Government. Whitehead, C. M. E. (2015, July). From Social Housing to Subsidized Housing? Accommodating Low-Income Households in Europe. Built Environment, 41(2), 244–257. Wiesel, I., Pawson, H., Stone, W., Herath, S., & McNelis, S. (2014). Social Housing Exits: Incidence, Motivations and Consequences (AHURI Final Report No. 229). Melbourne: AHURI. Woodward, R. (1997). Paradise Lost. Australian Planner, 34(1), 25–29. Yates, J. (2013). Evaluating Social and Affordable Housing Reform in Australia: Lessons to Be Learned from History. International Journal of Housing Policy, 13(2), 111–133.

PROOF

REVISED CHAPTER 5

Home Ownership and the Role of Government

Home ownership has been seen as a core aspiration and value for most, if not all, Australians from European settlement to the present day. It was refected in the then Prime Minister’s ForgottenPROOF People speech in 1942:

[O]ne of the best instincts in us is that which induces us to have one little piece of earth with a house and a garden which is ours; to which we can withdraw, in which we can be among our friends, into which no stranger may come against our will. (Menzies 1942, p. 4)

It was re-asserted in a speech in 2016, by the then Treasurer who provided assurance that his (conservative) government was committed to getting more Australians into their own homes:

There are three important economic goals that Australians aspire to. To have a job to support and care for your family, to be independent in your retirement,REVISED and to own your own home. (Morrison 2016)

This perception of home ownership as an aspiration extends beyond political ideology. A recent national poll reported that three quarters of Australians believed home ownership is a large part of the Australian way of life despite more than half being ‘very concerned’ about the ability of future generations to afford housing (Sheppard et al. 2017, p. 4). In part this concern arises because Australia’s housing system, for reasons of institutional path dependency, has not evolved in response to the

© The Author(s) 2020 135 H. Pawson et al., Housing Policy in Australia, https://doi.org/10.1007/978-981-15-0780-9_5 136 H. PAWSON ET AL. economic and social reforms that have occurred in the past few decades (Burke and Hulse 2010, p. 825). Its housing policies, likewise, have not evolved appropriately. They refect a trend towards increased reliance on the market and are seen as being designed to support rather than replace the market (ibid., p. 833; Berry 1983). Section 5.1 examines Australia’s home ownership rate in a comparative context. Trends in its home ownership rate, changes in its housing policies and the reasons for emerging concerns are covered in Sect. 5.2. The question of why home ownership has a dominant role in Australia and in countries with similar economic, institutional and cultural backgrounds is addressed in Sect. 5.3. Whether the support provided to this tenure is an appropriate role for government is considered in the concluding Sect. 5.4.

5.1 Home Ownership in a Comparative Context Home ownership in this chapter is defned PROOFas (mortgaged or outright) ownership and occupation of a primary residence. It excludes households who own residential property as investors (see Chapter 6). It takes property rights of occupation and disposal as core rights in defning home ownership as a tenure. However, as Easthope (2014) reminds us, these rights may vary across countries and the bundles of property rights associated with different tenures may not be immutable over time (as discussed in Chapter 1). With around 2 in every 3 households owning or purchasing their own homes, home ownership is the dominant housing tenure in Australia. As elsewhere across the Anglophone world, this is below the OECD average of around 75% (see Fig. 5.1)1 despite the perception that Anglophone countries, REVISEDwith their characterisation as liberal welfare regimes, favour home ownership (see Chapter 1). The factors explaining differences in home ownership rates across and within countries over time are many and varied. Economic and

1 For most OECD countries, home ownership rates increased from the 1990s to the mid-2000s (Andrews and Caldera Sánchez 2011b). Ownership rates in OECD countries in the mid-2010s varied from a high of over 98% in Romania to a low of just over 40% in Switzerland (based on the 37 countries included in the OECD data base selectively reported in Fig. 5.1). A chart showing home ownership rates in 2014 for all countries in the OECD database can be found in AIHW (2018, Figure 1.3). 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 137

1RUZD\ 6SDLQ ,WDO\ ,UHODQG /X[HPERXUJ &DQDGD %HOJLXP )LQODQG $XVWUDOLD 1HZ=HDODQG 8QLWHG6WDWHV 8QLWHG.LQJGRP )UDQFH 6ZHGHQ 1HWKHUODQGV 'HQPDUN 2ZQHGRXWULJKW *HUPDQ\ 6ZLW]HUODQG 2ZQHGZLWKPRUWJDJH 2(&'

Fig. 5.1 Home ownership rates: selected OECD countries, circa 2014 (Source OECD [2016, Figure HM1-3]. Ownership rates exclude unknown tenure. NZ data from 2013 Census Quickstats Table 13) socio-demographic factors in explaining differences have been highlighted (Andrews and Caldera Sánchez 2011a, b), but these leave a considerable portion of differences in thePROOF level and growth of home ownership rates unexplained. Additional factors identifed in OECD work are public policy settings affecting the relative attractiveness of owner-occupation and the role of mortgage markets. However, there is some evidence that since the 1990s, while they favour home ownership, government policies are less likely to have been effective in increasing home ownership rates in Anglophone compared with the non-Anglo- phone countries (Atterhög 2006). Research additionally suggests home ownership rates are higher where mortgages are funded by intermediaries reliant on deposit-based fnance, as in Anglophone countries, than on bond-based fnance as is more common in Scandinavian or Germanic countries (Blackwell and Kohl 2018). That homeREVISED ownership outcomes can be affected by fnancial institutional structures underscores the importance of looking beyond economic and socio-demographic explanations to other possible institutional infuences such as social, political, legal and cultural factors. Fisher and Jaffe did this, but were unable to show that these factors provided a “comprehensive explanatory power of home ownership as a global phenomenon” (Fisher and Jaffe 2003, p. 37). More recent work, however, has provided evidence of the role of political ideology. Countries dominated by conservative parties and parties of the political right are more likely to campaign on the basis of manifestos that defend and advocate 138 H. PAWSON ET AL. support for home ownership (Kohl 2018). Once home ownership is established as a dominant tenure, path dependency (see Sect. 1.2) makes it diffcult for parties with different ideological standpoints to reverse this trend. A similar path dependence argument arises in relation to the evolution of the dominant fnance system in any country (as discussed in Sect. 5.2 for Australia). While home ownership rates have generally increased in most countries over the past two decades, there have been discernible signs of decline over this period in most Anglophone countries (Goodman and Mayer 2018; RBA 2015). Issues relating to this are covered in Sect. 5.2.2.

5.2 Home Ownership in Australia

5.2.1 The Growth Years Australia has had a relatively high home ownershipPROOF rate since the early 1900s, but its current level of just below 70% arose as a result of a rapid growth from 50% in 1947 to a peak of around 70% in 1961. As shown in Fig. 1.2, the aggregate home ownership rate remained relatively stable at this level until the mid-1980s but has trended down slightly since then. Much of Australia’s post-war growth in home ownership was associated with increasing urbanisation (and suburbanisation) and occurred at a time when there was a rapid increase in new dwelling construction in response to post-war housing shortages. Dalton (2009) highlights the similarities of drivers in Australia and Canada in this period. Growth in home ownership also occurred at a time when there was considerable direct government involvement in the provision and fnance of housing. In Australia,REVISED Commonwealth and State governments contributed almost one-quarter of the total increase in housing stock between 1947 and 1976 (Eslake 2013) (see also Chapter 4). They also provided up to 30% of all housing fnance. The Role of Housing Finance Although originally intended to provide affordable rental housing, much of the housing constructed by the public sector was sold to low- and moderate-income home buyers on extremely favourable terms at interest rates well below those charged by other lenders (Berry 1999; Neutze and Kendig 1991). Access to home ownership was facilitated by home loans provided by a publicly funded War Service Homes scheme and 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 139 other government housing authorities, as well as by loans made directly by building societies and (predominantly publicly owned) savings banks. Beginning with the 1956 Commonwealth-State Housing Agreement (CSHA) and continuing through until the 1973 CSHA, the Commonwealth Government explicitly encouraged home ownership by permitting use of up to 30% of CSHA funds to provide concessional fnance for state-based Home Purchase Assistance (HPA) schemes targeted at those unable to obtain fnance in the private market. From the mid-1950s to mid-1960s, the value of publicly funded (concessional) loans accounted for more than 30% of total housing loans outstanding but this share had decreased to just 20% by the mid-1970s (Hill 1974) and to a fraction of this by the mid-1980s (Flood and Yates 1987). This declining share arose from a combination of cutbacks in publicly provided loans and an expanding private fnance sector (Martin 1991). Until the 1980s, banks providing mortgages operated under widespread direct controls. These included: interest rate ceilings, asset restrictions, quantitative lending guidelines and PROOFqualitative controls (RBA 1991). Asset restrictions required the savings banks to invest a minimum share of their assets in Government debt (70% in 1963 down to 40% in 1978) and the remainder in cash or housing loans. Qualitative controls ensured lending favoured new construction and frst home buyers. Building societies were subject only to generally less restrictive state- based regulations, which gave them a funding advantage over banks and contributed to their growing importance until the fnancial system was deregulated. The combined effect of regulations meant that, although housing fnance was cheap, it was often rationed and would-be home owners were not always able to obtain the funds required to build or buy a dwelling.REVISED This contributed to a signifcant role in housing provision being played by self-fnanced owner-builders who, in the 1950s, used their forced wartime savings to buy land on the urban fringe and tailored the construction of their dwelling to availability of materials and their personal savings rate (Badcock 2000; Dingle 2000). In general, restrictions on available fnance tended to exclude low-income borrowers and were, therefore, inequitable (Yates 1983). The introduction of publicly funded insurance in the mid-1960s resulted in a greater willingness to provide higher loan to value ratio (LVR) loans. This was intended to lower the costs for low-income borrowers otherwise needing a (more expensive) second mortgage to raise suffcient 140 H. PAWSON ET AL. funds to enter the housing market (Hill 1974). However, credit rationing still meant funds were limited. One positive outcome of credit rationing was that dwelling price infation was restrained (Hill 1959). It was also controlled by the high proportion of publicly constructed dwellings funded on terms and conditions that made them cheaper than if provided by the private sector (Beer 1993). These outcomes are in marked contrast with those arising in the post-1990s period, covered in Sect. 5.2.2. The Role of Direct Assistance In addition to the implicit government support provided for home ownership through interest rate regulation and subsidised home lending, from 1964 assistance was available through home deposit assistance grants (Williams 1984). The frst such program, the Home Savings Grants Scheme, assisted frst home buyers meeting age and marital status constraints, having a savings history and buying a new home below a maximum price. Concerns were expressed about its equity and effectiveness in facilitating access because it wasPROOF paid only after purchase and, hence, available only to those able to buy without it. This led to its description as a ‘curtains and carpet’ grant. Deposit assistance was abolished in the 1970s and replaced with a short-lived, more expensive and only marginally more progressive form of assistance based on limited mortgage interest tax-deductibility (Carter 1980). Subsequent deposit assistance schemes (the Home Deposit Assistance Scheme in the 1970s and the First Home Owners Scheme in the 1980s) addressed some of the concerns about earlier schemes by more timely payment and introduction of a reasonably generous income constraint (Flood and Yates 1987). Benefts paid under these schemes were gradually reduced during the 1980s until their abolition in 1990 (Bourassa et al. 1995REVISED). The Role of Indirect Assistance Possibly the most signifcant fnancial advantage provided to home owners throughout this era arose indirectly through the tax system. Until the infation of the 1970s, the greatest advantage provided to owner-occupied housing was seen to be the beneft received in the form of tax-free rental income. Except for a short period from 1915 to 1923, the income tax system in Australia has exempted the imputed rental income generated by home ownership (see Box 5.2). In the mid-1970s, the value of this concession was estimated at $620m, representing about 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 141

3.5% of GDP (Priorities Review Staff 1975). This concession generates economic ineffciencies by creating a tax-based distortion encouraging over-investment in owner-occupied housing (for example, Reece 1975) and is inequitable because similar tax-savings are not available to investors in alternative assets and the greatest benefts are enjoyed by high-income, low-debt households (Priorities Review Staff 1975; Bourassa and Hendershott 1994). Explanations for Post-war Home Ownership Growth The post-war period of the 1950s and 1960s has been described as Australia’s “Golden Age” of home ownership (Badcock 2000) with almost 90% of households owning a dwelling at some stage in their lives (Neutze and Kendig 1991). Many explanations have been given for the rapid growth in home ownership in this post-war period, although where credit lies remains an open question (Badcock 2000). It has been attributed variously to:

• Strong economic growth in AustraliaPROOF throughout most of the period, resulting in full employment and high (and stable) incomes and providing the wherewithal to undertake a long-term borrowing commitment and the willingness to do so (Paris 1993; Bourassa et al. 1995). • The post-war housing expansion of the housing fnance system (Beer 1993; Hill 1974). • The growth of owner-builders in response to fnance shortages (Dingle 2000). • The lack of alternative tenures (Neutze and Kendig 1991; Kemeny 1981; Bourassa et al. 1995). • Government policy geared to the promotion of home ownership throughREVISED direct funding, deposit assistance and indirect subsidy through tax expenditures (Kemeny 1981; Wood 1990; Eslake 2013).

This list of plausible explanations has led to important questions about the role of public policy in promoting home ownership. Bourassa et al. (1995) argue policy had little effect since the level of home ownership remained unchanged when similar policies were carried through to the post-1980s era (covered below). This argument, however, ignores the signifcance of path dependency both in relation to home ownership being established as the dominant tenure from the beginning 142 H. PAWSON ET AL. of European settlement in Australia, and from the way that Australia’s housing fnance institutions evolved. It also ignores the interaction between the socio-demographic drivers of home ownership, the changing structure of the population and the dynamics of change. These are covered below.

5.2.2 Home Ownership in Decline Despite the apparent stability of the aggregate home ownership rate from around its post-war peak of 70%, pressures on this home ownership rate began as far back as the 1980s (as signalled in Chapter 1). As discussed in Chapter 3, these pressures have been felt most strongly by younger households as affordability constraints and changing preferences have signifcantly reduced home ownership rates for younger households. For 25–34 year old households, these fell from around 60% in the mid- 1980s to 40% by 2015–2016 and, for 35–44 year old households, from 75% to a little over 60%. Figure 5.2 illustratesPROOF declines have occurred for all ages other than the over 65 year age group. It also highlights the strong correlation of home ownership with age.

REVISED

$JJUHJDWH

Fig. 5.2 Home ownership rates by age, Australia: 1985–2016 (Source ABS Surveys of Income and Housing and Household Expenditure Surveys from 1984 to 2015–2016. Findings based on use of basic confdentialised unit record fles) 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 143

Australia’s aggregate home ownership rate has remained relatively stable since the mid-1980s only because of the interaction between an ageing population and this tendency for home ownership rates to increase with age. Similar outcomes, although over different time periods, have been observed in other Anglophone countries (see for example, Brown and LaFrance 2013 for Canada; Morrison 2008 for New Zealand; Ronald et al. 2017 for the UK; and Goodman and Mayer 2018 for the US). Affordability pressures have constrained home ownership rates among younger households because of diverging trends between housing prices and incomes (or, more specifcally, borrowing capacity) (see Chapter 3). Only younger households in the top income quintile have been protected from these falls. Figure 5.3 shows that the greatest impact of constraints has been among low- to moderate-income households. Hulse et al. (2010) show that households with children have borne the brunt of these declines, because children increase living costs and thereby reduce mortgage-servicing capacity. Two broad factors have contributed to PROOFaffordability pressures since the 1980s: economic and social changes and the institutional and policy responses to these. See Chapter 3 for an overview of a range of structural factors that contribute to worsening affordability. Economic change arose with the onset of stagfation following the 1970s oil-price crisis. High unemployment, and social changes resulting in increased female workforce participation and a rise in two-income households, contributed to increases in inequality in household income. High infation led to high (nominal) housing prices and high (nominal)

REVISED \HDUV \HDUV

,QFRPHTXLQWLOHV ,QFRPHTXLQWLOHV

Fig. 5.3 Home ownership rates by age and income, Australia: 1984–2016 (Source as for Fig. 5.2) 144 H. PAWSON ET AL. interest rates and considerably reduced household borrowing capacity (with a given income) because of the traditional (level repayment of principal and interest) mortgage instruments employed in Australia. Along with tax policy changes, high infation contributed to an increase in the value of tax concessions to home owners. Institutional and policy responses to the oil-price induced crisis refected a contemporary loss of faith in direct government intervention. The rise of the neo-liberal policy paradigm with its focus on deregulation was a manifestation of this ideological shift. The growing fnancialisation of housing was one outcome (discussed in Chapter 1). This, in turn, contributed to rising real housing prices. Market-driven microeconomic reforms in the 1980s reinforced structural change and the growing inequality already emerging in Australia’s economy (Whiteford 2015). The remainder of this section describes the way these factors (and particularly fnancial deregulation and the interaction of tax and infation) affected home ownership outcomes for younger households. The Role of Housing Finance PROOF Financial deregulation, which began in Australia in the 1970s and accelerated in the 1980s, affected the structure of mortgage markets and the cost and availability of credit (Debelle 2010). An overview of the evolution of Australia’s fnancial system, the regulatory changes made from the early 1980s and the subsequent impact of deregulation can be found in the reports of the Wallis Inquiry (1996, 1998). A key change was that, with the privatisation of key providers of housing fnance (the Commonwealth Bank and various state government banks), housing fnance became almost entirely dependent on the private sector. Tiernan and Burke (2002, p. 92) argue this “abrogated the requirement of the Commonwealth to have any role in home ownership fnance as REVISEDhad been the case prior to deregulation”. By the end of the 1980s, the Commonwealth had progressively cut back its involvement in housing fnance provision with only 15% of CSHA funds being available through HPA schemes. A number of states have continued to be actively involved in providing affordable housing fnance through direct lending programs to low-moderate income households, but these have operated on a relatively modest scale. See Box 5.1. 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 145

Box 5.1 Innovative state-based home lending schemes Innovations in housing fnance were introduced in Australia in the 1980s in response to reductions in Commonwealth HPA funding. States responded by directly raising funds for their home purchase schemes, relying primarily on the use of secondary mortgage markets. Two major government sponsored (and 25% owned) institutions were set up to raise bonds on the open market for on-lending in the form of low-start loans to lower-income earners: the First Australian National Mortgage Acceptance Corporation in NSW and the National Mortgage Market Corporation in Victoria. The former issued bonds at a fxed nominal rate (with early shortfalls in receipts from low- start loans covered by new issues); the latter issued bonds at a fxed real rate. The underlying rationale for low-start loans was to reduce the initial repayments borrowers needed with a conventional mortgage (based on level repayments of principal and interest over the life of the loan). This was achieved through the employment of three new types of mortgage instruments based on escalating interest, indexed repayments or income- based repayments. Subsidies, which could be asPROOF much as 50% of the value of the loan, were provided either by charging below-market interest rates or by deferring interest payments. Schemes relying on escalating repayments did not necessarily involve an explicit subsidy although the guarantee provided by the respective state governments and the extent to which borrowers were not charged a higher rate for what were inherently riskier loans introduced an implicit subsidy. These new mortgage instruments effectively increased the amount that could be borrowed with a given income. Target groups were frst home buyers, public housing tenants and special needs groups (such as those with a disability or Indigenous Australians). Design issues (relating to the setting of interest rates and the rate of indexation employed) and technical issues (relating to the timing of tax liabilities on the return on bonds) contributed to their eventualREVISED demise in the early 1990s. Indexed lending schemes tend to be most effective when nominal interest rates are high because of high infation. With declining nominal interest rates in the 1990s, policy interest shifted towards shared equity programs, where the consumer shares the capital cost of purchasing a home with an equity partner in return for a share of any home price appreciation. Several states have continued to provide affordable housing fnance to low- and moderate-income households through generally small-scale direct lending programs and shared equity products. The most successful ongoing examples are found in Western Australia and South Australia where government backed, but arms-length, agencies (respectively Keystart and HomeStart Finance) continue to operate (AIHW 2018). 146 H. PAWSON ET AL.

Yates and Flood (1989) and Bourassa et al. (1995) provide an overview and assessment of the various state-based HPA schemes described above. Wulff (1990) provides an early evaluation of the Victorian schemes. Pinnegar et al. (2008) provide an overview of shared equity initiatives and Yates (1992) sets out a framework for evaluating such schemes.

Within the private sector, deregulation resulted in the entry of new housing fnance providers and the conversion into banks of a number of building societies and credit unions, as in comparator countries such as the UK. Both changes generated competition for established lenders. The distinction between savings banks and trading banks was removed with the abolition of the prescribed assets ratio constraining savings bank assets. Foreign banks were permitted to operate and wholesale lenders entered the market. Subsequent digital innovation facilitated the growth of securitisation relying on wholesalePROOF funds and the growth of mortgage brokers to originate loans (House of Representatives Standing Committee on Economics, Finance and Public Administration 2007).2 These responses to deregulation increased the availability of housing credit and led to considerable product innovation in the mortgage market as lenders competed for market share. Established homeowners were encouraged to increase their borrowing through home equity loans (allowing them to borrow for investment purposes against the equity in their homes), fexible mortgages (which combined repayment and re-draw facilities), and reverse mortgages (allowing them to release housing equity in order to maintain living standards). Lenders were protected from the higher risk of high LVR loans by the existenceREVISED of (compulsory) lenders mortgage insurance (LMI), provided initially by a government-owned statutory authority for borrowers with low deposits. Since privatisation of this authority in 1997, LMI has increased the willingness of lenders to extend credit to highly leveraged borrowers. Since low-income households are unable to borrow enough to enable them to access the housing market, this is seen as benefting

2 Since 2014, mortgage aggregators, acting as intermediaries between mortgage brokers and lenders, have settled more than half of all residential home loans (Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry 2018). 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 147 middle- and high-income earners. It enables them to purchase more expensive housing than they might otherwise be able to afford and contributes to increases in property prices putting home ownership further out of reach for low-income earners (Productivity Commission 2018). Deregulation also brought about discounted interest rates, shared equity loans and a relaxation of borrowing constraints, each of which, in principle, eased access for frst home buyers (although, in practice, trends in housing markets offset any beneft from being able to service a larger mortgage). Deposit requirements were relaxed with the easing of LVR requirements with fnanciers, at times, offering loans with 100% or higher LVRs. Borrowing capacity was increased by a shift away from a conservative rule of thumb based on a traditional 30% ratio model (which limited repayments to 30% of borrower’s gross income) to what the Australian Prudential Regulatory Authority (APRA) describes as a ‘net income surplus’ model which allows any household income above a minimum subsistence level to be used to repay a mortgage (a version of the residual income model described in Chapter 3). ComparedPROOF with the ratio model, this allows higher-income applicants to borrow much higher percentages of their gross income, since cost of living expenses are regarded as a relatively fxed commitment for individual households (APRA 2008).3 In the mid-2000s, bank online housing loan calculators suggested that a single income adult (with no dependents) with an income of around the equivalent of (ordinary full-time) average weekly earnings could borrow up to the point where repayments amounted to almost 50% of his or her income (RBA 2005). However, a relaxation of lending standards led to concerns about the possible growth of irresponsible lending (House of Representatives Standing Committee on Economics, Finance and Public Administration 2007), reinforced by the Royal CommissionREVISED into Misconduct in the Banking, Superannuation and Financial Services Industry (2019). Concerns were also being expressed about the lack of competition among the major lenders for housing fnance (ACCC 2018).

3 APRA (2014a, b) warned ADIs (Authorised Deposit-taking Institutions) that it planned to intensify its scrutiny of mortgage lending practices including loan to valuation requirements and loan serviceability assessments (particularly those based on unrealistic expenditure needs) See also Sect. 6.3.1. However, it also reported that most ADIs typically build in an interest rate buffer (of around 2 percentage points) when assessing borrowing capacity. 148 H. PAWSON ET AL.

At least until the 2008 global fnancial crisis (GFC), the increased availability of credit was matched by an increased willingness to borrow and a rapid increase in household debt. A number of reasons can be given for this increased demand for housing fnance:

• The general decline in interest rates from the 1990s to the late 2010s (see Fig. 3.4), roughly doubling the loan size that could be serviced with a given income. • The relaxation of lending criteria more than doubling the size of the loan that could be serviced, at least for higher-income earners (House of Representatives Standing Committee on Economics, Finance and Public Administration 2007). • A stronger labour market and more stable interest rates increasing confdence and willingness to borrow (Productivity Commission 2004). • Increasing fnancialisation of housing resulting in debt-fnanced housing being seen as a road to increasingPROOF wealth after decades of infation (Martin 1991, quoting Macfarlane 1989). • Long-standing biases in the tax and transfer system towards housing being enhanced by the emergence of housing price infation (Productivity Commission 2004).

One of the outcomes of lower interest rates and increased credit availability was that housing prices rose considerably ahead of infation, especially from the late 1990s (see Chapter 3). With credit availability no longer constrained by regulation, non-price rationing devices were also eliminated. This resulted in fnance increasingly being allocated according to ability to pay (with higher-income households generally perceived of as beingREVISED lower risk borrowers) and in the disappearance of preferential treatment for new construction and frst home buyers.4 Together, these factors contributed to declines in affordability, which had particularly severe effects on the ability of lower-income households to access home ownership because of rising deposit constraints. Attempts to counter this problem resulted in re-introduction of the direct assistance policies employed from the 1960s to 1980s.

4 Discrimination in lending, however, was still rife with evidence of owner-occupiers with larger loans or with certain professions receiving lower interest rates (Productivity Commission 2018). 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 149

Access diffculties were compounded by the post-GFC re-regulation of mortgage markets (both in Australia and elsewhere) in response to concerns about the possible adverse impact of high and growing mortgage debt to income ratios on fnancial stability. Bullock (2019) provides an overview of the ways in which APRA has required banks to tighten lending standards since late 2014 through use of interest rate buffers, verifcation of borrower income and expenses and reductions in high LVR lending. Most of these impose additional restrictions on borrowers already facing income and wealth constraints in accessing fnance. They are more likely to affect marginal frst home buyers than well-off households already established in the housing market. See Whitehead and Williams (2017) for an examination of the impact of re-regulation on frst home buyers in OECD countries. Explanations for Declines in Home Ownership In addition to affordability constraints, other institutional and time-specifc explanations for declining home ownership rates among younger Australian households include: PROOF

• From the 1980s until the mid-1990s, increasing nominal and real interest rates and real housing prices combined with relatively stag- nant real wages, making ownership more expensive than rental for potential frst home buyers (Bourassa et al. 1995). • From the mid-1990s, economic restructuring leading to increasing income polarisation and income insecurity (Berry and Dalton 2000), increased burdens on young household budgets arising from the introduction of fees (and loan schemes) for higher education and the availability of an alternative tax-advantaged long-term savings vehicle with the introduction of compulsory superannuation (YatesREVISED 2015). • From the 2000s, the increasing attractiveness of rental housing for lifestyle reasons (Hulse and Yates 2017; Pawson et al. 2017), increasing risk aversion in an uncertain post-fnancial crisis environment, demographic factors arising from delays due to partnering and having children later in life, and being priced out of the market by increased demand from existing owners and investors (Simon and Stone 2017). • Over the whole period, growing inequality (Stebbing and Spies- Butcher 2016). 150 H. PAWSON ET AL.

In one of the few studies assessing the relative importance of these explanations, Simon and Stone (2017) concluded that being priced out of the market has been the primary cause of the decline since the 2000s rather than changes in preferences (regarding risk or lifestyle choices). These affordability and other explanations are also found in other OECD countries experiencing declining home ownership rates among the young (Whitehead and Williams 2017). The Revival of Direct Government Assistance for First Home Buyers After a period of little or no direct assistance to frst home buyers in the 1990s, explicit attempts to improve the decline in housing affordability for aspiring purchasers were undertaken in the 2000s. A direct deposit assistance payment, the First Home Owner Scheme (FHOS), was introduced in 2000. Depending on whether it was used to purchase existing or new housing, this ranged from $7,000 to $14,000. Rodrigues (2003) provides more details on the rationale for its reintroduction. Many analysts voiced doubts on the effcacy of such payments. Wood et al. (2005), for example, found them inequitablePROOF in their incidence and ineffective in increasing long-run home ownership rates, given take-up was by those who eventually would have made the transition to home ownership. Guest (2005) drew a similar conclusion. Others have argued that they simply add to demand for housing and, hence, to rising housing prices (Freebairn 1999; Eslake 2013). Following the GFC, grants were increased for a short period with a federally funded First Home Owners Boost scheme (FHOB) with state supplements raising their value up to $35,000 in some regions. These were made with explicit recognition of their potential for bringing forward home purchase and, in so doing, providing an economic stimulus to counter global recession. This highlights the way in which housing policies canREVISED serve a broader agenda. State/territory administered frst homeowner grant schemes continue to operate with maximum property value limits usually in force. While grant levels and eligibility conditions vary, grants are generally worth $10,000 to $20,000. As with the FHOB, these are often differentiated according to whether new or established dwellings are purchased. Additional, often more generous, assistance is also provided by state and territory governments with stamp duty concessions, again with the value of these varying across the nation. In NSW in 2018, for example, no stamp duty was payable on dwellings with a value of 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 151 up to $650,0005 and discounts were available for dwellings with a value of up to $800,000 (just above Sydney’s 2018 median unit price of $750,000 and well below its median house price of $1m). Unless exempted, stamp or transfer duties are payable by all purchasers of property, which effectively adds to the deposit constraint faced by purchasers. Both frst home buyer grants and stamp duty concessions beneft households who, after borrowing the maximum permitted, have suffcient resources to overcome the signifcant deposit gap that often remains.6 A large part of the explanation for the disproportionate decline of home ownership rates among low-to middle-income households can be found in the borrowing and deposit constraints brought about by housing prices rising faster than incomes, by a declining share of lower cost dwellings and by increasing inequality in income. Thus, frst home buyer grants and stamp duty concessions are inequitable, as they can be taken up only by those who need assistance least and enables them to purchase a more expensive home than might otherwise be possible. For this reason, along with other proposals for increased subsidies to frstPROOF home buyers, such forms of assistance are viewed as having a negative impact on housing affordability (Daley et al. 2018a). Nevertheless, the popularity of frst homeowner grants (with more than 80% of the public supporting or strongly supporting them) makes their removal politically diffcult (Sheppard et al. 2017). The Ongoing Role of Indirect Assistance for Home Ownership Compared with potential frst home buyers, established homeowners have fared far better from policy settings and market changes since the mid-1980s. They have benefted from changes that increased the availability of housing fnance. Those who already have considerable equity in their dwelling have benefted from the way the tax system has inter- acted with housing price infation to increase the value of tax concessions (Treasury 2015REVISED) (see Box 5.2).

5 The duty payable on a $650,000 dwelling for those not eligible for a concession would have been just over $21,000 (https://www.revenue.nsw.gov.au/taxes-duties-levies-royal- ties/transfer-duty). Estimates of stamp duty paid by non-frst home buyers and concessions available in all states and territories in 2015 can be found in the report of the House of Representatives Standing Committee on Economics (2016). 6 In 2019, a household with an income of $100,000 could borrow around $300,000, less than a third of that available to a same size and structure household on an income of $200,000 (based on the Commonwealth Bank loan calculator, accessed 4 April 2019). Australia wide median house prices in 2019 were around $500,000. 152 H. PAWSON ET AL.

Particularly signifcant here is the exemption of the family home from income taxes. Prior to the tax reforms of the mid-1980s, capital gains were untaxed in Australia. In the low infation era of the 1950s and 1960s, this raised few concerns. However, the onset of infation in the 1970s meant that the absence of a capital gains tax (CGT) resulted in a considerable bias towards investment in assets that tended to increase in value with infation (such as real estate and shares) at the expense of assets which did not (such as fxed interest investments, or bank deposits) (Kelly et al. 2013). Tax reforms in 1985 addressed this issue by introduction of the CGT (on real realised gains), but exempted the family home from this new tax.7 Business tax reforms at the end of the 1990s changed the CGT to a tax on nominal gains at a 50% discount of the investor’s marginal tax income rate (more fully discussed in Sect. 6.3.2). Again, the family home was exempt. These exemptions give rise to signifcant tax expenditures. PROOF

Box 5.2 Tax expenditures and owner-occupied housing Tax expenditures are commonly defned as departures from a generally accepted or benchmark tax structure that produce a favourable tax treatment of particular types of activities or taxpayers (Palisi 2017). However, diffculties arise in defning a generally accepted tax benchmark. The most signifcant tax expenditures for owner-occupied housing arise from the exemption from income tax of two forms of income: capital gains and rental income. Households choosing to live in their own dwelling (rather than renting it out as a landlord) do not have to pay rent, but forgo the opportunity of earning rental income and earn untaxed capital gains. DifferencesREVISED in the way in which income (either as imputed rent or as capital gains) and expenses can be considered mean estimates of tax expenditures for owner-occupied housing are often controversial. International variations in the income tax treatment of housing indicate these differences. In Canada, France, Germany and the UK imputed rental income is untaxed (although rental income is taxed for owners of rental

7 These reforms also introduced a distortion in favour of debt fnance for investors by taxing real capital gains, but allowing nominal interest costs to be deducted. 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 153

housing) and mortgage interest is non-deductible for owner-occupiers (but is deductible for rental investors). In Finland, Portugal, Spain, Sweden and the USA, on the other hand, mortgage interest is deductible. In most countries, capital gains on owner-occupied housing are untaxed (although Japan, Sweden and the USA are exceptions to this generalisation). Where taxed, on the basis of tax structures as they applied in the mid-2000s, a discounted rate often applies (Ellis 2006; Lawson and Milligan 2007). In Australia, capital gains on owner-occupied housing are untaxed and a discount applies for individual investors. For rental dwellings, rental income (after deduction of relevant expenses) is taxed at the investor’s marginal tax rate. For owner-occupiers, imputed rental income is not taxed, but expenses are not deductible. Flood and Yates (1989) use this diversity of treatment to describe what they called a ‘hierarchy of benchmarks’ that progressively reduce distortions in the income tax system. The frst benchmark is a pragmatically defned ‘commonly accepted’ benchmark. Treasury’s version of this is covered below. The second and third are describedPROOF as ‘tenure neutral’ and ‘tax neutral’ benchmarks. A tenure neutral benchmark ensures that all owners of housing receive the same tax treatment regardless of the way in which housing is used, while a tax neutral benchmark ensures that housing is treated in the same way as non-housing assets. Both include the tax treatment of imputed rent in their respective defnitions of tax expenditures, contrary to the defnition employed in Australia. Despite estimates being provided for both tenure and tax neutral benchmarks in the 2019 Tax Benchmark Statement, Treasury’s preferred defnition prioritises the ‘mutuality principle’. This excludes imputed income (and related expenses) from being defned as a tax expenditure because, in a ‘commonly accepted’ tax structure, an individual cannot derive income from themselves (Treasury 2019). Tax expenditures represent costs to the government that are not in the budget and are therefore generally seen as less transparent and less easily controlledREVISED than budget outlays. They reduce government revenue and thereby lead to higher income tax rates than otherwise would be needed. Increasing concern about the extent and impact of tax expenditures, and a desire to ensure their problems are recognised, has led many governments to produce tax expenditure estimates as a supplement to annual budget statements. Treasury (2019) and Pulo (2010) provide an overview of the issues that arise in defning and measuring tax expenditures in Australia. Palisi (2017) provides a history of the debates and recent concerns. 154 H. PAWSON ET AL.

Table 5.1 Indicative government support for home ownership: c.2018

Subsidy/assistance $m

Direct assistance Deposit assistance 1,000 Interest rate assistance 200 Direct lending 2,400 Indirect assistance Stamp duty concessions to FHBs 3,000 Capital gains tax concessions-discount (tenure neutral)* 36,000 Capital gains tax concessions (tax neutral)* 30,500 Net imputed rent concessions* 10,000 Pension asset test exemption 7,000 Land tax exemption 4,000

Source *Estimates from Treasury (2019), based on 2018 data; estimates of support through deposit assistance and direct lending from Eslake (2013), based on 2010–2011 data; other estimates from Kelly et al. (2013), based on 2011–2012 data and or from Henry (2010PROOF), based on 2007–2008 data Income tax advantages to owner-occupation are reinforced by exemption of the family home from (state-based) land taxes (generally imposed on the unimproved or site value of land at a progressive rate above a threshold), which disproportionately beneft wealthy landowners,8 and from the assets test applied alongside an income test to determine eligibility for the Age Pension. Details of these concessions can be found in the Henry Review (Henry 2010) and in a Parliamentary inquiry into home ownership (House of Representatives Standing Committee on Economics 2016). Table 5.1 provides indicative estimates of the various forms of assistance in the 2010s. Treasury has provided annual estimates of the major tax expenditures arising from the Australian tax system since 1986, but estimates of the indirect assistanceREVISED provided to owner-occupiers have been included only since 2008. The estimates of capital gains tax concessions to owner-occupiers (of $66.5b, close to 4% of GDP) for 2018 (see Table 5.1) are lower than estimates in preceding years because of lower housing price growth in that year (Treasury 2019). Treasury does not provide any indication of how the benefts of these concessions are distributed and are careful to emphasise that their estimates do not indicate how much revenue would be derived if the concession were eliminated.

8 Chapter 9 provides a more detailed discussion of the taxation of unearned income. 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 155

Disaggregation of tax expenditures by household income, tenure and age showed that households in the top income quintile received an average beneft more than sevenfold that received by households in the lowest income quintile in 2005–2006 (Yates 2010a).9 Outright owners beneft disproportionately, primarily because of their higher dwelling values and higher net imputed rents. Purchasers, and particularly younger or frst-time purchasers (likely to have high LVRs), are disadvantaged because, unlike rental investors, they cannot deduct mortgage interest costs from taxable income. In other words, they are unable to negatively gear (see Sect. 6.3.2). In broad terms, tax concessions associated with owner-occupation are lowest when households are young (when net housing income is low and when non-deductible interest costs are high) and tend to increase with age (as housing equity increases with mortgages being discharged and housing prices trending upwards). Because high-income households are generally ineligible for the Age Pension, exemption of the family home from the pension assets test has different distributional implicationsPROOF from those for the major housing-related tax concessions. However, asset rich but income poor households beneft, as around 40% of total expenditure on the Age Pension in 2011–2012 went to households with more than $500,000 in net wealth (Kelly et al. 2013). Indicative estimates of the value of CGT concessions for representative households (of 2 adults and 2 school age children) show that an outright owner with an after-tax household income of $215,000 would derive an annual beneft of $20,000 (Dawson and Smith 2018). This is in marked contrast to the maximum rental assistance of $4,000 per year available to renter households living on a household income of $60,000 (see also Sect. 6.5.2 on Rent Assistance). The growthREVISED and size of these tax expenditures and their distributional outcomes has been seen as giving rise to the emergence of a dual welfare state in Australia (Stebbing and Spies-Butcher 2010). The frst layer of this dual system is a residual welfare model, where (increasingly conditional) social welfare is targeted to lower-income households.

9 NATSEM estimate that more than half of the benefts of the CGT exemption went to the top 20% of households in 2015–2016 and only 5% to the bottom 30% (Grudnoff 2016). The economic effects of the various tax concessions for housing are discussed in Yates (2010b). 156 H. PAWSON ET AL.

The second (generally unconditional) layer, targeted to middle- and high-income households, disproportionately benefts high-income earners. See also Jacobs (2015). Tax concessions effectively increase the returns on investment in owner-occupied housing vis a vis other forms of investment. This has led to long-held concerns about over-investment in housing at the expense of what is considered as more productive investment and to a resultant reduction in economic growth and a reduced standard of living (Industry Commission 1991; Productivity Commission 2004; Treasury 2015). There are two important implications of the differences in the tax arrangements of owner-occupied housing and rental housing:

• They advantage homeowners who can fnance their purchase from savings relative to those who need to borrow more. • They disadvantage low wealth households borrowing to purchase an owner-occupied dwelling (often frstPROOF home buyers) relative to highly geared private investors in rental housing (Productivity Commission 2004).

They also serve to increase demand for owner-occupied housing which, facilitated by the post-1985 increases in housing credit and reinforced by increased demand for rental investment, has contributed to housing price infation and to the increased constraints on access that have underpinned declines in home ownership among younger, less economically advantaged households (Henry 2010). A summary of key housing taxes and exemptions for owner-occupied (and rental) housing in OECD countries can be found in OECD (2018) and for EUREVISED countries in ECB (2003). Estimates of how effective tax rates on owner-occupation are affected are illustrated in IMF (2009).

5.3 what Makes Home Ownership Different from Other Tenure? Direct assistance provided to homeowners at the point of entry into home ownership and the considerable indirect assistance provided to them through the tax system once they are established raises the question of why home ownership is promoted as a goal of public policy. 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 157

As argued more than half a century ago:

One of the most pervasive myths which has become almost universally accepted in Australia is the idea that home ownership is inherently the most superior form of tenure; a belief which fnds expression in the eleva- tion of home-ownership into ‘The Great Australian Dream’. This, together with political beliefs about ‘a property-owning democracy’, combine to produce what is undoubtedly the most powerful ideology in Australian social and political life. (Kemeny 1977, p. 47)

Home ownership has long been considered to provide both social and economic benefts. As early as the mid-nineteenth century, Begg (1866, cited in Davison 2000, p. 10) identifed the benefts of home ownership as giving working men security in old age and a legacy for widows and children, a stake in the country (through a right to vote), increased social status and self-respect, and as encouraging thrift and frugality and contributing to individual self-improvement. Similar claims were made more than a century later by the Henry ReviewPROOF of taxation, which identifed individual and social benefts arising from security of tenure and the social integration underpinned by the stability this provides (Henry 2010). Social benefts, or positive externalities, are often used to justify subsidies to home ownership on the grounds that they address market failures that might lead to lower home ownership rates than is socially desirable (see Chapter 2 for a fuller discussion of this rationale for intervention). Justifcation for such subsidies on equity grounds derives from a belief in a property-owning democracy in which home ownership reduces inequality and democratises wealth (Jackson 2012). This section considers the social and economic benefts attributed to home ownership in the past few decades.REVISED

5.3.1 Social Benefts The 2008 Senate Select Committee on housing affordability stated that the social benefts of home ownership arose from a sense of physical and emotional security and safety, and from it being “the most culturally obvious and accessible symbol of personal power, achievement and control over the environment”. Home ownership was thought to provide a sense of belonging and acceptability, to enhance social stability, economic 158 H. PAWSON ET AL. reliability, community assurance and individual aspirations for independ- ence and security (Senate Select Committee on Housing Affordability in Australia 2008, pp. 16–17). Many of these claims, however, were based on assertions or preconceptions, and relied on relatively limited evidence given in an earlier Productivity Commission report despite its acknowledgement that the magnitude of social benefts and costs was diffcult to establish (Productivity Commission 2004). Some attempts have been made to identify which of the claims of social benefts and costs could be supported. On the basis of a critical assessment of studies on the social costs and benefts of home ownership, Rohe et al. (2001) concluded:

• There is considerable evidence that homeowners are more likely to be satisfed with their homes and neighbourhoods, more likely to participate in voluntary and political activities and more likely to stay in their homes longer periods of time. • There is some doubt as to whether thesePROOF relationships are causal. • There is some evidence that home ownership leads to increased self-esteem. • Positive impacts may be limited to specifc types of households. • Evidence of a positive impact on health holds only if home owners are not behind on their mortgage payments. • Evidence on perceived control and socially desirable youth behav- iours is too sparse to draw any conclusions. • There is very little research on the potential negative social impacts of home ownership.

The possibility that home ownership may have negative effects indicates a need for REVISEDcaution when promoting it, particularly for vulnerable households. A complementary paper by Dietz and Haurin (2003) provided independent support for these conclusions. Dietz and Haurin found much of the literature on social benefts of home ownership are def- cient because of its failure to distinguish impacts that are causally related to home ownership from those that are correlated with it. See Bridge et al. (2003) for similar concerns. These observations and cautions are consistent with the Productivity Commission’s conclusion that support for home ownership might “generate larger social benefts if used 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 159 to address the broader housing needs of the lowest income Australians” (Productivity Commission 2004, p. xii). Implicitly, this conclusion recognises that many of the social benefts provided can, at least in principle, be provided by alternative tenures. The fact that they may not be perceived that way is more a function of how housing is provided than an inherent characteristic of tenure. As Hayward and Burke, respectively, have argued:

The main reason why one form of tenure provides benefts that others do not is that governments can, and do, design and implement discriminatory housing policies. Security of tenure, declining housing costs over time, the capacity to reap capital gains, for example, are all benefts which are associated with home ownership mainly because governments have provided taxation loopholes and a legal framework which ensures that they are the preserve of owner occupiers. (Hayward 1996, p. 211) [T]here is little doubt that Australia’s obsession with ownership … and therefore the demand for it, is driven by consumer awareness of the lack of security in the private rental sector. (Burke 2012PROOF, p. 39)

Given a declining share of social rental housing (see Chapter 4) and the insecurity associated with private rental housing (see Chapter 6), it is possibly not surprising that the vast majority (68%) of Australian homeowners chose “emotional security, stability and belonging” as one of the main reasons for choosing to buy (Sheppard et al. 2017, pp. 6–7).

5.3.2 Economic or Financial Benefts of Home Ownership In contrast to the diffculties in attributing social benefts to home ownership, identifcationREVISED of the economic or fnancial benefts of home ownership is simpler. Some of the identifed benefts, however, arise from residential property ownership, owner-occupied or not. Historically, economic benefts have been associated with the wealth generation associated with home ownership and the fnancial security it generally provides. Subsidies to home ownership to support such outcomes are likely to be justifed on grounds of equity to ensure these benefts can be enjoyed by all, and particularly those who otherwise might be excluded from access to home ownership. 160 H. PAWSON ET AL.

Wealth Generation Home ownership contributes to wealth creation because of the forced saving built into mortgage repayments and by any unearned capital gains. Belief in the wealth-generating property of housing has underpinned a widespread preference for owning over renting (Herbert et al. 2013). Periodic housing price declines, nevertheless, indicate the risks associated with wealth creation and raise questions about these economic benefts. In Australia, over a period in which housing prices generally rose (see Fig. 3.2), returns still have been strongly dependent on housing price cycles and on the location of dwellings purchased (Hulse et al. 2010). Despite this, a set of simple case studies demonstrates that, given their savings behaviour, all households would generally have been better off buying than renting in the ten years to 2008. A more comprehensive cash fow analysis of the fnancial returns from buying versus renting for frst home buyers in Britain between 1975 and 2012, likewise shows buyers havingPROOF derived signifcant fnancial benefts and, therefore, that “owner occupation aspirations in Britain have been rationally justifed” (Mostafa and Jones 2019, p. 18). However, a similar cash fow analysis for the United States provides more ambiguous results for decisions based on 10-year investment horizons (Rappaport 2010). This shows that US home ownership built more wealth over any 10-year period beginning during the 1970s and 1990s, but for 10-year periods beginning in the 1980s and again in the 2000s it generated less wealth than renting and investing in stocks and bonds. The different conclusions in these three studies demonstrate the risks that affect the extent of economic benefts of home ownership. The most obviousREVISED of these is price risk given signifcant temporal and spatial variation in housing prices; a risk magnifed by gearing. The returns to geared purchase are signifcant when housing prices are rising, but even a relatively modest downturn can wipe out a household’s equity if the dwelling was purchased with a low deposit. Price risk is compounded by the illiquidity of housing if a household is unable to retain dwelling ownership until the market recovers. This can arise, for example, when repayments cannot be sustained because of an unanticipated loss of income (income risk) or an increase in housing costs (including interest 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 161 rate risk). Renters also face some of these risks (with rent risk replacing interest risk), but an advantage of renting over owning is that the transaction costs of moving are far lower. Conversely, despite the risks, owning a house does provide a hedge against increases in rent (Sinai and Souleles 2005). Overall, the literature suggests that the benefts are greatest if households remain owners for a long time and favour high- over low-income households (McCarthy et al. 2001). This partly arises because lower-income homeowners tend to be more highly leveraged than higher-income households (and therefore are more vulnerable to price and income risks). It also arises because the former are more likely to buy cheaper dwellings with higher maintenance costs and in locations that provide fewer prospects of appreciation. Home ownership generally is considered a good investment over the long-term because, in the past, it has generated better after-tax returns than virtually any other readily accessible investment. These returns have been dominated by rising urban housing prices,PROOF which increased at an average annual rate of more than 2% above infation in the 60 years to 2010 in many advanced economies (including Australia, Canada, the UK and the US) (Knoll et al. 2017).10 The wealth accumulation benefts of home ownership in Australia are shown in Fig. 5.4, which illustrates the tendency of net wealth to increase with age during the working life of a household and to stabi- lise (or decline) thereafter. As equity accumulates, net housing wealth builds up as a result of debt being repaid and, during periods of dwelling price infation, as a result of capital growth. Across all households, owner-occupied net wealth accounted for around 40% of total net worth in Australia in 2015–2016. Renters beneft from none of this. Even afterREVISED allowing for the intergenerational differences shown in Fig. 5.4, this wealth is not evenly distributed within each generation. In each age group, owner-occupiers have considerably more net wealth than renters.

10 Australia has the dubious honour of having the greatest rate of housing price infation over the 150 year period covered. 162 H. PAWSON ET AL.

V RZQHUV UHQWHUV

RZQHURFFXSLHG RWKHUUHVLGHQWLDO RWKHUQHWZHDOWK

Fig. 5.4 Household net wealth by tenure and age of household, Australia: 2015–2016 (Source ABS Survey of Income and Housing, 2015–2016. Results derived from basic confdentialised unit record fle)

V RZQHU PROOF UHQWHU

,QFRPHTXLQWLOHE\DJHRIKRXVHKROG

Fig. 5.5 Household net worth by tenure, age and income, Australia: 2015– 2016 (SourceREVISED As for Fig. 5.4) Figure 5.5 shows the extent to which these intragenerational differences between owners and renters in each age group are reinforced by household income. Across all (equivalised disposable) income quintiles, owner- occupiers have greater net wealth than renters in every age group. Among all households, but particularly among older households, net wealth is signifcantly higher for those in the top income quintile in each tenure. Similar life-cycle disparities in wealth holdings between owners and renters are also found in other countries. Mathä et al. (2017) provide aggregate estimates of net wealth that show dramatic differences in each 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 163

2ZQHU 5HQWHU

$JHRIKHDGRIKRXVHKROG

Fig. 5.6 Housing costs as a share of household disposable income by age and tenure, 2015–2016 (Source As for Fig. 5.5, but see also Daley et al. [2018b, p. 24]. Median cost ratios reported here) of the countries in the euro area. Annual reports from the Joint Center for Housing Studies of Harvard University PROOFprovide equivalent evidence for low-income owners and renters in the US (for example, JCHS 2015). Financial Security The second economic beneft linked to home ownership is the economic and fnancial security it generally provides. This emerges over a household’s lifetime as mortgages are paid off and as wealth accumulates.11 It is particularly signifcant in retirement as owners beneft from reduced housing costs at a time when earned income falls. Figure 5.6 highlights the impact of tenure on housing costs as a share of income. The burden of housing costs for homeowners declines over time and is typically lower than the housing costs faced by renters.12 This arises partly because rents tend to rise at least in line with infation, so that renters do not beneft from decliningREVISED housing costs over time. However, it arises primarily

11 This is in addition to the psychological and emotional security that arises from not being on the typical short-term lease common in the private rental market. Financial security, of course, is diminished by mortgage stress or if market downturns lead to negative equity (where property value falls below size of outstanding mortgage debt). 12 Housing outlays for owners in the 25–34 year age group, when households traditionally frst become home owners, can exceed those of their renting counterparts if they have high loan to value ratios and rental yields are lower than interest costs (which is common when landlords earn high returns from capital gains). 164 H. PAWSON ET AL. because owners generally have higher incomes than renters at any given point in their lives. If the imputed income alone derived from owner- occupied housing, estimated to be worth more than $23,000 per year for the average homeowner aged 65 or more, were included in household income, this disparity in the burden of housing costs would be even greater, particularly for older owners and for owners with no or low mortgage debt (Daley et al. 2018b). The protection from poverty in retirement provided by outright home ownership for the majority of older homeowners has led to it being described as the fourth pillar of Australia’s retirement income system (Yates and Bradbury 2010; Stebbing and Spies-Butcher 2016). Even though not recognised explicitly as a part of Australia’s retirement income policy, the importance of housing wealth in retirement has been acknowledged in offcial documents (for example, Treasury 2002). In academic writing it has led to a debate between Kemeny (1977, 2005) and Castles (1997, 1998) as to the direction of causality between low age pension rates and high home ownership rates.PROOF Its role in maintaining living standards of older homeowners has been given new momentum with the rise of what has been described as asset- based welfare, generally associated with the emergence of neoliberalism and seen as a way of encouraging individual accumulation of wealth to offset dependency on state benefts (Ronald et al. 2017). Increasingly, households are either using or being required to use their housing wealth to fund non-housing services, such as those related to health and care services in response to cutbacks on collectively funded safety nets. The increasing role of the ‘bank of Mum and Dad’ provided by established homeowners to their offspring to help them into the housing market could be viewed as a further substitution of private wealth for public support. REVISED In their discussion of the practical and ethical issues that arise with use of (arguably largely unearned) housing wealth as a basis for asset-based welfare, Searle and McCollum (2014) suggest that one current rationale for requiring wealthy older homeowners to fund their own welfare is:

the so-called ‘baby boomer’ generation have enjoyed the ‘one-off bonanza’ of gains through homeownership, free tertiary education and a relatively generous welfare state and stable labour market which subsequent age cohorts will not directly beneft from as such circumstances are unlikely to ever be repeated. (ibid., p. 329) 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 165

Over the past few decades, however, two broad trends have raised questions about the capacity of home ownership to continue serving its role of providing security in old age. The frst trend is the decline in home ownership among under 45s, illustrated in Fig. 5.2. In response to projections of a 10 percentage point decline in home ownership rates of the 65 + year old age group (from 82% in 2006 to a still relatively high 72% by 2046), Yates and Bradbury (2010) described home ownership as a ‘crumbling pillar’ of Australia’s retirement income system. Recent projections (based on 2016 data showing ongoing declines in younger home ownership rates) have suggested a home ownership rate of below 60% by 2056 for the 65 + year old age group (Coates and Chen 2019). Daley et al. (2018b) and Eslake (2017) discuss the implications of this for policy in relation to retirement incomes. The second trend that raises questions about home ownership providing security in older age is a rise in the proportion of owners reaching 65 with a mortgage outstanding on their property (Ong et al. 2015; Eslake 2017). Whether this is likely to be a problemPROOF depends on the household’s capacity to discharge this upon retirement (for example, by sell- ing other assets or cashing in superannuation) or to maintain repayments from retirement income. Evidence to date suggests that households reaching retirement with mortgage debt are likely to be high-income and high-wealth households for whom debt repayment is not an issue (Bilston et al. 2015). Greater problems, on the other hand, are faced by vulnerable homeowners unable to sustain mortgage repayments at an earlier life-cycle stage, most commonly because of unanticipated changes in household structure (particularly through separation or divorce), accident, illness or unemployment (Wood et al. 2017; Berry et al. 2010). This raises the question ofREVISED whether the policy should focus more on keeping households in home ownership when they face diffculties beyond their control than on assisting them in gaining access.

5.4 Conclusions Home ownership, as currently constituted in Australia, undoubtedly provides many social and economic benefts for those who are outright homeowners. It is likely to continue to do so for those who are (or who become) purchasers as long as personal and external circumstances protect them from the risks associated with mortgaged home ownership. 166 H. PAWSON ET AL.

In this chapter we have focussed on the economic and institutional factors that have led to home ownership being the dominant tenure in Australia and to the role that government has played in providing direct and indirect support for home ownership. We have shown how the housing fnance system has a signifcant impact on access to home ownership. Whether this has been positive or negative has been infuenced by the extent or absence of government regulation and direct involvement in the provision of fnance. We also have suggested that home ownership subsidies directly through grants and indirectly through the tax system are more likely to have been counter-productive in assisting new entrants into home ownership. To the extent that arguments for home ownership subsidies are justifed on the grounds of positive externalities, they provide a rationale for assisting into home ownership those who would otherwise not become homeowners. None of them provides justifcation for providing subsidies to existing homeowners; nor greater subsidies to high-income homeowners. However, because home ownership isPROOF the dominant tenure in Australia, it will be politically diffcult to change the way in which it is provided and advantaged. Consequently, it is likely to remain the dominant tenure. A key question that needs to be asked, therefore, is how the benefts of home ownership can be provided to those who, for whatever reason, are unable or unwilling to become homeowners. Social housing, covered in Chapter 4, provides one answer to ensuring fnancial security. Reforms to private rental and provision of affordable rental housing, to be covered in subsequent chapters, have the potential to provide alternative answers. Under current policy settings, however, renters are denied the wealth enhancing effects of owner-occupation.

REVISEDReferences ACCC. (2018). Residential Mortgage Price Inquiry [Internet] (Final Report). Canberra: Australian Competition and Consumer Commission. Available from: https://www.accc.gov.au/publications/residential-mortgage-price-inquiry-fnal-report Accessed 12 December 2018. AIHW. (2018). Housing Assistance in Australia 2018 [Internet] (Cat. No. HOU 296). Canberra: Australian Institute of Health and Welfare. Andrews, D., & Caldera Sánchez, A. (2011a). The Evolution of Home ownership Rates in Selected OECD Countries: Demographic and Public Policy Infuences. OECD Journal: Economic Studies, 2011(1), 207–235. 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 167

Andrews, D., & Caldera Sánchez, A. (2011b). Drivers of Homeownership Rates in Selected OECD Countries [Internet] (OECD Economics Department Working Papers No. 849). Paris: OECD Publishing. Available from: http://dx.doi. org/10.1787/5kgg9mcwc7jf-en18. Accessed 23 May 2012. APRA. (2008). APRA’s Prudential Framework for Housing Lending [Internet]. Submission to the Senate Economics References Committee. Sydney: Australian Prudential Regulatory Authority. Available from: https://www. apra.gov.au/sites/default/fles/APRA-s-prudential-framework-for-housing- lending-1-April-08_0.pdf. Accessed 3 March 2019. APRA. (2014a, December 9). APRA Outlines Further Steps to Reinforce Sound Residential Mortgage Lending Practices [Internet]. Media Release. Sydney: Australian Prudential Regulatory Authority. Available from: https://www. apra.gov.au/media-centre/media-releases/apra-outlines-further-steps-reinforce-sound-residential-mortgage-lending. Accessed 13 August 2019. APRA. (2014b). Prudential Practice Guide APG 223 Residential Mortgage Lending 2014 [Internet]. Sydney: Australian Prudential Regulatory Authority. Available from: https://www.apra.gov.au/fle/12426. Accessed 13 August 2019. Atterhög, M. (2006). The Effect of GovernmentPROOF Policies for Homeownership Rates. In J. Doling & M. Elsinga (Eds.), Home Ownership: Getting in, Getting from, Getting Out, Part II (pp. 7–34). Delft: Delft University Press. Badcock, B. (2000). Home Ownership and the Illusion of Egalitarianism. In P. Troy (Ed.), A History of European Housing in Australia (pp. 254–268). Cambridge: Cambridge University Press. Beer, A. (1993). ‘a Dream Won, a Crisis Born?’ Home Ownership and the Housing Market. In C. Paris (Ed.), Housing Australia (pp. 147–172). Melbourne: Macmillan. Berry, M. (1983). Posing the Housing Question in Australia. In L. Sandercock & M. Berry (Eds.), Urban Political Economy (pp. 91–115). Sydney: Allen and Unwin. Berry, M. (1999). Unravelling the “Australian Housing Solution”: The Post-War Years. Housing,REVISED Theory and Society, 16(3), 106–123. Berry, M., & Dalton, T. (2000). Home Ownership into the New Millennium: A View from the Margin. Urban Policy and Research, 18(4), 435–454. Berry, M., Dalton, T., & Nelson, A. (2010). Mortgage Default in Australia: Nature, Causes and Social and Economic Impacts (AHURI Final Report No. 145). Melbourne: AHURI. Bilston, T., Johnson, R., & Read, M. (2015). Stress Testing the Australian Household Sector Using the HILDA Survey (Research Discussion Paper, RDP 2015-01). Sydney: Reserve Bank of Australia. Blackwell, T., & Kohl, S. (2018). The Origins of National Housing Finance Systems: A Comparative Investigation into Historical Variations in Mortgage Finance Regimes. Review of International Political Economy, 25(1), 49–74. 168 H. PAWSON ET AL.

Bourassa, S., Greig, A., & Troy, P. (1995). The Limits of Housing Policy: Home Ownership in Australia. Housing Studies, 10(1), 83–104. Bourassa, S., & Hendershott, P. (1994). On the Equity Effects of Taxing Imputed Rent: Evidence from Australia. Housing Policy Debate, 5(1), 73–95. Bridge, C., Flatau, P., Whelan, S., Wood, G., & Yates, J. (2003) Housing Assistance and Non-Shelter Outcomes (AHURI Final Report No. 40). Melbourne: AHURI. Brown, M., & Lafrance, A. (2013). Trends in Homeownership by Age and Household Income: Factors Associated with the Decision to Own, 1981 to 2006 [Internet] (Statistics Canada Economic Analysis Research Paper Series, 11F0027 M No. 083). Ottawa: Minister of Industry. Available from: http:// www.statcan.gc.ca/pub/11f0027m/11f0027m2013083-eng.pdf. Accessed 29 February 2016. Bullock, M. (2019, March 20). Property, Debt and Financial Stability [Internet]. Speech by the RBA Assistant Governor (Financial System). Perth. Available from: https://rba.gov.au/speeches/2019/sp-ag-2019-03-20.html. Accessed 20 March 2019. Burke, T. (2012). The Australian Residential Housing Market: Institutions and Actors. In R. Tomlinson (Ed.), Australia’s UnintendedPROOF Cities (pp. 35–50). Collingwood, VIC: CSIRO. Burke, T., & Hulse, K. (2010). The Institutional Structure of Housing and the Sub-Prime Crisis: An Australian Case Study. Housing Studies, 25(6), 821–838. Carter, R. (1980). Commonwealth Housing Policies. Australian Economic Review, 13(3), 18–23. Castles, F. (1997). The Institutional Design of the Australian Welfare State. International Social Security Review, 50(2), 25–34. Castles, F. (1998). The Really Big Trade-Off: Home Ownership and the Welfare State in the New World and the Old. Acta Politica, 33(1), 5–19. Coates, B., & Chen, T. (2019, April 12). Retiree Home Ownership Is About to Plummet. Soon Little More Than Half Will Own Where They Live [Internet]. The Conversation. Available from: https://theconversation.com/retiree- home-ownership-is-about-to-plummet-soon-little-more-than-half-will-own-REVISED where-they-live-115255. Accessed 13 August 2019. Daley, J., Coates, B., & Wiltshire, T. (2018a). Housing Affordability: Re-imagining the Australian Dream. Melbourne: Grattan Institute. Daley, J., Coates, B., Wiltshire, T., Emslie, O., Nolan, J., & Chen, T. (2018b). Money in Retirement: More Than Enough. Melbourne: Grattan Institute. Dalton, T. (2009). Housing Policy Retrenchment: Australia and Canada Compared. Urban Studies, 46(1), 63–91. Davison, G. (2000). Colonial Origins of the Australian Home. In P. Troy (Ed.), A History of European Housing in Australia (pp. 6–25). Cambridge: Cambridge University Press. 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 169

Dawson, E., & Smith, W. (2018). The Cost of Privilege [Internet] (A Research Paper by Per Capita for Anglicare Australia). Melbourne: Per Capita. Available from: https://percapita.org.au/our_work/the-cost-of-privilege/. Accessed 30 March 2018. Debelle, G. (2010, March 30). The State of the Mortgage Market [Internet]. Address to Mortgage Innovation Conference. Sydney. Available from: https://www.rba.gov.au/speeches/2010/sp-ag-300310.html. Accessed 13 August 2019. Dietz, R., & Haurin, D. (2003). The Social and Private Micro-Level Consequences of Homeownership. Journal of Urban Economics, 54(3), 401–450. Dingle, T. (2000). Necessity the Mother of Invention or Do-It-Yourself. In P. Troy (Ed.), A History of European Housing in Australia (pp. 57–76). Cambridge: Cambridge University Press. Easthope, H. (2014). Making a Rental Property Home. Housing Studies, 29(5), 579–596. ECB. (2003). Structural Factors in the EU Housing Markets [Internet]. Frankfurt: European Central Bank. Available from: https://www.ecb.europa. eu/pub/pdf/other/euhousingmarketsen.pdf. PROOFAccessed 26 September 2018. Ellis, L. (2006). Housing and Housing Finance: The View from Australia and Beyond (Research Discussion Paper, RDP 2006-12). Sydney: Reserve Bank of Australia. Eslake, S. (2013). Australian Housing Policy: Fifty Years of Failure [Internet]. Submission to Senate Economic References Committee Inquiry on Housing Affordability. Available from: https://www.aph.gov.au/Parliamentary_Business/ Committees/Senate/Economics/Affordable_housing_2013/Submissions. Accessed 13 July 2019. Eslake, S. (2017). No Place Like Home: The Impact of Declining Home Ownership on Retirement [Internet] (AIST Housing Affordability and Retirement Incomes Report). Melbourne: Australian Institute of Superannuation Trustees. Available from: https://www.aist.asn.au/Media-and-News/ News/2017/No-place-like-home-the-impact-of-declining-home-owREVISED . Accessed 13 August 2019. Fisher, L., & Jaffe, A. (2003). Determinants of International Home Ownership Rates. Housing Finance International, 18, 34–42. Flood, J., & Yates, J. (1987). Housing Subsidies Study (Final Report, AHRC Project 160). Canberra: Australian Government Publishing Service. Flood, J., & Yates, J. (1989). Housing Subsidies and Income Distribution. Housing Studies, 4(3), 193–210. Freebairn, J. (1999). Tax Reform Proposals and Housing. Economic Papers, 18(3), 73–84. 170 H. PAWSON ET AL.

Goodman, L., & Mayer, C. (2018). Homeownership and the American Dream. Journal of Economic Perspectives, 32(1), 31–58. Grudnoff, M. (2016). CGT Main Residence Exemption. Policy Brief. Canberra: The Australia Institute. Guest, R. (2005). A Life Cycle Analysis of Housing Affordability Options for First Home Owner-Occupiers in Australia. Economic Record, 81(254), 237–248. Hayward, D. (1996). The Reluctant Landlords? A History of Public Housing in Australia. Urban Policy and Research, 14(1), 5–36. Henry, K. (2010). Australia’s Future Tax System—Report to the Treasurer [Internet]. Australia’s Future Tax System Review Review. Canberra: The Treasury. Available from: http://taxreview.treasury.gov.au/content/Content. aspx?doc html/pubs_reports.htm. Accessed 16 July 2019. = Herbert, C., McCue, D., & Sanchez-Moyano, R. (2013, April 1–2). Is Home Ownership Still an Effective Means of Building Wealth for Low-Income and Minority Households? (Was It Ever?). Paper Presented at Homeownership Built to Last: Lessons from the Housing Crisis on Sustaining Homeownership for Low-Income and Minority Families. National Symposium, Harvard Business School, Boston. PROOF Hill, M. (1959). Housing Finance in Australia, 1945–1956. Melbourne: Melbourne University Press. Hill, M. (1974). Housing Finance Institutions. In R. Hirst & R. Wallace (Eds.), The Australian Capital Market (pp. 332–364). Chesire: Melbourne. House of Representatives Standing Committee on Economics. (2016). Report on the Inquiry into Home Ownership [Internet]. Canberra: Commonwealth of Australia. Available from: http://www.aph.gov.au/Parliamentary_Business/ Committees/House/Economics/InquiryintoHomeOwnersh/Report. Accessed 22 December 2016. House of Representatives Standing Committee on Economics, Finance and Public Administration. (2007). Home Loan Lending: Inquiry into Home Loan Lending Practices and the Processes Used to Deal with People in Financial DiffcultyREVISED [Internet]. Canberra: Commonwealth of Australia. Available from: https://www.aph.gov.au/Parliamentary_Business/Committees/House_of_ Representatives_Committees?url efpa/banklending/report.htm. Accessed 2 = March 2019. Hulse, K., Burke, T., Ralston, L., & Stone, W. (2010). The Benefts and Risks of Home Ownership for Low-Moderate Income Households (AHURI Final Report No. 154). Melbourne: AHURI. Hulse, K., & Yates, J. (2017). A Private Rental Sector Paradox: Unpacking the Effects of Urban Restructuring on Housing Market Dynamics. Housing Studies, 32(3), 253–270. 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 171

IMF. (2009). Debt Bias and Other Distortions: Crisis-Related Issues in Tax Policy [Internet]. Paper by IMF Fiscal Affairs Department. Washington: International Monetary Fund. Available from: https://www.imf.org/external/np/pp/eng/2009/061209.pdf. Accessed 23 June 2016. Industry Commission. (1991). Availability of Capital [Internet] (Report No. 18). Canberra: Australian Government Publishing Service. Available from: https://www.pc.gov.au/inquiries/completed/capital/18capital.pdf[Accessed 4 April 2019. Jackson, B. (2012). Property-Owning Democracy: A Short History. In M. O’Neill & T. Williamson (Eds.), Property-Owning Democracy: Rawls and Beyond (pp. 33–52). Oxford: Wiley-Blackwell. Jacobs, K. (2015). A Reverse Form of Welfarism: Refections on Australian Housing Policy. Australian Journal of Social Issues, 50(1), 53–68. JCHS. (2015). State of the Nation’s Housing 2015 (Report by Joint Center for Housing Studies). Cambridge, MA: Harvard University. Kelly, J.-F., Hunter, J., Harrison, C., & Donegan, P. (2013). Renovating Housing Policy (Grattan Institute Report, No. 2013-12). Melbourne: Grattan. Kemeny, J. (1977). A Political Sociology of Home Ownership in Australia. Journal of Sociology, 13(1), 47–52. PROOF Kemeny, J. (1981). The Myth of Homeownership. London: Routledge and Kegan Paul. Kemeny, J. (2005). ‘The Really Big Trade-Off’ Between Home Ownership and Welfare: Castles’ Evaluation of the 1980 Thesis, and a Reformulation 25 Years on. Housing Theory and Society, 22(2), 59–75. Knoll, K., Schularick, M., & Steger, T. (2017). No Price Like Home: Global House Prices, 1870–2012. American Economic Review, 107(2), 331–353. Kohl, S. (2018). The Political Economy of Homeownership: A Comparative Analysis of Homeownership Ideology Through Party Manifestos. Socio- Economic Review, mwy030, 1–28. Lawson, J., & Milligan, V. (2007). International Trends in Housing and Policy Responses (AHURI Final Report No. 100). Melbourne: AHURI. Martin, S. (1991).REVISED A Pocket Full of Change: Banking and Deregulation [Internet]. Report by House of Representatives Standing Committee on Finance and Public Administration. Canberra: Australian Government Publishing Service. Available from: https://www.aph.gov.au/Parliamentary_Business/Committees/House_ of_Representatives_Committees?url reports/1991/1991_pp290report.htm. = Accessed 27 February 2019. Mathä, T., Porpiglia, A., & Ziegelmeyer, M. (2017). Household Wealth in the Euro Area: The Importance of Intergenerational Transfers, Homeownership and House Price Dynamics. Journal of Housing Economics, 35, 1–12. McCarthy, G., Van Zandt, S., & Rohe, W. (2001). The Economic Benefts and Costs of Homeownership: A Critical Assessment of the Research (Working Paper No. 01–02). Washington, DC: Research Institute for Housing America. 172 H. PAWSON ET AL.

Menzies, R. (1942, May 22). The Forgotten People [Internet]. Transcript of Speech by Robert Menzies, Macquarie Radio. Available from: http://www. liberals.net/theforgottenpeople.htm. Accessed 12 December 2018. Morrison, P. (2008). On the Falling Rate of Home Ownership in New Zealand [Internet]. Wellington: Centre for Housing Research, Aotearoa New Zealand. Available from: https://repository.digitalnz.org/system/uploads/record/ attachment/375/on_the_falling_rate_of_home_ownership_in_new_zealand. pdf. Accessed 16 April 2019. Morrison, S. (2016, October 24). Keeping Home Ownership Within Reach [Internet]. Address to the Urban Development Institute of Australia, Sydney. Available from: http://ministers.treasury.gov.au/ministers/scott-morrison-2015/speeches/keeping-home-ownership-within-reach-address-urban[Accessed 13 August 2019. Mostafa, A., & Jones, C. (2019). The Financial Returns from Buying Versus Renting: The Experience of First-Time Buyers in Different Regions of Britain. Journal of European Real Estate Research, 12(1), 112–133. Neutze, M., & Kendig, H. (1991). Achievement of Home Ownership Amongst Post-War Australian Cohorts. Housing Studies, 6(1), 3–13. OECD. (2016). OECD Affordable Housing DatabasePROOF (December 2016 version) [Internet]. Paris: Organisation for Economic Co-operation and Development. Available from: http://www.oecd.org/social/affordable-housing-database. htm. Accessed 11 July 2019. OECD. (2018). The Taxation of Household Savings [Internet] (OECD Tax Policy Studies, No. 25). Paris: Organisation for Economic Co-operation and Development. Available from: https://www.oecd-ilibrary.org/taxation/taxation-of-household-savings_9789264289536-en. Accessed 9 July 2018. Ong, R., Wood, G., Austen, S., Jefferson, T., & Haffner, M. (2015). Housing Equity Withdrawal in Australia: Prevalence, Patterns and Motivations in Mid- to-Late Life. Housing Studies, 30(7), 1158–1181. Palisi, P. (2017). Tax Expenditure Analysis—Origins, Debates and Future Prospects [Internet] (Treasury Working Paper, 2017-03). Canberra: The Treasury. AvailableREVISED from: https://static.treasury.gov.au/uploads/sites/1/2017/09/ P2017-T169275-Working-Paper.pdf. Accessed 18 February 2019. Paris, C. (1993). Housing Australia. Melbourne: Macmillan. Pawson, H., Hulse, K., & Morris, A. (2017). Interpreting the Rise of Long- Term Private Renting in a Liberal Welfare Regime Context. Housing Studies, 32(8), 1062–1084. Pinnegar, S., Milligan, V., Quintal, D., Randolph, B., Williams, P., & Yates, J. (2008). Innovative Financing for Home Ownership: The Potential for Shared Equity Initiatives in Australia (AHURI Positioning Paper No. 106). Melbourne: AHURI. Priorities Review Staff. (1975). Report on Housing, August 1975 (Parliamentary Paper No. 261). Canberra: Australian Government Publishing Service. 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 173

Productivity Commission. (2004). First Home Ownership [Internet] (Inquiry Report, No. 28). Melbourne: Productivity Commission. Available from: https://www.pc.gov.au/inquiries/completed/frst-home-ownership/report. Accessed 13 August 2019. Productivity Commission. (2018). Competition in the Australian Financial System [Internet] (Inquiry Report, No. 89). Melbourne: Productivity Commission. Available from: https://www.pc.gov.au/inquiries/completed/ fnancial-system/report. Accessed 13 August 2019. Pulo, A. (2010). Tax Expenditure Considerations for Owner-Occupied Housing. Economic Roundup, 2010(2), 73–90. Rappaport, J. (2010). The Effectiveness of Homeownership in Building Household Wealth. Federal Reserve Bank of Kansas City Economic Review, 2010(4): 35–65. Available from: https://www.kansascityfed.org/publicat/ econrev/pdf/10q4Rappaport.pdf. Accessed 13 April 2019. RBA. (1991). Inquiry into the Banking Industry [Internet]. Submission to the House of Representatives Standing Committee on Finance and Public Administration Sydney. Reserve Bank of Australia. Available from: https://www.rba.gov.au/ publications/submissions/fnancial-sector/inquiry-australian-banking-industry/ pdf/inquiry-australian-banking-industry.pdf. AccessedPROOF 18 February 2019. RBA. (2005, March). Financial Stability Review. Sydney: Reserve Bank of Australia. RBA. (2015). Submission to the Inquiry into Home Ownership [Internet]. House of Representatives Standing Committee on Economics. Sydney: Reserve Bank of Australia. Available from: https://www.rba.gov.au/publications/ submissions/housing-and-housing-fnance/inquiry-into-home-ownership/. Accessed 13 August 2019. Reece, B. (1975). The Income Tax Incentive to Owner-Occupied Housing in Australia. Economic Record, 51(134), 218–231. Rodrigues, M. (2003). First Home Buyers in Australia. Economic Roundup, 2003(4), 1–17. Rohe, W., Van Zandt, S., & McCarthy, G. (2001). The Social Benefts and Costs of Home REVISEDOwnership: A Critical Assessment of the Research (Joint Center for Housing Studies Low-Income Homeownership Working Paper Series, LIHO- 01.12). Cambridge, MA: Harvard University. Available from: https://www. jchs.harvard.edu/sites/default/fles/liho01-12.pdf. Accessed 10 April 2019. Ronald, R., Lennartz, C., & Kadi, J. (2017). Whatever Happened to Asset Based Welfare? Shifting Approaches to Housing Wealth and Welfare Security. Policy and Politics, 45(2), 173–193. Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. (2018). Interim Report (Vol. 1). Canberra: Commonwealth of Australia. 174 H. PAWSON ET AL.

Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. (2019). Final Report (Vol. 1). Canberra: Commonwealth of Australia. Searle, B., & McCollum, D. (2014). Property-Based Welfare and the Search for Generational Equality. International Journal of Housing Policy, 14(4), 325–343. Senate Select Committee on Housing Affordability in Australia. (2008). A Good House is Hard to Find: Housing Affordability in Australia (Parlimentary Paper No. 304). Canberra: Select Committee on Housing Affordability in Australia. Sheppard, J., Gray, M., & Phillips, B. (2017). Attitudes to Housing Affordability [Internet] (Report No. 24). Canberra: Australian National University. Available from: http://csrm.cass.anu.edu.au/sites/default/fles/docs/ ANUpoll-24-Housing-2017_0.pdf. Accessed 14 January 2019. Simon, J., & Stone, T. (2017). The Property Ladder After the Financial Crisis: The First Step Is a Stretch but Those Who Make It Are Doing OK (Research Discussion Paper, RDP 2017-05). Sydney: Reserve Bank of Australia. Sinai, T., & Souleles, N. (2005). Owner-Occupied Housing as a Hedge Against Rent Risk. The Quarterly Journal of Economics, 120(2), 763–789. Stebbing, A., & Spies-Butcher, B. (2010). UniversalPROOF Welfare by ‘Other Means’? Social Tax Expenditures and the Australian Dual Welfare State. Journal of Social Policy, 39(4), 585–606. Stebbing, A., & Spies-Butcher, B. (2016). The Decline of a Homeowning Society? Asset-Based Welfare, Retirement and Intergenerational Equity in Australia. Housing Studies, 31(2), 190–207. Tiernan, A., & Burke, T. (2002). A Load of Old Garbage: Applying Garbage- Can Theory to Contemporary Housing Policy. Australian Journal of Public Administration, 61(3), 86–97. Treasury. (2002). Inquiry into Superannuation and Standards of Living in Retirement—Submission by the Commonwealth Treasury. Roundup (Winter): 1–44. Available from: http://www.treasury.gov.au/publication/economic-roundup-winter-2002/senate-select-committee-on-superannuation. AccessedREVISED 15 April 2019. Treasury. (2015). Re:think: Better Tax, Better Australia [Internet] (Tax Discussion Paper). Canberra: The Treasury. Available from: https://treasury. gov.au/sites/default/fles/2019-03/c2015-rethink-dp-TWP_combined-online.pdf. Accessed 14 August 2019. Treasury. (2019). Tax Benchmarks and Variations Statement, 2018 [Internet]. Canberra: The Treasury. Available from: http://www.treasury.gov.au/sites/ default/fles/2019-03/p2019-357183-TBVS-2018.pdf. Accessed 8 April 2019. Wallis Inquiry. (1996). Financial System Inquiry Discussion Paper [Internet]. Canberra: Australian Government Publishing Service. Available from: https:// treasury.gov.au/publication/p1996-fsi-dp. Accessed 14 August 2019. 5 HOME OWNERSHIP AND THE ROLE OF GOVERNMENT 175

Wallis Inquiry. (1998). Financial System Inquiry Final Report [Internet]. Canberra: Australian Government Publishing Service. Available from: https://treasury.gov.au/publication/p1996-fsi-fr. Accessed 14 August 2019. Whiteford, P. (2015). Inequality and Its Socio-Economic Impacts. Australian Economic Review, 48(1), 83–92. Whitehead, C., & Williams, P. (2017). Changes in the Regulation and Control of Mortgage Markets and Access to Owner-Occupation Among Younger Households (OECD Social, Employment and Migration Working Papers, No. 196). Paris: Organisation for Economic Co-operation and Development. Williams, R. (1984). Housing Policy in Australia. Economic Papers, 3(3), 38–50. Wood, G. (1990). Housing Finance and Subsidy Systems in Australia. Urban Studies, 27(6), 847–876. Wood, G., Smith, S., Cigdem, M., & Ong, R. (2017). Life on the Edge: A Perspective on Precarious Home Ownership in Australia and the UK. International Journal of Housing Policy, 17(2), 201–226. Wood, G., Watson, R., & Flatau, P. (2005). Microsimulation Modelling of Tenure Choice and Grants to Promote Home Ownership. Australian Economic Review, 39(1), 14–34. Wulff, M. (1990). Low Income Home Ownership:PROOF The Privatisation of Squalor or the Great Australian Dream? Housing Studies, 5(4), 229–241. Yates, J. (1983, April). Access to Housing and the Campbell Report: The Implications of Implementing the Recommendations of Chapter 37. Economic Papers, Special Edition, pp. 101–122. Yates, J. (1992). Shared Ownership: The Socialisation or Privatisation of Housing? Housing Studies, 7(2), 97–111. Yates, J. (2010a). Tax Expenditures and Housing. In M. Stewart (Ed.), Housing and Tax Policy (Conference Series No. 26, pp. 39–91). Sydney: Australian Tax Research Foundation. Yates, J. (2010b). Housing and Tax: The Triumph of Politics Over Economics. In C. Evans, R. Krever, & P. Mellor (Eds.), Australia’s Future Tax System: The Prospects After Henry (pp. 233–265). Sydney: Thomson Reuters. Yates, J. (2015,REVISED June). Trends in Home Ownership: Causes, Consequences and Solutions [Internet]. Submission to the Standing Committee on Economics Inquiry into Home Ownership. Available from: https://www.aph.gov. au/Parliamentary_Business/Committees/House/Economics/Home_ Ownership/Submissions. Accessed 30 June 2015. Yates, J., & Bradbury, B. (2010). Home Ownership as a (Crumbling) Fourth Pillar of Social Insurance in Australia. Journal of Housing and the Built Environment, 25(2), 193–211. Yates, J., & Flood, J. (1989). Home Purchase Assistance: An Assessment of State Housing Authority Programs (Background Paper No. 5, National Housing Policy Review). Canberra: Department of Community Services and Health. CHAPTER 6

Private Rental Housing: Market Roles, Taxation and Regulation

6.1 The Private Rental Policy Challenge Around one in every four Australians rent their home from a private landlord. Consistent with experience in manyPROOF comparator countries, the past 10–20 years have seen strong growth in this market sector. In Australia, as in many foreign jurisdictions including Ireland, New Zealand, the UK and the USA, the private rental sector (PRS) has been expanding at a rate faster than the overall stock of occupied dwellings. Domestically, the sector grew from 18 to 25% of all households in the 20 years to 2015–2016 (ABS 2017). This in part refects the rising incidence of long-term (perhaps perpetual) renting, especially affecting growing numbers of younger and less affuent Australians. In keeping with the situation in other high-income nations, Australia’s PRS has been traditionally less of a central concern for housing policy than home ownership or social renting—“the Cinderella of housing tenures” (MaherREVISED et al. 1997). Offcial policy settings are, nonetheless, highly signifcant in affecting PRS housing provision and tenant experience. On the supply side, this particularly relates to tax policies affecting PRS investment returns, and to regulatory policies affecting landlord access to mortgage fnance. On the demand (or consumption) side, government infuence is importantly exerted through regulatory policies governing landlord–tenant relations, and through the Rent Assistance component of the social security system.

While maximising home ownership (owner-occupation) remains Australia’s prime offcial housing policy objective (see Chapter 5), governments here and elsewhere have taken a growing interest in expanding private rental provision over the past 10–20 years. As recently argued by the former Federal Treasurer, “[p]rogress must be made [in further] boosting and diversifying [the] supply of rental stock” (Morrison 2017). Such aspirations partly refect recognition of intensifying stress affecting the lower end of the market (Chapter 3), set against political reluc- tance to expand social housing (Chapter 4). However, as in other liberal market nations, e.g. New Zealand and the UK, they also derive from an understanding that a well-functioning PRS is a necessary enabler for fexible labour markets where workers can easily move to take up job opportunities as necessary. At the same time, perceived failings in the established structure and operation of private rental housing pose signifcant policy challenges for Australian governments. Thus, summarising recent research evidence on the PRS tenant experience, Martin (2018bPROOF, p. 188) concludes that “while private tenants are very mobile, and the large majority of moves are made for tenants’ own reasons … a very large majority … worry about their prospects if they had to move, a signifcant minority feel that they might have to move, and most have put up with tenancy problems for fear of adverse circumstances”. Accordingly, there have been growing calls for reform of standard tenancy terms which, in most jurisdictions, afford relatively little security of tenure to private tenants when compared with international best practice (Hulse et al. 2011). In particular, the current legal framework is argued as increasingly unsatisfactory for a sector accommodating growing numbers of family households, longer-term renters and other low-income tenantsREVISED with little or no market power (Hulse et al. 2012; Morris et al. 2017). Calls for enhanced tenant security, however, continue to meet real estate industry resistance. In part this refects Australia’s PRS ownership structure, which remains dominated by small-holding individuals whose main business priority is to beneft from asset value appreciation and tax-minimisation strategies (Seelig et al. 2009; Wood and Ong 2010; Hulse et al. 2018). This state of affairs, further detailed in Sect. 6.2, goes hand-in-hand with a culturally-embedded landlord inclination to limit tenants’ security of tenure, allowing scope to realise capital gains at the owner’s convenience. 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 179

While some of the above issues have become more pronounced in recent times, many of them are long-standing. Similarly enduring as a policy challenge is the offcial aspiration to attract large-scale institutional investment into rental housing and to expand the stock of housing designed and built specifcally for this purpose (Pawson and Milligan 2013). This is true in Australia (Plibersek 2008; Australian Government 2010) as in other countries, e.g. the UK (Kemp 2004). As voiced by the then Federal Treasurer: “attention must also be paid to how rented residential real estate can be better structured to provide more opportunities for institutional involvement” (Morrison 2017). This, it was argued, was desirable not least in “create[ing] greater scope for longer term leases and potentially reduc[ing] the reliance of developers on attracting individual foreign investors to get projects off the ground” (ibid.).1 Nevertheless, despite recent enthusiastic backing from a wide variety of stakeholders, prospects for the emergence of such an asset class in Australia are far from certain. Moreover, while this is likely to be determined primarily by market conditions, a numberPROOF of contemporary policy settings are also implicated (see Sect. 6.3.4 and Chapter 8). The remainder of this chapter is structured as follows. First to con- textualise our account of private rental policy, Sect. 6.2 sketches in some background on the structure of Australia’s rental market, the private rental dwelling stock, and the sector’s residents. In Sect. 6.3, we discuss tax and other policy settings affecting private rental property investment (the supply side). Following this, we turn to regulatory policy affecting the consumer experience of private rental property (Sect. 6.4), i.e. the governance of landlord–tenant relations. In Sect. 6.5, we summarise the fnancial support pumped into the private rental system through Rent Assistance payments to low-income tenants. As in otherREVISED chapters, certain Australian housing market features and policy settings are assessed within an international comparative context. A key source for this is recent AHURI research involving the authors and spanning ten OECD countries selected for their relevance to Australia’s private rental market (Martin et al. 2018). In this chapter, particular emphasis is laid on the comparison between Australia and Germany because of the increasingly common Australian citation of the German rental system as a good practice benchmark, embodying a more highly

1 Certain state governments (notably NSW, Victoria and Queensland) have also recently taken a keen interest in the possible emergence of an Australian BtR sector. 180 H. PAWSON ET AL. regulated model in which a higher priority is accorded to tenant rights (e.g. Koziol 2014; Morton 2016; Tan 2017). This also accords with the recognised validity of comparing ‘most different’ jurisdictions as a way of highlighting national policy choices and alternatives.

6.2 australia’s Private Rental Sector In this section, we frst discuss the defnition of private rental housing, and then explore the boundaries of Australia’s PRS, which includes a distinct marginal rental component (differently regulated from the mainstream sector), as well as a burgeoning short-term rental element. We then fnish by outlining, in turn, key characteristics of the nation’s private rental stock and tenant population.

6.2.1 Sector Defnition and Scope As it has been traditionally treated in policy discoursePROOF and statistical analysis, private rental housing has often been conceptualised as a residual, i.e. the housing that remains after accounting for social renting and home ownership (Oxley et al. 2011). More positively, the PRS could be simply defned as privately owned rental housing, made available to tenants through market mechanisms and at market prices. As embodied in Australia, however, a variety of identifable sub-sectors is encompassed within this overall defnition (see Table 6.1). While the frst category in Table 6.1 accounts for the vast majority of sector dwellings and tenants, each of the other components has a distinct mode of investment and management, as well as its sub-sector-specifc policy and regulatory challenges. These are explored later in thisREVISED chapter. Refecting its status as home to the vast majority of Australia’s private renters, the mainstream sector is the main focus of the rest of this chapter. First, a few brief points are made about the smaller sub-sectors identifed in Table 6.1. As in many other countries, the diversity of Australia’s PRS includes a marginal rental sub-sector where occupancy standards are markedly lower and prices (rents) cheaper. Marginal rental housing is defned as accommodation where residents share facilities such as kitchens and bathrooms, as well as being “highly managed and controlled” (Goodman et al. 2013). In Australia, rooming houses or boarding 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 181

Table 6.1 Australian private rental typology

Sub sector Ownership Market position Tenant target group

Mainstream Individual ‘mum and Diverse Diverse dad’ investors Rooming/boarding Individuals, Low end Low-income single houses companies people Purpose-built stu- Financial institutions, Mid-market to International and some dent accommodation companies high end domestic students Mainstream build Financial Institutions, High end Young professionals, to rent developers primarily non-families Short stay rental Individuals, including Mid-market to Tourists and mobile ‘mum and dad high end workers investors’

Source Authors houses, i.e. larger buildings where tenants rentPROOF individual rooms, form the most signifcant component. As explained in Sect. 6.4, buildings of this sort tend to be subject to specifc legal and regulatory codes, refecting associated health and safety hazards (Dalton et al. 2015). Purpose-built student accommodation (PBSA) is a highly specifc PRS niche product often developed and owned by fnancial institutions such as pension funds and insurance companies. Complementing traditional university halls of residence, PBSA has mushroomed in Australia and in many other countries in recent decades. By 2018, PBSA bed spaces were estimated to exceed 90,000, Australia-wide (Knight Frank 2018). The sector’s development has paralleled the globalisation of higher education: the growing numbers of overseas students within the rising overall student populationREVISED seen internationally since early 2000s. What we term mainstream build to rent (BtR) housing (see Table 6.1) is essentially similar to PBSA in involving apartment blocks purpose-built for tenanted occupation and to be held in single ownership for the long-term as income-generating assets. Although, as yet barely established in Australia (unlike in certain comparator countries), some commentators anticipate that this may be set to change in coming years (Pawson et al. 2019). Policy considerations with a bearing on this possibility are discussed in Sect. 6.3.3. Another new private rental variant that has latterly burst onto the scene both domestically and globally is the short-term letting sub-sector targeting tourists or temporary business visitors. While it is the most 182 H. PAWSON ET AL. well-known operator, AirBnB is only one of the companies involved in this expanding market. By 2018, it was reported that AirBnB listings alone were running at over 20,000 in both Sydney and Melbourne (Crommelin et al. 2018). Again, dwellings let as self-contained units via internet platforms such as AirBnB and Booking.Com are managed outside mainstream private rental regulation. Especially to the extent that such arrangements involve entire dwellings rather than home-sharing, they have sparked controversy in terms of the increased stress on already pressured rental housing markets (Parkinson et al. 2018; Wachsmuth et al. 2017). In Australia as in other countries, concerns have also arisen in relation to the neighbourhood impacts of short-term letting, especially within the multi-occupied building context (Gurran and Phibbs 2017). As further discussed in Sect. 6.4.4, this phenomenon presents new regulatory challenges for municipal and state governments around the world.

6.2.2 Sector Structure: Ownership, BuiltPROOF Form, Geography PRS ownership in Australia is predominantly in the hands of small-scale landlords, i.e. individual proprietors colloquially known as ‘mum and dad’ investors. This is in keeping with the international norm. In a study encom- passing 15 OECD countries, only Austria, Denmark and Sweden were identifed as exceptions to this norm (Scanlon 2011). In the United States, however, a proportion of the burgeoning multi-family housing (build to rent) sector is institutionally owned and a class of large corporate landlords has enjoyed rapid growth, mainly through acquisition of foreclosed properties following the 2007 Global Financial Crisis (Martin et al. 2018). Some 2.15 million Australian taxpayers (16%) owned a rental property in 2015–2016REVISED (Australian Taxation Offce 2018). A typical landlord is “an owner-occupier, at midlife, in a household with two incomes” (Hulse et al. 2018, p. 4). However, a growing minority of Australian rental property owners are tenants themselves. Up to 15% of all private tenant households also own a rental property2 (ABS 2017). Sometimes termed ‘rentvestors’, such households often involve young adults whose initial housing career objectives are focused on home ownership, but not (at least in the short-term) owner-occupation (Hulse and McPherson 2014).

2 Proportion estimated on the assumption that all of the 342,000 residential property-owning renters enumerated by the ABS are private tenants, i.e. none are social renters. 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 183

RIDOOSULYDWHUHQWDOGZHOOLQJV P

6PDOOVFDOH LQGLYLGXDO $XVWUDOLDUHVLGHQWODQGORUGV 2WKHURZQHUV

UHQWDOGZHOOLQJLQRZQHUVKLS UHQWDOGZHOOLQJVLQRZQHUVKLS UHQWDOGZHOOLQJVLQRZQHUVKLS UHQWDOGZHOOLQJVLQRZQHUVKLS /DUJHVFDOHRZQHUVDQGRWKHU

Fig. 6.1 Private rental dwellings in Australia by ownership in 2015–2016 (Note Numbers of dwellings in ownership relate to households rather than individuals. Thus, 38% of dwellings are held by households owning one rental dwelling only. Source Draws on Hulse et al. [2019]. Raw data fromPROOF ABS survey of income and housing)

As shown in Fig. 6.1, 80% of Australia’s private rental dwellings are held by small-scale (individual) property owners, with well over a third (38%) having only a single rental property. The 20% of dwellings owned by parties other than small-scale investors include those held by individuals owning more than four rental units, by overseas-based individuals, by real estate or property companies and by other institutions (e.g. employers). Dwellings owned by trusts form another element of this market segment. Of these some will be self-managed superannuation funds (SMSFs), where the ultimate benefciary is an individual Australian taxpayer whoREVISED has established this structure as part of a tax-minimisation strategy. With this in mind, it is probable that the proportion of all PRS dwellings ultimately held by small-scale (individual) Australia-resident landlords is in fact signifcantly higher than 80%. An important aspect of the context for these developments is the increasingly powerful attraction of Australian real estate as an investment vehicle; an asset with growing appeal to domestic taxpayers and wealthy foreigners alike. This is symptomatic of the growing global fnancialisation of housing, where dwellings are increasingly viewed as assets to be traded and leveraged to support further investment or consumption spending (Ryan-Collins et al. 2017). 184 H. PAWSON ET AL.

+RXVHGHWDFKHG +RXVHDWWDFKHG $SWLQVPDOOEORFN $SWLQODUJHEORFN

ΎDOOUHQWDOKRXVLQJ 3562WKHU 356 2WKHU $XVWUDOLD *HUPDQ\

Fig. 6.2 Distribution of private rental housing and other forms of housing by building types in Australia (2016) and Germany (2013) (Note Small block defned as building containing 2–9 dwellings; Large block: 10 + dwellings. Source Martin et al. [2018, p. 21])

Around two-thirds of Australia’s private rental dwellings are houses, with around one-third being apartments (seePROOF Fig. 6.2). This pattern is strongly infuenced by the fact that Australia’s overall housing stock remains heavily weighted towards (detached) houses, despite apartments comprising a signifcantly expanding share of post-millennium new construction in capital cities. By comparison with other high-income countries, the profle of Australia’s PRS is unusually similar to that of the wider housing market; there is no diametric contrast between an apartment-dominated PRS and a house-dominated non-PRS. In Germany, as a particularly contrasting example, houses account for barely one in twenty private rental dwellings, as compared with over two-thirds of owner-occupied homes. Implicit here is that Australian private housing is not physically tenure-identifed. The generalREVISED inter-changeability of Australia’s private dwellings from rental to owner-occupied and vice versa means that “the policy settings and market conditions which apply to one [such tenure] may be trans- mitted readily to the other” (Martin et al. 2018, p. 3). Thus, the level and pattern of PRS investor demand (affected by prevailing tax settings and investor fnance rules) impacts on the housing market as a whole. This is refected in direct competition between landlord investors and aspirant frst home buyers. The perceived tendency for the former to outbid the latter in the policy and market conditions recently prevailing in Australia has generated extensive popular concern and media debate (Martin and Massola 2017; Pawson 2019). 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 185

In practice, most Australian private rental dwellings are homes designed and built for individual sale, most of which may have been initially owner-occupied, only later transitioning into rental use. A part of the rapid PRS growth over the past 10–20 years has resulted from individual investor acquisition of newly built strata-titled apartments. Nevertheless, the vast bulk of investor housing fnance issued over the past 30 years has been directed to buying existing (not newly built) properties,3 most of which will have been formerly owner-occupied. Indeed, the immediate cause of Australia’s recently declining home ownership rate discussed in Chapter 5 has been the net transfer of formerly owner-occupied dwellings into private rental use. Some of the above generalisations are less true in those niche components of the wider PRS involving purpose-built marginal rental accommodation and student housing. The boarding house sector, for example, includes some buildings that are distinctive by virtue of their use, and which are subject to specifc regulatory arrangements (see Sect. 6.4.3). Being specifcally designed for its intended function, purpose-built student accommodation is an inherently separate component of the housing market.PROOF It prefgures the mainstream build to rent product that some commentators and industry players expect to emerge in Australia in coming years (see Sect. 6.3.3). Geographically, certain PRS sub-sectors (see Table 6.1) have quite specifc attributes. Rooming (or boarding) houses are disproportionately located in large capital cities. However, while heavily represented in inner Sydney, registered rooming houses in Melbourne are more concentrated in that city’s South Eastern suburbs (Dalton et al. 2015). PBSA development naturally clusters around tertiary educational institutions, especially those popular with overseas students. At least initially, mainstream build to rent housing looks likely to emerge in high value localities of Sydney, Melbourne and possibly Brisbane (Pawson et al. 2019). The short-stayREVISED letting sub-sector is a PRS component with a particularly specifc geography. As in other global cities, e.g. Barcelona, London and New York, the distribution of these dwellings is extremely localised. Hence, signifcant concentrations have been accumulating in areas ftting the description “ultra-desirable neighbourhoods” (Rae 2019). In Sydney’s inner city Darlinghurst and the beachside suburbs of Manly, Bondi, Tamarama and Bronte, for example, 2017 AirBnB listings equated to 11–15% of established dwellings (Crommelin et al. 2018).

3 For example, in the 10 years to 2018, only 7% of housing fnance issued for investment property acquisition involved ‘Investment housing—Construction of dwellings for rent and resale’ (ABS 2018, Table 11). 186 H. PAWSON ET AL.

Sharply contrasting with the small PRS sub-sectors, the mainstream PRS is relatively ubiquitous across Australia’s towns and cities. Historically, most rental properties have been concentrated in the inner areas of our cities, but, as a consequence of ongoing structural change with disproportionate sector growth in middle and outer suburbs of Australia’s capital cities, this is no longer true.

6.2.3 Sector Structure: Resident Population Profle Certain population groups are more likely to be private renters. These are people who, due to their circumstances, are disproportionately attracted (or limited) to a form of housing that:

• Is relatively quickly/simply obtained • Calls for little long-term commitment • Can be relatively cheap to occupy (e.g. compared with home ownership). PROOF

Population cohorts for whom these PRS features are almost universally attractive include recent international migrants (including overseas students), people needing to be mobile for work reasons, people affected by relationship breakdown and people saving to access home ownership. More generally, we can say that private rental housing is important for low-income earners, including many with special needs, for whom home ownership is unaffordable and social housing unavailable.

6LQJOH REVISED 6LQJOHFKLOGUHQ &RXSOH &RXSOHFKLOGUHQ *URXS 0DUNHWUHQWDO 3561RQ356 356 1RQ356 $XVWUDOLD *HUPDQ\

Fig. 6.3 Household composition of PRS and non-PRS tenures in Australia (2016) and Germany (2017) (Source Martin et al. [2018, p. 24]) 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 187

As illustrated by Fig. 6.3, the resident profle of Australia’s PRS is relatively similar to that of the other housing tenures. Well over a third of households (38%) include children, of which a third are single parent families. The overrepresentation of this latter group probably refects their exclusion from home ownership due to typically lower incomes. The comparison depicted in Fig. 6.3 once more illustrates a strong cross-country contrast, with PRS and wider housing market property type profles in Australia being far more similar than they are in Germany. Consistent with this pattern, and despite the fact that it includes a substantial proportion of lower-income earners, Australia’s PRS is more socio-economically diverse than equivalent sectors in most comparator countries (Martin et al. 2018). Thus, it encompasses substantial numbers of middle-income and high-income earners. Given the characterisation of the 1970s tenant population as involving Australians “at the lower end of the socio-economic ladder” (Bradbrook 2003), it would seem that part of the PRS has subsequently moved substantially upmarket. Implicit in the observation that Australia’sPROOF PRS nowadays accommodates a substantial population of better-off tenants, is an inference that many may be present in this tenure by choice rather than by constraint. This could involve a signifcant proportion of tenants having willingly opted to rent (rather than buy) as a trade-off against other more highly rated housing priorities, such as locational or neighbourhood preference. Thus, residing in an inner suburban location in Australia’s major cities has become affordable for many only via renting. Effectively prioritising location over tenure choice, many Australians opt for renting rather than owner occupation (Pawson et al. 2017). With all of the above in mind, it is clear that Australia’s PRS plays a number of distinct roles in the wider housing market. It provides easily accessed housing forREVISED more mobile households, including those needing to move at short notice for work or relationship breakdown reasons; some of whom may gain (or regain) home ownership at a later time. It offers relatively long- term housing for young professionals, including both those whose main priority is to save for home ownership and those whose priority on living in a desirable neighbourhood overrides home ownership aspiration. Increasingly, it accommodates lower-income households who face perpetual private renting because of unaffordable home ownership and inaccessible social housing. Largely refecting the growing hurdles faced in accessing other tenures, the incidence of long-term private renting has been rising over time. Thus, in the 13 years to 2007–2008, households renting from 188 H. PAWSON ET AL. private landlords for more than ten years almost doubled as a proportion of all households from 4.9 to 8.4% (Pawson et al. 2017). Demographic and tenure change projections suggest that this trend is now likely to have progressed further.

6.3 Tax and Regulatory Settings Affecting PRS Investment A number of Australian tax and regulatory settings and powers have signifcant implications for private rental investment (by individuals or companies) and its proftability. Private rental investment refers to the acquisition and holding of rental properties by private individuals and companies. As shown in Fig. 6.4, investment of this kind accounts for a signifcant share of Australia’s overall housing market activity. From the 1999 tax changes (covered in Sect. 6.3.2) until regulatory clampdowns in 2015/2017, loans for the purchase of investment properties averaged 35% of all housing fnance issued to households.PROOF The most important tax and regulatory instruments affecting private rental investment are those in the hands of the Commonwealth Government and its agencies: the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA). State and territory government tax (and planning) powers are much less important when it comes to the individually owned PRS stock that predominates in Australia, but have the potential to exert signifcant infuence on the feasibility of the currently nascent build to rent product (see Sect. 6.3.3). In Australia and many other countries, tax settings incentivising rental property investment are specifc to individual taxpayers (predominantly small-scale landlords) or to companies (potentially large-scale landlords). As argued REVISEDbelow, Australia’s tax system has historically privileged the former, but not the latter.

6.3.1 Financial Regulation As discussed in Chapter 3, through their potential to infuence the availability and cost of mortgage (or loan) debt, the deployment of fnancial regulatory policies and controls can have huge housing market impacts. In particular, the Reserve Bank’s interest rate powers are of crucial signif- icance to private rental investment and to owner-occupier decisions on when to purchase or commission a dwelling and what price to pay. 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 189

PSHUPRQWK 1HZOHQGLQJWRLQYHVWRUV /+6 ,QYHVWRUVKDUHQHZOHQGLQJ 5+6

Fig. 6.4 Housing fnance issued to investor landlords between 1985 and 2018 (net of re-fnancing) (Source ABS 2019, Table 2) PROOF In the Australian context, the national take-off in rental property investment can be traced back to the fnance industry deregulation of the 1980s. Prior to this, it had been diffcult to obtain mortgage loans for rental properties and, if secured, mortgages tended to attract a “pen- alty rate of interest …often two or three percentage points higher than for home purchase” (Hulse et al. 2012, p. 17). The removal of lending controls at that time greatly eased both the availability and the cost of loans for rental property acquisition. Subsequently, over time, a highly competitive investor fnance market became established with an array of mortgage products to service investor demand for rental property. Complementing the improved terms on which rental property mortgages could be obtained, progressive RBA interest rate reductions from the earlyREVISED 1990s onwards encouraged real estate investment by landlords and owner-occupiers. A key behavioural difference between the two groups, however, has been the landlord tendency to favour interest-only loans, generally unavailable to owner-occupiers. Since there is no repayment of principal, an interest-only loan is likely to be a lower cost option (at least in the short-term), and therefore preferable. However, interest-only borrowers are vulnerable to ‘repayment shock’ when the typically time-limited interest-only status of a loan expires, usually after 5–10 years, and especially when interest rates have risen in the interim. It is partly for this reason that such loans (and, by 190 H. PAWSON ET AL. extension, investor landlord borrowers) tend to attract greater scrutiny from fnancial regulators charged with maintaining economic stability. The potential importance of fnancial regulation as a key site of private rental housing policy was highlighted by two sets of macro-prudential investor-focused lending restrictions enacted by APRA in 2014 and 2017. As characterised by the regulator, these interventions were part of its “substantially increased … intensity of … prudential oversight of residential mortgage lending” (APRA 2019, p. 4). They also followed from concerns about the market-wide infationary impacts of a rapid take-off in investor property acquisitions from around 2011 (see Fig. 6.4), and from worries that this could lead to a property bubble (RBA 2015). More specifcally, APRA had detected “signs of competitive pressures among lenders leading to a loosening of loan underwriting standards and an increasing share of higher risk forms of lending” (APRA 2019, p. 4). Refecting recognition that investor activity has a tendency towards volatility, the regulator had also become concerned at the sharp increase in the property-acquiring landlords’ market share in the period 2011–2014PROOF (see Fig. 6.4). Hence, in December 2014, the regulator issued new guidance to lenders obliging them to:

• Temporarily limit annual growth in investor lending to 10% • Impose a loan serviceability buffer of at least 2% above the loan product rate, with minimum foor assessment rate of 7% • Recommit to prudent lending standards in relation to matters such as loan-to-value ratios (LVRs).

After a brief decline, however, investor lending growth resumed in 2015 (see Fig. 6.4), triggering further restraining action by APRA in March 2017. UnderREVISED these new stipulations lenders were required to: • Temporarily limit interest-only lending to 30% of new lending4 • Strictly limit interest-only lending where LVRs exceeded 80% • Tighten up on serviceability metrics.

While the controls did not directly dictate changes in mortgage pricing, an indirect effect was to push up the cost of interest-only loan debt,

4 These controls were removed in 2018 when APRA had received what it considered as acceptable assurances of improved lending standards being enforced by loan providers. 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 191 creating a signifcant price differential (of around 50 basis points or 0.5%), thus altering the balance of advantage between owner-occupier borrowers and investors in favour of the former. Although, according to APRA, never previously deployed in Australia, constraints of these types are familiar tools for fnancial regulators in comparator countries. Referring to the real estate infation effect of the ultra-low (Reserve Bank-authorised) interest rates of recent years, a prominent fnancial journalist recently commented provocatively “If the RBA bequeathed the bubble, it was APRA who saved us by defating it in an orderly fashion” (Joye 2019).

6.3.2 Federal Income Tax Settings: Negative Gearing and Capital Gains Tax Discount Two complementary elements within Federal income tax settings have played a major role in incentivising private rental investment by individual taxpayers over the past 20 years.PROOF Together, the negative gearing and Capital Gains Tax discount provisions have directed an effective subsidy to landlords through the reduction of investors’ tax liability. These so-called tax expenditures incur an annual cost to the public purse estimated at $7.7 billion by the Australia Institute (Grudnoff 2015) and $11.7 billion by the Grattan Institute (Daley et al. 2016).5 Equally problematic is that these subsidies are capitalised into residential property values, i.e. they are partly responsible for rising property prices. Negative gearing allows investors in business-related assets to write off associated expenses, including loan interest payments and other outlays and holding costs, against their entire income, including income from activitiesREVISED unrelated to the asset.6 Thus, a landlord incurring eligible rental business expenses exceeding associated rental income (i.e. ‘making a loss’) can reduce the tax otherwise payable on salary or other income. This makes negative gearing more advantageous for higher rate taxpayers.

5 Some measure of scale may be gauged by setting these estimates against 2016–2017 Federal Government expenditure on higher education which totalled $9.5 billion (Commonwealth of Australia 2016). 6 Strictly speaking, a property is negatively geared if loan costs contribute to net rental business losses. The facility to ‘negatively gear’ is applicable to investment in any asset, not only to rental housing. 192 H. PAWSON ET AL.

In certain circumstances, even though making after-tax profts on the investment, negative gearing can enable a wage-earning rental investor to actually reduce their tax bill compared with their liability had they not acquired a rental property at all (Daley et al. 2016, p. 21). In this case, the public fnances are not only subsidising landlords to acquire assets, but are paying them a bonus for doing so. Notwithstanding that the facility to deduct business expenses from associated taxable income is a standard tax system principle designed to encourage investment, “there is no in-principle reason why losses on investments should be deductible from entirely unrelated income such as wages” (ibid., p. 22).

Box 6.1 Negative gearing and the Capital Gains Tax discount—principles and history Far from being a recently established provision,PROOF or one specifc to rental housing investment, Australian tax rules enabling landlords to beneft from negative gearing were established as a broader pro-investment measure in the early 1920s under the Bruce government. Negative gearing was, nevertheless, little known until the 1980s. According to the Oxford English Dictionary online, the term’s earliest citation came in 1983. Indeed, as noted by Hulse et al. (2012), it had such a low profle at this time that it went unmentioned in a major private rental study published in 1984. However, a quarantining reform was introduced under the Hawke government in 1985 to outlaw the use of rental business tax losses to reduce tax liability on other sources of income. This rule change, together with the vigorous property industry campaign for its reversal (which met with success in 1987), substantially raised the profle of negative gearing as a potentially attractive landlord business practice (Burke 2012). “Subsequently,REVISED and in the context of broader fnancial deregulation, an industry of brokers, marketers and property advisors emerged using negative gearing as the hook to attract investors into the residential property sector” (Hulse et al. 2012, p. 18). A business strategy based on negative gearing (annual loss-making) can make sense where the capital gains exceed rental defcits over the duration of the investment. The temporary restriction of negative gearing under the Hawke Government generated an enduring urban myth that rents consequently rose. As recently as 2016, this canard was once again cited by then Federal Treasurer Joe Hockey (ABC News 2016). However, as demonstrated only shortly after the events themselves, the assertion was false. Following 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 193

the 1985 tax change, rising rents only occurred in Sydney and Perth, but remained static or fell in Melbourne, Adelaide and Brisbane. Moreover, contemporaneous changes in the Sydney and Perth markets were plausibly attributable to other factors (Badcock and Browett 1991). Capital Gains Tax (CGT) was introduced in Australia in 1985 to recover part of the unearned income derived from appreciating assets, with liability incurred when the assets change hands. Although initially levied at the taxpayer’s marginal rate of income tax, from 1999 CGT charges were subject to a ‘50% discount’; that is, assessed at half the asset-holder’s income tax rate. This reform was to compensate for a parallel change in the CGT calculation which recalibrated the taxable gain from real terms to nominal. This latter alteration opened up the possibility that, due to infation, income tax (CGT with no discount) could erode wealth. This was seen as problematically undermining incentives to save and invest. Thus, “because infationary gains are not ‘income’ in a true sense, some discount on returns to savings is justifed” (Daley et al. 2016, p. 10). Nevertheless, as argued by Daley et al., the 50% CGT discount has over-protected savings and, in doing so, has unduly encouraged investmentPROOF in assets with capital growth potential as opposed to annual revenue-generating capacity.

The existence of the two tax settings discussed in Box 6.1 and the size of the CGT discount has generated ferce debate over many years. Specifc arguments made by the many critics of these two provisions (Kelly et al. 2013; Cassells et al. 2015; Blunden 2016; Daley et al. 2016, 2018; Grudnoff 2015, 2018) include contentions that these function as effective demand subsidies.

• They REVISEDdepress home ownership by pumping up house prices and thereby make house purchase unaffordable for marginal buyers. • Being untargeted, they fail to comply with the general presumption that government fnancial support should be directed according to need. • They exacerbate wealth inequality by accruing disproportionately to the already wealthy. • Through their infationary impact on land values, they damage the fnancial feasibility of institutionally fnanced rental housing that might provide a superior product from the tenant perspective. 194 H. PAWSON ET AL.

Arguments in favour of tax reform in this area are occasionally couched partly on the basis that Australian landlords enjoy a uniquely attractive tax environment. However, such claims are sometimes overstated. As revealed by our recent study covering Australia and nine comparator countries, Australian rules are in fact less unusual than sometimes portrayed (see Table 6.2). Both Germany and New Zealand have similar rules on negative gearing,7 while three other listed countries provide for rental loss offsetting subject to limitations. Albeit with the exception of New Zealand, PRS housing is generally taxed as a capital asset: i.e. subject to tax on income including capital gains, net of current costs, i.e. interest, management expenses and depreciation. Like Australia, moreover, several other countries in Table 6.2 tax capital gains at lower rates than other forms of income, including Canada, Ireland, Spain and the United States. Arguments in favour of retaining Australia’s established investor landlord tax incentives tend to rest on the instrumental basis that their removal (or indeed any modifcation at all) would result in a mass rental property sell-off with major market-wide housePROOF price impacts (REIA 2013; Goodwin 2014). As seen by the Prime Minister in 2018, commenting on Labor’s proposal for a limited modifcation of the rules: “If you now take the sledgehammer of negative gearing and Capital Gains Tax changes — if you abolish negative gearing as we know it — then you’re inviting a housing market crash” (Clench and Farr 2018). Sometimes with reference to an inaccurate account of the temporary restriction of negative gearing in 1985, (see Box 6.1) it is also often claimed that reform in this area would accordingly cause a reduction in rental property supply and, thereby, trigger damaging rent infation (BIS Shrapnel 2016). Resistance to reforming Australia’s landlord tax concessions also draws on a discursive framing of property investment that portraysREVISED a highly idealised investor image. In this discourse the investor is often characterised as setting out on a transformative ‘journey’ (Martin 2018a), a journey on which anyone may embark. “In this way, property investors are framed as Everyman, the archetypal ordinary person struggling to achieve salvation… [Thus], in political and policy discourse around rental property ownership, the Everyman archetype

7 Although it could be argued that, by comparison with Australia (and New Zealand), there is stronger justifcation for a concession of this kind within the German regulatory context, considering the signifcant advantages this confers on tenants relative to landlords (see Martin et al. 2018). 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 195

Table 6.2 Tax treatment of private landlord income and capital gains in ten countries

Interest deductibility Negative gearing Capital Gains Tax allowed allowed liability

Australia Yes Yes Yes, 50% discount if held >1 year–exempt if rented for <6 years Belgium Yes No Yes, but exempt if held >5 years Canada Yes Yes—limited (subject Yes, 50% discount to ‘reasonable expectation of proft’) Germany Yes Yes Yes, but exempt if held >10 years and if landlord not a ‘regular PROOFseller’ Ireland Yes, at reduced rate Yes, but relief for (moving to full properties purchased deductibility) 2012–2014 and held >7 years New Zealand Yes Yes No Sweden Yes Yes—limited Yes, at 30% rate (same as rental income) Spain Yes, but not to Yes, subject to make a loss indexation United Kingdom Yes, at reduced rate Yes United States Yes Yes—limited (against Yes, discount (up to REVISEDother passive and, 57%) if held more than in some cases, active 1 year income)

Source Martin et al. (2018, p. 40) is invoked in references to owners as mum and dad rental investors” (Hulse et al. 2019). In support of the Everyman trope, advocates of the tax system status quo have often advanced dubious claims that, because investment property ownership is nowadays (allegedly) distributed right across the national income spectrum, any change to current rules would inequitably impact working people. Taxable income statistics have often been cited 196 H. PAWSON ET AL. in support of those arguments, apparently illustrating signifcant levels of rental property ownership among lower-income households. However, the very operation of negative gearing rules disproportionately depresses the taxable incomes of such investors. Tax-assessable, rather than taxable, incomes provide a more meaningful foundation for analysis. Analysed as such, offcial statistics confrm that landlord tax concessions mainly beneft the already wealthy. Thus, about 50% of negative gearing concessions in fact accrue to the top 20% of households ranked by income (Grudnoff 2018). Moreover, as estimated by the Grattan Institute, 80% of the value of CGT discount fows to the top 10% of income earners (Mather 2018). Negative gearing was historically seen as having become an “almost inviolable taxation right” (Burke 1999, p. 5). It was therefore considered politically untouchable (O’Donnell 2005), “virtually a taboo topic” (Hulse and Burke 2015). Irrespective of the merits of the case, therefore, advocacy of negative gearing or CGT reform by either of Australia’s two main political parties was long believed politically untenable. However, in an opening gambit in the 2016 Federal election,PROOF the opposition Labor Party pledged that negative gearing would be in future restricted to purchasers of newly built housing, and that the CGT discount would be reduced to 25% for all newly purchased rental properties. All existing rental property ownership would be grandfathered (i.e. rendered exempt from the reform). With the consensus view that this commitment did the Party no harm in that election, the proposals were retained in the ALP platform for the 2019 poll. However, with the pledge coming under heavy fre in the ALP’s losing campaign in that election, subsequent media debate has included suggestions that it might not be retained. A number of other reform pathways have been advocated. These have included the complete abolition of negative gearing and the reduction of the CGTREVISED discount (Grattan Institute), the capping of rental business losses tax deductible from total income, and the limitation of properties against which landlords can claim losses. Fundamental changes in this area were also part of the wider reform package proposed in the Henry Tax Review (Johnston 2010).

6.3.3 Tax Settings Relevant to Build to Rent Housing Recent years have seen burgeoning media and industry debate on the possible emergence of a BtR sector in Australia. This refers to apartment blocks or larger developments purpose-built for rental occupation and held in single ownership as long-term revenue-generating assets. Recent 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 197

Australian interest in BtR partly takes its cue from overseas jurisdictions where a similar product is already established, notably Canada and the United States, and now also the UK (Pawson et al. 2019). As noted earlier in this chapter, channelling investment from superfunds, insurance companies and others into new rental housing construction has long been a ‘holy grail’ urban policy aspiration in Australia just as in other countries such as the UK (Pawson and Milligan 2013). The possible realisation of this ambition has been lately brought closer through changes in global fnance markets and demographic trends. Firstly, following the GFC the performance of established investment asset classes has declined, narrowing the margin between yields typically associated with traditional investments (e.g. equities, commercial property) and those achievable from rental housing. Secondly, fund managers have taken a greater interest in a low-risk, low-return component of larger portfolios; exactly the features that characterise rental housing. This latter factor is of particular importance for superfunds catering for large and growing numbers of retirees withPROOF accounts in the pension phase, thus enhancing the attractiveness of assets yielding predictable returns that match predictable fund liabilities (Milligan et al. 2013). Proponents of institutionally funded rental housing argue that, by comparison with Australia’s mum and dad investor dominated PRS status quo, portfolio ownership by an entity prioritising secure, predictable returns is likely to provide a better basis for stable, long-term tenancies. Other established policy goals to which a BtR sector could arguably contribute include the raising of standards in new-build design/ construction (through the incentive created by an expectation of long- term asset-holding) and the contribution of a counter-cyclical component within the notoriously volatile construction sector. However,REVISED despite recent enthusiasm from many Australian development industry players, and advocacy by some state governments, prospects for the emergence of a BtR sector in Australia remain uncertain. Research evidence confrms that, within the context of market conditions and tax settings prevailing in 2018 (and with the possible exception of studio unit blocks), BtR fnancial feasibility was marginal at best (Pawson et al. 2019). Short of providing direct assistance (e.g. free land or other subsidies with no matching obligations), policy change that could signifcantly improve BtR prospects could be embodied in reformed tax settings. As currently confgured, these arguably disadvantage BtR proponents by comparison with other relevant players, in particular, small-scale individual investor landlords and Build to Sell developers. 198 H. PAWSON ET AL.

Within the remit of the Commonwealth Government, the tax rules particularly at issue are:

• Those governing the treatment of income from residential investments in overseas ownership channelled through Managed Investment Trusts (an Australian form of the internationally popular Real Estate Investment Trust structure) • The Goods and Services Tax, in terms of its adverse cost impact on BtR developers as compared with developers constructing homes for individual sale.

At the state/territory level the main bone of contention concerns land tax, which, as constituted in most jurisdictions, incorporates both thresholds and progressive rates that combine to create substantial liabilities for large-scale rental providers, while most small-scale (individual) landlords are effectively entirely exempt (CBRE 2018; Daley et al. 2018PROOF; Pawson et al. 2019). 6.3.4 Other Tax and Regulatory Settings with a Bearing on Private Rental Investment Before completing our survey of tax and regulatory policies potentially impacting on private rental investment, we should briefy note that certain specifc policies apply to overseas-based property investors. While exact numbers are unknown, such owners will likely account for a modest proportion of the 20% of rental properties over and above those held by small-scale (individual) landlords (see Fig. 6.1). Importantly, under long-established rules, Australian property acquisition by overseas-based individuals or companies must be approved by the Foreign Investment Review BoardREVISED and, in the case of residential dwellings, it must involve newly built rather than existing housing. In addition, Budget 2017 introduced a number of new rules to further limit overseas investment in domestic housing (Treasury 2017):

• No more than 50% of large (50 units or more) new-build apartment blocks may be sold to foreign buyers • Foreign owners of residential properties unoccupied or unavailable to rent for more than six months in each year are subject to an annual charge • Capital Gains Tax liability of non-Australian owners disposing residential property has been increased. 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 199

6.4 regulation of Landlord–Tenant Relations and Rental Property Management We will now discuss housing policies that affect the occupation of private rental property: the regulatory rules that apply to rent setting and rent increases, the terms of tenancy agreements, and provisions for the resolution of landlord–tenant disputes. Unlike most of the tax powers that formed the main focus of the preceding section, these issues are the administrative responsibility of Australia’s states and territories rather than the Federal administration. This division is in keeping with other federated nations, e.g. Canada and the United States. Also, as in many other countries, there are some regulatory obligations (relating to multi-occupied marginal rental buildings) on local government. Tenants of residential property were unrecognised as consumers in Australia until the 1970s. Only from that point onwards were they conceptualised as being entitled to consumer protection provisions. Australian jurisdictions followed in the footstepsPROOF of their overseas counterparts, principally in the United States and Canada, in gradually introducing regulatory laws on that basis from the late 1970s (Bradbrook 2003). While oversight of Australian private rental housing is a state/territory responsibility, a Federal Government initiative was instrumental in facilitating the initial adoption of residential tenancy legislation across the country. As recounted by Hulse and Burke (2015), this process was substantially prompted by the Commonwealth Government’s 1975 Commission of Inquiry into Poverty, in particular the associated Bradbrook report (Bradbrook 1975). There have been two further nationally led but ultimately unsuccessful reform initiativesREVISED (Hulse and Burke 2015). The frst, which followed from the National Housing Strategy of the early 1990s, put forward a minimum standards framework (Kennedy et al. 1995). Following the 1996 change of federal government, this was not implemented. Later, linked with the 2008 collation of a homelessness reduction strategy, the Commonwealth Government was once again associated with a push to enhance tenancy law with a view to reducing insecurity (National Shelter 2010). While each state and territory has its own specifc rules and institutional frameworks, the overall approach to PRS oversight is fundamentally similar across modern day Australia. All jurisdictions operate within the context of a broader identifcation with a liberal welfare regime 200 H. PAWSON ET AL. outlook (see Chapter 1) and a deeply ingrained set of assumptions about the primacy of property rights. Consistent with these orientations, PRS regulation is fairly limited; an approach embodied in a system that has been “heavily weighted in favour of landlords and against the interests of tenants” (Burke 2012, p. 39).

6.4.1 Rent Regulation The regulation of rents can take three essential forms: frst, second or third generation (Whitehead and Williams 2018). First generation rent regulation involves sector-wide restrictions on rental charges: rent set by fat. In many countries, including Australia, such rent regulation was utilised for periods of the twentieth century. In the UK, for example, controls introduced in 1915 were rescinded only in 1988. In the Australian instance restrictions of this type were imposed during both World Wars. Progressively, from the 1950s, private rental housing in Australia was ‘de-controlled’, with a relatively liberal approachPROOF to oversight of rents and tenant security being embedded within the post 1970s consumer protection-style residential tenancies frameworks established across the country. In present day Australia private landlords are largely free to set rents at the level the market will bear. Second generation regulatory controls limit rent increases within and between tenancies. Under third generation regulation, initial contracts are freely negotiated, but subsequent rent increases are restricted. These latter two forms of control generally enable tenants to dispute increases excessive to the general market level of rents. Internationally, while a similar ‘light touch’ approach prevails in England, the Scottish Government in 2017 took powers to cap rent increases inREVISED what are termed high pressure zones (as triggered through a local council application). Scotland’s approach emulated Ireland’s recently instituted framework (Jordan 2014). New rents are regulated in Germany, Ireland, Sweden and in certain USA cities. In New York, for example, there is a limit to the amount by which the rent for a new tenancy can exceed the rent for the previous tenancy in the property (Martin et al. 2018, p. 51). Recent international evidence on rent controls (Whitehead and Williams 2018; Wilson and Barton 2019) suggests a wider European retreat from more freewheeling approaches to the rental market, as exemplifed by growing adoption of rent increase limitations. 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 201

6.4.2 Security of Tenure The regulation of rents and security of tenure are closely related in that “rents cannot be regulated effectively if tenancies can be readily terminated and legal security is ineffective if rents can be increased without restriction” (Martin et al. 2018, p. 52). Thus, the rent control operated in Australia in the 1940s, and which extended into the 1950s, also necessarily afforded tenants strong protection against eviction. As noted in Sect. 6.1, however, most Australian private renters nowadays sign a lease initially on a 6–12 month basis. The tenancy is subsequently extended for a further fxed term of similar duration, or otherwise reverts to a periodic tenancy. Importantly, while fxed terms are in force they are generally binding on both parties (Martin 2018b). Such symmetric obligations are consistent with standard contractual practice. However, they contrast with approaches in certain other countries, e.g. the UK, where there is a default expectation of asymmetry in the rental housing context: while specifed tenancy term duration is binding on the landlord, the tenant may givePROOF reasonable (legally defned) notice of intention to terminate. Beyond the initial fxed term of a lease (when a tenancy has reverted to periodic status), Australian landlords are generally free to give notice of plans to recover possession. Until recently, it was only in Tasmania (for periodic tenancies) that an owner was obliged to justify this demand in terms of defned legitimate grounds for termination. As they operate across most of Australia, therefore, ‘no grounds evictions’ have remained allowable in law. From the consumer perspective this is problematic because the associated scope for tenancy termination “becomes a de facto power of landlords over tenants, undermining the latter’s security and legal powers” (Hulse et al. 2011, p. 67). EmulatingREVISED a number of other countries (see Table 6.3), 2018 reforms in Victoria stipulated that tenancies may be ended by landlords only in defned circumstances; the tenant has breached the terms of tenancy (e.g. through rent arrears), the property is needed for the landlord’s own occupation or it is to be renovated or sold. While falling short of providing open-ended tenure security, this framework is argued by advocates as importantly strengthening tenant rights to demand landlord compliance with essential obligations such as attending to repairs or to oppose an excessive rent increase (Martin 2018b). 202 H. PAWSON ET AL.

Table 6.3 Security of tenure: Australasia, Europe, North America (selected countries)

Country Fixed term and periodic tenancies Grounds for termination by landlord

Austria Multi-dwelling tenancies Prescribed grounds only open-ended; single dwellings minimum 3-year fxed term Australia Short (6–12 months), fxed- No-grounds termination allowed (except term and periodic tenancies Tasmania and Victoria) Belgium 3-year and 9-year fxed terms Termination at the end of fxed term allowed Canada Mostly short (6–12 months), Mostly prescribed grounds only; some fxed term and periodic tenancies allow termination at end of fxed term Germany Tenancies typically open-ended Prescribed grounds only Ireland Short fxed-term and periodic Prescribed 6-year cycle with lesser tenancies restrictions on termination in initial 6 months,PROOF then prescribed grounds only New Short (6–12 months), fxed- No-grounds termination allowed Zealand term and periodic tenancies Sweden Tenancies typically open-ended Prescribed grounds only Spain 3-year fxed terms with some Termination at end of and, in limited provision for early termination circumstances during, fxed term The Tenancies typically open-ended Prescribed grounds only Netherlands United Short (6–12 months), fxed term No-grounds termination allowed Kingdom and periodic tenancies (England and Wales); prescribed grounds only (Scotland) United Short fxed-term and periodic Varies by state and municipality: ter- States REVISEDtenancies mination without grounds generally allowed; prescribed grounds only in a few large cities Source Martin et al. (2018, p. 52); Hulse et al. (2011)

As specifed in Australian state/territory law, tenancy termination notice periods vary across jurisdictions. Different rules also apply according to the landlord’s repossession motivation and according to whether the existing arrangement is an expiring fxed-term tenancy or periodic. Where relating to a property repossessed for sale and occupied under a periodic contract, for example, the specifed notice period is generally 30–60 days. A ‘no grounds’ repossession (as still allowed in most 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 203 jurisdictions) may require the landlord to give notice of between 42 days (NT) and 26 weeks (ACT) (Hulse et al. 2011).

6.4.3 Marginal Rental Regulation As in many comparator countries, Australia adheres to a PRS ethic of risk-based regulation in the sense that multi-occupied buildings at the bottom of the rental market now get greater oversight. These are of particular concern for several reasons. First, they accommodate many vulnerable individuals, often on a legally insecure or ‘non-tenured’ basis. Second, occupancy conditions can heighten safety risks hazards, especially regarding fre. Third, they are often high turnover establish- ments, sometimes a source of local disturbance and resulting neighbour complaints. Thus, in some jurisdictions, including NSW and Victoria, multi-occupied buildings have become subject to increasing levels of supervision in the past decade under reformed regulatory frameworks. Key elements of such reforms (Dalton et al.PROOF 2015) have included:

• The mandatory registration of rooming/boarding house premises • Conferring rooming/boarding house residents with formal occupancy rights, albeit inferior to residents’ rights in mainstream rental housing • Specifcation of mandatory minimum standards • The involvement of local authorities in the exercise of environmental health (or public health) responsibilities.

6.4.4 Regulating Short-Term Letting As noted REVISEDin Sect. 6.2.1, the burgeoning practice of internet-enabled short-term letting has presented an urgent new urban policy challenge in terms of appropriate regulation. Internationally, as demonstrated by recent research (Crommelin et al. 2018), there are three broad ‘public law’ approaches to regulating short-term letting (STL):

• Permissive—STL mostly allowed without prior permission or notifcation • Notifcatory—STL mostly allowed, provided the host frst notifes an authority (i.e. there is no specifc decision by the authority) • Restrictive—STL is generally outlawed or allowed only where specifcally permitted. 204 H. PAWSON ET AL.

Exemplifying a notifcatory regime, when it comes to letting the owner’s entire primary residence, Paris requires that the host is registered with the City and that the home is not let as such for more than 120 days annually. Use of a secondary residence for short-term letting requires specifc authorisation. The restrictive approach instanced in Barcelona requires the dwelling to be registered as licenced tourist accommodation (ibid.; Gyodi 2019). Melbourne and Sydney have adopted a permissive stance to STL, but, in contrast with other ‘permissive’ cities, do not clearly defne the limits of this use of premises. Thus, the need for notifcation or specifc permission for a unit’s short-term letting use turns on the unit’s designation under planning law. Provided that the unit can be characterised as a dwelling in these terms, no notifcation or permission is required. However, ambiguity remains as to “the point beyond which short-term let premises are no longer a private dwelling” (Crommelin et al. 2018, p. 60). Efforts to regulate STL through private law have seen strata owners’ corporations attempting to impose restrictive by-lawsPROOF on such use of apartments. However, in both NSW and Victoria these have been struck down as invalid by the courts. Nevertheless, under 2018 NSW legislation, owners corporations may enact by-laws prohibiting STL use of apartments other than where the unit is the host’s principal place of residence. More broadly, standard restrictions on sub-letting make it likely that any tenant renting out the whole of their premises without landlord consent would be in breach of their tenancy agreement in Victoria and possibly in NSW (ibid.).

6.4.5 Other Key Components of Australian Private Rental Regulation As noted above,REVISED Australia’s residential tenancy laws are generally framed within a consumer rights perspective. Consistent with that setting, they usually provide for landlord–tenant dispute resolution mechanisms in the form of tribunals. These statutory bodies have powers to make legally binding and enforceable decisions on disputed issues such as rental bonds, rent increases, rent arrears, repairs and tenancy termination. State/territory government-administered tenancy bond frameworks (size usually limited to four weeks’ rent) are also standard across Australia. These provide a means of limiting landlords’ exposure to risk. Given their (assumed) near-universal coverage, data recorded via bond registers has also provided governments and researchers with a vital source of data on PRS market characteristics. 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 205

6.4.6 Reforming Private Rental Regulation As indicated earlier in the chapter, many aspects of current PRS regulation are contested and the debate has ramped up considerably over the past 10–20 years in line with the growth of the sector. Central to recent reform campaigns in Australia has been the pitch to outlaw ‘no grounds evictions’. In support of the argument that this would be a better means of enhancing tenants’ security of tenure than long fxed terms, Martin (2018b) argues that the former benefts from greater fexibility. In particular, it sidesteps the problem arising from the tradition of symmetrical obligations (see above). Martin also notes that legislating to prescribe acceptable grounds for tenancy termination has been internationally preferred to the imposition of long fxed terms. This is exemplifed by established frameworks in Germany, Sweden, Scotland, most Canadian provinces and some large US cities. A regime specifying legitimate reasons for tenancy termination could also, it is argued, prescribe exclusion periods of different lengths, depending on “the urgency or ‘justness’ of the grounds” (ibid., p. 193). For example, the property sale ground couldPROOF be excluded for the frst 12 months of the tenancy. Other reform demands voiced in recent Australian tenants’ rights campaigns have included stronger second generation rent regulation, enforcement of minimum standards and a default tenant right to pet ownership. Thus, while security of tenure considerations are central, the range of matters at issue encompasses other aspects of a tenant’s conditions of occupancy. Partly to broaden associated scholarly debates in this area, the concept of secure occupancy has been put forward as a more holistic way of assessing PRS ftness for purpose from a consumer perspective (see Box 6.2). REVISED Box 6.2 Secure occupancy Security of tenure is a narrow legalistic concept focused on the period during which a tenant may legitimately occupy a dwelling, but says nothing about the conditions of that occupancy, which can limit the scope to make the house a home (Fox O’Mahony 2013; Hulse and Milligan 2014). The concept of security of tenure derives from a property rights perspective. This is primarily concerned with the legal contract between landlord and tenant. While constituting a valuable lens for analysing a person’s housing situation, this is a somewhat one-dimensional notion that 206 H. PAWSON ET AL.

is inadequate to understand the layered nature of renting and the renter experience. The reform demand for a default tenant right to pet ownership exemplifes the kind of change that can potentially broaden the scope for ‘making a house a home’. However, a distinction can be made between the de jure position of a tenant and the de facto reality. In other words, whether a household can be said to enjoy ‘secure occupancy’ will also depend on a range of contextual factors separate from the formal terms of the tenancy. Thus, acknowledging the related signifcance of work on ‘the meaning of home’ (Easthope 2004), the concept of secure occupancy is defned as “the extent to which households who occupy rented dwellings can make a home and stay there, subject to meeting their obligations as a tenant” (Hulse and Milligan 2014, p. 643). These authors proposed four main areas of infuence likely to shape a tenant’s experience of secure occupancy:

• Legal provisions—the formal terms and conditions of a tenancy and the enforcement regime PROOF • Policy settings—such as the availability of fnancial and non-fnancial forms of assistance for low income and vulnerable households • Market factors—especially the capacity to afford entry costs, ongoing rent payments and any rent increases • Cultural norms—embedded societal and institutional views on rental housing systems that shape tenant and landlord attitudes and behav- iours related to renting.

6.5 demand-Side Private Rental Assistance Finally, complementing our analysis of PRS-relevant tax and regulatory policy settings,REVISED we briefy outline policy interventions that ease tenancy access and affordability constraints for low-income renters. These come in the form of private rental assistance and private rental brokerage programs run by state and territory governments, and Rent Assistance paid by the Commonwealth Government through the social security system.

6.5.1 Rent Assistance Rent Assistance (RA), sometimes termed Commonwealth Rent Assistance, is a non-taxable income supplement payable to eligible lower- income private tenants and social housing tenants other than those 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 207 living in public housing. RA is a type of demand subsidy, sometimes termed a housing allowance. This form of pro-housing affordability fnancial support has been increasingly preferred over supply subsidies by governments operating within the neo-liberal policy paradigm of the past 20–30 years (Yates 2012). RA originated in 1958 as a small welfare payment for single pensioners and was gradually increased in value and extended to cover all Centrelink recipients who met the rent test. RA-entitled tenants are those paying more than a minimum rent threshold, and qualifying for another social security payment. This covers all pension, beneft and allowance recipients along with wage-earning families with dependent children and/or students at home who receive more than the base rate of Family Tax Beneft Part A. RA is payable at the rate of 75 cents for every dollar of rent above the rent threshold, up to a maximum amount. For instance, at 2019 rates, a two parent with 1–2 children qualifes if paying a weekly rent exceeding $119.50 and can receive a maximum weekly payment of $80.50. To receive thisPROOF maximum payment the household would need to be paying a weekly rent of at least $226.8 RA expenditure totalled $4.4 billion in 2016–2017, over three-times annual Commonwealth expenditure under the NHHA (Chapter 4). Because of nationally standard payment ceilings, maximum RA payments have an inequitable impact on housing stress, being less effective in metropolitan housing markets and other hot spots. Overall, receipt of RA only reduces the proportion of low-income renters in rental stress from 68 to 42% (AIHW 2018). As recently acknowledged by the Productivity Commission (2017), due to indexation using Consumer Price Index rather than housing rent infation (generally higher), the effective value of RA has been substantially eroded over time. Echoing the 2010 Henry Taxation Review,REVISED the Productivity Commission called for a substantial increase in the level of RA, as well as its more appropriate future indexation (ibid.; Johnston 2010).9 Another concern is that, since no

8 For reference, the Q4 2018 lower quartile weekly rent for 2-bed properties in Sydney was $400, with the comparable fgure for the rest of NSW being $230 (Family & Community Services 2018). 9 At the same time, there is a broad consensus that demand subsidies paid to renters are liable to capitalisation into rents. That is, such payments are partially absorbed by the higher rents that result in conditions of relative scarcity that typically prevail in urban 208 H. PAWSON ET AL. conditions are imposed on landlords of recipient tenants, RA rules additionally fail to address concerns over service quality and tenure insecurity in the private rental market.

6.5.2 Private Rental Assistance and Brokerage Albeit on a far smaller scale than RA, private rental assistance (PRA) payments are loans or cash paid to low-income earners enabling their access to rental housing. Some 128,000 people were assisted via PRA allocations in 2016–2017, most commonly through a bond loan (AIHW 2018)—a form of assistance that could be critically important in helping the recipient to avoid homelessness. As a form of housing policy intervention, PRA is a means of reducing or defecting demand for social housing. From a conceptual viewpoint, it neatly embodies action to address market failure, in other words, enabling the effcient operation of the (private rental housing) market (see Chapter 2). Linked with PRA payments to vulnerablePROOF home seekers, private rental brokerage programs (PRBPs) represent an associated form of government intervention infuencing rental market operation. These programs are mainly run by state and territory governments, with costs often underpinned by funding under the National Housing and Homelessness Agreement (see Chapter 4). PRBP activities involve housing advisors acting in an intermediary role to assist people at risk of homelessness to secure (or sustain) a private tenancy. Akin to a strand of the homelessness prevention activities ramped up in the UK from the 2000s (Pawson 2012), Australian PRBPs reportedly expanded substantially in the decade from the mid-2000s, including development of innovative local or specifcally targeted program variants (Tually et al.REVISED 2016).

housing markets of the kind represented in Australia. This is an important consideration within the context of debates on the most appropriate ways to confgure housing subsidies. Most studies on this topic have concluded that demand assistance such as RA has a signifcant infationary impact, pushing up rents demanded of subsidy-recipients and non-recipients alike (see, for example, Susin [2002], Viren [2013], and Hyslop and Rea [2018] with respect to the USA, Finland and New Zealand). 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 209

6.6 conclusions In Australia, as in many other countries, controversy on policy settings governing private rental investment and landlord–tenant relations has come increasingly to the fore over the past decade. Recollection of Bradbrook’s (2003, p. 7) statement (referencing legal reforms of the 1980s) that “there has been no political groundswell of support for further change” highlights the extraordinary turnaround in popular and political sentiment subsequently seen. Notwithstanding recent change in Victoria, Australia’s private rental regulatory frameworks have largely failed to respond to the sector’s evolving role and demographic profle. Especially given the growing numbers of long-term renters and the increasing representation of families and older people, the very limited degree of tenure security that is standard in most jurisdictions is long overdue for reform. While this component of the housing system is primarily a state/territory responsibility, the interaction with nationally governed policy levers in relation to Rent Assistance, income tax and fnancial PROOFregulation means this would ideally be pushed forward through a Commonwealth-initiated process, possibly via the Council of Australian Governments (COAG). It certainly remains true that any proposal for progressive reform of tenancy regulation “is always hotly contested as it runs counter to strongly held assumptions about property rights” (Hulse and Burke 2015, p. 146). However, with the established tax privileges of individual rental investors no longer a taboo topic, and with vocal support for modest recalibration of landlord–tenant relations on the rise, it seems likely that Australia’s PRS architecture is set for signifcant change in the short to mediumREVISED term future. References ABC News. (2016, March 3). Fact Check: Did Abolishing Negative Gearing Push Up Rents? [Internet]. ABC News. Available from: https://www.abc.net. au/news/2015-05-06/hockey-negative-gearing/6431100. Accessed 16 July 2019. ABS. (2017). Household Occupancy and Costs 2015–16 (Cat. No. 4130.0). Canberra: Australian Bureau of Statistics. Available from: https://www.abs. gov.au/AUSSTATS/[email protected]/DetailsPage/4130.02015-16?OpenDocument. Accessed 20 August 2019. 210 H. PAWSON ET AL.

ABS. (2018). Housing Finance, Australia, November 2018 [Internet] (Cat. No. 5609.0). Canberra: Australian Bureau of Statistics. Available from: https:// www.abs.gov.au/ausstats/[email protected]/mf/5609.0. Accessed 14 August 2019. ABS. (2019). Lending to Households and Businesses, Australia, Jun 2019 [Internet] (Cat. No. 5601.0). Canberra: Australian Bureau of Statistics. Available from: https:// www.abs.gov.au/ausstats/[email protected]/mf/5601.0. Accessed 14 August 2019. AIHW. (2018). Housing Assistance in Australia 2018 [Internet] (Cat. No. HOU 296). Canberra: Australian Institute of Health and Welfare. APRA. (2019). Review of APRA’s Prudential Measures for Residential Mortgage Lending Risks. Sydney: Australian Prudential Regulation Authority. Available from: https://www.apra.gov.au/fle/25851. Accessed 27 August 2019. Australian Government. (2010). Regulation and Growth of the Not-For-Proft Housing Sector (Discussion Paper). Canberra: Australian Government. Australian Taxation Offce. (2018). Taxation Statistics 2015–16, Table 1 [Internet]. Canberra: Australian Taxation Offce. Available from: https:// data.gov.au/data/dataset/taxation-statistics-2015-16. Accessed 16 July 2019. Badcock, B., & Browett, M. (1991). The Responsiveness of the Private Rental Sector in Australia to Changes in Commonwealth Taxation Policy. Housing Studies, 6(3), 182–192. PROOF BIS Shrapnel. (2016). Economic Impact of Limiting the Tax Deductibility of Negatively Geared Residential Investment Properties. Sydney: BIS Shrapnel. Available from: https://www.smh.com.au/cqstatic/gnanns/ BISShrapnelNegativeGearingReportMarch2016.pdf. Accessed 16 July 2019. Blunden, H. (2016). Discourses Around Negative Gearing of Investment Properties in Australia. Housing Studies, 31(3), 340–357. Bradbrook, A. (1975) Poverty and the Residential Landlord-Tenant Relationship. Law and Poverty Series. Canberra: Australian Government Publishing Service. Bradbrook, A. (2003). Rented Housing Law: Past, Present and Future. Flinders Journal of Law Reform, 7(1), 1–14. Burke, T. (1999). Private Rental in Australia (Swinburne Institute of Social Research publications). Available from: https://www.researchgate.net/publication/252140042_Private_Rental_in_AustraliaREVISED Accessed 27 August 2019. Burke, T. (2012). The Australian Residential Housing Market: Institutions and Actors. In R. Tomlinson (Ed.), Australia’s Unintended Cities (pp. 35–50). Collingwood: CSIRO. Cassells, R., Duncan, A., Kelly, S., & Ong, R. (2015). Beyond Our Means? Household Savings and Debt in Australia (Focus on the States Report Series No. 2). Perth: Bankwest Curtin Economics Centre. Available from: https://espace. curtin.edu.au/bitstream/handle/20.500.11937/24190/227235_227235. pdf?sequence 2. Accessed 27 August 2019. = CBRE. (2018). A Taxing Time for Build to Rent. Sydney: CBRE. 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 211

Clench, S., & Farr, M. (2018, September 19). ‘Inviting a Crash’: PM Issues Ominous Warning as He Defends Government’s Housing Policies [Internet]. news.com.au. Available from: https://www.news.com.au/fnance/real-estate/ buying/inviting-a-crash-pm-issues-ominous-warning-as-he-defends-governments-housing-policies/news-story/4c7005bf1208054b4569eabecc78dfe2. Accessed 29 July 2019. Commonwealth of Australia. (2016). Budget Strategy and Outlook [Internet] (Budget 2016–2017, Budget Paper No. 1). Canberra: Commonwealth of Australia. Available from: https://archive.budget.gov.au/2016-17/bp1/bp1. pdf. Accessed 16 July 2019. Crommelin, L., Troy, L., Martin, C., & Parkinson, S. (2018). Technological Disruption in Private Housing Markets: The Case of Airbnb (AHURI Final Report No. 305). Melbourne: AHURI. Daley, J., Coates, B., & Wiltshire, T. (2018). Housing Affordability: Re-Imagining the Australian Dream. Melbourne: Grattan Institute. Daley, J., Wood, D., & Parsonage, H. (2016). Hot Property Negative Gearing and Capital Gains Tax Reform. Melbourne: Grattan Institute. Dalton, T., Pawson, H., & Hulse, K. (2015). Rooming House Futures: Governing for Growth, Fairness and Transparency (AHURIPROOF Final Report No. 245). Melbourne: AHURI. Easthope, H. (2004). A Place Called Home: Housing. Theory and Society, 21(3), 128–138. Family & Community Services. (2018). Issue 126: Rent and Sales Tables [Internet]. Ashfeld, Housing NSW. Available from: https://www.facs.nsw.gov. au/resources/statistics/rent-and-sales/back-issues. Accessed 14 August 2019. Fox O’Mahony, L. (2013). The Meaning of Home: From Theory to Practice. International Journal of Law and the Built Environment, 5(2), 156–171. Goodman, R., Nelson, A., Dalton, T., Cigdem, M., Gabriel, M., & Jacobs, K. (2013). The Experience of Marginal Rental Housing in Australia (AHURI Final Report No. 210). Melbourne: AHURI. Goodwin, S. (2014, January 21). Negative Gearing Fills a Crucial Gap in Housing.REVISED Australian Financial Review. Grudnoff, M. (2015). Top Gears: How Negative Gearing and the Capital Gains Tax Discount Beneft Drive Up House Prices. Canberra: Australia Institute. Available from: https://tinyurl.com/y52x8c82. Accessed 27 August 2019. Grudnoff, M. (2018). Who Really Benefts from Negative Gearing? Canberra: Australia Institute. Available from: https://www.tai.org.au/content/who-really-benefts-negative-gearing. Accessed 27 August 2019. Gurran, N., & Phibbs, P. (2017). When Tourists Move In: How Should Urban Planners Respond to Airbnb? Journal of the American Planning Association, 83(1), 80–92. 212 H. PAWSON ET AL.

Gyodi, K. (2019). Airbnb in European Cities: Business as Usual or True Sharing Economy? Journal of Cleaner Production, 221, 536–551. Hulse, K., & Burke, T. (2015). Private Rental Housing in Australia: Political Inertia and Market Change. In R. Dufty-Jones & D. Rogers (Eds.), Housing in 21st Century Australia (pp. 139–152). Farnham: Ashgate. Hulse, K., Burke, T., Ralston, L., & Stone, W. (2012). The Australian Private Rental Sector: Changes and Challenges (AHURI Positioning Paper No. 149). Melbourne: AHURI. Hulse, K., Martin, C., James, A., & Stone, W. (2018). Private Rental in Transition: Institutional Change, Technology and Innovation in Australia (AHURI Final Report No. 296). Melbourne: AHURI. Hulse, K., & McPherson, A. (2014). Exploring Dual Housing Tenure Status as a Household Response to Demographic, Social and Economic Change. Housing Studies, 29(8), 1028–1044. Hulse, K., & Milligan, V. (2014). Secure Occupancy: A New Framework for Analysing Security in Rental Housing. Housing Studies, 29(5), 638–656. Hulse, K. Milligan, V., & Easthope, H. (2011). Secure Occupancy in Rental Housing: Conceptual Foundations and Comparative Perspectives (AHURI Final Report No. 170). Melbourne: AHURI. PROOF Hulse, K., Reynolds, M., & Martin, C. (2019). The Everyman Archetype: Discursive Reframing of Private Landlords in the Financialisation of Rental Housing. Housing Studies. https://doi.org/10.1080/02673037.2019.1644297. Hyslop, D., & Rea, D. (2018). Do Housing Allowances Increase Rents? Evidence from a Discrete Policy Change (Motu Working Paper 18–10; Motu Economic and Public Policy Research). Available from: https://agecon- search.umn.edu/record/290501?ln en. Accessed 27 August 2019. = Johnston, C. (2010, September 24). Henry on Housing: The Australia’s Future Tax System Reports [Internet]. Shelter NSW Memo. Sydney: Shelter NSW. Available from: http://pandora.nla.gov.au/pan/126448/20110411-1517/ www.shelternsw.org.au/docs/mem1009comment-henryreview.pdf. Accessed 16 July 2019. Jordan, M. REVISED(2014). Deliverable No. 3.2: National Report for Republic of Ireland. Tenancy Law and Housing Policy in Multi-level Europe. Brussels: European Commission. Joye, C. (2019, March 15). RBA Could Blow Bubble Back Up. Australian Financial Review. Available from: https://www.afr.com/wealth/personal-fnance/rba-could-blow-bubble-back-up-20190315-p514fy. Accessed 27 August 2019. Kelly, J-F., Hunter, J., Harrison, C., & Donegan, P. (2013). Renovating Housing Policy (Grattan Institute Report No. 2013–12). Melbourne: Grattan. Kemp, P. (2004). Private Renting in Transition. Coventry: Chartered Institute of Housing. 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 213

Kennedy, R., See, P., & Sutherland, P. (1995). Minimum Legislative Standards for Residential Tenancies in Australia. Canberra: Dept of Housing and Regional Development. Knight Frank. (2018). Student Housing 2018 [Internet]. London: Knight Frank. Available from: http://content.knightfrank.com/research/1040/ documents/en/australian-student-accommodation-insight-2018-5122.pdf. Accessed 16 July 2019. Koziol, M. (2014, November 5). Renting Property? Don’t Hold Your Breath for a Long Lease. Sydney Morning Herald. Maher, C., Wulff, M., Yates, J., Beer, A., Earl. G., Karmel, R., et al. (1997). Australia’s Private Rental Housing Market: Processes and Policies (AHURI Working Paper). Melbourne: AHURI. Martin, C. (2018a). Clever Odysseus: Narratives and Strategies of Rental Property Investor Subjectivity in Australia. Housing Studies, 33(7), 1060–1084. Martin, C. (2018b). Improving Housing Security Through Tenancy Law Reform: Alternatives to Long Fixed-Term Agreements. Property Law Review, 7(3), 184–194. Martin, C., Hulse, K., & Pawson, H. (2018). The Changing Institutions of Private Rental Housing: An International ReviewPROOF (AHURI Final Report No. 292). Melbourne: AHURI. Martin, P., & Massola, J. (2017, March 10). Investors Storm Back into Housing Market, Elbowing Out First Home Buyers. Sydney Morning Herald. Mather, J. (2018, January 21). Eighty Per cent of Capital Gains Tax Benefts Go to Top 10pc. Australian Financial Review. Milligan, V., Yates, J., Wiesel, I., & Pawson, H. (2013). Financing Rental Housing Through Institutional Investment—Volume 1 (AHURI Final Report No. 202). Melbourne: AHURI. Morris, A, Hulse, K., & Pawson, H. (2017). Long-Term Private Renters: Perceptions of Security and Insecurity. Journal of Sociology, 53(3), 653–669. Morrison, S. (2017, April 10). Address to the Australian Housing and Urban Research Institute [Internet]. Melbourne. Available from: http://ministers. treasury.gov.au/ministers/scott-morrison-2015/speeches/address-australiREVISED - an-housing-and-urban-research-institute. Accessed 16 July 2019. Morton, A. (2016, June 4). Renters’ Rights: The Forgotten Part of the Housing Debate. Sydney Morning Herald. National, Shelter. (2010). A Better Lease on Life: Improving Australian Tenancy Law. Canberra: National Shelter. O’Donnell, J. (2005). Quarantining Interest Deductions for Negatively Geared Rental Property Investments. eJournal of Tax Research, 3(1), 63–113. Oxley, M., Brown, T., Haffner, M., & Hoekstra, J. (2011, July 5–8). The Role of Policy in Supporting the Private Rented Sector: International Comparisons. Paper presented to the European Network for Housing Research Conference, Toulouse. Available from: https://tinyurl.com/yyurxupk. Accessed 27 August 2019. 214 H. PAWSON ET AL.

Parkinson, S. James, A., & Liu, E. (2018). Navigating a Changing Private Rental Sector: Opportunities and Challenges for Low-Income Renters (AHURI Final Report No. 302). Melbourne: AHURI. Pawson, H. (2012). Policies to Address Homelessness: Prevention in the United Kingdom. In S. J. Smith, M. Elsinga, L. Fox O’Mahony, O. Seow Eng, & S. Wachter (Eds.), International Encyclopedia of Housing and Home (Vol. 5, pp. 243–248). Oxford: Elsevier. Pawson, H. (2019). The Housing Story: An Australian Perspective. In D. Maclennan, H. Pawson, K. Gibb, S. Chisholm, & D. Hulchanski (Eds.), Shaping Futures: Changing the Housing Story (pp. 10–14). Glasgow: University of Glasgow. Pawson, H., Hulse, K., & Morris, A. (2017). Interpreting the Rise of Long- Term Private Renting in a Liberal Welfare Regime Context. Housing Studies, 32(8), 1062–1084. Pawson, H., Martin, C., van den Nouwelant, R., Milligan, V., Ruming, K., & Melo, M. (2019). Build-to-Rent in Australia: Product Feasibility and Potential Affordable Housing Contribution. Sydney: Landcom. Pawson, H., & Milligan, V. (2013). New Dawn or Chimera? Can Institutional Financing Transform Rental Housing? InternationalPROOF Journal of Housing Policy, 13(4), 335–357. Plibersek, T. (2008, September 24). National Rental Affordability Scheme Bill 2008, Second Reading Speech, House of Representatives, Hansard No. 13, pp. 8360–8362. Productivity Commission. (2017). Introducing Competition and Consumer Choice into Human Services [Internet] (Inquiry Report No. 85). Melbourne: Productivity Commission. Available from: https://www.pc.gov.au/inquiries/ completed/human-services/reforms/report. Accessed 16 August 2019. Rae, A. (2019). The Rapid Rise of Short-term Lets and the Implications for the Housing Market. In M. Stephens, J. Perry, P. Williams, & G. Young (Eds.), UK: Housing Review 2019 (pp 29–36). Coventry: Chartered Institute of Housing. RBA. (2015).REVISED Submission to the Inquiry into Home Ownership [Internet]. House of Representatives Standing Committee on Economics. Sydney: Reserve Bank of Australia. Available from: https://www.rba.gov.au/publications/ submissions/housing-and-housing-fnance/inquiry-into-home-ownership/. Accessed 13 August 2019. REIA. (2013, October 21). Negative Gearing Must Not Be Meddled with [Internet]. REIA Media Release. Deakin, ACT: Real Estate Institute of Australia. Available from: https://reia.asn.au/wp-content/ uploads/2014/03/NegativeGearingfnal.pdf. Accessed 14 August 2019. Ryan-Collins, R., Lloyd, T., & Macfarlane, L. (2017). Rethinking the Economics of Land and Housing. London: Verso. 6 PRIVATE RENTAL HOUSING: MARKET ROLES, TAXATION … 215

Scanlon, K. (2011). Private Renting in Other Countries. In B. Kochan & K. Scanlon (Eds.), Towards a Sustainable Private Rental Sector: The Lessons from Other Countries (pp. 15–44). London: London School of Economics. Seelig, T., Thompson, A., Burke, T., Pinnegar, S., McNelis, S., & Morris, A. (2009). Understanding What Motivates Households to Become and Remain Investors in the Private Rental Market (AHURI Final Report No. 130). Melbourne: AHURI. Susin, S. (2002). Rent Vouchers and the Price of Low-Income Housing. Journal of Public Economics, 83, 109–152. Tan, S. L. (2017, April 12). Renting in Australia Is Generally ‘Miserable’ But Doesn’t Have to Be. Australian Financial Review. Treasury. (2017). Stronger Rules for Foreign Investors Owning Australian Housing [Internet]. Budget 2017, Factsheet 1.6. Canberra: Commonwealth of Australia. Available from: http://52.63.237.81/2017-18/content/glossies/factsheets/html/HA_16.htm. Accessed 14 August 2019. Tually, S., Slatter, M., Faulkner, D., & Oakley, S. (2016). The Role of Private Rental Brokerage in Housing Outcomes for Vulnerable Australians (AHURI Final Report No. 263). Melbourne: AHURI. Viren, M. (2013). Is the Housing Allowance ShiftedPROOF to Rental Prices? Empirical Economics, 44, 1497–1518. Wachsmuth, D., Kerrigan, D., Chaney, D., & Shillolo, A. (2017). Short-Term Cities: Airbnb’s Impact on Canadian Housing Markets (Report from Urban Politics and Governance Research Group, School of Urban Planning). Montreal: McGill University. Available from: http://upgo.lab.mcgill.ca/airbnb/. Accessed 16 July 2019. Whitehead, C., & Williams, P. (2018). Assessing the Evidence on Rent Control: An International Perspective. Manchester: Residential Landlords Association. Wilson, W., & Barton, C. (2019). Private Rented Housing: The Rent Control Debate (House of Commons Briefng Paper No. 6760). London: UK Parliament. Wood, G., & Ong, R. (2010). Factors Shaping the Decision to Become a Landlord and RetainREVISED Rental Investments (AHURI Final Report No. 142). Melbourne: AHURI. Yates, J. (2012). Housing Subsidies. In D. Clapham, W. Clark, & K. Gibb (Eds.), The SAGE Handbook of Housing Studies (pp. 397–418). London: Sage. CHAPTER 7

The Indigenous Housing Policy Challenge

7.1 Introduction An account of Australia’s housing policy story would be seriously incomplete without giving consideration to thePROOF distinctive housing needs and circumstances of Australia’s First Peoples and to the effcacy of contemporary policy responses to their situation. Aboriginal and Torres Strait Islander peoples, or Indigenous Australians,1 form only a small part of the national population: 3.3% or 798,400 people self-identifed as Aboriginal, Torres Strait Islander or both in the 2016 census2 (ABS 2016a). Proportionately, however, as both diverse indicators and life stories attest, this group continues to experience far poorer socio-economic, health, education, housing and well-being outcomes than Australia’s non-Indigenous people, notwithstanding substantial policy efforts to address this disparity (Australian Government 2019; AIHW 2019a). On average,REVISED Indigenous incomes are only two-thirds those of the non-Indigenous population (ABS 2016a). In 2016, one-third of Indigenous

1 Australia’s First Peoples are those who are descendent from, identify as and/or are accepted by their community as Aboriginal, Torres Strait Islander or both. They may also be referred to as Indigenous Australians. In using the term ‘Indigenous’ in this chapter we do not intend to detract from the distinctive identities of Aboriginal and Torres Strait Islander peoples. 2 This is likely to be an underestimate of the total Indigenous population (ABS 2016a).

й +RXVHKROGVZLWK ,QGLJHQRXVPHPEHUV Q P

2WKHU+RXVHKROGV Q P 2ZQHURFFXSLHU 3ULYDWHWHQDQW 6RFLDOWHQDQW 2WKHU

Fig. 7.1 Housing tenure of Indigenous and non-Indigenous households, Australia 2016 (Source ABS [2016a]) people had incomes below the poverty line3 compared to just less than 9% of the overall population (Markham and Biddle 2018). This, however, masks a marked disparity between those livingPROOF in non-remote and remote areas,4 where the incidence of poverty was concentrated and increasing (ibid.). Nevertheless, “for almost every demographic, geographic, education and employment combination, Indigenous Australians have a lower average income than their non-Indigenous counterparts” (Biddle 2013, p. 14). The Indigenous employment rate (for those of working age) is 47% compared to the non-Indigenous employment rate of 72% (Australian Government 2019). While the income gap between Indigenous and non-Indigenous Australians has been slowly reducing, on current trends it will take many decades to overcome (Markham and Biddle 2018). Following a steady rise in recent years, the Indigenous home ownership rate has recently exceeded half that of non-Indigenous Australians (AIHW 2019a) (see Fig. 7.1). Nonetheless, Indigenous people continue to be signifcantlyREVISED over-represented in social housing. Around 22% of Indigenous households5 (56,000) reported having a social landlord at

3 Households with incomes of less than 50% of median equivalised disposable household income (see Chapter 3). 4 Remoteness areas are broad geographical classifcations of local areas with common characteristics in relation to accessibility, based on distance from population centres of various sizes. Five categories of remoteness are used: major cities, inner regional, outer regional, remote and very remote. In referring to ‘remote’ areas in this chapter we incorporate ‘very remote’. Similarly, ‘urban and regional’ or ‘cities and towns’ refers to the frst three categories above. For further details see ABS (2006). 5 Indigenous households are those with at least one identifed Indigenous member. 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 219 the 2016 census (ABS 2016a), although administrative data suggest the proportion may be higher (see Table 7.2). Social renters with Indigenous household members presently make up 17% of all social housing tenants (Steering Committee for the Review of Government Service Provision 2019, Tables 18A.5–18A.8), i.e. more than fve times the representation of Indigenous people in the population as a whole. Indigenous renters (in private and social housing) experience higher rates of rental stress than other renters. Noting that Indigenous rental stress is concentrated in urban areas, this group was almost twice as likely as other renters to be paying more than 30% of household income on rent in 2016 (ABS 2016a). Indigenous people also consistently report experiences of racism and discrimination in trying to access housing services, particularly in the private rental market; although documented evidence is patchy (Milligan et al. 2011; Andersen et al. 2018; Shelter SA 2019). Indigenous people are 10 times more likely to experience homelessness compared to non-Indigenous Australians (Pawson et al. 2018). A key contributing factor to the high rates of homelessnessPROOF experienced in many remote areas is severe overcrowding and deplorable housing conditions, which themselves become a factor in high mobility rates and the greater likelihood that people will be temporarily housed or homeless elsewhere (ibid.). The rate of Indigenous homelessness, however, has been steadily decreasing, from 571 per 10,000 Indigenous populations in 2006 to 361 in 2016 (AIHW 2019a). Much of this improvement is attributed to programs tackling overcrowding (Towart et al. 2017) and to homeless people having improved access to homelessness support programs (AIHW 2019a). In this chapter, we frst outline historic, socio-economic, demographic and geographic factors that have contributed to Indigenous housing disadvantage (Sect. 7.2). Section 7.3 introduces different paradigms that have been REVISEDapplied to understanding policymaking in this domain. Using those ideas, in Sect. 7.4 we examine the main ways that successive governments have responded over the recent past to Indigenous housing challenges, both within the housing system and via broader Indigenous policy settings. As we illustrate, such responses have varied considerably between remote and non-remote (urban and regional) places. Policy responses have also been complex and highly volatile with frequent changes in both policy direction and allocation of responsibilities being the norm. In Sect. 7.5 we examine the current social housing, home ownership and private rental service systems for Indigenous households. In Sect. 7.6 we conclude with some brief refections on the strategic challenges facing Indigenous housing policymaking and point to wider implications for housing policy as it applies to minority groups. 220 H. PAWSON ET AL.

7.2 Key Factors Contributing to Indigenous Housing Disadvantage

7.2.1 Underlying and Historic Causes Challenges faced by many Indigenous households in securing healthy, affordable and safe housing have their genesis in a complex web of historical and cultural factors and their ongoing implications. From coloni- sation in 1788, the lives of Indigenous people were profoundly disrupted as they were forced from their land, deprived of their traditional liveli- hoods, and as their languages, cultural values and community ties were severely eroded. Denial of citizenship until 1967, along with policies of no wage/subsistence employment, forcible removal of children from families and high rates of incarceration have had further negative impacts on successive generations of Indigenous people. Past housing policies often exacerbated Indigenous experiences of marginalisation, racism, disempowerment andPROOF disadvantage. Early policies supported segregation through housing on missions or reserves or in institutions, and largely excluded Indigenous people from mainstream housing options (Prout 2008). Later policies of assimilation and mainstreaming (see Table 7.1, Sect. 7.3.2) reversed this approach by seeking to align their lives and aspirations (including housing) with those of non-Indigenous Australians. Provision of government-funded ‘conventional housing’ in towns and cities was integral to such mainstreaming, along with long-standing policymaker aspirations to promote home ownership (Sanders 1993). In the past, however, such approaches usually disregarded important aspects of Indigenous culture and lifestyle, such as high levels of mobility and connection to REVISEDcountry, cultural obligations to accommodate kin and other visitors, extended absences for ceremonial or kinship reasons and succession of tenancy for family members (Milligan et al. 2011). Culturally ill-informed policies and management practices contributed to diffculties experienced by many Indigenous people in accessing or sustaining public housing tenancies (Burke 2004; Flatau et al. 2005; Prout 2008; Moran et al. 2016). Past arrangements have also been a factor in the development of largely separate (and often disjointed) service systems: mainstream housing services and specialised Indigenous housing services, as discussed further in Sect. 7.4.1 (Milligan et al. 2010). 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 221

7.2.2 Demography and Settlement Patterns Other relevant factors that underlie the housing needs and circumstances of contemporary Indigenous Australians include differences in settlement patterns and demographic profles. Today’s Indigenous population has a younger age profle than the non-Indigenous population (an average age of 23 years compared to 37.8 years). This is consistent with the group’s higher fertility and mortal- ity rates (ABS 2016a). Indigenous households (80%) are more likely than non-Indigenous households (71%) to be family households (one or multiple families living together) and less likely to be lone-person households (15% compared with 25%, respectively). Indigenous households (average 3.2 people) are larger than other households (averaging 2.6 people) (AIHW 2019a, p. 3 drawing on 2016 census data). This profle gives rise to important housing planning considerations, such as the links between housing provision and education/employment opportunities for children and working age people, the need for larger and more fexible housing forms and the increasing housing demand that will arise from higherPROOF household formation rates. Most Indigenous people now live in urban and regional settings (81%) (ABS 2016a). However, while the Indigenous population has become substantially urbanised, connection to country and to traditional lands remains very strong. In a 2014 survey, 74% of Indigenous respondents recognised connection to country, 62% identifed with a clan tribe or language group and 63% regularly participated in cultural activities (ABS 2016b). This is one factor underlying high levels of mobility, which contributes to larger household sizes and to regular visits from extended family members that can cause overcrowding and create diffculties for the primary tenant managing his/her lease responsibilities (Habibis et al. 2016). An important and substantial minority of Indigenous Australians (18.4%)6 remainREVISED living in remote or very remote areas where they have strong traditional and cultural ties. In the main, these people are residents of very small communities located throughout the Northern Territory (38%), Queensland (27%) and Western Australia (24%) (ABS 2016a). In many such places, local service provision and community infrastructure are limited, the real estate market is undeveloped and there is little economic development or employment. This is refected in remote area residents having lower average incomes than their urban counterparts. Unsurprisingly therefore, over 55% of Indigenous households in remote areas lived in social rental properties in 2016 (AIHW 2019a, Table 2.2). 6 This compares with 1.4% of non-Indigenous Australians who live in remote areas. 222 H. PAWSON ET AL.

Many remote areas also experience harsh desert or tropical environ- ments that can adversely affect living conditions and the durability of housing, especially when it has been poorly designed and/or maintained. Analysis of over 160,000 jobs carried out under Health Habitat healthy homes programs attributed 73% of demand to lack of routine maintenance, 19% to inadequate design or poor construction, and 8% to tenant wear and tear and damage (Health Habitat n.d.).7 These and other factors, especially housing shortages, low rent collection rates and lack of funding for asset upkeep, have contributed to remote areas having chronic problems of overcrowding and poorer housing conditions. In 2008, over 52% of households in remote areas were overcrowded8 and a 2014–2015 survey found that 18% of remote Indigenous households lived in houses that were not of an acceptable standard (ABS 2016a).9 Such housing diffculties can in turn compound other problems, such as homelessness. The fow-on effects of poor living conditions for physical and mental health, spread of disease, domestic safety and children’s educational attainment havePROOF been widely recognised (Long et al. 2007; COAG 2008a). The disadvantaged housing situation of Indigenous households in remote areas has resulted in a complex history of targeted government and community-led interventions aimed at securing appropriate services and better outcomes for those living in such underserved communities (see Table 7.1). Indigenous housing need is, however, not confned to remote areas. At the time of the last comprehensive assessment in 2009, over 50% of total assessed unmet Indigenous housing need10 was located in

7 Health Habitat is a 30-year collaboration of professional architects, doctors, tradespeo- ple and community workers dedicated to healthy housing initiatives in remote Australia and internationally.REVISED A core philosophy is skilling local communities to manage and maintain their own housing. 8 Households defned as needing one or more bedrooms to meet an occupancy standard are considered to be overcrowded (for more detail see AIHW 2019a). 9 Unacceptable standard housing is defned as having less than four working facilities (for washing people, washing clothes/bedding, storing/preparing food and sewerage) and having more than two major structural problems (e.g. electrical/plumbing problems, major cracks in walls/foors or major roof defects) (ABS 2016a). 10 Empirical assessment of need covers measures of: homelessness, overcrowding, affordability, dwelling condition and connection to essential services (power, water and sewerage) (AIHW 2005). Using different affordability and adequacy measures of need underscores the value of multidimensional measures of housing need (as discussed in Chapter 3). 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 223 non-remote areas. Much of this was revealed by measures of housing affordability rather than by dwelling condition or overcrowding indicators (AIHW 2009, p. 43). Overall, across all measures, while relative need was higher in remote areas, absolute need was higher in cities and towns. As offcially recognised by the Council of Australian Governments (COAG) in 2008, the legacy of the profound economic disadvantage of Indigenous Australians, discrimination in the private rental market (see Sect. 7.5.3), broader social exclusion processes impacting on Indigenous people, the comparatively poor physical and mental health of Indigenous Australians, and a lack of culturally appropriate housing forms are among the main factors that explain the disadvantaged housing position of many Indigenous households. In remote areas, the absence of public and private infrastructure, communal land tenures and high construction and maintenance costs present additional barriers. The evolution of this situation along with chronic past policy failures have intensifed the long-term need for housing interventions (Habibis et al.PROOF 2019). 7.3 Indigenous Housing Policy Approaches We will now briefy review some of the discourse concerned with Indigenous policymaking, both in the housing domain and more widely, before showing how that can inform understanding of the evolution of Indigenous housing policy in Australia.

7.3.1 A Wicked Policy Problem? Tackling Indigenous disadvantage has been described as a ‘wicked’ policy problem (one that is very diffcult to address) (Australian Public Service CommissionREVISED 2007; Head 2008). Characteristics of wicked policy problems include (Australian Public Service Commission 2007):

• Being causally complex with signifcant interdependencies • Being highly resistant to change • Going beyond the power and capacity of any one organisation to respond • Lacking agreement about causes and the best ways to respond • Needing solutions that go beyond conventional planning and policymaking. 224 H. PAWSON ET AL.

Effective solutions to such complex policy challenges require very signif- icant government and stakeholder commitment and conjoint effort, promotion of the understanding and cooperation of those most affected by change, policy settings that are intentional, far-sighted and adaptive, and acceptance of diverse and messy solutions.

7.3.2 Competing Indigenous Policy Paradigms In his interpretation of the history of Indigenous policymaking in Australia, Sanders (2009) discerned three infuential and competing principles that have informed strategic policy choices: equality, difference and guardianship. Equality is concerned with policies that enable Indigenous Australians to have the same socio-economic opportunities and legal rights as non-Indigenous Australians. The principle of difference gives recognition to the specifc cultural origins of Indigenous Australians and lends support to policy approaches that are sensitivePROOF to local context, support choice and recognise forms of individual or collective self-determination (see Sect. 7.4.3). The third principle, guardianship, comes to the fore when “governments believe that particular people within their jurisdictions are not competent judges of their own best interests” (Sanders 2009, p. 8). Guardianship evokes top-down, paternalistic policies which may involve coercion. Examples include the forced removal of children during the 1910–1970 Stolen Generations era and the 2007 ‘Emergency Intervention’ in the Northern Territory, which necessitated suspension of the Racial Discrimination Act to be lawful (see Table 7.1). Each of these competing policy principles could have potentially positive and/or negative impacts, depending on how it is applied. Moreover, policy regimesREVISED in Australian Indigenous affairs have at different times tended to emphasise one or two of these principles at the expense of another. Primacy given to one approach, however, has been shown to be insuffcient to address the diversity of Indigenous needs, to respect citizenship and cultural rights, to achieve equality between the circumstances of remote and non-remote Indigenous citizens, and to overcome legacies of failed policies. Acknowledging that it is genuinely diffcult to achieve, Sanders argues that all three competing principles need to be in balance to attain more effective policymaking in this realm (ibid.). Following Sanders, Table 7.1 provides a high-level classifcation of the dominant policy principles and approaches that have characterised broad eras of Australian Indigenous housing policy. 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 225 (continued) Context Commonwealth involvement in Indigenous affairs confned to the ACT and NT 1967 Citizenship granted to Indigenous Australians 1967 New Commonwealth powers to enact laws concerned with Indigenous Australians Return of some Crown land and missions and reserves to Indigenous control in several jurisdictions and NT) WA (NSW, 1990 Aboriginal and Torres Strait 1990 Aboriginal and Torres Islander Commission (ATSIC) established 1992 COAG National Commitment to Improved Outcomes in the Delivery of Programs and Services for Aboriginal Peoples and Torres Strait Islanders

PROOF State/church administered housing on reserves/mis - sions under guardianship legislation Policy of assimilation for urban dwellers including via successive Commonwealth State Housing Agreements (from 1945) 1968/9 First Commonwealth funding for Indigenous public housing 1972/3 Commonwealth funding for Indigenous to deliver housing organisations 1982 Community Housing and Infrastructure Program (CHIP) (and later variants). After 1990 expanded and administered by ATSIC 2002 Building Better Futures (BBF)—10-year national not implemented). Indigenous housing plan (largely Overseen by offcials’ Steering Committee on Indigenous Housing, later disbanded Indigenous-focussed housing policy/program development • • • • • 1973/4 Aboriginal Hostels Ltd established • 1974/5 Indigenous Home Ownership program • 1979 Aboriginal Rental Housing Program (ARHP) • • REVISED Dominant policy principles Guardianship and assimilation Citizenship and self-help Self-determination Historical summary: Indigenous housing policies: pre-1970s–2019 Period Pre 1970s 1970s–1980s 1990–2004 7.1 Table 226 H. PAWSON ET AL. (continued) Context Primacy of neo-liberal principles individual responsibility and welfare conditionality abolished 2005 ATSIC 2007 The NT Emergency Response—politically justifed, military-directed set of controls imposed on all residents in 73 NT communities to overcome alleged neglect and violence, especially affecting children. Included transfer of responsibilities for housing services from ICHOs to NT Government 2008 Widespread reform of Commonwealth State fnancial relations 2008 National Integrated Strategy for Closing the Gap in Indigenous Disadvantage 2010 Successive processes for advancing constitutional rights of Australia’s First Peoples 2014 Consolidation and funding cuts to Commonwealth Indigenous programs 2016 Closing the Gap and Remote Housing reviews commenced

PROOF 2007 CHIP abolished. Indigenous community housing responsibilities devolved to states/territories 2009 ARHP ceased as a tied funding program. Increasing responsibility for state housing authorities/mainstream CHPs to meet Indigenous housing need in urban areas 2008 10-year National Partnership Agreement Remote Indigenous Housing (2016 on known as Remote Housing Strategy) Forced handback of community housing leases in remote areas, leading to contraction of ICHO numbers Indigenous-focussed housing policy/program development • • • • REVISED Dominant policy principles Mainstreaming— normalisation through equality of opportunity and guardianship (continued) Period 2004–2018 7.1 Table 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 227 - Context tion of the Indigenous population living in appropriately sized (not overcrowded) housing to 82% by 2028 (COAG 2018b ) 2019 New Closing the Gap frame - anticipated work and targets Ongoing political and community discussions centred on constitutional recognition, treaties and a ‘voice’ to the Parliament for Indigenous Australians 2018 Formal partnership between COAG and Indigenous commu - nity-controlled peak organisations established to jointly agree 2019- 2028 Closing the Gap Refresh (COAG framework and targets 2018a ) to increaseDraft target the propor

PROOF Discontinuation of housing funding for remote areas and SA except NT plus interim funding WA New accountability arrangements for NHHA outcomes under development Indigenous-focussed housing policy/program development • • REVISED Dominant policy principles In fux (continued) Period 2019 7.1 Table Authors based on Milligan et al. ( 2016 ) and Habibis 2019 Source 228 H. PAWSON ET AL.

7.4 australian Indigenous Housing Policy Eras and Their Governance We will now elaborate on how some of the competing principles in Table 7.1 have been manifested in Indigenous housing governance and policymaking in recent decades, and discuss lessons and outcomes.

7.4.1 The Changing Roles and Responsibilities of Government The allocation of Indigenous housing policy responsibilities across Australian levels of government has changed over time and differs by type of location. This situation adds complexity to policy development and coordination on the one hand, while potentially allowing for different, more fexible place-based and community-driven approaches on the other (Productivity Commission 2017). In urban and regional areas, both the Commonwealth and the states/territories share responsibility for general housing services for those deemedPROOF ‘most in need’; both levels of government fund these services but service delivery is the responsibility of states and territories (see Chapter 1). After 1967,11 the Commonwealth took substantial responsibility for meeting the needs of Aboriginal and Torres Strait Islander people, particularly those living in remote and very remote areas where mainstream (state-provided) services rarely operated. The Commonwealth also established at this time its ongoing role in directly assisting Indigenous people into home ownership (see Sect. 7.5.2). These beginnings heralded a sustained period of separate development of mainstream and Indigenous- specifc housing policy that was characterised by little engagement between the mainstream and Indigenous housing systems, duplication of housingREVISED programs in some locations, confusion and lack of coordination in the rules and conditions applying to housing assistance for Indigenous Australians and a propensity for states to abrogate responsibility for addressing some Indigenous housing needs (for example through cost-shifting or not servicing certain locations) (Milligan et al. 2010; Habibis et al. 2016). In 1992, for the frst time (and early in the life of COAG) Australian governments jointly committed to overcoming major gaps in quality of

11 This followed the 1967 amendment to the Australian Constitution that gave the Federal Parliament the power to make laws relating to Aboriginal and Torres Strait Islander peoples. 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 229 life, health and education of Indigenous Australians under the National Commitment to Improved Outcomes in the Delivery of Programs and Services for Aboriginal Peoples and Torres Strait Islanders (COAG 1992). However, as argued by Head (2008), there was at the time no political consensus about how to achieve the lofty goals of this commitment. Refecting the tensions identifed by Sanders, some politicians and policymakers argued that overcoming inequality required greater integration into the mainstream economy (for example through resettling people from marginalised areas). For others, respect for cultural differences and traditional ties to country were sacrosanct. Such competing views ultimately divided governments and agencies within them and slowly dissipated the impact of the 1992 commitment on policy development. In 2009, whole-of-government reforms to the framework of Commonwealth-state fnancial relations saw greater devolution of responsibility for all housing programs (and other service areas) to the states under what was heralded as a cooperative national approach (Milligan and Pinnegar 2010). In the IndigenousPROOF context, specifc allocation of Commonwealth funds to Indigenous public housing (dating from 1969) was replaced by an outcome-based system of accountability. States became accountable for “Indigenous people [having] the same housing opportunities (in relation to homelessness services, housing rental, housing purchase and access to housing through an effcient and responsive housing market) as other Australians” (COAG Reform Council 2010, p. xiii).12 This represented a rejection of ‘separatist agendas’, and signalled an era of mainstreaming of service delivery and the end of special purpose funding for Indigenous social housing in urban and regional areas (Milligan et al. 2010). Simultaneously, however, the Commonwealth introduced a much enhanced REVISEDfunding program, the National Partnership Agreement on Remote Indigenous Housing (NPARIH), for housing supply and refurbishment and tenancy reform in remote areas to be delivered under the partnership rules and guidelines by the states/territories. At the time, the

12 The COAG Reform Council was established by COAG in 2008 as a specialist agency independent of all governments to strengthen accountability for their performance across multiple program areas. Accountability for ‘Closing the Gap in Indigenous Disadvantage’ was a nominated priority (COAG Reform Council 2010). Following a change of national government, it was abolished in 2014 and its functions adsorbed into various Commonwealth agencies. 230 H. PAWSON ET AL. scaling up of funding for this program’s objectives was widely seen as an acknowledgement by the Commonwealth of the severe shortages of adequate housing that remained across remote Australia. These needed to be tackled to feed into the ‘Closing the Gap’ targets (e.g. for improved health and educational participation, see Sect. 7.4.4) before further devolution of responsibility to the states and territories could take place (Milligan and Pinnegar 2010). The NPARIH too contained strong elements of mainstreaming and the equality principle, especially evident in a requirement for housing to be managed to the standards that applied to public housing. Section 7.4.4 discusses the implementation and outcomes of NPARIH in more detail. At the time of writing, the next phase of intergovernmental arrangements for Indigenous housing remains in fux with the Commonwealth signalling further devolution of responsibility to states and territories. This is meeting resistance in some jurisdictions, notably WA and Queensland (see Table 7.1). PROOF 7.4.2 The Role of Indigenous Organisations and Peoples in Indigenous Policymaking Looking beyond the direct roles and responsibilities of government, Indigenous engagement in policy development and implementation in all spheres of policymaking is fundamental to building trust in government agencies, overcoming past injustices and achieving cultural profciency in policy and service delivery. The case for joint decision-making is extensively evidenced in both research and government reports (for example, Milligan et al. 2011; Moran et al. 2016; Royal Commission into Family Violence 2016; Habibis et al. 2016). As summedREVISED up in the 2003 review that preceded the political rejection of ATSIC (see Sect. 7.4.3):

Compelling evidence from around the world reveals that sustained and measurable improvements in social and economic well-being only occur when real decision-making power is vested in communities that build effective governing institutions refecting the cultural values and beliefs of the people. (Hannaford et al. 2003, quoted in Pratt and Bennett 2004, p. 9)

Formal ways for Indigenous organisations, communities, experts and stakeholders to engage with housing policymaking, nevertheless, have 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 231 been erratic. There is a long history of ineffectual consultation and a lack of action on Indigenous empowerment on the part of successive governments. Frequent and sudden, top-down policy changes have also contributed to widespread distrust in government processes within Indigenous leadership groups and across affected communities. Ongoing government commitment to ways of co-working with (‘not doing to’) Indigenous communities and individuals is still largely absent, and sorely needed to inform culturally appropriate program design and implementation that is tailored for city, regional and remote contexts (NATSIHA 2018). Since the ATSIC period (1990–2004, see Sect. 7.4.3), there has been no broadly based representation of Indigenous Australians in housing policymaking at a national level, a situation that continues to the present. Perhaps even more signifcantly, regional planning processes have been largely abandoned. Instead, recent governments have relied on limited high-level advisory groups comprising small numbers of individuals operating outside of recognised representative or organisational structures.PROOF Australia’s poor record in this regard contrasts with arrangements in countries with analogous Indigenous populations, i.e. New Zealand, the USA and Canada. In those instances, policy development in housing and other domains is underpinned by nationally established constitutional rights, treaties and legislation that promote formal engagement (Habibis et al. 2016). In May 2017, following regional dialogues around the country, a con- vention of 250 Aboriginal and Torres Strait Islander delegates meeting at Uluru in Central Australia released to the Australian public a declaration of their consensus call for constitutional recognition and truth telling, known as ‘The Uluru Statement from the Heart’. Among other elements, the Statement called for a permanent ‘voice to the parliament’ to be establishedREVISED in the Constitution so that Indigenous people would be assured of a direct say in the laws, policies and programs affecting Australia’s First Nations (Referendum Council 2017). While this specifc proposal has been rejected by the Prime Minister at the time (Turnbull) and by his successor (Morrison), processes for giving further consideration to constitutional and legislative reform have been initiated. At the present time, consultations are ongoing. One of the rare examples of institutionalised Indigenous-informed decision-making in housing policy and practice has endured in NSW over more than 20 years, as described further in Box 7.1. 232 H. PAWSON ET AL.

Box 7.1 The NSW Aboriginal Housing Offce The NSW Aboriginal Housing Offce (AHO) is a statutory body with Aboriginal governance. Following a period of extensive Aboriginal community consultation, it was established by the NSW Government in 1998 to oversee policies and programs dedicated to meeting the housing needs of Aboriginal people and communities (AHDC 1996; Aboriginal Housing Act 1998 No. 47). Its powers and functions include: design of housing policies and programs to support Aboriginal peoples’ housing needs and aspirations, allocation of dedicated Aboriginal housing program funds to registered Aboriginal housing service organisations along with monitoring of their performance, investment in and strategic management of land, housing and related infrastructure, and capacity-building within the Aboriginal housing system, including promoting employment of Aboriginal people where possible (Aboriginal Housing Act 1998 No. 47). AHO governance is exercised by an independently chaired board of Aboriginal directors appointed by and reporting to the NSW Government housing portfolio minister. The Board is supportedPROOF by an Aboriginal CEO and staff (the majority of whom are Aboriginal) and advised by Aboriginal regional housing committees, whose members are appointed by the Board to advise them on Aboriginal housing needs and issues in their region. Objectives underlying the foundation of the AHO included fostering greater self-determination by Aboriginal people in relation to their housing choices and services, better coordination of Aboriginal housing policies and programs (including pooling of Commonwealth and state funding for that purpose) and improved performance monitoring and accountability systems for housing service providers (Knowles 1998). Established at a time when these objectives were at the forefront of Indigenous policy thinking (in keeping with the 1992 COAG National Commitment to Improved Outcomes in the Delivery of Programs and Services for Aboriginal Peoples and TorresREVISED Strait Islanders), the AHO has outlived similar agencies in other jurisdictions to be the only Aboriginal-governed statutory housing agency of its kind remaining in Australia. It remains a rare example of policymaking being directly shaped by Indigenous knowledge and experience. In 2018, the AHO owned over 5900 homes and had a recurrent income of over $82 million. Three quarters of its homes were being managed on its behalf by the NSW Department of Family and Community Services (the public housing landlord in NSW), with the remainder being managed by registered Aboriginal Community housing providers and Aboriginal Land Councils. 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 233

Building on a long process of challenging and contested policy reform, the AHO is implementing a new ten-year strategic framework (2018– 2028), ‘Strong Family, Strong Communities’, which sets the latest directions for delivering housing outcomes for Aboriginal people in NSW. The framework is underpinned by four pillars (AHO 2018):

1. Driving needs-based housing solutions 2. Improving Aboriginal tenant outcomes through stronger human services agency and Aboriginal organisation partnerships, and by creating opportunities for economic participation 3. Strengthening and growing Aboriginal Community Housing Providers through capacity-building, regulation and transfer of publicly managed AHO housing 4. Enhanced data collection, evaluation and analysis to inform the above directions. PROOF 7.4.3 Self-Determination in Indigenous Housing Self-determination is an internationally recognised principle whereby Indigenous people individually and collectively have the right, and the ability, to shape and control their own lives (see for example United Nations 2007, Article 3). Preceded by an era encouraging self-help, collective self-determination emerged as a dominant policy paradigm in Indigenous affairs in Australia from the late 1980s (Milligan et al. 2010). Institutional recognition of the rights of Indigenous people to determine their own policy priorities was frst achieved through 1989 legislation setting up the Aboriginal and Torres Strait Islander Commission (ATSIC). REVISED ATSIC was a national elected Indigenous body (comprising regional councils and a national Board of Commissioners) with responsibility both for advocating on behalf of Indigenous people (through its representative arm) and for management of Indigenous-specifc programs across a range of functional areas, including housing (through its administrative arm). ATSIC managed the Community Housing and Infrastructure Program (CHIP), which mainly funded housing construction and related services such as water, power, sewerage and transport access on former reserves, missions and traditional lands. As such, 234 H. PAWSON ET AL.

CHIP operated alongside state-managed mainstream and special purpose programs (e.g. the Aboriginal Rental Housing program) that also served Indigenous people. However, as discussed above, this was an era of poor coordination across responsibilities and programs between the Commonwealth and states/territories. Under ATSIC stewardship remote Indigenous housing was largely delivered by Indigenous Community Housing Organisations (ICHOs), large numbers of which had been incorporated in response to Commonwealth funded ‘self-help’ programs from the 1970s for employment, economic development and social services, as well as housing. Under ATSIC’s regulatory model, most ICHOs owned their housing and many undertook small-scale property development and maintenance services integrated with and cross-subsidised by employment programs, especially under the other major ATSIC-funded program, the Community Development Employment Program (CDEP).13 By 2001, the ICHO sector comprised an estimated 616 organisations (Habibis et al. 2014). A 2006 study foundPROOF that the typical operating environment of ICHOs was a maintenance backlog, low rental income, high operating costs and small size, precluding economies of scale (Hall and Berry 2006). The small scale of many organisations and the limited opportunities for training and development in many locations also hampered the development of organisational governance and management capacity (Eringa et al. 2008). As set out in more detail by Habibis et al. (2016), there are many endemic diffculties and practical challenges for remote area service delivery. These include shortages of skilled housing management and maintenance workforces, the higher cost of transport, materials, power and labour and disruption caused by seasonal weather patterns. Language barriers andREVISED cultural differences in the meanings of concepts such as house, land, home or rent make effecting standard leasing and tenancy agreements more diffcult. Conventional tenancy management practice is also challenged by cultural differences, as discussed above. In 2004 the Commonwealth Government announced the abolition of ATSIC, arguing that the Indigenous decision-making model had failed to adequately address Indigenous disadvantage. Prior calls for a revamped model and preservation of regional and local representative bodies went

13 The CDEP was gradually dismantled and fnally abolished in 2015. 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 235 unheeded. Many Indigenous stakeholders and other commentators at the time considered ATSIC to have been scapegoated for much deeper inad- equacies in Indigenous policies and their administration across Australia (Pratt and Bennett 2004). Nevertheless, parliamentary abolition of the ATSIC legislation effectively marked the end of mainstream political support for self-determination principles and signalled a return to greater paternalism and guardianship (Habibis et al. 2019). In 2005, responsibility for the CHIP program was transferred to a mainstream Commonwealth department. In 2007, following the strongly contested fndings of a government-initiated review (PWC 2007), the program was abolished leaving ICHOs without future funding for their housing function.14 A new framework, the Australian Remote Indigenous Accommodation (ARIA) program, was announced alongside a renewed emphasis on Indigenous housing being provided by mainstream services (Australian Government 2014). The ARIA program was short-lived, however, and, following the late-2007 change of national government, a new direction emerged.PROOF

7.4.4 2008 COAG Reforms and the National Partnership Agreement on Remote Indigenous Housing In 2008, under the auspices of COAG (see Box 4.2) and led by the incoming Labor Government, all Australian governments committed to the National Integrated Strategy for Closing the Gap in Indigenous Disadvantage (COAG 2008a, Schedule A). The associated National Indigenous Reform Agreement framed COAG’s overall plan for implementing ‘Closing the Gap’ (COAG 2008a). This agreement set out a comprehensive and integrated framework for reform of Indigenous service provision,REVISED listed governments’ commitments across all service areas and established a performance monitoring regime to assess progress. Under the Closing the Gap strategy, ‘healthy homes’ was established as one of seven core building blocks for an integrated approach to reducing Indigenous disadvantage.15

14 By 2016, it was estimated that less than 200 funded ICHOs were still active across Australia (Milligan et al. 2016). 15 Other ‘building blocks’ to overcoming disadvantage were early childhood, school- ing, health, economic participation, safe communities, and governance and leadership (COAG 2008a). 236 H. PAWSON ET AL.

A healthy home is a fundamental precondition of a healthy population. Important contributors to the current unsatisfactory living conditions include inadequate water and sewerage systems, waste collection, electricity and housing infrastructure (design, stock and maintenance). Children need to live in accommodation with adequate infrastructure conducive to good hygiene and study, and free of overcrowding. (COAG 2008a, p. 7)

With regard to housing, states and territories were given direct responsibility for housing Indigenous households across all locations, alongside new requirements to achieve improved outcomes that would support the Closing the Gap targets. A number of housing-related strategies for Indigenous households were foreshadowed: removing barriers and improving access to home ownership and private rental housing, more and better designed social housing, specifc targets to reduce Indigenous homelessness and compliance of all providers with standards of service provision in social housing (Milligan et al. 2010).16 Additionally, to underpin the ‘healthy homes’ building block, the Commonwealth (as sole funder) earmarkedPROOF nearly $5.5 billion to be administered by states and territories (except ACT) over ten years from 2008/2009 for building and upgrading housing for Indigenous households and promoting Indigenous employment in nominated remote locations throughout Australia (COAG 2008b).17 The ensuing intergovernmental agreement, the National Partnership Agreement on Remote Indigenous Housing (NPARIH), was rebadged in 2016 as the National Partnership on Remote Housing (or the Remote Housing Strategy). This expired18 in 2018 having largely achieved its physical housing targets. REVISED 16 Commonwealth/COAG oversight of these directions gradually fell away following national political upheaval and successive government and administrative changes from 2010. State and territory reporting requirements related to all housing programs under the NHHA (see Chapter 4) are once again subject to a reinvigorated improvement process in 2019. 17 Under NPARIH the Commonwealth identifed a limited number of communities it would invest in with the intention to promote growth of larger and more viable settlements. This left many small communities not eligible to receive funds, especially in WA, Queensland, SA and NSW. In operation there was some push back from the original plans, but many small communities became the responsibility of the relevant state government (Habibis et al. 2016). 18 Victoria and Tasmania exited NPARIH in 2014 and NSW in 2016. 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 237

In addition to expanding and improving Indigenous communities’ housing stock, NPARIH included a specifc objective to establish “robust and standardised tenancy management in all remote Indigenous housing that ensures rent collection, asset protection and governance arrangements consistent with public housing standards” (COAG 2008b, p. 5). This was a cause for considerable concern in many communities, which feared that Indigenous decision-making was being weakened and that a welfare approach to housing provision would come to the fore (Habibis et al. 2016). State and territory-led reforms to tenancy management in response to this objective became a precondition for communities to receive NPARIH funding. In practice, signifcant differences in responses to this reform objective evolved across jurisdictions. Some states and territories (especially Queensland, NT and SA) took back control of formerly Indigenous community–managed housing (or introduced third party agencies such as community housing providers or private frms). Other jurisdictions, especially NSW, sought PROOFto better regulate and build capacity in the ICHO sector, for example by encouraging consolidation of service delivery within larger, well-performing ICHOs. This has resulted in an ever more divergent pattern of management of Indigenous housing, particularly across remote area Australia. Major differences in service approaches and outcomes for Indigenous people continue to exist as a result (ibid.). NPARIH faced many implementation diffculties that stemmed from pressure to achieve targets and effect change in the absence of agreed strategic and needs-driven community plans. Evaluators have argued, therefore, that a more cautious approach informed by better evidence of what is needed and what works would have been desirable (ibid). Similarly inREVISED their broader review of human service provision in remote communities, the Productivity Commission (2017) has highlighted the importance of allowing time and processes (e.g. capacity-building) to support local decision-making (among other recommendations). Overall, NPARIH and its successor program delivered signifcant improvements in remote housing. A 2017 review found over 4000 new homes were built under the strategy and 7500 homes were refurbished. Action at this scale led to a marked fall in overcrowding from 52% of remote area households in 2008 to 37% (predicted) by 2018. Substantial improvements in property and tenancy management were also recognised and Indigenous employment levels of 20–30% under the program 238 H. PAWSON ET AL. were reported across all participating jurisdictions (Habibis et al. 2016; Towart et al. 2017). Nevertheless, a fundamental ongoing problem, i.e. the unavoid- able shortfall in funding for maintaining housing in a remote context, was identifed by an independent expert analysis commissioned for the remote housing review. “Even under the most effcient operating conditions annual rental revenues could cover only between 10 and 20 per cent of the actual cost of maintaining remote housing” (Nous Group 2017, p. 4). Much of this extra cost is a function of remoteness: “the difference in shortfall between public housing and remote Indigenous housing is driven mostly by a much higher cost of housing provision in remote Indigenous communities… necessitating a clear need for public subsidy” (ibid., pp. 4–5). The 2017 report of the review set out sound evidence-based recommendations for future directions in remote Indigenous housing provision in three main areas: additional dwellings, further refurbishment and enhanced property and tenancy managementPROOF services. To address both current overcrowding and to meet future need (based on population growth) the review found that at least 5500 additional dwellings will be required in remote community hubs (in the Northern Territory, Western Australia, South Australia and Queensland) by 2028. Based on the fndings of the research by the Nous Group, a new recurrent funding program designed to maintain existing houses and extend their life was also recommended. Without this, it was argued, past investments would be lost and improvements in dwelling condition would be rapidly eroded, regardless of delivery agency. A further key recommendation was the maintenance of shared responsibility between the Commonwealth and states and territories for remote Indigenous housing, with the addition of joint funding requirementsREVISED (‘matching’) to give states and territories ‘skin in the game’ (Towart et al. 2017).19 The review also argued that more should be done to develop the ICHO sector as one part of a suite of delivery options for remote Indigenous housing. It cautioned, nevertheless, that “care needs to be taken not to revert to large numbers of small, unsustainable ICHOs with inadequate funding to maintain houses” (ibid., p. 55).

19 One of the review’s fndings was that because the Commonwealth was the sole NPARIH funder, state and territory “jurisdictions lacked suffcient ‘skin in the game’ and hence the necessary incentive to drive effciencies and improvements” (Towart et al. 2017, p. 3). 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 239

Since the mid-2018 expiry of the Remote Housing Program, there have been ongoing and at times fractious negotiations between the Commonwealth and the remaining participant jurisdictions (WA, NT, SA and Queensland) about any replacement program and the contribution of the Commonwealth in particular (Dillon 2018). With the Commonwealth arguing for those jurisdictions to take greater responsibility for remote area housing, a national long-term plan has not emerged and future directions remain under review (Habibis et al. 2019).20 At the time of writing, the Commonwealth had committed to providing increased funding to NT of $550 million from 2018–2019 to 2022– 2023 for remote Indigenous housing; an amount being matched by the NT Government (NT Government 2018). WA and SA had also been offered conditional funding. It has also been foreshadowed that states will have lead responsibility for reducing overcrowding under the 2019– 2028 Closing the Gap strategy (COAG 2018b; see also Table 7.1). The issue of adequate recurrent funding for tenancy and property management has not been addressed, nor has a PROOFvision for the future of the ICHO sector been developed (Milligan et al. 2017, Chapter 3). Thus, a national culturally adapted strategy for addressing Indigenous housing disadvantage remains absent.

7.5 Forms of Housing Assistance for Indigenous Australians In this section, we briefy review the provision of social renting housing, home ownership and private rental assistance to Indigenous Australians. The main purpose is to highlight how current levels and forms of government-supported service provision impact on the housing choices and opportunitiesREVISED available to Indigenous people.

20 Commonwealth divestment of remote area housing responsibilities to states and territories sits within a broader context of intergovernmental disputes over funding responsibilities. For example, in 2014, the Commonwealth announced the staged withdrawal of funding for essential services (such as power, water and rubbish) for 150 remote communities (mostly in WA). With affected states resisting replacement funding, this situation has resulted in an extant concern that more communities will be closed, thereby severing connection to land (Madden 2015). 240 H. PAWSON ET AL.

7.5.1 Social Housing Policies, Providers and Issues Because of lower incomes and other diffculties faced by many Indigenous Australians in accessing market housing, social housing continues to be a very signifcant tenure for this group. Over 22% of Indigenous households at the 2016 census reported living in social housing compared to less than 4% of non-Indigenous Australians (ABS 2016a). The way social housing is provided is therefore crucial to the well-being of many Indigenous Australians and their opportunities for greater social and economic inclusion (Moran et al. 2016). Up to four different social housing management options are available to Indigenous households depending on where they live as set out in Table 7.2. This situation refects both the legacy of past policies and current program arrangements. Government housing authorities in each state and territory have been the largest providers of social housing to Indigenous people for many decades. Today, almost half of social housing households with Indigenous members rely on (mainstream) public housing.PROOF In addition, 20% of Indigenous social renters live in publicly managed housing, constructed using past dedicated funding and, consequently, preserved for Indigenous occupancy (Table 7.1). Other than in NSW and Victoria (see Boxes 7.1 and 7.2), policies applying to this housing have generally been normalised, i.e. aligned with those of mainstream public housing (Milligan et al. 2016). Of remaining Indigenous-occupied social housing, two-thirds is managed by ICHOs. Much of this housing is located in regional and remote areas. Finally, around 9% of Indigenous social tenants live in housing provided by mainstream community housing providers (CHPs). During a period of signifcant expansion in community housing (see Chapter 4), CHPs more than doubled the number of lettings they made to this cohort betweenREVISED 2008 and 2016 (AIHW 2019a ). Mainstreaming policies and policies that prioritise new lettings to ‘highest need’ applicants have contributed to growing numbers of Indigenous households in public housing (see Chapter 4). Numbers of publically managed dwellings with Indigenous residents increased by one- third over ten years to 2017 (AIHW 2019a). In 2018/2019, one in fve new public tenancies included Indigenous members (Steering Committee for the Review of Government Service Provision 2019, Table 18A.5). With regards to responsiveness to Indigenous housing needs and cultural preferences, the mainstream public housing system has traditionally 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 241

Table 7.2 Provision of social housing to Indigenous Australians 2017/20181

Provider group Households with >1 % Locations Indigenous member

Mainstream public housing 35,619 49 Cities and towns State-owned and managed 14,170 20 Cities and towns in Indigenous housing2 NSW, Queensland, NT and Tasmania Indigenous-controlled 16,030 22 Cities, towns and remote community housing areas organisations2 Mainstream community 6,423 9 Cities and towns housing organisations Total 72,2421 100

1Importantly, this data is compiled from administrative records. Self-enumeration of landlord type used in the census of population and housing results in a lower number of Indigenous households being recorded as living in social housing (around 56,000 households in 2016 [AIHW 2019a]) 2 PROOF Rows 2 and 3 combined equate to Indigenous managed social housing as shown in Fig. 4.4 Source Steering Committee for the Review of Government Service Provision (2019, Tables 18A.5– 18A.8). For data quality issues see source operated within overarching policy settings that are prescriptive and provide limited scope for adaption and fexibility (Moran et al. 2016). Recent years have seen increased conditionality applied to all tenancies, e.g. the introduction of fxed-term leases and application of more strin- gent antisocial behaviour norms (see Chapter 4). Such stipulations often have adverse impacts on Indigenous tenants. In remote areas, imposition of standardised public housing tenancy management regimes over the last decade (see Sect. 7.4.4) has typically involved major changes to allocations, rentREVISED setting, lease obligations, maintenance processes and other previously community-controlled practices. While there have been benefcial effects, especially improved rent collection and maintenance services, the process of change has been disruptive and fraught for many tenants and their communities (Habibis et al. 2016, 2019). Past experiences of Indigenous tenants living in public housing have been examined most extensively in Western Australia, but there is col- laborating evidence from other jurisdictions (Cooper and Morris 2005; Birdsall-Jones and Corunna 2008; Prout 2008; Milligan et al. 2011). This set of studies has drawn attention to negative experiences of public 242 H. PAWSON ET AL. housing for many Indigenous households. These include feelings of vulnerability around issues such as rent arrears and previous debts, com- munication diffculties with housing authorities, and problems managing visitors. Tenants in some studies expressed concerns about being allocated poor quality housing (which they accepted in preference to having no housing at all), a lack of responsive maintenance, or living in unsafe neighbourhoods and being subject to stigmatisation and racism. Overall, compared to other tenants, Indigenous households in mainstream social housing have shorter tenancies, which at least partly result from higher rates of abandonment and eviction (Flatau et al. 2005, 2009). Indigenous tenants in mainstream social housing tenures also report signifcantly lower levels of satisfaction with their housing services than their non-Indigenous counterparts, although the former’s satisfaction rates have improved over time (AIHW 2017, 2019b). Recent years have seen more divergence in who manages Indigenous social housing tenancies. Some jurisdictions, such as NSW and Victoria (see Boxes 7.1 and 7.2), have PROOFopted to promote greater self-determination and choice by transferring more housing and funding to Indigenous-run organisations along with investing in their capacity (Milligan et al. 2016). Others (NT, Queensland and SA) have moved away from partnering with Indigenous organisations (Habibis et al. 2016), while Western Australia has introduced a competitive tendering regime, in which ICHOs must bid against other non-Indigenous organisations (such as CHPs or private frms) to provide or retain housing service responsibilities. From 2009 in the Northern Territory, over 5000 remotely located dwellings were removed from Indigenous community control and returned to government or, in some places, to private management. However, REVISEDafter continuing poor outcomes and widespread community dissatisfaction with the reformed management arrangements in that jurisdiction, a fexible place-by-place approach is being emphasised post-NPARIH. Accordingly, under the 2019 joint Commonwealth and NT Government 10-year $1.1 billion strategy (Our Community, Our Future, Our Homes) commitments have been made to re-engage each local community in planning and decision-making for their future housing services, and to strive to ensure housing funding helps to build local capacity and employment (NT Government 2018). Nevertheless, substantial effort will be required to rebuild community trust and organisational capacity in that jurisdiction after their recent experiences. 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 243

In both the public and the community housing mainstream service delivery systems there have also been renewed efforts to promote culturally profcient organisations and culturally adapted mainstream services.21

Box 7.2 Aboriginal Housing Victoria Aboriginal Housing Victoria (AHV) is the largest Aboriginal-controlled22 independent provider of social housing services in Australia. In 2018, AHV was responsible for the management of 1555 properties located throughout metropolitan and regional Victoria. It had annual rental revenue of $15.5 million and net assets valued at approximately $450 million (AHV 2018). As a comparatively large state-wide provider of housing to Indigenous households, AHV exemplifes a distinctive organisational approach not found elsewhere across Australia. Aspirations by the Victorian Aboriginal community to take control of their housing services can be traced back to the late 1970s. In 1981, the Aboriginal Housing Board of Victoria (AHBV) was formedPROOF as an advisory board to the Minister for Housing in that state and achieved company status in 1983 (Cahir 2005). This organisation became the primary advocate for the Victorian Aboriginal community in order to achieve greater self-determination by taking on the control and management of Aboriginal housing. By 2004, this advocacy had led to a Memorandum of Understanding between the Victorian Government and the AHBV on a staged plan for Victorian public housing identifed for Indigenous households being transferred to the AHBV’s control. At the time, AHBV was a typically small housing and advocacy organisation. The primary intent of the transfer plan was to give Victorian Aboriginal tenants greater say in the management of their own housing and to foster a fnancially viable, independent housing service provider (Pawson et al. 2013). Following a period of capacity-building within the AHBV organisation, the transferREVISED of tenancy agreements and tenancy management services from the public housing authority began in 2007. In 2009 the AHBV, now trading as AHV, achieved registration as a ‘housing provider’ with the

21 See, for example, NSW Government (2015) Foundations for Success, which offers practical guidance for all providers of social housing working with Aboriginal people and communities (http://www.aho.nsw.gov.au/-ASSETS/Housing-providers/documents/ foundation-for-success-guide-for-social-housing-providers). 22 Aboriginal Housing Victoria Ltd is registered not-for-proft housing company, which operates under the direction of a skills-based majority Aboriginal board. 244 H. PAWSON ET AL.

Victorian Housing Registrar (Housing Registrar n.d.). Responsibility for asset maintenance was handed to AHV in 2012/2013. Following upgrading of the agency’s registration to that of a ‘housing association’ in 2016,23 the transfer of 1448 property titles commenced, concluding in 2018 (AHV 2018). The AHV now offers a comprehensive housing service to its Aboriginal residents across Victoria, including the development of new housing. Utilising a variety of government and non-government agency partnerships, it also facilitates employment and training, life-skills assistance and personal support for its clients.

7.5.2 Indigenous Home Ownership: Policies and Issues While Indigenous Australians are signifcantly under-represented in Australia’s dominant home ownership tenure (Fig. 7.1), there has been a long-term trend of rising Indigenous homePROOF ownership. In 2001, 32% of Indigenous households owned a home and by 2016 this had risen to 38% (AIHW 2019a). Contributing factors have included the gradually improving economic situation of many Indigenous households, as well as the availability of tailored home lending policies and products. Mortgage stress among Indigenous home buyers remains relatively high, although there are recent signs this may be reducing. Over the same inter-censal period (2001–2016), the proportion of Indigenous home buyers in mortgage stress (defned as spending more than 30% of gross household income on mortgage repayments), fell from a peak of 30% of those with a mortgage in 2011 to 21% in 2016 (AIHW 2019a, p. 25). A national Indigenous home lending program for Aboriginal people began inREVISED 1974, forming one part of the Commonwealth’s expanded role in Indigenous affairs after 1967 (Table 7.1; Sanders 1993). From the program’s inception to June 2018, more than 18,500 Indigenous households had received fnancial assistance and support to enable them to buy or build their own homes. The largest annual number assisted (913) occurred in 2017/2018. The preceding fve years averaged 554

23 Victoria’s community housing regulatory system (2005) has two classes of not-for- proft housing organisations: housing providers and housing associations. The latter are “larger, more complex businesses with the skills, expertise and resources to manage, maintain and grow a viable social housing portfolio” (http://www.housingregistrar.vic.gov.au). 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 245 assistances annually. Of the latest new loan recipients, 95% were frst home buyers and 96% low-income earners (IBA 2018). Indigenous Business Australia (IBA), an Indigenous-governed Commonwealth agency responsible for helping to foster the economic development of Indigenous Australians, has administered the home lending program since ATSIC’s abolition in 2005.24 Its role in this regard is to direct assistance25 to Indigenous households who may otherwise be unable to obtain or to fully service a commercial mortgage, usually because of constrained income and/or uncertain employment. Recipients of IBA loans are encouraged to refnance to mainstream lenders over time as their credit history becomes established and their equity builds. In 2017/2018, over 7% of IBA’s borrowers refnanced (ibid.). IBA had a total loan portfolio of just over 5000 loans in 2017/2018. Funding operates on a revolving basis, with new loans issued as previous loans are paid down. While Indigenous home ownership is a key national policy objective, the viability of home ownership options for Indigenous Australians is infuenced by many factors. These includePROOF household incomes, family structures and household size, cultural expectations, mobility patterns, housing policy settings, together with existing tenure, dwelling and settlement forms across urban, regional and remote Indigenous communities (Sanders 2008). Building on the long-standing government policy to promote home ownership in the Indigenous community, recent years have seen a growing push to facilitate home ownership in remote areas, including specifc strategies aimed at enabling people to buy or build their own home on communally owned land. Enabling individual home ownership in that situation typically requires land tenure reform. Highlighting challenges inherent in pursuing such reform and other barriers, the 2017 Remote Housing ReviewREVISED (Towart et al. 2017) found that only a very small number of households (less than 70) had been able to buy/build their own home in NPARIH-designated remote areas over that program’s duration. In 2017/2018, although higher than previous years, only 8% of IBA’s new home loan clients (67) were from remote or very remote areas (IBA 2018).

24 Small home lending programs tailored to Indigenous clients have periodically operated in some jurisdictions, notably SA, WA and NT (Crabtree et al. 2012b, p. 40). 25 Assistance offered could be a mortgage or part mortgage or a subsidised interest rate, together with fnancial advice. 246 H. PAWSON ET AL.

Promotion of land tenure reform to enable individualised home ownership has generated considerable debate about the appropriateness of such a policy push. The case for reform often centres on the role of land in providing security for mortgage fnance, and on enabling home (land) owners to trade their asset, and, thereby, embark on a pathway to wealth creation, similar to that followed by many other Australians (Chapter 5). As argued by Memmott et al. (2009) and Wensing and Taylor (2012), this can be seen as an economic and inherently Western-centred view grounded in privatisation of land ownership. It can also be interpreted as evoking the viewpoint that home ownership has inherent benefts (Chapter 5). The case against such an approach privileges recognition of the cultural values of Indigenous peoples and their respect for community relationships through collective ownership and protection of land (Crabtree et al. 2015). In economic terms, low incomes, low employment levels and high building and maintenance costs prevailing in remote communities also present barriers to affordability for home buyers (Sanders 2008). A further aspect of the debate, therefore,PROOF concerns the extent to which expanding home ownership in remote communities will contribute to reducing Indigenous economic disadvantage. The same critics question whether this can be achieved in places with very weak housing markets, low asset values and chronically low and unstable incomes. This assessment exposes the risks of a simple mainstream model of home ownership to both traditional values and to individual buyers (ibid.). As posited by Wensing and Taylor (2012), these competing perspectives could be brought closer together through a more nuanced policy approach that seeks to preserve collective title and offer a hybrid form of home ownership, together with a mix of fnancial and non-fnancial support to residents that is fexible and locally appropriate. One potential model REVISEDthat has been explored is the Community Land Trust, as explained further in Box 7.3.

7.5.3 Indigenous Experience of Renting Privately and Policy Responses Nearly 85,000 Indigenous households lived in private rental housing in 2016 (96% located in non-remote areas) (ABS 2016a). Indigenous households’ reliance on market renting has been steadily increasing, rising from 33.6% in 2001 to 42.1% in 2016, with a similar pattern being evident across jurisdictions (AIHW 2019a, supplementary Table S2.2). This 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 247 represents a faster rate of increase than that observed for non-Indigenous Australians (Chapter 6). Trends in tenure mix across census years show that Indigenous households are being driven into private rental housing largely as a result of the contraction of social housing and housing policies that aim to divert social housing applicants to market-based alternatives. While large numbers of Indigenous households rent privately, a long-standing alleged barrier to obtaining suitable rental housing is race-based discrimination and racial stereotyping. As described by one researcher working in Western Australia:

The stories of discrimination against Indigenous people in private housing are all very similar. Over the phone they are perfect for the property, but as soon as the principal or agent fnds out that they are Aboriginal, the house is no longer available, or the owners have decided to sell, or it has just been promised to someone else. Often they are told there is nothing available when in fact there is. In extreme cases, the applicants are refused accommodation directly on the grounds of theirPROOF race. (Solonec 2000) This story is corroborated by the subsequent fndings of diverse though small-scale investigations in several jurisdictions. A 2009 government inquiry into race-based discrimination in the private rental market, conducted in Western Australia, documented frst-hand experiences of racism and identifed a strong perception of discrimination among community groups and advocates. There was, however, a lack of systematic supporting evidence (Equal Opportunity Commission 2009). A 2014 study based on interviews with those working in or with private rental brokerage services in NSW, Victoria and SA “unequivocally found” Indigenous Australians to be the client group facing the most diffculty in accessing the private rental market (Tually et al. 2016, p. 66). A 2018 online survey conducted in South AustraliaREVISED found that nearly 80% of the 90 respondents had experienced, or witnessed someone experiencing, racial discrimination in the private rental market due to identifying as Aboriginal (Shelter SA 2019). Once they become tenants, Indigenous people also report diffculties in dealing with real estate agents, particularly in obtaining maintenance services, acceptance of visitors and recognition of other cultural obligations (Andersen et al. 2018; Shelter SA 2019). While implicit or explicit discrimination in accommodation services is unlawful, complaints are often not forthcoming and reported cases are hard to prove resulting in little successful litigation (ibid.). 248 H. PAWSON ET AL.

Recommendations in these studies for further policy action have centred on: improving residential tenancy regulations (especially enforcing landlord maintenance obligations), introducing and maintaining anti-discrimination and cultural competency training and education programs in the real estate industry, establishing culturally appropriate complaints processes, and offering specialised support (involving information, advice, training, advocacy and outreach) to applicants and tenants who are disadvantaged in negotiating housing access and their tenancy rights by their language or other cultural circumstances. Many of the policy enhancements suggested are gradually being adopted although the extent of this varies by jurisdiction. As discussed in Chapter 6, policy responses to problems faced by households renting privately occur in three main ways: fnancial assistance, non-fnancial support programs and regulation of tenancies. The largest fnancial assistance program is Rent Assistance (RA, see Chapter 6). Recent years has seen a sharp increase in the number of Indigenous RA benefciaries from 37,200 inPROOF 2009 to 72,981 in 2018 (a rise of 96%) (AIHW 2019a, supplementary Table S3.4; Steering Committee for the Review of Government Service Provision 2019, Table GA.8).26 This might be partly explained by the growing numbers of Indigenous people who are renting, but it is also likely to refect improved take-up of the payment entitlement. In 2018, RA reduced the proportion of all Indigenous recipients paying more than 30% of their income in rent from 65% to 33% (Steering Committee for the Review of Government Service Provision 2019, Table GA.13). State and territory jurisdictions also offer small one-off cash payments to assist eligible tenants with upfront rental costs, e.g. rent in advance, rental bond or relocation expenses (see Sect. 6.5.2). In 2016, 15% of all recipients ofREVISED this form of assistance were Indigenous, and their access to this support has been increasing (AIHW 2019a). Jurisdictions may also fund programs (usually as a component of homelessness prevention strategies) that offer personal support to vulnerable tenants to help maintain their tenancies. Traditionally targeted to tenants in the social housing system, these are now being broadened to include private tenants at

26 This data refers to income units not households, which would be a lower number. Indigenous Australians have the same entitlement to RA as non-Indigenous Australians. Social housing tenants with a landlord other than the state/territory public housing authority can receive RA. 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 249 risk of losing their tenancy. In locations where Indigenous households are concentrated, funding may be directed to culturally adapted services. For instance, the NSW Government funds Aboriginal Tenancy Advice Services27 in fve regions across the state as a dedicated component of its network of tenancy advice services. These specialise in providing culturally sensitive support, advice, information, conciliation and education to Aboriginal clients about renting and their rights and obligations under residential tenancy law. As discussed in Chapter 6, reform of residential tenancy law to redress power imbalances between landlords and tenants is ongoing across Australia. An important reform beneftting many Indigenous tenants has been stronger regulation of tenancy data bases that are used to vet applicants for accommodation. Indigenous people are among groups considered to be most at risk of unfair treatment when those listings are unregulated. Given the growing role of the private rental sector in housing Indigenous Australians, there is a need for morePROOF systematic research and monitoring of the housing conditions of this cohort and for more culturally adapted policies and services to help overcome identifed barriers.

Box 7.3 Potential for a hybrid approach: The Community Land Trust model The Community Land Trust (CLT) is a housing model under which rights are shared between the landowner and residents. CLTs originated in the United States where the typical landowner is a not-for-proft organisation, but where many variants of the core model have evolved. Utilising a ground lease arrangement, residents can buy or lease properties held in a CLT forREVISED their continuing use. Places in CLTs are inheritable and, in the case of resident equity variants, can be on-sold at a price determined by a resale formula dictated in each ground lease. The trust’s governance (legis- latively-based in the United States) helps to ensure members’ collective and individual interests are protected and provides oversight for its operations. The model can offer many of the widely acknowledged benefts of home ownership, including resident control over a dwelling, security of tenure, transfer of occupancy rights and the potential for a share of equity gains.

27 https://nswats.com.au/. 250 H. PAWSON ET AL.

For lower-income communities, affordability is improved primarily through lower land costs for residents compared to individual home ownership. Regulatory arrangements can be applied to preserve affordability for future generations (Crabtree et al. 2012a). Indigenous aspirations for stability and autonomy in housing and their cultural preferences, coupled with the marginal economic and housing market conditions that pertain to many remote and discrete communities, suggest that a CLT has potential to offer alternatives to individual market-based home ownership. The cultural and practical suitability of a CLT-type model for Indigenous Australians in different locations has been investigated in successive AHURI-funded research projects (Crabtree et al. 2012b, 2015). Indigenous participants in that research expressed interest in the ideas and potential of the model subject to certain conditions: protection of Indigenous land, continuing community-led governance and choice of housing options (Crabtree et al. 2015). On community-owned lands in particular, it was recognised that the model could allow for collective ownership of landPROOF and, hence, for the pro tection of cultural values associated with the land. CLTs were also seen to have the potential to address affordability issues and to foster and sustain an ongoing relationship between resident households and their community. The research found, therefore, that a CLT model could be most applicable where organisations held land and had a strong desire to retain it in community ownership, and where retention of affordability is a core concern. Ideally, the model would incorporate a variety of tenure options, e.g. resident equity, affordable rentals or forms of cooperative housing. Substantial support would likely be required to operationalise such a model at any scale, including funding support, the development of appropriate lending products and, possibly, new legal provisions (Crabtree et al. 2015). Extensive documentation of legal frameworks and operating principles for a CLT-type model in the Australian context has been completed (CrabtreeREVISED et al. 2013, 2019).

7.6 conclusions While there have been steady long-term reductions in Indigenous housing disadvantage in Australia and many instances of well-intentioned policies and successful innovations, too often promising policy or program initiatives have been short-lived or swept away for political or ideological reasons, or stymied by administrative failings and lack of 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 251 implementation capacity. The legacy of this trajectory of political, policy and administrative failures is not only persisting disadvantage and lack of empowerment of Indigenous Australians, but also erosion of trust in government among Indigenous organisations and communities, who have local knowledge of what works. Resistance to change, such as when communities and organisations disengage with government, may also be triggered (Habibis et al. 2016). Intentional and far-sighted policy solutions are required in the Indigenous housing policy space. The ideas for tackling wicked policy problems (Sect. 7.3.1), together with the lessons from past approaches documented in this chapter, point to the need for better understanding of and respect for Indigenous identity, knowledge and cultural values, and for a governance model that will ensure enduring engagement with Indigenous people in all policy and service delivery processes. Greater bipartisanship, truthful acknowledgement of past policy failures and neglect, well-evidenced policy development and promotion of successful initiatives will also be key. PROOF For the foreseeable future, many Indigenous Australians will continue to need assistance to enable them to obtain and maintain safe and secure, adequate and affordable housing. Faster and more sustained improvements in the housing situation of our First Peoples will require substantially more resources invested in both ‘bricks and mortar’ and in service delivery, the introduction of better designed and more tailored housing options that are both culturally and geographically appropriate, reinvigoration of joint government and community planning and evaluative processes (especially at regional and local levels) and support for Indigenous organisations to become more effective and sustainable, working alongside culturally adapted mainstream services. Major improvementsREVISED in Indigenous peoples’ housing conditions will be a key means of further closing the gap in Indigenous disadvantage. Equally, improving the socio-economic, health and educational outcomes of Indigenous Australians will enable better housing futures for them. This chapter has highlighted the distinctive housing needs of one group of disadvantaged and vulnerable Australians. While the situation of Indigenous Australians is historically and culturally specifc and unique, similar issues (such as discrimination, poverty and inappropriate housing) are experienced by many of those in other highly vulnerable minorities, for example those from refugee backgrounds, families moving from domestic and family violence situations, people with chronic 252 H. PAWSON ET AL. mental or physical health conditions and homeless young people. Detailed examination of policies concerned with people on the margins of the housing system is beyond the scope of this book. Nevertheless, the story told in this chapter makes evident both the necessity to sensitise housing policy responses to the full diversity of housing needs and the importance of tenant engagement and empowerment.

References Aboriginal Housing Act 1998 No. 47. ABS. (2006). Statistical Geography Volume 1—Australian Standard Geographical Classifcation, July 2006 [Internet] (Cat. No. 1216.0). Canberra: Australian Bureau of Statistics. Available from: https://www.abs.gov.au/AUSSTATS/ [email protected]/Lookup/1216.0Main+Features1Jul%202006?OpenDocument. Accessed 14 August 2019. ABS. (2016a). Census of Population and Housing: Characteristics of Aboriginal and Torres Strait Islander Australians, 2016 [Internet] (Cat. No. 2076.0). Canberra: Australian Bureau of Statistics. AvailablePROOF from: https://www.abs. gov.au/ausstats/[email protected]/mf/2076.0. Accessed 14 August 2019. ABS. (2016b). National Aboriginal and Torres Strait Islander Social Survey, 2014–15 [Internet] (Cat. No. 4714.0). Canberra: Australian Bureau of Statistics. Available from: https://www.abs.gov.au/ausstats/[email protected]/mf/ 4714.0. Accessed 14 August 2019. AHDC. (1996, December). Future Directions for Aboriginal Housing in NSW (Report of the Aboriginal Housing Development Committee). Sydney: Aboriginal Housing Development Committee. AHO. (2018). Strong Family, Strong Communities: A Strategic Framework for Aboriginal Social Housing in NSW 2018–2028 [Internet]. AHO Brochure Parramatta: Aboriginal Housing Offce. Available from: https://www.aho. nsw.gov.au/download?fle 628182. Accessed 9 July 2019. = AHV. (2018).REVISED Annual Report 2018. Melbourne: Aboriginal Housing Victoria. AIHW. (2005). Indigenous Housing Needs 2005—A Multi-Measure Needs Model (Cat. No. HOU 129). Canberra: Australian Institute of Health and Welfare. AIHW. (2009). Indigenous Housing Needs 2009—A Multi-Measure Needs Model (Cat. No. HOU 214). Canberra: Australian Institute of Health and Welfare. AIHW. (2017). National Social Housing Survey, Detailed Results 2016 (Cat. No. HOU 290). Canberra: Australian Institute of Health and Welfare. AIHW. (2019a). Aboriginal and Torres Strait Islander People: A Focus Report on Housing and Homelessness (Cat. No. HOU 301). Canberra: Australian Institute of Health and Welfare. AIHW. (2019b). National Social Housing Survey 2018, Key Results (Cat. No. HOU 311). Canberra: Australian Institute of Health and Welfare. 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 253

Andersen, M., Williamson, A., Fernando, P., Eades, S., & Redman, S. (2018). They Took the Land, Now We’re Fighting for a House: Aboriginal Perspectives About Urban Housing Disadvantage. Housing Studies, 33(4), 635–660. Australian Government. (2014). Roles and Responsibilities in Housing and Homelessness (Reform of the Federation White Paper, Issues Paper 2). Canberra: Commonwealth of Australia. Australian Government. (2019). Closing the Gap Report 2019. Canberra: Prime Minister and Cabinet. Australian Public Service Commission. (2007). Tackling Wicked Problems: A Public Policy Perspective. Canberra: Australian Public Service Commission. Biddle, N. (2013). Income (Census Papers Paper 11, Indigenous Population Project 2011. Centre for Aboriginal Economic Policy Research). Canberra: Australian National University. Birdsall-Jones, C., & Corunna, V. (2008). The Housing Careers of Indigenous Urban Households (AHURI Final Report No. 112). Melbourne: AHURI. Burke, T. (2004). Managing Social Housing for Indigenous Populations [Internet] (Institute for Social Research). Hawthorn: Swinburne University of Technology. Available from: https://www.researchgate.net/profle/Terry_ Burke3/publication/228755932_Managing_social_housing_for_indigenous_PROOF populations/links/00b49532a8b4106ee9000000/Managing-social-housing- for-indigenous-populations.pdf. Accessed 9 July 2019. Cahir, S. (2005). More Bees with Honey: A History of the Aboriginal Housing Board of Victoria 1981–2004. North Fitzroy: Aboriginal Housing Board of Victoria. COAG. (1992). National Commitment to Improved Outcomes in the Delivery of Programs and Services for Aboriginal Peoples and Torres Strait Islanders. Canberra: Council of Australian Governments. COAG. (2008a). National Indigenous Reform Agreement (Closing the Gap) (Intergovernmental Agreement on Federal Finance Relations). Canberra: Council of Australian Governments. COAG. (2008b). National Partnership Agreement on Remote Indigenous Housing.REVISED Canberra: Council of Australian Governments. COAG. (2018a). Partnership Agreement on Closing the Gap 2019–2029. Canberra: Council of Australian Governments. COAG. (2018b). COAG Statement on the Closing the Gap Refresh. Canberra: Council of Australian Governments. COAG Reform Council. (2010). National Affordable Housing Agreement: Baseline Performance Report for 2008–09. Sydney: COAG Reform Council. Cooper, L., & Morris, M. (2005). Sustainable Tenancy for Indigenous Families: What Services and What Policy Support Are Needed? (AHURI Final Report No. 81). Melbourne: AHURI. 254 H. PAWSON ET AL.

Crabtree, L., Phibbs, P., Milligan, V., & Blunden, H. (2012a). Principles and Practices of an Affordable Housing Community Land Trust Model (AHURI Research Paper). Melbourne: AHURI. Crabtree, L., Blunden, H., Milligan, V., Phibbs, P., & Sappideen, C. (2012b). Community Land Trusts and Indigenous Housing Options (AHURI Final Report No. 185). Melbourne: AHURI. Crabtree, L., Blunden, H., Phibbs, P., Sappideen, C., Mortimer, D., Shahib- Smith, A., & Chung, L. (2013). The Australian Community Land Trust Manual. Sydney: University of Western Sydney. Crabtree, L., Moore, N., Phibbs, P., Blunden, H., & Sappideen, C. (2015). Community Land Trusts and Indigenous Communities: From Strategies to Outcomes (AHURI Final Report No. 239). Melbourne: AHURI. Crabtree, L., Sappideen, C., Lawler, S., Conroy, R., & McNeill, J. (2019). Enabling Community Land Trusts in Australia. Melbourne: Arena Publications. Dillon, M. (2018, January 18). Tactics Versus Strategy in Indigenous Housing [Internet]. Inside Story. Available from: https://insidestory.org.au/tactics-undermining-strategy-in-indigenous-housing/. Accessed 15 July 2019. Equal Opportunity Commission. (2009). Accommodating Everyone (Report of the Equal Opportunity Commission). Perth: EqualPROOF Opportunity Commission of Western Australia. Eringa, K., Spring, F., Anda, M., Memmott, P., Long, S., & West, M. (2008). Scoping the Capacity of Indigenous Community Housing Organisations (AHURI Final Report No. 125). Melbourne: AHURI. Flatau, P., Coleman, A., Memmott, P., Baulderstone, J., & Slatter, M. (2009). Sustaining At-risk Indigenous Tenancies: A Review of Australian Policy Responses (AHURI Final Report No. 138). Melbourne: AHURI. Flatau, P., Cooper, L., McGrath, N., Edwards, D., Hart, A., Morris, M., et al. (2005). Indigenous Access to Mainstream Public and Community Housing (AHURI Final Report No. 85). Melbourne: AHURI. Habibis, D., Phillips, R., & Phibbs, P. (2019). Housing Policy in Remote Indigenous Communities: How Politics Disrupts Good Policy. Housing Studies, 34REVISED(2), 252–271. Habibis, D., Phillips, R., Phibbs, P., & Verdouw, J. (2014). Progressing Tenancy Management Reform on Remote Indigenous Communities (AHURI Final Report No. 223). Melbourne: AHURI. Habibis, D., Phillips, R., Spinney, A., Phibbs, P., & Churchill, B. (2016). Reviewing Changes to Housing Management on Remote Indigenous Communities (Final Report No. 271). Melbourne: AHURI. Hall, J., & Berry, M. (2006). Indigenous Housing: Assessing the Long Term Costs and the Optimal Balance Between Recurrent and Capital Expenditure (AHURI Final Report No. 93). Melbourne: AHURI. Head, B. (2008). Wicked Problems in Public Policy. Public Policy, 3(2), 101–118. 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 255

Health Habitat. (n.d.). Why the Houses Need Fixing [Internet]. Mona Vale: Health Habitat. Available from: http://healthabitat.com/what-we-do/what- the-housing-data-reveals/why-the-houses-need-fxing. Accessed 15 July 2019. Housing Registrar. (n.d.). Registered Housing Sector: Housing Association [Internet]. Melbourne: Housing Registrar. Available from: https://chimes. force.com/RegisteredHousing?aType ha. Accessed 14 August 2019. = IBA. (2018). Annual Report 2017–2018. Canberra: Indigenous Business Australia. Knowles, Hon C. (1998, May 20). Aboriginal Housing Bill, Second Reading Speech (pp. 4886–4890). NSW Legislative Assembly, Hansard. Long, S., Memmott, P., & Seelig, T. (2007). An Audit and Review of Australian Indigenous Housing Research (AHURI Final Report No. 102). Melbourne: AHURI. Madden, C. (2015, June 30). Forced Closures of Aboriginal Communities in Australia continue [Internet]. Cultural Survival. Available from: https:// www.culturalsurvival.org/news/forced-closures-aboriginal-communities-australia-continue. Accessed 15 July 2019. Markham, F., & Biddle, N. (2018). Income, Poverty and Inequality [Internet] (2016 Census Paper 2, Centre for Aboriginal Economic Policy Research). Canberra: ANU. Available from: http://caepr.cass.anu.edu.au/sites/default/PROOF fles/docs/CAEPR_Census_Paper_2.pdf. Accessed 9 July 2019. Memmott, P., Moran, M., Birdsall-Jones, C., Fantin, S., Kreutz, A., Godwin, J., et al. (2009). Indigenous Home-Ownership on Communal Title Lands (AHURI Final Report No. 139). Melbourne: AHURI. Milligan, V., Martin, C., Phillips, R., Liu, E., Pawson, H., & Spinney, A. (2016). Profling Australia’s Affordable Housing Industry (AHURI Final Report No. 268). Melbourne: AHURI. Milligan, V., Pawson, H., Phillips, R., Martin, C., & Elton Consulting. (2017). Developing the Scale and Capacity of Australia’s Affordable Housing Industry (AHURI Final Report No. 278). Melbourne: AHURI. Milligan, V., & Pinnegar, S. (2010). The Comeback of National Housing Policy in Australia: First Refections. International Journal of Housing Policy, 10(3), 325–344.REVISED Milligan, V., Phillips, R., Easthope, H., & Memmott, P. (2010). Service Directions and Issues in Social Housing for Indigenous Households in Urban and Regional Areas (AHURI Positioning Paper No. 130). Melbourne: AHURI. Milligan, V., Phillips, R., Easthope, H., Liu, E., & Memmott, P. (2011). Urban Social Housing for Aboriginal People and Torres Strait Islanders: Respecting Culture and Adapting Services (AHURI Final Report No. 172). Melbourne: AHURI. Moran, M., Memmott, P., Nash, D., Birdsall-Jones, C., Fantin, S., Phillips, R., & Habibis, D. (2016). Indigenous Lifeworlds, Conditionality and Housing Outcomes (AHURI Final Report No. 260). Melbourne: AHURI. 256 H. PAWSON ET AL.

NATSIHA. (2018). Submission on the Closing the Gap Refresh: Targeting Housing and Homelessness [Internet]. National Aboriginal and Torres Strait Islander Housing Authority with National Congress. Available from: https://nation- alcongress.com.au/advocacy/wp-content/uploads/2018/10/NATSIHA- Submission-to-Closing-the-Gap-Housing-as-a-new-target-PUBLIC.pdf. Accessed 15 July 2019. Nous Group. (2017). Effcient System Costs of Remote Indigenous Housing [Internet] (Input into the Review of the National Partnership Agreement on Remote Indigenous Housing). Sydney: Nous Group. Available from: https://www.pmc. gov.au/sites/default/fles/publications/Nous-Group-Final-Report-Effcient- system-costs-of-remote-Indigenous-housing.pdf. Accessed 15 July 2019. NT Government. (2018). Our Community. Our Future. Our Home [Internet]. Darwin: Northern Territory Government. Available from: https://ourfuture. nt.gov.au/home. Accessed 15 July 2019. Pawson, H., Milligan, V., Wiesel, I., & Hulse, K. (2013). Public Housing Transfers in Australia: Past, Present and Prospective (AHURI Final Report No. 215). Melbourne: AHURI. Pawson, H., Parsell, C., Saunders, P., Hill, P., & Liu, E. (2018). Australian Homelessness Monitor 2018 [Internet]. Melbourne:PROOF Launch Housing. Available from: https://www.launchhousing.org.au/site/wp-content/uploads/2018/05/ LaunchHousing_AHM2018_Report.pdf. Accessed 16 July 2019. Pratt, A., & Bennett, S. (2004). The End of ATSIC and the Future Administration of Indigenous Affairs [Internet] (Current Issues Brief No. 4 2004-05). Canberra: Parliament of Australia. Available from: https://www. aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_ Library/Publications_Archive/CIB/Current_Issues_Briefs_2004_- _2005/05cib04. Accessed 15 July 2019. Productivity Commission. (2017). Introducing Competition and Consumer Choice into Human Services [Internet] (Inquiry Report No. 85). Melbourne: Productivity Commission. Available from: https://www.pc.gov.au/inquiries/ completed/human-services/reforms/report. Accessed 16 August 2019. Prout, S. (2008).REVISED The Entangled Relationship Between Indigenous Spatiality and Government Service Delivery (CAEPR Working Paper. Centre for Aboriginal Economic Policy Research). Canberra: Australian National University. PWC. (2007). Living in the Sunburn Country: Findings of the Review of the Community Housing and Infrastructure Programme [Internet]. Adelaide: PricewaterhouseCoopers. Available from: https://www.dss.gov.au/sites/default/ fles/documents/05_2012/livingsunburntcountry.pdf. Accessed 15 July 2019. Referendum Council. (2017). Final Report of the Referendum Council [Internet]. Canberra: Commonwealth of Australia. Available from: https:// www.referendumcouncil.org.au/sites/default/files/report_attachments/ Referendum_Council_Final_Report.pdf. Accessed 15 July 2019. 7 THE INDIGENOUS HOUSING POLICY CHALLENGE 257

Royal Commission into Family Violence. (2016). Summary and Recommendations (Final Report). Melbourne: Victorian Government. Sanders, W. (1993). Aboriginal Housing. In C. Paris (Ed.), Housing Australia (pp. 212–227). Melbourne: Macmillan. Sanders, W. (2008). Is Home Ownership the Answer? Housing Tenure and Indigenous Australians in Remote (and Settled) Areas. Housing Studies, 23(3), 443–460. Sanders, W. (2009). Ideology, Evidence and Competing Principles in Australian Indigenous Affairs: From Brough to Rudd via Pearson and the NTER (Discussion Paper No. 289/2009. Centre for Aboriginal Economic Policy Research). Canberra: Australian National University. Shelter SA. (2019). “I Am Tired of Being Treated Like a Second-Class Citizen!” Racial Discrimination in the Private Rental Market. Adelaide: Shelter SA. Solonec, T. (2000). Racial Discrimination in the Private Rental Market: Overcoming Stereotypes and Breaking the Cycle of Housing Despair in Western Australia. Indigenous Law Bulletin, 5(2), 4–6. Steering Committee for the Review of Government Service Provision. (2019). Report on Government Services, Part G: Housing and Homelessness [Internet]. Canberra: Productivity Commission. AvailablePROOF from: https://www.pc.gov. au/research/ongoing/report-on-government-services/2019. Accessed 16 August 2019. Towart, R., Griew, R., Murphy, S., & Pascoe, F. (2017). Remote Housing Review: A Review of the National Partnership Agreement on Remote Indigenous Housing and the Remote Housing Strategy (2008–2018) [Internet]. Canberra: Commonwealth of Australia. Available from: https://www.pmc. gov.au/sites/default/files/publications/review-of-remote-housing.pdf. Accessed 15 August 2019. Tually, S., Slatter, M., Faulkner, D., & Oakley, S. (2016). The Role of Private Rental Brokerage in Housing Outcomes for Vulnerable Australians (AHURI Final Report No. 263). Melbourne: AHURI. United Nations. (2007, September 13). United Nations Declaration on the Rights ofREVISED Indigenous Peoples [Internet] (Resolution adopted by the General Assembly). Available from. https://www.un.org/development/desa/indig- enouspeoples/wp-content/uploads/sites/19/2018/11/UNDRIP_E_web. pdf. Accessed 15 July 2019. Wensing, E., & Taylor, J. (2012). Secure Tenure for Home Ownership and Economic Development on Land Subject to Native Title (Discussion Paper No. 31). Canberra: Australian Institute of Aboriginal and Torres Strait Islander Studies. CHAPTER 8

Financing and Governing Affordable Rental Housing

8.1 Introduction This chapter examines contemporary government-led responses to the intensifying shortage of affordable housingPROOF set out in Chapter 3. The main emphasis is on recent endeavours to enable low cost (below-market) rental housing development using public subsidies and other incentives to leverage private investment, alongside adoption of new institutional and governance arrangements for affordable housing services. Government retreat from funding public housing (Chapter 4), declining affordability of and access to home ownership (Chapters 3 and 5) and market failure at the low cost end of private rental market (Chapter 6) have together contributed to a large and growing shortfall in housing affordable to lower-income Australians. While estimates of the extent of Australian households in need of affordable rental housing can be contestedREVISED (see Chapter 3), previous chapters have highlighted a signifcant and growing affordability problem, especially at the lower end of the income spectrum. Without a pro-active response, population growth alone will mean that this problem is likely to intensify. Projections of unmet need for affordable housing over the next 20 years range from around 20,000— 40,000 dwellings per year depending on the method of estimation used and the time period over which current shortfalls are assumed to

© The Author(s) 2020 259 H. Pawson et al., Housing Policy in Australia, https://doi.org/10.1007/978-981-15-0780-9_8 260 H. PAWSON ET AL. be addressed (e.g. Rowley et al. 2017; Lawson et al. 2018; Yates 2018; Troy et al. 2019).1 Over many decades the primary investors in rental housing in Australia have been individuals owning one or two dwellings (Chapter 6). While these small-scale investors have fnanced a steady increase in the national rental housing stock, the number both affordable by, and available to, lower-income households has been in continuous decline over 30 years (see Fig. 3.12). A further consequence (as discussed in Chapter 6) has been conditions of tenancy driven by investor requirements to facilitate ready realisation of capital gains. Over the same period, the modest level of government investment in social rental housing begun after WW2 has declined sharply (Chapter 4), as a result of neo-liberal policy agendas to expand reliance on market provision rather than state-provided services. One outcome of these housing system changes has been a search for new ways to enable affordable housing provision by non-government entities. The core shift in thinking embodiedPROOF here is the idea that, aided by appropriate public policy support, a much needed expansion of rental housing can be achieved through private investment and management by professional landlords; either for-proft or not-for-proft (NFP) (Crook and Kemp 2011). After providing defnitions of key concepts in Box 8.1, Sect. 8.2 discusses drivers of the shift to private fnancing of affordable housing. We then explain the basic design and operating principles of the affordable housing business model, including the role of public subsidy, and discuss key challenges to realising a sustainable affordable housing system built around public–private co-fnancing (Sect. 8.3). We next showcase international fnancing approaches and outline key institutional, regulatory and deliveryREVISED arrangements that have supported their implementation (Sect. 8.4). Section 8.5 traces the history and current status of Australian endeavours to adopt blended fnance models of affordable housing supply. In conclusion (Sect. 8.6) we briefy contemplate the state of play in Australia at the time of writing.

1 Making good such defcits might be achieved partly through methods other than state-supported provision of new social and affordable housing (e.g. via enhanced welfare beneft rates). As we see it, however, direct social/affordable supply would need to form a major component of any policy response. Australia’s current annual output of social/ affordable dwellings (around 3000) is barely adequate even to compensate for sales and demolitions in the existing stock (see Fig. 4.2). 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 261

Box 8.1 Defning key concepts Affordable housing and institutional investment In a broad policy sense, affordable housing refers to housing available for rent or purchase at a price related to a measure of affordability (see Chapter 3), and subject to regulation on which households qualify for occupancy. As used throughout the book, this defnition can cover public and community (social) housing, as well as rent-restricted private housing or shared ownership and low-income ownership options enabled through the use of public subsidy. In this chapter, however, we are focusing on contemporary policies aiming to promote an affordable housing asset class that will attract corporations (rather than individuals) to invest in affordable housing projects. Referred to as institutional investors, suppliers of fnance could include investment banks, unit trusts, superannuation funds or pension funds, insurance companies, non-fnance corporations, sovereign wealth funds and other government-sponsored enterprises (MilliganPROOF et al. 2013a). Financing and funding Although often used interchangeably, ‘fnancing’ and ‘funding’ have distinct meanings. Financing refers to a means of (or mechanism for) procuring housing by borrowing money from the public or private sectors. Funding enables the housing to be paid for, including both short- and long-term fnancing costs. Funding, therefore, is essential to support fnance. Equity and debt For residential development a source of long-term fnance is desirable to spread high upfront costs over the long life of the asset (and thereby utilise its attendant cash fows). This may come in the form of equity, which in this context refers to institutional investors taking on long-term property ownership and then leasing it to an affordable housing manager. However, because propertyREVISED is a relatively illiquid asset, equity investors may seek an additional return to compensate them for the added risk.2 Lack of market evidence on the fnancial performance of residential assets (returns versus costs) has meant that, in the past, institutional investors (and the external funds managers that advise them) have shown little interest in direct ownership of rental housing. Institutional investors also worry about

2 While this risk also applies to individual investors, the behaviour of small landlords suggests that they do not necessarily operate as strictly in accordance with market principles (Pawson and Milligan 2013). 262 H. PAWSON ET AL.

reputational risk linked with the possible need to evict tenants unable or unwilling to pay their rent. This reinforces their concerns about illiquidity, i.e. the ability to easily trade (‘cash in’) tenanted housing (Milligan et al. 2013a). Syndication Syndication refers to structured loan arrangements organised through an intermediary and involving a group of fnance suppliers.

8.2 the Shift to Private Financing of Affordable Housing Two concurrent sets of changes to offcial thinking and to global fnancial markets have largely driven the post-1980s policy goal to fnance affordable housing provision through institutionalPROOF investment.

8.2.1 Government Policy Context With the growing dominance of the neo-liberal policy paradigm from the 1980s (Chapter 2), many national governments retreated from direct housing investment in favour of market-based solutions. Thus, strategies to both transform existing public housing systems and to enable private and NFP entities to develop new affordable housing have been widely adopted, although to different extents internationally (Milligan and Gilmour 2012). Section 8.4 examines a selection of national fnancing and funding strategies that have been introduced across comparator countries. The followingREVISED policy justifcations for diversifying affordable housing provision models are typically cited, often uncritically. Quasi-Market Effciency Encouraging a ‘market’ in affordable housing offers a means of generating innovation and competition between suppliers and, thereby, promoting cost effciencies and improvements in tenant services. Reduction of Public Defcits In order to achieve ‘balanced budgets’ politicians argue that governments must reduce their direct expenditure and avoid debt. In the case of housing investment, the aspiration has been to replace 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 263 capital expenditure and public loans for public housing construction (see Chapter 4) with private fnancing of non-government entities, whereby debt lies ‘off budget’. Often, as further discussed below, this is supported by housing allowances enabling low-income tenants to afford rents com- mensurate with required investor returns. Leverage Scarce government subsidies can be stretched to achieve more value when blended with other (non-government) fnancial and non-fnancial resources, such as benefts derived from the kinds of planning policies discussed in Chapter 9. Investment Scale To address the signifcant shortfalls in affordable housing provision that have built up in many countries, and to meet forecast demand, a continuing stream of suitable investment will be required. As the necessary quantum is unlikely to be sourced from existing levels of individual investment or from disinclined governments,PROOF new sources of fnance at scale will be needed. Transformation of the Rental Offer Established rental housing fnancing approaches, such as Australia’s tax-enabled mum and dad investor model (described in Chapter 6), have not led to improved affordability outcomes. Advocates claim, therefore, that bringing long-term, yield-driven investors into the rental market could provide added benefts to tenants. According to Alakeson (2011, p. 14), “Institutions could [not only] support the necessary expansion of the [rental] sector… [but also] shift the nature of the product the sector is able to provide because long-term security for tenants translates into predictable returns for investors.” This would also have potential to foster growthREVISED of professional management services working in partnership with the investment sector (Pawson and Milligan 2013).

8.2.2 Financial Market Context Policymaker aspiration to stimulate institutional investment in affordable rental housing has intersected with major developments in global fnancial markets that have profoundly altered the investment environment for housing (discussed in Chapters 5 and 6). Positive developments with potential to stimulate a market for international and domestic institutional investment in affordable housing have included: the opening up 264 H. PAWSON ET AL. of capital markets, the large and growing volume of funds available (particularly in superannuation funds) and the growing attractiveness to such investors of the stable long-term returns that can be derived from rental income. The rise of social impact investing, described in Box 8.2, has also been viewed as offering further potential for funding affordable housing.

Box 8.2 Social impact investing Social impact investing (SII) refers to investment decisions motivated by achievement of a (measurable) social return as well as a fnancial return (Muir et al. 2018). Recent years have seen growing policymaker interest in fnding new sources of capital seeking social impact (i.e. beyond traditional philanthropic sources) to help fnance solutions to complex social problems, including in the housing feld. A feature of the SII model is linking fnancial returns to the social outcomes of investment. An underlying premise is that the returns for successful outcomes can be funded from downstream PROOFcost savings to governments. This makes SII a good ft, for example, for funding facilities and services needed to relieve chronic street homelessness that otherwise results in major costs for public services, especially justice and health (Parsell et al. 2017). Governments in Australia and abroad have put considerable effort into establishing frameworks for SII and supporting small scale or pilot projects to test and develop the concept.3 Potential investors are a subset of the array of possible institutional investors, especially strongly mission-oriented institutions (e.g. faith-based entities and organisations embracing sustainability and social responsibility goals), and those with a different risk return appetite (for example, favouring longer-term outcomes or valuing non-f- nancial benefts). Nevertheless, recent Australian research into the potential to attract such investmentREVISED at scale to affordable housing concluded cautiously: “[w]here it is implemented in the right conditions, SII has the potential to address some housing and homelessness issues in Australia. However, SII is not a panacea” (Muir et al. 2018, p. 1).4 So, while SII may offer a source of funding for affordable housing, signifcant additional sources of public and private fnance will be required to achieve supply at the required scale.

3 Muir et al. (2018, Appendices 1 and 2) provide a summary of international and national SII initiatives in the housing and homelessness felds. 4 For a similar conclusion about the potential for SII in the remote Indigenous housing context see Nous Group (2017). 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 265

8.3 the Affordable Housing Business Model The core business of an affordable housing supplier is to develop and manage appropriate housing priced within the means of those in need of it. Achieving a viable project is a complex policy and practical challenge, which is embedded in the tension between reducing the price of housing to an agreed affordability level and meeting all the costs incurred to acquire and maintain a good quality housing asset over its useful life. The challenges involved in achieving fnancial feasibility for affordable housing have typically resulted in multi-layered fnancing and subsidy arrangements. Complex governance and accountability arrangements are also usually implicated. Greater reliance on private fnancing of affordable housing adds to the cost of provision (because of associated debt repayment and interest charges). In principle, therefore, this approach works against the policy objective of affordability (Gibb et al. 2013; van Bortel et al. 2019). How effectively this tension is resolved in an affordable housing project will determine the minimum subsidy required andPROOF the level of affordability that can be achieved and maintained over time. Identifying the components of an affordable housing project helps to reveal the complexity of achieving its goals and points to the levers that may be brought to bear to reduce costs and improve affordability. Figure 8.1 is a generalised representation of the key costs and potential sources of fnance and revenue for the development and operation of an affordable housing project. Table 8.1 (Sect. 8.3.2) classifes the array of possible government funding inputs. Cross-subsidy and mixed tenure approaches A widespread practice of affordable housing developers is to offer a combination ofREVISED products within individual (multi-unit) projects and/or across their business more broadly. The typical product mix of an affordable housing provider could include social rentals, affordable rentals, shared ownership models (see Box 5.1) and dwellings to be sold at market prices.5

5 In the Australian context, social housing refers to dwellings that are allocated to a restricted band of low-income households who pay income-related rents. Affordable housing refers to dwellings rented at below-market level (usually 20–25% below) that are available to a broader group of low- and moderate-income households (see Chapters 1 and 4). 266 H. PAWSON ET AL.

'HYHORSPHQWSKDVH 2SHUDWLRQDO SKDVH

)LQDQFH VXSSOLHU 'HEW LQFHQWLYHV VHUYLFLQJ 'HVLJQDQG &RQVWUXFWLRQ RUSURYLGHU DQGRU FRQVWUXFWLRQ ORDQ VXEVLGLHV UHWXUQWR FRVWV HTXLW\ LQYHVWRU

7HQDQW UHQW *RYW VXEVLGLHV JUDQW DQGRU SULYDWH HTXLW\ 0DQDJHPHQW 5HQWDO DQGSURSHUW\ LQFRPH 3URYLGHU PROOFH[SHQVHV /DQG HTXLW\ FURVV VXEVLG\

)LQDQFH &RVW )LQDQFH &RVW FRPSRQHQWV FRPSRQHQWV FRPSRQHQWV FRPSRQHQWV

Fig. 8.1 Affordable housing project costs and fnancing mix (Actual fnancing and revenue mix will depend on the fnancing [debt and equity] and rent setting [cost, market or income-related] models that are used. Source Authors)

Each ofREVISED these products will have a different cost and revenue profle (Fig. 8.1). This business approach, thereby, provides a mechanism for internal (organisational or project) cross-subsidy: cash fows from higher yielding products provide a fnancing stream for higher cost products. However, affordable housing providers going down this route face attendant business risks. For instance, if housing market conditions deteriorate during the construction phase, completed dwellings may not fetch the prices (or rents) envisaged or might remain unsold for signifcant periods. Ultimately, such a scenario may leave a provider needing to absorb 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 267 substantial losses. The cross-subsidy approach also has implications for broader equity considerations. Nevertheless, successful ventures of this kind can reduce the direct costs to government of co-funding affordable supply. Wider social and community benefts of this approach may include (Randolph et al. 2018):

• Addressing the continuum of housing needs that in many places now extends across the low- to middle-income spectrum of households • Within that, assisting employers to procure lower-paid workers, who might otherwise be priced out of a major employment area by a lack of affordable housing nearby • Creating pathways for tenants whose income increases to switch tenure • Promoting socially integrated neighbourhoods where social/ affordable housing is indistinguishable from private housing (and thus not stigmatised). PROOF

Delivery Agencies Business operations will also be affected by the type of delivery organisation used. Internationally, NFP entities have been widely favoured as an autonomous organisational model for supplying privately fnanced, publically subsidised affordable rental housing. Not-for-profts are mission-driven organisations that apply commercial principles to their social purposes.6 In the housing realm, these centre on achieving sustainable housing, supporting tenants and helping to build stronger communities. In Australia, as in many other countries, NFPs bring fnancial advantages to the affordable housing business model, as developer profts can be foregone orREVISED reinvested in the organisation’s social purpose and organisations usually have charitable and tax-exempt status. Internationally, recent times have seen more for-proft providers establishing special purpose vehicles to take advantage of available subsidies or tax breaks (Lawson et al. 2018). Also evident here and overseas is a trend to collaborative approaches involving sophisticated

6 For further discussion of the NFP organisational form see Sect. 4.4.1. 268 H. PAWSON ET AL. partnerships within and between private, public and community organisations and actors (Pinnegar et al. 2011; van Bortel et al. 2019). These developments refect the evolution of a privatised system of affordable housing and signal possible future trajectories and new policy and regulatory tests for governments, as well as competition challenges for NFPs.

8.3.1 Impediments to Private Financing of Affordable Housing Notwithstanding the policy and fnance market developments described above, institutional investment in affordable housing has remained elusive in Australia (Pawson and Milligan 2013; Milligan et al. 2015; Newell et al. 2015; Rowley et al. 2016). The overriding obstacle to private fnancing at scale is the substantial gap between what affordable housing earns and what would constitute an adequate return to an investor, within the context of insuffcient public funding to bridge that gap. PROOF Establishing the necessary scale of government support requires the accurate quantifcation of the per dwelling funding defcit. This is infuenced by both cost and revenue factors. It also differs according to the fnancing model chosen, the location, type and size of property, the type of provider (for-proft or NFP) and the tenant cohort being housed (as regards their rent-paying capacity). Costs will also be affected by the scale and effciency of providers, among other factors. Section 8.5 includes an estimation of the funding gap under different fnancing scenarios in the prevailing Australian market and policy context.

REVISED8.3.2 Options for Funding the Gap Governments have a range of options for addressing the funding gap and overcoming other barriers to private investment. The main types of mechanisms operate in three broad ways: as capital support, revenue support or credit support (see Table 8.1). Examples of how these types of mechanisms have been combined and applied internationally and in Australia, respectively, are provided in Sects. 8.4 and 8.5. 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 269

PROOF Provision of zero cost or discounted land for development/redevelopment where governments are land holders. Leasing at a discounted rent or deferring land sale are also cost-reducing options. Capital grant or low cost public loans (‘soft’ loans*) to enable land purchase and/ or construction or acquisition Provision of direct subsidies to tenants boost their rent-paying capacity without compromising affordability incentives or subsidies paid to providers of/investors in affordableTax housing to reduce private fnance costs, especially in the early (high cost) phase of a project** privileges directed to registered such as exemp - (e.g. charitable) organisations, Tax tion from income and property taxes, to reduce operating costs, in return for dedicated affordable housing provision Issuing government-backed bonds or mortgage securities to channel desirable investment to affordable housing Guaranteeing (part of) the investment return (either on a bond issue or to individ - ual lenders) Creating reserve funds to be drawn on the event of borrower performance issues or defaults Facilitating scaled up investment through use of a specialised fnancial intermediary to aggregate and package demand for funds • • • • • • • • • Examples b ). *Soft public loans generally require less security than for private loans. **Containing the cost to gov -

REVISED al. 2013a , Government fnancial support for affordable housing One-off funding to underpin the construction/acquisition (non- operating) phase Often used to lever and secure other sources of funds Annual or otherwise regular payments to subsidise operations and/or long-term fnance costs May be directed to consumers or providers/investors or both Acting to underpin investment confdence and perception of risk by providing forms of government facilitation and/or underwriting of returns Passed back through lower cost fnance and more favourable loan terms and conditions Characteristic Capital support Revenue support Credit support Type of Type resource 8.1 Table Authors (based on Milligan et Source ernment over time relies on steadily rising wages and stable interest rates/operational expenditure 270 H. PAWSON ET AL.

8.3.3 Complementary Actions The extent of direct funding required to support affordable housing can be reduced by a variety of additional actions by governments and providers. Internationally, an increasingly common strategy for achieving well-located and integrated affordable housing employs planning policy levers. As detailed in Chapter 9, this involves using planning controls and incentives to achieve inclusion of dedicated affordable housing in new (primarily market-priced) residential developments ‘at cost’, or to obtain developer contributions in lieu. To further improve the fnancial feasibility of affordable housing and minimise public subsidy costs, governments can also help ensure that the construction and operating costs of developments are driven as low as possible and that revenue is sustainable. Encouraging a contestable market of providers, setting and monitoring cost benchmarks, regulating providers and reporting on their performance, streamlining the project development approval process7 and upholding appropriate (but cost-reducing) building and development standardsPROOF are demonstrated ways to promote an effcient affordable housing system. Although often subject to regulatory limitations, housing providers themselves can use their assets, reserves and surpluses to invest in additional housing. However, the potential for the NFP sector to contribute equity and take fnancial risk is contingent on having large and mature organisations with strong balance sheets and thus the capacity to spread risk across their whole portfolio and sources of revenue (Randolph et al. 2018). Another potential provider action arises from the capacity and skill of experienced and well-regarded affordable housing developers to seek out fnancing options across different spheres and entities of government,8 private fnanciers and other potential investors (e.g. social impact investors), and toREVISED broker a deal (ibid.). Supplementary ways for providers to reduce costs or increase revenue may include procurement effciencies (e.g. through bulk purchase), seeking charitable donations, sourcing a component of tenant

7 A prevalent obstacle to timely development approval is NIMBYism, which refers to community opposition to affordable housing being built in a neighbourhood (Not In My Back Yard). 8 Examples of public sources other than housing funds include regional development funds, sustainable development funds and allocations for special needs groups. 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 271 or community equity9 or investing surpluses accrued from proftable ventures (that is, applying cross-subsidies). Above all else, policy certainty and stability will be paramount to achievement of a sustainable affordable housing industry (or market place). A predictable policy environment is particularly important to larger, more sophisticated investors who prefer to make scaled up and diversifed deals and who seek ongoing investment opportunities (Milligan et al. 2015, 2017).

8.3.4 The Affordable Housing System Affordable housing is provided through a complex, interdependent system (or network) that comprises (or should comprise) (Milligan et al. 2009, 2017):

• A policy and resourcing framework aligned with public policy objectives and targets for affordable housing • A contestable delivery system usually involvingPROOF multiple independent providers, some proft driven, others NFP or mission-based • Predictable and secure sources of fnance and funding • Supportive polices that enable developer access to suitable land for affordable housing and timely development approval (see Chapter 9) • A specialised regulatory system to assure performance, and to safe- guard against industry malpractice and risky behaviour (see Chapter 4) • Specialist consultants and entities, such as intermediaries, that facilitate the work of affordable housing providers.

System Governance As impliedREVISED above, non-government affordable housing models are likely to present greater implementation challenges than traditional public housing. This requires governments to take a lead in enabling and building an effective affordable housing system. Key government roles include:

9 Some funding models incorporate a small tenant equity contribution. Governments may assist low-income tenants to make this contribution. Larger contributions may ultimately result in tenant purchase, e.g. via stepped shared ownership schemes (Monk and Whitehead 2010). There is also growing momentum around community-led housing, which attempts to harness community assets and social capital for affordable housing projects (for examples see van Bortel et al. 2019). 272 H. PAWSON ET AL.

• Setting and maintaining policy direction • Providing an assured pipeline of subsidies to underpin industry viability and growth • Stewarding system development by supporting capacity-building and institutional development as appropriate (particularly in a market’s nascent phase) • Ensuring suitable regulation that provides adequate assurance to all relevant stakeholders • Effective implementation of all government functions.

Overall, the effective operation of a country’s affordable housing system will depend not only on funding and fnancing mechanisms, but also on the quality of political leadership, the supporting policy and regulatory frameworks, and the institutional and organisational capacities within the industry. Beyond the internal functioning of the system itself, the way the wider housing market operates in terms of its effciency and effectiveness will be fundamental. When there is marketPROOF failure of the kind documented throughout this book, both the need for, and cost of supplying, affordable housing will increase.

8.4 International Financing Models and Trends

8.4.1 Selected International Models of Co-Financing Social/ Affordable Housing Supply In this section, we draw on an extensive corpus of comparative research by the authors and colleagues to provide an illustrative overview of the different ways that a wide range of comparator countries have developed fnancing modelsREVISED for affordable housing by combining private fnancing and public investment/subsidy. The country descriptions highlight the key fnancing mechanisms used to obtain new affordable housing supply, along with those supporting fnancial and non-fnancial mechanisms that help to promote viable schemes. The time periods of the various initiatives extend from the 1990s to the present. Austria: Structured Financing Model In Austria affordable housing supply is fnanced by a combination of low interest public loans and grants and private fnance raised via tax-privileged medium- to long-term Housing Construction Convertible Bonds that were introduced in 1994. Supplementary 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 273 sources of fnance include provider surpluses, a tenant equity component and access to lower cost land that is facilitated by municipal land policy and land banking. Delivery is via tightly regulated ‘limited-proft’ housing associations that charge cost rents and reinvest surpluses in additional supply (Lawson et al. 2010; Lawson et al. 2012; Mundt and Amann 2019). Denmark: Debt Finance Model Plus Revolving Fund Affordable housing in Denmark is provided by long-established housing associations (HAs) which are fnanced by a private sector loan (84%) supplemented by a small capital grant (14%) and a tenant contribution (2%). Municipalities guarantee loans to reduce fnance costs and a revenue subsidy is paid in early years to help contain rents. A long-established (1967) contributory National Fund for Non-Proft Housing Associations (LBF10) is governed by the sector and regulated by government. This fund was initially used to equalise rents between properties with different underlying debt profles, but as HAs have grown, pooling of expanded surpluses has assisted the sector’s fnancial autonomy. LBF uses fundsPROOF to help pay for dwelling modernisation, area regeneration and new-build (Gibb et al. 2013). England: Balanced Funding Mix Model, Post-2011 Private Equity Model From 1989, English housing association developments were fnanced by a well balanced mix of government grant, mortgage fnance and developer contributions, typically in the form of free land (Box 9.5). Providers’ rent revenue streams were supplemented by a generous housing beneft payment to offset fnance costs. A fnancial aggregator, The Housing Finance Corporation, established in 1987, has assisted provider fund-raising. Post-2011 austerity, coupled to post-GFC market conditions, led to more restricted housing beneft and lower developer contributions.REVISED A new ‘affordable rent’ (AR) product, equating to 80% of market levels, replacing ‘social rent’ (equating to 40–50%) was also introduced to stretch much-reduced public subsidy. Conversion of existing dwellings being re-let from social to AR status was also used to help cross-subsidise new AR construction. Large and fnancially strong HAs increasingly draw on their own resources and partner with individual institutional investors offering equity (a sale and lease back model) or private placements, and cross-subsidise social and affordable housing via market rate housing development. Capital market bond fnancing (priced at a small margin over the 10-year gilt rate) has also expanded rapidly

10 Acronyms used in this section are derived from the local language institutional names. 274 H. PAWSON ET AL. post-GFC, following bank retreat from the long-term debt market.11 To stimulate supply some bond issuances have been government guaranteed (Gibb et al. 2013; Milligan et al. 2015; Perry 2019). France: Savings Scheme Model A tax-free public savings scheme (Livret A) provides loan funds for Habitation à Loyer Modéré (HLM) NFP organisations that offer housing at moderated rents across France. HLMs are supported by other state/ local subsidies, land provided by local authorities and developer contributions. A 1% housing construction tax on employers provides a second dedicated source of funds for social housing (Lawson et al. 2010). Finland: Regulated Co-Financing Model with Land Leases Government guarantees are provided on loans approved by the Housing Finance and Development Centre of Finland (ARA), the majority of which come via the public fnance intermediary, Munifn, which has a strong track record in long-term, low cost fund-raising. Sliding grants of 10–50% of production costs are also provided to accommodatePROOF specifc vulnerable groups with different needs, sourced from the off-budget Housing Fund of Finland. Land for social housing is leased, reducing upfront costs. Delivery is through regulated municipalities and NFPs (Lawson et al. 2018). Germany: Social Market Model, Post-2002 Private Equity Model For many decades, the German Government operated a system of public loans and taxation incentives to promote supply of rent-regulated housing by diverse private landlords and municipal housing companies (MHCs). After 2002, housing responsibilities were devolved to states and municipalities, and the federal government limited its assistance to housing allowances. As previous supply-side subsidy programs expired, rents were deregulated. Lack of fnancial viability has subsequently prompted REVISEDmany MHCs struggling to maintain affordable rents to sell stock to global fnancial investors and domestic real estate investment consortia seeking their large, well-maintained assets. As the social contracts for these houses have expired or were not enforced, new owners have increased rents, sold high-quality stock and encouraged sales to tenants to meet promised investor returns. This rapid large-scale privatisation (of 1.5 million homes) has sparked protest movements in large cities,

11 It has been reported that capital markets’ fnance and private placement facilities to the UK affordable/social housing industry exceeded £19 billion by 2016 (A$35.4 billion) (Bleby 2019). 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 275 triggered buy-backs by some MHCs and reinvigorated policy debate on the role of government subsidy and regulation in private fnancing of affordable housing (Pawson et al. 2011; Lawson et al. 2016). The Netherlands: Capital Market and Asset Driven Model After 1995, the Netherlands replaced public loans and grants for affordable housing development with guaranteed capital market loans raised by HAs (see Box 4.4). A government/HAs jointly enabled guarantee fund (WSW) and Central Fund (CFV) respectively provide loan security and assist in reducing fnance costs. A generous housing beneft scheme helps offset HA costs. Asset-rich and market-powerful HAs have been encouraged to draw on their land banks and surpluses as sources of equity and cross-subsidy (from high-end market developments). However, following a series of fnancial scandals and European Union challenges to their tax-privileged status, HA for-proft activities have increasingly been restricted in the 2010s. Land for affordable housing development may also be set aside by municipalities (Lawson et al. 2010; Nieboer andPROOF Gruis 2016). Scotland: Balanced Funding Mix Model Since 1989, the fnancing of HA development in Scotland has involved government grants matched by loan fnance supported by rental income streams. Increasingly under autonomous government from 1999, Scotland’s social/affordable housing policy trajectory has diverged from that of England. In 2009, the Scottish Government revived local authority (LA) house building, albeit on a limited scale, by broaden- ing grant eligibility to LAs, supported by cross-subsidy drawn from the entire LA rent base. To stretch public subsidy further, HAs have subsequently been required to adopt a similar fnancial model. Since 2014, Scottish governments have not only maintained relatively high grant ratesREVISED (enabling the continued development of social housing at traditionally low rent levels), but, in the face of UK-wide austerity, have also allocated capital funding suffcient to meet demanding social and affordable house building targets (Pawson et al. 2011; Perry 2019). Switzerland: Cooperative Bond Finance Model Affordable housing in Switzerland is delivered through an extensive network of NFP cooperatives. To promote their access to private loans, the cooperative sector and the Swiss Government jointly established a bond-issuing cooperative (EWG) in 1991. Government backing for the EWG assists cooperatives to secure lower cost fnance. Typical projects involve commercial loans, loans from the EWG, revolving loans, special 276 H. PAWSON ET AL. purpose grants (e.g. to promote energy-effcient design) and member equity, supported by municipal urban policy and land banking. A sector members’ fund based on a levy per dwelling can issue small loans. Rent policy allows landlords to raise rents to recover costs, including fnance costs (Lawson et al. 2010). United States: Private equity model In the United States, the Low-Income Housing Tax Credit (LIHTC) has been a national mechanism for attracting private corporate investors to affordable housing since 1986 (Box 8.3). For-proft and NFP developers compete for an annual round of ‘tax credits’ allocated by states on different terms and priorities within broad national rules. The equity fnance raised by syndicated sales of credits is complemented by various other project subsidies (soft state loans, allocations from state block grants, planning contributions in some cities) and by mortgage fnance. A tax-exempt bond program also complements the LIHTC. The Housing Choice Voucher Program (the US housing allowance scheme) provides further fnancial support for lettings to very low-incomePROOF households, although rent vouchers are severely rationed (Schwartz 2010; Pawson et al. 2011).

8.4.2 Features of International Models As illustrated by the country examples above, contemporary approaches to attracting private fnance to affordable housing involve many different policy strategies and are characterised by increasingly diverse and dynamic partnerships between public, private and NFP institutions and actors. Each particular approach or model exemplifed has been developed in a distinctive domestic housing market and institutional context (i.e. a particular housing system) that helps to shape (or constrain) the policy options that are feasibleREVISED and realistic. There are, nonetheless, some common features and trends that can be discerned from comparing national approaches. In nearly all the selected cases, affordable housing providers are supported by a layered assortment of subsidies. The main elements of the subsidy mix and their key functions are set out below.

i. Income support targeted to lower-income tenants to boost provider rent revenues and thereby help cover the cost of fnance. In countries with long-standing housing allowance schemes, such as the UK and the Netherlands, this has enabled substantial levels of private fnance to replace former public fnance. Less 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 277

adequate subsidies reduce the potential for private fnancing or lead to higher rents. Deeper subsidies can help to ensure that very low-income groups are not excluded from affordable housing schemes. ii. Tax concessions for affordable housing investors to reduce their yield requirements. These may be targeted to individual (household) investors (as in the French and Austrian models) or institutions and corporations (as in the United States). iii. Upfront capital grants to reduce the necessary level of private fnancing.12 Although more restricted than historically, most national systems still include some grant funding provision. This may be limited to specifc products, e.g. accommodation meeting special needs, or to achieve more energy-effcient housing.13 iv. The widespread use of government guarantees and other forms of credit support to draw desired lower-yielding investment into the affordable housing industry.14 v. Use of government or quasi-governmentPROOF fnancial intermediaries to enhance the credit-worthiness of the affordable housing asset class and to aggregate funding demand from small players. vi. Leverage of assets and revenue surpluses that build up in an expanding and scaled up affordable housing industry. The benefts of this are most evident in historically large and mature systems, such as those in the United Kingdom and the Netherlands, but can also be fostered and progressively achieved through pooling and accumulation of resources, as in Denmark. vii. Government land grants and set-asides, land banking and interventions via the planning system. This kind of lever enables affordable housing providers to access development sites at lower costREVISED (see Chapter 9).

12 A 2018 Australian study made a strong case for governments to return to providing higher levels of public grant funding by demonstrating this to be more cost-effective over the lifetime of the asset than placing too much reliance on recurrent subsidies that support returns to private fnance sources (Lawson et al. 2018). 13 In Australia, one of the early movers into lending to community housing providers (CHPs) was the national government’s Clean Energy Finance Corporation, which in 2016 announced a $250 million loan program for CHPs to help develop energy-effcient affordable housing (CEFC 2016). 14 Lawson (2013) provides a detailed review of the operation of guarantees in a range of countries. 278 H. PAWSON ET AL.

Box 8.3 US Low-Income Housing Tax Credit The 1986-founded LIHTC scheme is a public fnancing mechanism intended to channel private investment into low cost rental provision as an alternative to public housing programs and other federal rental housing subsidy programs abolished around that time. Subsequently, it has achieved strong bipartisan political support and is backed by a broad coalition of for- proft and NFP developers, banks, other fnancial institutions, corporate investors and professionals (Cadik 2018). By 2017, LIHTC had facilitated the development of 2.97 million privately provided affordable rental dwellings nationwide (representing about 2.2% of all US dwellings) and leveraged around US$100 billion in private investment. The annual cost of foregone tax revenue was approximately US$8 billion in 2017 (Blessing 2019, p. 215 quoting US Department of Housing and Urban Development). The LIHTC has operated in tandem with the 1976 Community Reinvestment Act (CRA), which requires all deposit-taking institutions “to meet the credit needs of the communities in PROOFwhich they operate, including low- and moderate-income neighbourhoods” on a continuing basis (Blessing 2019, p. 220 quoting the CRA). Since its advent, purchasing LIHTC has proved to be a key means of banks meeting this regulatory obligation. Through a secondary market, tax credits are typically exchanged by developers for upfront equity to enable dwelling construction or refurbishment. This equity injection effectively acts to reduce the borrowing requirement for affordable housing projects. Equity investors, mainly banks and private corporations,15 can claim their credits over a 10-year period, but must retain ownership for 15 years. However, dwellings must retain affordable status (i.e. meet occupancy and rent pricing rules) for at least 30 years (longer in some states). After year 15, properties can be on-sold toREVISED a purchaser agreeing to maintain affordability for the balance of the prescribed affordability term. Effectively, this insulates the housing from market forces and preserves affordability over that period.16

15 A post-GFC infux of corporations buying LIHTC occurred, as yields in other investments declined. 16 The Inland Revenue Service is responsible for tax credit compliance. States/local government may regulate other matters, usually as a condition of their funding contributions. Self-regulation is promoted by the equity investor’s need to ensure the provider’s ongoing compliance with the rules applying to payment of each year’s tax credit. 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 279

Developers holding tax credits are required to achieve 30% affordabil- ity17 for either at least 20% of units being affordable for households earning up to 50% area median family income, or at least 40% of units being affordable for households earning up to 60% area median family income. In practice, most project units are dedicated to eligible households to achieve maximum tax credit. This usually means that additional funding will be required to meet rent policy goals. The scheme has been commended for a number of its features. A wide variety of projects responsive to local needs has emerged through the involvement of US states in the allocation of credits. Intense competition for tax credits has engendered strong innovation and driven effciency as the market matured, and the complex nature of deals has promoted long- term collaboration between investors, for-proft and NFP developers. A government-maintained comprehensive and publicly accessible database has empowered advocates, and promoted public accountability and independent research and evaluation (Blessing 2019). Critical views include those concerning the scheme’s complexity, leak- age of funds to a plethora of consultants and intermediariesPROOF that structure project deals, limited access for very low-income households, the volatile supply and cost of credits (which is subject to fnance market conditions) and, above all, questions about its cost-effectiveness vis a vis a public housing comparator. Nevertheless and in the absence of investment in public housing, as argued convincingly by Blessing (2019, pp. 224–225), the LIHTC program (operating in synergy with the CRA) has been institutionally structured, effectively combining incentives, rules, regulatory powers and competitive pressures (‘carrots and sticks’) to enable an enduring sophisticated private market in affordable housing to embed itself in the United States. REVISED 8.4.3 Lessons from International Practice It is beyond the scope of this chapter to offer a detailed evaluation of the various country schemes described in Sect. 8.4.1. References cited in that section provide leads to information about the performance and impacts of featured systems. Key questions to be asked of the research evidence include:

17 This refers to the percentage of the qualifying area median family income to be recov- ered in rent. 280 H. PAWSON ET AL.

• What is the scale of impact of the funding model? (e.g. how much housing is being produced) • What is the impact on housing affordability? • What other desired social, economic and environmental benefts are being achieved? • Is government getting value-for-money? (i.e. subsidy costs effectively minimised) • Does the level of affordability on offer align with the pattern of need for housing? (e.g. the housing is affordable to those on low incomes and the housing is located where needed) • Is the model sustainable? (e.g. affordable rents are being preserved over time and the dwellings are being maintained effectively) • Is the model robust? (i.e. there is strong continuing political commitment and administrative capacity, and the funding model is adaptable to housing market cycles and dynamic fnance conditions) • Are unintended consequences arising? (e.g. negative impacts elsewhere in the housing system, such as crowdingPROOF out new supply that would otherwise occur through the market).

Bearing in mind these questions and the guiding principles for designing and governing a robust affordable housing system as set out earlier, some cautionary lessons that emerge from the case study review are identifed below. Following this, in Sect. 8.5 we give further consideration to the Australian context and the choice of mechanisms and supporting policies suited to increasing local supplies of affordable rental housing. Under co-fnanced regimes, there has been a tendency for rent levels to be higher than for traditional public housing. However calculated (see Box 4.3), affordable rents typically fall between public housing rents and market rents.REVISED Especially in high cost (more desirable) locations, this may be unfavourable to access and affordability for very low-income households unless compensatory rent assistance is also provided. Accompanying any subsidies, clear ‘rules of the game’ regarding policy objectives need to be established (preferably in legislation), and enforced. Access and affordability (and other social objectives) may be eroded if governments fail to maintain adequate regulatory controls, particularly oversight of costs, rents and standards. Stable, well-regulated systems like those of Austria, France, Denmark and Switzerland have performed well over time by building ‘system legitimacy’, enhancing system capacity and maintaining government ‘skin in the game’. 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 281

Where, on the other hand, public policy supports or regulation are weakened, such as has occurred in different guises in England, the Netherlands and Germany, a rapid deterioration in supply and affordability may result. More complex systems, such as the syndicated US LIHTC model, have more inbuilt risks and higher transaction costs, which can under- mine value-for-money. Maintaining competitive resource allocation helps drive effciency but overly transactional models should be avoided. High yielding private investment is incompatible with producing affordable housing for low-income groups. Minimising the cost of fnance is essential to narrowing the funding gap (and cost to government) while, at the same time, delivering affordability. The potential for achieving a low cost housing fnance model at scale has been demonstrated by several proven fund-raising systems developed over the long term, e.g. England and the USA (see Berry et al. 2004; Lawson et al. 2010). Not-for-proft ownership of affordable housing (within a regulated framework) supports retention of the social benefts created by public subsidies and promotes a capacity to recycle assetsPROOF and reinvest surpluses. By contrast private equity models raise questions about the long-term ownership and control (and thus social beneft) of the housing that is produced with public subsidy.

8.5 affordable Housing Financing in Australia

8.5.1 Past Attempts Australia has a chequered history of small scale and one-off attempts at fnancial innovation in the non-government provision of affordable housing. From the 1980s, diverse schemes were considered by individual jurisdictionsREVISED and occasionally by national government. Only a few came to fruition, however, and none achieved scale until the 2008 National Rental Affordability Scheme (NRAS).18 In addition to widespread historic barriers to institutional investment (see for example Crook and Kemp 2011; Milligan et al. 2013a), the scale and fragmented nature of the policy initiatives on offer and poorer rates of return on rental housing in Australia (at a time of generally buoyant investment conditions) have been identifed as contributing local factors (Berry 2000).

18 Berry (2000) and Milligan et al. (2004, 2009) provide summaries of the models that were attempted and foated up until the mid-2000s. 282 H. PAWSON ET AL.

Arising from concerted advocacy over several years by the wider policy community and housing industry stakeholders (see Milligan and Tiernan 2011), Australia’s frst large-scale national initiative, NRAS, was launched in 2008. A core objective was to create a new residential asset class suited to large-scale investors (Plibersek 2008). Box 8.4 outlines the design of NRAS, and tracks its evolution and demise. Following the 2014 abandonment of NRAS, the prospects for private investment in affordable housing in Australia have remained generally unfavourable. Without some form of fnancial incentive and other supporting policy measures, affordable housing provision is predicted to further decline; as many NRAS properties (especially those owned by mum and dad investors19) successively revert to market housing, while opportunities for new development remain sporadic and small scale. A 2017 count of total planned additional affordable and social housing supply across all jurisdictions identifed government-funded plans for just over 33,000 additional dwellings between 2015 and 2020 (Milligan et al. 2017, Appendix 1).20 A replacement for NRAS, with a target provisionPROOF of 250,000 dwellings over 10 years to be supported by annual revenue subsidies for investors, was foreshadowed by the federal opposition (the Australian Labor Party) in the 2019 national election, which was subsequently won by the incumbent Government (the Coalition parties) with no similar plan for affordable rental housing investment (Grattan 2018).

Box 8.4 The National Rental Affordability Scheme 2008–2014 NRAS offered a 10-year indexed21 tax offset to private investors, or an annual cash payment to charitable organisations, to construct rental housing. Matched direct or in-kind assistance valued at one third of the tax credit’s annual valueREVISED was provided by state/territory governments. In return, NRAS providers were required to rent the dwellings built for an equivalent period to income-qualifed households for no more than 80% of market rent. At its 2008 initiation, a four-year construction program of 50,000 dwellings was envisaged. This was later rescheduled over six years, but

19 A component of dwellings owned by NFP developers are expected to be retained as affordable housing. 20 This estimate did not allow for the loss of affordable rentals from 2019 through the progressive expiry of NRAS subsidies. Specialist disability accommodation (see Sect. 8.5.2) was not included. 21 The subsidy is indexed according to movements in rents. Its value in 2019 was $11,248 per dwelling (DSS 2019b). 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 283

following a slow start in the context of the GFC, teething problems and a change of government, the program was cancelled in 2014. In all, provision for 37,806 homes has been made under the now closed scheme (DSS 2019a). The last tax credits will be paid in 2027/2028, and by then, many of the homes built will have reverted to market rent and/or been sold. This contrasts with the LIHTC (on which NRAS was loosely based) where affordability is generally preserved for 30 years (Box 8.3). A core NRAS objective was to create a new residential asset class for large-scale investors. By 2014, while superannuation funds had engaged strongly with assessing the scheme and several claimed to be ready to buy-in, none had actually done so (Milligan et al. 2015). A combination of policy design, administrative and contextual factors constrained achievement of this objective and contributed to the scheme’s underperformance generally.22 One key lesson was that insuffcient time was allowed for a market in NRAS to emerge. “Super funds were concerned about deciding to invest in a new asset class utilising NRAS … [in case it turned out to be] a one-off ven- ture with no predictable trail of subsequent investments.PROOF The abrupt cessation of NRAS vindicated this concern and set back trust in government” (Milligan et al. 2015, p. 24). This also contrasts with the evolution of the LIHTC, which, established under a Republican President, and once confrmed by Congress in 1993, achieved support from a wide coalition of interests. The investment models that did proceed under NRAS were of three main kinds (Milligan et al. 2013a): • Equity investment from individual investors who used the tax offset, coupled to other available tax concessions (see Chapter 6) to grow their investment returns • Debt-financed projects initiated by NFP providers, utilising the annual NRAS cash payment (and whatever other financial support theyREVISED could obtain) to assist them to service mortgage-backed loan finance raised through commercial banks23 • Student housing developments on university-owned land where NRAS provided a partial offset for development fnance costs.

22 For more details, see Milligan and Tiernan (2011), The Auditor-General (2015), Milligan et al. (2015), and Rowley et al. 2016. 23 Chapter 4 discussed how NRAS assisted the growth of larger NFP housing organisations over this period. In total, 53% of all NRAS incentives were allocated to charitable organisations (DSS 2019a). Project level examples of how NFPs utilised NRAS can be found in Wiesel et al. (2012) and Randolph et al. (2018). 284 H. PAWSON ET AL.

While these models enabled NRAS to start up, the effcacy and effectiveness of several aspects have been questioned. Criticisms include (Rowley et al. 2016; Coates and Horder-Geraghty 2019; Nygaard 2019): • Individual private investors received pecuniary benefts that were well in excess of the rent discounts they were required to offer • At 80% of market, rent levels were generally not low enough to reach those in greatest need • The standard rate of subsidy that applied across Australia created an incentive for private providers to maximise their return by building lower cost (smaller) dwellings in lower value areas • University-initiated student housing projects could have been achieved without NRAS. These are important lessons for the design of any future program. PROOF 8.5.2 Post 2014 National Initiatives Commencing with the 2017 Budget there has been some national government acknowledgement of the need for additional measures to address Australia’s affordable housing shortage. One of the ensuing measures, established in July 2018, is the National Housing Finance and Investment Corporation (NHFIC) (see Box 8.5). Its Bond Aggregator function is an important institutional development with potential to emulate overseas approaches to assisting NFP developers to obtain lower cost fnance to support whatever affordable housing projects they can initiate. Nevertheless, as offcially acknowledged by Australian Treasuries and the Australian Parliament, achieving material but small savings in community housingREVISED provider (CHP) fnancing costs through the Affordable Housing Bond Aggregator (AHBA) will only go part way to addressing the current funding gap, which will require further ongoing support from all levels of government (AHWG 2016; AHWG 2017; The Senate Economics Legislation Committee 2018, paragraph 2.43). The Australian Government also supports incentives for foreign corporations, non-residents and individual domestic investors in affordable housing. For overseas investors, a concessional withholding tax rate of 15% (rather than 30%) applies to income derived from Managed Investment Trust structures (see Sect. 6.3.3) for qualifying affordable 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 285 rental housing (under the management of a CHP) and disability housing. Income tax deductions to offset foregone revenue apply when individual investors let their properties at below-market rents.24 The government has not provided any estimate of the cost of these measures, suggesting they may have little impact (Treasury 2017). Another pathway for kick-starting institutional investment may arise under Australia’s National Disability Insurance Scheme (NDIS).25 While NDIS is largely a funder of support services for people with disability (but not their housing), the scheme includes a program, Specialist Disability Accommodation (SDA), that offers subsidies for the construction and upkeep of accommodation for people needing specialised housing solutions to cater to their extreme functional impairment or very high support needs (National Disability Insurance Agency [NDIA] 2017, p. 4). Considerable growth in SDA supply is anticipated with a target of 14,000 additional bedrooms (i.e. not dwellings) over 10 years from 2017,26 and further growth subject to demand (Connellan 2018). Replacing largely government-run accommodation,PROOF the SDA payment system is intended to develop a market in specialist accommodation provision by offering an assured recurrent subsidy to investors and their property managers. The SDA Pricing and Payments Framework sets out the rules and price benchmarks (varied by location, building type, building components to address disability requirements and other factors) that will be the basis for the payments to be made (NDIA 2019). The subsidy is intended to cover the effcient cost of providing appropriate accommodation over its full life cycle (that is, establishing, operating and replacing the accommodation) after accounting for a reasonable rent contribution from the

24 A proposalREVISED for resident investors to receive an additional 10% discount on realised capital gains (above the 50% reduction that applies generally) for property used as affordable housing (as certifed by a CHP manager) for at least 3 years lapsed at the end of the 44th Australian Parliament (May 2019). 25 Commencing in 2013, NDIS is Australia’s ambitious social insurance scheme for people with permanent disability. The foundation principle of the scheme is that individuals with disability be given maximum opportunity to exert control over the design and delivery of their support. Under the NDIS, disability funding will increase from $12 billion (under previous largely state-based programs) to $22 billion (Connellan 2018, p. 14.) 26 There is also provision for transitioning around another 14,000 existing specialist accommodation bedrooms into the new regime. Bedrooms will typically be provided in group homes. 286 H. PAWSON ET AL. resident and land price infation. In this respect, although SDA will be a specialised asset, the way it is funded may offer an instructive prototype for a possible future affordable housing pricing and payment regime. Noting that it is early days, SDA is reported to have attracted substantial interest among the property sector, large fnancial institutions, specialist fnancial institutions, CHPs and disability service providers (Beer et al. 2019). Initial stakeholder feedback suggests that the funding levels on offer will support commercially viable projects once administrative and eligibility processes, funding rules and risk allocations are further clarifed. This should then enable a depth of market interest to emerge (ibid.).

Box 8.5 The National Housing Finance and Investment Corporation The National Housing Finance and Investment Corporation (NHFIC) is a statutory entity with the purpose to attract cost-effective private fnance from capital markets into affordable housing, andPROOF is similar to the fnancial intermediaries operating in the UK, Austria, Finland and Switzerland over the last thirty years. Its inaugural core roles are to administer the National Housing Infrastructure Facility (NHIF) and the AHBA (National Housing Finance and Investment Corporation Act 2018 No. 65). The NHIF will provide fnancial assistance of up to a total of $1 billion, mainly in the form of concessional loans and grants to state and local governments and to CHPs to help fnance housing-related infrastructure with the potential to reduce bottlenecks impeding the supply of new housing. Of more direct relevance to fnancing affordable rental housing, the AHBA will aggregate the lending requirements of multiple CHPs and issue bonds to raise the requisite fnance. By borrowing at scale and initially backed by a government guarantee,27 NHFIC is intended to drive effciencies and cost savings in the provision of affordable housing by CHPs (see also Sect.REVISED 4.4.2). The entry of this entity into the fnancial system is also seen to have potential to enhance the historically small Australian bond market, especially by encouraging investors to support social bonds (EY 2017, p. 12). NHFIC’s successful frst bond, which closed in March 2019, has been claimed in the fnancial press to represent a key step towards building a

27 Until 2023, all payments due to NHFIC will be guaranteed by the Australian Government. Further application of a guarantee will be considered as part of a review of NHFIC after three years of operation. 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 287

new investment asset class for affordable housing in Australia (Bleby 2019). From this issue, $315 million in debt was raised from 26 domestic and international investors with demand for the bond exceeding initial requirements fourfold. The government guaranteed 10-year bond was priced 48 basis points above government bond yields. The funds raised are being on-lent to CHPs at price 150–200 basis points below current bank-issued loans (ibid.). The ensuing savings will enable recipient CHPs to repay existing debt and develop new housing. Regular bond issues are anticipated.

8.5.3 Post-2014 State Initiatives In the absence of a national plan for the expansion of social and affordable housing post-2014, two state governments opted to experiment with small-scale programs of private provision. Conceived as a contract for service outcomes (rather than infrastructure),PROOF these initiatives place full responsibility for property and tenant services with private providers (Infrastructure Partnerships Australia 2015). Under the frst such program, the 2016 NSW Social and Affordable Housing Fund (SAHF),28 private consortia (necessarily including a registered CHP) tendered under a public–private partnership (PPP) procurement model to deliver ‘accommodation services’ and a range of other social outcomes (e.g. improving tenant employment prospects) linked to new social (70%) and affordable (30%) housing supply to be owned or leased by the consortia. Funding for the 25-year service payment regime is being derived from returns from a $1.1b endowment fund operated by the NSW Treasury Corporation so that the cost of meeting the funding gap via SAHF isREVISED ‘off-budget’. Procurement offers of 3530 dwellings have been achieved against a target of 3400 (Family & Community Services 2019). To achieve optimal leverage of the available SAHF funding, consortia were expected to offer a concession, preferably utilisation of their own land for development. Refecting this objective to unlock surplus land, we calculate that over 60% of the dwellings accepted have been proffered by land-rich faith-based organisations. Institutional investors on the other hand have been deterred by the lack of certainty about the program’s

28 See Social and Affordable Housing Fund Act 2016 (NSW). 288 H. PAWSON ET AL. future and the unsuitability of a land ownership model to their investment preference for cash fow (rather than capital gain) based return (from interview with large investment broker). Few other details of the ‘commercial-in-confdence’ fnancing deals underpinning the successful tenders have been made public. The deals predated NHFIC’s frst fund raising, but refnancing through NHFIC is an option. A similar approach to private provision of social housing is being taken in Victoria using the Social Housing Growth Fund (for details see D’Ambrosio 2019). It is too early to assess the merit and future of these small programs. Early concerns expressed in NSW have included prohibitive bid costs, high transaction costs related to government’s extensive contractual oversight requirements, lack of transparency around pricing, limitations linked to requirements for partner concessional contributions, and questions about long-term cost effectiveness. Neither program will provide an enduring supply of affordable housing and, furthermore, is not likely to be replicable given that each relies on a one-off endowment fund. Most Australian state and territory governmentsPROOF have also been pursuing social housing refurbishment and replacement on existing public housing estates by utilising asset recycling and densifcation strategies. The largest and most ambitious of these programs, ‘Communities Plus’ (NSW) promised replacement of 17,000 public housing dwellings with 23,000 new social and affordable housing dwellings (a prospective net gain of 6000) in mixed tenure developments over 10 years from 2016 (see Sect. 4.3.7). By 2019, however, no projects had commenced, most likely due to a range of factors including project complexity, development approval delays and deterioration in conditions for private investment in residential. Such programs are attractive to state treasuries because of their ability to derive funding from otherwise un-utilised land value, and therebyREVISED defer demand for general government revenue. However, they do not offer a sustainable way to achieve social/affordable housing growth, because only a fnite number of existing sites are amenable to the scale of densifcation that would be required to cover the cost of the additional housing (i.e. after replacement of existing dwellings).

8.5.4 The Funding Problem in Australia As a rule, the costs of procuring and maintaining affordable housing (including meeting fnancing costs) will exceed the revenue produced where rents are set at a concessional level to achieve affordability for 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 289 lower-income households (see Sect. 8.3.1). This so-called ‘funding gap’ can be bridged by application of the kinds of policy interventions clas- sifed in Table 8.1 and highlighted in the overseas working models presented in Sect. 8.4.1. In Australia, it is clear that prevailing (post-NRAS) national policy and resourcing frameworks are seriously inadequate to address the shortfall in funding even after investor returns are driven as low as possible (see Box 8.5). This is the key reason for the chronic lack of investment in affordable housing. As cogently put by Treasury offcials: “[no] innovative fnancing model will close this [yield] gap and a sustained increase in the investment by governments is required to stimulate affordable housing production and attract private and institutional investment” (AHWG 2016, p. 2). The most thorough attempt to model the average per dwelling funding needed for an affordable housing project to be viable in the Australian housing system has been undertaken by Troy et al. (2019). Using 2016–2018 cost and revenue data, thesePROOF researchers’ analysis indicates that the current funding defcit is likely to be between $10,000 and $17,000 annually per dwelling on average depending on a range of assumptions and variables.29 A major factor infuencing the size of the defcit found by Troy et al. is the fnancing approach. Scenario modelling of different fnancing options showed that using a balanced combination of public grant and private debt to fnance construction would be more cost-effective in the long run than over-reliance on private debt or private equity. This underscores the worth of capital grants to support affordable housing construction. A key driver of the quantum of gap funding required is the cost of land, whichREVISED varies considerably across cities and regions (see Lawson et al. 2018, p. 83; Troy et al. 2019, p. 19). This highlights the cost-reducing benefts of applying planning levers to enable access to free or discounted sites especially in high value locations (Chapter 9). It also

29 Key inputs to the model from which the estimates were derived included fnance costs at NHFIC-equivalent interest rates (see Box 8.5), regionally varied land and construction costs, and the location, income and household size of households determined to be in need of social or affordable housing. Costs and incomes were modelled over a 20-year period, allowing for infation. Asset upkeep over this period is fully costed. For full details of the needs analysis, model assumptions and methods see Troy et al. (2019). 290 H. PAWSON ET AL. indicates the beneft that can arise where governments provide land as an equity input (see also Randolph et al. 2018). A third key factor is the capacity of different tenant cohorts to pay rent. As a general rule, the lower a household’s income, the greater the subsidy required to achieve project viability and uphold an affordability benchmark. Some of this subsidy cost, however, can be offset by a diversifed NFP business model that includes a component of cross-subsidy, as discussed in Sect. 8.3. Consideration of the funding gap analysis and the SDA pricing and funding regime prototype, together with lessons from NRAS and the international case studies (Sect. 8.4.1), suggests that any future tax-based incentive scheme designed to attract private fnance should adhere to the following general principles and design rules:

• The amount of incentive offered should take into account differences in construction costs, land costs and local rent levels • Allocation of incentives should be alignedPROOF with housing needs dis- aggregated by household size, income level and location • Safeguards against perverse incentives for different classes of prospective investors must be part of the design • Long-term preservation of subsidised affordable housing supply should be pursued (e.g. through regulation and/or NFP ownership).30

8.5.5 Explaining the State of Play in 2019? In our assessment, explanation of Australia’s continuing poor track record in establishing a sustainable framework for affordable housing provision isREVISED mainly attributable to a set of factors we will now discuss. The package of subsidies to support low cost rental housing has generally been smaller and less reliable than in other countries with success stories. On average, Australia’s rent allowance payment offers less rent support than similar payments in European countries and New Zealand. Over the last 25 years (aside from the 2008–2013 period), designated supply-side subsidies have been insignifcant, contributing to a large backlog in low cost supply to meet needs (Lawson et al. 2018; Yates 2018;

30 Nygaard (2019) presents more detail on the design elements of a prospective incentive-style housing subsidy along these lines. 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 291

Hulse et al. 2019). The paucity of funding also has to be seen in the context of the challenge of building affordable housing in some of the highest priced metropolitan housing markets in the world (Chapter 3). Suitable institutional investment in affordable housing has not been forthcoming, notwithstanding interest from large domestic institutions and opportunities, particularly their interest in socially responsible/ purposeful investment. In addition to the core problem, i.e. the lack of public subsidy to bridge the funding gap, other obstacles include the absence of benchmark performance data for the affordable housing asset class and a conservative fnance industry mindset that has prevailed alongside of an understandable lack of trust in government (Milligan et al. 2013a, 2015; Newell et al. 2015). There is no national policy strategy on affordable housing, and on housing more broadly. After too hastily abandoning NRAS, only since 2017 has the Commonwealth Government re-engaged with policies to encourage affordable housing investment. For as long as additional funding remains off limits, however, existing measuresPROOF alone will make mini- mal difference to affordable supply. Regulation of the affordable housing industry (see Sect. 4.4.2) and a range of other functions needed to support its fedging nature also remain under-developed.31 Leading housing stakeholders and lobbyists have persistently resisted complementary planning system (Chapter 9) and tax reforms (Chapter 6) that would be disruptive to their current business interests, therein displaying the power of vested interest groups (Chapter 2). Advocates and stakeholders have been unable to establish an enduring coalition of interests around affordable housing. This is evident, for example, in the absence of political bipartisanship such as helped sustain support for the long-running US LIHTC program (Box 8.3). NFP housingREVISED organisations have faced an uphill struggle in seeking to transcend their ‘bit player’ status in Australia’s predominantly market-driven housing system (Milligan and Hulse 2020). In part this arises because they are smaller and less experienced as housing developers than their counterparts in many comparator countries (Milligan et al. 2017). Despite ambitions to upscale and develop more affordable housing, their opportunities for growth have been restricted by stop-start government

31 Milligan et al. (2017) presents a stakeholder-informed assessment of the key issues and a plan for industry development and capacity-building. 292 H. PAWSON ET AL. funding and being largely confned to the role of managing state-owned assets (see Sect. 4.5). More fundamentally, Australia’s continued reliance on market provision for 95% of its housing, much of which benefts from often considerable direct and indirect assistance through the fnancial and tax systems (Chapters 5 and 6), is making the cost of provision of affordable housing greater than it otherwise would be and, hence, can be seen by governments to be cost prohibitive.

8.6 conclusions As discussed at the outset of this book, affordable housing is increasingly recognised as a key infrastructure requirement for the productivity of cities and regions, as well as being crucial to enhancing social cohesion, health and well-being (Maclennan et al. 2018; Lawson et al. 2019). This chapter has shown how contemporary international strategies for supplying affordable housing through private investmentPROOF have utilised diverse fnancing models and institutional approaches, and have fostered collaborative relationships between public, private and NFP sector actors to produce it. Australia, nevertheless, has a long way to go in developing and implementing a similar approach to supplying adequate levels of affordable housing. Inadequate government action is the primary factor constraining affordable housing industry expansion in Australia. As summed up by a superannuation industry peak body, the key requirements for institutional investment to fow into an affordable housing asset class are predictable returns, land concessions, a reliable delivery model and certainty over subsidy payments (Industry Super Australia 2017). Some green shoots include the establishment of the National Housing Finance andREVISED Investment Corporation (especially in its role in attracting investors with social investment motivations to provide long-term low cost fnance for affordable housing projects) and product development in the disability and fedgling build to rent sectors (see Chapter 6), which may prefgure some ways that a suitable and sustainable, public/private co-funded affordable housing supply chain could be cultivated. Without establishing and securing an appropriate and durable national policy and funding model for affordable housing and better coordinating inter-government effort, Australia will continue to lag comparator countries in leveraging suitable private investment into affordable housing at scale. Forming and institutionalising a national alliance of government 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 293 and industry stakeholders (akin to an Affordable Housing Industry Council) with responsibility for advising on affordable housing policy goals and their implementation could assist in forging a sustainable way forward (Milligan et al. 2017). The effectiveness of affordable housing policy strategies of the kind featured in this chapter will, however, be diminished if market trends continue without system-wide reform.

References AHWG. (2016). Innovative Financing Models to Improve the Supply of Affordable Housing (Affordable Housing Working Group Report to Heads of Treasuries). Canberra: Australian Government. AHWG. (2017). Supporting the Implementation of an Affordable Housing Bond Aggregator (Affordable Housing Working Group Report to Heads of Treasuries). Canberra: Council on Federal Financial Relations. Alakeson, V. (2011). Making a Rented House a Home: Housing Solutions for ‘Generation Rent’. London: Resolution Foundation.PROOF Beer, A., Flanagan, K., Verdouw, J., Lowies, B., Hemphill, L., & Zappia, G. (2019). Understanding Specialist Disability Accommodation Funding (AHURI Final Report No. 310). Melbourne: AHURI. Berry, M. (2000). Investment in Rental Housing in Australia: Small Landlords and Institutional Investors. Housing Studies, 15(5), 661–681. Berry, M., Whitehead, C., Williams P., & Yates, J. (2004). Financing Affordable Housing: A Critical Comparative Review of the United Kingdom and Australia (AHURI Final Report No. 72). Melbourne: AHURI. Bleby, M. (2019, March 29). In-Demand Affordable Housing Bonds a Future New Asset Class: NHFIC. Australian Financial Review. Blessing, A. (2019). The Carrot and the Stick: Sustaining Private Investment in Affordable Rental Housing. In G. van Bortel, V. Gruis, J. Nieuwenhuijzen, & B. PluijmersREVISED (Eds.), Affordable Housing Governance and Finance (pp. 209– 220). London and New York: Routledge. Cadik, E. (2018, June 27–28). Bridging the Financing Gap. Presentation to the CHIA NSW Affordable Housing Conference, Sydney. CEFC. (2016). CEFC Creates $250 Million Clean Energy Program for Community Housing. Fact Sheet. Sydney: Clean Energy Finance Corporation. Coates, B. & Horder-Geraghty, L. (2019, September 9). Learning from Past Mistakes: Lessons from the National Rental Affordability Scheme. [Internet] (Grattan Institute). Available from. https://blog.grattan.edu.au/2019/09/ learning-from-past-mistakes-lessons-from-the-national-rental-affordability-scheme/. Accessed 11 September 2019. 294 H. PAWSON ET AL.

Connellan, J. (2018). Two Hands: Delivering More and Better Housing for Australia’s National Disability Insurance Scheme Participants. Melbourne: Self-published. Crook, A., & Kemp, P. (2011). Transforming Private Landlords. Oxford: Wiley. D’Ambrosio, L. (2019, January 23). New Rental Program Puts Nearly 700 Homes on Market. Media Release from the Acting Minster for Housing. DSS. (2019a). National Rental Affordability Scheme Quarterly Performance Report. 31 March Department of Social Services. Canberra: Australian Government. Available from: https://www.dss.gov.au/our-responsibilities/housing-support/ programmes-services/national-rental-affordability-scheme/national-rental-affordability-scheme-performance-reporting. Accessed 17 August 2019. DSS. (2019b). NRAS Incentive Values [Internet]. NRAS Incentive (indexation), Department of Social Services. Canberra: Commonwealth of Australia. Available from: https://www.dss.gov.au/our-responsibilities/housing-support/programs-services/national-rental-affordability-scheme/national-rental-affordability-scheme-nras-incentive-indexation. Accessed 9 July 2019. EY. (2017). Establishment of an Australian Affordable Housing Bond Aggregator (Australian Treasury Final Report). Canberra: Ernst & Young. Family & Community Services. (2019, FebruaryPROOF 12). New Partners to Deliver More Than 1000 Homes Under Social and Affordable Housing Fund [Internet]. Media Release. Ashfeld: Housing NSW. Available from: https:// www.facs.nsw.gov.au/about/media/releases/new-partners-to-deliver-more- than-1000-homes-under-social-and-affordable-housing-fund. Accessed 15 August 2019. Gibb, K., Maclennan, D., & Stephens, M. (2013). Innovative Financing of Affordable Housing. York: Joseph Rowntree Foundation. Grattan, M. (2018, December 16). Shorten’s Subsidy Plan to Boost Affordable Housing [Internet]. The Conversation. Available from: https://theconversation.com/shortens-subsidy-plan-to-boost-affordable-housing-108881. Accessed 20 August 2019. Hulse, K., Reynolds, M., Nygaard, A., Parkinson, S., & Yates, J. (2019). The Supply ofREVISED Affordable Private Rental Housing in Australian Cities: Short and Longer Term Changes (Final Report). Melbourne: AHURI. Industry Super Australia. (2017). Assisting Housing Affordability [Internet] (Discussion Paper). Available from: https://www.industrysuper.com/media/ assisting-housing-affordability-discussion-paper/. Accessed 9 July 2019. Infrastructure Partnerships Australia. (2015). From Housing Assets, to Housing People: Fixing Australia’s Social Housing System. Sydney: Infrastructure Partnerships Australia. Lawson, J. (2013). The Use of Guarantees in Affordable Housing Investment—A Selective International Review (AHURI Positioning Paper No. 156). Melbourne: AHURI. 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 295

Lawson, J., Denham, T., Dodson, D., Flanagan, K., Jacobs, K., Martin, C., et al. (2019). Social Housing as Infrastructure: Rationale, Prioritisation and Investment Pathway (AHURI Final Report No. 315). Melbourne: AHURI. Lawson, J., Gilmour, T., & Milligan, V. (2010). International Measures to Channel Investment Towards Affordable Housing (AHURI Research Paper). Melbourne: AHURI. Lawson, J., Legacy, C., & Parkinson, S. (2016). Transforming Public Housing in a Federal Context (AHURI Final Report No. 264). Melbourne: AHURI. Lawson, J., Milligan, V., & Yates, J. (2012). Housing Supply Bonds—A Suitable Instrument to Channel Investment Towards Affordable Housing in Australia? (AHURI Final Report No. 188). Melbourne: AHURI. Lawson, J., Pawson, H., Troy, L., van den Nouwelant, R., & Hamilton, C. (2018). Social Housing as Infrastructure: An Investment Pathway (AHURI Final Report No. 306). Melbourne: AHURI. Maclennan, D., Crommelin, L., Van Nouwelant, R., & Randolph, B. (2018). Making Better Economic Cases for Housing Policies [Internet] (City Futures Research Report). Sydney: UNSW. Available from: https://cityfutures. be.unsw.edu.au/documents/476/Making_better_economic_cases_for_hous- ing_policies_main_report.pdf. Accessed 16 JulyPROOF 2019. Milligan, V., & Gilmour, T. (2012). Affordable Housing Strategies. In S. Smith, M. Elsinga, L. F. O’Mahony, O. S. Eng, & S. Wachter (Eds.), International Encyclopedia of Housing and Home (Vol. 1, pp. 58–64). Oxford: Elsevier. Milligan, V., & Hulse, K. (2020). Housing Third Sector Organisations in Australia. In Billis, D & Rochester, C. (Eds.), Handbook on Hybrid Organisations. Cheltenham: Edward Elgar. Milligan, V., & Tiernan, A. (2011). No Home for Housing: The Situation of the Commonwealth’s Housing Policy Advisory Function. Australian Journal of Public Administration, 70(4), 391–407. Milligan, V., Gurran, N., Lawson, J., Phibbs, P., & Phillips, R. (2009). Innovation in Affordable Housing in Australia: Bringing Policy and Practice for Not-For-Proft Housing Organisations Together (AHURI Final Report No. 134). Melbourne:REVISED AHURI. Milligan, V., Pawson, H., Martin, C., & Phillips R. with Elton Consulting (2017). Developing the Scale and Capacity of Australia’s Affordable Housing Industry (AHURI Final Report No. 278). Melbourne: AHURI. Milligan, V., Pawson, H., Williams, P., & Yates, J. (2015). Next Moves? Expanding Affordable Rental Housing in Australia Through Institutional Investment [Internet] (City Futures Research Report). Sydney: UNSW. Available from: https://cityfutures.be.unsw.edu.au/documents/81/Next_ moves_report.pdf. Accessed 8 August 2019. Milligan, V., Phibbs, P., Fagan, K., & Gurran, N. (2004). A Practical Framework for Expanding Affordable Housing Services in Australia: Learning from Experience (AHURI Final Report No. 65). Melbourne: AHURI. 296 H. PAWSON ET AL.

Milligan, V., Yates, J., Wiesel, I., & Pawson, H. (2013a). Financing Rental Housing Through Institutional Investment—Volume 1 (AHURI Final Report No. 202). Melbourne: AHURI. Milligan, V., Yates, J., Wiesel, I., & Pawson, H. (2013b). Financing Rental Housing Through Institutional Investment—Volume 2: Supplementary Papers (AHURI Final Report No. 202). Melbourne: AHURI. Monk, S., & Whitehead, C. (Eds.). (2010). Making Housing More Affordable: The Role of Intermediate Tenures. Chichester: Wiley-Blackwell. Muir, K., Michaux, F., Sharam, A., Flatau, P., Meltzer, A, Moran, M., et al. (2018). Inquiry into Social Impact Investment for Housing and Homelessness Outcomes (AHURI Final Report No. 299). Melbourne: AHURI. Mundt, A., & Amann, W. (2019). ‘Wiener Wohnbauinitiative’: A New Financing Vehicle for Affordable Housing in Vienna. In G. van Bortel, V. Gruis, J. Nieuwenhuijzen, & B. Pluijmers (Eds.), Affordable Housing Governance and Finance (pp. 187–208). London and New York: Routledge. National Housing Finance and Investment Corporation Act 2018 No. 65. NDIA. (2017). NDIA Specialist Disability Accommodation. Geelong: National Disability Insurance Agency. NDIA. (2019). Specialist Disability AccommodationPROOF Pricing and Payments Framework. Geelong: National Disability Insurance Agency. Newell, G., Lee, C. L., & Kupke, V. (2015). The Opportunity of Unlisted Wholesale Residential Property Funds in Enhancing Affordable Housing Supply (AHURI Final Report No. 249). Melbourne: AHURI. Nieboer, N., & Gruis, V. (2016). The Continued Retreat of Non-Proft Housing Providers in the Netherlands. Journal of Housing and the Built Environment, 31(2), 277–295. Nous Group. (2017). The Potential to Fund Remote Indigenous Housing in Australia Through Social Impact Investment [Internet]. Input into the Review of the National Partnership Agreement on Remote Indigenous Housing. Sydney: Nous Group. Available from: https://www.pmc.gov.au/sites/default/files/publications/Nous-Group- Final-Report-Efficient-system-costs-of-remote-Indigenous-housing.pdfREVISED . Accessed 15 August 2019. Nygaard, C. (2019). Affordable Housing Infrastructure Booster (Executive Summary. A Report and Policy Blueprint for the Community Housing Industry Association NSW). Sydney: CHIA. Available from: http://com- munityhousing.org.au/wp-content/uploads/2019/07/CHIANSW_AHIB_ Exec_Summary_WebReady.pdf. Accessed 17 August 2019. Parsell, C., Petersen, M., & Culhane, D. (2017). Cost Offsets of Supportive Housing: Evidence for Social Work. British Journal of Social Work, 47(5), 1534–1553. 8 FINANCING AND GOVERNING AFFORDABLE RENTAL HOUSING 297

Pawson, H., Lawson, J., & Milligan, V. (2011). Social Housing Strategies, Financing Mechanisms and Outcomes: An International Review and Update of Key Post-2007 Policy Developments [Internet] (City Futures Research Report for Housing NSW). Sydney: UNSW. Available from: https://www.be.unsw. edu.au/sites/default/fles/upload/research/centres/cf/publications/cfpro- jectreports/International_Social_Housing_Review.pdf. Accessed 15 August 2019. Pawson, H., & Milligan, V. (2013). New Dawn or Chimera? Can Institutional Financing Transform Rental Housing? International Journal of Housing Policy, 13(4), 335–357. Perry, J. (2019). Housing Expenditure Plans. In M. Stephens, J. Perry, P. Williams, & G. Young (Eds.), UK Housing Review 2019 (pp. 55–68). Coventry: Chartered Institute of Housing. Pinnegar, S., Wiesel, I., Liu, E., Gilmour, T., Loosemore, M., & Judd, B. (2011). Partnership Working in the Design and Delivery of Housing Policy and Programs (AHURI Final Report No. 163). Melbourne: AHURI. Plibersek, T. (2008, September 24). National Rental Affordability Scheme Bill 2008, Second Reading Speech, House of Representatives, Hansard No. 13, pp. 8360–8362. PROOF Randolph, B., Troy, L., Milligan, V., & van den Nouwelant, R. (2018). Paying for Affordable Housing in Different Market Contexts (AHURI Final Report No. 293). Melbourne: AHURI. Rowley, S., James, A., Gilbert, C., Gurran, N., Ong, R., Phibbs, P., et al. (2016). Subsidised Affordable Rental Housing: Lessons from Australia and Overseas (AHURI Final Report No. 267). Melbourne: AHURI. Rowley, S., Leishman, C., Baker, E., Bentley, R., & Lester, L. (2017). Modelling Housing Need in Australia to 2025 (AHURI Final Report No. 287). Melbourne: AHURI. Schwartz, A. (2010). Housing Policy in the United States: An Introduction (2nd ed.). New York: Routledge. The Auditor-General. (2015). Administration of the National Rental AffordabilityREVISED Scheme (Report No. 8 of 2015–2016). Canberra: Australian National Audit Offce. Available from: https://www.anao.gov.au/sites/ default/fles/ANAO_Report_2015-2016_08.pdf. Accessed 17 August 2019. The Senate Economics Legislation Committee. (2018). National Housing Finance and Investment Corporation Bill 2018, National Housing Finance and Investment Corporation (Consequential Amendments and Transitional Provisions) Bill 2018 [Internet]. Canberra: Commonwealth of Australia. Available from: https://www.aph.gov.au/Parliamentary_Business/ Committees/Senate/Economics/NHFICBills2018/Final_Report. Accessed 15 August 2019. 298 H. PAWSON ET AL.

Treasury. (2017). Boosting Affordable Housing for Australians Through Investment Tax Incentives [Internet]. Budget 2017, Fact Sheet 1.10. Canberra: Commonwealth of Australia. Available from: https://archive. budget.gov.au/2017-18/glossies/factsheets/FS_110_Housing_Affordability. pdf. Accessed 15 August 2019. Troy, L., van den Nouwelant, R., & Randolph, B. (2019). Estimating Need and Costs of Social and Affordable Housing Delivery [Internet] (Futures Research Report). Sydney: UNSW. Available from: https://cityfutures.be.unsw.edu. au/documents/522/Modelling_costs_of_housing_provision_FINAL.pdf. Accessed 15 August 2019. van Bortel, G., Gruis, V., Nieuwenhuijzen, J., & Pluijmers, B. (Eds.). (2019). Affordable Housing Governance and Finance. London and New York: Routledge. Wiesel, I., Davison, G., Milligan, V., Phibbs, P., Judd. B., & Zanardo, M. (2012). Developing Sustainable Affordable Housing: A Project Level Analysis (AHURI Final Report No. 183). Melbourne: AHURI. Yates, J. (2018). Social and Affordable Housing Projections 2016–2026 (and 2036) [Internet] (Report for the Everybody’s Home Campaign). Available from: https://everybodyshome.com.au/wp-content/uploads/2018/04/EH_PROOF researchreport_190418-1.pdf. Accessed 15 August 2019.

REVISED CHAPTER 9

Roles of Land Use Planning Policy in Housing Supply and Affordable Housing

9.1 Introduction Land use planning policies and procedures form a critical component of the institutional architecture that frames housingPROOF policy in its development and implementation. Indeed, as it operates in Australia and around the world, a core goal of land use planning is to ensure an ‘adequate supply’ of housing. For some stakeholders (especially developers), the term housing policy is often conceptualised as referring largely or wholly to land use planning rules that regulate residential development. The impact of land use planning on the housing system is strongly contested. Increasingly, governments and lobby groups look to land use planning reforms as a possible means of enhancing general housing affordability or, more specifcally, to actively protect or generate affordable housing. However, interested stakeholders participate in such debates from a wide range of standpoints, some of which are actively opposed (see Sect. 9.6REVISED). Thus, while many recognise planning as crucially facilitating housing development through the coordination of infrastructure and necessary land provision “others regard [it] as obstructive, responsible for creating artifcial barriers to new housing supply” (Gurran et al. 2009, p. 9). Land use planning refers to the framework through which governments seek to regulate the use of urban space and to guide urban development and investment, including infrastructure investment. Beyond its

© The Author(s) 2020 299 H. Pawson et al., Housing Policy in Australia, https://doi.org/10.1007/978-981-15-0780-9_9 300 H. PAWSON ET AL. role in fostering suffcient land supply for housing and for other social and economic activities, a basic justifcation for planning is the common good served by the appropriate juxtaposition of harmonious land uses. Thus, it is understood to generate a net community beneft by comparison with the assumed disorderly outcome of a purely laissez faire approach to urban development. Harking back to the terms outlined in Chapter 2, planning is a form of market intervention justifed as promoting economic effciency by countering negative externalities. As emphasised in that chapter, such effects are a form of market failure recognised within the neo-liberal governance paradigm. In practical terms, land use planning frameworks underpinned by law are essential in creating “the certainty and preconditions for investment that private markets need” (Ryan-Collins et al. 2017, pp. 216–217). In this sense, plan making or zoning is fundamental to any functional urban system. At the same time, it must be appreciated that, as these have developed since the early twentieth century, the key roles of planning regimes have also included the protection ofPROOF private amenity and property values. Planning intervention involves three essential types of activity:

• Strategic spatial policy aspirations and instruments • Mechanisms for land and infrastructure coordination and procurement • Codifed processes for managing land use and land use change.

All of these have relevance for housing provision: for its spatial confguration, for its physical form, for its cost and for its distribution. In this chapter, we focus primarily on the possible ways that planning policy can foster REVISEDthe supply of affordable housing, and on debates about the role of planning in affecting broader housing affordability and related objectives. This chapter is organised into three main components. In the frst component (Sects. 9.2 and 9.3), the focus is primarily conceptual, exploring land use planning and land economics principles, especially as these relate to factors that infuence land values. Drawing on these principles, we examine the ways that land use planning measures can generate affordable housing and the generic arguments for such measures, especially those involving mandatory or voluntary developer contributions; often termed inclusionary zoning. 9 ROLES OF LAND USE PLANNING POLICY … 301

In the second component (Sects. 9.4 and 9.5), we review the evolution of Australia’s land use planning system and highlight features that have direct implications for supporting affordable housing. This leads to a discussion on the relevant roles of the metropolitan strategic plans that, especially since the 1990s, have embodied government thinking on the shape of Australia’s major cities, thus framing new housing development. We then discuss the various ways that Australian governments have experimented in the use of planning policy relaxations and obligations in the name of expanding affordable housing provision. In the third component (Sect. 9.6), we review recent debates around the questionable claim that, far from contributing to the solution of national housing problems, Australia’s land use planning regimes are a major cause of housing unaffordability.

9.2 Land Use Planning, Land Economics and Value-CapturePROOF The importance of planning policies and mechanisms in relation to housing stems from the impact of planning designation (allowable uses) on land values, and from the possible scope for planning policy instruments to capture gains associated with a site’s appreciating worth arising from planning decisions reached on behalf of the community. In a line of thinking derived from the work of classical economist, David Ricardo, these gains have been described as economic rent. This is the term for the unearned income that landowners can command based purely on their ownership of a site and “unrelated to their costs of bringing it into production or any efforts they have expended” (Ryan- Collins et al. 2017, p. 11). Essentially, this results from the fact that land as a commodityREVISED is fnite (defying standard economic expectations) and, therefore, land markets cannot fexibly respond to changing demand (see Chapter 2). Similarly, unlike other capital assets that depreciate over time, scarce land tends to appreciate in tandem with the size of the economy. Economic rent is “any beneft …derived from exclusive possession of a scarce or exclusive factor of production [in this context, land], in excess of the cost of bringing that factor into production” (ibid., p. 39). What Ryan-Collins et al. term the monopoly power conferred by land holding can enable owners to ‘cream off’ the value derived from the 302 H. PAWSON ET AL. use of the land concerned. “[T]he ability to extract economic rent … can [therefore] effectively monopolise much of the growth created in an economy, the vast bulk of which has not been created by landowners themselves. [Thus]…as the economy grows, landowners can increase the rent they charge to absorb all the additional value that their tenants (such as workers, shopkeepers and industrialists) generate” (ibid., p. 12). In most modern societies, including Australia, most recipients of such gains are owner-occupiers, although benefciaries increasingly include investor landlords (see Chapter 6). A more geographically specifc uplift value-capture scenario is where the worth of a particular site is enhanced by purely local factors, e.g. by the nearby construction of a rail station or the relaxation of planning restrictions on development density. In recent years there has been a resurgence of debates about the ways that governments may devise planning (and other) mechanisms to capture (for public beneft) some or all of the land value uplift that accrues over time in a growing economy. Special attention here focuses on the windfall gains often resulting from public investmentPROOF (e.g. in transport facilities) and land use planning decisions allowing a site to be developed for a higher value activity than previously permitted (Stapledon and Fox 2016; House of Commons 2018). For example, it has been estimated that, where redesignated for development, the value of formerly agricultural land on Melbourne’s periphery rose from less than $35,000 a hectare to more than $300,000 a hectare (Kulish et al. 2011, p. 30). Likewise, in the year after the Gold Coast light rail system opened in 2014, Murray (2016) found that land within 400 m of its stations appreciated in value by 7% more than land between 400 m and 2 km distant. Similarly, in the case of infrastructure investment, London’s Jubilee underground line extension has been estimated as infating nearby land values by 52%REVISED (TFL and GLA 2017). Figure 9.1 illustrates the potential for land value uplift in the case of a landholding being subject to a rezoning that allows medium-density residential development on a site previously restricted to industrial use. This understanding is based on the concept of residual land value, i.e. the way that developable land is valued in the market. A developer cal- culates a project’s potential gross realisation value (GRV), i.e. sale price, and deducts from that all the expenses associated with the scheme, such as project planning, construction, fnance costs et cetera. The value of the land is the residual amount remaining after allowing for all these costs. If, therefore, as illustrated in our simplifed example (Fig. 9.1), 9 ROLES OF LAND USE PLANNING POLICY … 303

*URVVUHDOLVDWLRQ YDOXHUHVLGHQWLDO

*URVV 3URMHFW UHDOLVDWLRQ SODQQLQJ YDOXH FRQVWUXFWLRQ LQGXVWULDO FRVW 'HYHORSPHQW FRQWULEXWLRQV )LQDQFHFRVWV 9DOXHRI DGGLWLRQDO 5DWHV WD[HV )LQDQFHFRVWV GHYHORSPHQW 5DWHV WD[HV ULJKWV 0DUNHWLQJ 0DUJLQIRU SURILWDQGULVN 5HVLGXDO PROOF ODQGYDOXH 5HVLGXDO ODQGYDOXH

=RQHG =RQHG UHVLGHQWLDO LQGXVWULDO

Fig. 9.1 Valuation of additional development rights upon rezoning (Source Spiller et al. [2018, p. 6]) all of the site development costs remain unchanged, but the value of the fnished residential scheme is greater than the GRV for the site should it be developed for industrial use, the residual value of the land is increased.1REVISED Another way of putting this is to say that “the value of regulated development rights (allowable land uses) is capitalised into the price of land” (Spiller et al. 2018, p. 3). In the absence of any mechanism for ‘value-capture’, all of that gain accrues to the landowner.

1 In reality, the (non-land) scheme costs associated with residential development would probably be much higher for this scenario than for industrial facility development, but the GRV would be enhanced by an even greater amount, with the effect that the ‘value of additional development rights’ or planning gain would be increased much more substantially than indicated in the stylised example shown in Fig. 9.1. 304 H. PAWSON ET AL.

Box 9.1 Land tax and land value-capture Famously deriving from the work of Henry George, the idea of universal land tax (LT) is often advocated in virtue of its facility for land value-capture. If a landowner’s periodically adjusted LT liability is set according to the value of their holding, a share of any unearned gain from the appreciation of that asset automatically derives to government coffers for the wider public good. With reference to the possible application of various land use planning devices for value-capture discussed elsewhere in this chapter, LT could be characterised as a tax system alternative to such approaches. While land taxes already exist in Australia in a limited form (see Chapter 6), their structure and incidence strictly limit the extent to which they can serve a value-capture function and, moreover, their wider revenue-raising capacity. Most importantly (except in ACT—see below), an owner-occupier’s principal residence is in all Australian jurisdictions entirely LT-exempt, while designated minimum threshold land values tend to mean that most investor landlords are also unaffected. Fundamentally, the case for a broad-based LTPROOF is that by imposing a cost on holding property, owners are encouraged to make the best use of it. Hence, speculative holding is discouraged, thereby bringing underutilised land and housing to the market. Broad-based LT advocates in Australia most commonly envisage the introduction of such a regime as a revenue-neutral substitute for the stamp duty charge currently applicable to most residential property transactions (Wood et al. 2012). Stamp duty charges impose costs on households and on the wider economy by discouraging owner-occupiers from moving house when it would make sense for them to do so (to accommodate changing employment or household circumstances). Tax reform along these lines is widely favoured by Australian tax experts, the Productivity Commission, the 2010 Henry Tax review and the wider publicREVISED policy economics profession (Johnston 2010). While posing major political and administrative challenges, the practical feasibility of such reform is demonstrated by the process initiated by the ACT Government in 2012: a 20-year transition, which will see the disappearance of stamp duty in favour of higher municipal rates (Daley and Coates 2016).

Debates on land value-capture are highly relevant to housing in a number of ways. A fundamental requirement of new housing development is the provision of new (or upgrading of existing) infrastructure in the form of basic amenities, e.g. power and water supply, sewerage and paved roads. In the early post-war heyday of Australia’s urban growth, those 9 ROLES OF LAND USE PLANNING POLICY … 305 facilities were funded and provided by the state. Since the 1980s, however, associated costs have been increasingly met by developers under the ‘user pays’ principle (Robinson and de Gruyter 2018). Some Australian governments have experimented with more ambitious efforts to fund infrastructure through planning mechanisms that more closely resemble land value-capture. Recent examples have included Victoria’s Growth Area Infrastructure Contributions (GAIC) model and in NSW the Special Infrastructure Contributions (SIC) scheme (Fensham 2017) in addition to the ACT’s change of use levy (Murray and Frijters 2017). These models represent efforts at ‘betterment taxation’, as value-capture is sometimes termed in the planning literature. They can be portrayed as alternatives to a wider tax system approach to value-capture as outlined in Box 9.1. Beyond standard development contribution regimes,2 the absence of suitable legal frameworks in most Australian states and territories3 means that planning-based value-capture necessitates so-called voluntary planning agreements (VPAs). These involve the localPROOF authority and developer reaching a mutually agreeable trade-off between the scale of the uplift and the public beneft to be provided by the developer. As further discussed later in the chapter, VPAs can yield affordable housing, although that has not been a common outcome so far across Australia. Problematic here is that where negotiation takes place during the planning application process, there is no certainty on what the agreed developer contribution will be. This means that there is little chance that the associated cost will be accurately factored into land acquisition price, making agreement about contributions more challenging (see discussion on the economics of inclusionary zoning in Sect. 9.3.2). In Australia, VPAs to enable infrastructure provision have become increasinglyREVISED common (although affordable housing is only rarely a prescribed beneft). Explicit value-capture mechanisms, on the other hand, remain highly unusual. In many European and Asian countries, by contrast, value-capture is a standard component of infrastructure funding frameworks. In Germany, for example, former farmland acquired by local authorities at agricultural values is sold to construction frms

2 The NSW Section 94 ‘development contributions’ regime and equivalent rules in other jurisdictions. 3 The Australian Capital Territory (ACT) is the notable exception. Under that Territory’s prevailing leasehold land ownership system, a ‘lease variation charge’ can be levied for 75% of the value uplift resulting from a site’s zoning redesignation. 306 H. PAWSON ET AL. at residential use value. German planning law dictates that land value is frozen at the point when a municipality designates a land parcel for residential development. Infrastructure costs are then funded by the land value uplift that results. Similar arrangements prevail in the Netherlands (Crook 2018). Historically, such measures were also crucial to the foundation of England’s early mid twentieth century new towns, e.g. Letchworth Garden City, Welwyn Garden City and Milton Keynes (Aubrey 2016). In the United States, tax increment fnancing is a tool based on the principle that development facilitating future tax revenue justifes forward funding of essential infrastructure provision at public expense. There is potential for the use of value-capture as a means of directly subsidising the provision of affordable housing, in other words, a way of covering some of the development and/or running costs of an affordable housing scheme so that a below-market rent (or price) can be viably charged to eligible tenants. Using terminology that originates in the United States, the land use planning mechanismsPROOF developed to put this into practice are sometimes described as inclusionary zoning. The underpinning logic of such measures is further explored in the next section, while their practical expression in Australia and elsewhere is discussed in Sect. 9.5.3.

9.3 Land Use Planning and Affordable Housing: Principles and Practices The traditional concern of planning for ensuring an adequate supply of housing has an implicit connection with housing affordability to the extent that the scarcity effect of insuffcient housing provision would be expected toREVISED push up house prices and rents. Moreover, it is recognised (even by urban containment advocates) that managed growth strategies, which seek to constrain residential development within defned boundaries, have housing market consequences that are liable to detract from affordability (Hall et al. 1977; Nelson and Wachter 2003).

9.3.1 Planning Mechanisms Designed to Generate Affordable Housing Only in recent decades has planning directly engaged with housing affordability for lower-income groups; e.g. as potentially relieved through the provision of affordable housing. As recently as 2007, it was noted 9 ROLES OF LAND USE PLANNING POLICY … 307 that “…questions about planning and its impact on housing affordability … have been absent from discussions and policies focused on meeting the housing needs of the most vulnerable” ( Beer et al. 2007, p. 14). For some economists, the primary objective here is the utilisation of planning powers to facilitate system-wide expansion of low price housing provision. From this viewpoint, such action can serve as an alternative (or supplement) to explicit government subsidy or in-kind support.4 An alternative perspective, more in keeping with traditional planning principles, sees the main objective as facilitating socio-economically balanced communities. That is, using planning tools to ensure inclusion of low price housing in developments otherwise targeted exclusively at high-income earning or otherwise wealthy people. Under a zoning-type framework as prevails in Australia and drawing on a classifcation by Gurran et al. (2018), some of the main ways that planning mechanisms can generate affordable housing can be bracketed under the following broad headings: PROOF • Planning concessions—planning rules are relaxed for affordable housing development or to enable low cost or more diversifed market housing options. • Density bonuses—additional development potential beyond the level normally permitted under the zoning regime is offered in return for an affordable housing contribution. • Negotiated agreements—such as VPAs in Australia, which involve affordable housing contributions being negotiated on a case-by-case basis (possibly under a broader policy framework). • Inclusionary zoning—development within a designated zone con- tributesREVISED towards affordable housing according to a fxed formula. In the context of prevailing neo-liberal orthodoxy, perhaps the least controversial way that the provision of affordable housing may be fostered by planning is through concessions that aim to stimulate the development of housing forms likely to command lower prices (or rents) in the market. This can be achieved most obviously through the permis- sibility, or active encouragement, of small dwellings. Recent years have, for example, seen widespread international advocacy for ‘tiny homes’

4 As exemplifed in other countries, e.g. the UK and the United States, such measures are in fact often applied in concert with direct fnancial (or in-kind) support from national or local governments. 308 H. PAWSON ET AL. that might be normally outlawed under minimum dwelling size rules (e.g. Shearer 2014; Ford and Gomez Lanier 2017). However, where resulting dwellings are provided at market price (or rent) there is an inevitable trade-off between space and amenity standards, on the one hand, and cost to the consumer, on the other. Density bonuses are another internationally utilised means by which planning authorities work to secure an element of lower priced accommodation within larger market-price housing schemes. On this basis, a market housing project agreed as including affordable units may be allowed to proceed as a taller or otherwise denser building than normally permissible under local zoning rules. In the NSW context, for example, an industry lobby group proposed in 2016 that an affordable housing contribution could be offered by developers, state-wide, in return for a general relaxation of planning limitations to allow 20% more height and density (Visentin 2016). According to its proponents, such a concession could yield 4000 affordable units annually, made available at 80% PROOFof market rents. However, while this sounds signifcant in raw numbers,5 the proposed arrangement would have seen the resulting dwellings reverting to market status after ten years. Moreover, a proposal of this kind casts in sharp relief the dilemmas posed by the notion of trading off normal land use regulation standards against affordable housing gains. At least in the context of the purely mechanistic planning relaxation envisaged here, neighbouring residents whose amenity would-be compromised by over-large developments might understandably object to being expected to pay the price for the additional (temporarily) affordable homes generated as a result. It should also be emphasised that boosting density beyond normally allowable limits need not involve increased storey height. It can, for example, beREVISED achieved by accommodating less greenspace, narrower roads and less car parking.

9.3.2 Inclusionary Zoning: Principles and Arguments Coined in the 1980s, the term inclusionary zoning (IZ) originates from the United States in reference to the ‘exclusionary’ zoning practices used in some American cities to preserve the social status (and/or

5 It would dwarf the recent scale of new social and affordable housing supply supported by government (see Chapter 4). 9 ROLES OF LAND USE PLANNING POLICY … 309 racial profle) of privileged suburbs, e.g. through strict requirements on plot subdivision or design standards that add to standard dwelling price (Schuetz 2009). As defned by Gurran et al. (2018), IZ can encompass any framework in which an affordable housing contribution is specifed for a given development scheme. Implicit here is that such a contribution must be promised by the scheme proponent as a condition for development consent. The precise implications will of course depend on the defnition of affordable housing. Arguably, there is an important distinction between a contribution that is limited to the inclusion of smaller (and therefore cheaper) dwellings at market price, and one which enables the provision of units at sub-market prices (especially if affordability is to be retained in perpetuity). Williams (2015) advocates limiting the application of the term IZ to affordable housing targets that are legally mandated. Others argue that the IZ label is appropriate only when an affordable housing contribution involves on-site delivery of the affordable units, i.e. through a mixed tenure development project, rather PROOFthan a developer pledge to build affordable housing elsewhere (Drdla 2018).6 IZ policies that involve provision of below-market price housing are frequently connected to rezoning value-capture (see Fig. 9.1). However, site rezoning is not always a stipulated precondition for IZ. Whether or not linked with rezoning, the economic consequence of IZ regulations should play out through reduced land value rather than through infating the price of market sale properties generated by the relevant scheme. This is exemplifed in Fig. 9.2, which, holding all other development costs unchanged, illustrates how land value is diminished as a result of an affordable housing obligation mandated through an additional developer contribution. If, on the other hand, such an obligation were absorbed within the REVISEDscheme, the result would be to reduce the gross realisation value, e.g. by requiring a certain percentage of dwellings to be sold at below-market price. The land value impact would be the same. Two important assumptions are embedded in the reasoning set out above. First, that land value is not so low that development obligations of a signifcant kind would reduce it below zero; a consideration

6 While a land use planning mentality prioritising ‘inclusion’ would generally favour on-site affordable housing provision (Metcalf 2018), there can be justifable reasons for departing from this principle. To privilege the former approach, if considered preferable, the payment-in-lieu ‘tariff’ scheme can be designed accordingly. See also Box 9.3. 310 H. PAWSON ET AL.

Ψ 3URMHFW 3URMHFW SODQQLQJ SODQQLQJ *URVV DSSURYDOV DSSURYDOV UHDOLVDWLRQ DQG )LQDQFHFRVWV DQG )LQDQFHFRVWV YDOXH FRQVWUXFWLRQ FRQVWUXFWLRQ *59 FRVW FRVW 5DWHVWD[HV 5DWHVWD[HV

ZĞĚƵĐĞĚůĂŶĚ 0DUNHWLQJ ǀĂůƵĞ 0DUNHWLQJ ƌĞƐƵůƟŶŐĨƌŽŵ 0DUJLQIRU 0DUJLQIRU ĂīŽƌĚĂďůĞ SURILWDQGULVN ^ƚĂŶĚĂƌĚ SURILWDQGULVN ŚŽƵƐŝŶŐ ĚĞǀ͛ŵĞŶƚ ŽďůŝŐĂƟŽŶ ĐŽŶƚƌŝďƵƟŽŶ $IIRUGDEOHKRXVLQJ GHYHORSPHQWFRQWULEXWLRQ

5HVLGXDO 5HVLGXDO ODQGYDOXH ODQGYDOXH

0DUNHW 'HYHORSPHQW GHYHORSPHQW ZLWK PROOF EDVHFDVH DIIRUGDEOH KRXVLQJ REOLJDWLRQV

Fig. 9.2 Impact on land value resulting from affordable housing obligation (Source Based on Spiller et al. [2018, p. 6]) implying that IZ cannot function in depressed market conditions. And, second, that there is practical scope for fexibility in the land component of scheme cost, i.e. the ability for aspiring developers to offer lower prices to land sellers, in the knowledge of prevailing IZ obligations. Where a developer is seeking to build out a site already held in ownership (purchasedREVISED in advance of the IZ regime), this may be problematic because the purchaser may have, with hindsight, overpaid for the plot. This issue is revisited in Sect. 9.5.4. As noted, IZ measures are often linked to situations where a site has enjoyed value uplift and where there is a belief that associated gains accruing to the landowner should be shared with the wider community. Such uplift often results from regulatory action (e.g. rezoning) or from nearby publicly funded infrastructure investment (e.g. transport facilities). However, it does not necessarily follow that some or all of the associated resources should be directly channelled to affordable housing. There may well be prior claims on such resources, e.g. to underwrite the 9 ROLES OF LAND USE PLANNING POLICY … 311 cost of enabling infrastructure. Therefore, while the case for inclusionary zoning (for affordable housing) is often argued on ‘value-capture’ grounds, more specifc justifcations are also required. Perhaps the wid- est such argument is that IZ measures are justifable as one among many forms of intervention required to correct for “the increasing failure of the market housing system to deliver a suffciently broad range of housing, especially in high-growth areas” (Drdla 2018). A similar high-level justifcation is that IZ requirements can legitimately counteract the effect of restrictive regulatory intervention for urban containment, environmental protection or growth management. Increasing urban land value is generally to the detriment of low-income residents, whose housing is thereby made more expensive. Thus, as pithily articulated by Leishman and Rowley (2012, p. 383) “Assuming that land use planning really is partly responsible for the growth of affordability problems it seems compellingly appropriate that planning should be used to mitigate them”. More specifcally, an IZ obligation on developers in spatially constrained cities “actsPROOF to compensate a group [low-income households] disadvantaged by the plan”, whilst the resulting cost “falls on the party who would otherwise secure a windfall gain, the landowner” (Gurran and Bramley 2017, p. 342). Pitched more from a broader economic viewpoint is the case that if government accepts that the need to expand affordable housing requires some form of government support, it is more economically effcient to do so through IZ type measures (where subsidy is effectively extracted from land value) than to go the alternative route of providing the equivalent fnancial support through explicit subsidy payments. The argument here is that IZ, like land tax, is non-distortionary and therefore effcient by comparison with any other tax that might be utilised to fund explicit subsidies. InREVISED other words, subsidies ultimately funded from taxation (of most kinds) will have a negative impact on overall economic activity. At least theoretically, supply-side subsidies in the form of cash grants may feed through into higher land prices. More spatially specifc arguments for affordable housing developer obligations include the case that commercial development may create new local demand for affordable housing for employees and/or that a developer needs to compensate for any loss of existing low cost housing stock that might result from such activity. Finally, to the fore in related UK debates, and also signifcant in the United States, is the argument that requiring the inclusion of an affordable component within market 312 H. PAWSON ET AL. housing developments can importantly contribute to the widely supported goal of neighbourhood social mix or so-called balanced communities (Bramley et al. 2004; Schwartz 2015); also termed the inclusion principle (Metcalf 2018). In common with other planning measures to generate affordable housing, IZ has limitations in terms of the type of provision likely to be generated and the segment of the market this can accommodate. While potentially appropriate in catering for low-income working households, such schemes are generally agreed as ill-suited in providing the deeply subsidised and/or highly supported accommodation required by the traditional client group for social housing (Schwartz 2015; Gurran and Bramley 2017).

9.4 Land Use Planning in Australia

9.4.1 System Fundamentals Australia’s contemporary land use planning PROOFsystem began to take shape in the early twentieth century, as initially expressed through site subdivision restrictions and building standards requirements. Early years of Federation saw growing concern about urban squalor and the need for more signifcant land use regulation. Planning laws began to crystallise in the 1920s in the face of building industry opposition and a wider “culturally-embedded resistance to regulation” (Gurran and Bramley 2017, p. 259), alongside a strong ideological commitment to private property rights and home ownership. Under the country’s federal system, such regulation was developed and policed by the states. Following its colonial heritage, Australia’s overall approach was infuenced by UK planning thinking and practice: thus, the pre-WorldREVISED War 2 emergence of land use categorisation consistent with UK norms of the time. Subsequently, however, the two systems diverged, in the main refecting post-war UK reforms that effectively nationalised development rights under a new system, which substituted a highly negotiated approach7 for the codifed model that is embodied by land use zoning (Gurran and Whitehead 2011). As argued by Stephens (2019), this UK approach implied that “uplift in land value arising from planning permission belonged to the state” (p. 12).

7 Albeit increasingly within a policy framework, as defned in National Planning Policy Statements, Local Plan Policies/targets, and Supplementary Planning Guidelines. 9 ROLES OF LAND USE PLANNING POLICY … 313

In common with the United States, however, post-war Australia retained an adherence to a land use zoning model. This encompasses the crucial principle that a ‘conforming development’, one that meets the specifed rules for that site, can proceed ‘as of right’. Thus, any affordable housing obligation can have effect only if embedded within the zoning rules. Under the negotiated system, by contrast, all proposed developments must be individually assessed on a case-by-case basis. Under this framework, because ‘the right’ to develop cannot be assumed, “the real land value is largely conferred when approval for a particular development is granted” (Gurran and Bramley 2017, p. 347). As they operate today, Australia’s state-based planning systems are positioned somewhere between the US and UK poles. Compared with the UK, the Australian framework is more oriented towards a particular conception of market effciency with social and distributional goals being less central (Gurran and Whitehead 2011). Nevertheless, while the basic structure of Australia’s planning system is founded on zoning (akin to the United States), variations to zoning restrictionsPROOF on a particular site can be negotiated, especially for large schemes. Rezoning requests can also be submitted by a developer alongside a development application (sometimes known as spot rezoning). The scope for fexibility implicit in this scenario complicates the assessment of value uplift, and the expectation that a rezoning demand could be met is liable to encourage developers to speculatively offer a price for the land that factors in this likelihood.

9.4.2 Metropolitan Strategic Planning As a form of offcial regulation, planning is usually conceptualised as a reactive andREVISED restrictive activity. However, a wider view of planning recognises that it also involves positive action. One embodiment of this is the role of the State land agencies as summarised in Box 9.2. Similarly, metropolitan strategic planning is an important dimension of the wider Australian picture, through which governments articulate approved development principles and visions for urban futures. As a mechanism for framing urban development and change, such plans “outline the state-sponsored vision for our future cities, by prioritising key sites of change [and] establishing frameworks and conditions of development” (Ruming 2018, p. 27). Crucial here is the way that metropolitan 314 H. PAWSON ET AL. strategic plans (MSPs) frame offcial policy for land release, i.e. the designation of agricultural and other formerly undeveloped land for residential, commercial or industrial use.

Box 9.2 Positive planning and the role of state land agencies The Whitlam Government’s Land Commission Program of the 1970s was an attempt to introduce a new positive planning dynamic to complement the traditional negative (restrictive) exercise of authority in this arena. More specifcally, it sought to use state land agencies to capture planning/ infrastructure-related land value uplift for community beneft (Bramley 1997; Davison 2011). Having accumulated land reserves “the … agencies would also be able to ensure that a steady supply of land was released to the market, and thereby help to offset cyclical price infation during periods of high demand or shortage” (ibid., p. 3); in other words, addressing an aspect of market failure (see Chapter 2). PROOF Land Commissions were set up by most of Australia’s state governments in the mid-1970s. Despite the short-lived nature of the Whitlam Government (1972–1975), these were not only retained after 1975, but played a growing role through the late 1970s and 1980s. And although frequently restructured, renamed and repurposed, commissions have continued to exist in most jurisdictions. Latterly, though, they have tended to be tasked with a strong commercial focus and a requirement to deliver divi- dends to treasuries; an objective consistent with the neo-liberal governance paradigm, but at variance with the envisaged roles of the original Land Commissions (Gurran 2011).

MSPs haveREVISED formed an important vehicle for the post-1980s planning orthodoxy of urban consolidation. Urban Consolidation (UC) is “a policy of encouraging or requiring new urban development to occur within existing urban boundaries – typically via infll and multi-unit development – rather than via extension of the urbanised metropolitan area” (Dodson 2012, p. 25). Australian interest in UC policy in fact long pre- dates the MSPs published from the early 1990s. Rather, this stretches back as far as the late 1960s (ibid.). This was an era when governments were as concerned about inner city population decline, as about uncon- trolled urban peripheral growth. During this period UC was implemented mainly through the relaxation of traditional planning controls 9 ROLES OF LAND USE PLANNING POLICY … 315

(e.g. on minimum lot sizes) as well as through greater tolerance for subdivision and infll redevelopment. A signifcant late 1980s milestone in Sydney was the removal of previous zoning restrictions to open the way for low to medium-density townhouses and villas to be built in previously ‘protected’ residential zones. In this initial pro-UC period, governments were largely motivated by a faith in the potential for development densifcation to yield cost savings through the more effcient use of existing infrastructure (Ruming 2018). From the 1990s, however, MSPs such as the South-East Queensland Regional Framework for Growth Management (published 1995), Melbourne 2030 (2002) and City of Cities—a Plan for Sydney’s Future (2005) provided a new vehicle for offcial UC promotion. Prescribing “containment, consolidation and centres” (Forster 2006), such plans generally favoured concentrated clusters of infll development. Thus, governments began to take a stronger interest in facilitating higher density development close to transport nodes. As analysed by Ruming (2018), in this secondPROOF phase of UC promotion the ethic has been justifed more in terms of:

• Sustainability—effcient use of resources (land, energy). • Liveability—accessibility, walkability, lively public spaces.

Refecting growing concerns about the economic, environmental and social costs of transport congestion, contemporary MSPs also embody the aspiration to transition Australia’s major cities away from their historically monocentric structures and towards greater polycentricity. Australian MSPs additionally embody strategic planning principles usually highlighting support for centres and corridors, settlement/centre hierarchies REVISEDand Transport Oriented Development (TOD). The latter refers to the targeting of higher density land use close to rail stations, bus corridors and other transport facilities. In its practical manifestation, this TOD concept will foster a spatial pattern of urban development, whereby, rather than being increased across the whole of an urban area, density is channelled into a designated array of strips and nodes. As this has been played out through policy implementation, however, the result has been “a bifurcation between high-density inner ring and public transport nodes…and planned housing release areas on the urban fringe” (Gurran and Bramley 2017, p. 268). 316 H. PAWSON ET AL.

There is also a growing recognition that, in their role as promoter, funder and developer of major transport infrastructure, state and territory governments can play a major role in re-shaping city geography. The important implications that can fow from this as far as housing development is concerned were epitomised by the 2015 NSW Government decision to site a new metro station in the inner ring Sydney suburb of Waterloo. The anticipated uplift in surrounding land values was deemed by government as critically important to the viability of a plan for the demolition and high-density redevelopment of a large neighbouring public housing estate. Arguably, all of the above can be considered an aspect of housing policy to the extent that such measures introduce a presumption in favour of residential development in the form of urban infll, as opposed to peripheral expansion. Implicitly, such overarching policy framing will discourage the construction of single storey detached houses and encourage apartment blocks and other higher density built forms,PROOF such as townhouses. 9.5 Planning for Affordable Housing in Australia

9.5.1 Overview A range of pro-affordable housing planning tools and strategies have been tried in Australia (see Table 9.1). The state/territory governments generally most active in this arena have been ACT, NSW and South Australia. All of these jurisdictions have seen some form of IZ policy, broadly construed, as well as complementary measures aimed at enabling/incentivising non-government provision of affordable housing. Even in these jurisdictions, however, such measures have been as yet decidedly REVISEDlimited in their applicability and impact as compared with action in standard benchmark countries (Calavita and Mallach 2010; Schwartz 2015; Crook et al. 2016).

9.5.2 Enabling Low Cost Housing Development In a number of Australian jurisdictions, government action to promote affordable housing through planning powers has substantially or wholly involved the relaxation of standard regulations to encourage development of low cost forms of provision. For policymakers recognising the case for some type of intervention to expand affordable housing, there have been obvious attractions in looking to permissive planning levers of 9 ROLES OF LAND USE PLANNING POLICY … 317

Table 9.1 Australian approaches to supporting affordable housing through the planning process

State/ Inclusionary Density bonus/planning conces- Land allocation to territory zoning sions/negotiated agreements support affordable housing (incl. via land agencies)

ACT 15–25% target, • Applicable to affordable home Yes new land release ownership NSW In designated • State-wide policy to encour- On an ad hoc basis small areas of inner age affordable rental housing Sydney (see Box by applying IZ and/or these 9.3) mechanisms on specifc sites NT No • Smaller lot sizes in multiple Yes dwelling residential zones QLD No • Small lots able to support Limited more diverse/ affordable housing PROOF SA 15% target in • Incentives/concessions to Yes residential zones support the achievement of (applied on IZ target rezoning) TAS No • No Limited VIC Small scale pilot • Voluntary Planning Limited proposed (2018) Agreements include afforda- for govern- ble housing in some areas of ment-owned sites inner Melbourne WA No • Local authority planning con- Yes cessions/incentives allowed REVISED(e.g. Fremantle density bonus scheme)

Source Gurran et al. (2018, p. 28) updated/adapted this kind in preference to more interventionist and/or more costly mechanisms like mandatory developer contributions or direct government expenditure. As characterised by Beer et al. (2007, p. 20) “planning solutions are seen to be the low cost ‘technical fx’ to the challenge of providing affordable housing in high cost metropolitan housing markets”. Three examples of this approach can be seen in NSW initiatives. The frst, the NSW Government’s 2009 designation of secondary dwellings 318 H. PAWSON ET AL. as a complying development8 category, was part of the State’s wider Affordable Housing State Environmental Planning Policy (AHSEPP)9 to incentivise the private sector delivery of affordable rental housing (NSW Legislation 2009). This AHSEPP measure aimed to encourage suburban densifcation through infll development of small units (up to 60m2) within the grounds of existing suburban homes (from which a secondary dwelling is legally indivisible). The resulting small dwellings would potentially contribute to affordable rental accommodation. Similar initiatives have been pursued in other parts of Australia including the City of Fremantle (WA) and the Sunshine Coast (Queensland). However, recent research focused on central and southern Sydney demonstrated that few secondary dwellings, or so-called New Generation Boarding House (NGBH) units, developed in the study area between 2009 and 2017 reached the mainstream rental market10 (Troy et al. 2018, p. 39). Thus, while secondary dwellings had been constructed in signifcant numbers it would seem that these may have been developed largely for family members, rather than as rentalPROOF properties. It may be, therefore, that the popular term granny fat, habitually preferred by the media,11 is predominantly accurate. The second initiative under the NSW 2009 policy involved NGBH blocks that could be built in residential and mixed-use zones and could beneft from density bonus agreements. By comparison with a traditional block of 1-bedroom apartments, such developments may involve smaller dwelling units (e.g. 20–30 m2). However, unlike old style boarding houses often involving converted buildings with shared facilities, the units within these purpose-built blocks are typically self-contained. On this basis, it has been reported that buildings termed boarding houses REVISED 8 Under NSW planning guidelines, ‘complying development’ involves “straightforward residential, commercial and industrial development[s]” (NSW Planning 2019a). This qualifes a complying development project for a fast-track planning approval process. 9 The AHSEPP provides incentives for the development of new affordable rental housing, facilitates the retention and mitigates the loss of existing affordable rental housing and supports an expanded role for not-for-proft-providers of affordable rental housing. 10 Only a minority of secondary dwelling approvals resulted in tenanted homes showing up in the Rental Bond Board dataset, though many developments designated under NGBH rules for planning purposes were later assigned specifcally to student housing. 11 In reference to an earlier NSW planning policy initiative specifcally intended to enable construction of secondary dwellings for persons aged over 55. 9 ROLES OF LAND USE PLANNING POLICY … 319 for planning application purposes have been subsequently advertised for rent as ‘luxury apartments’ (Pawson et al. 2015). More frequently, however, as shown by recent research evidence, blocks constructed under this planning code have been destined for use as purpose-built student accommodation (Troy et al. 2018). Moreover, as in the case of secondary dwellings, research evidence suggests that NGBH rentals have been offered at little discount to local market rents for small fats (ibid., p. 39). Research evidence suggests that only a proportion of the secondary dwellings and NGBH accommodation developed under AHSEPP provisions has fed into the open rental market. This is not to say that these initiatives are therefore unsuccessful, since they will have in any event helped to relieve market pressure by accommodating people, e.g. students, otherwise competing for existing rental housing. At the same time, direct consequential expansion of rental provision has been limited. The third AHSEPP initiative aimed at incentivising market provision of affordable housing as infll housing. As such, medium- and high-density infll schemes designating at least 20% of grossPROOF foor area for affordable rental use12 (and to be maintained as such for at least ten years) were made eligible for a density bonus (see Sect. 9.3.1). Under the policy the scope for local planning authorities to refuse development consent for qualifying projects was also limited (Gurran et al. 2018). Outcomes under these provisions have been extremely modest. Drawing on offcial planning records, researchers identifed 25 relevant development applications put forward in the period to 2017, with those approved generating a total of some 1000 units, of which some 600 were affordable dwellings (Gurran et al. 2018).13

9.5.3 Inclusionary Zoning in Practice: The Story so Far Given the REVISEDstructure of Australia’s land use planning system, as described earlier in this chapter, there are several points in the development process at which IZ type developer obligations can be fxed: when land is rezoned, when rules are relaxed to allow a particular development and when a development approval is granted (Gurran et al. 2018).

12 Made available at a discount to market rent of at least 20%. 13 Excluded from consideration here are the Social Housing Initiative (government-funded social housing) developments built between 2009 and 2011, some of which were treated as infll affordable housing for planning approval purposes. 320 H. PAWSON ET AL.

The remainder of this section focuses on IZ policies as implemented by the two jurisdictions which have been the main state/territory expo- nents of such approaches: NSW and South Australia. As well as detailing the policies themselves, we cite research evidence on their impacts. New South Wales The longest-established Australian effort to generate affordable housing through an IZ-style approach has been in NSW, where such developer contributions have been required in designated Sydney neighbourhoods subject to urban renewal since the mid-1990s (see Box 9.3).

Box 9.3 Piloting affordable housing developer obligations in Sydney Australia’s frst initiative involving mandatory developer contributions for affordable housing was introduced in the Pyrmont-Ultimo urban renewal area close to central Sydney in 1995. The initiative was conceived in response to the recognition that government-promotedPROOF higher density urban renewal in Pyrmont-Ultimo would result in the loss of housing affordable to lower-income groups and increase the need for future low cost housing. A similar approach was adopted in the nearby Green Square renewal area in 1997. Initially, the provisions were applied through specifc plans for each of these areas. Developer compliance required the provision of a prescribed amount of affordable rental housing or an in lieu cash payment to the land use planning consent authority. Ownership of resulting dwellings passed to a custom-created not-for-proft entity, CityWest Housing Ltd, established in 1994 and later registered as a (government-shareholder owned) community housing provider. In Pyrmont-Ultimo, and also in a later initiative in the Green Square urban renewal area, separate obligations applied to residential andREVISED mixed-use development, with applicable ‘tariffs’ set at between 0.8 and 3% of proposed scheme foor area. In response to a challenge to the Green Square developer obligations mounted by Meriton in 1999, the obligations were judged an illegitimate interference with property rights in the NSW Land and Environment Court; deemed as unsupported by existing law (the NSW Environmental and Planning Assessment Act 1979). The State Government countered by enacting new legislation making affordable housing an object of the EP&A Act. Subsequently, in 2002, further legislation was passed as embodied in State Environment Planning Policy 70 (SEPP.70), thereby enabling 9 ROLES OF LAND USE PLANNING POLICY … 321

resurrection of Green Square affordable housing development contribution obligations. Mainly through developer in lieu affordable housing contributions under the Pyrmont-Ultimo/Green Square initiatives, but also drawing on other funding streams, CityWest Housing has gradually accumulated a portfolio of high-quality purpose-built housing to be let at affordable rents in perpetuity. Most of the portfolio has been procured directly using cash contributions rather than accumulated through developer assignment of units. However, albeit now functional for over 20 years in two Sydney neighbourhoods subject to extensive development over that period, the resulting scale of additional provision remains modest at under 900 dwellings in 2019. Main source: Williams (2015).

Under the SEPP 70 framework legislated in 2002 (see Box 9.3), the NSW Government can authorise local councilsPROOF to draw up affordable housing developer contribution schemes. Eligible local councils may sub- mit, for state government endorsement, proposed amendments to their local environmental plans so that the inclusion of affordable housing can be required as a condition of development consent. Affordable housing in this context is housing within the means of anyone whose gross household income is less than 120% of median area (e.g. Greater Sydney) income, and where within the means of refers to a cost threshold of 30% of gross household income. For most of its existence, SEPP 70 has been restricted in its application to the City of Sydney and only a handful of other NSW councils. In 2019, however, recognising the generality of affordable housing need, the state governmentREVISED extended this coverage NSW-wide. In other words, it was made possible for any municipality to devise an affordable housing contributions scheme for NSW Government approval (NSW Planning 2019b). In the case of SEPP 70, there is an expectation that affordable units thus mandated will be rental dwellings made available at below-market prices and managed by a registered not-for-proft provider. This raises the broader and important question of exactly what kind of housing IZ schemes are structured to deliver. Many would argue that the goal should 322 H. PAWSON ET AL. be the generation of rental housing to be made available at sub-market prices in perpetuity. Engineering the system so that resulting dwellings are social landlord owned is the simplest way to achieve this (and is common practice in the UK). In the United States, the norm for IZ-produced rental housing is that resulting dwellings remain in private ownership and must be rented out at below-market prices to qualifying tenants, usually for at least 30 years (Thaden and Wang 2017) (see Box 9.4). Where IZ expectations allow developers to discharge obligations through provision of affordable home ownership units, these may be only affordable to the extent that, as a relatively small dwelling, they command a market price below the all-dwelling norm. While some schemes require that initial sale prices are at sub-market levels, the likelihood is that the associated discount enjoyed by the frst owner will beneft that buyer only, because when the dwelling is later resold this will be a simple market transaction. While legal covenants can be used in an attempt to ‘lock in’ any initial sale discount, such devices are in fact seldomPROOF used.14

Box 9.4 Inclusionary zoning in the United States Inclusionary zoning has become an increasingly important mechanism used to facilitate the provision of affordable housing in the United States. Originating from landmark 1980s legal cases in Mount Laurel, New Jersey, the practice was initially taken up in the main by suburban communities elsewhere in New Jersey, as well as in California and Massachusetts. Latterly, it has been adopted by growing numbers of large cities including Baltimore, Chicago, Denver, New York, Philadelphia, Sacramento and Santa Fe (Schwartz 2015). Under these provisions, municipalities aim to foster the provision of below-marketREVISED housing. Thus, under planning powers, developers are required to “designate a portion of the housing they produce for low- or moderate-income households” (ibid., p. 283), usually in the range 5–25% (Metcalf 2018). However, highly disadvantaged groups “are considered beyond the reach of such programs, and dependent on deep subsidies potentially available only through upper-tier governments” (Drdla 2018). As a rule, IZ policies operated in the United States apply to all developments seeking planning approval within the municipality. Except in large

14 In contrast with other countries such as the UK, hybrid tenure models (e.g. shared ownership or shared equity) capable of facilitating low cost home ownership without this problem have been as yet very little used in Australia. 9 ROLES OF LAND USE PLANNING POLICY … 323

cities such as New York, they are not limited to sites subject to rezoning. Typically, such policies leave open the tenure of the affordable housing to be provided: “most US programs simply take a percentage of whatever the developers have decided to build” (Drdla 2018). Thus, the mandated housing delivered often takes the form of homes for low cost sale, because most developers are building dwellings for individual acquisition. According to a recent national survey for the Lincoln Institute of Land Management, mandated requirements applying to for-sale developments feature in around 54% of IZ schemes (Thaden and Wang 2017). However, market developers building multi-family rental housing (what would-be termed in Australia build to rent) are expected to provide a proportion as affordable rental, with the dwellings concerned remaining in developer ownership. The discount to market price or rent expected of affordable housing delivered under US IZ arrangements is typically 20–50% below the market level. There the required purchase price or rent is often couched in terms of what would be affordable to people receiving incomes calibrated against the Area Median Income (AMI), e.g. 50–80% of AMI (ibid.). Allocation of inclusionary units is often achieved by lottery, withPROOF hundreds or even thou- sands of applicants for each such dwelling (Metcalf 2018). In the American context, securing developer agreement to IZ obligations often involves municipalities granting incentives and/or concessions that mitigate fnancial loss incurred by devoting a part of a project to dwellings to be made available at below-market prices or rents. This may involve direct subsides (e.g. grants or zero interest loans), property tax abatements or density bonuses (ULI 2016). There have been debates on the contention that resources yielded through IZ schemes could be stretched further if preferentially levied as cash contributions to be spent in lower cost housing markets within the same metro region. Thus far, however, “policymakers have decided that it is more important to spend these resources to further the goal of income diversity REVISEDwithin their cities, in keeping with the concept of ‘inclusion’” (Metcalf 2018, p. 63).

South Australia Under the South Australian Government’s IZ framework, in place since 2005, the aim is to facilitate 15% affordable housing in “signifcant new developments and growth areas … of which a third should be affordable for high needs households” (Gurran et al. 2018, p. 31). Affordable in this context refers to prices (or rents) within the means of households 324 H. PAWSON ET AL. receiving up to 120% of the regional median income. This is the formula used by the Government to defne dwelling price points, deemed as the threshold of affordability for Greater Adelaide and regional cities, and for the remainder of the state. Target areas are specifed in local development plans. Importantly, the policy envisages affordable housing being integrated within developments to avoid “inappropriate concentrations of social housing”. Moreover, its standard must be “at least consistent with other dwellings in a development; for instance, in appearance, construction, materials, energy effciency and water conservation measures” (Government of South Australia 2011, p. 2). According to Gurran et al. (2018, p. 1) “17 per cent of total dwelling approvals within major new residential development areas of SA (2005- 15) have been dedicated affordable homes. Of these, a mix of different housing types across the continuum of housing needs and options have been delivered, including social and affordable rental housing and low cost home ownership”. Nevertheless, most hasPROOF involved housing for sale in suburban locations. Moreover, required price points have been achieved primarily through reduced lot sizes and dwelling specifcations not via an explicit discount to market. For infll sites, the framework has generally produced affordable units only on government–owned land (ibid.). Since this involves exertion of offcial leverage through ownership rather than through planning powers, it is questionable whether such dwellings can be accurately described as generated through the planning system.

9.5.4 Inclusionary Zoning—Future Prospects In 2018, the Government of Victoria announced a pilot project for the inclusion ofREVISED affordable rental housing within residential developments on government-owned sites. The decidedly modest aspiration was to generate “at least 100 affordable housing units” (Palm et al. 2018). NSW proposals that appear far more ambitious have been in gesta- tion for several years through the Greater Sydney Commission (Pawson 2016; Stubbs 2016). Most recently outlined under the GSC’s 2018 Greater Sydney Region Plan, these envisage the routine designation of affordable rental housing targets “in defned precincts, prior to rezoning” (GSC 2018, p. 70). Under these targets, developer contributions will be expected equating to 5–10% of the foor space resulting from rezoning uplift “subject [to] a viability test” (ibid.). This implies a calculation 9 ROLES OF LAND USE PLANNING POLICY … 325 to determine the fnancial impact of an affordable housing developer contribution to check that imposition of the 5–10% obligation does not ren- der the scheme unproftable. However, this has triggered some concerns, partly because of the way that the application of a ‘viability test’ has latterly impacted on the operation of the UK’s IZ type framework (see Box 9.5).

Box 9.5 Generating affordable housing through the planning system—UK experience Under S106 of England’s Town and Country Planning Act 1990, local authorities have been empowered to mandate affordable housing contributions within private development projects since the early 1990s. Recently, this has been complemented by the Community Infrastructure Levy regulations (Planning Act 2008). The value of the planning obligations imposed through such arrangements in 2016/2017 in England is estimated to have totalled £6.0 billion ($11.0 billion AUD). Within this, affordable housing contributions equated to £4.1 billion ($7.5 billionPROOF AUD) (Lord et al. 2018). Under the UK administrative framework, a developer’s ability to meet the cost of a planning obligation under S106 stems from the increment to value of land resulting from the grant of planning permission. Thus, as argued by Stephens (2019), such arrangements are “therefore unambiguously a form of land value-capture” (p. 13). Affordable housing contributions as stipulated under S106 planning agreements negotiated between local authorities and developers are often set in the range 20–25% of total dwellings. The homes concerned may be for discounted home ownership, for sub-market rental (e.g. at 80% of market rates) or social rental (usually around 40–50% of market rates). Typically, especially where involving social housing, some explicit subsidy (usually via capital grant) is still essential for scheme viability. In 2017/2018, nevertheless, someREVISED 25,000 affordable dwellings (including 3000 social housing units) were generated under S106 agreements with nil grant (MHCLG 2019). Apart from generating substantial effective subsidy, a result of the regime considered important by government has been its effect in engineering mixed tenure (and therefore mixed income) housing development. This has come about through the presumption of developer contributions through on-site inclusion of affordable housing. It has also enabled the development of social and affordable housing in higher status neighbourhoods, from which it was previously excluded. From 2012, the system was somewhat weakened by a detailed rule change effectively allowing developers to defect or dilute affordable 326 H. PAWSON ET AL.

housing obligations. This resulted from enhanced weight being accorded to project viability assessment (Sayce et al. 2016; Pawson 2017). Since 2018, however, new national planning guidance and also a pivotal court decision have once more limited the potential of viability testing to under- mine S106 effectiveness. Thus, quoting the 2018 National Planning Policy Framework, Stephens (2019, p. 16) highlights the importance of the stipu- lation that “Under no circumstances will the price paid for the land be relevant justifcation for failing to accord with the relevant policies in the plan”.

Some form of viability test may be appropriately part of an IZ framework during early years of implementation, to allow for situations where historic speculative acquisitions mean that developers will have ‘overpaid’ for sites in a pre-IZ era when affordable housing contributions were not anticipated. Arguably, however, the retention of viability test mechanisms beyond a transitional period is unnecessary, PROOFand, as UK experience has demonstrated (Sayce et al. 2016), potentially damaging to IZ objectives. The homes to be generated under the proposed GSC regime must be affordable for low to very low-income households, i.e. those receiving less than 80% of regional median income. Exactly how they will be delivered, however, has yet to be made clear. As a functional (albeit small scale) example, the Pyrmont-Ultimo/Green Square precedent is a signifcant local reference point and policymaker familiarity with this may point towards the regime being predicated on a default option where developer obligations are discharged primarily through payment of in lieu fees rather than through on-site affordable housing provision. Estimates by Phibbs and King (2018) suggest that the proposed GSC framework REVISEDmight yield between 3000 and 13,000 homes over a decade. Using similar methodology, SEPP 70 schemes were estimated as potentially generating an additional 4000 dwellings in Sydney over the same period. While certainly signifcant, these numbers need to be set within the context that NSW needs to generate an estimated 21,000 additional social and affordable homes over the decade 2016–2026 simply to keep pace with population growth (Pawson 2018). Moreover, it must be recognised that in the absence of additional fnancial subsidies being offered, the output generated by such measures will most likely involve dwellings to be made available at modestly discounted rents rather than at rates affordable to very low-income earners. 9 ROLES OF LAND USE PLANNING POLICY … 327

9.6 How Far Does Planning Constrain Housing Affordability? Finally, ahead of our chapter conclusion, we shift our focus to consider recent debates on the extent to which wider housing unaffordability can be fairly attributed to the effect of land use planning in constraining housing supply. Limitations associated with planning regulation affect new house building in four main ways (Gurran et al. 2009):

• Land acquisition—land values are affected (both positively and negatively) by planning policy settings. • Procedural obligations—time and resources associated with securing planning permission. • Compliance with design requirements—costs of meeting mandatory design controls that exceed basic health and safety standards. • Payment of fees or charges—for applicationPROOF processing and for infrastructure or community facilities.

Australian development industry players often loosely assert that the cost of compliance with planning obligations, taxes and fees directly adds to house prices, thereby impacting affordability. However, as reported by Gurran et al., most individual developers recognise that “a direct transfer of costs or charges [is] unworkable due to market dynamics” (ibid., p. 13). In other words, it is acknowledged (albeit often silently) that the price of new (or any other) housing is set by the market and not by the cumulative cost of the associated inputs. This is not to say that costs of provision are irrelevant. Developers are going to build for sale only if theirREVISED calculations show that estimated (market-set) prices are suffcient to justify development risk, factoring in proft margins of an acceptable level and all of the other scheme costs itemised in Figs. 9.1 and 9.2. Nevertheless, more in connection with restrictions on-site development for housing use, there is a strong and infuential lobby in Australia whose members argue that (1) the prime cause of Australia’s unduly expensive housing is shortage of supply and (2) this is a problem directly attributable to unnecessary and unproductive ‘planning restrictions’. Assertions along these lines are far from new. As noted by Beer et al. (2007, p. 14), the 1989 Special Premier’s Conference on Housing contended that problems of house price infation and diminishing access to home ownership 328 H. PAWSON ET AL. were attributable to ‘planning failures’. Or, as more recently argued “the problems of housing affordability … will mostly get worse unless state governments move on supply. Their highest priority should be building the public case for increased density, and then changing planning and approval processes accordingly” (Daley et al. 2018, p. 109). Similarly, Kendall and Tulip (2018) present analysis they interpret as demonstrating that development restrictions substantially infate house prices in Australia’s cities. The implicit assertion is that relaxation or removal of such rules would liberate developers to step up output, thus defating property prices and enhancing housing affordability. Arguments of this kind are familiar in comparator countries such as the United States and the UK, where some economists have contended that housing system problems primarily result from excess regulation, and they can be straightforwardly tackled by planning reforms such as the removal of urban boundaries and the abolition of green belts (Cheshire 2009; Glaeser and Ward 2009; Hilber and Vermeulen 2016). In the Australian context, Daley et al. (2018PROOF) argue that Australia has a growing housing affordability problem substantially driven by inadequate levels of residential construction. Thus, the post-GFC house price boom, particularly apparent in Sydney and Melbourne in the period 2012–2017, has been attributed in part to a situation where higher rates of population growth from the mid-2000s stimulated higher construction rates only after a lag of several years (Property Council of Australia 2017). In this view, policy will need to facilitate the continuance of the mid-2010s housing construction surge for decades ahead because of the need to overcome the contended undersupply backlog of the 2000s. Planning policy is also seen as partly responsible for the mismatch between the profle of new housing supply and consumer preferences in terms of well-locatedREVISED medium-density development, which, in reference to its limited provision in Australia’s major cities, is termed ‘the missing middle’. Crucially in this argument, the contended limiting factor for new housing supply is land use planning. The “failure to build enough housing to meet demand, and the failure to fll the missing middle, are primarily the result of planning restrictions” (Daley et al. 2018, p. 56). The measures the critics have in mind here include the density and height limits that, on their analysis, damagingly suppress the potential for medium-density redevelopment in inner ring suburbs. However, since states like NSW have maintained planning laws, under which local 9 ROLES OF LAND USE PLANNING POLICY … 329 council-driven controls may be overridden, respected academic experts judge that higher density housing development constraints have been “primarily market driven…rather than held back by restrictive local planning regimes” (Gurran and Bramley 2017, pp. 268–269). Without con- testing the existence of a missing middle problem, the argument here is that this may be attributable to developer behaviour and preferences at least as much as to planning policy. Moreover, according to the last national assessment, existing reserves of housing-designated land in and around Australia’s capital cities were suffcient to accommodate more than a decade’s total supply of dwellings (NHSC 2009). According to Gurran and Bramley, this remained true for Sydney in the mid-2010s. In addition, taking into consideration the operation of the planning process, it is argued that “…evidence to support the notion that Australia’s state and local planning processes are holding back housing production seems thin” (ibid., p. 276). Beyond this, there is a broader argument about the extent to which Australia is, in fact, experiencing a general housingPROOF shortage that, as critics would have it, results from restrictive planning controls that suppress house building. Calibrated in relation to population growth, Australia’s 2015 housing output was close to the comparator country norm (similar to the United States and around double the UK) (Rowley et al. 2017). This “suggests [that] inadequate supply is not the major cause of the affordability crisis” (ibid.). Similarly, using a completely different methodology Phillips and Joseph (2017) concluded that, taking the period 2001–2017, Australia as a whole had in fact experienced an oversupply of 164,000 dwellings. A different perspective is that Australia’s housing affordability problem is less about the absolute shortage and more about the increasingly unequal distributionREVISED of properties and living space. Refecting growing wealth inequality, for example, increasing rates of second home ownership co-exist with a rising incidence of homelessness and overcrowding. Moreover, survey evidence shows high and rising rates of housing underutilisation, with the number of owner-occupied homes underutilised by three or more bedrooms, e.g. up from 0.75 million in 2007– 2008 (14%) to 1.03 million in 2015–2016 (17%) (ABS 2017). The argument that house prices could be signifcantly reduced through expanded rates of residential construction also has to contend with the fact that newly built dwellings account for only around 2% of homes entering 330 H. PAWSON ET AL.

Australia’s housing market in any given year.15 The idea that output could ever be ramped-up suffciently to reduce prices more than temporarily must also confront the vanishingly small possibility that the private development industry would voluntarily enable this when ‘drip-feed’ behaviour has served them so well historically (Leishman 2017). The logic here points towards a strategy involving the promotion of a publicly led land development process and an enhanced diversity of suppliers to include small and medium-size developers as well as social housing providers. None of this is, of course, to deny the validity of the simple case that on any demand-growth projection, a lower supply growth scenario will result in prices above those associated with a higher supply growth variant. The crux of the argument is simply the contestation of the claim that expanded house building can reliably reduce prices from current levels (and hence improve affordability). Rather, critics of the ‘simply boost supply’ position contend that fundamental reform must tackle the avoid- able infation of housing demand that results from tax system distortions, from deeply embedded speculative mentalities,PROOF and, most challengingly, the global rise of housing fnancialisation.

9.7 conclusions Land use planning is inseparable from housing policy. As illustrated in Sect. 9.6, its signifcance is nonetheless hotly contested. We would tend to agree with the position that “Many of the accusations levelled at the planning system are motivated by desires to exploit it to extract rents, or to criticise its existence out of an ideological preference for free market principles” (Ryan-Collins et al. 2017, p. 216). Equally, although it is undoubtedly true that medium- and high-density inner-urban redevelopment REVISEDis suppressed under current planning frameworks, claims that relaxation of such controls would decisively impact housing affordability seem highly questionable. As elaborated in Chapter 10, we see the maximisation of housing supply as only one necessary component within a wider long-term strategy centred on dampening the speculative dynamic embedded in Australia’s housing system.

15 Factoring in an appreciation of this point in the UK housing market context, a 2005 estimate stated that “On some assumptions, a doubling of [new house building] output would be required in order to reduce the long-run real house price trend from 2.7 per cent to 1.1 per cent” (Meen 2005, p. 968). 9 ROLES OF LAND USE PLANNING POLICY … 331

Consistent with consensus aims to restrict the further growth of urban sprawl, a central aim of metropolitan strategic planning has been to contain fringe housing expansion of capital cities. For the most part, however, Australian governments have been reluctant to embrace effective countermeasures to offset resulting impacts on market housing prices by active interventions to protect and expand affordable housing. Efforts to incentivise or otherwise encourage market provision of affordable housing, most actively attempted in NSW, have delivered only very modest gains. As yet, the benefcial potential of planning policy in generating affordable housing is largely unrealised in Australia. Allowing landowners’ continued monopolisation of land value gains is a major public policy failure. To squarely address the affordable housing issue, however, federal and state governments will need to develop a coherent and integrated approach in which housing subsidy, tax and planning reform are pursued in tandem with local inclusionary housing strategies (further discussed in Chapter 10). PROOF

References ABS. (2017). Housing Occupancy and Costs, 2015–16 [Internet] (Cat. No. 4130.0). Canberra: Australian Bureau of Statistics. Available from: http:// www.abs.gov.au/ausstats/[email protected]/Lookup/by%20Subject/4130.0~2015- 16~Main%20Features~Housing%20Occupancy%20and%20Utilisation~4. Accessed 16 July 2019. Aubrey, T. (2016). Bridging the Infrastructure Gap: Financing Infrastructure Investment to Unlock Housing. London: Centre for Progressive Capitalism. Beer, A., Kearins, B., & Pieters, H. (2007). Housing Affordability and Planning in Australia: The Challenge of Policy Under Neo-Liberalism. Housing Studies, 22(1), 11–24.REVISED Bramley, G. (1997). Direct State Involvement in Housing Land Development: Australian Experience in Comparative Perspective (Research Paper). Melbourne: AHURI. Bramley, G., Munro, M., & Pawson, H. (2004). Key Issues in Housing: Housing Markets and Policies in 21st Century Britain. Basingstoke: Palgrave. Calavita, N., & Mallach, A. (Eds.). (2010). Inclusionary Housing in International Perspective: Affordable Housing, Social Inclusion and Land Value Recapture. Washington, DC: Lincoln Institute. Cheshire, P. (2009). Urban Containment, Housing Affordability and Price Stability—Irreconcilable Goals (Spatial Economics Research Centre Policy Papers). London: London School of Economics and Political Science. 332 H. PAWSON ET AL.

Crook, T. (2018). Local Authority Land Acquisition in Germany and the Netherlands: Are There Lessons for Scotland? Inverness: Scottish Land Commission. Crook, T., Henneberry, J., & Whitehead, C. (2016). Planning Gain: Providing Infrastructure and Affordable Housing. Chichester: Wiley. Daley, J., & Coates, B. (2016, October 19). Following the ACT Land Tax Approach Boosts Growth and State Budgets. Australian Financial Review. Daley, J., Coates, B., & Wiltshire, T. (2018). Housing Affordability: Reimagining the Australian Dream. Melbourne: Grattan Institute. Davison, G. (2011, November 29–December 2). The Role and Potential of Government Land Agencies in Facilitating and Delivering Urban Renewal. Paper presented at 5th State of Australian Cities Conference, Melbourne. Dodson, J. (2012). Transforming Australia’s ‘Housing Solution’: How We Can Better Plan Suburbia to Meet Our Future Challenges. In R. Tomlinson (Ed.), Australia’s Unintended Cities (pp. 19–32). Collingwood: CSIRO. Drdla, R. (2018, January 22). ‘Affordable Rental Housing Targets’—How Do the Greater Sydney Commission Proposals Match Up to US Practices? [Internet]. City Futures Blog. Available from: https://blogs.unsw.edu.au/ cityfutures/blog/2018/01/affordable-rental-housing-targets-how-do-the-PROOF greater-sydney-commission-proposals-match-up-to-us-practices/. Accessed 15 August 2019. Fensham, P. (2017). Development Contributions, Value-Capture and Voluntary Planning Agreements [Internet]. New Planner, p. 110. Available from: https://www.sgsep.com.au/publications/development-contributions-value-capture-and-voluntary-planning-agreements. Accessed 15 August 2019. Ford, J., & Gomez Lanier, L. (2017). Are Tiny Homes Here to Stay? A Review of Literature on the Tiny House Movement. Family and Consumer Sciences, 45(4), 394–405. Forster, C. (2006). The Challenge of Change: Australian Cities and Urban Planning in the New Millennium. Geographical Research, 44(2), 173–182. Glaeser, E. L., & Ward, B. A. (2009). The Causes and Consequences of Land- Use Regulation:REVISED Evidence from Greater Boston. Journal of Urban Economics, 65(3), 265–278. Government of South Australia. (2011). Affordable Housing—Overlay 1. South Australian Planning Policy Library, Technical Information Sheet 6. Adelaide: Government of South Australia. GSC. (2018). A Metropolis of Three Cities: The Greater Sydney Region Plan. Sydney: Greater Sydney Commission. Gurran, N. (2011). Australian Urban Land-Use Planning: Principles, Systems and Practice (2nd ed.). Sydney: Sydney University Press. Gurran, N., & Bramley, G. (2017). Urban Planning and the Housing Market. London: Palgrave Macmillan. 9 ROLES OF LAND USE PLANNING POLICY … 333

Gurran, N., Gilbert, C., Gibb, K., van den Nouwelant, R., James, A., & Phibbs, P. (2018). Supporting Affordable Housing Supply: Inclusionary Planning in New and Renewing Communities (AHURI Final Report No. 297). Melbourne: AHURI. Gurran, N., Ruming, K., & Randolph, B. (2009). Counting the Costs: Planning Requirements, Infrastructure Contributions, and Residential Development in Australia (AHURI Final Report No. 140). Melbourne: AHURI. Gurran, N., & Whitehead, C. (2011). Planning and Affordable Housing in Australia and the UK: A Comparative Perspective. Housing Studies, 26(7–8), 1193–1214. Hall, P., Thomas, R., Gracey, H., & Drewett, R. (1977). The Containment of Urban England. London: Allen & Unwin. Hilber, C., & Vermeulen, W. (2016). The Impact of Supply Constraints on House Prices in England. The Economic Journal, 126(591), 358–405. House of Commons. (2018). Land Value-Capture (Tenth Report of Session 2017–2019, Housing, Communities and Local Government Committee). London: UK Parliament. Johnston, C. (2010, September 24). Henry on Housing: The Australia’s Future Tax System Reports [Internet]. Shelter NSW PROOFMemo. Sydney: Shelter NSW. Available from: http://pandora.nla.gov.au/pan/126448/20110411-1517/ www.shelternsw.org.au/docs/mem1009comment-henryreview.pdf. Accessed 16 July 2019. Kendall, R., & Tulip, P. (2018). The Effect of Zoning on Housing Prices (RBA Discussion Paper No. 2018-03). Sydney: Reserve Bank of Australia. Kulish M., Richards, A., & Gillitzer, C. (2011). Urban Structure and Housing Prices: Some Evidence from Australian Cities (RBA Research Discussion Paper No. 2011-03). Sydney: Reserve Bank of Australia. Leishman, C. (2017). Is Australian Housing Supply Adequate? In CEDA (Ed.), Housing Australia [Internet] (pp. 51–66). Melbourne: Committee for Economic Development of Australia. Available from: http://www.ceda.com. au/Research-and-policy/All-CEDA-research/Research-catalogue/Housing- Australia.REVISED Accessed 22 August 2018. Leishman, C., & Rowley, S. (2012). Affordable Housing. In D. Clapham, W. A. V. Clark, & K. Gibb (Eds.), The Sage Handbook of Housing Studies (pp. 379–398). London: Sage. Lord, A., Dunning, R., Dockerill, B., Burgess, G., Carro, A., Crook, A. D. H., et al. (2018). The Incidence, Value and Delivery of Planning Obligations and Community Infrastructure Levy in England in 2016–17. London: Ministry for Housing, Communities and Local Government. Meen, G. (2005). On the Economics of the Barker Review of Housing Supply. Housing Studies, 20(6), 949–971. 334 H. PAWSON ET AL.

Metcalf, G. (2018). Sand Castles Before the Tide? Affordable Housing in Expensive Cities. Journal of Economic Perspectives, 32(1), 59–80. MHCLG. (2019). Live Tables on Affordable Housing Supply: Table 1000 [Internet]. London, UK: Ministry of Housing, Communities and Local Government. Available from: https://www.gov.uk/government/statistical- data-sets/live-tables-on-affordable-housing-supply. Accessed 15 August 2019. Murray, C. (2016, September 20). Gold Coast Light Rail Study Helps Put a Figure on Value-Capture’s Funding Potential [Internet]. The Conversation. Available from: https://theconversation.com/gold-coast-light-rail-study- helps-put-a-fgure-on-value-captures-funding-potential-65084. Accessed 15 August 2019. Murray, C. and Frijters, P. (2017) Game of Mates: How favours bleed the nation. NHSC. (2009). State of Supply Report 2008 [Internet]. Canberra: Commonwealth of Australia. Available from: https://treasury.gov.au/publication/ state-of-supply-report-2008. Accessed 15 August 2019. NSW Legislation. (2009). State Environmental Planning Policy (Affordable Rental Housing) 2009 [Internet]. Sydney: NSW Government. Available from: https://www.legislation.nsw.gov.au/#/view/EPI/2009/364. Accessed 2 August 2019. PROOF NSW Planning. (2019a). Complying Development [Internet]. Sydney: NSW Government. Available from: https://pp.planningportal.nsw.gov.au/onlin- ecdc. Accessed 2 August 2019. NSW Planning. (2019b). Guideline for Developing an Affordable Housing Contribution Scheme [Internet]. Sydney: NSW Government. Available from: https://www.planning.nsw.gov.au/-/media/Files/DPE/Guidelines/guideline-sepp70-developing-affordable-housing-contribution-scheme-2019- 02-28.pdf. Accessed 16 August 2019. Nelson, A. C., & Wachter, S. M. (2003). Growth Management and Affordable Housing Policy. Journal of Affordable Housing and Community Development Law, 12(2), 173–187. Palm, M., Whitzman, C., & Raynor, K. (2018, September 7). Put Unused and ‘Lazy’ Land to WorkREVISED to Ease the Affordable Housing Crisis [Internet]. The Conversation. Available from: https://theconversation.com/put-unused-and-lazy-land-to-work- to-ease-the-affordable-housing-crisis-102720. Accessed 16 August 2019. Pawson, H. (2016, November 2). The Greater Sydney Commission Could Deliver a Step-Change Policy Advance on Affordable Housing [Internet]. City Futures Blog. Available from: http://blogs.unsw.edu.au/cityfutures/ blog/2016/11/the-greater-sydney-commission-could-deliver-a-step-change- policy-advance-on-affordable-housing/. Accessed 16 July 2019. Pawson H. (2017, July 20). Sydney Must Heed Lessons of London Affordable Housing Fiasco. City Futures blog. Available at: http://blogs.unsw.edu.au/ cityfutures/blog/2017/07/sydney-must-heed-lessons-of-london-affordable- housing-fasco/. Accessed 27 August 2019. 9 ROLES OF LAND USE PLANNING POLICY … 335

Pawson, H. (2018, May 8). NSW Is Overselling Its Social Housing Commitment [Internet]. City Futures Blog. Available from: http://blogs. unsw.edu.au/cityfutures/blog/2018/05/nsw-is-overselling-its-social-housing-commitment/. Accessed 16 July 2019. Pawson, H., Dalton, T., & Hulse, K. (2015). Rooming House Futures: Governing for Growth, Transparency and Fairness (AHURI Research Paper). Melbourne: AHURI. Phibbs, P., & King L. A. (2018). Potential Affordable Dwelling Yields from a NSW Inclusionary Zoning Scheme (Report prepared for Shelter NSW). Sydney: University of Sydney. Phillips, B., & Joseph, C. (2017). Regional Housing Supply and Demand in Australia (CSRM Working Paper). Canberra: Australian National University. Available from: https://csrm.cass.anu.edu.au/research/publications/regional-housing-supply-and-demand-australia. Accessed 27 August 2019. Property Council of Australia. (2017). Fixing Housing Affordability: A 10-Point Plan to Unlock Housing Affordability and the Essential Next Steps Needed to Make It Happen [Internet]. Sydney: Property Council of Australia. Available from: https://www.propertycouncil.com.au/Web/Content/Media_Release/ National/2017/Property_Council_releases_its__Fixing_Housing_PROOF Affordability_Plan_.aspx. Accessed 16 July 2019. Robinson, J., & de Gruyter, C. (2018). Financing Infrastructure Through User- Pays Development Contributions: An Assessment of Australian Practice. Australian Planner, 54(3), 165–176. Rowley, S., Gurran, N., & Phibbs, P. (2017, March 7). Australia’s Almost a World Leader in Home Building, so That Isn’t a Fix for Affordability [Internet]. The Conversation. Available from: https://theconversation.com/ australias-almost-a-world-leader-in-home-building-so-that-isnt-a-fx-for-affordability-73514. Accessed 16 July 2019. Ruming, K. (2018). Metropolitan Strategic Plans: Establishing and Delivering a Vision for Urban Regeneration and Renewal. In K. Ruming (Ed.), Urban Regeneration in Australia (pp. 27–50). London: Routledge. Ryan-Collins,REVISED J., Lloyd, T., & Macfarlane, L. (2017). Rethinking the Economics of Land and Housing. London: Zed Press. Sayce, S., Crosby, N., Garside, P., Harris, R., & Parsa, A. (2016). Viability and the Planning System: The Relationship between Economic Viability Testing, Land Values and Affordable Housing in London [Internet]. Cirencester: Royal Agricultural University. Available from: https://www.rau.ac.uk/sites/ files/rau/field/field_document/Viability%20and%20the%20Planning%20 System%20Research%20January%202017.pdf. Accessed 16 July 2019. Schuetz, J. (2009). No Renters in My Suburban Backyard: Land-Use Regulation and Rental Housing. Journal of Policy Analysis and Management, 28(2), 296–320. 336 H. PAWSON ET AL.

Schwartz, A. (2015). Housing Policy in the United States (3rd ed.). New York: Routledge. Shearer, H. (2014, November). Move over, McMansions—The Tiny House Movement Is Here [Internet]. The Conversation. Available from: https:// theconversation.com/move-over-mcmansions-the-tiny-house-movement-is- here-32225. Accessed 16 July 2019. Spiller, M., Mackevicius, L., & Spencer, A. (2018). Development Contributions for Affordable Housing: Theory and Implementation [Internet]. Canberra: SGS Economics and Planning. Available from: https://www.sgsep.com.au/down- load_fle/view_inline/1581. Accessed 16 July 2019. Stapledon, N., & Fox, K. (2016). Value-Capture Is Not a Magic Pudding [Internet]. Sydney: Urban Task Force. Available from: https://www. urbantaskforce.com.au/wordpress/wp-content/uploads/images/Media_ Releases/2016/Value_Capture_is_Not_a_Magic_Pudding.pdf. Accessed 16 July 2019. Stephens, M. (2019). Land Value-Capture Through Planning and Taxation. In M. Stephens, J. Perry, P. Williams, & G. Young (Eds.), UK Housing Review 2019 (pp. 11–18). Chartered Institute of Housing: Coventry. Stubbs, J. (2016, November 29). Too Little, ButPROOF Not Too Late? [Internet]. City Futures Blog. Available from: http://blogs.unsw.edu.au/cityfutures/ blog/2016/11/too-littlebut-not-too-late/. Accessed 16 July 2019. TfL and GLA. (2017). Land Value-Capture [Internet] (Final Report). London: Transport for London and Greater London Authority. Available from: https://www.london.gov.uk/sites/default/fles/land_value_capture_report_ transport_for_london.pdf. Accessed 16 July 2019. Thaden, E., & Wang, R. (2017). Inclusionary Housing in the United States: Prevalence, Impact, and Practices. Cambridge, MA: Lincoln Institute of Land Policy. Troy, L., van den Nouwelant, R., & Randolph, B. (2018). State Environmental Planning Policy (Affordable Rental Housing) 2009 and Affordable Housing in Central and Southern Sydney [Internet] (City Futures Research Report). Sydney: REVISEDUNSW. Available from: https://cityfutures.be.unsw.edu.au/docu - ments/496/AHSEPP_Review_SSROC_FINAL.pdf. Accessed 16 July 2019. ULI. (2016). The Economics of Inclusionary Development [Internet]. Washington, DC: Urban Land Institute. Available from: http://americas.uli.org/wp-content/uploads/sites/2/ULI-Documents/Economics-of-Inclusionary-Zoning. pdf. Accessed 16 July 2019. Visentin. (2016, October 24). Developers Need Incentives to Build Affordable Housing, Industry Says. Sydney Morning Herald. Available at: https://www. smh.com.au/national/nsw/developers-need-incentives-to-build-affordable-housing-industry-says-20161024-gs9dqd.html. Accessed 27 August 2019. 9 ROLES OF LAND USE PLANNING POLICY … 337

Williams, P. (2015). The Affordable Housing Conundrum: Shifting Policy Approaches in Australia. Town Planning Review, 86(6), 651–675. Wood G., Ong, R., Cigdem, M., & Taylor, E. (2012). The Spatial and Distributional Impacts of the Henry Review Recommendations on Stamp Duty and Land Tax (AHURI Final Report No. 182). Melbourne: AHURI.

PROOF

REVISED CHAPTER 10

Housing Policy in Australia: A Reform Agenda

10.1 The Case for Urgent Action “There is a pressing need for overall reform of housing and housing-related policies, especially taxation”.PROOF So concluded Chris Paris, the last author to attempt an overarching review of Australia’s housing system (1993, p. 247). Similar sentiments litter the pages of numerous subsequent books, journal papers and offcial reports.1 Far from fxing the nation’s fawed housing policy architecture, however, governments of the past quarter century have signifcantly compounded the problem. The evidence marshalled in this book demonstrates not only the continuing validity of the Paris position, but also the greater seriousness and urgency of the situation a generation later. Detrimental changes to Australia’s housing system over recent decades have driven an ongoing deterioration in housing access and affordability affecting all tenures. This trend has most adversely affected lower-income groups, vulnerableREVISED minorities and new entrants to the housing market. Headlining the story is the rise in average real house prices by more than three times the rate of increase in real wages between 1993 and 2018 (Fig. 3.2). An increase in the price-to-income ratio on this scale easily outweighs the effect of lower interest rates in enabling cheaper housing fnance. It also leaves would-be buyers facing a deposit gap

1 For example, ten such post-2010 contributions of this kind by Parliamentary committees, academics and industry bodies are referenced in footnote 40 in Yates (2017).

© The Author(s) 2020 339 H. Pawson et al., Housing Policy in Australia, https://doi.org/10.1007/978-981-15-0780-9_10 340 H. PAWSON ET AL. far larger than that experienced by the previous generation (Fig. 3.5). Accordingly, younger adult (age 25–34) home ownership rates have fallen by 10 percentage points since the Paris conclusion (Fig. 5.2). Another fow-on effect of house price infation is seen in the dramatic rise in buyer indebtedness. Between 1993 and 2018 housing (mortgage) debt as a proportion of annual disposable income climbed from 39 to 140% (Fig. 2.1). Declining entry into home ownership and the ongoing contraction of social housing have underpinned private rental as Australia’s growth tenure in the last two or more decades (Fig. 1.2). The resultant pressure on rent levels (Fig. 3.10) has intensifed rental stress among lower-income tenants, especially families with children. In the ten years to 2016, the proportion of lower-income tenants paying unaffordable rents rose from 36 to 47% in the capital cities and from 34 to 38% in other areas (Fig. 3.8).2 This is attributable to the shortfall in private rental dwellings accessible and affordable to low-income renters more than doubling to 305,000 over the two decades to 2016 (Sect.PROOF 3.4.2) and to the failure of Rent Assistance (RA) to keep pace with rising rents. Social housing, the tenure traditionally intended for those unable to source affordable and appropriate market housing, has been ill-equipped to take the strain of these changes. Declining government investment in both new provision and in the maintenance and re-profling of the existing stock has bequeathed a system in fnancial strife. The number of social housing dwellings per 100 households declined from 6.2 in 1991 to 4.2 in 2018 (Fig. 4.3). The resulting intensifcation of rationing has seen new lettings more heavily restricted than ever and tenure security has been eroded (see Chapter 4). The rising cost of housing has also contributed to an increase in after-housingREVISED poverty rates. In 1975, aggregate poverty rates were mit- igated by housing outcomes. By 2015–2016 the situation had reversed: before-housing poverty rates were falling, but after-housing poverty rates were higher than before-housing poverty rates. As a result, over 1.3 million people have been pushed into poverty by unaffordable housing costs. This effect is especially marked for private renters and home buyers. However, it also affects a sizeable group in social housing for whom prevailing rents (25% of income)

2 These are net measures which exclude RA from income and housing costs, which means they are considerably lower than the gross measures often reported. 10 HOUSING POLICY IN AUSTRALIA … 341 are unaffordable (Sect. 3.3.3). Augmenting the population cohort in after-housing poverty, people counted as homeless increased by 30% to 116,000 in the ffteen years to 2016 (ABS 2018). The coincidence of this increasingly problematic housing system performance with Australia’s record-breaking 27-year run of continuous economic growth (1992–2019) makes a lack of remedial policy action especially indefensible. The probability of further deterioration was openly acknowledged in a recent high-level offcials’ report: “Without reforms to existing policy settings, the current undersupply of affordable housing is likely to intensify, placing ongoing pressure on the private rental market, community and public housing providers, and government expenditure on housing and other assistance” (AHWG 2016, p. 2). The scale and often politically challenging nature of required change is of course acknowledged by the current authors. Many of the policy shifts needed to effectively address housing unaffordability challenge deeply embedded beliefs about the sanctity PROOFof property ownership and the sovereign right to unearned wealth gains. In any complex system, the most powerful leverage points are not always the most intuitive. Necessary actions, in our view, would need to extend well beyond the restricted market-enabling remit that generally determines policy legitimacy under the neo-liberal governance paradigm (see Chapter 2). In plain terms, any serious effort to confront housing unaffordability demands a more pro-active and socially responsible state that promotes a fairer housing tax and policy regime. Consideration of housing rights will be central to this. National leadership, common objectives and consistent action across spheres of government will be crucial in re-setting the country’s housingREVISED course. 10.1.1 The Remainder of This Chapter We will frst revisit our exploratory themes: an international comparative perspective, the fnancialisation of housing and housing system governance. Next, we briefy highlight current and future housing challenges for Australian governments, identify strategic priorities for action and outline guiding principles for a transformational national housing strategy. This is followed by suggested measures that could and should be enacted as ‘low hanging fruit’ reforms with no signifcant budgetary cost to government, but with immediate potential to ease the affordable 342 H. PAWSON ET AL. housing shortage or to enhance tenant well-being. Before concluding, we identify policy considerations that lie beyond our scope. Our main aim here is to indicate a pathway to housing system reform. While certain specifc policy measures are advocated along the way, there is no attempt to provide a comprehensive menu of recommended changes. We do, however, draw on existing published work that proposes such measures in a more itemised fashion (e.g. Pawson et al. 2015; Yates 2016, 2017; Milligan et al. 2017).

10.2 revisiting Our Exploratory Themes

10.2.1 International Comparison Application of an international comparative lens to Australia’s housing policy challenges has helped us to inform debate by providing a vehicle for exploration of policy possibilities and policy consequences. As shown in Chapters 4–6, Australia’s housing experiencesPROOF and policy stances of the past 30 years or more exhibit many parallels with benchmark nations. This is no surprise, given the adherence to pervasive neo-liberal thinking and the shared exposure to global fnancial trends. Equally, Chapters 8 and 9 highlight many comparator country housing policy initiatives, directions or commitments that are both more ambitious and more effective in promoting access to stable and affordable housing than anything experienced in Australia. Long-term government support for the expansion of affordable rental housing in the USA, UK and continental Europe has created fnancially robust not-for-proft providers with the capacity to leverage existing assets to fund new investment in affordable housing. In the Netherlands and Germany the state buys developmentREVISED land at agricultural value, and funds necessary infrastructure costs from resulting land value uplift. The UK’s Section 106 planning agreements have, over 25 years, enabled value-capture for affordable housing on a very signifcant scale.

10.2.2 Housing Financialisation In Chapters 5 and 6, we illustrated the ways that Australia’s housing system has become increasingly fnancialised since the mid-1980s, but particularly since 2000. The conceptualisation of housing primarily as an investable asset rather than a social good has become deeply embedded 10 HOUSING POLICY IN AUSTRALIA … 343 in this nation of housing investors (whether as owner-occupiers or landlords). By international standards, the extent and recent growth of small-scale landlordism is unusually manifest in Australia. As analysed in Chapters 3, 5, 6, and 9, the tax-advantaged attraction of land and housing for speculative investment is widely seen as crucial in contributing to the long-run residential property infation likewise especially marked in Australia since the 1990s.

10.2.3 Governance of Housing Policy Throughout the book we have examined the implications of Australia’s tiered and siloed system of governance for the operation of its housing system, and for the policymaking process as it applies to housing. A number of signifcant governance concerns emerge from this analysis.

• Lack of strategic leadership on housing at either national or state/ territory levels of government. PROOF • Increasing fragmentation of responsibility for housing policy matters across a multiplicity of government entities and players. • Emasculation of policymaking capacity in this area.

It is now more than a quarter of a century since the last offcial effort to develop a national housing strategy (NHS 1992). At both higher levels of government, a major institutional problem has arisen from the progressive disappearance and/or downgrading of ministerial housing portfolios and associated departments since the late 1990s. Subsequently, aspects of housing policy have been split across departmental lines, with little if any effort to foster any system-wide analysis or coordinated policy development.REVISED Constitutionally, policy responsibility for urban planning, housing development and provision lies at the state/territory level. There, the contemporary administrative preference to merge former State Housing Authorities and other housing policy entities into larger agencies (usually Human Services) has resulted in a loss of any housing identity or strategic voice within government. Administrative changes of this kind have damagingly eroded offcial housing policy domain knowledge and policymaking capacity (Milligan and Tiernan 2012; Pawson et al. 2019). This process has proceeded in parallel with the increasing tendency to view housing policy as a subset of welfare policy. While declining capacity can be fairly portrayed as an 344 H. PAWSON ET AL. aspect of the hollowing out of government widely seen across many policy felds, both domestically and in comparator countries (Jessop 2004; Tingle 2015), a case can be made that the process has been particularly far-reaching as it has affected housing in Australia.

10.3 Current Housing Challenges in 2020

10.3.1 The Key Policy Challenges Few informed observers would deny that Australian governments face signifcant and growing policy challenges in the housing domain. Conventional market-based wisdom leads many to prioritise policies directed to enabling suffcient new housing supply to match rapid population growth. In our view, however, governments should also be facing up to more politically challenging, but scarcely less important residential property questions, such as how to discourage speculative investment in land and housing (see Chapters 5 and 6) andPROOF how to renew, replace and expand the nation’s crumbling public housing portfolio (see Chapter 4). Within this book’s remit, Australia’s key policy problem is buyer or renter affordability, along with the associated need for expanded affordable housing provision. Critical aspects of this problem concern the growing barriers faced by aspiring frst home buyers and the stress experienced by a minority of home buyers struggling to pay-off large mortgages. Nevertheless, without downplaying the importance of these matters, we argue that greater policymaker attention should be directed to tackling the high and rising incidence of housing stress affecting low-income renters and the directly linked issue of rising homelessness. These are the groups whose housing situation is, in aggregate, most pressured and whose housingREVISED opportunities will likely become even more constrained without profound system change. Crucially, housing unaffordability in Australia has become a structural, not just a cyclical, problem. It is a challenge that fundamentally stems from the interaction of rising demand with supply that is inherently constrained by the limited availability of well-located land. Structural challenges on the demand-side arise from population growth, a generally rising standard of living and from the growing economic inequality under neoliberalism. On the supply side they arise from the numerous factors that inhibit housing production. These result partly from the geography of Australia’s major cities. They also arise from 10 HOUSING POLICY IN AUSTRALIA … 345 policy failures such as governments’ long-running underinvestment in rapid transit systems and other forms of infrastructure (see Sect. 3.4.1). Overwhelming reliance on private developers operating under a business model geared to meeting volatile individual investor and owner-occupier demand is another structural (institutional) limitation. However, we are unconvinced by claims that the main constraint on construction is the regulation of development via land use planning (see Sect. 9.6). Rather, land use planning levers can be reasonably portrayed as a potential solution to the loss of affordable housing arising from demand pressures. In any event, given the scope of structurally embedded issues, nothing short of broad-based system reform will properly address the nation’s unaffordability problem in a signifcant and sustainable way. Emphasising the structural nature of the problem does not deny the importance of cyclical considerations. Indeed, as demonstrated only too well by the experience of the past decade (see Chapter 3), market volatility poses its own challenge to Australian housing policymakers. The capacity for such instability is hardwired intoPROOF a market where speculative traditions and incentives are deeply entrenched. Damaging effects include behavioural impacts on market players, as owners and investors factor expectations of future price rises or declines into their housing behaviour (Stephens 2012) and the construction industry wastefully and ineffciently gears up and winds down in response. On the demand side, the marginal relief for frst home buyers that arises in a cyclical downturn has typically been short-lived. Dysfunctional aspects of Australia’s housing system also bring with them longer-run economic, fscal and social costs. There is growing evidence that Australia’s underperforming national housing system is increasingly dampening economic productivity (Maclennan et al. 2019). From a narrowerREVISED cost-to-government perspective, the declining rates of home ownership among younger age groups, which are projected to fl- ter through to older age groups over coming decades, will likely impose new stress on public expenditure. A growing number of lower-income older private renters will generate political pressure for higher rates of Rent Assistance, the Age Pension, or both. Moreover, with the expected rise in the number of mortgaged homeowners reaching retirement age, many will draw on accumulated superannuation savings to discharge housing debt. This in turn will probably mean that “a higher proportion of retirees may remain wholly or partially dependent on the age pension than currently assumed” (Eslake 2017, p. 3). 346 H. PAWSON ET AL.

10.4 a Reform Agenda

10.4.1 Changing Sentiments Rising housing unaffordability is the kind of intractable issue that is easily labelled a wicked policy problem as discussed in relation to Indigenous housing (see Chapter 7). Its post-1990s intensifcation in Australia owes much to policy inaction and mistaken policy choices, as well as to per- sistent offcial resistance to critical analysis, especially contributions that challenge a conventionally unqualifed faith in markets. However, across the Anglophone world, the post-GFC era has given rise to a growing sense that core aspects of the governmental mindset that have underpinned housing policy since the 1980s need re-setting. This is not meant to imply any great confdence that Australia and comparator countries are necessarily positioned on the brink of long overdue major reforms. Nevertheless, at least in Australia, Canada and the UK, we detect recently growing adherence to a progressive critique of many well-established assumptions that have buttressedPROOF orthodox housing policy in the neo-liberal era. As discussed in Chapter 2, increasingly contested traditional thinking includes:

• The view that state action should be generally reduced or minimised wherever possible. • An aspiration to reduce public debt and borrowing, irrespective of the associated potential for productivity-enhancing investment. • A belief that markets are usually both effcient and effective, and that deregulation intrinsically enhances these qualities. • The notion that housing markets are essentially well-functioning systems,REVISED with few inherent market failures. Among leading economists, think tanks, national advisory bodies, industry stakeholders, business leaders and some policymakers in Australia (and in certain comparator countries), there have been recent signs of a dawning realisation that housing outcomes, including quality, price and location, have signifcant impacts on the ‘big goals’ of governments. In other words, housing system underperformance is increasingly compromising broader public policy objectives. There is also a growing recognition that perversely distributed subsidies (such as rising tax expenditures for well-off property owners) have exacerbated rather than offset the effect of rising house prices and rents on income and wealth inequality. 10 HOUSING POLICY IN AUSTRALIA … 347

10.4.2 Reform Objectives Because of its highly interconnected nature (see Fig. 1.1), a housing system needs to be governed accordingly. Narrowly focused initiatives that address discrete symptoms of the unaffordability problem, or are the domain of a particular minister, are often ineffective or even self-defeating. For example, the political attractiveness of frst homeowner grant programs ignores the typically inequitable impact of such schemes and (without complementary measures to boost supply) their inevitable tendency to further fuel prices. What is loosely termed the housing affordability challenge is in fact a complex set of interconnected problems that must be understood holistically. These issues can only be effectively tackled by broad and far-reaching action that targets the causes of unaffordability. This would necessarily involve both major tiers of government. Moreover, not only because of their often controversial nature, but also because of their necessarily long implementation timescale, reforms of this kind would demand bi-partisan political support for any chancePROOF of surviving electoral cycles. Partly with this in mind, we see it as essential that a wide-ranging policy re-set is shaped and defned within a comprehensive and cohesive long-term national housing strategy. Before discussing guiding principles for the design of such a strategy, we frst outline the intent of reform. The primary goal is to ensure all Australians have a decent home at a cost they can afford. This aspiration must be pursued by means that will ensure Australia’s future housing system contributes effectively to its core national economic and social objectives. More specifcally, taking account of the challenges arising from the operation of Australia’s present housing system described throughoutREVISED this book, the plan must aim to: • Restore intragenerational and intergenerational equity in housing outcomes. • Encourage additional housing affordable to low and moderate-income earners. • Discourage over-investment (and speculation) in land and housing. • Counteract the spatially polarising effects of housing market processes. • Expand the non-market component of the housing system to better accommodate disadvantaged groups and to insulate the system from market volatility. 348 H. PAWSON ET AL.

10.4.3 Strategy Principles and Their Implications A national housing strategy to fulfl the above priorities should be formulated around the following guiding principles:

• A system-wide perspective. • Addressing the fundamental drivers of housing unaffordability. • Promoting tenure equity and housing choice. • National leadership. • Institutional capacity-building. • Phased implementation.

A System-Wide Perspective The frst of the above principles revisits the issue that what governments conceptualise as ‘housing policy’ is often too narrowly defned (see Chapter 1). Housing policy instruments span taxation and regulation as well as explicit government expenditures in various forms, e.g. including housing allowance payments throughPROOF the social security system (Rent Assistance in Australia) and other demand and supply subsidies (Table 1.1). Similarly, a national housing strategy must encompass the powers and responsibilities of both main tiers of government, as well as those of local councils. It must span essentially artifcial departmental boundaries within governments, and it must relate to the full range of housing stakeholders beyond offcialdom. A system-wide perspective also brings into focus the connections between housing policy and other felds such as economic policy, transport infrastructure and social security. Addressing the Underlying Drivers of Housing Unaffordability The critical housing challenge we have identifed is that suitable housing of an acceptableREVISED standard is priced by the market at levels which make it unaffordable for an increasing number of low- and moderate-income households. At a basic level, therefore, a national housing strategy must aim to make housing less expensive and/or to enhance consumers’ ability to pay what are otherwise ‘unaffordable’ prices (rents). It is hard to see how such a plan could avoid confronting the politically challenging need for far-reaching housing tax reforms to take some of the heat out of the market. In addition to such action, there is an immediate need to supplement the fnancial means of low-income renters facing housing stress. A straightforward approach to this would be to boost Rent Assistance 10 HOUSING POLICY IN AUSTRALIA … 349 and/or other welfare benefts, such as Newstart. More ambitiously, a push to enhance low-income tenants’ ability to meet market rents would include labour market policies to redress the problems of low pay and insecure employment, which have burgeoned with the emergence of the gig economy. Infuential voices such as the Productivity Commission and the Grattan Institute advocate raising RA rates in preference to subsidising affordable housing supply, e.g. through capital grants or revenue support payments. In their view, channelling subsidy in this way is a more effcient means of addressing housing unaffordability at the lower end of the income scale. It is important to recognise, nevertheless, that the inherent insecurity of private renting in Australia makes it unsuitable for many lower-income households. Beyond this, there is a reasonable expectation that a social rental property designed, built and professionally managed for the purpose may well provide a better product than the standard lower cost private rental offer. Redress for discriminatory letting practices PROOFand integration of housing with tenancy support services are also important functions of social housing, particularly for vulnerable groups (see Chapter 7). Thus, even if the approach of housing lower-income households through the private market via income subsidy satisfes effciency criteria, it may not be effective in meeting our objective of secure and appropriate housing. More fundamentally, a strategy prioritising higher demand-side subsidies will be ineffective unless affordable housing supply is expanded in concert.3 This will require additional government capital or recurrent expenditure to support the fnancing of a signifcantly scaled up affordable housing supply program (see Chapter 8). The growing fnancialisation of housing assets over recent decades is another criticalREVISED underlying driver of unaffordability in Australia and globally. The greater part of residential property infation results from rising land values, not the appreciating worth of dwellings themselves. When economic growth infates demand for property, land values rise and landowners beneft from unearned wealth (economic rent). In this way, they can cream off or ‘extract’ beneft resulting from the actions of other players (see Chapter 9).

3 A large part of any increase would likely otherwise be absorbed by landlords via higher rents (see Chapter 6). 350 H. PAWSON ET AL.

For these reasons, Australia’s tax and land use planning systems need to be reconfgured to capture at least a portion of any increase in land values for the public good. Part of the resulting beneft could be directed to affordable housing viewed as essential infrastructure. While such an objective could be achieved through a broad-based land tax (perhaps introduced in a revenue-neutral exchange for stamp duty), international experience demonstrates the benefts of a more narrowly focused land use planning strategy known as inclusionary zoning (a policy instrument yet to be widely implemented in Australia). Tenure Equity and Housing Choice As a strategic principle, tenure equity or tenure neutrality requires that households in different forms of housing have the option of experiencing similar social and economic benefts, regardless of their tenure choice. A principle of housing choice recognises that households have different needs and preferences in relation to social and economic benefts, and a range of housing options is therefore needed. Outright home ownership in Australia providesPROOF many social and economic benefts not generally enjoyed by private or social renters. A similar argument can be made for mortgaged home ownership for those insulated from its risks. Social benefts derive from the emotional security, stability and the sense of belonging provided by home ownership. Economic benefts arise from the fnancial security it provides, particularly in older age, and from the tax-advantaged opportunities it provides for wealth accumulation. In principle, at least some of these benefts can be provided by alternative tenures. Security, stability and, consequentially, a sense of belonging, can be characteristics of rental housing under appropriate regulatory settings and management. These benefts are a function of how housing is providedREVISED rather than inherent characteristics of tenure. Likewise, fnancial security can be provided if Rent Assistance is responsive to household needs and ensures that housing is affordable whatever rent is charged. Again, this is a function of how assistance is provided. While tenure equity is an important strategic ideal, it is one that needs to be employed broadly, rather than narrowly. An example of a narrow defnition of tenure equity is that used by the Productivity Commission in their proposal to charge market rents in the social housing system and to implement a single system of fnancial assistance across private and social rental tenures (Productivity Commission 2017). The question of 10 HOUSING POLICY IN AUSTRALIA … 351 whether assistance would provide fnancial security (by ensuring rental affordability) was not addressed, nor were the inequities in the social benefts provided by social and private rental. A broad defnition of tenure equity would ensure that each tenure provided the same social as well as fnancial benefts. A far greater cause of inequity between tenures in the Australian setting, arises not from inequities in the fnancial security or social benefts provided by the different rental tenures, but from economic benefts from which non-owners are excluded, i.e. the opportunities that housing provides for tax-advantaged wealth accumulation. Therefore, unless the massive subsidies provided through the tax system to owner-occupiers (and particularly to economically advantaged outright owners) or to landlords (and particularly to negatively geared landlords) are addressed, tenure equity will remain an elusive goal. There are no equity (or effciency) arguments for providing signifcant subsidies to existing homeowners and no case for providing greater subsidies to high-income homeowners or to (predominantlyPROOF urban) homeowners who beneft disproportionately from the economic rent that arises from spatial differentials in land-price infation (see Chapter 5). For genuine housing system change to occur, the political challenge of scaling back these tax concessions will have to be addressed. Tenure and location are, of course, not the only characteristics of housing that affect household preferences and choices. Housing (sub-) markets are also characterised by dwelling type and many of the problems of both identifying and addressing housing affordability problems arise because of the price-driven trade-offs households are required to make between tenure, location and dwelling type. Housing options and affordability outcomes are likely to be improved if the rangeREVISED of housing products in the market is broadened. At least within the high cost cities of Sydney and Melbourne, there has been growing disquiet about the strongly bifurcated output of the residential development industry (see Chapter 9). The vast bulk of new supply involves either 2-bedroom apartments in high-rise developments, often in high cost urban locations, or large detached houses, often on the urban fringe. There has been a relative scarcity of well-located medium-density development (dubbed the ‘missing middle’). This calls for adjustment of land use planning norms, such as proposed in Sydney’s draft Low-Rise Medium Density Housing Code (NSW Legislation 2019). 352 H. PAWSON ET AL.

National Leadership Commonwealth leadership will be essential to an effective plan for housing system transformation. A key argument for this is the complexity of the issues involved, including the signifcant impact of ‘non-housing’ national policy settings, particularly fscal, monetary and immigration policies, on housing outcomes. Commonwealth leadership will also be required because reconfguration of Australia-wide tax and social security policies must be central to the plan. Thirdly, Australia’s inbuilt vertical fscal imbalance (the mismatch between the tax-raising powers and the spending responsibilities of state/territory governments) means that reform measures involving signifcant on-budget public expenditure will require national funding. As discussed in Chapter 1, there are constitutional limits to the Commonwealth’s powers in relation to housing. Therefore, most direct Commonwealth actions in this domain will require a constitutional and legislative base. Commonwealth legislation establishing the 2018 National Housing Finance and Investment CorporationPROOF (Box 8.5) cod- ifes the particular constitutional powers under which NHFIC (and prospectively other statutory entities) can provide fnancial assistance to improve housing outcomes and to deliver other housing-related programs (National Housing Finance and Investment Corporation Act 2018, Clause 10). Additionally, the Commonwealth can continue to enter into agreements with states and territories on housing matters. Institutional Capacity-Building A national housing plan will need to incorporate institutional improvements that can help ensure effective implementation of strategic objectives. In part, this will require rebuilding the necessary administrative structures and capacities eroded through the past downplaying of housing asREVISED a policy issue. Overall responsibility for housing must be unambiguously allocated to a cabinet-level housing minister both at Commonwealth level and in each state/territory government. At the national level, the responsible Minister should be supported by a permanent dedicated national housing authority (akin to the US Housing and Urban Development Department or the former UK Housing Corporation). A COAG-driven coordinating mechanism, similar to the Housing Ministers’ Advisory Council that operated until 2014, should also be formed to promote intergovernmental coordination and cooperation. These government entities will need to be supported by advisory 10 HOUSING POLICY IN AUSTRALIA … 353 bodies that enable wider stakeholder participation in policymaking and can offer specialist advice in priority areas such as affordable housing, homelessness, Indigenous housing and tax reform. Finally, the regulatory functions of the Commonwealth and states/territories need to be adequately resourced. Phased Change Housing system reform is overdue and increasingly urgent. Nevertheless, we recognise that hasty implementation of required policy changes could have unduly destabilising and potentially damaging housing market impacts, with possible knock-on consequences for the wider economy. Given the huge amounts invested in housing and the vast scale of private debt secured against residential property assets, carefully staged change is essential. For governments, the easy response is to deny or ignore the existence of the housing unaffordability problem, or to resist proposals to tackle the issue on the grounds that any signifcant reform (or even discussion of it) is simply too risky. Alternatively, governmentsPROOF may choose to highlight minimalist ‘busy work’ initiatives that can be presented as meaningful action, but which, in reality, function more as a tactic for avoiding such action (Gurran and Phibbs 2015). Given the evidence that the problems underlying the housing affordability issue are structural rather than cyclical, and given signs that the situation is continuing to deteriorate, no such strategy could be termed responsible. Therefore, the proposed national plan must involve a sequenced and harmonised approach to changes to tax settings, housing expenditures and other relevant policies. It would also need to incorporate transitional provisions, such as ‘grandfathering’ whereby a current rule continues to apply to existing situations whereas a new rule will apply to future cases. For example,REVISED as proposed in the Australian Labor Party’s 2016 and 2019 election platforms, paring back of investor landlords’ negative gearing concessions could be restricted to rental property acquired after a given date. Similarly, any replacement of property transaction stamp duty by a broad-based land tax could be phased over a long time period and/ or incorporate credits for existing owners having paid stamp duty when purchasing their property under old system rules (as implemented in the ACT). Likewise, the strategy would need to allow for the fact that any reform involving new property-related tax liabilities is likely to require 354 H. PAWSON ET AL. a means of deferring payment pending property sale. For example, to protect low-income homeowners an annual land tax charge could be redeemed from the proceeds when the dwelling is eventually traded in the market.

10.5 possible Stage One Reforms Notwithstanding the logic of a Commonwealth-led, system-wide national housing strategy also involving state/territory governments, there is scope for signifcant progress via ‘low hanging fruit’ measures that do not necessitate intergovernmental agreement or incur signifcant fnancial cost to government. For example, the Commonwealth has the power to restore the National Housing and Homelessness Agreement (NHHA) as a rental supply program by reviving the pre-1996 rules of the NHHA’s predecessor agreement (the CSHA), which ring-fenced most national housing funding for additional social housing supply (see Chapter 4). PROOF State/territory governments meanwhile could:

• Introduce meaningful inclusionary zoning for affordable housing (see Chapter 9). • Reconfgure residential tenancy laws towards a better balance between tenant and landlord advantage (see Chapter 6). • Initiate a phased replacement of stamp duty with a broad-based land tax (see Chapter 9).

Importantly, each of the above examples would-be building on existing Australian precedents rather than involving an entirely new departure for housingREVISED policy in this country. Inclusionary zoning rules to generate affordable housing through the land use planning system are already operational in both NSW and South Australia. While these are decidedly modest in scale and impact, nonetheless they are important proof of concept precedents. When it comes to rebalancing the rights of private landlords and their tenants, an important legislative re-set initiated by Victoria in 2018 (see Chapter 6) provides a model that could be easily adopted by other jurisdictions. In relation to the third point above, the feasibility of far-reaching property tax reform has been demonstrated by ACT’s program to replace stamp duty with municipal rates (Box 9.1). 10 HOUSING POLICY IN AUSTRALIA … 355

Other (relatively) easily adopted measures open to most state/ territory governments that would have a signifcant affordable housing pay-off include:

• Transferring the title of former public housing currently managed by community housing providers under contract (see Chapter 4), enabling CHPs to leverage new affordable housing investment (see Chapter 8).4 • Committing to the inclusion of a substantial proportion of affordable housing units within residential developments on ex-government land5 (a 30% target is cited by many industry stakeholders and advocates).

10.6 Unfinished Business Throughout this book we have emphasised the need to recognise the full extent of housing policy, a set of rules, actions and interventions that ranges well beyond what governments themselvesPROOF tend to see as such. Even so, any short book on such a subject must necessarily defne as out- of-scope many topics that some might see as essentially housing policy matters. A few subjects of this kind are listed in Sect. 1.2. In this fnal chapter we have attempted to provide pointers for the benefcial re-shaping of Australia’s housing system and to exemplify some possible frst-step changes. Our approach envisages:

• Enhancements to the policymaking framework. • Short- and medium-term (stage one) reforms to alleviate the worst of current affordability pressures. • Longer-term policy directions to resolve underlying structural determinantsREVISED of housing affordability problems and to improve tenure equity.

Given the scale and complexity of what is required, a full exposition of the proposed national plan itself is beyond our remit. We acknowledge,

4 As we have demonstrated elsewhere (Pawson et al. 2016), the oft-repeated claim that transfer of title cannot be contemplated because of the risk to state/territory government credit ratings is mistaken. 5 Although not calling for taxpayer-funded subsidy, it is of course acknowledged that this entails effective or implicit government fnancial support. 356 H. PAWSON ET AL. therefore, that these ten chapters leave much unfnished business to be tackled elsewhere. Three overriding concerns have shaped our focus. Firstly, Australia’s current housing policies and housing system are further compounding existing income and wealth inequalities. Secondly, current forms of housing assistance will become fscally unsustainable if current trends persist. Thirdly, Australia’s housing system underperformance is increasingly compromising broader public policy objectives. We have outlined a vision for system change, suggested initial steps towards such an objective, and discussed necessary institutional innovations for the affordable housing industry. However, we have devoted little attention to the wider market and housing industry reforms that could also contribute to more affordable and more equitable housing outcomes. For example, while we have examined the rights of our fnancial institutions to lend as much as they think proftable for housing (or as much as regulators consider prudent) we have notPROOF questioned whether these rights should be further constrained. We have pointed to regulations protecting lenders, but have left to one side possible action to better protect borrowers hit by economic misfortune. We have paid little attention to the problem of fragmented land ownership, which allows owners to choose when, and to whom, to sell, therefore restricting the scope for infll redevelopment. Perhaps there is a need to question our right to hold on to our property no matter what. Maybe caveats should be placed on all land, and not just that used for affordable housing, to ensure that it cannot be traded at an infated price. While we have argued that landowners’ monopolisation of property market uplift is inconsistent with a fair economic system, we have developed no detailedREVISED solution to address this concern. Without a fundamental shift in the distribution of these windfall profts, however, Australia’s housing system and its housing policies will continue to drive intra- and inter-generational inequalities in income and wealth.

10.7 Conclusion In making the case for change we have outlined a phased approach where our frst-step measures could be implemented as a precursor to building the political consensus necessary for the more far-reaching actions required. We are convinced that if affordability is to be improved 10 HOUSING POLICY IN AUSTRALIA … 357 for the most vulnerable in society, and if the rising inequities within and between generations are to be moderated, Australia’s housing system must be fundamentally reformed. There is no responsible ‘business as usual’ option.

References ABS. (2018). Census of Population and Housing: Estimating homelessness, 2016 (Cat No. 2049.0). Canberra: Australian Bureau of Statistics. Available from: https://www.abs.gov.au/ausstats/[email protected]/mf/2049.0. Accessed 20 August 2019. AHWG. (2016). Innovative Financing models to Improve the Supply of Affordable Housing; Affordable Housing Working Group Report to Heads of Treasuries. Canberra: Council on Federal Financial Relations. Eslake, S. (2017). No Place Like Home: The Impact of Declining Home Ownership on Retirement [Internet] (AIST Housing Affordability and Retirement Incomes Report). Melbourne: Australian Institute of Superannuation Trustees. Available from: https://www.aist.asn.au/Media-and-News/News/PROOF 2017/No-place-like-home-the-impact-of-declining-home-ow. Accessed 13 August 2019. Gurran, N., & Phibbs, P. (2015). Are Governments Really Interested in Fixing the Housing Problem? Policy Capture and Busy Work in Australia. Housing Studies, 30(5), 711–729. Jessop, B. (2004). Hollowing Out the ‘Nation-State’ and Multi-level Governance. In P. Kennett (Ed.), A Handbook of Comparative Social Policy (1st ed., pp. 11–25). Cheltenham: Edward Elgar. Maclennan, D., with Randolph, B., Crommelin L., Witte, E., Klestov, P., Scealy, B., & Brown, S. (2019). Strengthening Economic Cases for Housing Policies [Internet] (City Futures Research Report). Sydney: UNSW. Available from: https://cityfutures.be.unsw.edu.au/documents/515/Full_Report_Final_ edited_logos.pdfREVISED. Accessed 16 July 2019. Milligan, V., Pawson, H., Phillips, R., & Martin, C. (2017). Developing the Scale and Capacity of Australia’s Affordable Housing Industry (AHURI Final Report No. 279). Melbourne: AHURI. Milligan, V., & Tiernan, A. (2012). No Home for Housing: The Situation of the Commonwealth’s Housing Policy Advisory Function. Australian Journal of Public Administration, 70(4), 391–407. National Housing Finance and Investment Corporation Act. (2018) (No. 65). NHS. (1992). National Housing Strategy: Agenda for Action (National Housing Strategy Issues Paper No. 7). Canberra: Australian Government Publication Service. 358 H. PAWSON ET AL.

NSW Legislation. (2019). State Environmental Planning Policy (Exempt and Complying Development Codes) 2008: Part 3B, Low-Rise Medium Density Housing Code. Sydney: NSW Government. Available from: https://www.legislation.nsw.gov.au/#/view/EPI/2008/572/part3b. Accessed 14 July 2019. Paris, C. (Ed.). (1993). Housing Australia. Melbourne: Macmillan. Pawson, H., Martin, C., Flanagan, K., & Phillips, R. (2016). Recent Housing Transfer Experience in Australia: Implications for Affordable Housing Industry Development (AHURI Final Report No. 273). Melbourne: AHURI. Pawson, H., Milligan, V., & Martin, C. (2019). Building Australia’s Affordable Housing Industry: Capacity Challenges and Capacity-Enhancing Strategies. International Journal of Housing Policy, 19(1), 46–68. Pawson, H., Randolph, B., Yates, J., Darcy, M., Gurran, N., Phibbs, P., & Milligan, V. (2015, June 24). Tackling Housing Unaffordability: A 10-Point National Plan [Internet]. The Conversation. Available from: https://theconversation.com/tackling-housing-unaffordability-a-10-point-national-plan-43628. Accessed 11 August 2019. Productivity Commission. (2017). Introducing Competition and Consumer Choice into Human Services [Internet] (Inquiry Report No. 85). Melbourne: Productivity Commission. Available from: https://www.pc.gov.au/inquiries/PROOF completed/human-services/reforms/report. Accessed 16 August 2019. Stephens, M. (2012). Tackling Housing Market Volatility in the UK. Part I: Long- and Short-Term Volatility. International Journal of Housing Policy, 12(3), 367–380. Tingle, L. (2015). Political Amnesia: How We Forgot How to Govern. Quarterly Essay, 60, 6–75. Yates, J. (2016). Why Does Australia Have an Affordable Housing Problem and What Can Be Done About It? Australian Economic Review, 49(3), 328–339. Yates, J. (2017). Housing Australia. In CEDA (Ed.), Housing Australia [Internet] (pp. 15–34). Melbourne: Committee for Economic Development of Australia. Available from: http://www.ceda.com.au/Research-and-policy/ All-CEDA-research/Research-catalogue/Housing-Australia. Accessed 16 July 2019. REVISED Index

A affordable housing fnancing, interna- Aboriginal and Torres Strait Islander tional comparisons, 55, 342 Commission (ATSIC), 225, 226, AffordablePROOF Housing State 230, 231, 233, 234, 245 Environmental Planning Policy Aboriginal and Torres Strait Islander (AHSEPP), NSW, 318, 319 peoples, 217, 228 affordable housing supply, planning Aboriginal Housing Offce (AHO), tools for, 307, 316 NSW, 232, 233 Affordable Housing Working Group Aboriginal Housing Victoria (AHV), (AHWG), 120, 284, 289, 124, 243, 244 341 Adelaide, 97, 193, 324 affordable rent (AR), 20, 121, 250, affordability measures, 62–64, 66, 265, 273, 274, 278, 280, 282, 67. See also housing affordability 318, 319, 321, 323 measures and metrics affordable rental housing, funding gap, affordability outcomes, 51, 52, 109, 120, 268, 287, 289 62, 263REVISED, 351. See also housing after-housing poverty, 59–61, 68, 106, affordability outcomes 340, 341 affordable and available rental housing AirBnB, 16, 182, 185 measure, 20, 21, 42, 52, 76, 104, Arthurson, K., 36, 97, 110, 111 115, 138, 166, 259, 263, 267, asset-based welfare, 2, 163, 164 280, 282, 284, 286, 317, 318, Australian Capital Territory (ACT), 320, 324, 342 21, 115, 202, 225, 236, 304, affordable housing, defnition, 62, 309 305, 316, 317, 353, 354 affordable housing business model, Australian Constitution, 21, 260, 265, 267 228

© The Editor(s) (if applicable) and The Author(s), under 359 exclusive license to Springer Nature Singapore Pte Ltd. 2020 H. Pawson et al., Housing Policy in Australia, https://doi.org/10.1007/978-981-15-0780-9 360 Index

Australian Institute of Health and Commonwealth Housing Commission Welfare (AIHW), 70, 75, 106, (CHC), 93, 94 136, 145, 207, 208, 217–219, Commonwealth-State Housing 221–223, 240–242, 244, 246, Agreement (CSHA), 22, 23, 87, 248 92–94, 98–101, 103, 106, 108, Australian Prudential Regulatory 117, 139, 144, 354 Authority (APRA), 11, 24, 147, Communities Plus, NSW, 112, 122, 149, 188, 190, 191 288 Austria, 89, 182, 202, 272, 280, 286 community housing, 20, 23, 42, 88, 113, 116, 117, 119, 121–123, 226, 240, 243 B Community Housing and Beer, A., 140, 141, 286, 307, 317, Infrastructure Program (CHIP), 327 225, 226, 233, 235 Berry, M., 32, 108, 123, 136, 138, community housing provider (CHP), 149, 165, 234, 281 10, 89, 110, 114, 117, 119–124, betterment taxation, 305 226, 232, 233, 240, 242, 277, Blessing, A., 116, 278, 279 284–287, 320, 355 boarding houses, 16, 37, 180, 181, communityPROOF involvement, 112 185, 203, 318 Community Land Trust (CLT), 246, bond aggregator, 120, 284, 286 249, 250 bond fnance, 275 compact city, 1 borrowing capacity, 51, 55–57, 143, comparative analysis, 4 144, 147 Council of Australian Governments Bramley, G., 34, 36, 62, 64, 311–315, (COAG), 100, 209, 222, 223, 329 225, 227–229, 232, 235–237, Brisbane, 24, 74, 125, 185, 193 239, 352 build to rent (BtR), 181, 182, 185, Crabtree, L., 245, 246, 250, 251 188, 196, 323 credit support, 268, 269, 277 Burke, T., 6, 8, 19, 21, 38, 62, 63, 67, cross-subsidy, 116, 234, 266, 267, 68, 95, 97, 102, 136, 144, 159, 271, 273, 275, 290 192, 196REVISED, 199, 200, 209, 220 culturally adapted policies, 249 cultural values, 220, 230, 246, 250, 251 C Capital Gains Tax (CGT), 11, 22, 75, 151, 152, 154, 155, 191–194, D 196, 198 Daley, J., 51, 56, 57, 151, 164, 165, Capital Gains Tax discount, 191 191–193, 198, 304, 328 CityWest Housing, 320, 321 Dalton, T., 16, 75, 138, 149, 181, Closing the Gap strategy, targets, 235, 185, 203 239 Darwin, 75 Index 361 debt funding, 89, 148, 152, 188, 283, G 289 Germany, 15, 125, 152, 179, 184, demographic change, 101, 188, 197 186, 187, 194, 195, 200, 202, Denmark, 182, 273, 277, 280 205, 274, 281, 305, 342 density bonus, 307, 308, 317–319, Gilmour, T., 94, 116, 262 323 Global Financial Crisis (GFC), 33, 38, deposit gap, 56–58, 151, 339 73, 94, 148–150, 182, 197, 273, developer contributions, 270, 273, 278, 283, 328, 346 274, 300, 305, 309, 317, 320, Government guarantee, 120, 273, 321, 324, 325 274, 277, 286 Grattan Institute, 24, 191, 196, 349 Greater Sydney Commission (GSC), E 324 Easthope, H., 15, 136, 206 Gurran, N., 34, 36, 43, 73, 182, 299, economic productivity, 2, 40, 345 307, 309, 311–315, 319, 323, economic rent, 301, 302, 349, 351 324, 327, 329, 353 England, 91, 115, 123, 200, 202, 275, 281, 306, 325 equity funding, 146, 147, 266, 276 H PROOF Eslake, S., 1, 43, 138, 141, 150, 165, Habibis, D., 221, 223, 228, 230, 231, 345 234–239, 241, 242, 251 Hayward, D., 41, 93, 94, 98, 99, 106, 159 F Henry Review, 42, 154, 157 family home tax concessions, 74, 144, Hobart, 97 152, 154, 155, 277, 351 homelessness, Indigenous, 219, 236 fnancial deregulation, 3, 189 homelessness, 2, 8, 16–18, 21–23, 76, fnancialisation, 5, 32, 41, 72, 73, 144, 199, 208, 219, 222, 229, 248, 148, 183, 330, 341, 349 264, 329, 344, 353 fnancial regulation, prudential over- home ownership, fnancial benefts, sight, 188, 190, 209 159, 160 Finland, 153REVISED, 208, 274, 286 home ownership, Indigenous, frst home buyers, 1, 10, 19, 42, 52, 218–220, 225, 228, 236, 239, 53, 55, 58, 59, 69, 74, 75, 77, 244, 245, 250 98, 139, 140, 145, 147–151, home ownership, social costs and ben- 156, 160, 184, 245, 345 efts, 158, 345 frst homeowner grants, 150, 151, 347 home ownership and asset-based wel- Fitzpatrick, S., 14, 15, 20, 42, 90, fare, 163, 164 102, 107 home ownership and fnancial security, France, 90, 152, 274, 280 159, 163, 166, 350 funding gap, 109, 120, 268, 281, 284, home ownership and political ideol- 289–291 ogy, 135, 137 362 Index home ownership fnance, deregulation, housing affordability outcomes, 51, 3, 144, 146, 147, 189 52, 351 home ownership fnance, government housing affordability stress, structur- support for, 120, 140, 154, 268, ally embedded nature of, 2, 345 311 housing association, 91, 92, 115, 244, home ownership fnance, lending 273 standards, 149 housing beneft (HB), 20, 273, 275 home ownership fnance, regulation housing cost ratios, 60, 65 of, 166, 312 housing equity withdrawal (HEW), 39 home ownership fnance, 89, 91, 144, housing fnance, 72, 108, 120, 138, 166 139, 141, 142, 144–148, 151, home ownership rates, decline of, 92, 185, 188, 189, 281, 339 142, 143, 148–151, 156, 165 housing markets, geography of, 21, home purchase assistance, Indigenous, 24, 74, 344 10, 228, 239, 244, 245, 248, 251 housing markets and economic home purchase assistance (HPA), 98, restructuring, 74 139, 144–146 housing market volatility, 39, 40, 345 household debt, 38, 39, 148 housing need, 8, 16, 17, 60, 62, 63, house prices and borrowing capacity, 99,PROOF 104, 105, 159, 221, 222, 51, 55, 56 226, 228, 232, 240, 252, 290, house prices and housing supply, 71, 307, 321 307, 349 housing policy, defnition, 9 house prices and interest rates, 55, 72, housing policy, direct, 9, 87 140, 143, 145, 148, 149, 160, housing policy, governance of, 5, 6, 8, 188, 339 21, 22, 228, 343 house prices and land, 69–71, 73, 286, housing policy, indirect, 6, 9 302, 303, 305–311, 313, 314, housing policy, politics of, 2, 31, 41, 326, 327, 331, 351, 356 45 house prices and overseas buyers, 183, housing strategy principles, 341, 348 198, 284 housing sub-markets, 52, 119, 322, house prices and the deposit gap, 56, 325 57, 151REVISED, 340 housing supply and house prices, 53, house price to income ratio, 53–55, 55, 69, 71, 72, 74, 349 69, 149 housing tax reforms, 4, 152, 348, 353 housing affordability: the 30:40 rule, housing tenure, 8, 12–15, 25, 58, 68, 59–61, 63 89, 136, 177, 187, 218, 242 housing affordability, 2, 4, 8, 18–20, Hulse, K., 8, 14, 15, 19, 38, 74, 76, 43, 44, 51–53, 56, 58, 60–62, 77, 136, 143, 149, 160, 178, 64, 69, 73, 77–79, 150, 157, 182, 189, 192, 195, 196, 199, 299, 300, 306, 307, 328–330, 201, 202, 206, 209, 291 347, 351, 353, 355 hybrid organisations, 116 housing affordability measures and hybrid tenure, 16, 322 metrics, 20, 52–54, 59, 61, 62, 64, 66, 223 Index 363

I K imputed rental income, 140, 152, 153, Kemeny, J., 4, 8, 99, 141, 157, 164 155, 164 inclusionary zoning, Greater Sydney Commission, 324 L inclusionary zoning, UK, 322, 325, land commissions, 314 326 land prices, 70, 73, 285, 311 inclusionary zoning, USA, 306, 308, land tax (LT), 11, 22, 154, 198, 304, 322 311, 350, 353, 354 inclusionary zoning (IZ), 300, land use planning, metropolitan strate- 305–312, 316, 317, 319–324, gic, 301, 313, 331 326, 350, 354 land use planning, zoning, 300, 319, income inequality, 72 350, 354 Indigenous Business Australia (IBA), land value uplift, 42, 75, 302, 306, 10, 245, 246 314, 342, 349, 350 Indigenous Community Housing Lawson, J., 17, 120, 125, 153, 260, Organisation (ICHO), 118, 222, 267, 273–277, 281, 289, 290, 234, 237–239 292 Indigenous housing disadvantage, Leishman,PROOF C., 73, 79, 311, 330 219, 220, 222, 223, 239, 250, lending standards, 147, 149, 190 251 leverage, 113, 115, 117, 146, 161, infll affordable housing, 319 183, 259, 263, 277, 278, 287, institutional analysis, 43 341, 342, 355 institutional capacity-building, 118, liberal welfare regime, 4, 12, 136, 199 120, 272, 348, 352 lobbyists, 40, 44, 45, 291 institutional investment, 179, 261– low cost budget standard (LCBS), 63, 263, 268, 281, 285, 289, 291, 67, 68 292 Low-Income Housing Tax Credit interest-only loans, 189, 190 (LIHTC) USA, 20, 276, 278, interest rates, 11, 40, 44, 56, 57, 71, 279, 281, 283, 291 115, 138, 139, 143, 145, 147, 148, 154REVISED, 160, 188, 189, 191, 245, 289, 339 M inter-generational inequality, 37, 356 Maclennan, D., 2, 18, 35, 40, 292, international comparative perspective, 345 4, 341 mainstream, mainstreaming, mainstream services, 34, 180–182, 185, 186, 203, 220, 226, J 228–230, 234, 235, 240–243, Jacobs, K., 43–46, 123, 125, 156 245, 246, 251, 318 Managed Investment Trust, 198, 284 364 Index marginal rental, 16, 180, 185, 199, National Housing Supply Council 203 (NHSC), 17, 329 market failure, 31, 34–36, 38, 94, National Partnership Agreement on 157, 208, 259, 272, 300, 314, Remote Indigenous Housing 346 (NPARIH), 229, 230, 235–238, Martin, C., 93, 139, 148, 178, 179, 242, 245 182, 184, 187, 194, 200, 201, National Regulatory System for 205 Community Housing, 11, 120 Melbourne, 24, 55, 73, 74, 96, 97, National Rental Affordability Scheme 182, 185, 193, 204, 302, 315, (NRAS), 10, 20, 42, 44, 121, 317, 328, 351 281–284, 289–291 migration, 2, 22 Nation Building Economic Stimulus Millers Point, 110 Plan (NBESP), 94 Milligan, V., 5, 14, 15, 20, 21, 23, 42, negative externalities, 300 44, 51, 61, 65, 89, 98, 115, 116, negative gearing, 11, 44, 191, 192, 118–122, 126, 153, 179, 197, 194–196, 353 205, 219, 220, 228–230, 233, neighbourhood effects, 36, 111 235, 236, 239–242, 261–263, neo-liberalism, 3, 31–34, 36, 37, 114, 268, 271, 274, 281–283, 291, 124PROOF, 144, 207, 226, 260, 262, 293, 342, 343 300, 307, 341, 342, 346 minority groups, 219 Netherlands, 15, 89–92, 114, 115, missing middle, 328, 329, 351 202, 275–277, 281, 306, 342 mixed tenure development, 288, 309 New Generation Boarding House mobility, 32, 105, 219–221, 245 (NGBH), 318, 319 Morris, A., 104, 110, 135, 143, 178, New Public Management, 114, 124 179, 241 New South Wales (NSW), 15, 21, 40, mortgage debt, 149, 163–165 93, 97, 102, 104, 105, 109–113, mortgage stress, 60, 77, 162, 244 115, 117, 120–123, 145, 150, multi-level governance, 21 179, 203, 204, 207, 225, 231, mum and dad investors, 181, 282 232, 236, 237, 240–243, 247, 249, 287, 288, 305, 308, REVISED316–318 , 320, 321, 324, 326, N 328, 331, 351, 354 National Disability Insurance Scheme New Zealand, 2, 12, 21, 93, 142, 177, (NDIS), 285 178, 194, 195, 202, 207, 231, 290 National Housing and Homelessness no grounds eviction, 201, 205 Agreement (NHHA), 10, 23, 98, Northern Territory (NT), 21, 22, 202, 207, 208, 227, 236, 354 224–226, 237–239, 241, 242, National Housing Finance and 245, 317 Investment Corporation not-for-proft (NFP), 5, 10, 13, 14, (NHFIC), 10, 120, 284, 286, 16, 20, 22, 42, 88, 89, 91, 92, 288, 289, 292, 352 95, 113–117, 119, 123, 124, Index 365

243, 249, 260, 262, 267, 268, poverty de-concentration, 111 270, 271, 274–276, 278, 279, private equity, 273, 274, 276, 281, 281–284, 290–292, 318, 320, 289 321, 342 Private rental assistance (PRA), 206, Nous Group, 238, 239, 264 208, 239 private rental housing, build to rent, 182, 185, 188 O private rental housing, defnition of, Ong, R., 165, 178 180 Organisation for Economic private rental housing, rent regulation, Co-operation and Development 200, 205 (OECD), 38, 53, 69, 88–90, 136, private rental housing, security of 137, 149, 156, 179, 182 tenure, 23, 178, 205 overcrowding, 18, 62, 219, 221–223, private rental regulation, rents, 16, 76, 227, 237–239, 329 78, 107, 180, 200, 201, 340 overseas buyers, 198 private rental regulation, 146, 166, overseas investors, 198, 284 177, 182, 199–201, 203–205, ownership rights, 6, 13, 15 209 private PROOFrental sector (PRS), 16, 76, 77, 159, 177, 178, 180–188, 194, P 197, 199, 200, 203–206, 209, Paris, C., 101, 141, 203, 339, 340 249 partnership working, 112 privatisation, 98, 116, 124, 125, 144, path dependency, 3, 89, 91, 135, 138, 146, 246, 274 141 Productivity Commission, 5, 20, 24, Pawson, H., 14, 15, 17, 39, 42, 64, 40, 101, 114, 146, 148, 156, 76, 101–103, 107, 111, 113, 158, 207, 228, 237, 304, 349, 115, 117, 120, 121, 123–125, 350 149, 179, 181, 184, 185, 187, public housing, allocations, 104, 108, 188, 197, 198, 208, 219, 243, 241 261, 263, 268, 275, 276, 319, public housing, construction, 87, 324, 326REVISED, 342, 343, 355 91–94 , 96, 112, 113, 263 perfect competition, 31, 32, 34, 35 public housing, estate renewal, 103, Perth, 193 110–113, 126 Phibbs, P., 43, 73, 182, 326, 353 public housing, high rise, 95, 96 policy directions, 5, 22, 23, 25, 41, public housing, privatisation, 98, 124, 42, 45, 219, 271, 355 125 policy making, fragmentation of popu- public housing, rent policy, 42, 89, 93, lation growth, 343 101, 106, 124 policy making capacity, 343 public housing, sale of, 91, 98, 109, positive planning, 314 110, 117 poverty, before- and after-housing public housing, 3, 9, 10, 12, 15, measures, 60, 68 19, 22, 23, 41, 42, 44, 58, 59, 366 Index

87–89, 92–95, 97–99, 101–111, Reserve Bank Australia (RBA), 2, 116, 117, 122–126, 207, 225, 5, 24, 40, 53, 138, 139, 147, 229, 230, 237, 238, 240, 241, 188–191 243, 259, 262, 271, 278–280, residential asset class, 261, 282, 283 288, 316, 341, 344, 355 residual income, 59, 60, 63, 64, 67, public housing transfers, 89, 103, 110, 147 117, 118, 122, 124, 125. See also residualisation, 89, 97, 104, 108 stock transfer residual land value, 302 re-zoning, 303 rooming houses, 18, 180, 185 Q Rowley, S., 61, 62, 260, 268, 283, Queensland, 21, 22, 102, 115, 284, 311, 329 120, 121, 125, 179, 221, 230, Ruming, K., 95, 313, 315 236–239, 241, 243, 315, 318 Ryan-Collins, J., 33, 51, 73, 183, 300, 301, 330

R racism, racial discrimination, 219, 220, S 224, 242, 247 Sanders,PROOF W., 220, 224, 229, 244–246 Radburn, 97 Schwartz, A., 113, 276, 312, 316, 322 Randolph, B., 15, 76, 110, 268, 270, Scotland, 91, 123, 200, 202, 205, 275 283, 290 secondary dwelling, 317–319 remote area housing, 218, 221–223, secure occupancy, 14, 205, 206 226, 229, 237, 239–241, 245 Self-determination, Indigenous peo- Remote Housing Review, 222, 238, ples, 224, 232, 235, 242 245 Social and Affordable Housing Fund Remote Housing Strategy, 226, 236 (SAHF), 287 rent, market, 20, 105, 107, 109, 246, social and economic benefts of home 280, 282, 285, 306, 308, 319, ownership, 156, 157, 165, 350 349, 350 Social democratic regime, 4 rental brokerage, 206, 208, 247 social housing, allocation of, 33, 42, rental stress,REVISED 2, 60, 65, 66, 207, 219, 100 , 119, 122 340 social housing, diversifcation, 89, 113, Rent Assistance (RA), 10, 19, 23, 61, 121, 122 66, 100, 117, 124, 155, 177, social housing, management of, 23, 179, 206–209, 248, 280, 340, 118, 122, 240, 243 345, 348, 350 social housing, regulation, 33, 114, Rent Assistance (RA) rent, cost, 66, 119 207, 340, 349 social housing, rent policy, 8, 25, 37, rent regulation, 200, 205 42, 87, 89, 93, 99, 104, 114, rentvestors, 182 119, 208, 219, 246, 324 Index 367 social housing, roles of, 90, 100 stock transfer, 115, 122, 123, 125 social housing, stock transfer, 115, 123 strata title, 15, 185 social housing, tenants’ rights, 12, 90 student housing, purpose-built social housing, 12, 17, 22, 23, 25, (PBSA), 181, 185 38, 42, 87–95, 99, 100, 102– sub-markets, 52, 119, 309, 322, 325 106, 109, 112–118, 121–123, subsidy, demand side, 9, 10, 70, 344 125, 126, 165, 178, 186, 187, subsidy, supply side, 9, 10, 42, 70, 206, 218, 219, 229, 236, 240, 177, 179, 344 242–244, 247, 248, 265, 274, subsidy, 3, 19, 25, 105, 107–109, 275, 282, 288, 312, 319, 324, 120, 141, 145, 191, 197, 207, 330, 340, 349, 350, 354 260, 261, 265, 270, 272–274, Social Housing Growth Fund 276, 278, 281, 282, 284, 285, (Victoria), 288 290–292, 307, 311, 325, 331, Social Housing Initiative (SHI), 94, 349, 355 121, 319 Switzerland, 136, 275, 280, 286 social impact investing (SII), 264 Sydney, 4, 24, 36, 55, 73–76, 97, 110, social mix, 111, 312 151, 182, 185, 193, 204, 207, South Australia (SA), 21, 22, 93, 101, 315–318, 320, 321, 326, 328, 102, 110, 111, 117, 123, 145, 329PROOF, 351 219, 223, 236–239, 242, 245, systems approach, 6 247, 316, 317, 320, 323, 324, 354 spatial differentiation in dwelling T prices, 55, 70, 74, 160, 351 Tasmania, 21, 102, 123, 201, 202, special housing needs, 13, 217, 251, 236, 241 267, 324 tax credits, 276, 278, 279, 282, 283 Specialist Disability Accommodation tax expenditures, 23, 141, 152–155, (SDA), 282, 285, 286, 290 191, 346 speculative investment, 343, 344 tax neutrality, 153, 154 Spiller, M., 97, 123, 303 tenancy data bases, 249 stakeholders, 4, 6, 8, 21, 35, 43, 112, tenant empowerment, 252 118, 119REVISED, 179, 224, 230, 235, tenure, 2, 9, 12, 13, 15, 16, 18, 23, 272, 282, 286, 291, 293, 299, 52, 62, 63, 71, 91, 102, 105, 346, 348, 353, 355 111, 122, 136, 138, 141, 153, stamp duty concessions, 150, 151, 154 154, 156–158, 161–163, 165, State Environment Planning Policy 178, 184, 186, 187, 201–203, (SEPP), 97, 320, 321, 326 205, 208, 209, 223, 240, state housing authority (SHA), 94, 98, 244–247, 249, 250, 267, 288, 102, 103, 108, 117 323, 325, 339, 340, 348, 350, state land agencies, 313, 314 351, 355 Stephens, M., 15, 90, 91, 102, 115, tenure neutrality, 4, 19, 153, 154, 350 125, 312, 325, 326, 345 368 Index transport oriented development W (TOD) value capture, 315 wage earners’ welfare state, 91 Troy, L., 260, 289, 318, 319 wealth constraints, 56, 75, 149 Troy, P., 23, 41, 87, 93, 94, 102 wealth inequality, 193, 329, 346 Welfare regime, 4, 12, 136, 200 Western Australia (WA), 21, 111, 122, U 145, 221, 223, 225, 230, 238, Uluru Statement from the Heart, 232 239, 241, 242, 245, 247, 248, United Kingdom (UK), 2, 12, 20, 21, 317, 318 39, 41, 45, 58, 64, 90, 91, 98, Whitehead, C., 33, 107, 149, 150, 103, 113–115, 119, 123, 125, 200, 271, 312, 313 142, 146, 152, 161, 177–179, wicked policy problem, 223, 251, 346 195, 197, 200–202, 208, 274, Wiesel, I., 37, 42, 102, 103, 105, 123, 276, 277, 286, 307, 311–313, 283 322, 325, 328–330, 342, 346, Wood, G., 57, 141, 150, 165, 178, 352 304 United States (USA), 12, 21, 45, 74, 97, 103, 107, 177, 182, 194, 195, 197, 199, 202, 207, 306– Y PROOF 308, 311, 313, 322, 328, 329 Yates, J., 20, 37, 45, 51, 52, 55, 57, 63, 64, 68, 74, 76, 78, 95, 101, 107, 139, 140, 145, 149, 153, V 154, 163, 164, 207, 260, 290, viability test, 324–326 339, 342 Victoria, 15, 21, 22, 93, 96, 109, 111–113, 121, 122, 124, 145, 179, 201–204, 209, 236, 240, Z 242–244, 248, 288, 305, 324, Zoning. See land use planning, zoning 354 Voluntary planning agreements (VPAs),REVISED 11, 305, 307, 317