How the National Housing Accord could ease the housing crisis

One of the biggest announcements of the October federal Budget was the National Housing Accord, with the goal to build one million new, well-located homes over five years from 2024. Host Kat Clay and Economic Policy Program Director, Brendan Coates discuss this ambitious goal, and how it could ease the housing crisis.

Transcript

Kat Clay: One of the biggest announcements of the October federal budget was the National Housing Accord with the goal to build 1 million new well 2024. It’s an ambitious goal and here to discuss this new housing plan and how it could work is Economic Policy Program Director Brendan Coates. Welcome Brendan.

Brendan Coates: Hi Kat.

Kat Clay: This accord has been billed as a landmark agreement to address one of our nation’s biggest economic challenges, the supply and affordability of housing. Are they right in saying that housing is one of the nation’s biggest economic challenges?

Brendan Coates: Well, it wouldn’t surprise you Kat and listeners, if you’ve listened to this podcast in the past, that yes, we do think, I do think this is one of Australia’s big challenges.

Increasingly unaffordable housing, you know, it creates a whole bunch of problems. One, you know, we’re seeing that rents are rising really quickly, and vacancy rates are at all-time lows. So that’s putting pressure on lots of people who are struggling to pay to keep a roof over their heads. That’s an incredibly important, you know, economic and social problem that we’re trying to solve.

you’ve also got the challenges around falling home ownership. which is partly, I think, motivating what the government’s doing. So as home ownership falls amongst younger, poorer Australians, you know, then the great Australian dream, sort of, of owning your own home is increasingly out of reach for many people.

And that has a whole bunch of downstream consequences for, if you don’t own your own home in retirement and you’re renting, you know, half of retired renters live in poverty today. It also matters for inequality. Because those that own their own homes, that the housing haves have seen their wealth grow fast and the housing have not.

And finally, it really matters for the economy, and I think this is part of what the Treasurer was talking about in his budget speech, is You know, when housing is expensive or there’s, and there’s a lack of housing, when we have a shortage, which is the situation we’re in today, you know, it has a whole bunch of economic consequences because people can’t live close to where jobs are.

They, you know, they participate less in the labour market. They feel less secure and there’s, there’s potentially less productivity growth. So, it affects the incomes of all Australians. So, it is a really big challenge and it’s great to see. The government, at least rhetorically, stepping up to the plate so far on that one.

Kat Clay: So, I mean, Brendan, what is this accord anyway?

Brendan Coates: Well, I think the accord itself sounds, you know, it’s, it’s, it’s an accord. So, it’s, it’s sort of steeped in the labour tradition of sort of a grand bargain between different players in the market, like the original court accords that saw. wage restraint in exchange for things like the creation of compulsory superannuation, you know, Medicare and the like.

What I think the government is trying to do is they’re trying to get an agreement between particularly, most importantly, the Commonwealth and the states, but also potentially with others like local governments in order to basically build the housing that we need in Australia. So, they’ve got this target.

Aspirational target of 1 million, you know, homes from the five years in 2024. There’s been a lot of commentary about that target itself because, you know, on face value, it’s not actually that ambitious. 1 million homes by 20, from five, over five years, would basically be the same as what we built in the five years leading into COVID.

So, the target itself isn’t necessarily that ambitious, but I think what’s potentially much more valuable here, if it’s done well, is to has the prospect of breaking down some of the barriers to getting a lot more housing built, irrespective of whatever the target is. and potentially if it’s done well, it could lead to a lot more housing being built in the long run.

Kat Clay: Yeah. I mean, at the moment there’s only really a media release and a kind of high-level outline available online. There’s also the challenge ahead of significant work negotiating at a state, territory, and local level. Cause there are a lot of players in this area. What do you think the accord should include?

Brendan Coates: Well, I think the most meaningful thing is if it breaks down the actual barriers that are stopping more housing being built. And as Grattan has said many times before, a lot of those barriers are around How land use planning prevents more housing being built close to the centres of our major cities.

You know, I think it’s fair to say that Australia does have a shortage of housing compared to where we would otherwise like to be. You know, we have only 400 dwellings per thousand people, which is amongst the least housing stock in the developed world. And we didn’t see that much growth in the housing stock per person.

over the course of the last couple of decades. And so that manifests itself in all kinds of ways. You know, people are living with their parents, they’re living in share houses when they probably should be living in their own homes. So, the challenge here is that the States control the levers. And this is why it’s so important that the housing accord actually exists.

And if it done well, it could have big impacts. So, the States control the levers around land use planning reform, but the politics are really hard because people who live in an area where There’s lots of infrastructure. There’s good transport. they’re closer to the city. They often don’t want to see more housing built.

And what we see is that a lot of housing isn’t built. Basically, because, you know, local councils in a lot of states, say, particularly here in Victoria, you know, prevent more housing being built because they reflect the interests of those that live there already, and those that would move in don’t get a say.

So, the number one thing that the Accord should try to do is to break down those barriers by basically paying the states. to build more housing or to allow more housing to be built in their jurisdictions, by basically pushing the states to undertake reforms to the planning system, potentially also just encouraging the states and state developers to build more housing themselves, because there’s potentially a really big payoff here.

So, we saw, for example, in Auckland, a city of 1. 5 million people, it rezoned in 2016, three quarters of a suburban area, to a promote more housing construction. And then researchers at Yale found that basically that Led to an extra 5 percent of the housing stock being built that otherwise would have been, and if that had occurred in Australia, that’s the equivalent of rents and prices falling by 10 percent from where they otherwise would be.

So, the gains here are potentially really big, and there’s a, there’s a history of this in Australia via. You know, the Commonwealth has paid the states to do things like, the national competition policy where they basically handed over a lot of powers to the federal government in exchange, basically for cash.

And you could imagine the same thing happening here. The Commonwealth paying the states to force more housing to be built and basically paying them on outcomes. If you get more housing per person, great. Then you get a payment from the Commonwealth. If you don’t, okay, well, then you don’t get that money.

And that would be the incentive to say Tim Palace in Victoria. Or, you know, Dominic Perrotet in New South Wales to basically push through planning changes and other changes needed to get more housing built.

Kat Clay: Yeah, I find it interesting that there has actually been kind of forerunners to this in other countries.

So, for me, when I was reading the accord, I thought that the, maybe some of the hardest negotiations would happen on local level because of kind of the idea of nimbyism essentially. And I find this term that they use, the well-located houses is an interesting one. I mean, we’ve been pushing for high density housing, urban centres, but when people think of a family home, are their expectations going to be this kind of three-bedroom house with a yard and will affordable housing need to be apartments if they’re going to be well located?

Because there’s not. enough land near urban centres.

Brendan Coates: So I just want to pick up on the point about local government’s first cut because I think that’s a really interesting one and it points to whether the government is going to just basically try to get everyone to agree to the lowest common denominator which is where these kind of grand bargains can often end up or whether they’re going to push really hard.

and actually, get a meaningful outcome that will actually generate meaningful change. Because local governments, yes, they do control the level of government that are approving developments. But a lot of the rules that are set in place are set in place by the states. So, the more players you have in the accord, you know, it potentially, you could end up with a world where you actually get less done because you’ve got so many people around the table, and you want them to all agree.

You know, I think the priority is getting the states to reform the planning systems at the legislative level. And if you do that, then, you know, You know, the local governments who are beholden to the interests of their existing citizens who often don’t want more housing, then it’s not necessarily the case that the local government is going to agree with what’s proposed and implemented at the Commonwealth and the state level.

I think that’s really important. The second thing I’d say is, so what, what kind of housing are we going to get? Well, look, as Australian cities get bigger. and the urban fringe is further and further from the city, 60 kilometres away. It’s inevitable that you’re going to see densification. Australian cities are not dense compared to a lot of other cities around the world.

You have cities like Toronto and Vancouver and Canada, which is a similar sort of settler society. And so, when we’ve asked people in the past, what kind of housing do you want? You know, the expectation is basically People will say, well, I want a quarter acre block and a three-bedroom, four-bedroom house.

But what we tend to find is that a lot more people want denser forms of housing. If they’re just not currently provided by the current housing market, partly because of the planning system. So You know, when you ask people, what kind of housing do you want, roughly half of Melburnians and 60 percent of Sydneysiders say, look, we’re happy to live in a semidetached dwelling, a townhouse or an apartment in our inner or middle suburb, if that’s a way of getting closer to the city and getting the amenity that we want and we’ll give up the size.

But there are only about a third of dwellings in Melbourne, less than half in Sydney are actually those forms of dwellings at the moment. So, we’ve, it’s inevitable that we’re going to see more people living in apartments and in townhouses. It doesn’t necessarily mean 40 storey apartment buildings. It can mean taking one six, 700-meter block and turning into three townhouses.

And that could give you the housing that people need to have young families.

Kat Clay: So, I mean, just to follow up on that, where do you think the government will find the land? I did note that there was a mention of negotiating with TAFEs for, potentially taking land from TAFE, in the Accord itself, but do you have any other ideas?

Brendan Coates: We’ll probably come more to the issue of the land in a, in a moment, Kat, because, you know, if you think about, you know, when government’s seeking to find land, You know, you need to find land if you’re going to do housing that subsidize social or affordable housing, that housing is going to discount to the market rent.

You know, if we’re thinking about where, where is the land going to be found to build a million new homes, so largely going to be built by the private sector and rented out at market rents or sold to first home buyers. You know, those homes are going to be built by subdividing the existing dwellings that already exist.

In Australia, cities that are owned by, you know, private households today, or by turning brownfield areas of, you know, Melbourne and Sydney and other cities into sort of medium density housing. So, where’s the land going to come from? It’s going to come from the existing sort of land base. The, the existing geography of, of Melbourne and Sydney, as we densify, my house might become six apartments.

That’s how you’re turning one house into six within the existing land that we have.

Kat Clay: What about the government’s plans to get super funds involved in the housing accord? I mean, is it, is it a good idea? I note that the government has already committed 350 million to encourage investment in 10, 000 affordable homes.

Brendan Coates: There’s certainly ways that super funds could help. Solve problems in the housing market, but I think there’s been a lot of confusion about what role super funds should or should not play because I think when you, when it’s put forward, our super funds are going to help build housing. It’s just okay.

What we need is super funds investing in housing, and that’s going to lead to more housing being built. So, first of all, you know, they’re still subject to the planning system. So, unless you solve the planning system issues, it doesn’t necessarily mean you’ve got more housing being built. Then if you’re thinking about what role super funds are going to play.

I would distinguish between, I think the role of super funds really could valuably play where it would be most valuable. And then I think where the government seems to be going, which is the role of super funds might play in the provision of social and affordable housing. So, on the first, you know, there’s 3.

3 trillion in superannuation savings in Australia. It’s the fourth largest retirement savings pool in the world. And practically none of it’s investing in housing, even though they invest in housing abroad. Where we see the value for super funds to invest in housing, is that they would make much better landlords than mums and dads.

You could get a better rental experience for tenants. You potentially get a boost to housing supply, noting of course that you’ve got to fix the planning system and therefore lower rents, but, and you can, you can get sort of more secure rentals for tenants as well. And the value here is it doesn’t require any government subsidy.

The problem is that The Superfunds themselves don’t own any residential housing in Australia that’s rented at market rents. The rent that a house would go for on the open market is because of, of land taxes. basically, this is the problem where Superfunds don’t own any housing because land taxes in Australia are taxed at a progressive rate.

So, the more land you own. The higher tax rate you pay on each dollar of land and those land taxes at a progressive rate apply to your total landholding. So, if one person owns, you know, an individual house, they pay much less tax than if the one investor owns a hundred homes. So, take the example of Sydney.

You know, if you have a hundred investors each owning a house and the median price is 1. 24 million, that’s the median house price, then each of those investors pays no land tax because there’s a tax-free threshold. The land is worth less than that tax free threshold. But if a super fund owns the same hundred houses, they pay 12, 000 a year in land tax on each home.

That’s a third of the rent. And so, it’s why super funds don’t own housing in Australia where they do in the U. S. So, the reason this is potentially valuable is because an institution, if you got them into the housing market, like SUPA. Then what they can do is they can provide greater security of tenure.

They have a hundred, a thousand, 000 homes that they own. You basically get that super funds to, they will be more willing to offer more secure forms of tenure to the tenants because it doesn’t matter if one tenant moves out, you know, it’s supported by the other. 49, 999 homes, you’re still getting the rent on those.

Doesn’t matter if the one tenant damages the property, they’re secured against that risk. Whereas mom and dad landlords that own 85 percent of their housing stock, you know, 85 percent is owned by people who own three or less rental properties. They want shorter leases and, you know, more relaxed tenancy laws in case the relationship with the tenant.

Turn sour the way in which we think that the record should be used is to get super funds invested in market rental housing because you get more security for tenants, a better rental experience because they’re going to offer better maintenance services. You know, professional trade is on call and potentially you do get more stock.

If that, that wave of super fund investment. Helps put more stock into the market, building more homes and otherwise would be the case, but you’ve got to fix the way the land tax system works. Either you change the way we levy land taxes to be from the aggregate progressive rates on the aggregate landholding.

To a progressive right applied separately to each holding. So, there’s no longer a disincentive for someone to own 100 properties compared to one or, you know, you offer a separate land tax regime, which is something that basically says, okay, if you’re a super fund or institutional investor. Yes, we will give you that separate land tax regime, but you’ve also got to sign up to some model tenant provision.

You’ve got to sign up to a stronger set of tenancy rules. You further limit the ways in which people can be kicked out of the home because at the moment, you know, we’ve seen tenancy laws changes in Victoria and other states. And they’ve been improvements. One of the big issues though, that anytime someone sells a house, they often kick out the tenant in order to sell it.

And that’s very disruptive. Whereas a super fund wouldn’t worry about that. If they own 10, 000 homes, they just sell the whole thing as a block to someone else, all the tenants stay. So, you could basically, there could be a quid pro quid. You have a different land tax regime for institutions, the quid pro quos, the funds, the super funds, or the landlords have to sign up to a stronger set of tenancy laws that applies to months and dates.

So that’s how we think super funds should be involved in market rental housing, and it would help solve a problem that’s currently built into the

Kat Clay: system. So just so I’ve got this clear, Brendan, you’re saying that essentially, it’s. Really not a good investment for Superfunds at the moment because, of the cost of that land tax there.

And so, we have to kind of reform that in order to get them interested in investing and make it worth the time.

Brendan Coates: That’s exactly right, because those land taxes were set up in the 19th century to break up the squattocracy. You know, that’s why we set them up this way. for anyone who listened to the Henry George lecture was on a podcast the other week, this is why we did it.

And obviously this is a, an unintended consequence a hundred years later as to why super funds basically don’t invest in residential housing in Australia.

Kat Clay: I feel like we need to doff our little, little caps and, and talking kind of Sherlock Holmes accents to talk about the 19th century. but the question that I did want to ask.

That kind of follows on for your previous, comments, the accord here is explicit about getting super funds invested in affordable housing. Not just housing that’s rented at market rents. Is that a good idea?

Brendan Coates: I think this one cat is a much more mixed. And murky question. The ad said, there’s no doubt that we need more sort of social housing in particular, that’s housing where people pay no more than 25 percent of their incoming rent.

That’s why Grattan pushed for the social housing future fund, which was implemented in this budget is the housing Australia future fund for 10 billion to invest in social housing. but the problem with social housing in particular, but also. Which is where, where the rents are 25 percent of income is that often involves a big subsidy.

You know, if someone’s on JobSeeker, they’re only earning say 17, 000 a year. They’re paying 25 percent of their income in rent. They’re paying just over 5, 000 in rent. But you know, the median rental property in Australia, the rent is 25, 000. So, you know, you know, if it, if it costs 25 grand a year to put the house on the market and you’re only giving someone a 5, 000 rent, they’re only paying that, then there’s a huge subsidy.

Now, super funds are never going to come to the party and provide that subsidy because their core objective is simple, maximize returns for their members. That’s the sole purpose. We want to talk about affordable housing, but affordable housing has a very particular meaning when you’re talking about housing policy that can get pretty confusing.

If your super funds won’t. Bridge that subsidy gap that government’s going to have to pay. And so, if you’ve got government paying that subsidy gap anyway, which is what they’re doing. So, the announcement that you flagged before, there’s 350 million for, you know, 10, 000 affordable housing dwellings. That’s basically the government’s planning on a five, a 7, 000 a year subsidy going to whoever builds and maintains those homes to cover the gap between, What the tenant would pay at 20 percent below market rent and what the, you know, the house would cost on the open market.

And so, if government is got to fund the subsidy anyway, you’ve got to ask what’s the purpose of having the super funds involved at all. What are they actually bringing to the table? They’re bringing finance capital, you know, our super savings. But they’re only going to bring that if they get a return that’s commensurate with what they can get elsewhere.

So, they’re not, they’re not subsidizing anyone’s rent and that’s the right approach. And so, if that’s the case, then what’s the role of getting them involved? Now it can make it potentially, you can lower the borrowing costs for some of the community housing providers that actually provide this. This, this, this, subsidized housing because at the moment they need to go to banks and others to get the finance and maybe super funds would be a bit cheaper.

That’s an open question, but if you’re going to give the subsidy to the, to the, to a super fund to invest in housing. The question I would ask is, why not just give the subsidy directly to the tenant? Rent assistance is a very effective program. we, but for a single person, rent assistance maxes out at 3, 500 a year, which is less than half of what the government would offer at 7, 000 a year for these affordable homes.

And rent assistance is really tightly targeted. 80 percent of it goes to sort of very low-income households. There’s no, rationing. So, if you’re, as soon as you qualify, you’re eligible. So, the program grows. But the rate of the payment is too low. And so, you know, if you need to offer a subsidy to low-income tenants, which I think you do, then I would offer it directly to the tenant as a higher rate of rent assistance, rather than going via a super fund.

And that way, you know, if a, if a, if a, if someone with their extra rent assistance is looking for a home, maybe that home has been built by a super fund that owns it and they’re charging the market rent and then they’re getting rent assistance from the government. And that would be, in my view, a much cleaner, more efficient way to solve the problem.

Because an issue that you have here is super funds will only do this if it stacks up. At the moment, it’s a small asset class. There’s not many people doing it because of. There’s not many subsidies from government to do it. My worry is that governments will overpay super funds for the subsidy they actually need to give to the tenant in order to make the whole, the affordable social housing work.

That’s what we saw with NRAS. You know, where the subsidy was two or three times the value of the rental discount going to the tenant at the end of the day. And I think that’s what we should be wary of again.

Kat Clay: I mean, one final question to bring it back to the federal budget. I mean, there wasn’t much talk of things like rent assistance, obviously in the, in the budget in October and Jim Chalmers has a challenging outlook ahead of him for the next federal budget does increasing rent assistance.

Is that something that. Optically, probably looks bad, despite the fact that the mathematics potentially works out better for the economy and for the federal budget itself, rather than rooting that money through a superannuation fund.

Brendan Coates: If you look at the budget papers, whether the subsidy is given to a super fund for affordable housing.

Or it’s given to rent assistance to the tenant, it still shows up as, you know, in addition to the budget deficit. Now, rent assistance, if we raise it by 40%, which is what Grattan is calling for, you know, that will cost you close to 2 billion a year. That’s not a small amount of money at the moment. If you’re going to offer a large number of, of affordable homes that it gives this subsidy to Superfunds.

It’s going to cost you a lot of money as well, you know, if we think it’s going to cost 7, 000 a year to keep an affordable housing dwelling on the market and you want to build, you know, 100, 000 of them, you’re talking about, you know, putting what’s that 700 million each year on the table in order for those affordable housing dwellings to be there.

And there’s many more people that will be eligible for an affordable home than 100, 000 people. So, either way, government ends up paying. And so, we should go down the path of what’s most efficient and what’s fairest. And that is giving everyone access to a high rate of rent assistance, rather than rationing a limited number of affordable homes that are offered at below market rents to, you know, those that are lucky enough to win the lottery.

And get one of those homes.

Kat Clay: Thank you so much, Brendan. It’s been great talking to you about housing and especially the recent announcements of the housing accord. If you’d like to find out more about our research and writing on housing, please go to grattan.edu.au. I also recommend that you go and listen to the Henry George lecture that Brendan gave about a month ago.

It’s available on our podcast and on YouTube as well. If you’d like to donate to Grattan, we rely on donations from lovely listeners like you. Please go to grattan.edu.au/donate. And as always, please take care and thanks so much for listening.