Social Trends – Page 148 – Digital Finance Analytics (DFA) Blog

Is big business, super funds the key to fixing social housing problem in Australia?

PHILANTHROPISTS, charities, superannuation funds and publicly-minded big business will be encouraged to build and manage social housing developments in a bid to dramatically boost the number of social houses available across Australia.

Treasurer Scott Morrison said major changes were needed in the way social housing was provided, to make it more attractive to the private sector.
The Lend Lease housing development in London is designed to provide affordable housing but also ensure profits for developers. Picture: Ella Pellegrini
Speaking at a $3.8 billion new housing estate in London which has set 25 per cent of its new houses aside for affordable housing, Mr Morrison said governments provided almost all of the social housing in Australia, but demand was outstripping supply.

“There are currently over 180,000 people on social housing waiting lists across Australia,’’ he said.

“The number of social housing dwellings would need to grow by almost 50 per cent in order to accommodate this number of people.

“At present the Commonwealth and state and territory governments combined are spending over $10 billion a year on housing but it is failing to improve outcomes, particularly for those with low-moderate incomes.’’

Mr Morrison will today launch a discussion paper on ways to increase the practise known as social impact investment, to get private sector involvement in the social housing market.

The aim is to make building, supplying and managing social housing an attractive business proposition, as well as being a good thing to do for the community.

At its core it is designed to deliver better outcomes for the people who use the service but it also needs to provide a financial return.

“If social impact investing doesn’t make money then people won’t do it,’’ Mr Morrison told News Corp.

“It’s not social impact benevolence. It’s social impact investment.’’

The Government could play a role by reducing the cost and burden of compliance, being a co-owner of a development, getting rid of legal barriers, helping organisations access low-cost, long-term finance, and potentially direct-paying Commonwealth rental assistance to landlords.

“A key objective is to create an enabling environment for social impact investment that doesn’t displace private sector financing,’’ Mr Morrison said.

Social impact investing can be done through issuing social impact bonds, which the New South Wales and South Australian governments are already doing on a project-by-project basis.

But large-scale private projects do not yet exist in Australia.

Mr Morrison this week toured the Elephant Gate project being developed by Lend Lease in Southwark, south London.

The project saw the notorious, crime-riddled Heygate council estate bulldozed, and a new development of 3000 homes go up in its place, incorporating community facilities such a skills centre, where trainees worked on the site.

A quarter of the properties were set aside for affordable housing — half of them available under shared ownership, where the owners buy just a portion of their home, according to their incomes.

The other homes are social housing, scattered throughout the entire complex, where tenants pay a capped rent, under the deal between Lend Lease and the Southwark Council.

“We don’t really have projects like this in Australia and it is does require a capacity in state governments, a capacity even in the Federal Government as well as building up our social organisations,’’ he said.

“You’ve got to get the returns, that’s the other challenging thing.

“You’ve got to get the security of income and that really does require you to rethink using your Commonwealth rental assistance and how you’re using welfare payments and getting a guarantee that rent is going to turn up in the bank account.

“When you start getting a more guaranteed income stream for these types of developments that’s far more attractive to the developers, far more attractive to the institutional investors.’’

High Household Debt Kills Real Growth

A new working paper from the BIS “The real effects of household debt in the short and long run” shows that high household debt (as measured by debt to GDP) has a significant negative long term effect on consumption, and so growth.

A 1 percentage point increase in the household debt-to-GDP ratio tends to lower growth in the long run by 0.1 percentage point. Our results suggest that the negative long-run effects on consumption tend to intensify as the household debt-to-GDP ratio exceeds 60%. For GDP growth, that intensification seems to occur when the ratio exceeds 80%.

Moreover, the negative correlation between household debt and consumption actually strengthens over time, following a surge in household borrowing. What is striking is that the negative correlation coefficient nearly doubles between the first and the fifth year following the increase in household debt.

Bad news for Australian households where the ratio is well above 80%, at 130%.

This is explained by massive amounts of borrowing for housing (both owner occupied and investment) whilst unsecured personal debt is not growing. Such high household debt, even with low interest rates sucks spending from the economy, and is a brake on growth. The swelling value of home prices, and paper wealth (as well as growing bank balance sheets) do not really provide the right foundation for long term real sustainable growth.

Note: BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS.

Unaffordable housing: the nanny state fix we need

From The NewDaily.

Incoming NSW premier Gladys Berejiklian and federal Treasurer Scott Morrison have raised expectations they will actually do something about unaffordable housing.

With capital city median house prices cooling but still relentlessly rising there is broad consensus that supply, in the form of more land release and fast-tracked apartment development, will never bring acquisition costs down for young home buyers.

Demand is also relentless through population growth from migration and the natural birth rate. Australia is on track to reach 40 million people by 2055. The Sydney home-unit tsar Harry Triguboff has become Australia’s richest man tracking demand through migration and building blocks of flats to cash in.

Endemically low interest rates have pumped up prices in hotly competitive city real estate markets. The federal government has failed to stop the distorting impact of too-generous negative gearing with aggressive property investors now building substantial multi-dwelling portfolios. We are becoming a nation of landlords.

NSW Opposition leader Luke Foley on Friday produced State Revenue Office figures showing a 61 percent growth in investor-owned property over the past three years.

Premier Berejiklian has said an “average, hard working” person should be able to afford a home in Sydney. But first-home buyer numbers have dropped from 18 per cent in 2011 to 8 per cent of total purchases today.

Hey Barnaby … there are no jobs in Tamworth

Why can’t people abandon their aspiration for a harbour view and move to an eminently affordable house in Tamworth, Deputy Prime Minister Barnaby Joyce asked in his deeply superficial contribution to the national affordability debate.

The answer is that the jobs are in the cities. There are fewer jobs in Tamworth, as there are in all Australian regional towns.

To buy a house you need a job. A worker on $75,000 a year with no dependants or credit card debt can borrow $512,000 for housing on this income. That would buy this income earner a good house in Tamworth, but at current prices, only a studio or one-bedroom apartment over-looking an industrial bin (forget the harbour view) in Sydney. You can add in Melbourne, Brisbane, Adelaide, Perth and Hobart to this calculation with some variations.

Young couples, each in full-time work, can combine their incomes to go deeper into debt to acquire their first home, and many do. But the barriers to entry remain extortionate, leading to the recent ‘smashed avocado’ kerfuffle where a demographer provocateur, Bernard Salt, lamented that millennials now preferred to spend $22 on this delicacy rather than save up for a house deposit.

Young people have given up, staying at home with mum and dad or sharing accommodation indefinitely, well past their student days.

What are legislators for?

Treasurer Scott Morrison has been fact-finding in London to see how the UK has addressed the affordability problem. A package of measures could come in the May federal budget. In spite of dissent from some Liberal MPs, any reform is not expected to include confronting the market distortion of negative gearing.

Premier Berejiklian is gathering insights from the fine policy minds available to her in the NSW government and is expected to announce some lever-pulling soon. First-home buyers’ grants and stamp duty holiday concessions can help to get more young people deposit-ready to buy, but they compete in already hot markets further pushing up prices.

The answer is in legislation. This will be derided as ‘a nanny state’ solution by ideologues and rapacious developers but with the market having so demonstrably failed to deliver the dream of home ownership for ‘average, hard-working people’, now is the time for a state plan. After all, what are legislators for? Do they always have to stand around, thumb in bum and mind in neutral? Why do we pay their salaries and helicopter expenses?

Let us now see if Premier Berejiklian is prepared to enact laws to establish state-wide inclusionary zoning for affordable housing. This has been done in London and New York. This would establish a public land register for affordable and social housing. The Greater Sydney Commission, a NSW planning agency headed by Lucy Turnbull, has already recommended government mandating six district plans for affordable housing for low-income households ranging from $42,300 to $67,600 per year.

The Committee for Sydney, a think tank, has proposed that under-utilised land could be slugged with higher taxes to get private owners to release it from their speculative ‘land banking’ grip. Most affordable housing in London, both freehold and rental, is high density around transport hubs for easier job access.

In the UK there is a social/affordable housing bond market which could be adapted by the Australian equivalent state-owned housing finance corporations to kick start affordable housing development with the not-for-profit and private sectors including investment-hungry superannuation funds.

So the answer to unaffordable housing in Australia? L-A-W … law.

How globalisation brought the brutality of markets to Western shores

From The Conversation.

The story of contemporary globalisation is, at its heart, the story of how we created a vast and impoverished working class. It is abundantly clear that the dynamics behind this have now hit home. First Brexit, then Donald Trump. We have been told that these votes were a primal scream from those forgotten parts of society.

Both campaigns identified immigration as a core cause of worker impoverishment and social exclusion. Both argued that limiting immigration would reverse these disempowering trends. It is true that poverty remains high and has even been expanding in the UK and the US, but the cause, and the solution, lie far deeper.

According to the charity Oxfam, one in five of the UK population live below the official poverty line, meaning that they experience life as a daily struggle. In the US, the richest country in world history, one in five children live in poverty. In the UK, austerity has played a role but is not the only cause. According to a Poverty and Social Exclusion project published early in George Osborne’s first wave of austerity, the proportion of households that fell below society’s minimum standards had already doubled since 1983.

Poverty pay and working conditions are proliferating across the UK. A recent study of the clothing manufacturing sector around the city of Leicester found that employers often consider welfare benefits as a “wage component”, forcing workers to supplement sub-minimum wage pay with welfare benefits. In this sector 75-90% of workers earn an average wage of £3 an hour. Companies get round the law by paying cash-in-hand and by grossly under-recording the hours worked.
Worker rights no longer set in stone. Martyn Jandula/Shutterstock
Recent news about working conditions at Sports Direct, Hermes, Amazon, and others show that far from being an isolated case, the Leicester example is part of an increasingly common trend towards low-wage, exploitative practices, greatly facilitated by a state-directed reduction in trade union power.

Income attacks

Mainstream portrayals of globalisation present it as a relatively benign market expansion and deepening. But this misses out the bedrock upon which such growth occurs: the labour of new working classes.

Following the end of the Cold War, the global incorporation of the Chinese, Indian and Russian economies served to double the world’s labour supply. De-peasantisation and the establishment of export processing zones across much of Latin America, Africa and Asia has enlarged it even further. The International Monetary Fund calculates that number of workers in export-orientated industries quadrupled between 1980 and 2003.

This global working class subsists upon poverty wages. Forget the problems in the clothing sector around Leicester, The Clean Clothes Campaign found that textile workers’ minimum wages across Asia equate to as little as 19% of their basic living requirements. To survive they must work many hours overtime, purchase low quality food and clothing, and forego many basic goods and services.
Cut from the same cloth? Workers in Asia. Asian Development Bank/Flickr, CC BY-NC-ND
A core element of globalisation has been the outsourcing of production from relatively high-wage northern economies to these poverty-wage southern economies. This enables firms to pay workers on the other side of the world 20 to 30 times less than former, “native” workers. They can then pocket the very significant cost difference in profits. For example, Apple’s profits for the iPhone in 2010 constituted over 58% of the device’s final sale price, while Chinese workers’ share was only 1.8%.

Outsourcing is celebrated by proponents of globalisation because, they argue, rather than produce goods expensively, they can be imported much more cheaply. This is true for many economic sectors in the global north, of course, but the downside is that wages and working conditions in remaining jobs are subject to colossal downward pressure.

Not working

What can be done? Limiting immigration will have no effect on these global dynamics, and may exacerbate them. You see, if wages are pushed up by labour shortages after any block on immigration, then the pressure and the incentive for firms to further outsource production, or to relocate, will increase. The anti-immigrant rhetoric and the mooted solutions of Donald Trump, UKIP, and much of the UK Conservative party will not help native workers one bit. Nor are they intended to. Rather, they represent a divisive political strategy designed to keep at bay any criticism of a decades-long assault on workers’ organisations.
Trump’s solutions don’t solve the problem. EPA/MIKE NELSON
For a problem brought about by globalisation it should shock no one that the progressive solution to poverty wages at home and abroad must be a global one. One thing that could work is the establishment of living wages across global supply chains. This would increase the price of labour in the global south, which in turn would limit some of the downward pressures that poverty wages here exert upon global north workers’ pay and conditions.

Doubling the wages of Mexican sweatshop workers would increase the cost of clothes sold in the US by only 1.8%. Increasing them ten-fold would raise costs by 18%. That cost increase can either be borne by northern consumers, who are themselves increasingly suffering from the wage-depressing dynamics of globalisation, or by reducing, only slightly, outsourcing firms’ profits. The outcome depends on politics and an understanding from voters that the dynamics that pushed towards Brexit and Trump are rooted in the systemic dynamics of corporate-driven globalisation. Contrary to its supporters claims, this mode of human development is based upon the degradation of labour worldwide.

The key question here is whether companies can be convinced to raise, significantly, their workers’ wages? Given capitalism’s cut-throat competitive dynamics, probably not right now. But there are many workers’ organisations toiling to achieve such objectives across the globe. Recognising that success in these struggles would contribute to improving the conditions for workers in the global north is a small, but necessary, first step towards realising these goals.

Author: Benjamin Selwyn , Professor of International Relations and International Develpoment and Director of the Centre for Global Political Economy, University of Sussex

Digital Finance and Fintch – Benefits and Risks

Dr Jens Weidmann President of the Deutsche Bundesbank spoke on “Digital finance – Reaping the benefits without neglecting the risks“, drawing important links to financial literacy, financial stability and fintech.

More than 20 years have passed since Bill Gates famously said that “Banking is necessary, banks are not”.

While banks still exist – and I am sure they will continue to do so -, recent developments have shown that non-banks are just as capable of providing bank services. And that is not least due to the huge strides made in the field of information and communications technology (ICT), which has opened up a whole new world of possibilities for designing and distributing financial services.

And this has even transformed traditional banking business. Online banking, for example, has become the main point of access for many bank customers.

Digital finance, and the fintech industry in particular, have experienced very rapid growth in recent years on the back of both supply-side and demand-side forces.

On the supply side, technological progress plays an important role, but so, too, do efforts to drive down the costs of financial services. These forces are being propelled by the increasing availability of ICT infrastructure, the provision of unique access points to financial services, and the growing number of digital natives.

And on the demand side, “always on” customers are increasingly expecting to be able to bank with a minimum of fuss, whenever and wherever they like.

Digital finance opens up a host of opportunities, but we should not neglect the risks it entails. But how can we capitalise on these opportunities without losing sight of the potential risks? That is a key question of this conference – one that will be addressed by a panel discussion and also by Bank of England governor Mark Carney in his keynote speech this afternoon.

From an economic point of view, digital finance can deliver a wealth of benefits. First of all, digital financial services can bring about significant efficiency gains. Digitalisation can also stoke competition within the financial system and raise the contestability of financial markets. Some commentators even argue that digitalisation has the potential to revolutionise financial services and infrastructure.

The key buzzword here is “disruptive”. And many believe the most disruptive potential is to be found in blockchain or distributed ledger technology, which promises to allow payment transactions and securities settlement to bypass banks and central counterparties altogether.

Originally developed for the bitcoin virtual currency, this distributed ledger technology, it would appear, has turned out to be a multi-purpose tool. And even central banks – which aren’t typically known for being early adopters of new technologies – are currently doing experimental research on the potential use of blockchain.

The Bundesbank, for example, has recently launched a joint project with Deutsche Börse to develop a blockchain-based prototype of a securities settlement system.

But even apart from radically transforming the payments and securities settlement infrastructure, digitalisation enables newcomers to mount a challenge against incumbent market players.

Data-driven technologies can boost the transparency of the financial system and thus reduce information asymmetries. Big data analysis, for example, can improve the estimation of default risks even in the absence of a longstanding bank-customer relationship.

An increasing number of suppliers of financial services is particularly good news for households and enterprises lacking access to traditional sources of finance. In the end, this might drive up the number of projects that receive financing.

Online crowdfunding or peer-to-peer lending platforms might enable investment projects which would otherwise be too risky or too small for traditional banks, to go ahead.

In general, digital finance facilitates access to financial services. And this benefit is not confined to tech-savvy consumers in advanced economies. Indeed, digital technologies can be key drivers of financial inclusion in less developed countries, too.

In Kenya, for example, the share of people with a financial account rose from 42 % in 2011 to 75 % in 2014. Over the same period, the respective global figure rose from 51 % to 61 %.

In tandem with the mounting ubiquity of cell phones, mobile money accounts have gained popularity, particularly in Sub-Saharan Africa. In some countries, there are even more adults with a mobile money account than a conventional bank account.

Financial inclusion is thought to be conducive to promoting economic growth and lowering inequality. Financially included people are in a better position to start and develop businesses, to invest in their children’s education, to manage risks, and to absorb financial shocks.

On the other hand, there is a trade-off between financial inclusion and financial stability. Expanding access to financial services – especially to credit – at too fast a pace and with too little control exposes economies to stability risks, and households to the risk of over-indebtedness. The Indian microfinance crisis in 2010 showed us what can happen if too many households have access to credit despite being subprime borrowers.

And that is why financial literacy is so crucial. People with access to finance need a basic understanding of financial concepts like compound interest and risk diversification.

Surveys, however, provide some worrying results. According to an International Survey of Adult Financial Literacy Competencies, which was commissioned by the G20 and published by the OECD, overall levels of financial literacy, as indicated by knowledge, attitudes and behaviour, are relatively low.

And another study, the S&P Global Financial Literacy Survey, which was supported by the World Bank, reveals that two out of three adults are not financially literate, albeit with major variations across countries. While more than half of adults are financially literate in most of the advanced economies, that goes for fewer than one-fifth of people in some developing or transformation countries.

There are, of course, other aspects of digital finance which have a bearing on financial stability.

Herding behaviour, for example, could be amplified by automated advisory services in portfolio management. Robo advisors might exacerbate financial volatility and pro-cyclicality if the assets under management reach a significant level, which is not yet the case.

Traditional banks in many countries are currently suffering from dwindling profitability due, most notably, to the low-interest-rate environment. Disintermediation, however, could intensify the problems of narrow profit margins. This might be the flipside of the mounting competition unleashed by the more widespread use of digitised financing.

And decentralisation might make it more difficult to tell who is exposed to whom, and to detect where financial risks ultimately lie.

Another point worth noting is that fintech business models have not yet run through an entire credit cycle. Experience with digital finance in economic downturns is very limited.

That being said, it is quite obvious that regulating fintechs and the entire digital financial industry smartly without hindering financial innovation is warranted. That’s why the objectives of the German G20 presidency include taking stock of the different regulatory approaches. Our aim is to develop a set of common criteria for the regulatory treatment of fintechs.

Fintechs should not base their business models on regulatory loopholes. Using lax regulation to attract business is a mistake that was already made before the latest financial crisis. Whatever we do, we need to avoid a regulatory race to the bottom. Rather, we should go for a level playing field.

To quote the words of the former ECB President Jean-Claude Trichet who said in 2010: “(…) “the crisis has exposed the risk of regulatory arbitrage, shedding a more negative light on the competition among different systems and rules.””

Getting a clearer picture of fintechs’ business activities is essential if we are to better understand whether and in what way they might pose a threat to financial stability. It is therefore an important endeavour of the Financial Stability Board to further investigate and promote data availability. Without reliable data, any assessment of risks is unfeasible.

Another threat – and certainly not just to financial stability – comes from cyber risks.

The more market infrastructures rely on digital technologies, the more vulnerable our interconnected global financial system becomes to criminal attacks, be it from computer hackers, cyber saboteurs or even terrorists.

Cyber criminals have repeatedly targeted financial institutions around the world, including central banks. There are plenty of financial institutions I could name whose defences have been successfully breached. The damage unleashed by successful attacks goes beyond the financial loss incurred. Cyber-attacks can potentially undermine peoples’ trust in the financial system.

So to avoid jeopardising the positive impact of digital finance, it will be crucial to address these risks and for banks to manage their IT and cyber risks with as much diligence as they do their traditional banking risks.

Cybersecurity risks will be a major item in a talk this afternoon with Thomas de Maizière, German Federal Minister of the Interior. And a research dialogue tomorrow will also address the topic of cyber security.

The Case For “Inclusive Growth”

From the IMF Blog.

Four years ago, at the World Economic Forum in Davos, IMF Managing Director Christine Lagarde warned of the dangers of rising inequality, a topic that has now risen to the very top of the global policy agenda.

While the IMF’s work on inequality has attracted the most attention, it is one of several new areas into which the institution has branched out in recent years. A unifying framework for all this work can be summarized in two words: Inclusive growth.

We want growth, but we also want to make sure:

that people have jobs—this is the basis for people to feel included in society and to have a sense of dignity;

that women and men have equal opportunities to participate in the economy—hence our focus on gender;

that the poor and the middle class share in the prosperity of a country—hence the work on inequality and shared prosperity;

that, as happens, for instance when countries discover natural resources, wealth is not captured by a few—this is why we worry about corruption and governance;

that there is financial inclusion—which makes a difference in investment, food security and health outcomes; and

that growth is shared just not among this generation but with future generations—hence our work on building resilience to climate change and natural disasters.

In short, a common thread through all our initiatives is that they seek to promote inclusion—an opportunity for everyone to make a better life for themselves.

These are not just fancy words; a click on any of the links above shows how the IMF is making work on inclusion a part of its daily operations.

Inclusion is important, but so of course is growth. “A larger slice of the pie for everyone calls for a bigger pie” (Lipton, 2016). So when we push for inclusive growth, we are not advocating as role models either the former Soviet Union or present day North Korea—those are examples of ‘inclusive misery,’ not inclusive growth. Understanding the sources of productivity and long-run growth—and the structural policies needed to deliver growth—thus remains an important part of the IMF’s agenda.

Globalization and inclusion

The IMF was set up to foster international cooperation. Hence, to us, inclusion refers not just to the sharing of prosperity within a country, but to the sharing of prosperity among all the countries of the world. International trade, capital flows, and migration are the channels through which this can come about. This is why we stand firmly in favor of globalization, while recognizing that there is discontent with some of its effects and that much more could be done to share the prosperity it generates.

Higher growth should help address some of the discontent, as argued by Harvard economist Benjamin Friedman in his book, The Moral Consequences of Economic Growth. Friedman shows that, over the long sweep of history, strong growth by “the broad bulk” of a society’s citizens is associated with greater tolerance in attitudes towards immigrants, better provision for the disadvantaged in society, and strengthening of democratic institutions.

However, designing policies so they deliver inclusive growth in the first place will be a more durable response than leaving matters to the trickle-down effects of growth.

Policies for inclusive growth

♦ Trampolines and safety nets: “More inclusive economic growth demands policies that address the needs of those who lose out … Otherwise our political problems will only deepen” (Lipton, 2016). Trampoline policies such as job counseling and retraining allow workers to bounce back from job loss: they help people adjust faster when economic shocks occur, reduce long unemployment spells and hence keep the skills of workers from depreciating. While such programs which already exist in many advanced economies, they deserve further study so that all can benefit from best practice. Safety net programs have a role to play too. Governments can offer wage insurance for workers displaced into lower-paying jobs and offer employers wage subsidies for hiring displaced workers. Programs such as the U.S. earned income tax credit should be extended to further narrow income gaps while encouraging people to work (Obstfeld, 2016).

♦ Broader sharing of the benefits of the financial sector and financial globalization: We need “a financial system that is both more ethical and oriented more to the needs of the real economy—a financial system that serves society and not the other way round” (Lagarde, 2015). Policies that broaden access to finance for the poor and middle class are needed to help them garner the benefits of foreign flows of capital. Increased capital mobility across borders has often fueled international tax competition and deprived governments of revenues (a “race to the bottom leaves everyone at the bottom,” (Lagarde, 2014). The lower revenue makes it harder for governments to finance trampoline policies and safety nets without inordinately high taxes on labor or regressive consumption taxes. Hence, we need international coordination against tax avoidance to prevent the bulk of globalization gains from accruing disproportionately to capital (Obstfeld, 2016).

♦ ‘Pre-distribution’ and redistribution: Over the long haul, polices that improve access to good education and health care for all classes of society are needed to provide better equality of opportunity. However, this is neither very easy nor an overnight fix. Hence, in the short run, ‘pre-distribution’ policies need to be complemented by redistribution: “more progressive tax and transfer policies must play a role in spreading globalization’s economic benefits more broadly” (Obstfeld, 2016).

If you’re serious about affordable Sydney housing, Premier, here’s a must-do list

From The Conversation.

So “fixing housing affordability” in Sydney is one of three top priorities for the new premier of New South Wales, Gladys Berejiklian. It’s good that the state’s new leader recognises this as an intensifying problem that can’t be ignored.

Berejiklian will appreciate the electoral importance of this issue. It’s an especially sensitive topic in western Sydney, which no longer provides Sydney with the large reserve of less-expensive property that it once did. Unless they can draw on family wealth, even middle-income first-home-buyers are now locked out of huge swathes of Sydney – including areas far from the inner city.

But given she came to the top job from the Treasury portfolio, Berejiklian would also be expected to have a clear understanding that the lack of well-located affordable housing is an economic productivity concern as well as a social problem.

One aspect of this, as shown by our recent research, is that central Sydney’s booming hospitality sector is facing growing pressure to find and retain suitable employees. This is because of workers’ limited ability to find affordable housing within a reasonable distance. To work in the inner city they must weigh up other compromises – such as living in shared housing, or paying a very high proportion of income in rent.

Relying on backpacker labour supply isn’t an ideal business strategy. And, as inner Sydney housing affordability deteriorates further, there’s every possibility other CBD industries will see their lower-income labour market thinning out.

The broader issue is the growing stress caused by the continuing focus of employment creation in inner-city areas. This applies especially to the so-called “global arc” stretching from the airport in the south to Macquarie Park in the north.

The mismatch between where affordable housing and jobs are available is a key cause of traffic congestion. Dan Himbrechts/AAP

In the last few years annual job growth here has been running at more than 2%, but only 0.5% in western Sydney. At the same time, housing market pressures mean more and more people needed to fill these new jobs are having to live in outer western Sydney. The resulting traffic congestion is damaging Sydney’s economy.

Nationally, the cost of congestion in 2015 was A$16.5 billion – up by 30% on 2010. Anyone who commutes by car in Sydney will know it is a major part of this problem. Ultimately, some companies may choose to relocate to places where these problems are less severe.

Housing supply is only part of the solution

On the other hand, it must be hoped that Berejiklian will leave behind at Treasury the flawed analysis that fixing Sydney’s housing problems is simply a matter of increasing housing supply.

No-one disputes that, with continued population growth, maximising new house-building must be part of the policy mix. But the idea that this can provide any kind of silver bullet for housing unaffordability is shot dead by the experience of the past few years. Record construction rates have co-existed with unprecedented and ongoing property price hikes.

As premier, Berejiklian should therefore lend support to her ministerial colleague, Rob Stokes, who called it right by arguing recently that Sydney’s housing problems partly result from a market pumped up by excessive tax concessions for landlord investors.

These powers are held at the federal level, not with the states. So Berejiklian can do little more than lobby for such reform.

Adopt the best policies from others

And yet the premier does have important powers of her own that can make a difference.

Recognising that even a moderation of property prices isn’t going to provide relief for tens of thousands of hard-pressed renters, the NSW government must take a leaf out of the book of cities like London and New York by using its planning muscle to ensure the inclusion of affordable rental housing in all major new housing developments.

Under the former premier, Mike Baird, a promising initiative in this arena was the recent proposal by the Greater Sydney Commission to introduce a scheme of this kind. Private housing developments on sites “upzoned” under the planning system should include 5-10% affordable rental housing.

If she is serious about this issue, Berejiklian should back the commission’s move. She can prove her commitment to finding solutions by setting a much higher affordable rental housing target for development on government-owned land. This would ensure that a significant affordable component is locked in for flagship projects such as the Central to Eveleigh and Bays Precinct urban renewal schemes. This is a one-off opportunity that must not be squandered.

The new premier should also recommit to the innovative Social and Affordable Housing Fund (SAHF) created under her predecessor, following his 2015 commitment to a “billion-dollar fund” for affordable housing.

An announcement on the promised second phase of the SAHF has been long-awaited. Perhaps Berejiklian can pledge to underwrite this by dipping into the huge stamp-duty bonanza the government has reaped in recent years.

Above all, NSW needs an overarching housing strategy that encompasses much more than just the social end of the spectrum. Recognising the urgency of the problem, Berejiklian should pledge that her officials will get to work on this right away.

Author: Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW Australia