housing affordability – Page 11 – Digital Finance Analytics (DFA) Blog

Affordable housing crisis is hurting all of us (except the well-heeled)

From The Conversation. Until recently, affordable housing was mentioned only in conversations involving low-wage or unemployed workers – or the homeless. The only groups that focused on rising rental costs were low-income housing advocacy groups.

That has now changed.

For the first time since possibly the Great Depression, the lack of affordable housing is being viewed as a crisis that affects Americans of all ages, races and income groups.

While the US Supreme Court spotlighted the issue in Thursday’s ruling allowing parties to challenge housing practices even if they do not (or cannot) prove there was intentional bias or discrimination, the mainstream media is finally catching on as well.

In the last three weeks, the Washington Post, New York Times and Wall Street Journal have all sounded the alarm about the country’s looming affordable housing crisis. In addition, well-heeled non-profit groups – like the foundation recently formed by the former CEO of the nation’s largest apartment developer – have begun urging politicians to address the growing problem of rental housing unaffordability.

Growing more somber

Some of the recent media attention on the unaffordability of housing was triggered by the 2015 State of the Nation’s Housing report, just released by the Harvard Joint Center for Housing Studies (JCHS). While the JCHS has issued a similar report every year since 1988, the latest edition opens with an unusually somber tone about the state of housing in this country.

“Homeownership at 20-Year Lows,” bellows the opening line of the 2015 report.

By comparison, the first line in 2013 highlighted the “Housing Market Revival,” while the 2014 report only hinted at the growing problems with “Single-Family Slowdown.”

This change in tone was very slow in coming. The 2013 report optimistically reported that “the long-awaited housing recovery finally took hold in 2012.” The 2014 report, while less rose-tinted, still noted that “the housing market gained steam in early 2013.”

The 2015 report strikes a decidedly different and more alarmist tone by emphasizing that the housing recovery “lost momentum” as homeownership rates continued to fall. This report then chronicles the increase in the number of renters who are “cost-burdened” and cannot find affordable housing and the number of minority neighborhoods that still have not recovered from the recession.

Who’s struggling

While news sources have intermittently reported on housing affordability issues since the recession, what is new about the current affordable housing reports is who is struggling to find affordable housing. It’s no longer just millennials or the poor or homeless people.

Prior accounts have described the low homeownership rates of cash-starved millennials who live with their parents because of high student loan debt and low-wage jobs.

The recent New York Times article discusses former homeowners who are now forced to rent because they lost their homes to foreclosure and cannot qualify for a mortgage loan because of blemished credit. Likewise, the Washington Post article discusses middle- and even upper-income renters and the fact that many parents of millennials are now struggling to find affordable housing.

The JCHS report explains that homeownership rates for Americans aged 35 to 44 have now dropped to levels not seen since the 1960s. In describing the housing affordability crisis for renters, the report shows that from 2004 to 2014, older Americans (aged 45 to 64) became renters at greater rates than millennials households under the age of 35.

Today’s rental crisis

Housing affordability is no longer limited to the lowest-paid workers. The JCHS report stresses that renters whose earnings place them in the highest-income quartile now account for more than 20% of new renters.

Renters are no longer the low-income, working-class Americans typically featured in news reports. Today’s rental crisis is now affecting just about everyone but the really rich.

The Wall Street Journal article assumes that policymakers are either blissfully unaware of the affordable housing crisis, or they are unwilling to do anything about it.

Politicians have not been willing to make changes to popular housing laws or policies that benefit upper-income homeowners, like the mortgage interest deduction. And they haven’t been willing to provide additional relief to lower-income renters by, for example, expanding the low income tax credit.

Politicians may be unwilling to do anything to solve the affordable housing crisis. But, after these recent reports, they can no longer say they don’t know the crisis exists.

Author: Mechele Dickerson, Professor of Law at University of Texas at Austin

Tackling housing unaffordability: a 10-point national plan

From The Conversation. The widening cracks in Australia’s housing system can no longer be concealed. The extraordinary recent debate has laid bare both the depth of public concern and the vacuum of coherent policy to promote housing affordability. The community is clamouring for leadership and change.

Especially as it affects our major cities, housing unaffordability is not just a problem for those priced out of a decent place to live. It also damages the efficiency of the entire urban economy as lower paid workers are forced further from jobs, adding to costly traffic congestion and pushing up unemployment.

There have recently been some positive developments at the state level, such as Western Australia’s ten year commitment to supply 20,000 affordable homes for low and moderate income earners. Meanwhile, following South Australia’s lead, Victoria plans to mandate affordable housing targets for developments on public land. And in March the NSW State Premier announced a fund to generate $1bn in affordable housing investment.

But although welcome, these initiatives will not turn the affordability problem around while tax settings continue to support existing homeowners and investors at the expense of first time buyers and renters. Moreover, apart from a brief interruption 2008-2012, the Commonwealth has been steadily winding back its explicit housing role for more than 20 years.

The post of housing minister was deleted in 2013, and just last month Government senators dismissed calls for renewed Commonwealth housing policy leadership recommended by the Senate’s extensive (2013-2015) Affordable Housing Inquiry. This complacency cannot go unchallenged.

Challenging the “best left to the market” mantra

The mantra adopted by Australian governments since the 1980s that housing provision is “best left to the market” will not wash. Government intervention already influences the housing market on a huge scale, especially through tax concessions to existing property owners, such as negative gearing. Unfortunately, these interventions largely contribute to the housing unaffordability problem rather than its solution.

But first we need to define what exactly constitutes the housing affordability challenge. In reality, it’s not a single problem, but several interrelated issues and any strategic housing plan must specifically address each of these.

Firstly, there is the problem faced by aspiring first home buyers contending with house prices escalating ahead of income growth in hot urban housing markets. The intensification of this issue is clear from the reduced home ownership rate among young adults from 53% in 1990 to just 34% in 2011 – a decline only minimally offset by the entry of well-off young households into the housing market as first-time investors.

Secondly, there is the problem of unaffordability in the private rental market affecting tenants able to keep arrears at bay only by going without basic essentials, or by tolerating unacceptable conditions such as overcrowding or disrepair. Newly published research shows that, by 2011, more than half of Australia’s low income tenants – nearly 400,000 households – were in this way being pushed into poverty by unaffordable rents.

Thirdly, there is the long-term decline in public housing and the public finance affordability challenge posed by the need to tackle this. In NSW, for example, 30-40% of all public housing is officially sub-standard.

“Why the “build more houses” approach won’t work

A factor underlying all these issues is the long-running tendency of housing construction numbers to lag behind household growth. But while action to maximise supply is unquestionably part of the required strategy, it is a lazy fallacy to claim that the solution is simply to ‘build more homes’.

Even if you could somehow double new construction in (say) 2016, this would expand overall supply of properties being put up for sale in that year only very slightly. More importantly, the growing inequality in the way housing is occupied (more and more second homes and underutilised homes) blunts any potential impact of extra supply in moderating house prices. Re-balancing demand and supply must surely therefore involve countering inefficient housing occupancy by re-tuning tax and social security settings.

Where maximising housing supply can directly ease housing unaffordability is through expanding the stock of affordable rental housing for lower income earners. Not-for-profit community housing providers – the entities best placed to help here – have expanded fast in recent years. But their potential remains constrained by the cost and terms of loan finance and by their ability to secure development sites.

Housing is different to other investment assets

Fundamentally, one of the reasons we’ve ended up in our current predicament is that the prime function of housing has transitioned from “usable facility” to “tradeable commodity and investment asset”. Policies designed to promote home ownership and rental housing provision have morphed into subsidies expanding property asset values.

Along with pro-speculative tax settings, this changed perception about the primary purpose of housing has inflated the entire urban property market. The OECD rates Australia as the fourth or fifth most “over-valued” housing market in the developed world. Property values have become detached from economic fundamentals; a longer term problem exaggerated by the boom of the past three years. As well as pushing prices beyond the reach of first home buyers, this also undermines possible market-based solutions by swelling land values which damage rental yields, undermining the scope for affordable housing. Moreover, this places Australia among those economies which, in OECD-speak, are “most vulnerable to a price correction”.

While moderated property prices could benefit national welfare, no one wants to trigger a price crash. Rather, governments need to face up to the challenge of managing a “soft landing” by phasing out the tax system’s economically and socially unjustifiable market distortions and re-directing housing subsidies to progressive effect.

A 10-point plan for improved housing affordability

Underpinned by a decade’s research on fixing Australia’s housing problems, we therefore propose the following priority actions for Commonwealth, State and Territory governments acting in concert:

Moderate speculative investment in housing by a phased reduction of existing tax incentives favouring rental investors (concessional treatment of negative gearing and capital gains tax liability)
Redirect the additional tax receipts accruing from reduced concessions to support provision of affordable rental housing at a range of price points and to offer appropriate incentives for prospective home buyers with limited means.
By developing structured financing arrangements (such as housing supply bonds backed by a government guarantee), actively engage with the super funds and other institutional players who have shown interest in investing in rental housing
Replace stamp duty (an inefficient tax on mobility) with a broad-based property value tax (a healthy incentive to fully utilise property assets)
Expand availability of more affordable hybrid ‘partial ownership’ tenures such as shared equity – to provide ‘another rung on the ladder’
Implement the Henry Tax Review recommendations on enhancing Rent Assistance to improve affordability for low income tenants especially in the capital city housing markets where rising rents have far outstripped the value of RA payments.
Reduce urban land price gradients (compounding housing inequity and economic segregation) by improving mass transit infrastructure and encouraging targeted regional development to redirect growth
Continue to simplify landuse planning processes to facilitate housing supply while retaining scope for community involvement and proper controls on inappropriate development
Require local authorities to develop local housing needs assessments and equip them with the means to secure mandated affordable housing targets within private housing development projects over a certain size
Develop a costed and funded plan for existing public housing to see it upgraded to a decent standard and placed on a firm financial footing within 10 years.

While not every interest group would endorse all of our proposals, most are widely supported by policymakers, academics and advocacy communities, as well as throughout the affordable housing industry. As the Senate Inquiry demonstrated beyond doubt, an increasingly dysfunctional housing system is exacting a growing toll on national welfare. This a policy area crying out for responsible bipartisan reform.

Five Reasons Housing Is More Affordable Overseas

From The Conversation. Housing affordability continues to be an issue of importance to voters, with a recent Fairfax-Ipsos poll showing 69% of Australian capital city residents disagree that housing is affordable for prospective first home buyers.

Different countries have adopted varying approaches to improve access to affordable housing – with governments playing a central role in ensuring people are adequately sheltered, as well as being encouraged to buy housing where possible. In many countries there is an underlying desire by households to own their own home, although renting is the norm in others.

More than 84% of households in Berlin rent their home. exilism/Flickr, CC BY-NC-ND

In each case there are specific and sometimes unique-to-that-country approaches that have helped address the issue of affordability. Here’s five.

Government intervenes in the rental market

In some countries there is a general culture of renting for accessing accommodation, rather than assuming all households should achieve home ownership. At times, renting is cheaper than buying. In Germany most households (54.1%) are renters due to the long-term intervention in the marketplace by the government, as well as the accepted culture that renting is suitable over the long-term. In Berlin a total of 84.4% of all households rent. Providing this amount of rental accommodation is a major challenge without substantial government intervention and/or provision of housing.

For example, in Germany a housing allowance was paid to approximately 783,000 households in 2012, equating to 1.9% of all private households. However most of this funding was allocated to single person households (57%) unable to compete in the open housing market with multiple income households.

Other countries have acknowledged the gap between (a) the maximum amount of rent a tenant can pay and (b) the minimum level of rent a landlord will charge. For example in the US, this gap is bridged by the widespread use of a voucher system which subsidies the payment of rent to private landlords. This system is funded by the US government and ensures tenants can access a minimum quality of affordable housing.

Government provides affordable housing

In Singapore there is a high level of government intervention in the market with the HDB (Housing and Development Board) providing approximately 80% of all housing in the country. Approximately 90% of households in Singapore own their own home and there are also grants for first time buyers and second time buyers in Singapore.

In Hong Kong about 29.7% of residents live in PRH (public rental housing) provided by the Hong Kong government. In Scotland a large proportion of the supply of affordable housing is undertaken by housing associations and local authorities. This collectively equates to about quarter of total housing accommodation in the market. However the recent trend for many countries, including Australia, has been the provision of less direct housing by governments.

Cities embrace higher density housing

There are numerous examples of global cities making better use of limited inner-city land supply by encouraging higher density living in high rise units or condominiums, especially in Asian cities including Hong Kong, Macau and Singapore. The provision of affordable housing for purchase or renting is therefore more likely to be achieved in these circumstances due to minimal land use and higher densities. However high-rise living is not commonly accepted in many European cities or in locations with a resistance due to cultural preferences for detached housing.

Public transport allows residents to commute to less expensive housing

The main driver of where a household lives is the need to be close to their workplace. As more affordable housing is usually located away from the central business district, households can buy cheaper homes but the trade-off is additional commuting time to work. When this extended commuting time (e.g. up to 2 hours each way) is combined with improved transport infrastructure such as in Japan, it is possible to access affordable housing in outlying satellite towns and cities where land is more affordable. Therefore governments which improve road and public transport infrastructure also increase access to affordable housing.

Multiple person households are encouraged

Lower demand can be achieved by limiting population levels and underlying demand for housing. But while this may not be an option for many governments, another option is to encourage multiple person households which otherwise would remain as single person households. According to the ABS (2012) in 1911 the average persons per household was 4.5, decreasing to 2.7 persons per household by 1991.

List of countries by number of households

Wikipedia compiled from various sources.

Author: Richard Reed, Chair in Property & Real Estate at Deakin University

The Facts on Australian Housing Affordability – The Conversation

From The Conversation. Housing affordability, high house prices and rents are attracting plenty of media attention right now. The latest figures on house prices, mortgages, number of first time buyers and so on are dissected by journalists and commentators as if this is an issue of recent origin. In fact what we have here is a long-term structural problem that has been neglected for decades.

Back in 1982, the ABS Survey of Income and Housing revealed that 168,000 or 10% of home buyers spent more than 30% of their gross household income on housing costs. Nearly 30 years later in 2011 these numbers had soared to 640,000, equivalent to 21% of all home buyers.

The trends in housing cost burdens reflect rising real house prices. The history of house prices over this timeframe is one of booms in which real house prices escalate to higher levels than they peaked in the previous boom. Periods of house price stability punctuate these booms, and give household incomes some breathing space in which to catch up.

But at each peak in house prices, household incomes have fallen further behind. According to the same ABS data source, households in 1990 on average valued their homes at a multiple that was four times their average household income. By 2011 this multiple had climbed to nearly six times average household income.

A generational threat

It is therefore not surprising to find that young first time buyers are finding it increasingly difficult to purchase a home. As our first table shows, on a person basis the rate of home ownership in the prime 25 – 34 year age group has slumped from 56% in 1982 to only 34% in 2011. Delayed entry into home ownership is a factor, but it turns out that these declines have set in across all but the post-retirement age group. The “Australian dream” of home ownership is under threat.

Home ownership rate 1982-2011, in percentage terms

How have we reached this position? To be sure population growth, low interest rates, deregulation of mortgage markets and rising real incomes have helped fuel the demand for housing, and pushed up real house prices. But there are deep seated structural problems that contribute to an inflationary bias in land and property markets.

Fiscal concessions in the form of capital gains and land tax exemptions to home owners, negative gearing and concessionary capital gains tax for “mum and dad” investors, and asset test concessions to home owner retirees offer powerful incentives to accumulate wealth in housing assets. As a result, the supply side problems are not so much about a shortage of housing, but an inefficient distribution of the stock of housing.

According to the 2010 Household, Income and Labour Dynamics in Australia Survey, roughly 1 in 6 Australian households own two or more properties, and for 30% of these households the second property is a holiday home. Growing numbers of ageing “empty nester” households are deterred from downsizing and releasing housing equity by stamp duty, the taxation of alternative investments of the equity released, and the lack of suitable housing opportunities in the communities they would like to stay in.

Meanwhile according to the latest census more than 100,000 Australians are homeless, and many more than this are struggling to meet housing payments.

The supply issue

Back in the early 1980s these fiscal drivers did not matter so much, because there were ample greenfield sites on which new housing could be constructed. These sites still offered reasonable access to amenities and jobs. But such opportunities are drying up, and state governments have introduced curbs on urban expansion, as well as developer charges and fees that have increased the costs of construction on the urban fringe.

Adding to supply side problems are planning controls that impede higher density development in middle ring suburbs, as “insider” home owners understandably seek to protect the “leafy character” of their communities.

We are left with a problem that has wider ramifications because it has created a housing system saddled with growing indebtedness. In the 21 years illustrated in the chart below the average mortgage debt has soared relative to the average household incomes of mortgagors in all age groups.

Mean mortgage debt to income ratio

Moreover, the proportion of home owners with outstanding mortgage debt has increased, especially in the 55–64 year cohort that is typically approaching retirement (see chart below). Interest rates were much higher back in 1990 and so household incomes in 2011 can comfortably service loans that are larger relative to household income.

Percentage of home owners with a mortgage debt

Nevertheless repayment risks and investment risks (house values falling short of outstanding mortgage debt) loom more prominently, and for a larger number of precariously positioned households. These risks could test the resilience of local economies and the national economy.

The Australian housing system weathered the global financial crisis much better than did many of its counterparts in the developed world.

Does this suggest a resilience that we can bank on in the future? Federal and state governments might be well advised to introduce structural reforms to housing finance that strengthen that resilience.

Authors, Gavin Wood, Professor of Housing at RMIT University and Rachel Ong, Principal Research Fellow, Bankwest Curtin Economics Centre at Curtin University

Bubble Smuzzle

The sudden talk of bubbles in the property market, by the regulators and treasury, looks like an attempt to talk the housing market down whilst not really doing that much in reality, and leaving space for more rate cuts in the cash rate as broader economic activity slows. The RBA’s low rate strategy is partly to blame. But, is it really a bubble? Well. If you look at the growth in house prices now compared with a decade or more ago, growth in the past three years in every capital city is lower than it was in the period 2001-2004. Darwin and Hobart are the centres with growth which most closely match the ramp up in 2001 onwards and the current rises.

We did not have the 20-40% corrections post the GFC that the USA and UK had, prices tended to stall, or rise slowly, but we started the current run-up from a higher base position.

The next point is that household debt is higher compared with GDP than it has ever been, and whilst the savings ratio is high, it is now actually falling. The current low interest rates are encouraging people to grab a loan, and buy a property, especially investment property. It’s simple, low interest rates, negative gearing to offset costs, and the prospect of capital growth makes property investment compelling, as it is in a number of other countries. Indeed, overseas investors are joining in the fun (and FIRB has not tackled the issue). First time buyers are going direct to the investment sector, and down traders are selling up, releasing cash and investing in leveraged property. It’s all very logical.

Demand is also being stoked by population growth, including migration, and the expanding number of households in Australia. We have not built enough property for more than a decade, so there is more demand against supply. Also, we have more single person families (thanks to relationship breakup, older singles, and other people preferring to live alone). So we need different types of property, and more of it.

Because supply/demand is out of kilter, prices are rising, it’s not a bubble, its fundamental economics. We need to think about three factors, first, interest rates are low and will at some time rise, many people who have borrowed today and can afford repayments will find it increasingly difficult if rates rise, mortgage stress is quite high today, at low rates, and will rise. Second, income growth is flat, and this means that people won’t get out of jail as they did in 2001+, because incomes rose faster then, and helped to ease the pain when rates rose. Also, rentals are more linked to incomes than house prices, so rental income wont lift much. Third, on any absolute measure, (Loan to income, Prices to GDP) we are 25-30% above the long term norm. At some point it will correct – but it’s a structural problem not a bubble. This is true in all major centres, and is also spilling out into the regional areas. It’s not just a Sydney-Melbourne thing.

The solution requires joined up thinking. We need to revisit negative gearing. Plan better to build more houses, tighten lending and capital rules to restrict bank lending, tackle foreign purchasers and provide innovative options to assist first time buyers back into the owner occupied sector (joint equity share arrangements is my bet). Finally, and desperately, we need to deflect the banks appetite to lend to housing towards productive lending to business because this will give productive growth, not useless asset price growth and bank balance sheet growth. We need to ease price growth, and get back to trend. This will be painful and politically charged. On the supply side, we need to build more, reduce new development taxes and change planning regulations.

Meantime we have property which is chronically overvalued. Not a bubble, a structural problem. I doubt Canberra will do much more than hold yet another inquiry into housing (Oh, Hockey kicked one off a couple of weeks ago!)

The Hidden Victims of Rising House Prices

Australia needs to have a housing conversation that isn’t just about housing “bubbles”, profits and investment properties says an article in The Conversation.

Sadly, we punch well above our weight in international measures of poor housing affordability, and increasing numbers of Australians can’t afford their rents or mortgages.

Even a modest increase in house prices will make things even tougher for these Australians – but importantly, do we reliably know who they are, where they live, and how extreme their affordability problems are?

Our new research reveals some poorly understood distinctions in unaffordable housing. Some people appear to be “slipping” in and out of housing affordability problems, while others remain “stuck” with them for long periods, or even a lifetime.

When we look at housing affordability in this way and compare these two groups of people, these “slipper” and “sticker” groups are shown to be very different within Australian society, with different intervention needs implied.

Limitations of the 30/40 rule

To address housing affordability and target assistance we usually rely on data on the prevalence and nature of unaffordable housing. The most widely used measures of housing affordability are based on simple ratios, for example, the 30/40 measure. This approach classifies people as being in unaffordable housing if they are in the lower 40% of the income distribution and their rent or mortgage payments exceed 30% of their income.

Such a simple, straightforward measure – that classifies people as being either in unaffordable housing or not – is undoubtedly useful, and outside of the housing research community, data using these measures are rarely questioned. But it’s useful to think about that data a little more critically.

The picture of housing affordability portrayed by most of the measures we (and policy makers) rely on is a snapshot – a point-in-time collection of people’s ability to afford their housing (on Census night for example). Importantly, it’s a very blunt measure. In fact, when we look more closely at people’s experience of affordability problems we see that the snapshot is a pretty poor predictor of longer-term unaffordability.

For a great many households, both income and housing costs – and where they sit relative to other households – change a lot over time. This causes people to slip in and out of unaffordable housing. In a large Australian sample, we see that hidden within the segment of the population classified as being in unaffordable housing in any one year, fewer than half were classified in the same way the next year. Because the total number of people counted in unaffordable housing is stable, it points to a limitation in the way that we measure housing affordability.

Slippers and stickers

By following people’s income and housing costs each year for a five year period, we classify stickers as being in unaffordable housing (using the 30/40 rule) in every one of the five years. To be classified as a slipper, people must have made at least one transition into, and one out of, unaffordable housing over the five year period. Slippers outnumber stickers three to one, and therefore affordability initiatives may be more concentrated upon the needs of slippers.

Compared to slippers, stickers have much lower incomes and employment rates. Around 60% of stickers have a disability, and twice as many are carers for other people in their household. Looking deeper, three quarters of those stuck for long periods in unaffordable housing are women, they also tend to be much older than slippers, and more likely to live alone.

This description points to what some might call a vulnerable group of people or even an “underclass” perpetually facing housing affordability issues and, most likely subject to the consequences of this, such as limited financial resources and stress.

It is interesting to note that the characteristics of the sticker population are very similar to those of Australia’s public housing tenant population, but because public housing largely addresses affordability by rent capping, stickers are most likely to be private renters and low income mortgage holders.

This means that, in addition to being highly vulnerable, many stickers are likely to receive little or no government assistance with their housing costs. It also implies a pressing need to improve the supply and affordability of housing in the private sector – via the taxation system or the land supply system.

Rather than looking at housing affordability as one problem, the distinct differences observed between Australia’s slippers and stickers imply a need to focus particular attention and interventions on stickers. We also need to better understand how people enter and exit unaffordable housing and what we can do to prevent people becoming stuck.

In the bigger picture our findings describe real social inequalities in Australia that are present and persistent. It reminds us that the conversation we need to have about housing affordability in Australia isn’t just about the positives of “housing bubbles”, but also needs to be about how to address the serious affordability problems of the growing group of (often already vulnerable) Australians who are stuck.

By Emma Baker Reader in Housing at University of Adelaide and Rebecca Bentley Senior lecturer at University of Melbourne.

Senate Delivers Final Affordable Housing Report

The final Senate report into Affordable Housing was released today. The report is more than 450 pages long (including appendices), and the 40 recommendations cover a wide range of issues, including coordination and management across states and territories; developing a long term national plan; phasing out stamp duty; new funding options; urban planning; land supply; use of pre-fabs; tax reform of negative gearing; first buyer grants and saving schemes; shared equity programmes; downsizing; tenancy laws; social housing; housing for victims of domestic violence; reinvigorating the National Affordability Housing Agreement; and housing supply. The report recognises housing affordability is a many-faceted issue, and the recommendations are comprehensive and sensible. Is there the political will to embrace such complex transformation?

We note the committees comments on macroprudential: “the committee would have serious reservations about the use of any overly blunt macroprudential regulations, including the use of LTV ratios such as these recently deployed in New Zealand. Throughout the inquiry, witnesses emphasised that there is not one Australian housing market, but rather many Australian housing markets, and indeed markets within markets. As such, the committee welcomes advice from the RBA that it is unlikely anything other than carefully targeted macroprudential tools would be deployed in Australia, and APRA would be quite unlikely to consider broad New Zealand-style LVR limits”. What about the recommended and preferred tools – debt servicing ratios?

More details of the report are outlined below.

By way of background, on 12 December 2013, the Senate referred an inquiry into affordable housing to the Senate Economics References Committee for inquiry and report by 26 June 2014. On 17 June 2014, the Senate granted an extension to the committee to report by 27 November 2014. On 2 October 2014, the committee was granted a further extension to report by the first sitting day in March 2015. Following a further extension granted on 2 March 2015, the committee is now due to report by 14 April 2015. On 13 April 2015, the committee presented an interim report with the intention of tabling its final report before 8 May 2015.

In the summary the committee underscores the importance of affordable, secure and suitable housing as a vital determinant of wellbeing. But, based on the evidence, the committee finds that a significant number of Australians are not enjoying the security and comfort of affordable and appropriate housing—that currently Australia’s housing market is not meeting the needs of all Australians.

Sustained growth in median housing costs above the rate of median household income growth in recent decades has made it increasingly difficult for a growing proportion of Australians to afford housing that is safe, secure and appropriate to their needs. Added to the general decline in housing affordability, and indeed compounding the trend, the stock of affordable housing—that is, housing appropriate to the needs of low- to moderate-income households—has failed to keep pace with demand in recent decades. The committee does not believe the issue of housing affordability in Australia is rightly categorised as either a ‘supply-side problem’ or a ‘demand-side problem’. With this in mind, it is clearly evident that supply is currently not keeping pace with demand in the housing market. In this context, policy interventions that add to demand without addressing or at least accounting for supply-side constraints risk inflating house prices and exacerbating affordability problems.

Worsening housing affordability is reflected in declining home ownership rates. This decline is troubling for a number of reasons, not least because home ownership can be an important means for people to achieve financial and social wellbeing. Moreover, high rates of home ownership also provide broader economic and social benefits to the community. As such, while the committee believes governments should work to improve affordability outcomes for all types of housing tenure, it considers it appropriate for governments to promote home ownership.

The committee makes a range of recommendations directed primarily toward improving home purchase affordability. They include state governments phasing out conveyancing stamp duties, to be achieved through a transition to more efficient taxes, potentially including land taxation levied on a broader base than is currently the case. Other recommendations are directed at improving the efficiency, effectiveness and equity of infrastructure funding arrangements, which can have a strong influence on the cost of new housing. Similarly, a number of recommendations are made with the intention of ensuring land supply, urban planning and zoning processes have a positive effect on housing affordability.

Evidence indicated that direct grants to home owners, including First Home Owner Grants, need to be targeted carefully in order to be effective. While the committee suggests that First Home Owner Grants might need to be more tightly targeted, it also believes that shared equity programs are a promising means of helping more Australians become home owners, and consideration should be given to expanding such programs. Equally important, the committee recommends that programs designed to help older Australians ‘age in place’ when they want to, or downsize (or ‘rightsize’) to meet their needs, should be explored.

A large amount of the evidence received during this inquiry concerned the possible effect on home purchase affordability of existing taxation arrangements for investor housing, in particular negative gearing and the capital gains tax discount. The committee recommends that the Australian Government investigate the effect of the current taxation treatment of investment housing on home purchase affordability (among other things), and consider if alternative approaches would help improve affordability.

The problems engendered by poor housing affordability are also clearly evident in the private rental market. Here low- to medium-income earners encounter significant problems accessing affordable and appropriate housing, with significant numbers experiencing rental stress or even severe rental stress. Indeed, one witness described the private rental market as a brutal place for people on welfare payments.

Evidence indicated strongly that renting must be recognised as a mainstream, and for some, a permanent form of tenure in Australia’s housing system and must be placed on Australia’s national policy agenda as a key issue to address poverty. Undeniably, the increasingly tight and expensive private rental sector is locking some low- to moderate-income earners out of affordable and appropriate housing. This situation indicates market failure and suggests that market solutions to low cost housing will simply not emerge naturally: that there is a clear need to find ways to attract private investment into low cost and social housing. But currently, without government incentives, affordable housing does not tend to appeal to private investors.

Many pensioners and people dependent on welfare or disability payments, who find themselves priced out of the private rental market, seek relief by accessing social housing, which provides a much needed safety net. But here they also face fierce competition.

An adequate supply of social housing would mean that older Australians are better able to age in place and not have to forgo daily essentials simply to pay their rent, and people with disability are not left to fend for themselves in substandard dwellings that make no allowance for their particular needs. Also, an adequate supply of social housing would mean that women escaping domestic violence would not be forced to stay in motels or, worse still, remain in abusive relationships. Unfortunately, social housing is in short supply and waiting lists are long. It has become ‘housing of last resort’ and many people desperate for safe, secure and affordable housing are left to ask ‘Where do I go?’

The committee makes recommendations that address identified deficiencies in Australia’s rental market, including a concerted effort by governments at all levels to commit to increasing the overall proportion of social housing as a percentage of Australia’s housing stock. Another cluster of recommendations call for the review and reform of tenancy laws (security of tenure, stability and fairness of rent rises, energy, comfort and safety standards, evictions and dispute resolution mechanisms). In addition, they also deal with the responsibilities and obligations of landlords when it comes to energy efficiency and home modifications for tenants with particular needs.

The committee also targets its recommendations at reinvigorating and improving current Commonwealth and state and territories agreements—National Affordable Housing Agreement (NAHA) and partnership arrangements including National Partnership Agreement on Remote Indigenous Housing (NPARIH) and National Partnership Agreement on Homelessness (NPAH). Furthermore, recognising that the National Rental Affordability Scheme has started the much needed process of attracting private investors into Australia’s affordable rental market, the committee recommends building on its success. The committee also looks at ways to make Commonwealth rental assistance more effective. In addition, the committee recommends establishing a Housing Supply Financing Task Force to investigate and advise government on mechanisms, including housing supply bonds, for engaging private investment in the affordable housing market.

Undoubtedly, Australia has a housing affordability problem—the challenges are complex, diverse and interact differently in different parts of Australia. Considering the vital importance of housing to a person’s overall wellbeing and the current problems gaining access to affordable and appropriate housing, the committee is convinced that access to affordable housing is a matter of national importance. Furthermore, affordable housing should be a national economic issue that needs to be a central and cross-cutting theme of government.

The committee believes governments, including the Australian Government, have a legitimate role, and indeed a responsibility, to use policy interventions to improve the efficiency, efficacy and, critically, the affordability of the housing market. Evidence indicated, however, that Australia’s housing policy and effort is fragmented, which has led to a good deal of confusion and discord in attempts to address housing issues. The various levels of government, and indeed different areas within the same government, often have contradictory objectives that pull in different directions. Clearly, one of the dominant messages coming out of this inquiry is the need for the Australian Government to give coherence to the numerous local, state and national incentives and schemes intended to contribute to the provision of affordable housing. A long-term, integrated and coherent plan with consistent policy governing a national approach to affordable housing is needed.

In the committee’s view, the Australian Government should be the driving force behind the development and implementation of this plan. As such, the current lack of a dedicated Commonwealth housing minister is of concern. Housing-specific policies, and policies that shape the housing market more broadly, have direct and in some cases profound effects on the lives of Australians across the socio-economic spectrum and in all tenure types. In this context, the committee contends there is a compelling argument for a dedicated Commonwealth housing minister able to provide crossportfolio and national leadership on this important policy issue.
Many of the key policy levers that shape the Australian housing market and housing affordability rest with the Commonwealth. In particular, demand-side levers such as taxation policy generally reside with the Commonwealth. Although many supply-side policy levers fall within the remit of the states and territories, the committee is firm in its view that the Commonwealth is best placed to provide the leadership to coordinate and guide the cross-jurisdictional reform necessary to improve the efficiency of housing supply across Australia.

An institutional mechanism is required to bring all levels of government together in order to deliver the overarching strategic approach to affordable housing in Australia. The committee believes that the Council of Australian Governments (COAG) provides the ideal structure within which the Commonwealth and states and territories can develop the strategy and devise the best way to implement it. A Ministerial Council on housing and homelessness within the COAG system, as the committee, recommends, would allow representatives from key government agencies, the not-forprofit organisations, industry bodies and associations, academics and other housing experts to participate in, or contribute to, the formulation of policy.

In this report, the committee recommends that the Australian Government direct its attention and efforts to a number of areas, and makes recommendations accordingly, including developing a long-term national affordable housing plan that:

recognises affordable housing, including affordable rental housing, as a mainstream and national policy objective and places affordable housing at the forefront of government policy across Australia;
is spearheaded by a dedicated minister for housing and homelessness and supported by an institutional infrastructure that would provide the continuity, expertise, experience and established networks with all levels of government;
fosters intergovernmental cooperation in solving housing issues within a ‘whole-of-system housing policy framework’;
places a high priority on improving the supply-side efficiency of the Australian housing market;
reinvigorates NAHA placing particular emphasis on improving transparency and accountability, and introducing a robust evaluation and reporting framework;
contains clear, consistent and longer-term funding commitments adequate to meet the growing demand for social housing;
recommits to halving homelessness by 2025;
takes account of the findings outlined in this report including facts such as the age pension assumes home ownership and the projected decline in home ownership especially among older Australians;
builds trust and confidence that Australian governments at all levels, led by the Commonwealth, are committed to increasing the supply of affordable housing;
provides consistency, coherence and policy certainty for the affordable housing sector that would enable housing providers to forge stronger partnerships with the private sector;
recognises that significant volumes of public and private finance would be required to meet the projected need for additional rental housing and the importance of attracting institutional investors into the affordable housing market;
understands that efforts to attract a significant level of institutional investment into affordable housing have to date been largely unsuccessful; and
makes institutional investment a core policy objective in affordable housing.

Overall, and as highlighted in the strong and resounding messages drawn from the bulk of evidence, the committee is firmly of the view that:

the Australian Government cannot vacate the affordable housing space or step back from its responsibilities to ensure that every Australian has access to affordable, safe and sustainable housing; and
in the long run, investment in affordable housing returns dividends not only to the individual struggling to access safe, secure and affordable housing but to the budgets of the Australian, state and territory governments and ultimately the Australian taxpayer (by having a more productive community with reduced costs for social, health and unemployment services and for justice and policing.)

The Forty Recommendations are summarised below:

The committee recommends that the Australian Government appoint a Minister for Housing and Homelessness, with the portfolio to be located in a central agency such as the Department of the Prime Minister and Cabinet or the Treasury, or in the Department of Infrastructure with formal links to the central agencies.
The committee recommends that, as a matter of priority, the Commonwealth and states and territories agree to establish a ministerial council on housing and homelessness within the Council of Australian Governments ministerial council system.
The committee recommends the establishment of a new body, ideally a statutory body, similar in function to the former National Housing Supply Council, but also with responsibility for monitoring performance against a new affordable housing plan (see recommendation 4) and measuring housing need according to key demographic trends, socio-economic and cultural factors.
The committee recommends that the Commonwealth and states and territories collaborate in the development of a long term, national affordable housing plan, ideally to be developed through a new ministerial council on housing and homelessness within the Council of Australian Governments ministerial council system (see recommendation 2). While the shape of the plan and its relationship to the National Affordable Housing Agreement would be determined through the development process, the committee recommends that the plan:
(a) include performance indicators, which should be monitored and reported on by the body recommended at recommendation 3; and
(b) include base funding, possibly drawn from the National Affordable Housing Agreement funding envelope, with consideration also given to including Commonwealth reward payments linked to achievement by individual jurisdictions against the performance indicators.
The committee recommends that state and territory governments phase out conveyancing stamp duties, and that as per the recommendations of the Henry Review, this be achieved through a transition to more efficient taxes, potentially including land taxation levied on a broader base than is currently the case.
The committee recommends that all states and territories report to the Council of Australian Governments (COAG), preferably through a new ministerial council on housing and homelessness (see recommendation 2), on what policy changes, if any, have been made to ensure infrastructure charges are consistent with the four principles agreed through COAG in July 2012.
The committee recommends that state and local governments investigate the possibility of using Tax Increment Financing and other innovative finance mechanisms to fund infrastructure for new housing developments.
The committee recommends that the proposed new Council of Australian Governments ministerial council on housing and homelessness (see recommendation 2) investigate ways to improve the consistency, timeliness and utility of government-collected and published information about land supply across jurisdictions.
The committee recommends that the Australian Government:
(a) show leadership in regard to national urban planning policy and urban regeneration, given the role both can play in improving and driving housing affordability outcomes across Australia’s major urban centres;
(b) reinstate the National Urban Policy and Major Cities Unit given the former role both played in driving housing affordability policy and outcomes at the national level; and
(c) show leadership in its policy capability and engagement with the states and territories with regard to urban planning policy.
The committee recommends that the Australian Government consider developing a long-term strategy for regenerating Australia’s urban centres and transport corridors. This strategy might be incorporated into a revised national urban policy, and would provide for an intergovernmental and coordinated approach to infrastructure delivery, including upgrades to social infrastructure, and the identification of redevelopment opportunities for government-owned land (as outlined in recommendation 11).
The committee further recommends that the Australian Government consider reestablishing the Urban Policy Forum, reconnecting with key stakeholders from the public and private sectors, academia and the community, and including responsibility for reviewing jurisdictional performance against targets relating to urban regeneration.
Government-owned land, whether state or Commonwealth-owned, represents a potential land supply for affordable housing. Current governance, transparency and divestment arrangements could be improved so that this potential might be realised. The committee recommends:
(a) the creation of a transparent, public, up-to-date register of government land and buildings that are considered ‘surplus’ or on the divestment program, including the location and size of this land, and any development restrictions attached to it;
(b) the direct involvement of the Commonwealth agency with housing policy responsibility in any asset divestment programs, and the possible application of affordable housing targets in divestment programs;
(c) the development of innovative partnerships involving public, not-forprofit, community and private consortiums that develop affordable and diverse housing on government land and buildings; and (d) the exploration of innovative models, such as community land trusts, on government-owned land where the government retains the land or a share in the development, but a community or not-for-profit housing provider develop affordable housing.
The committee recommends a separate parliamentary inquiry into the Australian prefabricated housing industry, and its potential role in improving housing affordability and stimulating new activity in the manufacturing sector. This inquiry should consider, among other things:
(a) the development of a comprehensive approach to creating a sustainable prefabricated building and insulated panel production industry;
(b) the possibility of Commonwealth prefabricated housing targets in a national affordable housing plan (see recommendation 4);
(c) the possibility of a Commonwealth prefabricated modular housing industry package to provide support for research and development, skills and training, assistance to establish new production and manufacturing facilities, and world class demonstration projects.
The committee recommends that, to the extent such matters are not addressed by the White Paper on the Reform of Australia’s Tax System, the Treasury should prepare and publish a study of the influence of negative gearing and the capital gains tax discount on home purchase affordability and on the rental market (including the effect on security of tenure for renters), the effect of these arrangements on revenue, and their effect (if any) on economic productivity. This study should examine the likely effects of alternative taxation treatments of investor housing. Alternative approaches considered in this study (including, where appropriate, in combination) should include:
(a) a housing-specific ‘quarantine’ approach, wherein losses for investment properties can only be deducted against rental income, with provision for losses in excess of rental income to be carried forward and deducted against future rental income and capital gains;
(b) a broader ‘quarantine’ approach, wherein interest expenses on all investments, including but not limited to housing assets, are only deductible in any given year up to the amount of investment income earned in that year, with provision for losses in excess of this amount to be carried forward and deducted against future investment income and capital gains;
(c) limiting the application of negative gearing arrangements to new housing stock, or designated new affordable housing stock;
(d) limiting the application of negative gearing to a certain number of properties (assessing options for various limits in this regard);
(e) options for phasing out negative gearing on investment housing;
(f) applying the savings income discount recommended in the Henry Review to investment housing, with consideration given to the impact of this approach both with and without the implementation of the Henry Review’s recommendations in relation to housing supply and housing assistance; and
(g) reducing or removing the capital gains tax discount for investment properties, or reverting to the pre-1999 system of taxing real rather than nominal capital gains on investment assets.
The committee recommends that, to the extent state and territory governments maintain first home buyer grants, they apply appropriate value caps and limit their availability to new housing stock (with appropriate exceptions for certain groups of buyers), and consider introducing means testing to ensure that the grants are appropriately targeted.
The committee recommends that the Australian Government consider introducing a scheme designed to assist first home buyers save for a home deposit, drawing as appropriate on the experiences of the First Home Saver Account scheme.
The committee recommends that all governments, through the proposed ministerial council on housing and homelessness (see recommendation 2) or another appropriate intergovernmental forum, investigate ways to expand shared equity programs, including both government-backed and private-sector backed programs. The committee further recommends that, as part of this process, consideration be given to other mechanisms to facilitate affordable home ownership, such as community land trusts, rent to buy schemes, and the like, and consider the inclusion of such mechanisms within the national affordable housing plan proposed at recommendation 4, or the National Affordable Housing Agreement.
The committee recommends that the government investigate new policy settings that will address barriers to downsizing (or ‘rightsizing’) by retirees, including schemes along the lines of the Housing Help for Seniors pilot.
As a national policy issue, affordable home ownership tends to overshadow affordable renting even though many Australians struggle to access affordable and appropriate housing in the rental market. With this in mind, the committee recommends that the Australian Government recognise affordable renting as a mainstream form of tenure in Australia and place it prominently on the national policy agenda. Given that renting will be the only form of housing for many Australians, one of the key challenges for government is to change the traditional view of renting as a shortterm transitional phase. The committee recommends that the Australian Government in collaboration with the states and territories, through the recommended ministerial council on housing and homelessness within COAG, start the urgent process of turning around this acceptance of short-term insecure tenure as normal. As a first step, the committee recommends that the proposed ministerial council consider tenancy regulations in the various jurisdictions with a view to delivering greater security for long-term renters.
Considering the evidence presented to this inquiry, the committee recommends that the states and territories review their tenancy laws to ensure that all rental properties are required to meet minimum standards.
The committee also recommends the Australian Government:
• together with the states and territories, investigate national minimum standards that would set specific minimum standards including security of tenure, stability and fairness of rent prices, a new efficiency and comfort standard, safety and security of the home, and better protection for groups in marginal housing;
• review (and increase) funding levels and access to tenancy advice services;
• in recognition of the value of tenancy advice services, make funding through the National Affordable Housing Agreement (NAHA) conditional on the states and territories ensuring that they have in place adequate tenancy advisory services; and
• include as a priority for the re-established Housing Supply Council (see recommendation 2) to review and publish detail on the current national rental affordability gap.
Recognising the reluctance of tenants to exercise their rights under the respective residential tenancies legislation in each state, the committee recommends that the states review their existing system for settling tenancy disputes. The committee recommends further that the states consider establishing an independent body such as an ombudsman or giving specific powers to their consumer affairs agencies to act for tenants. Again, the committee recommends that the Australian Government act as a catalyst through the COAG process to encourage the states and territories to establish dispute resolution bodies that provide easier and less expensive access to a mechanism for the resolution of tenancy matters.
The committee recognises that public housing has now become the housing of last resort for many Australians with supply unable to meet the demand and waiting lists far too long. With this situation in mind, the committee recommends that the Australian Government, together with the states and territories, commit to retaining an adequate supply of public housing with the goal of increasing the overall proportion of public housing as a percentage of housing stock. Targets should be established for both the proportion of social housing and the reduction in existing waiting lists as part of the national housing plan, working through COAG and the re-established National Housing Supply Council. The initial goal would be for the Australian Government together with the states and territories to fund public housing in order to lift the percentage of public housing from its current low base and to reach agreement on a plan to achieve this objective. The committee recommends further that an underlying principle shaping the development or redevelopment of public housing must be to prevent the concentration of people with complex problems in the same locality and in locations removed from important services—transport, education, health, welfare and employment.
The committee recommends that the Australian Government request the Productivity Commission undertake an inquiry into the merits of transferring public housing to the community housing sector with particular emphasis on the advantages and disadvantages of transferring property title.
Consistent with the recommendation for the Australian Government to increase the overall proportion of public housing as a percentage of housing stock, the committee recommends that the Australian Government together with the states and territories commit to achieving a higher proportion of overall social housing as a percentage of Australia’s housing stock. This recommendation recognises that currently social housing in Australia forms only a small proportion of Australia’s housing stock and is falling far short of meeting demand.
The committee recommends that the Australian Government in collaboration with the states and territories monitor carefully the transfer of public housing stock to the community sector to ensure that this transfer does not adversely affect tenants of public housing or cause them unnecessary anxiety if required to vacate their dwelling. The recommendation is intended to ensure that tenants are consulted about the changes and that their rights as tenants, including security of tenure, of rent levels, and of access to dispute resolution mechanisms is preserved.
In light of the anticipated rise in the number of older Australians in the private rental market, and the insecure tenancy confronting many older renters, the committee recommends that the Australian Government look closely at its aged care policy so that it takes account of the particular difficulties confronting older Australians in the rental market. The aim would be to determine how policies designed to assist older Australians remain in their home could take better account of, and accommodate, the added difficulties for older people accessing safe and secure housing and in conducting modifications to rental dwellings, and more broadly renting in the private rental market.
The committee recommends that the Australian Government together with the states and territories commit to ensuring that adequate funding be made available so that women and children escaping domestic violence are housed in secure and appropriate housing with the necessary support network that would allow them to remain in a safe environment. This approach would mean that women and their children would experience as little social and educational disruption as possible and that the pathway to more permanent housing would be easier. A priority would be to consider the introduction of programs throughout Australia such as New South Wales’ Staying Home Leaving Violence initiative, which is designed to protect women who want to live separately from a violent husband or partner, but remain in their home. The committee also recommends the Australian Government reverse the cuts to the capital program in National Partnership Agreement on Homelessness (NPAH) and apply needs-based supply and services program as part of the national affordable housing platform in recommendation 30 (the cuts are discussed in chapter 18).
The committee recommends that, in its consideration of current tenancy law, the proposed ministerial council also place a high priority on the obligations and responsibility of landlords when it comes to house modifications for those with particular housing needs. The committee recommends that the council look at measures, such as tax incentives, to encourage landlords to improve the energy efficiency of their properties and to make required modifications for tenants with disability.
The committee recommends that housing should be included in the Prime Minister’s Closing the Gap report: that access to affordable and appropriate housing must be regarded in the same context as Indigenous education, health and employment.
The committee recommends that the Australian Government:
• take a definite and high profile role in placing affordable housing at the forefront of government policy across Australia;
• make a strong and certain recommitment to NPAH (including considering reintroducing ongoing capital component) and its continuation for at least ten years;
• task Homelessness Australia with investigating and quantifying the service delivery gap to people experiencing homelessness, and commit to funding NPAH to meet that gap;
• recommit to the target to at least halve homelessness by 2025 (originally set at 2020 in the 2008 White Paper) with set milestone at two yearly intervals to track and report on progress and to offer supported accommodation to all rough sleepers who want it;
• work to achieve multi-party support for this long-term goal and, noting that this problem cannot be solved at any one level of government, encourage states and territories to commit to this target and to coordinate their response;
• take a longer-term approach when funding programs or agreements that would provide certainty of funding so that organisations and people engaged in delivering programs can, with confidence, plan ahead and seek to achieve continuity in the services they provide to homeless people; and
• introduce an urgent capital program with the Australian Government and the states sharing responsibility for funding through NPAH to provide fast build, sustainable and appropriate emergency housing and affordable rental housing to meet the needs of Australians rough sleeping and seeking appropriate housing, with the target of housing by 2020 all rough sleepers who seek to be housed.
Noting that much of the evidence presented before this committee was consistent with the Australian National Audit Office’s (ANAO) findings on the implementation of NPAH, the committee recommends that COAG establish a working group to review the ANAO’s findings and reassess the implementation of NPAH to ensure that NPAH has:
• clear performance measures that can be tracked and verified;
• a requirement for states and territories to report to government on their expenditure on housing under NPAH complemented by a reporting framework that measures the implementation of reforms against set benchmarks and the extent to which they are being delivered on the ground;
• Commonwealth funding linked to the achievement of agreed milestones; and • investigate Centrelink as a one stop shop to assist people experiencing or at risk of homelessness with referral and in-house expertise to link clients with services and housing.
The committee recommends that the Australian and state and territory governments recognise the important work of advocacy and peak organisations in housing and homelessness and provide adequate support to enable them to continue to deliver their much needed services.
The committee recommends further that the Australian Government reinstate funding for the peak bodies that represent and provide advice on homelessness, community housing and housing and tenancy policy.
The committee notes that the advice provided to the committee on the Williams decision and the consequences for Commonwealth funding for housing and homelessness simply adds to the uncertainty around the future of Commonwealth funding in this area. The committee recommends that the Australian Government clarify what the consequences are for Commonwealth funding grants for housing and homelessness that flow from the Williams decision and how it intends to respond to them.
The committee recommends that through COAG, the National Affordable Housing Agreement (NAHA) be reinvigorated with particular emphasis on improving accountability and transparency. The committee recommends that the following particular reforms of NAHA should be considered and acted upon:
• expand the agreement to include all forms of housing assistance—funding for social housing, affordable rental housing, rent assistance and the various programs to support people to remain housed;
• develop measurable benchmarks and ensure these benchmarks are used to evaluate the effectiveness of government expenditure on affordable housing;
• improve the collection and publication of data, especially on the number of new homes added to the pool of social housing; and
• ensure that funding is tied directly to concrete outcomes, for example, by tightening conditions on Commonwealth funding to the states that would realise growth in the stock of social housing.
The committee recommends that the Federation White Paper process consider carefully NAHA in this critical area of transparency and accountability. Importantly, that the committee’s findings feed into the White Paper process with the aim to improve NAHA so that a robust evaluation and reporting framework is established ensuring that the funds allocated to improving affordable housing can be tracked and the intended outcomes measured and evaluated.
The committee recommends that:
• in the absence of any credible alternative scheme designed to increase the supply of new affordable housing and considering steps have already been taken to improve the administration and implementation of the National Rental Affordability Scheme (NRAS), that the Australian Government continue with NRAS round 5;
• the Federation White Paper process look at the Queensland NRAS model, which appeared to have much tighter controls over eligibility, as a means of determining where further improvements or fine-tuning could make the system more robust and effective;
• the Federation White Paper process look at how NRAS or a replacement scheme could be reframed to take account of the particular housing circumstances of regional Australia and ensure that NRAS housing was better targeted to areas in most need; and
• as part of the Federation White Paper process, a thorough cost benefit analysis of NRAS be undertaken, and that any such analysis include comparison of forgone revenue from demand subsidies such as the first home owners grant, and negative gearing and capital gains tax.
The committee recommends that when considering NRAS, the Federation White Paper process:
• take note of the concerns raised by many submitters and witnesses about the need for continuity and certainty in order to attract and to gain the confidence of private investors; and
• ensure that any proposed refinement or a replacement of the scheme: • places the highest priority on restoring and building on the initial success that NRAS had in attracting private investors;
• provides investors with certainty regarding the scheme by committing to a consistent flow of incentives extending over a period of at least five years; and
• takes note of lessons to be learnt from NRAS such as the need for clear and tight eligibility criteria and better targeting to areas of need (the ANAO audit should provide a sound starting point).
The committee recommends that the Australian Government, through legislative recognition of charitable status, resolve any uncertainty over the effect that participation in NRAS or any similar scheme would have on the tax status of entities operating as charities, or public benevolent institutions (PBIs).
The committee recommends that the Australian Government:
• review the eligibility criteria for Commonwealth Rental Assistance (CRA) to ensure that it is targeted at those most in need;
• review the method of indexing CRA with a view to retaining its adequacy; and
• review the adequacy of CRA.
The committee recommends that the Federation White Paper process give due consideration to the proposal for the introduction of housing supply bonds using the Australian Housing and Urban Research Institute’s (AHURI) research as a starting point for its consideration.
The committee also recommends that the Australian Government establish a crosssectoral high level industry and government Housing Supply Financing Task Force, as proposed in the AHURI report. It would provide advice to governments on the potential for a Housing Supply Bond in Australia and investigate other mechanisms for private investment.

All of Australia’s Five Major Metropolitan Areas Were Severely Unaffordable – Demographia

The latest housing affordability survey from Demographia has been released. Using data from Q3 2014, they conclude that in Australia, for the 11th year in a row all of Australia’s five major metropolitan areas were severely unaffordable. The latest survey also highlights the divergent trends in Australia’s main urban centres, and other parts of the county. This authoritative report adds further weight to the evidence that the property market is broken.

By way of background, the 11th Annual Demographia International Housing Affordability Survey covers 378 metropolitan markets in nine countries (Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the United Kingdom and the United States). A total of 86 major metropolitan markets — with more than 1,000,000 population — are included, including five of the six largest metropolitan areas in the high income world (Tokyo-Yokohama, New York, Osaka-Kobe-Kyoto, Los Angeles, and London). The Demographia International Housing Affordability Survey rates housing affordability using the “Median Multiple.” The Median Multiple is widely used for evaluating urban markets, and has been recommended by the World Bank and the United Nations and is used by the Joint Center for Housing Studies, Harvard University. Historically, the Median Multiple has been remarkably similar in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, with median house prices from 2.0 to 3.0 times median household incomes. However, in recent decades, house prices have been decoupled from this relationship in a number of markets, such as Vancouver, Sydney, San Francisco, London, Auckland and others. Without exception, these markets have severe land use restrictions (typically “urban containment” policies) that have been associated with higher land prices and in consequence higher house prices (as basic economics would indicate, other things being equal). Here is the rating scale the report uses.

The most affordable major metropolitan markets in 2014 were in the United States, which had a moderately unaffordable rating of 3.6. Canada and Ireland were rated “seriously unaffordable,” with a Median Multiple of 4.3, along with Japan (4.4), the United Kingdom (4.7) and Singapore (5.0). Australia (6.4), New Zealand (8.2) and Hong Kong (17.0) were severely unaffordable.

The most affordable major metropolitan markets were in the United States, with 14 markets rated as “affordable.” Hong Kong’s Median Multiple of 17.0 was the highest recorded (least affordable) in the 11 years of the Demographia International Housing Affordability Survey. Again, Vancouver was second only to Hong Kong, with a Median Multiple of 10.6. Housing affordability in Sydney deteriorated to a Median Multiple of 9.8, which was followed by San Francisco and San Jose (each 9.2). Melbourne had a Median Multiple of 8.7 and London (Greater London Authority) 8.5. Three other markets had Median Multiples of 8.0 or above, including San Diego (8.3), Auckland (8.2) and Los Angeles (8.0). At a more detailed level, Australia had 33 severely unaffordable markets, followed by the United States with 25 and the United Kingdom with 16.

Among the major metropolitan area markets the overall Median Multiple was 6.5. The least affordable market was Sydney, with a Median Multiple of 9.8. This is a substantial increase from last year’s 9.0. This makes Sydney the third least affordable out of the 86 major markets rated in this Survey. Housing affordability also deteriorated in Melbourne, rising to a Median Multiple of 8.7 in 2014 from 8.3 in 2013. Melbourne ranked 6th least affordable of the 86 major markets. Housing affordability deteriorated slightly in Adelaide (from 6.3 to 6.4), Perth (from 6.0 to 6.1) and Brisbane (from 5.8 to 6.0).

Among all markets, Australia’s Median Multiple remained severely unaffordable, at 5.5. After major market Sydney (9.8), Tweed Heads (Queensland) was the least affordable, with a Median Multiple of 9.1. Queensland’s Sunshine Coast ranked third least affordable with a median multiple of 8.3 (following Melbourne, which ranked fourth among all markets in Australia). The fifth least affordable market in Australia was Port Macquarie, with a median multiple of 8.2. There were signs of considerable improvement, however, among the smaller markets of Australia. Gladstone (QLD) achieved a moderately unaffordable rating, with a median multiple of 3.9. Townsville (QLD) and Latrobe (VIC) tied for fourth most affordable market, with a seriously unaffordable Median Multiple of 4.3. For the first time in the 11 years of the Demographia International Housing Affordability Survey, Australia had markets that were rated as affordable. The most affordable market was Karratha, in Western Australia’s Pilbara, with a median multiple of 2.6. Kalgoorlie, also in Western Australia was the second most affordable market, with a median multiple of 2.8. These improvements appear related to resource industry related demand decreases.

IMF Warns On Housing, Launches New Index

The IMF has launched its Global Housing Watch, a selected set of data highlighting potential pressures in the housing market across countries. “Housing is an essential sector of every country’s economy, but it has also been a source of instability for financial institutions and countries. Understanding the drivers of house price cycles, and how to moderate these cycles, is important for economic stability.In its first release, they warn of high prices, and tensions between central bank policies and broader economic issues”. They argue that housing has been the subject of “benign neglect”.

Here are the initial findings, with Australia highlighted where appropriate.

First, the Global House Price Index is a compilation of average housing prices in different countries that tells us if prices are going up globally. The global house price index highlights the fact that after the GFC in 2007, there was only a minor correction, so house prices remain high by historic standards.

Year on year growth in prices does vary by country, Australia is towards the top of the growth trend, although New Zealand is even higher, and the Philippines is top.

Looking at relative price to income, Australia is on average third highest (they do not split out specific markets in countries). Belgium is the most expensive, Japan the least.

Finally, the ratio of house prices to rent also highlight that Australia is at the high end, behind Canada, New Zealand, Norway and Belgium. Japan is the lowest.

They conclude:

We do have a set of policy tools that can help – sometimes these are referred to as “Mip-Map-Mop.” Microprudential (Mip) policies look at an individual bank’s balance sheet, for example to determine if it is making too many real estate loans. But it could be that the individual banks are doing what seems healthy for them, but what the banking system as a whole is doing needs results in an unhealthy growth in lending.

So, in addition, macroprudential regulations (Map), operating at the level of the financial sector as a whole, come into play. The most commonly used measures cap how much individuals may borrow relative to their income. These prudential measures are being increasingly used by countries to prevent an unsustainable build-up in debt.

Finally, there is the monetary policy (Mop) that involves the central bank raising interest rates if they want to cool off the housing sector. This can be tricky, because sometimes the economy is weak but the housing sector is booming, and raising the interest rate can harm the overall economy.

We have argued for some time that Australia need to use macroprudential policies to help to bring the run-away housing market under control. Focus on investment lending should be first priority. Over emphasis on lending for housing sucks the air from the broader economy and makes it harder for potentially productive businesses to get the lending support they need. Households servicing larger debts have less spending power, which dampens economic activity.