How to solve housing (un)affordability - Part 2 - Build. More. Housing.
To stabilise the property market, Australia needs to focus on drastically increasing the total quantity of housing being built.
It seems I am incapable of brevity, so this article is part two of what will be a three-part series of policy proposals entitled How to solve housing (un)affordability. You can read Part 1 - Legalise “The Missing Middle” here.
Everything in this post is intended as a response to the problems identified in my initial article on this topic, Australian housing culture is incompatible with rapid urbanisation. So if you haven't read that yet, please go and do that now.
On balance, having sustained levels of high population growth is a really good thing for Australia and comes with so many benefits. High net migration offsets our low birth rate, so we can hopefully avoid the very-serious ageing population problems we see facing Japan today. Having a consistent base of young people to support our steadily-accumulating horde of elderly is one of the most important things that we can do for our future.
In this way, Australia remains both The Lucky Country and The Complacent Country, in that the biggest problems facing our cities today are of our own making. We just need to treat the challenge of housing people as the very serious problem that it actually is - and not wait until things start to get dystopian before we get our act together.
Build. More. Housing.
To put it very simply, we need to build a lot more housing. Right now, we are not meeting demand in a way that corresponds with population growth. Some estimate that Australia will need to increase the number of homes it builds each year by 20%, just to avoid compounding the existing affordability issues we already face.
So just to be clear - if you're unhappy with with the cost of housing in Australia right now, we need to increase the number of homes we build each year by 20% just to maintain the really bad situation we already have. Big sigh.
So we don’t just need more affordable housing (whatever that even means), Australia needs to focus on drastically increasing the total quantity of housing being built.
Building more housing does stabilise prices and rents
Before I get into it, I’ve seen the argument floating around that building more market-rate housing doesn’t actually impact property prices and/or reduce rents.
In certain circles, the idea that building more housing has any stabilising effect on rent or prices gets laughingly-dismissed as developer propaganda, bamboozling the unwitting public with economic fairy tales about supply and demand.
This is deeply upsetting to me, because if true, I am currently wasting my weekends shilling for developers that don’t even appreciate me.
In the interest of not plagiarising someone far smarter than me and a desire to not spend an entire article making a single point - check out the best takedown of the best version of that argument I’ve seen, by economist, Noah Smith. Through referencing empirical studies, Smith piles up the evidence that:
Building new market-rate housing results in a 1% decrease in rent for every 10% increase in housing stock, while sale prices also decrease in close proximity
Rents fall by 2% for sites within 100m of new construction, while renters’ risk of being displaced to a lower-income neighbourhood falls by 17%.
New buildings decrease nearby rents by 5 to 7 percent relative to locations slightly farther away or developed later
New construction reduces demand and loosens the housing market in low and middle-income areas
Smith is careful to note that the complex web of circumstances facing every city are different, so these effects will not be identical everywhere at all times - but generally speaking, the evidence points to the following sequence of events:
New market-rate housing gets built,
New residents move into the new market-rate housing,
Surrounding rents and prices either stabilise or go down.
This happened with apartments in Brisbane
If you need more receipts, Australians need look no further than our own back yard. From around 2013, Brisbane (the greatest city in the world), saw a boom in apartment construction across ageing industrial areas in inner city suburbs like South Brisbane, West End and Newstead.
The apartment boom had such an impact, that buying an apartment in Brisbane as an investment property has since become a bad idea. I personally know at least 5 people who bought apartments during that time and in every case, nearly a decade later they are worth roughly the same as (or less than!) what they paid for them.
This effect did not spill over into housing, as a block of land is a fundamentally different purchase, in that land is a finite resource, while the population keeps increasing. However - it’s a nice little microcosm of the oft-maligned “economic fairy tale” at work - a drastic increase in supply can (and did) stabilise apartment prices and apartment rents.
Now that’s out of the way, let’s build more housing.
Stop subsidising investment into existing housing
With the proportion of income devoted to housing increasing with the cost of house and wages continuing to stagnate, the question of how to fund retirement is becoming a binary choice - if you’re investing in housing, it’s either all or nothing.
Consider the fact that housing is the only kind of asset that banks will let you finance on 30 year terms with incredibly low interest and no margin calls. Add in the ability to dip into super for deposits, first home buyer grants, HomeBuilder grants, negative gearing, capital gains tax discount. It's all stacked in such a way that our savings cannot help but flow into property.
Among other things, the HomeBuilder Grant subsidises substantial renovations - using taxpayer money to make existing low density housing more unaffordable. The ability to dip into your super takes money out of a more-diversified portfolio, concentrating yet more wealth in an already-oversized housing market. Negative gearing and capital gains tax discount directs taxpayer money to de-risk the portfolios of property investors. Indeed, the Australian Government has an unhealthy obsession with keeping the property party pumping.
As I established in my first article on this topic, at the macro scale, pouring the collective wealth of an entire country into buying and renovating existing housing creates disastrous impacts with regards to affordability, equity and how cities grow and function.
So at a bare minimum, the Government needs to stop going out of its way to do this.
Only subsidise new housing
What our cities need is more new dwellings, not more bedrooms on existing dwellings. Ultimately, we need to transition towards a different kind of housing market and economy where the vast majority of investment properties are new builds.
If you have your heart set on being a real estate mogul, ok cool - but you’ve got to contribute to new supply, rather than buying up existing housing. This idea that any 25 year old can be a property baron / professional landlord, leveraging themselves silly through buying dozens of negatively-geared houses on interest-only loans needs to go away forever.
A Policy Idea: Only subsidise the right types of new housing in the right locations
If the Government is hell-bent on subsidising the housing market (and we know they are), it should limit that focus to new Missing Middle redevelopment of the inner and middle suburbs as well as higher density development in the inner city. This will at the very least, redirect some of the pressure from increasing housing prices to increasing housing supply and the subsequent densification of existing urban areas.
The Government should build a lot more housing
Before you bring up your favourite disastrous government housing project - keep your powder dry, soldier - same team. For obvious reasons, the Government should not house thousands upon thousands of poor, disadvantaged and homeless people in the same place and walk away saying “mission accomplished". However - we should also not throw the baby out with the bath water and say that governments shouldn’t build any social housing. The question is how does it get built and where does it go? If not in your back yard, then where?
In my mind, we need to get to a state where social housing is evenly dispersed throughout our cities, rather than concentrating it where it is cheap and convenient. We want the poor and disadvantaged living within society - among us, not hidden from us. We want everyone going to the same schools, building relationships with one another - being in each other’s lives.
As one of the world’s more-diverse countries, Singapore does this on economic and racial lines in a pretty heavy-handed way. Much like their fondness for public caning, government-mandated racial integration is very on-brand for them.
A Policy Idea: The Government should meet demand for social housing through buying a proportion of new developments and then subsidising it
I neither possess, nor desire the expertise to actually answer this question, (full disclaimer: I am an urban planner, not an economist / nerd - I’m just riffin' here), but here’s a half-baked idea anyway:
What if the Government boosted demand for new Missing Middle housing through committing to buying (x) percentage of all new housing developments in existing urban areas?
Say a developer proposes to build a set of ten townhouses in an inner suburb. The Government would then commit to buying one of those townhouses for the purpose of providing subsidised housing for those who need it. This would artificially boost demand for Missing Middle housing, because developers would have more confidence in knowing they have one less townhouse to sell.
Now expand this to the macro scale - demand for new Missing Middle housing would increase, cities would meet population growth in a more sustainable way, more lower-income workers would be able to live closer to their job, birds would return to the forest.
Demonstrate Missing Middle housing that is actually attractive to Australians
In my last article, I somewhat recklessly threw shade at the development industry and berated them for not seeming capable of building townhouses that weren’t ugly beyond belief.
I’ve since had my hand slapped by my betters and I now understand that there are many local architects and developers producing very nice Missing Middle designs. I do maintain however, that these exceptions, while exceptional - do not represent the industry standard by any stretch of the imagination.
A Policy Idea: Pre-designed, Council pre-approved (and actually nice)
Missing Middle typologies
This is an idea that’s been bouncing around my head for a while. Maybe it’s dumb - I’m sure you’ll let me know.
To use my fair home of Brisbane as a case study, a significant amount of blocks in the inner suburbs are the same size - 10 metres by 40 metres, somehow totalling 405sqm (or 16 perches in old timey measurements).
With that in mind, I want the Government to hire me to develop a bunch of different housing designs that densify those typical blocks in a bunch of different ways to suit the needs of a bunch of different types of people.
Basically, I want to make high quality, completely-resolved Missing Middle housing designs free and available to all - giving owners of those typical 405 blocks the tools to double or triple the number of houses on their block. It would also work on blocks with similar dimensions (eg 10 metres by 35 metres).
I’m not talking about just any old townhouses either. These would be designed with the specific intent of convincing Aussies that the suburbs are over. This means creating the kind of space that Aussies actually look for in a long-term home, while enjoying all of the added amenities of inner city living. I’m talking about a back yard, a shed, a garage, a patio, space for a BBQ, lots of storage, 4 bedrooms - the works!
Under my scheme, those who commit to building a close-enough version of these designs would get their project pre-approved by Council, negating the expensive and painful process of a development application.
This would put more power in the hands regular people, small builders and boutique developers to densify the inner suburbs with better housing. Over time, components could be prefabricated as builders get more efficient at building these homes. If it was a success - you could expand the scheme to include a larger suite of typical block sizes and housing typologies.
Over to you now, Government - I await your offer. I have turned off silent mode and I’ll be checking my spam folder every day.
Update: The City of Maribyrnong in Victoria is actually doing this! Their Future Homes pilot program provides a series of premade designs that are fast-tracked for approval through the planning system.
Limitations and depressing realities
The process of writing this really elevated in my mind the importance of what I discussed in my last article - we need throw the Ring of Power into Mount Doom - we need to abolish single family zoning.
Without doing so, these policy ideas won’t have their intended effect and in some cases could make things worse. Without abolishing single family zoning, you could not pre-approve my beautiful Missing Middle housing designs, because they would still be vulnerable to bad-faith NIMBY objections. Without abolishing single family zoning, subsidising new housing would just accelerate new sprawl in the outer suburbs. Capping the urban footprint through prohibiting new development in the outer suburbs would just intensify artificial scarcity and drive up property values faster still.
This gets to the heart of most of the big, complex problems of our time - minor policy tweaks aren’t gonna cut the mustard.
Stay tuned for Part 3 - De-Investify Housing
The problem with housing is that it isn't just how Australians stay out of the rain, it's also how we fund retirement and grow our wealth. Housing has this weird dual nature where it’s simultaneously both an investment and the largest user of land in our cities. When you buy BHP shares, you might be destroying the environment, but you’re not creating longer commutes for poor people.
While Parts 1 and 2 have been focused on improving affordability through increasing housing supply, this has to be but one leg of an impossible two-legged stool. A critical component of improving affordability has to hit at the nub of the problem - reducing the attractiveness of housing as an investment.
So Part 3 will explore how housing could be “de-investified” to the point where those who buy housing are doing so for its traditional purpose - as a place to live.
This is a tricky one, because we don’t want to disincentive the building of new housing itself - just the purchasing of existing housing as an investment property.
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UPDATE
Part 3 of this article series: How to solve housing un(affordability) - Part 3 - De-Investify Housing” is now posted.
Personally I don't think we will get the required numbers on a site by site basis, we need to be thinking redevelopment of whole blocks on a collective basis (all property owners join together and then work with Council on an acceptable redevelopment design proposal with a mix of housing types and sizes).
Notwithstanding, I had a similar thought about a set of standard designs and I think it can be done and facilitated through the "Standard Drawings" components of the Planning Scheme. Build in accordance with the approved Standard Drawing (mixed and matched for different situations) and it becomes self-assessable development (apart from Building Approval).
Here is a planner talking about planning reform, with whimsicality wit and humour. Utterly refreshing.
I like the idea of a pre-planned option that's off the shelf and immediately usable. But are there indeed planners who are willing to make up their mind beforehand? Would this remove the delicious prospect of exercising one’s discretion, that I suggest is akin to ‘planning on the trot’. Would a planner feel comfortable about failing to advise the nimby neighbourhood that something is afoot? Is the degree to which discretion is required not a consequence of overzealous prescription in terms of style and usage?
Is there a dysfunctionality in the ‘dormitory suburb’ as we see it in Australia? Is this dysfunctionality a consequence of the planning regime imported from the UK and the USA? Does suburban sprawl foster a sense of community or is it alienating?
I agree that cars are killing suburbia. I like the idea of letting people walk the last 150 meters to their dwelling, something they would have to accept if they relied on public transport. I'm an angry commenter because planning permission is too hard to get. I'm in a country area on the coast and there is a ribbon of unaffordable housing that stretches around a very large bay that won't support a public transport option. The suburbs that are being added are out of the Perth playbook, large houses on ever smaller parcels of land separated by high fences, with no backyard, side walls inches apart, big setback from the road to accommodate off-street parking. Ghettoes in the making.
I have 50 acres zoned rural residential capable of subdivision into seven blocks to support seven castles. I don’t like that idea. I want to maintain my vineyard and winery, a pre-existing non-conforming use. I want to put affordable rentals on my land, in a garden or a bushland setting, along a gravel road, two bed one bath cottages for wage earners, using sea containers the rigid element that supports cantilevered extensions that increase the floor area to the average size of a house in the UK. The structural integrity of the container is conserved, and the completed house is insulated and clad externally. Transport is possible on a tilt tray truck. These dwellings need only four points of support, so a minimum of site works. A house for 100K is the aim.
The combination of draconian bush fire regulations and an unwillingness to see natural vegetation cleared prevents the insertion of rentable chalets in a low density bushland setting. Given the desirability of the bushland site I see the possible loss to fire as tolerable. At the first sign of a whiff of smoke the tenants could take off. That’s what the fire controllers demand anyway.
I desire to purchase already cleared rural land to establish a housing development from scratch to escape the bushfire/clearing dictates but planners like the idea of conserving cleared rural land for rural purposes. If I can find a bit of land and obtain the necessary permissions, I want to explore the prospect for a different, more communal style of living.
Under my scheme a housing development would be free of roads and cars. Social engagement would be promoted by the daily walk from a communal garage to the residence via a covered walkway with seating at points along the way to accommodate a couple of old guys playing chess or women playing cards or chatting while they knit. Each dwelling would be surrounded by sufficient space to allow solar passive design. This space would be sufficient to allow shady trees to grow. The lowest floor could be devoted to a home occupation and light commercial, a cafe or an umbrella shop, as one discovers in Tokyo, across China or Little Bourke street Melbourne. Open space would allow gardens and lawn for kids to practice their handstands, within view of people in three or four adjacent houses. I would put a soccer field at the centre of everything for dads to engage in kick to kick with their sons and daughters because there is no better way to build skills than daily informal play. The aim is to integrate work and home so far as its possible which is great for women and kids and to reduce the need for travel. The settlement should be large enough to accommodate an elementary school. It would welcome all comers, working or retired, all ethnicities and the greatest mixture of life experiences and skills possible. Let them add buildings to cater for their interests and hobbies on the edge of the soccer field.
What do you think? Is it not time to add farmers to the list of accredited developers? I reckon that the crisis would disappear in 15 years due to a massive increase in 'build to rent'.