While governments provide rhetoric and reports, thousands are waiting for real housing solutions

By Catherine Cashmore

Tuesday, 15 May 2012

If you've been following the budget and numerous political highlights over the past few weeks and getting tired of fluctuating insecurity over interest rate movements and unemployment figures, take a break and look towards the property market, because it's currently in a phase of unchangeable stability. However, the aesthetics of the localities we have become familiar over the last 20 years have changed considerably – and consequently the value and potential liveability the existing established real estate holds has, and is, changing as well.

Australia 2030, and the shape of our cities as we move towards 2030, is firmly in the hands of urban developers and well underway for rapid expansion. For example, in Sydney, by 2030 the focus is to stop urban sprawl and the development of freestanding houses. According toGraham Jahn, director of planning, development and transport for the City of Sydney, the new city will be “compact” apartment living close to the CBD, providing a “more communal way of life”.

It’s prospected that by 2031, the 26 square kilometres of Sydney City will have 55,000 new dwellings housing 88,000 new permanent residents. Needless to say, high-rise towers will be the dominant feature and any outdoor living activities for those in inner-city localities will need to take place in the local communal park.

Across all states, the building boom of high-rise apartments is astounding. In Melbourne, plans are well underway to accommodate 90,000 new dwellings by 2031. In Brisbane, the Infinity Tower – which will dominate the skyline and provide “546 meticulously designed apartments” over 81 levels – is one of many projects currently under construction. Every capital city government website has a prospected plan for 2030, which outlines its new vision for Australian cultural life.

Even with the recent slowdown in population growth – which at 1.4% (ending July 2011) is the lowest it’s been since 2005-06, our capital cities are crying out with growing pains – not due to lack of roof space as such, but lack of affordable roof space and affordable rental accommodation. However, despite the bursts of construction, the buying market remains soft. Gaining credit is harder than it was pre-GFC, first-home buyers don’t generally qualify for high-rise accommodation due to various loan restrictions– issues I have pointed out previously. Neither does this type of accommodation offer affordable rental opportunities, as any quick search through internet listings will prove. Instead, they are principally marketed to the foreign market, for which there are no buying restrictions for new or off-the-plan dwellings – and it can only be hoped demand is sufficient, considering our high Aussie dollar, to soak up the reserves currently in progress.

Residents familiar with the current outlook of their neighborhoods are understandably concerned. Organisations such as Save Our Suburbs – active in various states across Australia – have been established to combat development of high-density housing and the consequences of an increasing population. Needless to say, there is little if any consultation with the community in light of the new developments affecting various neighborhoods. As Save Our Suburbs points out on their NSW website “the majority of communities report that they feel their governments are not concerned with community preferences on planning issues”.

It’s a common cry – no one likes a neighborhood changing. And as we’re all aware, having a block of flats or large subdivision constructed in the near vicinity will not only affect the streetscape increasing the general foot traffic, it can also have consequences on local public transport facilities, which struggle to cater for a higher numbers of residents.

The federal government’s ‘Our Cities’ discussion paper reads like a tourist brochure – full of pictures of laughing residents or artist drawings of leafy parks with children playing and parents picnicking. Within it, the national 2030 vision is set out

“To provide for our communities, urban development needs to offer a diversity of housing options that incorporate a substantial component of affordable housing that is age friendly, innovative and has good environmental performance.”

I’m not so sure the mass building of high-rise projects fits into the description above, however the words are noble in themselves.

The initiatives outlined in the report to improve housing affordability include the ‘Housing Affordability Fund’. However, as I’ve pointed out previously, it’s hardly an initiative to be proud of. When I last checked the2011 audit, the fund had outlaid $12 million for administration and set aside a promised $500 million for the projects , yet on last count it had only assisted 749 home buyers, while encountering some major administrative cock ups along the way. I don’t call this improving affordability or wise use of taxpayer funds. Yet it’s an initiative the government continues to boast about.

Also outlined in the report is National Affordable Housing Agreement, which requires each state to dedicate federal funds towards the achievement of “key outcomes”. Some of the outcomes include decreasing homelessness and ensuring people have access to affordable rental accommodation and housing. Any initiatives dedicated towards such outcomes are commendable, however when you delve into the progress reports to see how progress for this agreement is tracking, highlighted are some serious problems in auditing the results. The latest report states:

“It is not possible to track progress towards each of these outcomes on an annual basis. Performance reporting under the agreement is particularly reliant on survey and census data that are not available annually. In addition, the performance framework itself is still under development, and not all outcomes are currently able to be measured.”

Furthermore:

“There is very limited information on the nature and extent of homelessness and risk of homelessness, including the housing”

And of course, last year’s admission from the ABS showing its homeless figures had been “inflated” further confuses the data and ignited arguments from homeless advocates who maintained the existing figures had been underestimated, not over-estimated.

The federal budget outlined its commitment to the first-home buyers’ grant, but in truth, what a dismal failure it’s been. The percentage of first-home buyers “shopping” in the market is no higher now as a result of the grant and rarely fluctuates from the long-term average. State by state, first home buyer activity currently varies between 13.1 per cent in South Australia to 23 per cent in the Northern Territory. As many ‘potential’ first home buyers will now tell you, the dream of buying a ‘home,’ is just that – ‘a dream’.

Commitment to the National Rental Affordability Scheme also remains in this year’s budget. It’s a commendable initiative established to increase the supply of affordable rental accommodation for “key workers” such as police officers, nurses, teachers, and so forth. The scheme provides financial incentives for investors to purchase housing, which is identified as “suitable” by the government.

There are conditions of course; there is a requirement to hold the property for a minimum of 10 years while allowing a rental rate 20% below the market average. For doing so, there is an annual income tax kick back – currently at $9,524 per dwelling, indexed annually to the rental component of the CPI. However, it’s not intended for the solo investor and neither is it “social housing”. It’s primarily for property trusts and superannuation funds, and the accommodation is intended for “low- to middle-income wage earners”. Although the scheme has helped a proportion of families – as the Tenants Union rightly points out – the rents charged are still too expensive for a large number of low-income households. Therefore, there are still a too many falling through the net.

As for the social housing initiative, this has no extra money forthcoming in the budget. As Shelter and Anglicare point out, any drop in the waiting list figures nationally have been due to a tightening of eligibility criteria in many jurisdictions rather than a genuine reduction. Again, in light of this, monitoring numbers of those in need starts to get blurred in the rhetoric that travels back and forth between government and social housing advocates. Trying to assess the success or failure of the project is not an easy task – it often gets lost in various criticisms over hasty built or inappropriately located projects. However, broadly speaking the initiative is a good one especially when you consider there are some 250,000 people sitting on waiting lists for public housing often waiting nine months or more.

In Victoria the public housing problem has reached crisis point after the release of its recent audit report, which showed the state was “facing a cash crisis, with all cash reserves expected to be exhausted during the 2012–13 financial year based on current budget estimates”. Interestingly enough, the government has come up with 'radical reforms' to combat this problem, which look positive in themselves, however judging from past record, expensive reports into various reforms never seem to transpire into promised results.

For example, if you go into the IMAP reports (the Inner Melbourne Action Plan ) a collaboration of inner-city councils currently assisting in the state government developments towards 2030, you’ll find a specific section devoted to “housing affordability”.

It seems since mid-2009 letters have been going back and forth between various ministers trying to investigate site-specific opportunities for “inclusionary zoning” (a process whereby governments mandate a certain proportion of a new development be marketed below market rates).

Fast forward to mid-2010, and finally a suitable site was found at 400 City Road in South Melbourne. Unfortunately, or perhaps predictably, it failed to gain support from the state government. So back to square one, and now, three years since ‘inclusionary zoning’ was mentioned we’re apparently awaiting another report into “Community Land Trust Models and their application in Australia”. According to the latest progress paper “reports will be provided to the Committee in due course”. An “end date” for “due course” isn’t provided

All of this rhetoric about social housing wouldn’t be such a problem if we hadn’t experienced such a boom in house prices for which wage growth couldn’t keep pace. It’s all OK for some economists to argue that when you take the national wage growth and national house price, the inflation has not been so extreme. This is true; however the main sticking point with the argument is contained with the stubbornness to keep the bulk of development in inner-city locations. Limited outer urban land releases have also been another hot topic along with hefty development overlays in growth activity centers, which add, disproportionably, to the capital cost.

Those benefiting from increased equity in their house prices have taken full advantage of Australia’s negative gearing policies to purchase a second, third and fourth investment properties. With more borrowing power than first-home buyers looking for similar established homes, this has locked increasing numbers out of home ownership.

Rents have increased disproportionably to wage growth, and there’s growing disconcertment in the younger population charged with handing over 50% or more of the weekly wage for the privilege of shelter.

How many uncountable reports have there been into extending train lines to outer urban areas to provide greater options for first-home buyers willing to compromise on location and move further out? Better transport systems would enable them to do so. However the reports have resulted in nothing more than expensive promises that remain sitting on a minister’s desk. Along with this, it could be argued that money spent on government first-home buyer incentives has been wasted, ineffectively inflating market prices rather than improving affordability.

The big key to our problem is allowing those who are working on an average wage the chance to enter the property market should they choose to do so. This can only be achieved with lower property prices and more affordable stock to meet demand. Back to the report I cited at the beginning of this article and it boldly announces: “Australia’s future tax system noted that some existing taxes on housing, especially stamp duties, are inefficient and can impede housing supply. The review suggested that reforms such as introducing a broad based land tax, along with changes to the taxation of rental housing and rent assistance, would go some way toward improving housing affordability”.

I don’t know the cost of the ‘Australia’s future tax system” review. However, it’s clear that the current government has firmly ruled out any changes to current models of negative gearing or increases to rental assistance.

As for first-home buyers – the road ahead is bleak. The advice I have is to start saving young and take advantage of the few positive initiatives out there such as the first-home buyers savings account. Don’t be afraid to compromise on expectations and purchase a first property in an area further out from the city where land is more affordable. Considering our population growth and current future economic forecast, outer-suburban locations will continue to attract strong demand.

Keep your feet on the ground and be aware of the sacrifices property ownership entails before stepping in. If you’re prepared and able to tread the road, and have the ability to do so, it’s hard to beat the security that results from owning your own home. It’s just a shame more having been given the opportunity to do so.

Catherine Cashmore is a market analyst with extensive experience in all aspects relating to property acquisition.