Australia is in the midst of a housing crisis. Firstly in terms of its general affordability and secondly in terms of the availability of homes for key workers such as police, fire fighters, nurses, teachers (affordable or workforce housing) and for the socially disadvantaged (social or public housing).
Government and the private sector must work together to provide affordable and social housing, because, just like rods and rail, accommodation for all is critical infrastructure for the economy.
It makes good economic sense to locate these people in housing that maximises the value to the community and therefore minimises our long term costs as tax payers.
If we do not acknowledge and address this issue now, it will only get worse and the longer term costs to our community will only exacerbate the pressure on future budgets.
The economic impact and productivity of this country is inextricably linked to the fundamental need of a stable form of shelter to all its residents; rich or poor so that they can contribute to the economic prosperity of Australia.
Australian Urban Housing Research Institute (AHURI) has done numerous studies quantifying this issue and, from a Government perspective (Federal and State), it is in everyone’s long term economic interest to provide shelter for people that cannot afford market housing. It will cost us, as tax payers, too much in the long term if we don’t.
The economic and social consequences of the lack of affordable shelter permeate our society but are not recognised in the general consciousness and therefore not front page news. If we don’t recognise and address this issue, it will eventually become front page news and the cost will be a lot more significant.
In many US cities including New York, Chicago and San Francisco, both sides of politics understand this dynamic and believe that investing in social and affordable housing makes good business sense.
It is seen as good for the economy. And, it’s just good business.
In the US, they also recognize that to get the private sector involved in “below market” housing, the government needs to subsidise the uneconomic portion. In the US they developed the low income housing tax credit model to create the additional funds needed to stimulate private sector delivery.
It’s no different in Australia. Well placed, affordable housing for key workers located in areas where society needs their services, and public housing, where tenants have ready access to existing infrastructure and services also makes good and rational business sense.
In Australia today, crime, suicide, domestic violence and depression are huge problems. I believe (and this is my view) that one of the major factors causing these issues relates to the simple and fundamental human desire to have a place to call home and the connection and belonging we experience as a result.
There is a body of evidence that suggests people living in poorly located housing or more particularly, those that have no stable housing, are at a greater risk. Analysis by SGS Economics indicates a cost benefit ratio of 7:1 in respect to the economic benefit to the community of providing public, social and affordable housing in the right locations.
The scale in the shortfall of affordable/social/public housing problem is significant and it needs a quantum shift in thinking both about the issue itself and its social and economic consequences.
The political reality is that if we are going to make any impact on this increasingly burdening issue, we need new and innovative funding mechanisms that minimise any short term impact to respective Federal and State Budgets.
Governments on their own cannot fund the entire quantum needed to produce this type of housing and therefore must encourage the use of private capital. They need to recognise and accept that private capital will need to achieve market returns in order to mobilise itself.
Some form of subsidy will be required for investment in below market housing. However, the subsidy will be offset by savings to the economy over time, even excluding the productivity benefits.
We have to start seeing affordable, public and affordable housing as key public infrastructure just like privately funded roads, tunnels, hospital and schools.
Such recognition will mobilise private capital and change the dynamics so that it will become economically viable to invest in this essential type of housing.
It is estimated that the current affordable/social housing shortfall nationally is around 200,000 new dwellings. At an average total cost (including land) of $500,000 per dwelling, the potential size of this market is in the order of $100 billion.
In America, a whole new property sector has emerged around the delivery of affordable/social and public housing by the large pension funds. They develop, own and then manage a significant proportion of these type of housing stock – about 80 percent – with the not for profit sector managing the other 20 percent.
In simple terms, once the right level of subsidy/incentive is provided to make the returns (relative to the risks) are commensurable to other investment classes, the market will compete and deliver the desired outcome in an effective and efficient manner.
The subsidy/incentive required would be determined on the rental income profile that the state/local government wishes to be serviced and would reflect the local need for the social/affordable/public housing. This income profile can then be locked into the site for the economic life of the building.
If the building is sold, then an obligation is transferred to the new owner to ensure that the tenants fit into the income criteria upon which the subsidy was determined.
With a national housing strategy which includes a bipartisan implementation regime, a long term pipeline of future work can be foreseen by the private sector and they will consequently mobilise to take advantage of this new opportunity.
The vision of Infrastructure Victoria is that: “By 2046 we see a Victoria where everyone can access good jobs, education and services regardless of where they live, where communities are held together by strong bonds, where industries and businesses thrive, and where the environment is valued and protected”
If that is the case, then the starting point must be a clear and sustainable housing strategy for all.
This strategic issue should be at the forefront of Infrastructure Victoria’s Agenda, and for Infrastructure Australia and for all governments around the country, because it is fundamental to the economic prosperity and full workforce participation.
As Einstein said: ‘The definition of insanity is doing the same thing over and over again and expecting different results”
It’s time we changed the way we think.
This article was published in Australian Financial Review. Click below for the original article.