If Australia has a housing crisis, supply is the answer

Australia is in the midst of a housing crisis. For those of us who live and work in our cities, the level of homelessness we see on our streets serves as a daily reminder of the lack of housing. As federal Treasurer Scott Morrison said earlier this month, “it is all about supply”.

And he is right. It is that simple.

But, there are also two distinct segments of housing supply. Firstly, housing that is created to be purchased by the private sector (investors and owner occupiers) because they can afford to buy or rent a house or apartment, and the second type is housing that is not economically viable because people cannot afford to rent it. They just don’t earn enough money. Historically, governments used to invest in this second area of housing supply because it was uneconomic for the private sector.

There has been a minimal net increase in the amount of affordable/social/public housing, yet the private market has exploded. Both types of housing segments need supply if we are going to put a downward pressure on price. Yet only one is being supplied; the private market.

The homelessness we see in our streets today is the direct result of a lack of investment in public, social and affordable housing by successive governments over several decades. And the homelessness will get worse. Much worse. Many more Australians are just one pay cheque away from themselves being defined as homeless.

Having a stable form of shelter is fundamental to having a productive and successful society. How can anyone be productive to society if they do not have a place to reside and sleep in safety? How can a parent bring up a family if there is no certainty about where to sleep and they are always having to move?

How can anyone manage the emotional, physiological or traumatic events that happen in life if their primal need of stable shelter is not met? Where they can sleep safely that night; next week; or next month?

National issue

Jenny Smith, CEO of the Council of Homeless Persons places the problem in the lap of the federal government. But it shouldn’t stop there. It’s everyone’s problem including our state, local governments and the business sector. This is a national issue.

We need our Prime Minister to show the leadership we all thought he had when he first became leader of our country and call the state premiers together on behalf of all Australians. We fundamentally need to build more housing and we need brave governments that are prepared to think differently and adopt new and perhaps radical approaches to housing finance and management that has never before been tried in this country.

We need a new infrastructure asset class consisting of social, public and affordable housing.

Today we are more than 200,000 dwellings short in this housing sector which represents an investment of $100 billion. Governments do not have the funds to do this alone. They need to engage the private sector.

Yes, it is a supply problem. Yes, planning is big part of the issue, but finger pointing by politicians, both state and federal, will not serve any purpose. We need collaboration not accusation.

Reserve Bank chief Philip Lowe was quoted as saying, “can the government, can any of us, find assets to build that can generate a return for society?” Yes we can. By creating and investing in a new infrastructure asset class consisting of social, public and affordable housing.

Analysis by SGS Economics indicates that for every dollar invested in the right kinds of public, social and affordable housing, the community benefits by $7 through savings in health, welfare and justice, productivity improvements and reduced demand for social housing services. The benefits would flow to the entire economy due to the long-term budgetary savings that result. This type of return would be a no-brainer for any private business.

Super funds investment

We need to create the investment environment where large institutional players, such as our super funds, invest their equity in creating tens of thousands of additional homes for rental. In the US they call it multifamily housing and within its residency mix they include social and affordable housing. In Australia, this rental sector does not exist.

To produce more housing, Australia needs a paradigm shift in thinking to create innovative funding mechanisms similar in principle to those adopted in the UK and the US.

Governments alone cannot find enough money to invest in this key infrastructure and they must leverage their funds and encourage the use of private capital, recognising that such capital will need to achieve market returns that are proportionate to the risk of the investment.

Such an approach must be part of a national housing strategy and have bipartisan support to give the private sector confidence to invest for the long-term.

So, in the interim, we all need to continue to show compassion and care for the less fortunate in our society. We must find them shelter as it is one of our fundamental needs as human beings. We cannot afford to wait any longer to start fixing this problem because we have already wasted several decades in doing nothing.

Robert Pradolin is former general manager, residential for Frasers Property Australia. 

This opinion piece was published in the Australian Financial Review on February 12, 2017. Read more: http://www.afr.com/real-estate/if-australia-has-a-housing-crisis-supply-is-the-answer-20170210-guaf1p#ixzz4Ybxu5SMB