Our first Annual Henry George Commemorative Address via zoom saw Professor Nicole Gurran usher the audience through the fallacious arguments that high Australian home prices are due to planning regulations choking the supply of new dwellings. A vibrant Q & A follows.
Transcription to the 129th Annual Henry George Address
EMILY: Good evening, everyone. Thank you for joining us for the 129th annual Henry George Commemorative Address. My name’s Emily Sims and I’m one of the three lucky people who work for Prosper Australia. Prosper Australia is an independent research institute working towards a fairer and more prosperous economy through our tax system. We talk to policymakers, politicians and the public about the elephant in every room: tax. We firmly believe that by properly capturing the rising value of land and natural monopolies through our tax system we can reduce burdensome taxes on income and consumption that workers and businesses have to bear. This address commemorates the visit to Melbourne by the American philosopher and economist, Henry George. We are now in our 129th year, making this event one of the longest-running in Victoria’s social history. This evening we hear from Professor Nicole Gurran of Sydney University, who will be talking to us about overcoming reform theatre, planning red tape, policy performance and the politics of housing. Professor Gurran is not the first urbanist and spatial expert we’ve had deliver the Henry George Commemorative Address. In 1922 the audience heard from Marion Mahony-Griffin, but no doubt she did not have to make her speech through Zoom!
Yesterday, Anglicare released their rental affordability snapshot and confounded all my assumptions of what would be happening in the rental market during the pandemic. My colleagues and I have been talking about the demand crunch we had to have, the demand crunch that would take some of the “prices always go up” wind out of the speculative sales of the Australian property market. We reasoned that an immigration downturn, a public health-ordered spike in unemployment, and a general contraction might help landlords realise that their income was merely a residue of the real economy. Tenants who can’t pay, won’t pay, the market will clear and rents will have to come down or, in the parlance of the sector, rental expectations will have to adjust. According to Anglicare, this is not what’s happening. The COVID impact is like a cascade. Demand is moving to cheaper properties as higher income households seek to cut costs. Prices are declining at the top end of the market, but competition for affordable, well-located, adequately sized rentals has never been more fierce. To quote the report, rent deferrals and eviction moratoriums are ending soon and some people are in arrears for thousands of dollars. Many are facing cuts to JobSeeker at the same time. This is a ticking timebomb. Landlords often have mortgages on their rental property and higher JobSeeker rates are protecting them from defaults on rental payments. Unless serious action is taken, Australia’s entire housing system could be rocked. What we are going to hear this evening is to what extent this COVID crisis is simply revealing the structural flaws in our housing system and what form serious action ought to take.
Before we do this, it is my pleasure to announce this year’s winner of the EJ Craigie Award for Writing. The EJ Craigie Writing Award is named after a leading figure in the Australian Georgist movement, EJ “Jack” Craigie, who was a member of the South Australia parliament from 1930 to 1941, a site value rating stalwart, and a fierce defendant of Henry George’s legacy in the Australian context. Tonight we would like to present that award to Tim Sneesby for his article “Why the RBA is wrong about zoning and house prices again” published in The Fifth Estate on August 13, 2020. To quote Tim himself, it is important that we have a sound basis for public policy decision making in housing and planning and we need to be under no illusion of their relationship. That’s why when a major claim is made about planning, housing supply and prices, it needs to be closely examined to see whether it holds up. Congratulations, Tim. This is your award, virtually handed to you. We can give him a round of applause in his absence. It is now my pleasure to introduce Nicole Gurran, distinguished professor and chair of Urbanism at the University of Sydney. Professor Gurran is an urban planner and policy analyst whose research focuses on comparative urban planning systems and approaches to housing in ecological sustainability. She is the author of numerous publications and books, including a fantastic shot across the bow entitled “Are governments really interested in fixing the housing problem? Policy capture and busy work in Australia” which she co-authored with Peter Phibbs, also of Sydney University. I understand that tonight she will draw on that body of research, asking whether we’ve made any progress since the article was published in 2015. Over to you, Nicole.
NICOLE: Thanks Emily and a shoutout to everyone who’s watching me remotely. I’m sure that at least some of you have got a drink in hand to replicate the annual dinner that I understand usually accompanies these events. Before I get started, I want to acknowledge the traditional owners of the land on which I’m living and learning and coming to you from. In my case, it’s the Gadigal land of the Eora nation and I pay my respects to elders, past, present and emerging, and particularly to any Aboriginal people who might be in the audience tonight.
As Emily said, I’m going to talk tonight about a body of work that I’ve done with Peter, I’m going to update it in terms of the current context a little bit, but before jumping in let me reference the fabulous work that Tim Sneesby himself has done in this space – it’s wonderful to hear of his award – and also people like Cameron Murray, who’s also made some great contributions to the understanding of the way that we’ve got into such a mess in Australia in looking at housing affordability solely through the lens of urban planning as a supply constraint. As Emily said at the outset, unfortunately thinking about planning and housing supply in the context of urban regulatory reform remains relevant, even as the COVID-19 pandemic exposes what I regard to be the real problems in our housing system: the pressing risk of evictions and the squalor in which many of our renters are living in; the economic risks for homeowners in the context of their debt burden; and the wider macroeconomic risks around our unsustainable housing system and the threat that falling housing demands implies when it comes to the important industry of the construction sector. Tonight I’m going to talk about the performance that has been planning reform incredibly as some kind of a solution to those significant housing failures that we have in Australia. I’m going to talk about it in three Acts. I’m going to just bring us up to speed with the academic literature and some of the public policy debates in Australia and internationally around the planning and the politics of housing, we’ll look specifically, in Act Two, at the narratives in Australia, and in Act Three we’ll look at how reforms have played out in New South Wales, and we’ll wind it up with thinking about what fundamental reform might look like in the context of COVID-19 and whether we seem to be heading in that direction.
We can’t talk about planning and housing in the midst of a global pandemic without referencing the origin story of modern urban planning which, of course, was around slum eradication, minimum subdivision, and building standards to tackle the problems of overcrowding in slums, and also very much in Australia about addressing the things that Prosper Australia is concerned about, land speculation. The building industry didn’t love it at the time, but there was broad public consensus that we needed urban regulation, combined with affordable rental housing in the form of public housing, to address the problems of the urban poor. So it was a shock to me, as a researcher, a few years ago to realise that the problems around overcrowding, unacceptable housing conditions, even disease risk due to squalor in our housing stock were again becoming an issue in Australia. At the same time, the issue that seemed to continually pre-occupy us was not that our planning regulation wasn’t protecting us and providing decent and secure places for us to leave, but actually that we were somehow in the midst of overregulation and that’s causing the problem of unfair housing and unaffordable housing. Here’s another shot from the Daily Telegraph a hundred years later complaining about the urban regulation that it trumpeted at the beginning of the last century, somehow managing to complain that the New South Wales planning system is the slowest in Australia, even while in the same news story talking about the approval of hundred storey buildings in Sydney CBD, a third of a kilometre high. So go figure. I’d hate to see what a loose planning regime might look like according to the Daily Telegraph.
New South Wales is certainly not the only jurisdiction to be talking about planning and housing in the same breath as though regulation is the only problem when it comes to housing crises. Somehow, jurisdictions all around the world are fighting for the title of having the worst and the most constrained planning system. There’s a dynamic, I suppose you could call it, economic literature around this. It began in the ‘70s where economists modelled the regulatory tax around planning control. The argument that you’re all familiar with, that planning constrains new supply and raises prices across the market, may exist in some jurisdictions where there are deliberate attempts to control the type of housing and the quantity of housing purely to preserve things like a particular type of residential amenity or a particular type of community. I’m not saying that that doesn’t exist, but it’s not universal. The assumption behind the body of economic work that I’m referring to here is that without that, an unregulated market would be able to self-correct and we know the housing market doesn’t do that. It’s different to other types of markets because homes are different to other types of goods. Housing scholars blame the housing crisis on residential capitalism, the growing trend that we’ve had particularly in the past 30 or 40 years around dwellings as a repository and a generator of wealth, around house prices reflecting that potential wealth as opposed to a good associated with using them as a shelter or even a positional good, if you like. They point to the rise of multi-homeownership, global homeownership, the rise of private rental sectors, particularly in the years following the Global Financial Crisis, but also the rise of residential tourism as an asset class as well, this phenomenon where you’ve got people able to own and consume multiple properties on the one hand while there are too few homes for the many on the other. That deepening inequality around assets looks different in different places, but we could summarise it and call it “residential capitalism”. As Michael Gunter, the planning theorist, says, “That’s just really too complicated for most people and it’s easier just to blame planning”. In fact, he calls blaming planning for ensuring efficient markets, including housing markets, a “neoliberal scapegoating fantasy”.
So now let’s have a look at how those narratives are playing out in Australia and you can decide whether there’s any neoliberal fantasy blaming going on for yourself. As Emily said, I’m going to refer a little bit to a piece of work that I did with Peter Phibbs in which we really threw up our hands and asked whether governments were really interested in fixing the housing problem, because they seemed intent, and I think in many cases it’s fair to still say this, on doing busy work, holding inquiries, launching pilot programs, certainly announcing reform agendas, but all types of work that seemed designed to never actually do anything at all, at least when it comes to addressing the problem of, for instance, skyrocketing house prices and the inability of first homebuyers to get into the market. So our cast, you’re familiar with them – I’ll really stretch the theatre allegory through the talk, if you’ll indulge me. Our cast are the producers, the developers, the housebuilders, and their internal motivation is, of course, around less regulation, less costs associated with development, and a narrative that pumps demand for housing. The more we say we’ve got a shortage, the more people will want to invest. Consumers are a little bit more complicated, we’ve got some different types of characters there because we’ve got the homeowners, who once they’re in want prices to at least stay the same, if not rise, and we’ve also got our renters, who have an interest in seeing prices moderate and certainly seeing rental protections and lower rents. Of course, everyone in the consumer side of things want high amenity homes and neighbourhoods. Our politicians aren’t entirely self-interested. They’re concerned about the role of housing in their macroeconomy, a really fundamental component of it, but at the same time there’s an irresistible temptation when it comes to housing to blame everyone else for everything and certainly not wanting to spend money when it comes to providing housing assistance, for instance, for renters.
Our supporting actors deserve honourable mentions for producing the research, the narratives or, if you like, the plot through their information. We’ve got the think tanks – and the IPA really deserves the heroes award here for its research and information – but there’s also consultancies increasingly able to provide research for payment for a particular problem; we’ve got the media, which sells property advertisements and speaks also of revenue; we’ve got industry groups, such as the Property Council of Australia, for instance; and behind the scenes we have the lobbyists and that phenomenon of revolving doors, which means that some of these people are wearing multiple hats at the same time or moving positions around. We have to acknowledge the work of DEMOGRAPHIA. Every year it produces a report based entirely on no data whatsoever, at least when it comes to urban regulation, but manages to find an extraordinary correlation between urban regulation and house prices. And, of course, house prices are a serious concern. Here in Australia you’ll all be familiar that over the past two decades prices in the major cities have effectively almost doubled and Sydney’s been the worst of the lot. You will notice that as prices have headed north, interest rates have headed south. Or I should put it the other way around, as interest rates have headed south, prices have headed north. But really don’t think about that too much because, after all, we know that the real culprit when it comes to that direction of house prices, at least according to the Reserve Bank on this particular day, is the secret zoning effect. They’re very persuasive and there’s an embarrassment of riches when it comes to politicians explaining to us that we’re not building enough dwellings and that’s because of planning and that’s the reason that house prices are continuing in that direction. But it sort of breaks down, particularly if we look at the excellent work done by Cameron Murray recently and others that point out that it’s hard to sustain that argument when actually dwellings have been trending up. In fact, the only thing that’s really fundamentally changed in the long term, when we look at the way that housing is produced, is that we’ve had much more production by the private sector as the public sector, particularly in the form of social and affordable housing, has withdrawn and even in the mid-‘90s the public sector was producing over 10 per cent of Australia’s new supply.
So the structural change that we’ve seen in the housing system is documented by so many scholars. Judy Yates, of course. This is work led by Kath Hulse published recently by AHURI that documents over at least a 30 year period the structural change in Australia’s housing system where we’ve reduced the number of people, as everyone knows, living in owner-occupation, we’ve grown our rental market – in fact, more than a third of Australians now are living in some form of rental, primarily the private rental market – and the actual composition of the rental market has shifted towards the middle income higher end. So rents have increased. That doesn’t really matter in theory because so too has the income of renters and that’s okay as well. If our middle income renters are content to spend all of that money on their rent and they’re not trying to save for a home then we could possibly say that this system is tenable in some way or form. But the real problem is the deficit at the bottom of the market, that absolute shortage in real terms of rental housing that is affordable and available to people on low and very low incomes. Just before I move on, I want to reference the way that we arrange housing assistance in Australia. We’ve shifted, as I said, from funding public social and affordable housing. We fund a little bit, but not very much. We’ve shifted more towards rental assistance, income payments to renters in the private sector and we support – woefully under-support, some people would argue – our growing homeless population, but the big money is in the tax incentives for that private rental market, which have grown, and the growing number of landlords receiving negative gearing. Negative gearing isn’t working in the way that we want it to work in terms of generating those affordable and available new rental units that we know we need but, as you’re all familiar with, the minute that anyone suggests redirecting that investment towards new affordable rental dwellings our industry bodies jump up and say, “You can’t mess with property. It’s too fragile. It’s a house of cards. Hands off”.
So we’re left with the one song in our playbook, let’s reform the planning system. Now, let’s see how that has played out in New South Wales. The renters, they’re asking for something more than regulatory planning reform, but the Urban Taskforce, who does seem to be quite persuasive, has really been saying, “No, it’s alright renters. As long as we focus on planning reform in New South Wales, we’ll be able to address housing affordability”. So here’s a press release from the Taskforce in 2018, a new Productivity Commissioner was appointed calling, again, for planning reform. But this is something that we’ve done so extensively in New South Wales. We started off in 2005 addressing concerns around land supply, both in established suburbs, releasing and upzoning land, as well as land on the urban fringe; we’ve addressed concerns around the inconsistency of our planning system by standardising local plans, by emphasising speed and certainty in decision making processes; and we’ve even introduced some measures that I actually think internationally hold up very well around trying to diversify the housing stock through affordable housing types and higher density housing, and I’ll run through those briefly. In terms of releasing land and development opportunities for new housing, our Metropolitan Housing Monitor shows that from 2011 onwards approvals trended upwards and this is certainly indicating that we released land through upzoning in the inner areas of Sydney. We’ve also got more than a ten year pipeline of land on the urban fringe. We can ask is it in the right place, is it being developed in the right time, does it have the right infrastructure, but it’s land and it’s there.
When it comes to procedural reform, there we’ve got a dashboard and we can see how fast developments are being approved. That orange line through the centre of the graph shows that in 2007 it took an average of 65 days to get an approval in New South Wales. Actually, across the board that’s not terrible, folks, but, nevertheless, we managed to get that figure down by four days a decade later and I think there are ambitions to make those approvals even faster. In terms of diversifying our housing stock, we had a planning policy that consolidated some existing things, but also introduced some new incentives for affordable rental housing within residential flat buildings and also tried to enable what’s often called in the international literature “naturally occurring market low-cost rental housing” in the form of allowing secondary dwellings in residential zones and what were called when they were introduced “new generation boarding houses”, which in effect are micro build-for-rent units, very small, between 12 to 16 square metres minimum, self-contained units, the idea being that both of those policies would contribute to the supply of lower cost housing in the market. This is an example of a newer generation boarding house. It can happen in residential zones and it doesn’t matter what the local residents think: if it meets the rules, it’s able to be approved. Certainly we saw from 2011 onwards a steep rise in housing approvals. Particularly what changed was higher density housing approvals and we were trending at over 50,000 units per year in Sydney alone. Secondary units as well, those secondary dwellings became a really significant source of new supply. So in terms of affordable rental housing, if granny flats are it we were going great guns. By 2015/2016 secondary units were at the equivalent of 10 per cent of new dwellings approved in New South Wales.
When we look at planning approvals in Sydney – and this is a very crude measure, of course – relative to how we might project household growth, taking a conservative estimate of household growth at 2.3 persons per household, which is smaller than what we’ve actually had in Sydney, we see that for most of the period 2002 to 2018, which is when the data series on approvals is available by the New South Wales’ planning website, total approvals actually tracked ahead of demographically projected household need. If we add the additional approvals together and account for years when they were under, the dip was precipitated by the GFC but we might have been due for a dip anyway, given the massive overallocation of approvals that we had at the start of the period, and things trending back well and truly into a healthy surplus there, just based on a very crude measure. It didn’t, as we know, address prices, but we could argue that the approvals actually are following the prices along exactly the same line. This is another reason why we didn’t see so much housebuilding in that critical period from 2006 to 2007. Of course, it was after a massive housing boom and then we had the GFC, but then 2011/2012 things started to trend up in terms of prices and also in terms of housing approvals. The reason that our approvals and our completions, because a huge number of units have been built, didn’t diminish price because they were overshadowed by all of the demand factors and some work, also by the Reserve Bank, points out that any increase we’re feasibly able to have in the number of our dwellings and in the best year, in a bonanza year in Australia we would be lucky to produce the equivalent of 2 per cent of our housing stock as new supply. So any increase we’re able to get is dramatically overshadowed by an almost small drop in interest rates and, of course, despite the increase in overall housing supply, the stock of rental housing affordable to low income earners declined over that period.
Vacancy rates are another measure and I haven’t shown you this. Vacancy rates across Greater Sydney were around 7 per cent at the time of the 2001 Census. By 2016 that had risen to 7.7 per cent of housing vacancies as another measure of us having enough housing units and certainly, even though the stock of low-cost rental units declined over the period, there was quite a bit of housing stock showing up as being available to international tourists to rent. Airbnb listings in terms of whole dwelling units that seem to be pretty much permanently available was the equivalent of more than ten times the amount of new supply being produced in some parts of Sydney. Some work by Laurence Troy for instance, now in my housing lab, and others points out that the secondary units and the boarding houses haven’t actually shown up in the market as affordable rental stock despite the aspiration, but they’ve certainly shown up as pretty good deals on Airbnb. What we’ve seen as a consequence of all of this is the dependence for those who aren’t able to afford a rental unit on informal, ad-hoc and share housing arrangements for much longer than people would want to, certainly in terms of a normal housing career aspiration. This is just a map of our low-paid healthcare and social assistance workers who are living in share group households in 2016. I hope they’re not still living in share houses now, but work also by my lab shows that the informal rental market is alive and well right now in the middle of the pandemic, similar to the remarks that Emily made at the start of this evening’s talk. Much of that stock, unfortunately, is overcrowded and some of it is downright dangerous.
But the really important thing that we’ve all been worried about, house prices are okay, so I’m going to wind it up with a few reflections of where we are in the COVID-19 period. If we look at the newspaper reportage we can see the concern around house prices possibly falling. I would argue the real concern that no-one has wanted to really address, despite all of the hand-wringing and the busy work that politicians have performed when it comes to concern about housing affordability, no-one really wants house prices to fall. In Sydney they’re actually up by 1.7 per cent so far this year, helped along perhaps or at least the industry has had some support with stimulus in the form of the renovation bonus and the first home buyers’ bonus, accounted as part of the government’s COVID stimulus response. So what do we do about housing affordability? Well, the Property Council is still saying that we need planning reform to keep house building through the pandemic and beyond. We’re still talking about turbocharging housing supply. The Productivity Commission heard the Urban Taskforce and agreed, this is a brand new report just released last month by the NSW Productivity Commission also discovering that planning reform needs to occur in New South Wales to make this a better and more affordable place to live. In terms of our COVID action response yes, planning reform, faster assessments again on the agenda. Of course, we have much more substantive reforms on the table, such as the reform around social and affordable housing proposed by the body of advocacy groups, including the Community Housing Industry Association, and, in my view, that’s a much more well thought out and viable plan around transforming the housing system, but also addressing the economic concerns around the construction industry.
To finish up, I’m hoping that at this point in history we can shift to a position of real reform when it comes to planning and housing in Australia, away from the recovery rhetoric that we’ve certainly had in New South Wales and the ongoing talking about regulatory clearing to remove those fantasy barriers when it comes to new housing development, to shift to a fairer housing system which is a system that looks like one in which our public subsidy and our public benefits are geared towards producing affordable new housing supply, primarily rental but there’s a need to diversify our tenure models, coupled with real protection for renters and the capacity to introduce and enforce standards in the private rental sector, which we can’t even touch at the moment until renters have those protections around evictions. As well, we can use this opportunity to move our thinking a little bit away from the major capitals of Sydney and Melbourne and look at regional Australia, which I haven’t talked about tonight but is certainly experiencing the same types of housing affordability pressures that we see in the major cities, and, in my view, is actually part of the solution when it comes to rebalancing our access to economic opportunities and also housing opportunities in Australia. I’ll leave it there, Emily.
EMILY: Thank you very much, Nicole. That was an incredibly informative talk. I was invited to speak to the University of Melbourne and I’m sitting here going, “Gosh, I wish I’d had those slides when I gave that presentation” because I was trying to make the argument, just as you have tonight, that if we were to take the advice of the urban economists and we were to follow all of this advice around land supply etc. then Australians must be the model of urban governance and urban management in terms of rezoning, increasing land supply, reducing regulation etc. and many of the slides that you showed tonight demonstrated that we have, in fact, been very closely following the neoclassical advice. We have a question here from the audience. In your opinion, what proportion of state MPs, their offices and public servant planning officers in decision-making positions understand the central premise you’re discussing? Is this fundamentally an issue with education, suppression of that notwithstanding, or that it’s understood well enough but the political and lobbyist environment prevents any meaningful reform? I think that’s a very good question.
NICOLE: I don’t know. In fact, can we have a little side poll and vote, because I bet the people listening tonight have got views about that. I do think education is part of it and certainly when I went to planning school I wasn’t taught about housing. Now we do. I think all of the planning schools in Australia have introduced housing as part of their curriculum, so I think we’ve got urban policymakers who are graduating at least from planning schools in Australia with more literacy around housing economics. So it’s hard to know. I do think that there is a very fundamental ideology that hates any kind of intervention in the market and therefore sees planning only as that intervention, but I also think there’s a deliberate turning away from planning regulation as something that people can’t be bothered to understand. So it sounds complicated, it’s annoying, it’s easier to not quite understand it, and certainly we don’t see studies actually using real data on different types of planning operation and how it operates. So I think it’s a combination of all of those things, but if we’ve got people advocating on behalf of policies that we know simply result in the status quo and that status quo is benefiting them, then it is convenient to not understand planning or housing or what’s really happening, isn’t it? So that lack of education is serving the wrong interests, I suppose.
EMILY: What city in the world has the best housing affordability system? If Australia’s is rubbish, what’s the model?
NICOLE: Well, I would say Amsterdam. I could’ve rolled out a whole lot of slides that show Sydney because I’m familiar with Sydney – I’m sorry everyone in Melbourne that I do use Sydney as a bit of a reference point – that looks at the different compositions, for instance, of new housing production, that looks at rental regulation, that looks at different types of tenure, and I would say that Amsterdam as a city and Holland as a nation still has a much more progressive planning and certainly housing system than we do. It’s not perfect – international students are still crowded, the rental system is very regulated and so it’s difficult and that presents problems – but for the most part they use the system of urban regulation to ensure that when you have new housing development it includes a mix of housing types and they’re housing types that people actually need to live in and can afford to live in. That, I think, is the starting point, that when you plan for a new area, when you invest your public resources in both the design and also the infrastructure of a particular place, if you do that well the market is going to value that very highly. The Dutch model says that that value that’s created needs to be used to serve the needs of the people, the community who should live there, and therefore they’re able to use it to provide housing across a spectrum of tenures and price points. So I’m very much in favour of the Dutch model. It is under attack and it’s certainly not perfect, but it’s a really good example to hold up against our own system in Australia as a basis for comparison.
EMILY: The Dutch system is quite interesting. I was taught that in the Netherlands the relationship between planners and the market is somewhat flipped in that the Dutch, because they don’t have the abundance of greenfield land supply, have to reclaim land from the ocean and that’s very expensive. So the cost of land supply is actually much higher and, consequently, they don’t have the kind of market-led planning system that we have where we are design regulators and we say what you can and can’t build. But otherwise, in order for supply to come onto the market, we have to wait for a proponent developer or individual to put in that development application and to initiate a development. In your speech you referred to this, but I’d really like to drill into this because I know Cam Murray has done a little bit on this recently. Can you say something more about that gap between the amount of approvals and rezonings we’ve done versus how many completions are actually coming onto the market? Perhaps you could say a little bit about what’s happening in there and that if the planners are churning out land and they’re churning out development assessment approvals, why aren’t the houses being built? Or are they?
NICOLE: Two things. Let’s just take a step back to that almost idyllic Dutch situation where we’ve got public production of land and public sharing of the benefits from that land development. That is not so foreign to Australia. Our government land organisations still have the capacity to do that and were certainly set up to do that, but that’s one of the structural changes in urban policy and in housing that’s occurred in Australia from the ‘70s onwards. So let’s not talk as though that couldn’t occur. We still have government land developers in most of the Australian states actually and certainly in the ACT. So there’s that and the issue is that the system that we’ve come to almost think of as the natural, the only system where we put the entire onus for development into the private sector is inherently unable to meet the types of problems that we face right now, for instance, in the COVID context because the private sector can only develop and build and produce in response to market signals in return for profit. So we’ve got that problem. As soon as the market flattens there’s not enough profit associated with housing development, so this assumption that if it weren’t for planning we would have this endless and stable production of new housing development just falls apart because new housing development is chasing profit, essentially, and when the profit signals fall away, then we don’t have those drivers.
The other types of barriers, and they’ve been pointed out by Cameron in his paper, for instance, once we hand over an approval, so the land is zoned for housing development or the developer has an approval in their hand, they still need finance. In Australia, that’s complicated, particularly complicated with multi-unit development because to finance multi-unit development you generally need sales off the plan, that’s how we do it in Australia, so you’ve got to get a whole lot of people signed up. People are nervous to sign up when the market is falling, so that’s a really big issue. That was the main constraint in the GFC period. People say that a build-to-rent model might be a way of getting around that, because then you’ve got one company that builds it, they’re not addicted to the capital gain, but you’ve still got to finance that as well. This is why people keep coming back to the idea that you need a social and affordable housing sector, because at least that sector is able to build new homes in response to housing need as opposed to where the property cycle is at any point in time. If that’s enough for the minute, Emily?
EMILY: Yes. We’ll take another question. Surely the big issue is that, as you say, most people don’t want house prices to fall as we still have a homeowning culture. What will cause this cultural and political shift to allow housing reform?
NICOLE: I think that’s absolutely at the heart of it. No-one really wants house prices to fall and actually there’s a macroeconomic risk around that happening. Perhaps finer minds than I can give us a roadmap out of this problem, but the only way that I can imagine is if we build up the other part of the housing system that’s missing, and that’s our non-profit sector, so our social and affordable housing sector. It may include for-profit actors, but we need a sector of the housing system that’s able to produce and provide housing at times when the private market is going south, so to speak. For homeowners it actually doesn’t matter if you’re an owner-occupier. As long as you’re not overly leveraged, it actually doesn’t matter if prices do their cyclical thing. That’s not even a massive economic risk, as I understand it. The real risk, of course, is when we have the wider economic issues that occur in a recession and you have the loss of employment in the construction sector, for instance, and that has repercussions across the entire economy. For homeowners to do what they’re doing right now, just live in the home that they own and they’re not putting their house on their house on the market, so the fact that property prices, for instance, in Melbourne might’ve dipped a little bit, actually there’s no issue with that whatsoever from the homeowners’ perspective or from the economic perspective. The concern is from the construction industry perspective that we’re not having a demand signal to produce the houses that we still need, notwithstanding the fact that we’re having a drop in immigration and in demand, but also because we’ve got all of that unmet housing need that the market was unable to meet in good times and isn’t able to meet in bad times. So we have to build up that non-profit sector of the market, but the good news for people who are anxious about property prices is it’s not going to hurt them. The affordable housing sector doesn’t bring down house prices.
EMILY: There’s been a lot of talk this week about what will be in the Commonwealth Government’s Budget around social housing. It will be interesting to see whether some of the demands from the social and affordable housing programs that have been put forward will be in fact in that Budget.
EMILY: Arguably, they should be. We’ve got a really interesting question here, Nicole. Some say from an ideological perspective that the system is broken. What has to be considered is who is the system designed to favour? When one is clear that the agenda is to transfer the benefits of increased productivity from the worker wages and salaries to capital, the wealthy, then we see that the system is just a well-oiled machine working perfectly. In some financial jurisdictions today it is cheaper to borrow a million dollars for a year – and in some they even pay you – than hire a wheelbarrow for a day.
NICOLE: Hmmm. I think that’s a comment, but it allows me to make a comment and that is that for a long time people have said in Australia the real housing problem is that for most people it’s not a problem. As a homeowning society with 70 per cent of us living in our own homes and benefiting from the wealth effects of rising property affluence, we don’t really experience or witness the problems that are being felt by younger generations, aspiring first homeowners and renters.
EMILY: Another question from the audience. The conversation around equity of access to planetary or national resources as a common social principle seems to be missing from politics and the community and historically is just a low ebb conversation anyhow. Would it give everyone a better opportunity if economic rent sat at the heart of the taxation system? I think that is a question very dear to the hearts of many in our audience tonight.
NICOLE: I’m going to leave that to your audience, because I don’t do research on tax. I’m a punter, just like everyone else, and I’ve got my views, just like everyone else, but my research is on planning and housing. I’m sure there are more qualified people than me on the chat and Q&A for that one. Thank you, though.
EMILY: I’m sure those more qualified people will feel free to put their comments in! Here’s another question. How should the planning industry position its role during COVID, given the pushback against planning regulation?
NICOLE: This is one where I’d like to hear the question-poser’s views as well. I think the planning industry needs to articulate the case for planning and why planning is important. There’s a real opportunity to use the concern around housing conditions and around health and housing to emphasise the importance of things like public space, the importance of decent residential apartment designs, for instance. So on the one hand we’ve got the Productivity Commission saying, “Well, we just need to give up those space standards – it almost seems quite crazy and incredible now – if we want more affordable housing in towers in the city” I think is the underlying narrative of the New South Wales’ Productivity Commission, saying, “Give up on those standards”. On the other hand we’ve got people actually living at home and really feeling either the benefits of good housing design or what goes wrong when our apartments aren’t designed really for living in and they’re actually designed to be investment units that are rolled out to unsuspecting renters. So I think there’s a real opportunity for the planning industry to articulate the importance and the need for good planning and to resist the temptation to try and race even further to the bottom with the sort of regulator clearing that we saw in the wake of the GFC. And we do have more evidence now to show that it’s not going to make any difference anyway, that regulatory clearing away of imagined planning controls doesn’t result in more housing units and when we get more housing units, even if we’re satisfied by the quality of that stock and, of course, we do have concerns about that right now. Even if we’re satisfied about the way that our suburban greenfield areas are progressing, even if all of that is wonderful, we still see that we’re not addressing affordability even with a booming supply scenario. So it is an opportunity for the planning industry to be much more sophisticated in articulating our value and the limits of deregulation.
EMILY: It’s magnificent that we can all meet under the circumstances that we’re in and here. Many of us have lived in our neighbourhoods and our homes more intensely than even before and I think many of us will emerge from the COVID pandemic with a really clear idea about how our neighbourhoods are working or not working just as we’re living more locally. Speaking of neighbourhoods, here’s a question from a neighbour of mine. A lot of the development industry critique of the planning process relates to the time it takes for decision making. Delays are often due to community opposition to increased supply or density and related rejections of proposals by non-qualified decision makers (councillors) that are subsequently overturned after lengthy tribunal review. Should Victoria move towards a more independent planning approval process? Would this reduce approval times and how do we then provide a space for community input in the process?
NICOLE: That’s definitely a question for Victoria, but in New South Wales, as many of you probably know, we don’t have third party appeals generally and certainly not for residential development. There are some circumstances. Aside from an administrative reason, so an error of administrative law, there’s generally no third party appeal. So the idea that community opposition could hold up, for instance, an apartment, even an apartment block that’s a third of a kilometre high, it actually doesn’t exist in New South Wales. The rezoning process, of course, that will take time and I think appropriately when communities are being consulted about changes to the planning controls in their areas, but there’s no opportunity to oppose a development through the courts through the third party system. There is still the time that it takes to approve a complicated development, to have all of the studies involved, for instance, and if a developer brings forward a scheme that doesn’t fit with the planning rules then that’s going to take time for the project to be approved. But in New South Wales, 90 per cent of determinations are made by council staff under delegation. We’re only talking about 10 per cent of planning matters anyway that are going to decision making bodies and all of those now are considered by independent panels, either at the regional level or at the local level.
So we don’t have a problem with approvals because of the local politics or because of the objection culture that you described there, Emily, and yet people would still look to Melbourne and say Melbourne’s done better with its housing supply and it’s done better with its affordability. So what I take from that is that we’re looking at the wrong problem. Probably we don’t have a problem in New South Wales with constraint. Housing approvals you might have that problem in certain cases in Victoria and certainly I wouldn’t say in New South Wales let’s go and introduce third party appeals for residential development. I certainly don’t think that would be a good idea, in fact I’m quite in favour of the so-called de-politicised planning approval system that we have in New South Wales. I wouldn’t be advocating that we mirror Victoria, but it just shows you that the supply of dwelling approvals is not the problem in either of our cities, would be my argument when it comes to affordability, anyway. But yes, think carefully about those third party appeals. The research that’s been done, for instance, by people at RMIT – Liz Taylor, Joe Hurley and others – shows how unfair that third party appeal is in terms of you get a lot of third party appeals from very wealthy suburbs and you don’t see it in the other suburbs. It’s not something that I would want to see us adopt in New South Wales.
EMILY: I know that Tim Sneesby, in one of his EJ Craigie Award-winning articles, talks about the way in which development approval times are complicated by this problem of ambit claims where there are clear planning regulations yet developers will put in planning applications that push that envelope, and I know Ian Woodcock and colleagues did some work on that in Melbourne as well. Do you think there’s a problem with that? Is Tim on the right track?
NICOLE: Well, Tim has absolutely put his finger on it. It’s almost the opposite problem to that issue of third party appeals. In New South Wales we see our developers wanting to go to the Land Environment Court, the equivalent of your tribunal, because they think they’ll get a better outcome, so they’re forum-shopping, if you like. Now, is it a good thing, is it a bad thing? I’m going to be neutral and what I’m going to say is that those decision times have not affected our flow of housing approvals, they certainly haven’t affected our flow of housing completions, and they’re definitely not the explanation for where our housing affordability trends are. So I’m completely with Tim on that and in my function I should declare that I sit on a regional planning panel. I don’t think that’s the reason that I think they’re a good decision making body, but I should say that because there’s a possibility that I’m biased, a strong possibility, of course. But I would say my own observation as a practitioner, I certainly don’t want to issue a refusal. If a project is permissible in the zone and meets all of the development standards, I don’t see anyone in New South Wales looking to refuse projects on that basis, so you might be looking at a very, very slow approval because the proponent is not wanting to bring their scheme into line with what the local planning controls are calling for.
EMILY: This is a different kind of question. You listed the cast of developers, builders, owners, tenants, government, economy etc. but I didn’t hear you mention the banks. What influence do you think bank lending has on housing affordability?
NICOLE: Well, the Reserve Bank did get an honourable mention there. Sometimes with that paper on zoning and housing affordability you sort of wonder whether they’re verging into the territory of thinktank but, you know, it’s all food for the debate. In Australia, our macroprudential regulations are tighter than many other countries and that’s been protective for us, but we would be naïve to think that the availability of housing finance and falling interest rates doesn’t have an impact on demand. I mean, of course it does and the Reserve Bank, in their research on zoning and housing affordability, are saying that as long as housing supply keeps up with that financial demand then you won’t get a price bubble. But we’re dealing with space and the real world, and our cities and our housing units aren’t just there to endlessly expand to keep house prices down. We can’t do that, the housing market doesn’t work like that. So unless we have other systems in place to make sure that new housing development, for instance, is moderated in terms of the prices, in terms of the rents, and unless we redirect our financial incentives and our tax system aware from further gearing up that demand for housing then the problem will continue. That was probably a very inelegant response to a very good question. I’m not blaming the bank, but easy credit is certainly an explanation for price inflation.
EMILY: I thought it was a very elegant response to a very difficult question about where the banks are positioned in all of this. I’ve got a question here, do you think the private sector could actually provide affordable housing even if it or the players within that sector wanted to?
NICOLE: Yes, I do. A couple of things – and thank you for the question. One, the planning system through inclusionary zoning cannot fund social housing. Social housing for people on very low incomes does require government subsidy. If you provide that government subsidy, well, the private sector can produce it, the question is whether you want to leak out the potential profit to the private sector or whether you want to recycle that within the social and affordable housing sector, and I’ll leave that to others to answer.
So in terms of social housing yes, there’s probably a role for the private sector and it occurs with public/private partnerships, but as you move up the housing continuum towards those health and social assistance workers who are in group households in Sydney, they are still paying quite a lot of money for their share rental housing. The planning system could certainly say that a proportion of new homes that are built need to come out at a price point or a rent that is affordable to people on moderate and low incomes. That would be private sector provision of what I would call affordable housing and you make it affordable through your eligibility requirements. The research by Kath Hulse and others points out that even if you’ve got units on the market that are technically affordable, unless you then link them up to households on low and moderate incomes they can be occupied by people in higher incomes. And who would blame higher income people wanting to occupy a lower rental unit? Certainly not me, but if we’re using policy intervention to produce an affordable rental outcome we need to then match that up with the households that need it. So there’s a little bit of intervention that’s needed to do that, but it’s not asking the private sector to do more in that instance than accept a lower profit and, as we know from Cam’s work and the work of others, once you signal that upfront as part of the requirements around land development, then the land market can even adjust to that expectation as well. So yes, there’s a role, but the market alone isn’t going to solve the problem, as you know.
EMILY: We have an opportunity to zoom out. This question says what you’ve described could be a presentation for Britain almost word for word. How do you explain the striking similarities in these developments across the globe?
NICOLE: I actually wrote a book on that. Not just me, but with Professor Rebecca Chiu in Hong Kong and Professor Nick Gallent in England and it’s called “Politics, Planning & Housing Supply in Australia, England and Hong Kong”. Essentially the premise is how can you have these three countries so absolutely apparently different and yet with the exact same narrative around planning and housing supply? Different housing systems, quite different planning systems, but exactly the same narrative. So I’m going to give two explanations for that. One is an academic term called “international policy transfer” but basically it’s just internet shopping, so policymakers just shop around and they pick up these globally circulating ideas. In the same way that we might buy something from Marks & Spencers in the UK, well, the Barker Review of housing supply in the UK found its way to the internet. There’s always been policy circulation between nations and with town planning a century ago it used to happen through speaking tours, but now we do it via the internet and the think tanks in the UK – I can’t remember what they’re called, but there’s one that’s almost word for word like our Institute of Public Affairs – say the same type of thing. So those ideas travel, but where they land the context is very different. So when you talk in the UK about a housing supply shortage your shortage exceeds our hypothetical shortage by an exponential magnitude, but still researchers in the UK would say that you couldn’t build your way out of the affordability problem that exists in the UK.
So there’s the globally circulating issue and then there is the issue of residential capitalism, that global shift in the use of homes. Homes have always been a source of wealth and our greatest cost, but through financialization, the liberalisation of global markets and the investment in residential real estate that can also happen just like internet shopping, you don’t even need to go and live in the country to invest in a property almost. But that global financialization of housing is the other reason, combined with the welfare reform that you’ve had in the UK and we’ve had in Australia, that has just made these profound shifts in housing systems and we’ve blamed it on planning. Planning hasn’t really changed, it’s actually the housing system that has changed our approach to intervention through housing assistance. The same thing is being said in California as well and in Canada, certainly in Hong Kong. They even say stuff like this in the Netherlands.
EMILY: I know that there will be many in the audience who would like me to drill down into this idea about housing financialization, but I’d first like to clarify. We know that construction costs haven’t changed very much and the basic cost of consuming housing services hasn’t risen in terms of putting a house up, those costs have remained stable over time. When we talk about homes being used as piggy banks in global cities, are we really talking about housing or are we talking about urban land? Because there’s an argument that we’re really talking about locational rents of the land itself.
NICOLE: Obviously, the location explains differences in house prices and asset value and that can almost entirely be explained based on access to employment opportunities. In national geography, there’s limited locations where you’re able to access jobs and housing demand rises locally with incomes, so where you’ve got more jobs and higher incomes then house prices and rents will always be higher. Then for global demand anywhere, those will be places that you would want to invest in too if you’re looking for asset appreciation. So yes, it’s urban land but because of the properties of that land, which include the economic activities and also we know that those economic activities often cluster around very wonderful natural and cultural assets as well as high connectivity, so all of those things which are combined with natural assets but also the urban investments that we have in land and then human capital, all of those things combine to make land in global cities worth a lot of money.
EMILY: I think we should now try something very different. It hasn’t been upvoted very much, but I’m going to take an affirmative action policy and ask this question. Where does gender come into the discussion of housing reform, considering that a higher share of people living in poverty in Australia are women renters?
NICOLE: Yes, gender needs to be there, absolutely. I haven’t done deep research on housing and gender and I want to. In my lab we’ve got Sophia Maalsen, who’s looking particularly at the experience of older women renters and older women in share housing. Let’s face it, it’s ridiculous to think that older women are going to be comfortable in a share household. It’s just not an appropriate housing solution and yet we see in share householders older women are one of the biggest growing cohorts. I mean, we’re not talking massive numbers, but we’re talking a real shift towards women, because their relationship breaks down, they don’t have high super, they don’t have housing assets, and they’re not able to afford a rental unit on the private rental market. Supply of social and affordable housing is inadequate and so they’re ending up in share and marginal accommodation, homeless or at risk of homelessness. So gender is an absolutely critical dimension and thank you for raising it.
EMILY: I also noticed in the Anglicare report that I mentioned in the beginning that it was single parents with two children who were finding themselves the worst off in their tally of the percentage of available rentals.
NICOLE: Yes, they show up in our review of share housing ads as well. Some of the ads would break your heart, people saying, “I need a place to live. I do have a daughter, she’s lovely. Don’t worry, during the school lockdown I’ll take her to work with me”. I mean, can you imagine trying to navigate the share housing market under those circumstances? Emma Power has just released a really fantastic report into this thing as well from Western Sydney, so that’s something that people might want to go and check out.
EMILY: The last question apparently comes from James Webster, who is the Treasurer of Prosper Australia. He asks is it possible that the property lobby simply talk about housing unaffordability to progress their agenda? They might actually welcome a perception of continued unaffordability. They use it to validate their recommendations, even if the link isn’t factual.
NICOLE: Yes, I think so. It’s hard to conclude otherwise. It’s pretty good for business if you’ve got everyone saying there’s a real shortage of housing. That’s a real problem. That’s code for invest now, the value of your price will go up. So yes, it’s a public policy narrative which actually is a free real estate advertisement, if you want to think about it that way. Let’s hope that no-one is as cynical as that and if we do have any Property Council of Australia people listening to this, there have been some really heartening signs of industry working together with the Community Housing Association and other peak bodies around a stimulus plan post-COVID around that investment in social and affordable housing. I think we are starting to see some real leadership even from that lobby group but yes, I think the policy narrative feeds into an interest in property wealth and property politics.
EMILY: I think that Danni Hunter from the UDIA here in Victoria should be congratulated for her leadership in that way, she’s been very vocal about the need for social and affordable housing and starting to talk about the limitations of the private sector in delivering that. It’s still a mixed message from lobbyists and we could ask different questions about how we shift the kinds of special interest groups in light of continuing conversations about political donations and a Federal ICAC and all of the other things that seem to be troubling about our democratic action, but that is totally different webinar for a totally different time. I’m afraid that’s all we’ve got time for, folks. Unless, Nicole, there is a question that you’re dying to answer?
NICOLE: I have to say, people, I’m really sorry, I’ve struggled to read questions and answers, so I haven’t actually been able to see your questions. I’ve had them switched off, but I’m hoping that I’ll be able to get a copy of them so I can see some of the comments and follow-up on anything. I can see now I’ve clicked up the chat that there are some really great links that people have been sharing as well, so thank you and thanks everyone for the fantastic insights, observations and questions that you’ve had for me.
EMILY: Thank you so much, Nicole. It’s been so informative and very interesting. There is some serious contestation in some of these comments around what you’ve said. There seems to be a lot of acceptance as well and certainly people are really fired up about it. I know that this has been of huge interest to our audience, so thank you so much. Karl’s just put in the chat box, so please check out the seventh winner of the EJ Craigie Award, Tim Sneesby’s key articles in The Fifth Estate. They pick up a lot of the threads that Nicole has dropped down to us this evening. Everybody who is in Melbourne, only a few weeks left before we can all emerge again and, hopefully, for our 130th dinner, find ourselves in the same physical space, which would be absolutely wonderful. Please join me in virtually thanking Nicole for her wonderful presentation tonight. Thank you very much, Nicole.
NICOLE: Thank you.
END OF WEBINAR