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More to do on affordable housing

By Kim Fischer - 24 June 2016 15

housing

Housing affordability remains a hot topic with most Australians. And rightly so, given the fundamental human right for safe and secure housing.

I have previously written about the debilitating effects of homelessness and the comparatively high rate of secondary and repeat homelessness experienced by people in the ACT. This problem is made harder by the fact that Canberra has the highest average wage in the country.

To see why, we need to look at two simple measures of housing accessibility: borrowing power and housing stress.

Borrowing power is the amount a bank will lend you for a home loan. Assuming typical expenses of $2000 per month, a single full-time worker employed on:

  • average Canberra wages makes $92,000 and can borrow $520,000
  • average wages for a café worker earns $57,000 and can borrow $257,000
  • the minimum wage will receive $35,000 and can borrow just $189,000.

This large discrepancy means that higher wage earners can easily outbid lower wage earners. When the median unit price in Belconnen (the cheapest place to buy units in 2016) is $365,000 and the cheapest listing anywhere is $195,000, minimum wage earners are literally unable to buy in the open Canberra housing market.

Of course, many couples use joint incomes to purchase houses. But since full-time care of children and other periods with no income are common, from a social affordability perspective it is important for home loans to be able to be serviced with a single income.

If you can’t buy, you have to rent. Housing stress is a generally accepted benchmark for the maximum you should spend on accommodation, and is defined as spending more than 30% of your gross wages on accommodation. That works out to $330 per week in rent for the café worker and $200 per week for the minimum wage earner. It’s not as unaffordable as buying a home, but can still be a significant challenge for people on lower incomes.

The often-touted answer to this problem in the ACT is to “release more land”. While this is part of the solution, relying solely on land release programs is both bad economics and bad policy.

Releasing more land simply allows the well-heeled investor to reap windfall profits instead of the government. This situation is likely to continue until the problems with capital gains tax and negative gearing are fixed at the Federal level.

In the meantime, a more nuanced approach is needed. Social enterprises often define their goals in terms of market, mission, and money, and the same three factors apply to the ACT government’s approach for delivering affordable housing for the ACT:

  • Market: The ACT government sponsors the construction of affordable houses and land rent schemes that are attractive to lower income earners but are less profitable for developers.
  • Mission: The ACT’s public housing program includes a range of measures to provide people with secure housing, and also to transition them to home ownership in the long-term.
  • Money: If the first two objectives are being achieved, it is both reasonable and responsible for the Land Development Agency to seek good returns on the sale of land to allow investment in infrastructure and other services that benefit all Canberra residents.

The ACT government is ahead of the game in implementing the majority of the changes recommended by the 2015 Federal Government Senate Committee on housing affordability: reducing stamp duty, implementing shared equity schemes and land rent schemes, and supporting increases in community housing programs.

We can always do more. With high office vacancy rates in Canberra at the moment, the ACT Property Council has pointed out that other capital cities convert lower-grade office space into “apartments, hotels, and senior’s housing developments”. This should be considered as a way of rapidly improving affordable housing options in central locations.

Finally, there needs to be a community discussion around rental reforms, with an emphasis on improving security of tenancies and helping people stay in their homes even when they hit temporary financial difficulties.

What have your experiences about housing been like in the ACT?
What measures do you think governments should take to address housing affordability?

Kim Fischer is an ACT Labor candidate for the seat of Ginninderra in the 2016 ACT Legislative Assembly election.

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15 Responses to
More to do on affordable housing
MarkE 12:36 pm 01 Jul 16

chewy14 said :

John Moulis said :

Let’s get Paul Keating back in. Interest rates at 16%, unemployment around 10%…

When Liberal hero John Howard was treasurer, interest rates hit 21.39%, inflation got to 12.5% and unemployment broke 10%… and they had all been rising and doubling under his treasury-ship.

The problem with history is that it provides facts, and as everyone knows, facts have a left-leaning bias.

Don’t worry interest rates will go back there soon. Just wait until the US Government starts defaulting on their $19 trillion debt and world interest rates will go sky high. Even at the average interest rates since WW2 their total tax revenue would not even be able to pay the interest.

HenryBG 10:46 am 01 Jul 16

chewy14 said :

John Moulis said :

Let’s get Paul Keating back in. Interest rates at 16%, unemployment around 10%…

When Liberal hero John Howard was treasurer, interest rates hit 21.39%, inflation got to 12.5% and unemployment broke 10%… and they had all been rising and doubling under his treasury-ship.

The problem with history is that it provides facts, and as everyone knows, facts have a left-leaning bias.

I get sick of people approaching important issues such as the national economy with the same kind of flippant attitude towards the facts as they take to a football match.

It is a fact of economic history that John Howard’s was the worst-performing government in about 40 years. The IMF has highlighted his policies as the most profligate on Australian record. The current structural issues in the national budget were created by John Howard’s policies. Under John Howard, our foreign debt exploded.
By contrast, I am pretty sure that no qualified professional would propose that Keating’s policies were anything other than brilliant.

Mysteryman 5:29 pm 30 Jun 16

chewy14 said :

John Moulis said :

Let’s get Paul Keating back in. Interest rates at 16%, unemployment around 10%…

When Liberal hero John Howard was treasurer, interest rates hit 21.39%, inflation got to 12.5% and unemployment broke 10%… and they had all been rising and doubling under his treasury-ship.

The problem with history is that it provides facts, and as everyone knows, facts have a left-leaning bias.

Wages also rose by 16% that year.

“In 1982 Howard’s team was battling a wage explosion, caused by the Government pushing the Arbitration Commission to scrap wage indexation while the unions were pushing for big wage rises. Inflation was 10.7 per cent, and Treasury and the Reserve Bank used high interest rates to drive down inflation. They succeeded, but only after creating a recession that destroyed the Government.”

http://www.theage.com.au/articles/2004/08/30/1093852178483.html

A_Cog 2:18 pm 30 Jun 16

John Moulis said :

Let’s get Paul Keating back in. Interest rates at 16%, unemployment around 10%…

When Liberal hero John Howard was treasurer, interest rates hit 21.39%, inflation got to 12.5% and unemployment broke 10%… and they had all been rising and doubling under his treasury-ship.

The problem with history is that it provides facts, and as everyone knows, facts have a left-leaning bias.

tooltime 11:02 pm 26 Jun 16

Agreed Dungfungus,

I feel a shift coming in the way gubment collects money from the property industry. There’ll be a minimal stamp duty, instead replaced by large increases in council rates…

Think about it. A $750k house pays ~ $25k stamp duty as a one off/transfer payment. But what if gubment can “rate the property” at $7500pa? Doesn’t take a genius to work out that you’ve paid $30k after 4 years…We will see a lot more homeless older people whose age pension no longer covers the rate bill…

dungfungus 5:47 pm 25 Jun 16

John Moulis said :

Let’s get Paul Keating back in. Interest rates at 16%, unemployment around 10%. Plenty of investment properties will change hands then. Just keep working away, adding to your deposit.

Patience people. I too witnessed property prices going up quicker than I could save. Whilst disheartening, it’s not gonna change much, even with everyone whinging about it. So just move to where you can afford to live.

When the Brexit contagion catches up with China the thousands of vacant “wealth store” apartments all over Australia will be on the market overnight.
Did anyone see Dateline a couple of weeks ago about what Chinese “investment” has done to Vancouver? Here’s the link: http://www.sbs.com.au/news/dateline/story/chinas-millionaire-migration

dungfungus 5:31 pm 25 Jun 16

Increased housing prices will not abate until immigration is totally stopped and I mean refugees as well.
For too long we have been taking 200,000 a year which is (and I hate this word) unsustainable.
Unfortunately, current events in Europe will see even more migrants wanting to come to Australia so whoever wins the election next week has some important decisions to make as a matter of urgency.
The economic turmoil following Brexit promises to wipe out a lot of savings globally so governments will be under even more pressure to provide welfare assistance for those about to retire and the soon to be masses of unemployed.
The decision will be to pay either those already here or those to plan to come here ( legally or illegally).
The government can’t afford to fund both.
And they better address it or else as the new “R” word is not Recession, it’s Referendum.

tooltime 2:30 pm 25 Jun 16

Let’s get Paul Keating back in. Interest rates at 16%, unemployment around 10%. Plenty of investment properties will change hands then. Just keep working away, adding to your deposit.

Patience people. I too witnessed property prices going up quicker than I could save. Whilst disheartening, it’s not gonna change much, even with everyone whinging about it. So just move to where you can afford to live.

GM2617 8:53 am 25 Jun 16

Fully support your focus on housing affordability ideas and directions…also see http://the-riotact.com/ask-riotact-call-for-mortgage-payments-to-become-tax-deductible/178745 for another idea to add to your list to pursue should you achieve success in upcoming election.

A_Cog 3:07 pm 24 Jun 16

Dear Kim,
Best of luck with your candidacy and your agenda – coz the biggest roadbock you’re gonna face is your ALP stable-mate, Andrew Barr.

As Chief Minister, he sets his vision for his gubmint – the mega-projects, focuses, aspirations. As Treasurer, he works out how it is all going to be paid for – he sets taxes/rates/levies on property and bolts them into the forward estimates. Then as Minister for Economic Development, he controls the LDA and determines not just where land will be released, not just what zoning that land will have, but that the valuations will be for each parcel.

Many people (myself especially) think that the jump in property prices in Canberra in the last few years has been centrally influenced because of Barr’s role holding all of these ministries simultaneously – something unique in COAG. The ACT Budget needs to demonstrate $X to pay for Y, so land costs $Z.

So best of luck changing that particular “nuance”.

rommeldog56 12:53 pm 24 Jun 16

This link compares negative gearing in Australia to the changes being rolled out in the UK as part of the UK’s efforts to address affordable housing:

http://www.afr.com/news/policy/tax/negative-gearing-cut-in-uk-budget-raises-questions-here-20150709-gi8f6c

Rotten_berry 11:53 am 24 Jun 16

Price is fundamentally a function of supply and demand. Negative gearing and lightly taxed capital gains do not help the situation and federal labour’s proposed reforms are a good start. But the root causes are high population growth combined with a desire to limit land release (encourage densification, reduce “sprawl”, etc). Choking fringe land supply drives up the price of all land in the city, including that required for infill projects. The most recent tiny blocks in throsby sold for over $1000/sqm. We did not have affordability problems in previous decades when suburbs were built to keep ahead of demand.

To address to root causes:
1. Release more land for all dwelling types. Oversupply is a fictitious concern; if private developers can not make a profit they will not build. The decline in apartment prices over the last several years demonstrates that increasing supply does work, and puts pressure on developer margins rather than increasing profits. Developers profit from a tight market. Of course, this is difficult these days due to environmental concerns, congestion, and the “I’ve got mine Jack” chardonnay socialist crowd (who are generally more concerned with the value of their often multiple property holdings). Which leads to…

2. At the federal level, labour should consider abandoning the “big Australia” idea and decreasing immigration intake back to pre-2006 levels. Population growth has been running well above trend since Howard quietly doubled skilled migrant intake. This benefits big business, property developers, and land speculators, but puts pressure on infrastructure and housing, which are struggling to expand at the rate required. We can maintain our refugee intake and a more moderate rate of skilled migrant intake; no need to shut the gates completely.

devils_advocate 9:55 am 24 Jun 16

Some simple ways of making housing affordable:
1) Stop the current “government’s” practice of BOTH charging stamp duty AND raising land rates. This creates needless barriers to buying.
2) Stop trying to charge apartment dwellers comparable rates to detached housing owners. They are not the same product, and don’t impose the same cost on the budget. If you want affordable housing, apartments are a sensible starting point.
3) if it is necessary for the government to maintain a stock of public housing, it should go only to people in need. People should not be permitted to remain in public housing when they no longer need that level of support.
4) Revert to the pre-2000’s model of land release, where blocks of land were seen as facilitating a place to live, not a money-making exercise. Re-establish a land development agency that sells blocks at reasonable prices.
5) Remove the punitive lease variation charges that restrict developers from achieving sensible urban infill opportunities.

In summary, reverse the multitude of absolutely terrible policies implemented by the current ‘government’.

reddy84 8:52 am 24 Jun 16

As long as the LDA is given the direction to make as much money as possible from land sales for the ACT Government then housing in Canberra will never be affordable. There is a perverse incentive to avoid making housing affordable in the ACT and it seems to be the government is trying to lay that burden on developers despite themselves being the problem. In the end we are stuck with developers building high rise apartments as its the only way for them to get a return on their investment after paying a ridiculously high price for land.

There is a problem with housing diversity in the ACT. We need more townhouses/semi detached homes, less single detached and less apartment buildings.

I found Barr’s criticism of the CSIRO land release amusing. He commented that he would never have sold it for residential purposes but im sure he would have given the opportunity. He is upset as a sudden release of land from a non ACT government entity will ruin the LDA’s plan for trickling out land to keep the price at a premium.

Investors are also a problem as they buy in areas that will attract higher rental income. There needs to be a cap or a policy to disincentivise high numbers of investment properties. The whole issue has become a debacle.

rommeldog56 8:42 am 24 Jun 16

Fully agree with the general concerns in this opinion piece about the housing affordability issue – particularly in Canberra – and how that affects disadvantages such as the disabled, low income earners and lower $ level self funded retirees in Canberra.

But lets not just focus on the big, bad banks. If we look at housing affordability as including rental and purchase, I hardly think that the ACT Labor/Greens Gov’t is “ahead of the game” as claimed on the OP. Anything the ACT Labor/Greens Gov’t is doing re housing affordability is in my view, totally denuded by :

Increase in Annual Rates on Units by 17-20%.

Avg. 10% increase in residential Annual Rates each year, forever (just ignore the halving of that in this election year !).

Drip feeding of land releases onto the market so creating the artificially extremely high cost of land for new builds.

That land tax thing whereby the ACT Govt charges landlords a motza if they rent out a unit/townhouse/house.

ACT Labor/Greens Gov’t said that the reduction in Stamp Duty on purchase of a house/unit and tripling of Annual Rates would be revenue neutral. They refused to release the costings in support of that claim. The ACT budget revenues prove that to be a false claim.

I heard a while back (from Chief Minister I recall) that the ACT Labor/Greens Govt said that Stamp Duties on purchase of a property in Canberra would actually not reduce to zero – despite tripling of Annual Rates. That such Stamp Duty would be capped at $10K instead ? Though I’ll stand corrected on that.

So, housing affordability is a complex issue. All the above costs are built into new property costs and/or reflected in higher rents. Anything the ACT Labor/Greens Gov’t says it is doing to address housing affordability is not addressing what I see as the root problem – ACT Gov’t charges, supply and demand.

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