Australia needs to build roughly one million new social homes and affordable rentals by 2036, according to a recent report by UNSW’s City Futures Research Centre.
Commissioned by the Community Housing Industry Association NSW and Homelessness NSW, the report found that Australia needs to build 728,600 new social housing properties and supply 295,200 affordable rental properties by 2036 to meet the current backlog of housing demand and satisfy projected unmet need.
The researchers based their estimates on current homelessness population figures and an assessment of households currently paying over 30% of their income on rent, which is widely regarded as the level at which renters begin to experience “rental stress“.
They calculated that only 46% of households in need of social housing are currently receiving it, with the current social housing construction rate sitting at little over 3,000 dwellings a year.
Perhaps unsurprisingly, the report found that Greater Sydney had the highest unmet demand for social and affordable housing. According to researchers, it needs to build 217,000 of these properties by 2036 to meet this need. Picture: Jamie Davies/Unsplash
Why governments prefer indirect funding
Despite the significant shortfall, Laurence Troy – one of the report’s lead researchers – believes the report’s target can be met, as long as the federal and state governments can muster up enough political will. However, he concedes that recent history suggests this is unlikely.
“Instead of actually building housing, [successive governments] have preferred to provide income support to low-income households so that they can just go out to the market and find their own housing,” Troy tells realestate.com.au.
“That’s been the dominant policy mindset for a long period of time.”
Kate Raynor, a post-doctoral researcher working on the University of Melbourne’s Transforming Housing Project, agrees.
She says governments prefer these indirect funding models, which generally involve offering large subsidies to developers, for two reasons.
Firstly, they allow governments to immediately claim that they are making progress on an issue while kicking most of the costs down the road. Not only does this boost a government’s cash flow, it enables them to manipulate the budget for maximal electoral success.
Secondly, they align well with the political establishment’s commitment to neoliberal economic principles – namely that the market is the most efficient means of delivering housing and other social goods.
“But the research is showing us that’s not the case,” said Raynor.
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Why direct funding is more efficient
While indirectly funding social housing projects rather than paying upfront to build new social housing may be good for a government’s cash flow, it costs taxpayers billions of dollars more in the long run.
According to the City Futures Research Centre report, the government could meet the projected need for 728,600 new social housing properties by 2036 at a cost of $5.3 billion a year if it funded the scheme directly and paid the development costs upfront.
However, if it chose to fund the scheme through an operating subsidy model, as is currently preferred, it would cost them $700 million more every year. This is because subsidy models involve leveraging private-sector finance, which presents added costs.
The same story plays out with the affordable rental property target, too. Modelling done by the research centre shows the government could meet the target of 295,000 new affordable rental properties by 2036 at a cost of $3.3 billion a year if it paid for the development costs upfront – and that these costs would rise to $3.9 billion a year if it chose to fund the scheme through an operating subsidy model.
To put those figures into perspective, the current government effectively spends $11.8 billion a year on negative gearing and capital gains tax subsidies, which is $3.2 billion a year more than the study says the government would need to spend to meet the projected unmet need for social and affordable housing.
Bill Shorten, ALP National Conference
Housing affordability will be a key issue at the federal election. Picture: Getty
Social housing in the federal election
Since the mid-1990s, both political parties have preferred to provide subsidies to external housing developers rather than build the housing themselves – and recent election promises suggest that’s unlikely to change, whatever the country decides at the ballot box.
The Australian Labor Party announced in December that it would offer a subsidy of $8500 a year to institutional investors who build new houses and lease them out for 20% below market rent.
Bill Shorten says the scheme would build a total of 250,000 new houses over the decade to 2028-2029, at a cost of $6.6 billion – and that this would help “the hundreds of thousands of our fellow Australians who can’t afford to live anywhere near where they work”.
But given a 20% discount on the median weekly rent in Australia equates to just over $4800 a year, well below the $8500 subsidy, many economists labelled the scheme as inefficient.
Meanwhile, recognising the need for a national strategy on homelessness, the Coalition government established the $1 billion National Housing Finance and Investment Corporation in July 2018.
But rather than provide direct funding, the scheme simply offers low-interest and longer-term loans to registered community housing providers, which Troy says is a more costly approach.
“In the UK, we’re now starting to see a return to earlier phases of housing provision, where councils are basically building new stock – that’s where the debate has shifted to there,” he says, in reference to recent reports that the UK treasury had abandoned certain public-private partnership models. This came after the number of new homes built for social rent in the UK had fallen by almost four-fifths in a decade.
“We’re not quite there yet, but I hope that we will start to go down that pathway again, because this private model is not working.
“The problem is getting worse, and there’s no prospect that that’s going to change in the future.”