AFFORDABLE HOUSING IN SHORT SUPPLY, AS ARE SOLUTIONS

After many years earmarked as a social issue, housing affordability has finally hit the mainstream over the last two years of the pandemic. And nowhere is it more acute than here in the Illawarra where it has become front of mind for businesses struggling to attract staff in a tight labour market.

Vacancy rates for rental properties are well below one per cent across the region – the lowest in over a decade. The limited vacancies that come to market are fiercely contested, which has resulted in average rental price increases of over 14.7 per cent for houses and 11.2 per cent for units in the last twelve months across the Wollongong region .

The story does not get any better for those buying their first home, moving from somewhere else to take up a new job, or upsizing to work remotely from a more spacious abode.

House and unit prices have increased significantly over the last several years and are at record highs also – median property price increases as high as 35 percent have been recorded in some local suburbs. 

These dramatic rental and property price increases are good news for individuals that own existing assets. But these unsustainable increases are bad news for the community and are now hurting businesses that are trying to maintain or increase their activities and contribute to broader economic growth. These issues will become more acute as we seek to welcome back migrants and international students to our region. 

The business community generally puts its faith in the market, but it is now clear that our property market is, at best, inefficient and, at worst, failing due to a few key factors. 

First is the vested interest of homeowners in rising property prices - residential property investment forms the principal nest egg for so many Australians. No government in our lifetime will be so self-destructive as to undermine this, and few electoral incentives exist to grow the base of low-cost housing. 

The second is dead hand of regulation, where three levels of government play a role in making the cost of constructing a new dwelling in Australia among the highest in the world. This limits supply of greenfield land and pushes up the cost of servicing it, and development is obscenely expensive and time-consuming. 

Recognising that housing affordability has become a mainstream concern, both our state and federal governments are conducting housing affordability inquiries and their findings and recommendations will be key topics in respective upcoming elections – nationally by May 21 this year and in March 2023 for our state election.

But what feasible interventions could address this dilemma?

In keeping with the great Australian dream of home ownership, governments may be best placed supporting enablement programs that allow workers to ultimately own or at least build equity in a home. 

There are examples of innovative lower cost home ownership programs operating overseas and within Australia, with the property assets being procured both publicly and privately. 

Singapore, for example, has a program where dwellings owned by its Housing Development Board are made available for eligible working citizens to make small regular payments like rent but partially building equity in the asset.

Here in Australia our banks are starting to support similar privately operated programs that allow customers to do the same – getting potential buyers out of perpetual renting by adopting a model like ‘buy now, pay later’, which removes the need for unaffordable deposit and stamp duty payments.

Financing aside, other nations successfully provide affordable housing by removing regulatory impediments. 

In Japan, all policy levers related to housing are at a national level, where decisions can be made more objectively and all relevant building codes, zoning regulations, and responsibility for land release resides within the same level of government. For anyone who has witnessed the argy bargy between local and state government on these issues, this concept presents as refreshing.

At the other end of the spectrum, Germany’s enviable record of housing price stability is due to a rate of homebuilding that keeps pace with market demand. This is achieved by incentivising communities to maximise population density, funnelling greater investment in civic assets like parks, schools and streetscapes. In addition, local authorities are required to approve proposals that meet a standard set of requirements and cannot simply refuse complying developments. 

These kinds of measures would require a huge revision of our national mindset – for us to suppress our natural urge to say ‘not in my back yard’ when a single-story home is knocked down next door and a block of flats is proposed in its place.

Just as workers need a helping hand to get into and stay in the workforce through skills development they also need a helping hand to get into and stay in the housing market through the provision of affordable ownership, not just rental pathways.

Business Illawarra doesn’t have all the answers to these complex issues at this time, but we are developing research to establish what affordable home ownership models may be feasible and best suited to our region.