Australia's housing crisis needs political leadership: what gets in the way?

We've had a sniff of debate in recent weeks about negative gearing and what its abolition could mean to government revenue and housing affordability. Yet at election times, writes Terry Burke, housing problems get no political traction.

This article was published by the Victorian Council of Social Service (VCOSS) in the Victorian state election edition (November 2014) of its Insight magazine. Professor Burke's insights and analysis on complex systems, vested interests and policy capture go beyond Victoria, particularly with the Federal Government's tax white paper due to be released on 30 March.

Professor Burke asks: what has gone wrong in housing policy and why is there no political commitment to strong reform?

Thanks to VCOSS for permission to re-publish.

Terry Burke writes:

Most of us would probably accept that the housing situation for many Victorians, and indeed Australians, is in a worse shape than it has been for many decades.

The rate of home ownership for young households in Australia is in decline, having fallen from 61 per cent in 1981 to 48 per cent in 2011 for 25-34 year-olds, and from 74 per cent to 65 per cent for 35-44 year-olds.

This is largely related to a major affordability problem, with the median house price in Victoria in 2014 almost eight times male average earnings. This is compared with three times average male earnings in 1981.

The social housing sector, our historical safety net for low-income households, is withering away, with Victoria having the smallest state percentage (3.4 per cent) of a national stock that has been falling since the mid-1990s. With a growing need for social housing in relation to such low stock levels, the social housing sector can no longer play its safety net role.

The extent of homelessness is increasing and widening to encompass families. In Victoria there is an estimated statewide shortage of 40,000 affordable private rental dwellings, as well as the re-emergence of slum landlords, which we now call the ‘marginal rental sector’, and which takes us back to the 1930s. And more and more households are destined to be permanent renters (in 2011, one third of all private renters were considered permanent renters), with little security of occupancy.

On top of all this, new residential development on the urban fringe is being pushed out to areas beyond access to public transport and distant from labour markets. Yet at election times, housing problems get no political traction. What has gone wrong and why is there no political commitment to strong reform?

Like all policy stories, this is one that cannot be distilled down to a few simple reasons. Complexity always rears its head in any policy debate and this is perhaps even truer of housing reform.

The first thing we have to understand is that despite the housing problems, many, mostly affluent households, are doing very nicely out of the current inefficient and inequitable system. One household’s affordability problem is another’s wealth building solution!

The more house prices and rents rise, the better off existing home owners and investors are. And what politician is going to risk confronting the wrath of home owners and investors in the interests of greater affordability?

Another group doing quite nicely out of the current policy context is the development industry, which, for the governments of the day, represent the cranes on the skyline that give visual imagery and reality to a growing economy. Never mind that some of the construction is of poor quality, and of a form (bedsits and very small one and two bedroom apartments) that represents a long term housing problem, given the longevity of bricks and mortar!

“What politician is going to risk confronting the wrath of home owners and investors in the interests of greater affordability?”

It is also relevant in any explanation of our political housing inaction to explore the concept of ‘policy capture’. This is the situation whereby dominant groups have undue influence on the political and policy process through their ability to lobby (and potentially fund) politicians; and, as part of this lobbying, to provide distorted information to influence policy directions in a way that benefits them.

The fact that evidence to support these claims is flimsy, or that two decades of deregulatory planning reform has had little effect on the affordability problem, is ignored by politicians or central agencies such as government treasuries and finance departments. These departments place little value on social good, instead demanding a commercial return from government agencies, including those with housing roles, such as Places Victoria. Along with a resistance to inclusionary zoning, this focus impedes the development of effective affordable housing programs of the type seen in many other developed countries.

Much of Australia’s affordability problem has been framed by the development industry as being the result of a shortage of land on the urban fringe, and an interventionist planning system with excessive and costly red tape.

Also now part of the ‘policy capture’ environment in a way which they were not previously, is the role of think tanks and large consultancy firms. In earlier decades governments were as likely to be influenced by the research of universities or peak associations such as VCOSS as by these groups, but now think tanks and consultancy firms have become more dominant in the sphere.

Conservative and well-funded think tanks, such as the Institute for Public Affairs (IPA), have become closely linked with governments receptive to their anti-interventionist and consumer choice mantras.

Big consulting firms have become the first choice of governments seeking advice on issues. They are attracted to them not necessarily because of the quality of the research, but because these consultancy firms give them what they want. What large consultancy firm is going to risk future work by offering research and policy advice that runs counter to a government’s values and directions?

And these firms know what governments want, with only minor differences between the parties in  Australia. Governments want policies that are about choice, commercialisation, privatisation, user pays, market testing, performance management and accountability. Words that any policy reform can be wrapped around to give political legitimacy, but which often really mean lowest cost, continuing reward for vested interests, and greater hardship for those less well-off. How many of us could point to all the management and organisational reforms around public housing in the last two decades and say it is now a much better system as a result of all this reform? I suspect very few.

Then there is the problem of housing ministers themselves. They are the people we should be looking to for leadership out of our housing mess, but at the moment we look in vain.

“Much of Australia’s affordability problem has been framed by the development industry as being the result of a shortage of land on the urban fringe, and an interventionist planning system with excessive and costly red tape.”

The major reason, through no fault of their own, is that they have been, and will continue to be, emasculated by governments, of which they are part, now seeing their big policy agenda as being to keep budget costs down, because even the slightest deficit will be transformed into a ‘budget crisis’ by the political opposition, the media and vested interest think tanks.

Thus a housing minister comes into an area where the essential problem is a lack of capital spending for affordable housing, but cannot even talk about capital spending. Any zeal for reform is then turned back into narrow organisational and management restructuring of social housing, such as a more targeted allocation system, or a new public housing rent-setting regime, or a new regulatory environment for community housing associations. All of which are essentially irrelevant to the Victorian housing crisis, which is one of a severe lack of affordable and secure housing.

Compounding the ministerial leadership problem is that housing is now a subset of the Department of Human Services (DHS), making it one component in a policy environment concerned with a diverse range of issues. Buried in DHS, housing is seen as being about exit points for complex clients, not about the failures of the wider housing system.

Overlaying all of this is the problem of Australia having a federal system of government, where the federal government holds the purse strings and where there is too much buck-passing between levels of government.

At the federal level the purse is certainly not empty. Whether it is through tax breaks or expenditures, the direct and indirect policy outlays on housing in Australia are enormous, running into tens of billions of dollars. It is just that these policies, including negative gearing, capital gains tax exemptions and first home owners grants, are so poorly targeted and poorly designed that they have become part of the housing problem, rather than providing solutions.

Thus, even if Victoria had the will and desire to introduce major housing reforms, it would be severely constrained in doing so.

And because of the policy capture and vested interest problem, federal governments appear to have little interest in changing the policy levers, no matter how badly these policies are performing in terms of our housing crisis.

So do we give up? In the short term the situation is bleak. In the longer term problems create their own solutions. In the last year or so there has been much international attention on the problems of growing inequality and on the part that economic and management reforms over the last three decades have played in shaping that inequality.

Our lack of affordable housing can be seen as Australia’s symbol of that inequality. The British housing academic David Donnison observed in the 1970s that “Australians are among the best housed people in the world and they are perhaps the most equally housed”.

Visiting Australia today he would be unlikely to make that claim. The opportunities for wealth building through home ownership is ending for low-to-moderate-income households, rising private rental costs are reducing people’s capacity to save deposits or secure a stable alternative tenure, and the availability of social housing has now been marginalised to a point of irrelevance. Our cities, Melbourne in particular, are being polarised into wealthy well-serviced inner and middle ring suburbs and lower income, poorly transport serviced, and amenity deficient outer areas. This is a long term problem in the making.

Collectively we need to seize on the inequality debate and use it as a lever for shifting the housing agenda. This is the moment to ask politicians whether this is the sort of housing environment Australia wants, not just for equity reasons, but because of the growing evidence that inequities can affect long term economic productivity and social cohesion.

We need to shift the thrust of lobbying away from housing ministers, to prime ministers, premiers and treasurers, who have the real power and policy capacity to drive change. We need to shift the debate away from being just around social housing management reform, to encompass broader housing system reform. And we need to shift our old understandings to new ones, realising that private rental (not ownership), is the future for many households and that we need to reshape the rental system into one that offers secure occupancy and affordability for low income earners.

We should stop importing policies from countries that provide poor benchmarks of housing performance, such as the USA, and instead begin looking to places like Denmark, Sweden and Germany, or to Asian Countries such as Malaysia, Korea and China, which are rediscovering the importance of affordable housing and broader housing market interventions.

And finally we need to be more effective in how we lobby, to counter the current asymmetry of information and policy provision that exists. There is no national shortage of public money for good housing outcomes. We just need to be able to argue, and evidence the need, for better use of that money.

In the 1930s the outlook for any Australian interested in a fair and efficient housing system and a vital urban form would have been even more depressed than for many of us today. But out of the problems of that decade and of World War II emerged a new and positive housing program that served Australia very well for about 40 years. Hopefully our current problems will produce a similar housing program response and sweep aside some of the entrenched interests now opposed to better housing outcomes.

Terry Burke is Professor of Housing Studies at Swinburne University of Technology.