Disrupting the Traditional Multi-Unit Housing Delivery Model 4

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Tuesday, November 10th, 2015
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The trend toward densification of cities is here to stay.

It makes sense as populations grow and the utilisation of expensive public infrastructure demands that those wanting to be near jobs and their social networks are required to make changes to traditional suburban life. But is the cost and nature of multi-unit meeting what Australian households want or can afford?

It’s time to consider new ways that future multi-unit supply may be enabled – ways that challenge the current developer delivery model to either do better or give way to alternate providers who will better meet the public’s needs.

The practicalities of pushing the new urban fringe further afield are being tested as green field land in suitable locations is balanced by the demand and viability of this new stock. It is not the end of traditional detached and attached housing, but those with deep interests in this market are sufficiently concerned that they are now taking future sub 100,000 new detached housing starts seriously. The HIA anticipates that the peak level of combined detached and multi-unit commencements of 210,000 in 2014/15 will retrace to approximately 175,000 combined starts in 2017/18. Data points to multi-unit progressively making up half of the new housing landscape. The traditional developer model dominates.

Governments have been complicit in driving the cost of new multi-unit projects to new levels. Most governments have inherited financial states of affairs that have necessitated the wholesale selling of the state’s silver to balance budgets and fund pressing deficits in new infrastructure, asset maintenance and services. They have been driven to capitulate to the demands of an insatiable multi-unit development industry that presses for higher density and urban landscapes that are becoming alien to Australian life. The multi-unit skyscrapers now redefining city skylines are changing the way people on the ground experience their neighbourhoods. More importantly, the retail prices of urban multi-unit are rising beyond the reach of many. Ten thousand dollars plus per square metre is the benchmark.

But is a 60 square metre apartment for $600,000 the answer for future urban living?

Most developers see the cost of new multi-unit simply moderated by smaller and smaller unit typographies and more density. Almost anyone can be a multi-unit developer. There are few consequences for some of the poor quality multi-unit stock now hitting the market. Designers have also taken the opportunity to weigh in with highbrow architecture that flourishes in the new pick-me economy with little interest in the practicality or cost of future ownership and maintenance. Most designers get to do the concepts for new apartment developments as wild developer promises are made about a commitment to good place making and housing affordability. Increasingly, many newly consented approvals will never be built. They are not viable, as consent authorities become disenchanted over the community flak they have taken, often to no avail. Where are the cranes, they say?

Governments have become wedded to the economic stimulus of a buoyant housing industry as they flounder to repurpose the nations economy that, until recently, has lacked leadership and a narrative about what the future may hold. But that stimulus is now on tenterhooks. The stimulus is also very expensive as it drives up the level of owner mortgages while the cost of negatively geared investment property attacks the budget. When the inevitable market correction occurs, the write-down of these investments is leveraged to minimise tax, or it simply shakes those households that are just holding in out of the market. All the while, stamp duty revenues flow irrespective of an up or down market.

Governments are also wedded to unimaginative asset sale and project formation models. They are risk-averse and they are transaction sensitive. The probity industry has a lot to answer for as well. They have so blocked up the bowels of government that their ability to reimagine alternative housing delivery models is constrained by the scars from traditional developer experiences. Surplus site asset sales are driven by a lottery where the highest perceived value can only be created by a tender process that tests new price levels. This condition is the language of a property advisory and real estate industry that feeds off clipping the ticket for each transaction with no other motivation than “get it while you can.”

The traditional developer models also define how local governments transact strategic land holdings in their communities. They define the transactional models that underpin the concepts of urban renewal and reshaping old public and private housing estates to increase density. The result is that considerable value leakage occurs to traditional developers who want it all their way. It seems to be a good time to stand back and look at the options. Some of these include:

  • Re-imagining the potential of adapting the traditional project housing industry business model and product to multi-unit
  • Considering the potential of smaller scaled multi-unit in the secondary neighbourhood corridors, served by less intense transport, but nonetheless benefited by important smaller-scaled neighbourhood centres and amenities
  • Evaluating the growing potential of the not-for-profit sector to expand its supply footprint into the mainstream multi-unit marketplace
  • Exploring new housing formation innovations that could emerge from the new collaborative economy by facilitating the first demonstration projects
  • Becoming serious about the potential of larger-scale residential rental investment organisations similar to those in the United States who play a profitable but important role in delivering efficient, well-managed and tenure stable multi-unit across the for-profit and not-for-profit housing sectors

In all of these scenarios, governments will need to become more hands-on and outcome-focused. Governments exercise the most potential to achieve more for less because they control the key assets that could be better deployed to facilitate alternate delivery models.

There is a lot of discussion about the potential for older households to start freeing up the existing urban housing footprint to contribute to new housing supplies. This stock is ripe for recycling; much is over 40 years old and underutilised. And even if only 10 per cent of the existing 9.5 million dwellings in Australia were suitable for smaller scale multi-unit redevelopment, then a yield of at least four times that number of dwellings could be brought into play. The main barrier to this is that swapping out of these homes and neighbourhoods is a zero sum game for households who looking for new, smaller multi-unit alternatives nearby.

Apart from the economics, here are a few other dissatisfactions constraining the move:

  • A lack of choice and personalisation
  • Developments are often poorly designed and lack empathy with their location
  • Smaller developers are associated with poor quality construction and defects
  • Developers are not owners and do not make choices owners may make
  • All development seems to disrupt the neighbourhood longer than necessary
  • Purchasers have to rush in to be first served on developments which are still on the drawing board, often waiting years until completion

These are not the conditions that will motivate existing home owners to trade down and free up important urban land with potential to be part of future supply. There are options to overcome some of these barriers, but government may need to tone down the noise from traditional developers and give other options some air time.

If the traditional detached housing industry is unable to embrace the new multi-unit housing future, then others who may should be encouraged. The not-for-profit housing sector has experience in multi-unit project formation, delivery and management. Community housing providers do not just operate in the social housing space; they are at the forefront of delivering housing for key workers such as nurses, teachers, police and other essential service members of the community. Community housing schemes are in effect the forerunners of the trends now emerging in the collaborative economy such as Uber, Airbnb and peer-to-peer lending.

There are many emerging disruptions happening across the economy as communities become disenchanted with existing institutions and a perceived lack of choice. The banks, insurance companies, energy utilities, education and health industries are all responding to disruptions to their business models they did not see coming 10 years ago. Governments have had to shift from standing in the trenches with laggard industrial bastions of the status quo, finally realising that they too have to move with the times and deliver a better deal to their electoral stakeholders. They march to a much more dynamic beat these days as new media and sharper ways of making them accountable take hold.

There is a case to consider alternative developer models in the multi-unit future. This is not an anti-capitalist rant. I am all for profit motivated business, but only when those businesses have recalibrated just like others to deliver a better deal to their customers first. Governments can help by recalibrating how they sell the silver.

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4
  1. Barry S

    A very timely call from Mr Chandler. Australia's urban environments are on the verge of radical change as a result of surging populations and densification, as well as the different lifestyle preferences of millenials now coming of age. Governments at all levels need to get up to speed in order to effectively manage this transition.

  2. Rosemary Kennedy

    Good call – traditional ‘development’ needs rethinking to benefit whole of society into the future that is coming toward us, rather than windfall gains to a few functional groups with short term aims. It is definitely time to find alternatives and to act to reduce the impact of speculative, poorly designed multi-unit buildings on urban liveability.

  3. Tom

    This is the most accurate assessment of the current situation that I have read…. ever. As one of the ageing mob, I and my partner have decided to stay right where we are and make improvements to this place to better suit our ageing than to run the gauntlet of new developments that don't provide anything like what we want or can afford anyway. There is a whole population of us out there that simply will not hear of being locked into Body Corporates and the like so any solutions need to look at more diverse ways of managing "densified" communities as well!

  4. Brett Skyring

    A very interesting article and commentary by others. Do governments really need to sell the silver to achieve balanced budgets and achieve affordable housing options to allow anyone who wishes to age in place.

    Government's have gotten themselves into a slight pickle with a blanket "no sale of assists" promise before elections. This means property that could comfortably and appropriately be sold on to others (including local governments) to develop to facilitate economic and residential stimulus cannot do so. A more nuanced proposition during the election would have been to define what asset classes would be quarantined from sales.

    Planning schemes that indicate support for multiple dwellings in specific zones/ domains and then create assessment processes that makes public submissions mandatory just add costs in time and money for developers, and risk. Lowest common denominator development is often the result as margins can be very tight when infrastructure fees are added to the equation.

    True planning reform that allows "family compound" environments on properties that can support such development has the potential address some of the issues noted in this article. David well done on raising the debate tone on this vital subject.