Around the world, housing authorities and government treasury/ finance/ taxation/income revenue and planning and infrastructure departments are struggling to find the ways and means of making housing more affordable without increasing national and state debt and deficits.
Australia is not immune to these issues, with Sydney identified as one of the most expensive cities in the world to purchase a house, with average prices exceeding $1 million in the 2016/ 2017 financial year.
Luxury housing tax, levied on new high-end residential properties and rentals, designed to feed a self sustaining fund dedicated to develop truly affordable units (either within new developments or in other locations around the city or jurisdiction is becoming more common. These taxation models can be equated to offset planting policies and practices in the management of the environment for major infrastructure and resource projects – i.e. we will approve you to do this action, but you need to do this in another part of the jurisdiction. Data management is critical to managing these luxury tax imposts.
Some Australian jurisdictions (Victoria, Queensland, and New South Wales) have introduced foreign investor tax increases to help slow down market forces, though it is debatable whether true housing affordability will result. The federal government is considering introduction of a broad pre-approval to purchase one new dwelling or vacant residential block. Others still consider stopping or limiting immigrations that will result in more affordable housing becoming available.
Data management is critical to state governments placing an extra tax on foreign ownership of residential dwellings. Using the same technology arrangements, state governments have the capacity to impose a taxation impost on owners of multiple properties in their jurisdictions to help reduce the acquisition by investor model of home ownership. This, in theory will assist in keeping housing prices down. Conversely, direct foreign investment in aged care, retirement villages and student accommodation is (arguably) required to deliver more affordable housing in these markets. As stand-alone policy positions, or used in combination, these and other monetary and immigration methodologies are being implemented around the world to help redress housing affordability matters.
Some argue that housing unaffordability is the result of urban planning practices around the world. This argument is (partially) based on the notion that restrictive sub-division and residential density provisions, with limited flexibility, are creating a (lack of) housing supply in many cities and towns. Restrictive infrastructure development policies, infrastructure charging regimes and regressive taxation regimes such as stamp duty on sale/purchase activities of housing can exacerbate housing unaffordability for many.
The common theme here is silo(ism) - each of these issues are the responsibility of different levels of government, and where a combination of actions in one jurisdiction may result in housing affordability being improved, the same combination of actions may result in housing becoming more unaffordable in another jurisdiction. Whole of system political and technical debate is not occurring.
So how do governments (and independent authorities such as central banks) at all levels better manage their monetary, fiscal and planning practices to help deliver affordable housing?
Alongside quality community development actions, government and private sector entities involved in delivering housing stock need to use data and analytics to help understand potential outcomes that result from taking specific policy and practical actions. The ability to share data between government agencies, and with the private sector, will help cities become more resilient and develop strategies that drive integrated whole of system responses (urban planning, monetary and fiscal policy) to housing affordability.
Artificial intelligence, driverless cars, the sharing economy (housing and mobility) and climate change are disrupting urban design and planning regimes in cities. For example, population growth, street usage, and land and infrastructure development is being influenced by information obtained from citizens' smartphones and networked digital devices analysed by artificial intelligence software. The rise and prominence of the accommodation sharing platforms such as AirBnB are recognized as having impacts on the short-term rental markets. The data owned and distributed by technology companies is being used to identify and/or create urban patterns and systems rather than predict and manage them. For example:
- As parking becomes less of a demand there will be a lot of reclaimed space. Sprawling bitumen car parks could be replaced with high-value residential/commercial/mixed-use developments and/or public spaces.
- The sharing economy is playing a big role in driving agritourism, with urban planning changes allowing farmers to promote accommodation for added (secondary dwelling) development, improving farming viability and improving employment opportunities in (sometimes) distressed communities.
- Secondary dwelling developments can be problematic in many jurisdictions in Australia, particularly where planning regimes do not necessarily easily support multi-family household developments in urban and rural settings. Secondary dwelling development can occur at much more affordable cost structures than traditional multiple dwelling and detached dwelling developments. Using real-time data more effectively can assist in understanding the actual demand for such opportunities, with commensurate policy setting adjustments.
Creative problem solving by regulators and developers is needed to help with complicated questions around urban population growth, sustainability, resilience, and how cities influence issues of housing affordability, environmental protection, economic development and social justice. An example of creativity and technology intersecting is found in the UK government funded Future Cities Catapult. An organisation dedicated to exploring solutions to urban issues, it has uncovered a wealth of digital innovations that could lead toward a more data-driven planning system, making proposals more transparent and outcomes more certain for all parties involved.
The City of Manchester has developed an interactive online map to inform potential development sites across the whole city. The Greater Manchester Open Data Infrastructure Map aggregates everything from water and transport networks to property prices and brownfield land. This provides an overview of the city’s physical, social, and green infrastructure. An additional map shows proposed development plots, compiling those allocated by the council with sites suggested by residents and developers.
London start-up Urban Intelligence has turned its attention to how the volumes of different planning policies can regulate any particular site can be made more intelligible, bringing the contents of disparate policy documents together in one place. Their interactive platform, named Howard, collates and digitises national and neighbourhood policies, will allow subscribers to click on a place on the map and see everything relevant in one go. This site appears to be a policy library/database and GIS focused service.
These systems appear to be fundamentally more powerful than the current suite of PD-Online systems currently in use by local government authorities throughout Australia. Perhaps there is the opportunity for local governments to explore these new technologies more closely to make the planning process more efficient and use the data gathered by other technology companies to truly understand real-time demand and supply issues in housing (both permanent and temporary).
Any attempt to improve affordability must be multifaceted – working on both demand and supply. On the demand side, the obvious initiatives include reducing inequitable incentives to investors, such as negative gearing and capital gains tax concessions, and restrictions on foreign demand, reduction or scrapping of stamp duty concessions, accelerated government-owned land releases, and introduction of broad-based land tax regimes. Other actions include reducing construction costs by reductions in the myriad infrastructure charges, planning and building fees and other taxes, as well as a simpler, faster approval processes. Former Liberal opposition leader John Hewson suggests:
- Governments can assist with finance by backing income-dependent housing loans through "guarantees" for various targeted housing projects, and other "top up" initiatives.
- Federal and state governments could launch a national housing trust to build more affordable houses sold – in part or in whole – in co-operation with the banks and other financiers to certain qualifying families, or rented as part of public housing programs. Funding could occur through designated housing bonds.
Federal Government Treasurer Scott Morrison is reported to be preparing a housing package for the May 2017 budget, including the establishment of the Affordable Housing Implementation taskforce to develop an affordable housing bond aggregator model that would provide a long-term funding source of up to 20 years. The model will allow for securitisation of debt for CAPEX and OPEX of housing for lower income households through pooling of different community housing schemes.
Another model for consideration should be the Community Land Trust (CLT) as practiced in the UK. Currently there are approximately 225 groups, with 700 homes built to date and a further 3,000 in the pipeline to be completed by 2020 in the UK. A CLT puts the housing in community ownership, with homes sold or rented at a rate linked to local wages and membership open to anyone with a connection to the area. It’s a model that effectively takes housing out of the property market and pegs it to the labour market instead.
When the property owner seeks to sell, the property’s sale price is pegged to local earnings, foregoing the potential windfall of the full commercial market. According to Catherine Harrington, director of the (UK) National Community Land Trust Network, CLTs are “about changing the narrative of housing: building homes rather than investment units; having security and stability in a particular place, rather than being forced to move every six months; and mobilising popular support for development.” CLTs are common in the United States also, though using slightly different models of financing and operation.
In Victoria and New South Wales, changes to rental laws to enable residential leases of 10 years or more could help drive institutional investment into housing. Drawing on the experience of this model in the global markets and the United States in particular, the model will provide for long-term accommodation security for those who cannot afford to purchase a residential property or who chose not to purchase but do not want the issues that result from the tradition six or twelve month lease cycles
More broadly, simplifying the planning process, driving increased density provisions (concurrently reducing vexatious NIMBYism driven public submissions), increasing transparency in planning decision making, and providing opportunity for more certainty at lower costs will assist with affordability. Analysis of the effects of the new planning law in Queensland on housing affordability in two or three years will help government, policy makers and developers ascertain if the “simplifying system” actually yields positive results in this area.
At the federal level, interest rates, negative gearing regimes (NG), capital gains tax (CGT), fringe benefits tax (FBT) amongst a multitude of other macro-economic actions are the purview of the federal government and the Reserve Bank of Australia. NG, CGT and FBT are highly valued by the housing investment community. Many experts argue that it is the interaction between the CGT discount and NG that encourages and rewards speculative property investment, therefore driving up house process. Chris Cuffe, chair of UniSuper, states that the federal government should remove the CGT discount regime.
Proposed CGT changes are finding strong resistance within the Liberal – National party federal government. The Australian Labor Party opposition has highlighted a 27 per cent increase in housing investor finance over the past 12 months while the proportion of first-home buyers fell; arguing this data shows the government is on the wrong side of the argument. Our political discourse at present is not providing a balanced conversation on the issues and opportunities to redress housing unaffordability. Partisan politics is overtaking sensible discussion. This partisanship is not likely to change in the near future.
The ability to implement more nuanced fiscal and monetary policies that slow the housing price increases in Sydney and Melbourne, while being neutral or positive outcomes for other jurisdictions will potentially assist the broader Australian housing affordability situation.