The Albanese Government’s recognition of housing supply and affordability as one of the greatest challenges confronting the nation has re-energised the debate around delivering the housing that Australia needs.

In recent days, we have seen both sides of NSW politics committing to a focus on housing supply and reform of the NSW planning system.  This has been a long time coming – but now it appears that everyone agrees that there needs to be greater State Government leadership in major rezoning assessments if we are to put a dent in the shortage in housing supply.

At the national level, the Housing Accord, whilst still being finalised, has served as a clarion call for action.

The Federal Treasurer, Dr Jim Chalmers, recently convened the first roundtable which brought together the CEOs of the banks, super funds to look at ways of boosting private investment in the housing sector.

The signs to date are positive – we saw HESTA, the super fund representing health workers, commit $240 million to affordable housing, then followed by Cbus’s announcement after the Treasurer’s roundtable that it would commit $500 million towards social and affordable housing.

Yet challenges remain – and they are largely centred on risk.

When you drill down into the complexities on investment and financing decisions around housing, the underlying equation is fairly simple – a fundamental balance between return and risk.

The head of Australia’s largest super fund, AustralianSuper, Paul Schroeder, recently pointed out the challenges of investing in affordable housing:

“Does it normally stack up? No, it doesn’t. Usually the risks are too high, and the returns are too low.  So that’s been the history of affordable housing. That’s why most people don’t do much of it.”

This belies the failed approach taken over the last six years here in NSW which has sought to demand a proportion of all new housing be affordable housing and simply gifted to CHPs through the local Council.  This has delivered close to zero new affordable housing stock.  The Commonwealth has realised that you need to offer a subsidy to make the finances stack up.

The consensus view among financiers, super funds and the housing development community is that the States’ planning systems represent the greatest risk.

The CEO of NAB, Ross McEwan, said as much in the aftermath of the Federal Treasurer’s first roundtable – pointing to state-based planning as one issue casting uncertainty over potential returns on offer from social and community housing:

“… returns from investment, including affordable housing, must be commensurate with both the risk taken and alternative opportunities available…”

As an interesting aside, when a private sector development industry representative calls for feasible development involving returns that match the associated planning risk, the economically illiterate scoff with indignation.  But now the super funds are saying exactly the same thing, the need for fundamental change to our slow, complicated and risky planning system is getting real scrutiny.  The good news here is that Federal Treasurer Jim Chalmers understands this and is taking real steps to make a difference.

But there is still a lot of work to do. The planning system here in NSW, recent positive moves to boost housing approvals notwithstanding, represents the biggest threat to the Albanese Government’s first budget announcement of 1 million new homes across Australia over the coming 5 years.

The Housing Accord commitment of 1 million new homes over the next 5 years

Let’s go through the maths behind the Housing Accord’s commitment to 1 million new homes over the next 5 years.  NSW has historically accounted for 32% of new homes.  That would mean that 320,000 of the extra 1 million homes would be expected to come to NSW.

That means NSW needs to deliver 64,000 new homes each year.

But the NSW Department of Planning is predicting on 45,200 per year, each year over the next 5 years (published in the NSW Housing Monitor, DPE, November 2022).

NSW DPE Housing Supply Monitor predict: 5 x 45,200 = 226,000

Commonwealth Accord commitment requires: 5 x 64,000 = 320,000

NSW is predicting to deliver 94,000 short of the number of new homes the Housing Accord anticipates for NSW over the next 5 years (2022-2028).  Despite the recent focus on improving approval pathways for high value high supply proposals, none of this will deliver actual housing supply completions of note until at least 2026 and beyond.

But it gets worse when you interrogate the actual performance data for NSW.

History of NSW new dwelling completions

The fact is that the current predictions from the NSW Government of 45,200 per year for the next 5 years is simply not enough and based on current approval rates, they will not happen. These numbers reflect the risks associated with planning in NSW.  Even with the higher completion numbers between 2015-2019, we still saw a housing supply crisis emerge in NSW.  Now we will have higher levels of immigration following a national consensus at the Jobs Summit.

The NSW Government needs to amend policies that stand in the way, or add time and costs, to the delivery of housing supply.  We need to target 70,000 completed dwelling each year if we are to make up for the lost years under the former Planning Minister Rob Stokes and deliver for population growth into the future.

Unless there is rapid and fundamental change to the culture and performance of the NSW planning system, the chances of Treasurer Jim Chalmers Housing Accord targets being met are very low.  At least Dominic Perrottet and Chris Minns are singing in harmony on this point now.

The super funds, banks and private investors have obligations to look after the financial interests of their members, clients and shareholders. This reality seems to have come as a revelation to far too many planners.

When it comes to investing in housing – the largest risk is the time taken for any development application to get an approval (often applicants need to go to Court to get Councils to comply with the law) and the loss of permissible yield or increased costs which often arise from conditions of consent.

Currently, there is too much risk – not just in gaining development approval, but in ensuring what is finally approved by the planning system stacks up financially.  It has been too easy for too long for lazy planners to simply appease local objectors by adding to the costs of new housing.  When interest rates were close to zero, this was not an immediate problem – but things have fundamentally changed.

Development is also being hit with counter-productive affordable housing contributions – which affect the feasibility of developments and hit new entrants to the housing market with the costs of addressing the negative externality of unaffordable housing prices.

So we have a situation where outcomes are unknown and time frames are uncertain.  In financial terms – this equals risk.

Right now, we see a planning system that is largely controlled by local Government – but this is belatedly changing now. Leaving planning decisions to underfunded, under resourced councils adds risks, time and overall uncertainty. Then we have the entrenched opposition of a significant number of councillors whose raison d’etre is to block or thwart additional housing. Small-minded councillors with manifest and demonstrable myopia will never support housing supply when the planning system makes it so easy to frustrate it and win local votes.

Commonwealth shows the way on Affordable Housing and it’s already delivering results

To solve the housing supply crisis and address affordability, we need to build on the recent consensus that housing supply is a national priority.  The NSW leaders are on-board.  The leadership at DPE is now pushing in the right direction – but there remains a solid core of resistance within the Department.

Right now, we have the Federal Government, the super funds, investment managers and community housing providers all willing to do more in this space and there is genuine momentum.

The 2022 Australian Homeless Monitor, has shown that there is a consensus among the charities and NGOs that the shortage in housing supply and the associated increases in rent are the greatest causes of homelessness in Australia.  This is the legacy of planning a failure during the long period of low interest rates which should have been used to boost housing supply.

The role of NHFIC, which offers AAA rated credit at low interest rates for affordable and social housing, and its bond aggregator presents tremendous opportunities to attract cheap government backed finance, to incentivise private investment dollars into affordable housing.

Just last week we saw how this can work – with NHFIC joining forces with giant investment manager AXA, along with St George Community Housing (and the builder – developer Deicorp) to deliver 350 homes for key workers near Westmead health precinct. With the demand for an affordable housing product for key workers, supported by the Commonwealth, there is a real chance for this to take off.

This is an important change.

Affordable Housing is supported by the Commonwealth offering a subsidy to the target renter (a defined set of key workers or those on low incomes etc).  This is the opposite approach to the failed approach adopted in NSW where all the burden is on the developer to eat into their revenue by handing over up to 10% (in some Council areas they are talking of 15%) of the apartments in a development.  This damages the feasibility of development proposals so badly that it results in many not proceeding.  One suspects that this was always the intent of those councils as many will use any opportunity to push back increased height, density or the presence of affordable housing in their communities.

Can State Planning Reform be achieved?

Developers have been facing the risk and uncertainty associated with the State planning system for years now. Now the super funds have “belled the cat”, it is dawning on the planners that their plans were fraught. It will be interesting to see what happens if the planning system does not change and continues to present too much risk for the likes of the large super funds.

Too many stakeholders have either been bamboozled by our planning regulations or have been tiptoeing around the elephant in the room when it comes to housing supply and affordability.

There are signs of promise emerging as the national embarrassment associated with housing supply failure are progressively drowning out the conscienceless NIMBY voices who have steadfastly opposed change.

The question is – will the Federal Government, along with the States, address “this elephant” if planning over-regulation and costs continue to disincentivise the unlocking of significant amounts of super and private capital needed to help address Australia’s housing supply crisis?

Merry Christmas to all the readers of Sourceable.


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