Australia has too few houses. 

Authorities like the Productivity Commission and the Grattan Institute report that, notwithstanding the building frenzy which the nation has seen over the past decade, Australia continues to compare unfavourably on dwellings per capita with the likes of Germany, France, Denmark and Japan[1].

One, unheralded, reason for this shortage is the virtual withdrawal of a major builder/investor from the housing system – the government.  Through the now defunct Commonwealth State Housing Agreement (CSHA) the public sector build around 15,000 dwellings per year from 1954 through to the mid-1980s.  Since 1986, government sponsored housing construction has fallen precipitously, interrupted only by a burst of building in 2009 and 2010 initiated as part of the Rudd Government’s Global Financial Crisis stimulus plan.  Over the past decade, public sector housing approvals have averaged around 3,100 per year (see chart below).

Dwelling approvals – public sector

Source:  ABS Building Approvals

The withdrawal of government from direct housing production was part of a wider ‘micro-economic reform’ process led by the Hawke Keating Labor governments (1983 – 1996) and carried forward by the Howard conservative governments (1996 – 2007).  Micro-economic reform was about re-invigorating competitive markets as an antidote to the slowing growth of Australian living standards evident towards the end of the 1970s and into the early 80s.  The reforms focused on deregulation, privatization and a general scaling back of government involvement in the economy in favour of allowing markets greater scope to meet household needs in a manner better aligned to their preferences.

Through the lens of micro-economic reform, government involvement in direct housing provision became highly questionable.  The theory was that lack of affordable housing was not a supply issue but an income problem.  Government needed to concentrate on fostering competitive housing supply markets as well as topping up the incomes of households dependent on welfare payments or low paid jobs and the bulk of the affordability challenge would be spontaneously resolved through commercial dynamics.  This would leave government with the job of mopping up a relatively small quantum of housing need through public housing provision.

In this way, social housing came to be seen as a welfare safety net.  This was a far cry from the vision which underpinned the original CSHA.  In the early post war period, social housing was considered essential infrastructure to support Australia’s social and economic development.  Government houses were built for workers in the nation’s then rapidly expanding manufacturing and logistics industries, as well as to support low income families who could not secure decent housing at an affordable rent in the private market.

These days, Commonwealth and State co-operation and co-investment in assisted housing is governed by a new compact – the National Housing and Homelessness Agreement (NHHA).  Following an instruction from the former Commonwealth Treasurer – Josh Frydenberg – in December 2021, the Productivity Commission released a comprehensive review of the NHHA in August 2022.  In its rather scathing critique of the current Agreement, the Commission doubled down on the micro-economic reform thesis which had supplanted the idea of social housing as infrastructure.  The Review reasserts that competitive markets could resolve the great bulk of Australia’s affordable housing woes if only they were given a chance and governments instituted better top up payments to low income households.

In particular, the Commission argues for radical deregulation of town planning controls so that the private sector can get on with building more housing, which, through vacancy chain effects, would ultimately benefit lower income people.

Implicitly, the CSHA approached social housing as an infrastructure investment because it delivered a range of external benefits for the wider community as well as help for particular households in need.  The mitigation of poverty amongst low income households would save the broader community health, justice and other social outlays, and provide stable homes for children and adults to pursue education, training and skills accumulation.  Social housing would also enable better local access to essential but modestly rewarded skills and services such as teachers, nurses, public transport and municipal workers, retail staff, hospitality employees, cleaners and the like.  Social housing provision would also make for better places and more resilient communities characterized by a social mix reflective of the wider nation.

From this infrastructure perspective, all towns and suburbs would require a base provision of social housing to ensure sustainable and functional communities.  For example, in the post war planning and development of Canberra, all suburbs were equipped with a stock of social housing, regardless of prospective status.

Around 15% of all Australian dwellings should be social housing if the full benefits of this infrastructure in poverty mitigation, better labour markets and stronger communities are to be realized.  This estimate is based on Census counts of homeless households plus rental households in the bottom 40% of the income distribution who are either paying more than a third of their income in housing costs, or would be were they not already in social housing.  This math indicates that Australia needs a fourfold increase in social housing stock, which currently stands at 3.6% of all dwellings.

The Productivity Commission’s review of the NHHA eschews any such estimation of social housing requirements across the country.  Its stance is that a well-functioning private sector housing supply system – liberated from burdensome planning controls – would largely fix the housing affordability problem.  The Commission is not suggesting that developers would step up to build low rent or affordably priced housing.  The rents and prices which could be borne by low income households would generally not cover the cost of production plus reasonable profits.  Rather, the Commission literally relies on ‘trickle down’ economics.  Higher income households vacating their current dwellings to avail themselves of newly constructed homes in their preferred locations would create upgrade opportunities for the next level of income constrained households who, in turn, would create vacancies for the next level down on the income scale and so on.  Eventually, opportunities would open up for those on very low income incomes, avoiding the need for governments to invest in housing for them.

Whether the Commission’s idea for radical planning deregulation is practical, acceptable to communities and effective in sparking a massive boost in housing supply is highly debatable.  But even if we assume it would create the required housing construction, trickle down vacancies would not generate opportunities where low and moderate income earners – and the general community – need them most.  This is across all suburbs and especially in neighbourhoods with good access to transport, employment and services.

The nation has now lived through more than three decades of housing assistance policy premised on trickle-down theory.  It clearly has not worked.  It is drawing a long bow to suggest that the success of this approach has been frustrated by wrong-headed planning controls.  All Australian jurisdictions apply strict tests on the introduction of new planning controls, including with reference to impacts on housing affordability.

Had Australia continued to build social housing at the average annual rate indicated in the 30 years till 1985, there would be more than 330,000 additional social housing units in service across the country today.  That is almost the same as the total existing social housing stock as counted in the 2021 Census.  The gamble conceived as part of the 1980s micro-economic reform process looked promising but has proven ruinously costly in terms of lost productivity and social cohesion.  It is time for a different approach.

[1] https://grattan.edu.au/wp-content/uploads/2021/09/HoR-Tax-Inquiry-into-Housing-Supply-September-2021.pdf
https://www.pc.gov.au/inquiries/completed/housing-homelessness/report/housing-homelessness.pdf

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