We need (much) more social housing in Australia

I don’t know what you’ve been up to this week, but I was looking for new stats. This time I have dug up a wonderful long-term dataset on housing occupancy from the ABS for you.

Our first chart is a nice lesson in how we read data. We are immediately drawn to the line falling sharply (homeowners without a mortgage) and the two lines that indicate growth among mortgage holders and tenants with private landlords.

We are now considering why these changes have happened and what they could mean. We’ll even look at the bottom line as an afterthought, which doesn’t seem to show much movement. This column is about that overlooked rule.

Tenants of social housing do not live there for free. Depending on individual circumstances, certain subsidies are provided, but social housing tenants generally pay below-market rent and are responsible for their own utilities.

We need (much) more social housing in Australia

Sometimes the rent is set at 25 percent of the household income, with the state paying the difference as a rent discount.

Let’s go back to our humble line. We see a decrease over the last 20 years from 5.8 percent in 1999/2000 to 2.9 percent in 2019/2020.

This drop could mean two things.

What a great nation we are! Option 1: As a wealthy nation, we have created so much wealth across the entire population that fewer people need subsidized social housing. Option 2: Despite being a wealthy country, we were brutally negligent in developing public housing.

You know which option to choose. You must have seen headlines or read reports showing that more than 150,000 households – or well over 430,000 people – are on the social housing waiting list. A few hundred new units a year do nothing to ease the pressure.

We need to think big and act now.

This amazing graph shows weekly housing costs by rental period and type of landlord. Let’s just focus on renters for now. Moving someone from the private rental sector to the public sector translates into a 64 percent discount on housing-related costs.

Housing costs per week are 150 dollars in public housing compared to $415 for private market tenants. This makes a world of difference to low-income Australians.

Yes, adding more social housing is expensive. However, not adding more social housing is more costly. How is that possible?

The bottom quintile (the poorest 20 percent) of renters in the private housing market uses more than 50 percent of household income to cover housing costs. This means saving for a rainy day, or even building wealth through investments or real estate, is forever out of reach.

Poverty doesn’t come cheap, as health care and pension costs pressure the state treasury. The less money you have saved in your super, the more the public pension system will have to spend on you during your retirement.

Shouldn’t the market solve that? It is clearly a task for the invisible hand to add sufficient housing supply.

Not at all, unfortunately. We have a huge housing stock shortage across the entire income spectrum and not enough capacity to build up enough new stock at this point.

In a market under pressure, private operators can choose which end of the spectrum they will serve. Will private companies do the high incomes where reasonably high margins can be charged, or will they opt for the low-income spectrum with small margins? Small chance that low-income housing stock will become available soon (or ever).

Even if many more homes were to come online, private landlords would have no incentive to keep rents affordable at, for example, 25 percent of the tenant’s income.

A state developer can build cheaper homes. Photo: Getty

We need a public developer to build public housing on a large scale. A state developer can build more affordable homes. If built on public land, the land is essentially free. Taxes? Which taxes? A general developer does not have to pay any land tax or stamp duty. They can also operate without making a profit – a luxury no private company enjoys.

Our proposed state-owned developer would have many advantages over private-sector developers. Wouldn’t this hurt private developers? I would say that even a well-funded state-owned developer would only operate in the lowest end of the market, a market that I don’t see being served by the private sector.

The only real problem for private developers is the increasing competition for talent in the job market. In times of massive skills shortages, contender for labor hurts the private sector.

How likely is it that a massive social housing developer will be announced? Not very likely, I must admit. Fragmented approaches – such as slightly higher quotas for housing for key workers – are much more likely to be introduced.

Adding a significant social housing stock would lower house prices by taking people out of the market. If the federal election campaign has shown one thing, it’s that none of the major parties are interested in making housing truly affordable.

That still amazes me, given that we now have a prime minister who doesn’t tire of telling us about his upbringing in public housing. Surely no other politician’s personal background suggests he is more determined to build the 150,000 missing social housing units.

Maybe there is a chance after all?

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