Affordable for whom?

How will our children ever be able to afford a house? Whatever the type of housing, one critical aspect is ‘affordability’. Over the past ten years, average house prices (including land) have doubled relative to income. The Australian dream of owning a home is fast becoming a dream available only to some.

The emphasis on home ownership is one fostered by conservative politicians and the land development industry. As such, most public debate about affordability has focused on those people who are just able to secure a loan and eventually own their own home. Recent first home buyers are, on average, allocating nearly 40 per cent of their income towards home loan repayments, a third more than five years ago.

The market price of a house lot is determined by its location, the available supply of land and the size of the lot itself. Ultimately, the market sets the price based on these factors.

The availability of land for housing construction has thus become a critical factor in keeping private housing affordable. The Sydney basin, for example, has few remaining large areas of undeveloped land. There have been calls from land developers recently to use land ‘locked up in open space and national parks’ for housing. They agree (with their hands on their hearts) about the necessity of preserving national parks, yet argue that some parks and other designated open space should be subdivided. Even if this were a viable solution what happens when demand overtakes supply?

The problem of limited availability of land is not helped by a trend towards larger houses being occupied by fewer people. Recent Australian Bureau of Statistics figures reveal that the average footprint of new homes in NSW has increased by a staggering 53 per cent between 1985 and 2003. Over the same period, average household occupancy fell from over three people to less than two. Even though larger houses are being built on smaller lots this is an unsustainable situation. The old quarter-acre block (a bit over 1000 square metres) is now often reduced to 450 square metres or less. There is clearly a limit as to how much a single house lot can be reduced in area.

The land component in the ‘house and land’ equation cannot easily be reduced unless normal suburban densities are increased by building more integrated, medium density attached housing, that is, more houses on less land. Similarly, there is little one can do to reduce building costs other than to refrain from building unnecessarily large houses. Whatever one may think of the appearance of its product, the project house building industry is very efficient and competitive. If there were economies to be made, the project house builders would already be making them. It then follows that there is no easy way that house and land prices can be made more affordable.

But what of those people on lower incomes? One rarely hears those who extol the virtues of first home buyer grants also promoting the need for subsidised housing for low-income citizens. Yet despite today’s low interest rates, even rental housing is beyond the means of many low-income families if true economic rents are charged.

Reductions in federal government grants to the states have greatly reduced the construction of public housing. Instead, the federal government prefers to pay rent subsidies to landlords. Further, much of the detached housing built for those on low-incomes over the last 50 years has been progressively sold to the tenants—a move intended both to win votes and to fund more housing. As such there are fewer houses available. Already there are an estimated 80,000 people on state public housing waiting lists.

It has been federal government policy to encourage private developers to construct low-cost rental accommodation. Private investors are allowed a tax break on the difference between their borrowing costs and their rental income (negative gearing). In theory, a greater number of rental properties would lead to a competitive market and lower rents. The reality is that those in high tax brackets have reduced their tax not by building new rental properties, but buying existing ones. They have gained considerable tax relief through the negative gearing provision while making sizeable financial gains once the property is sold.

In June 2004 an inquiry by the Productivity Commission suggested that the generous concessions of capital gains tax and negative gearing be reconsidered by the Federal Government. However, Treasurer Peter Costello has refused to countenance changes. He maintains the current arrangements provide ‘appropriate incentives for investment’. Disappointingly, the Leader of the Opposition, Mark Latham, also ruled out changes to the tax provisions if elected, remarking that anything that increased wealth was a good thing. Yet the Australian Council of Social Services has estimated that the legal but ineffective concession of negative gearing costs the Australian taxpayer $2 billion in lost tax revenue each year.

In the interest of a more diverse and more equitable society, alternative strategies must be pursued if we want to provide for those on low incomes. Yet in view of low federal funding for social housing and consequent inactivity by state governments, solutions for affordable low-income housing must be found elsewhere. Local governments may provide the answer.

One immediate option open to local councils is to purchase older, lower cost houses as they become available. Councils could then renovate them, perhaps even develop them as dual occupancy units. These units could then be leased to young families and those in need at affordable prices. By spreading vital rental housing throughout the community, local councils would avoid the isolation of poorer people in low-income ghettos. Whilst there may be little financial gain in this practice, the greater social gains are immeasurable.

Many local governments regard social housing as a state responsibility. There are some, however, that are more enterprising in the pursuit of diversity, who put their ‘operating’ land to good social purpose.

The City of Port Phillip in Melbourne is an excellent example of one such enterprising council. The Council has overseen the recent redevelopment of the ‘Inkerman oasis’, a 1.223 hectare redundant waste depot at 33 Inkerman Street, St Kilda. The project consists of five, three to five level buildings (one of which has been recycled). In these, there are 237 residential units and three retail tenancies of high quality design. Of these, 19 community-housing units were provided for the council in exchange for the land. All this has been achieved with a long list of ecologically sustainable design features, the re-use of grey water being one of them. Most impressively, the 19 ‘social housing’ units are scattered throughout the development and are indistinguishable externally from the private units.

The City of Port Phillip has provided ‘an example of quadruple bottom line sustainability’ (environmental, social, economic and cultural) with a high level of contemporary architecture and urban design in a commercially viable and highly marketable scheme which has won a number of awards’ (their jargon). After a master plan and tender process, the Council entered into a contract of sale. Half the project is completed and occupied with the balance to be completed in 2005. The Council stage-managed the undertaking, ensuring the desirable sustainable environmental features were included, that the design was attractive and the financial outcomes fair and acceptable.

The Council also recognised the limits of their own abilities leaving the complex detail design, construction and marketing—including the risk and potential profits—to development professionals. In exchange, they received the 19 housing units for the community. Over a three-year period their actions  have resulted in the site value increasing from a $5.2 million book asset to one valued at around $7.5 million.

Most councils own parcels of land that are classified as ‘operational land’ where smaller and lower density developments could be encouraged along the lines of the Inkerman Street development. Perhaps future federal governments should bypass the states and make housing grants directly to progressive local councils.

The housing situation in Australia has reached breaking point. This is not the time for carry-on about ‘where will our children live’. If someone doesn’t move into the breach we will be left with a crisis. We already know where the current and potential federal governments stand. What of local councils?

Don Gazzard is an architect who works in both Sydney and Melbourne.

 

Recent articles by Don Gazzard.

Grand masters
A tale of two cities
Ordinary virtues

 

 

submit a comment

Similar Articles

Mentoring Australia

  • Fatima Measham
  • 11 May 2006

Fatima Measham interviews David White, founder of Big Brothers Big Sisters Australia.

READ MORE

A long way to go

  • Jane Mayo Carolan
  • 11 May 2006

Jane Carolan speaks with doyen feminist and political activist Anne Summers.

READ MORE

We've updated our privacy policy.

Click to review