Chapter 11 - Longer-term responses
11.1
There is a cyclical element to the current problem of housing
affordability in Australia. When interest rates rise, as there is a lag before
house prices slow or fall, measures of housing accessibility and housing stress
deteriorate. Indeed, particularly in an economy such as Australia's where home
loans are predominantly at variable interest rates (Table 4.1), some increase
in housing stress and subsequent slowing in consumer spending is part of how a
tighter monetary policy acts to rein in inflation.
11.2
However, most of the current problem in housing affordability is
structural rather than cyclical. It has been building over a long time. As Professor
Yates said, it:
is not something short term that happened in the last three or
four years, it is something that has been going on for up to, I would say, 30
years. I would pinpoint it to the mid-seventies when inflation took over and
housing became important as an asset rather than as something that provided
shelter.[1]
11.3
Resolving it is also likely to take a long time, especially if
policymakers are unwilling to take steps that involve large falls in house
prices, which would push significant numbers of households into negative
equity. If house prices remain steady, and wages grow at the recent pace of 4 per
cent a year, house prices will not return from seven to three times annual
income until 2030 (refer Chart 3.2).[2]
If house prices are just constrained to growing no faster than consumer prices,
then it would take until almost 2070 to return house prices to three times
earnings.
11.4
The longer term outlook is worthy of ongoing analysis. The
government's inquiry in 1991 looked forward 15 years. It said:
The projections indicate that by the year 2006 the vast majority
of Australian will be well housed in their own homes without excessive housing
costs. But if real house prices or real rents increase, younger households
attempting to access home ownership and in particular lower income private
renters will be vulnerable to housing stress. In both cases, the position of
single-income households will be worse than has been the case in the past.[3]
11.5
This could be seen as prescient. It certainly identifies the
groups now most likely to be struggling.
11.6
Looking forward from our own time, Yates (2008, p. 11) projects
that by mid‑century there could be an additional half million households
in housing stress. The government currently produces an Inter-Generational
Report, which looks at the impact over coming decades on the fiscal balance
of factors such as the ageing population. Given the concerns expressed by some
witnesses (chapter 4) about the current tax system which is regarded as
favouring those who have housing and seek to invest in property over those who
do not, it is important to consider the issue of inter‑generational
equity. A longer-term analysis of housing affordability could be either
incorporated in the next of these reports or produced as a separate document.
11.7
This final chapter looks at two important issues that will
influence housing affordability in Australia over the long term. The first is the
need for regional development. The second is the environmental sustainability
of future housing.
Regional development policies
11.8
In the longer term, decentralisation policies offer scope to
allow more people access to housing that is affordable both in regard to its
purchase price and in regard to the cost of commuting from it to work.
11.9
As one senator asked at a hearing:
Does it seem peculiar that we always seem to be trying to take
the mountain to Mohammed? ...rather than trying to find affordable houses in the
eastern suburbs of Sydney, how about we try and stimulate employment where
there is cheaper land and a greater prospect of people getting into the housing
market at the ground level? [4]
11.10
He gave a good example of this being successfully achieved. While
it had more to do with Sydney-Melbourne rivalries than a concern about housing
affordability, the founding fathers chose to put the national capital away from
an existing city. The result was that there are now '350 000 people living on a
creek in southern New South Wales'[5]
who would otherwise be adding to the pressure on housing prices in Sydney or
Melbourne.
11.11
Professor Disney strongly advocates regional centres:
The other long-term priority—hard to achieve but, I think,
enormously important—is to strengthen regional centres in Australia. If you try
to think why it is that Australia has what seems to be about the worst housing
affordability in the world...one of them is that we are more concentrated than
any other developed country in a few major cities. I think that that is a major
contributing factor to excess demand in those areas driving up prices. ...Over
the long term—40 or 50 years—I think a very high national priority should be to
strengthen the proportion of our population living outside our biggest three
cities. That will have a number of benefits, including for productivity of our
economy, but it will also, I think, restrain housing costs and transport time.[6]
11.12
The best-known example of a push for decentralisation was the
mid-1970s 'growth centres' initiative in Albury-Wodonga and Bathurst-Orange.
These projects had some success, and may well have had more if government
support for them had been sustained. Today, the Murray River would probably not
be chosen as a site for increasing population.
11.13
Professor Disney commented:
There are some parts of Australia to which this is much more
suited than others. I think Victoria and Queensland stand out as the two that
have the best prospects—and, of course, Queensland is already much more
regionalised than others. I should also emphasise that I sometimes talk about
them as clusters rather than as centres; in other words, if there are three
substantial cities of 70 000 to 80 000 within an hour’s drive of each other,
that is the same as one centre. So, in the case of Victoria, I always felt that
Ballarat, Bendigo, Castlemaine et cetera had a lot of potential; in fact, it
was the original proposal for where a multifunctionpolis might be. I think it
would have worked very well with high-speed transport between those centres
creating a cluster, which is what you have in Europe—a lot of people and
organisations that play a major role in national life live and work in quite
small centres.[7]
11.14
As Professor Disney pointed out, the European experience
demonstrates that cities do not have to have populations in the millions to
offer good jobs and attractive lifestyles. For example, arguably the richest
town in Switzerland is Zug, the headquarters of, among others, multinational
mining company Xstrata, and it has a population of only 25 000. The world's
largest food company Nestlé is headquartered in the smaller town of Vevey. Basel,
with a population of under 200 000, is home to the headquarters of the global
pharmaceutical companies Roche and Novartis. Geneva, with a similar population,
hosts many international organisations. As well as offering good jobs, these
cities are culturally rich with excellent rail connections.
11.15
Another feature of making regional living attractive is providing
high quality communications in country towns:
In country towns you will often find that the post and telegraph
office will have been a very handsome building in the centre of town—it was
recognised how fundamental post and telegraph was to country towns but,
nowadays, it is about videoconferencing, high-speed broadband and those sorts
of things. So those are crucial.[8]
11.16
A good way of developing the right incentives is 'to ask why one
would not live in a regional centre—"What is it that I think I would miss?"—and
try to counteract that'. So cultural, educational, sporting and entertainment
facilities are important.
Table 11.1:
Demographic comparison
|
|
Urban population (% of total) |
|
Urban population (% of total) |
Population density (persons per km2) |
Detached houses (% of total) |
in two largest cities |
In cities between 500,00 and 1 million people |
Australia
|
89 |
3 |
77 |
54 |
0 |
Austria
|
66 |
96 |
|
21 |
0 |
Belgium
|
97 |
340 |
|
48 |
9 |
Canada
|
80 |
3 |
56 |
43 |
20 |
Denmark
|
85 |
125 |
|
25 |
0 |
France
|
76 |
112 |
|
49 |
13 |
Germany
|
88 |
231 |
31* |
20 |
22* |
Ireland
|
60 |
56 |
|
32 |
0 |
Japan
|
77 |
336 |
59 |
19 |
8 |
Netherlands
|
66 |
391 |
|
28 |
8 |
New Zealand
|
86 |
14 |
|
66 |
0 |
Sweden
|
84 |
20 |
|
61 |
33 |
Switzerland
|
68 |
178 |
|
18 |
12 |
United Kingdom
|
89 |
245 |
26 |
18 |
4 |
United States
|
80 |
30 |
61 |
17 |
10 |
Sources: Ellis and Andrews (2001,
p. 16); Ellis (2006, p. 22); Lawson and Milligan (2007, p.20); Reserve Bank of Australia
(2003, p. 29); SBS World Guide. *west
Germany
11.17
'Medium-sized' cities are defined as having between 500 000 and a
million inhabitants. Professor Disney notes that 'most developed countries have
quite a number and they have 20 per cent, 30 per cent or 40 per cent of their
total population living in cities of that size'.[9]
This is true of Europe and the United States. Significantly, it is also true of
Canada, the closest geographical parallel to Australia.[10]
(Table 11.1) In Australia the only 'city' of around that size is the Gold
Coast, and in some ways it functions more as an outlying suburb of the greater Brisbane
conurbation.[11]
Among reasons Australia may have developed this way is that its major
population growth occurred well after the advent of the car and its federal
structure favoured a small number of cities.[12]
11.18
Another way that promoting regional centres would improve
affordability is through boosting productivity, and hence incomes, by reducing
congestion.
11.19
Admittedly, encouraging regional development is challenging, and
requires government to take a lead in moving employment centres there:
Around the whole world there is very little evidence to show
that public policies that are explicitly oriented towards deliberately
decentralising population and economic activity work. The overwhelming evidence
is that they do not. You can try to develop growth with strategic
infrastructure investment. The role that the Commonwealth has played in Townsville,
for example, with the military base and that sort of thing, is a case in point.
Certainly governments can play a very large part....most of the successful larger
towns in Australia have a very substantial public sector base to their
employment—in the order of 22 and 25 per cent in just about every case. That is
related to things like big base hospitals and health infrastructure, regional
offices of federal and state government, educational institutions, regional
universities, TAFE colleges and the like. I certainly would suggest to you that
there is a very explicit and direct role that governments at both the
Commonwealth and state level can play in enhancing the greater success of
places outside metropolitan areas that are a success, but I cannot foresee a
situation where you are going to really stop the continuing attraction of the
large metropolitan region. Around the Western world, the big cities are growing
bigger simply because of what are standard agglomeration economies and the much
more diversified labour market of those big metropolitan conurbations.[13]
11.20
Again the example of Canberra is illustrative. While initially a
'public service town', the majority of jobs are now provided by the private
sector.
11.21
It is clear to the committee that if Australia is to move towards
greater decentralisation of its population, government services need to take
the lead. Options might include Commonwealth and State Government public
service departments moving their headquarters to a regional area, rather than
being centralised in the capital cities.
11.22
Such an approach would have both advantages and disadvantages for
government departments. One of the advantages might be that departments are
better able to attract and retain staff. For example, during 2006–07, 88 per cent
of Commonwealth agencies reported that they had experienced difficulties
recruiting people with the required skills.[14]
Lack of affordable housing in the ACT is seen as one of the factors making
recruitment more difficult[15].
If a regional area offered affordable housing and good amenities, with easy
access to a capital city, it may be a very attractive prospect for many seeking
to work in the public sector. Departments may also be seen as less 'city
centric' and more responsive to the needs of the broader community if they were
located away from capital cities.
11.23
Disadvantage of decentralisation would include increased costs in
terms of travel and teleconferencing, and reduced accessibility of public
servants to the Minister (and to a lesser extent the Parliament) as they would
not be able to attend meetings and proceedings physically at short notice. Dispersal
of government departments across various regional centres may also reduce
opportunities for formal and informal networking and information exchange.
The need for environmentally sustainable housing
11.24
For housing to be deemed truly 'affordable', it needs to have
more than just a modest purchase cost or a manageable weekly rent or mortgage
repayment. It needs to be affordable in terms of the transport and energy costs
incurred from living in it. A number of witnesses discussed the 'hidden' costs
that can make an affordable home (in terms of mortgage repayments)
unaffordable:
People come out here thinking that it is going to be cheaper to live,
but what they find is that there are hidden costs—petrol, cars and so on. They
realise once they get out here that it is not as cheap as they thought.[16]
11.25
According to the Western Sydney Regional Organisation of Councils
there is a significant relationship between 'transport infrastructure and
transport costs and housing locational costs and locational disadvantage'.[17]
This underscores the importance of affordable housing being located in areas
with good social and transport infrastructure. It also underscores the importance
of affordable housing being environmentally sustainable in the longer term.
11.26
As Australia responds to global warming and moves towards a low
carbon economy, the costs of running a home, including heating and cooling, are
expected to rise significantly. As noted in the Garnaut interim report,
... the cost of these [emissions]
permits...will mostly be passed through to consumers in the form of higher
electricity and other energy prices, at least in the early years of the scheme
when a relatively low proportion of energy derives from alternative,
low-emissions sources embodying greater economic costs.
These price rises will disproportionately affect low income households...[18]
11.27
This message seems to have been heeded by the South Australian
government. They:
see energy efficient design as being a key part of that,
particularly heading into the future with issues around climate change.[19]
11.28
A number of witnesses expressed concern about whether the common
pattern of large houses being built on the ever-expanding fringes of large
cities meets the need for environmentally sustainable housing:
the McMansion bomb is not just a bomb in relation to the
financial issues; it is a bomb in terms of the environment because of the
destruction it does to the biodiversity of large chunks of our cities—it is
very, very inefficient environmentally.[20]
11.29
Professor Troy suggested that the expectations that many
Australians have of housing involving large free-standing homes might be
tempered somewhat if placed within the context of Australia's response to
global warming and reducing our carbon footprint:
we are not even attempting to do that. We are not even trying to
relate it and sugar-coat the pill by saying, ‘This is environmentally a better
way to go,’ for example. There is no acculturation education program designed
to get people to be more modest about their footprint on the environment. We
have to do it and do it big time.[21]
11.30
Concerns were expressed that while 'affordable' (in a narrow
sense) housing is important, it should not be pursued at any price. The
Queensland Government, through its Urban Land Development Act was seen
by one witness as having:
given themselves the right to override local government planning
schemes and even to override their own legislation, which has restrictive measures
to protect biodiversity, vegetation of high value and waterways and even to
protect people from natural hazards. So they have given themselves the right to
override anything that the people of the area care about in order to provide
‘affordable housing’.[22]
Recommendation 11.1
11.31 The committee recommends that the forward plans of the Australian,
state and territory governments incorporate policies for mid-size regional
cities to ensure they are better able to form sustainable communities, to cope
with the transport impacts of peak oil and climate change, and to invest in
infrastructure.
Senator Marise Payne
Chair
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