Public housing

We need (a lot) more social housing in Australia

I don’t know what you did this week, but I was certainly busy looking for new stats. This time, I unearthed for you a wonderful long-term housing occupancy dataset from the ABS.

Our first chart is a great lesson in how we read data. We are immediately attracted to the sharply declining line (owners without mortgages) and the two lines that show growth among mortgage holders and renters with private market owners.

We are now starting to think about why these changes may have happened and what they could mean. It’s only after the fact that we’ll even look at the bottom line which doesn’t seem to show much movement. This column is for that neglected row.

Tenants of public housing do not live there for free. Depending on individual circumstances, some subsidies are provided, but public housing tenants tend to pay below-market rents while being responsible for their own utility costs.

Sometimes rent is set at 25% of household income, with the difference paid by the state as a rent refund.

Back to our unpretentious line. We see a decline over the past 20 years, from 5.8% in 1999/2000 to 2.9% in 2019/2020.

This drop could mean one of two things.

  • Option 1: As a wealthy nation, we have created so much wealth across the population that far fewer people need subsidized social housing. What a great nation we are!
  • Option 2: Despite being a wealthy nation, we have been brutally negligent in the development of social housing.

You know which option to choose. You’ve probably seen headlines or read reports showing that over 150,000 households – or over 430,000 people – are currently on the waiting list for social housing. A few hundred new units a year does nothing to ease the pressure.

We must think big and we must act now.

This amazing chart shows weekly housing costs by tenure and owner type. Let’s just focus on tenants for now. Moving someone from the private rental sector to the public sector results in a 64% reduction in housing costs.

Housing costs per week are $150 in public housing, compared to $415 for private market renters. It makes all the difference for low-income Australians.

Yes, adding more social housing is expensive. Not adding more social housing costs more, however. How come?

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

Poverty is not cheap, as the costs of health care and retirement put pressure on the public purse. The less money you have saved in your super, the more the public pension system has to spend on you throughout your retirement.

Isn’t the market supposed to remedy this? Obviously, it is a job for the invisible hand to add enough housing supply.

Not at all, unfortunately. We have a massive housing shortage across the income spectrum, and nowhere near enough capacity to build enough new housing right now.

In such a tight market, private operators can choose which end of the spectrum they will serve. Will private companies serve the high-income segment where reasonably high markups can be charged, or will they opt for low-income spectrum where markups are miniscule? Slim chance that any low-income housing stock will be available anytime soon (if ever).

Moreover, even if many more homes were to come online, private landlords have no incentive to keep rents affordable at, say, 25% of the tenant’s income.

A public developer can build housing at a lower cost. Photo: Getty

We need a public developer to build large-scale social housing. A public developer can build housing at a lower cost. If built on public land, the land is essentially free. Taxes? What taxes? A public developer does not need to pay property tax or stamp duty. They can also operate without generating profits – a luxury that no private company enjoys.

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

The only real problem for private promoters is the increased competition for talent in the labor market. In times of massive skills shortages, any competition for labor really hurts the private sector.

How likely is a huge social housing developer to be announced? Unlikely, I must admit. I think piecemeal approaches – like slightly higher quotas for housing key workers – are much more likely to be introduced.

Adding a large social housing stock would drive down housing prices by excluding people from the market. If the federal election campaign has shown one thing, it’s that none of the major parties has any interest in really improving housing affordability.

This still puzzles me, given that we now have a prime minister who never tires of telling us about his upbringing in public housing. Surely there is no other politician whose personal track record suggests he is more determined to build the missing 150,000 social housing units.

Maybe there is a chance after all?