All Being Equal: Affordable Housing in Melbourne
Professor Carolyn Whitzman and Alexander Sheko have been thinking about housing affordability in Australia for a long time. Drawing on international best practice and the expertise of government, developers and social housing providers they’re coming up with options for Melbourne. In conversation with Gary Dickson.
‘Getting to Yes’ project page, Faculty of Architecture, Building and Planning
‘Transforming Housing’ project page, Faculty of Architecture Building and Planning
‘Transforming Housing’ options paper, produced from the April summit [PDF]
‘Housing affordability crisis brought on by government policy failures’ – comment piece by Prof Whitzman in The Age, June 10 2015.
Housing in Australian cities – is it affordable? Treasury secretary John Fraser believes that Sydney and some parts of Melbourne are unequivocally in a housing bubble. Both cities are among the most expensive in the world. The Federal Treasurer Joe Hockey disagrees, saying that with the access to credit that is afforded by a good job housing is still easily affordable.
For low income earners though that might not be reassuring.
Last year the Council to Homeless Persons released a report that found that less than 1 per cent of one-bedroom homes in Melbourne are affordable to a person on unemployment benefit. It’s a situation not restricted to the centre – in Greater Dandenong a decade ago around 25 per cent of one bedroom homes were affordable, now it is three. Frankston has dropped from 50 to 10 in the same period.
And though housing pressure is most acute for low income earners they aren’t the only ones feeling it. The median house price increased by 260% between 2000 and 2011 while the median household income only creased by 150%.
On the other side of that though few would dispute that there has been significant increase of construction in Melbourne’s city centre especially in the same period. So why does the situation appear to be getting worse for low and middle income earners?
This is ‘All Being Equal’ from the Melbourne Social Equity Institute and the University of Melbourne. I’m Gary Dickson and my guests today are engaged in research on this very issue – from the Faculty of Architecture, Building and Planning, Professor Carolyn Whitzman and Alexander Sheko. Welcome to you both.
So the treasurer’s comments have been pretty discussed this week but he also said that housing affordability is fundamentally an issue of supply failing to meet demand. What’s your reflection on that comment?
Well Gary I think that to some extent it has some validity. The population of Australia is growing quite rapidly, the population of Melbourne is growing quite rapidly. We’re going to need at least a million new houses by 2030. So we need to start thinking about – and even when I use the word hosues, what those dwellings are going to look like, what the impact is going to be environmentally and economically as well as socially.
Part of the problem is the last few years have been all about supply side economics, all about ‘let’s build as much housing as quickly as possible’, leaving behind transportation infrastructure, leaving behind schools in the neighbourhood – all of those things that we know are necessary for healthy lives and for live-work balance.
Unfortunately it hasn’t worked. Yes, lots of new houses have been built, they’re less and less affordable, planning controls have decreased during that time. There was supposed to be an urban boundary but that went by the wayside, in the last decade in Victoria and still housing prices have climbed. So that approach has been tried for the last 10-15 years and it hasn’t worked.
And I suppose that a lot of that – as you mention, a lot of the dwellings that have been built are of a very particular kind, especially in the City of Melbourne. You’re seeing a large majority of new dwellings are apartments, the majority of those studio or one bedroom, so it’s a very particular type of household that is being catered for in that space.
It’s almost purely a duopoly. So in the central city, you see a lot of small apartments, sometimes very poorly designed and not terribly affordable, and then in the outer suburbs what’s being built is supposedly affordable – it largely isn’t affordable housing let alone affordable living once you factor in transport costs. Three and four bedroom family, supposedly family-type detached dwellings still predominantly. There’s a few townhouses but that leaves out a huge part of the city. Middle suburbs and inner suburbs that are near public transport, outer suburbs that can be developed at higher densities including some apartment buildings – again, hopefully near public transport.
When you look at the examples of almost any other city, particularly developed cities that are growing as rapidly and more rapidly than Melbourne, places like Seattle and places like Portland, you see much more fully worked-out range or continuum of housing choices that are being offered to people and people don’t come in just two varieties.
So I suppose there’s a question then about how we break this duopoly. Are there any particular sites within Melbourne particular places that would be prime candidates for more social housing with better infrastructure and better services?
There’s probably some opportunity to utilise government-owned land holdings, both local government and state government. We’ve seen that in practice with regard to local government land, there has been some examples in Port Phillip, where Council-owned carparks have been developed over. The carpark has been retained and a social housing development has been built above it. So it’s retaining a public asset while leveraging the value of that land to help pay for the development. That’s something a number of councils are looking at, I know at least Moreland and Darebin are trying to learn from that at the moment. There’s also opportunities to leverage state land holdings, particularly that of VicTrack, which owns all the railway lines, the surplus land around railways, which also has the opportunity to be integrated with public transport. We can see that in the Housing Choices Australia development in Pascoe Vale, which was built on private land not VicTrack land but next to Pascoe Vale station. So getting back to what Carolyn said earlier about cost of living and generating positive social outcomes that’s a great opportunity there.
We should also be considering including social housing, public housing in amongst new private as well. I know that New York is…
Oh it’s not just New York. 48 of the 50 states in the US have some form of inclusionary zoning, as do most countries in Europe and some states in Australia. But not Victoria. So the idea of inclusionary zoning, inclusionary zoning for housing as it’s sometimes called, is that you don’t want a 100% social housing, public housing, but it’s also problematic to have 100% housing for wealthy folks. You want a social mix in communities, and particularly in communities that are well serviced by public transport, for public schools etc. You want the opportunity for a range of people to live there.
One thing that people sometimes forget is that you have naturally a little bit of different wealth over the life course. As young people go to tertiary education or not, they get their first jobs, they’re forming their first households, very few of those households – unless they’re the child of cabinet ministers – have access to a house. Similarly as you get older the household that’s most likely to be low income is an older single woman, a widow or divorcee. It’s really important not just to look at poor people as people ‘out there’ who may not be deserving or something like that, but to realise that at almost every stage of a person there’s going to be variations in income, variations in physical ability for that matter, that need to be catered to by a diversity of housing.
There’s another issue that comes up in what you’re talking about, and that is when access to finances can change quite suddenly, as a result of, say, family violence.
Yeah. So as you know Gary I come out of research on violence against women and a number of years ago I was doing research with women who were homeless or at risk of homelessness. 100% of them were survivors of violence. Violence is a contributor to homelessness, it’s a huge issue, and one that’s starting to be recognised, I think, in Melbourne and in Australia. So it’s really important for women, for young people, sometimes for older people to get out of violent and abusive situations to be able to find secure housing.
With regard to inclusionary zoning, there’s also an opportunity there to use it as a value-capture mechanism. So that’s essentially where land has increased in value not through any improvement by the land owner. Sometimes this occurs because of infrastructure provision, say for the example the government builds a railroad then the land around that will go up in value. Another way the land goes up in value is through rezoning. We look at Fisherman’s Bend in Melbourne, which is the largest urban renewal project in the city’s history, 250 hectares or thereabouts, previously zoned for industrial land, very low value, overnight when it gets rezoned to Capital City the land goes up by a multiple of – I don’t know how much, but it’s a very large amount. If you’re a lucky landowner, or you’re probably not a lucky landowner you’re probably a very savvy business person who has bought up large land holdings in anticipation of this fact, you’ve suddenly gained a windfall of profit through no real – you haven’t really earned it. So the idea of value capture in a situation like that is you can be asked to pay your share. You still make a sizeable profit but, say for example, the strategic work is put in ahead of time so that some of it is captured and rather than going to a very small proportion of very rich and savvy people, it can be used to help finance affordable housing development and other social goods such as open space, community facilities and the like.
So to compare Melbourne with another metropolitan area, that of Portland, Portland has a system called tax increment financing that identifies areas such as Fisherman’s Bend that are going to be going through urban renewal. It’s close to a bunch of residential areas, a lot of the industrial users are moving out, it’s an obvious place that 10-15 years down the track will have pressure to build residential units and residential land is zoned at a higher value than industrial land. And besides, when you’re talking about an area that size, you’re starting to talk about public transport improvements and perhaps bringing in schools, aquatic centres and etc. etc. What the City of Portland does is set a baseline property tax rate and then any increase above that, a certain proportion of it goes towards affordable housing. That makes sense, instead of waiting until you’ve brought in improvements or you’ve rezoned the land, and then trying to scramble to get a little bit of a land or a little bit of value in order to build affordable housing. Affordable housing is essential infrastructure just the same as a new tram line and you need to plan for that properly. There are jurisdictions that plan for it properly and then there are jurisdictions that aren’t planning properly. Unfortunately Melbourne is in that latter category.
One of the things that has come out of the research, and I’m sure Carolyn will agree with me, is the need for integrated policy. I might be skipping ahead a bit because we’ll talk about the summit that we had a bit later but one of the main issues that came out of that and one of the promising directions for the project is contributing to some sense of integrated policy. We’ve recently had, under the previous government, a metropolitan planning strategy ‘Plan Melbourne’ released. The section on affordability is largely on supply-side economics, as Carolyn has said. That’s being partially revisited by the new government so we’re hoping that the outcomes that we’ve had will contribute to that. In terms of things like housing targets, in terms of supply diversity affordability and thinking ahead to 10 year timeframe, a 30 year timeframe, that’s the sort of thing you need otherwise you’re left really doing things in ad-hoc situation. Fisherman’s Bend is a prime example of that, in terms of the lost opportunity to capture value there, but there’s a number of instances where you can see that a failure to plan ahead leads to a bad outcome. This is one of them.
And maybe sometimes planning too much to plan ahead. I know that affordable housing has been an issue that has been recognised by local and state governments for as long as local and state governments have been producing 30 year plans. It’s just that we have so many new 30 year plans that perhaps nothing is actually being gained in the long term.
Well that’s certainly a bugbear of mine, Gary, as you probably know. Melbourne has had five 30-40 year strategies in the last five decades. Every time a state government changes, not just the metropolitan strategy changes but it appears that every bit of infrastructure funding, every bit of long-term transportation planning appears to change. That’s not the way that cities that do it well do it.
In Vancouver, to give an example, there have been remarkable swings at both the local government level and at the state or provincial government level, but they’ve stayed with the same strategy over that time. I think one of the key determinants there is that there is a real metropolitan government. All of the local governments voluntarily get together and do a metropolitan strategy. What that means is you can have a particular swing in one local government that won’t be across all of the local governments, and election times are different for local and state governments so that metropolitan strategy is a little bit more inured to the shocks that happen when governments change.
When Sasha (Alexander) is talking about integrated policy, or when the Transforming Housing project talks about integrated strategy, sorry Alexander, talks about integrated strategy, it’s integrated strategy in two ways. One of them is what we’d call horizontal integration, where you’re talking about bringing treasury and finance together with planning, together with housing and human services, just to give those three examples, to be working together on affordable housing – because there’s not much you can do without the money for it basically, so that’s where you need to bring in treasury and finance. There’s also what you’d call horizontal integration, which is what local governments are doing, and needs to be worked out with one another at a metropolitan level, but also worked out hopefully with state and Commonwealth strategy as well.
If you have all those ducks in a row and the only way that you can do that is through a partnership, then you start getting the kind of long term policies that can only come out of a relatively deliberative model.
And what that really then leads to is policy certainty, which…
Which developers love!
…takes a lot of the risk out of it. In the research that I’ve been doing on the project, I’ve been talking to a lot of investors and community organisations largely, risk of all kinds is one of the major barriers that drives costs up. There’s all kinds of different risks, sales risk, design risk, planning risk, things like that, but having to deal with an uncertain policy environment. If you’re a developer and you’ve got these projects and timelines, and you’re trying to figure out how much profit you’re going to make you’ve got to be realistic that these companies exist to make profit. That’s not a bad thing, that’s how everyone makes a living, they need to be able to be sure of what’s going to happen in x years time. If it’s a highly volatile environment then risks go up and costs go up. In terms of working together with the private sector, which ultimately does deliver 95% of the housing stock in Australia, anything that provides certainty over a long period of time helps the risk out of it and helps take some of the cost out of it.
Before I may have sounded a little bit flippant when I said ‘which developers love’, but as Alexander just said, that financial element of risk is huge. It means it’s harder to get loans from banks or superfunds or wherever you’re getting the money from. It means there’s a greater emphasis on preselling off the plan etc. All of that drives up cost.
So when you talk to the Urban Development Institute in Vancouver, they aren’t arguing anymore about a growth boundary, they’ve had a growth boundary for forty years, they aren’t arguing anymore about inclusionary zoning, both inclusionary zoning which would be considered a little bit of a stick and density bonusing that would be considering a bit of a carrot approach to affordable housing. Both of those have been in place for years. What they’re arguing about is that they’d like a little bit more certainty when it comes to density bonusing because more and more of the money that is coming not just through density bonusing but through development contribution plans is going to affordable housing and they’d like to know where and why it’s going to certain amounts of money, which is perfectly natural. The reason why the City of Vancouver is taking that approach is because money has been clawed back from the federal level in Canada, just like money has been clawed back from the Commonwealth level in Australia. The bottom line is the City of Vancouver is able to enable much more affordable housing than a place like Melbourne is, and developers don’t hate it. In fact, in many cases, they love it, because it creates opportunities for them to develop affordable housing which there is always a demand for and which helps with the cycles of demand and supply that are often there with wealthier housing. So it’s a win-win situation.
And I suppose that some level of certainty, as you were saying, mitigating some of that risk around uncertain policy environments, could help to start to address some of the quality issues that we have here in Australia as well.
Quite often the standard is higher for, let’s say community housing than it is for private development. This is just an anecdote but a couple of years ago I was at Open House Melbourne visiting Common Ground, which is housing for homeless people on Elizabeth Street, and I visited an unnamed development on Chapel Street at the same time which was new, two sets of one-bedroom apartments. The Common Ground apartments were so much better designed than the apartments on Chapel Street, even though the apartments on Chapel Street, one bedrooms going for $550,000. Why is that? I think there’s a degree of regulation when it comes to social housing and a greater understanding that low income people quite often spend more of their time in their homes, and so it needs to be as well designed as possible. I also think that, again, there’s a certain level of certainty which allows you to build in a more imaginative perhaps, or a more thoughtful way, to the needs of the clients, than there might be in the private sector. So I actually think that a healthy affordable housing sector would have a tremendous positive spillover effect on the quality of design.
I’m thinking again of an example from Portland where a private developer delivered some family housing and he recognised the fact that there wasn’t a school nearby. He approached, himself, he approached the school board and said ‘Would you be interested in us converting the ground floor of this development to a school?’. And the school board said ‘Oh that’s great we’ve been looking around for a site’. He did that of his own resolve because he knew that the people living there wouldn’t have cars, would want their kids to be going to the local school, he saw it as part of the package, it gave a stable tenant to the ground floor. So that kind of imagination that kind of innovation can occur within an affordable housing industry.
Another factor in that is that the community housing organisations that manage social housing are essentially long-term managers of housing. We see in Australia where – we were talking earlier that in the central city, I think the figures are something like 80% of new dwellings are owned by investors and rented out while 20% are owner-occupiers. What you have then is a developer that, especially due to the way that their cash flow and cycles work, you build it and then you get rid of it as soon as possible so that you can take your money and move on to the next project. If you’re interested in selling and you’re selling to investors, who are in for capital gains, they’re not really thinking about the needs of the tenants. Obviously somebody has to want to live there but they’re not thinking long term in that way except to get capital gains.
On the other hand these community housing organisations are either partnering with developers, so ideally they’re involved from the very start, consulting on the design of it all, or in some cases, and both housing associations and the smaller housing providers are doing this, developing their own properties, especially during the nation building program of the previous government there was quite a bit of money available to do that. The sector grew quite rapidly. They’re holding onto these properties for 20 years or more and their mission is, as non-profits, is a social one. They’re interested both in the needs of their tenants and managing this property long term rather than selling it off. As a result they’ve got much more of an eye for quality as they know they need to, say, pay for the air conditioning bill, so they’re interested in something that’s energy efficient. In that respect as well I think scaling up that sector would mean housing being either commissioned or developed by people who have a long-term interest rather than selling it off or trying to get capital gains out of it.
So we’re obviously talking about a very complex space here then, that’s going to require, let’s say, new or more stable policy mechanisms, and the input of investors, developers, planners, social housing providers, a whole range of people. So leading back to the summit that was held here at the University last month, the Transforming Housing summit where a lot of these key stakeholders were brought together, and brought together to specifically discuss how to provide more affordable housing for Melbourne…
Yeah, it was a really fun conference to organise and then to see happen, because we were adamant that it had to be an anti-conference in a way. We brought in a facilitator who was given the task of moving people toward concrete commitments, although we had three excellent guest speakers – one from Sydney, two international – it was understood that they would speak for about a half hour each just to give people examples from other places, but the vast majority of that day and a half summit was people talking together. People who hadn’t necessarily talked together before. So we tried really hard to get an even balance of folks from state government, from local government, from private development, from social housing, and then investors both philanthropic and private investors. And we did, we got an even balance of all of those groups, about 60 people all told, and many of them had never talked to one another. I think some of them had talked to state government against what other people had said but they hadn’t actually been asked to talk with one another about what the best mechanisms would be. So that’s what we mean when we’re talking about deliberative planning. We don’t mean, and I said this at the beginning of the summit, everybody linking arms, agreeing completely and singing Kumbaya, that’s not what consensus is about to me or indeed to some of the people who talk about deliberative planning. Instead, it means ‘what’s the solution that all of you can deal with, given that all of you say that you care about affordable housing.
And it’s not just ‘say’, I mean, everyone I’ve spoken to on this project, this project wouldn’t have funding from the development industry, from state government, from investors, if they didn’t deeply understand that there’s a big problem out there and there’s something that they wanted to do about it. By investing in this research project they’re showing the willingness to talk together and we’re there as a kind of neutral organisation, the University, to bring those groups together. I actually went into this affordable housing research project without hugely strong opinions on the particular policy mechanisms or finance mechanisms or design mechanisms that would be necessary to scale up the quantity and quality of affordable housing. I just knew from my previous work that one good way to get that happening is to get people to talk together. Indeed, at the end of the day, we didn’t do a formal evaluation but we did do a little bit of a facilitator-led ‘how much can you live with what we’ve been talking about’ exercise, and a quite diverse range of people expressed a lot of satisfaction, and in fact, surprise that there were a lot of things that they could agree on, and also felt, I think, that people understood other people’s perspective a little bit better than before. So it was a big win in that way.
On that last point, understanding other people’s perspectives, obviously there were quite a few things that we could all agree on and there were a few things that, very unsurprisingly, that we couldn’t agree on. But still, the fact is that conversations were had, as Carolyn said, some of those conversations and some of those actors were having that conversation for the first time. I think that the most contentious idea we were discussing was of inclusionary zoning, which is quite popular amongst the community housing organisations, maybe local government – not sure about state government because they’re the ones that have to wear the flak if they introduce it – but something that is resisted by the development industry at least here. The benefit of that conversation is that people were able to understand each other’s viewpoints. I think there will be some people perhaps from local government or community housing organisations that see the value of this idea in principle but haven’t quite thought out how it might work out. And we’ve got developers there articulating why they think it doesn’t work, and really, if you’re advocating for it, you need to understand the development economics, the impact that that would have. Even if not everyone is agreeing I think seeing each other’s side of the story is a really positive outcome.
But as Carolyn said there was a lot of consensus. One of the things that I did after the summit was type up all of the notes that had been taken. We had ten ideas that had been developed over three sessions – those ideas are listed in the options paper which is available on our website. We had various groups, who might have been discussing, say, density bonuses, and there’s a bunch of options within that, those points were written down. All in all there were something like 400 comments that were made over the course of the two days that we’ve got in a big spreadsheet. Then I went through and coded them for the level of support was given. Full support or suggestions on how to make it work at the top, then in the middle reservations or significant barriers, then at the bottom complete opposition to that idea. Only 1% of the comments that were made were complete opposition, 10% were saying there are significant barriers that need to be overcome but for most of the time, 89% of the time, conversation was centred around ‘this is how you would make it happen’. So it was very positive and that was coming from all sectors.
And just to give one concrete example towards the beginning of the current phase of Transforming Housing we had a cocktail party where we invited some key folks and the Lord Mayor’s Charitable Foundation, who were one of the funders of the project, are beginning to turn from, for instance, homelessness services and direct support to people who are homeless, to funding both specific affordable housing projects and building up capacity amongst the community housing sector. So they aren’t just important for the philanthropists that they represent or work with, they’re also a leader in the philanthropic sector, and there are philanthropies that are funding really interesting affordable housing projects. There’s local governments that are willing to consider, as Alexander said earlier, building on council-owned property under certain conditions, and you know, all it took was getting people together and there was some pretty frantic deal making taking place which wasn’t even what we expected but we were very happy to see happen. So there’s a lot of willingness and I do see a bit of a change happening and I consider it very exciting. I think that the role of social investment is just coming into its own in Australia, I think it’s a little further ahead in Europe and North America but it’s just starting to come into its own in Australia and that would be a great source of funding, particularly if it got some government support in terms of tax breaks. I think that for a long time public transport was seen as a ‘us’ problem – that is, it affects all of us – whereas affordable housing was seen as a ‘them’ problem, that affects only a few of them. But I think that affordable hosuing is starting to become an ‘us’ problem, it’s a problem for all of us. For whatever reason that happens, whether it’s economic productivity, housing key workers or whether it’s just simply the right to shelter, it’s an exciting development that’s starting to be talked about by everyone and could be equally exciting the way the public transport started being talked about by everyone.
So projecting forward, we have reason to be optimistic?
I like being optimistic, it’s much more fun than being pessimistic, so yeah I’m pretty optimistic about the next steps for this project and also for change across Australia. Certainly there has been some interest from New South Wales and there were some folks from the Australian Capital Territory at the summit. I see a bit of a sea change happening.
Great. Well that’s a nice positive note maybe to go out on. My guests today were Professor Carolyn Whitzman and Alexander Sheko from the Faculty of Architecture, Building and Planning, thank-you to you both.
We’ve been talking about their research projects ‘Getting to Yes’ and ‘Transforming Housing’, funded by the University of Melbourne’s ‘Carlton Connect Initiative’ in collaboration with government, developers, social housing providers and other interested parties. You can read more about their outcomes and their research on our website – www.socialequity.unimelb.edu.au.
We’d love to hear your thoughts about the discussion that we’ve had today, or connect with us on Twitter.
All Being Equal is recorded at the Horwood Recording Studio, University of Melbourne. Gavin Nebauer is our audio engineer. Subscribe on iTunes to make sure you never miss an episode. I’m Gary Dickson, and we’ll be back soon.
Produced by Gary Dickson. Audio engineering by Gavin Nebauer. Music by Gillicuddy.