Home Ownership: Facts and Fiction
Chris Neff: Welcome to Open for Discussion, a University of Sydney podcast looking at research through a personal and critical lens. I’m your host, Chris Neff.
Today I’m chatting with Professor Nicole Gurran from the Faculty of Architecture, Design and Planning about her extensive research and how we can help more people afford to live where they want.
Nicole is an urban planner and policy analyst and she joins me in my office today to cut through the confusion.
Nicole, welcome to Open for Discussion.
Prof Nicole Gurran: Nice to be here.
Chris Neff: So take us back to the start; where did your personal interest in housing policy come from?
Prof Nicole Gurran: Well my personal interest, if you want to go all the way back, is probably when I was a kid. We lived in a variety of different places until I went to school, and we spent several years in a caravan park. But then, um, once we moved in to a house, the favourite activity for my mother and I was driving around looking at all the other houses on the hill; safe away from the flood waters, and permanent and dry…
Chris Neff: My grandmother used to own a caravan park.
Prof Nicole Gurran: Wow.
Chris Neff: Yeah, little did we know we had so much in common.
And then the question is, if 70 percent of Australians own a home, what’s the housing crisis that we keep hearing about?
Prof Nicole Gurran: That’s a historical figure [70 percent]. The rate of home ownership now in Australia is slipping down. So we are now around 67 percent. But the point that you hit on is very real. Because most of… most Australian households still do live in their own home, they’re being cushioned, in a sense, from the changing housing system that is affecting: younger generations; people on low or moderate incomes; people who are still in the rental market and people who might actually, you know, following say a divorce for instance or falling in to unemployment for a period of time; people who might actually fall out of home ownership and then find it very difficult to get back on.
Chris Neff: My theory… so I’ve lived in Sydney for eight years… and my theory has been I’ll never own a home, because the cost just seems to be extraordinary, just always seems to be too high. I currently live in a granny flat in Newtown; I’m paying $510 a week. Aaah, my income… none of the other listeners can tell anyone, but it is in the Enterprise Bargaining Agreement so it’s not like it’s a secret… is $91,000. What do you think? Am I getting… am I paying too much? It’s a studio, 1 bedroom.
Prof Nicole Gurran: You should be paying no more than 30 percent...
Chris Neff: No more than 30 percent...
Prof Nicole Gurran: Of your income, on housing, and that’s your gross income. So you’re probably nudging around about the affordable end of things.
Chris Neff: Yeah, but if I had a husband.
Prof Nicole Gurran: [Agrees] then you might be able to think about a purchase, particularly if he was on a similar income to you. You probably would then find yourself in the higher income bracket, and now if you want to purchase in Sydney you really do need to be on a high income.
Chris Neff: So the housing crisis is a 69 percent crisis? So is it… a crisis…
Prof Nicole Gurran: OK. Now that’s a really good question. Housing affordability pressures affect people, on low or moderate incomes who aren’t in home ownership or who are struggling with very high mortgages. So that’s… but it’s a particular crisis that is affecting people on low, very low and possibly moderate incomes. Particularly larger households.
Now, at the top end… so where you are… the crisis is in being able to find appropriate rental housing or moving in to home ownership and being able to save up enough of a deposit. Now, in the 70s, you could save up a deposit on, you know, less than probably half of your yearly income. So, you might’ve needed the equivalent in today’s dollars of about $45,000 to have a deposit. Now, you need a lot more than that to even be able to get a loan.
Where it really bites, of course, is people on very low incomes; so around about $30,000 a year, people on low incomes around about $50,000 a year. And we know in Sydney, around about half of them are paying more than 30 percent of their income on rent. And 30 percent of a very low income, leaves you very little else; medicine, food…
Chris Neff: Those are my students. That’s who I worry about when I think about these numbers, and, I think about, you know, they’ve just moved here from Wollongong or moved here from Brisbane. And they are living in a share house with seven people to try and keep the rent down. But even then they are paying $300 a week, so they are clearly not going to be able to afford to buy. Is the rental market going to get better then?
Prof Nicole Gurran: Actually rents have risen higher than incomes, so have house prices over the past decade. And the issue is of course, with people like your demographic, who once would’ve been moving in to home ownership as soon as they found a degree of stability, often when they got married. With people unable to do that, that puts pressure on the rental market and there you are competing. And so, we’ve seen a shortage of affordable rental supply.
Now, the only way that we are able to improve that situation is if we’ve got a dedicated amount of housing that’s really… we are looking at rents that are subsidised or rents that are kept to an amount of money that people can actually afford to pay.
Chris Neff: How does that compare with other locations? Is, you know, Hong Kong or London or San Francisco, or these other expensive cities…
Prof Nicole Gurran: Yeah, I mean, when we talk about more affordable rental housing; that could be public housing provided by the government, it could be what’s called ‘social housing’ which could be provided by non-profit community housing organisations.
But in comparison to the rest of the world, absolutely Australia rates very low on that totem pole of having a safety net, or even a viable alternative for people in terms of affordable rental housing. So in Hong Kong, about 45 percent of people in Hong Kong are living in subsidised rental or low-cost home ownership that’s been provided through a public housing scheme.
Chris Neff: So Australia is at four percent and Hong Kong is at 45 percent?
Prof Nicole Gurran: Yeah. And what you’re putting your finger on is one of the solutions… this is one of the solutions to the burgeoning affordable housing crisis in Australia. And that is to build up the non-profit sector. And that means non-profit providers, who are able to develop and offer affordable rental housing, possibly affordable home ownership. But, still to be able to build up that sector will require access to land in the right locations, and it’ll also require access to government funding and government incentives too, to make the development of that housing viable.
In South Australia, a scheme like that works very well. So when land is rezoned for housing development or for higher density housing development in South Australia, 15 percent of the homes produced in that scheme must be offered as either low cost home ownership or affordable rental.
Chris Neff: So, I was having brunch with a friend and he said: ‘Australia’s an island, there’s only limited land, there’s only limited places to build houses, housing prices can’t ever go down as the population goes up. It’s just always… it’s a great investment because it’s always going to go up’. Is that… is he right or is he wrong?
Prof Nicole Gurran: Look, the supply as the reason for house prices escalating dramatically is part of the answer. In as much as everyone needs to live in essentially six places in Australia; the capital cities and maybe not the two smallest capital cities. So there are inherent supply constraints there that provide a natural floor to the housing market. But what we’ve seen is actually when prices do rise; we’ve seen a sudden increase in development activity once again in Australia. So, that’s where I’d say the supply myth has been overplayed. And, in fact, you hear on the news now of people warning about an over supply in some markets.
But, we’ve had a very distracting conversation over the last decade about the planning system being the regulatory constraint, being the explanation for lower levels of housing production than were expected, and for prices remaining high. When actually, I think the evidence now, and certainly my research… and I’ve spent the last decade trying to understand where those planning constraints might be. And have not been able to determine any relationship between that regulatory framework and patterns of housing development in Australia.
I mean, one of the things that I think is important to understand about the housing market is generally what brings prices down is not necessarily from within the market itself, it’s generally an external shock. So, even with the global financial crisis; it was driven by the mortgage market, but in a sense that was a finance crisis rather than a housing crisis per se. We were cushioned from that in Australia, in part because the way that we provide housing is not as fluid; to build a house in Australia… generally houses are actually contracted by the people who either want to live in them or who want to buy them at the end. So we have very little speculative housing development. So that I think is one factor that has kept supply very closely connected to demand. That may change in the future, as we get more investors in the housing market than we’ve had in the past.
Chris Neff: Do you think it would be good or bad for Australia to have a more speculative market?
Prof Nicole Gurran: We’re experimenting with that at the moment and we’re not seeing any benefits for affordable housing, because all we’re seeing is housing being treated like an investment but not as a dwelling. And all we’re getting, as a result of that, is new dwellings that aren’t necessarily affordable for people on low or moderate incomes. And there I’m referring to the phenomenal increase, sudden increase in apartment building that we’ve seen in central cities.
Chris Neff: Are there other solutions for people in other tax brackets? We can try and increase public housing for people at the lower end. Is there anything for the people who are in the upper end, so the middle class person who is priced out of the market?
Prof Nicole Gurran: We haven’t been good at serving that end of the market. And I think that’s where we do need a lot of policy development. It’s not terribly hard in my view. The South Australian model, I think is a good model, and it can work in a lot of markets. It’s more difficult in the very high value markets, unless you have new investment that suddenly increases the price of land. Such as a train or a light rail would be a perfect place to start trialling some low cost home ownership in the cities.
But I think we also have to look more at balanced development in Australia. At the moment, we are focusing very much on the major population centres and we know that jobs and economic growth has been very much concentrated on the inner ring of cities like Sydney and Melbourne, and to a lesser extent the other capital cities. And I think we do have to look more carefully at how we can spread economic opportunity back out to the regions. And with that, that also brings the opportunity for more affordable housing just delivered through the market. Because we’ve got more choice in terms of where we can live.
Chris Neff: You’re listening to Open for Discussion, a University of Sydney podcast that looks at research through a personal and critical lens. I’m your host Chris Neff and today I’m talking about the great Australian dream of home ownership with Professor Nicole Gurran, a planner and policy analyst who researches Australian housing.
So Nicole, how do you find your research is received? Do you feel like your research gets taken and then implemented, or do you find it being misapplied or… what has been your experience? So you’ve got 10 years and you’re telling people they’re having the wrong conversation, how do they react to that?
Prof Nicole Gurran: Well there has been two aspects to my work. In fact, quite a lot of my research has been looking at opportunities to borrow from the United States and the United Kingdom, where as an… as a sort of remedy to exclusionary zoning; inclusionary zoning techniques basically require that when new development happens, that a proportion of that be dedicated to people on lower or moderate income. So these inclusionary zoning approaches in the United States and the United Kingdom, very long traditions of using the planning system to develop a very solid pipeline of affordable homes, in those two countries, it has never really taken off [in Australia].
And so, quite a lot of my research has actually been looking at opportunities to borrow those practices and apply them in the Australian case. But, as soon as you start talking about inclusionary zone in Australia, then you get resistance from, for instance, the Property Council of Australia. You get resistance from industry groups who say ‘the planning system overall is the problem, the planning system overall is constraining housing development’. And if you want to include new requirements that might, for instance, require some sharing of profits for affordable housing, that will only make things worse.
Chris Neff: So is it about, really having a concern about housing and planning or is it a concern about having poor people living in your neighbourhood?
Prof Nicole Gurran: You’ve hit on exactly the reason why we haven’t been able to move forward with inclusionary housing in Australia to date, but I hope that’s… that’s changing. One, is the developer opposition, because if you… developers don’t want to to do anything they don’t have to do, why would they, you know, we are talking about the private sector and it will always be within the interest of the private sector to have regulations that allow them maximum profit. And that’s find we need to accept that. At the same time, we need to make sure that our public regulations do maximise welfare for the, you know, for the… for the broader community. And so, using the planning system to say “hang on, through no effort of your own and just because you’ve got a site here and we’ve decided that that site can accept higher density housing, all of a sudden your land is worth three- or 400 percent more than it was worth yesterday”. All we want to do with an inclusionary housing approach, is say “let’s share some of that, to provide some affordable housing”.
Now on the other side of things, you do have hostility within local communities, to the idea of any type of change at all, so medium and high density housing. But, also housing that is specifically for people in low or moderate-income groups and often that’s a lack of understanding about who those people might be. Um, and I think that is where local government and state government can play an important educational role.
Chris Neff: We’re in Australia. This is one of the largest landmasses. So there is a lot of land. Is there anything we can do? I mean, I take the train from Sydney to Blue Mountains, and there’s lots of greenery; there’s lots of forest, there’s lots of land. Is there a way to use that, to try and alleviate some of the housing issues?
Prof Nicole Gurran: I mean that’s an interesting question, and that has been the model for Australian urban and suburban development, you know, almost till now. What we’ve found, of course, is that jobs have become increasingly concentrated in the cities and therefore the distance that people are having to travel is getting ever greater. So that’s one issue. We’re also finding that peoples actual housing preferences are shifting towards being… wanting to live in centres where they can walk to, at least, the shops, hopefully the kids can walk to school. So that’s an important part of the picture.
But it’s important to say that we are actually developing a lot of land on the suburban fringe as well, it’s not as though it’s only about in an urban development. But we have to ask how long that can continue. I mean Sydney’s population is about half the population of London’s, but yet we take up about eight times the land mass. So it gives an idea that at some point we can’t continue the old model of suburban development. But, I think we also have to start thinking about how we can create opportunities in the regional cities that exist as well.
Chris Neff: Is there an alternative to that as well? Which is just to build taller in the cities that you’ve got? I mean, you knock down two-storey and three-storey homes and build 12-storey homes. Or is there a really good reason to not do that?
Prof Nicole Gurran: There’s… I think there’s a misconception that’s portrayed sometimes by the development industry, that if you allow high density housing everywhere then it will magically fill up. And certainly I think, I think, um… sometimes you hear economists talking like that, as though there’s some artificial constraint on supply. When actually you have to look at the land economics and what people actually are prepared to pay for, what type of products they’re interest in. People don’t necessarily want to live in a two-bedroom apartment in a high… in a tower, in you know, the western suburbs a long, way away from public transport. But what we’re not seeing is the market being able to produce homes that are affordable to you, and you know, you’re on a reasonably good salary, and certainly not affordable to people on lower incomes. And, we’re not able to build our way out of that problem; we do need some type of policy intervention to make sure that when we do build, whether they’re towers or whether they’re homes on the fringe, we need a level of policy intervention to make sure a portion of those are affordable. And hopefully as well, that a portion of them can be rented as affordable rental products as well.
Chris Neff: And what have politicians said to you when you’ve said this to them? I mean this is Australia, this is a major issue across the entire country. What do people say when they… when you explain that, you know, there are sort of best practices. There are some countries that do it better than Australia, here’s a model that we can adopt?
Prof Nicole Gurran: There’s a lot of hand ringing. There’s been a number of government working parties set up and pilot programs and parliamentary enquiries. And you’re right, we don’t seem to see much action and I think the recent debate around negative gearing is a great example of, sort of, where the politics of Australian housing policy lie. And with, you know, 70- nearly 70 percent of people who are home owners, who have seen their personal wealth, from paper at least, seem to grow and not just on paper; home owners are now, as a result of the last two property booms, much, much wealthier than people who aren’t in home ownership.
So there’s very high stakes in maintaining the current status quo.
Chris Neff: And is part of that then to artificially support the bubble, so that people remain happy with politicians in major cities or anything that’s going to cause that bubble to burst is a political liability. Umm is that fair?
Prof Nicole Gurran: It’s not as simple as that. Governments are anxious about property markets going down, and with good reason. Um, the whole consumer spending is to a degree propped up by people’s sense of housing wealth. But there is a way that we can both maintain a, sort of, stable housing market and achieve sort of the sweet spot of stable housing production, which is good for the industry. Without bringing prices down, which isn’t particularly good for anybody actually, because prices go down and you start to get less house building as well. But the way to do both in a sense is to build up that non-profit housing sector; it’s to build up the sector able to provide low-cost home ownership and affordable rental, and to, sort of, build the number of players who aren’t dependent on prices continuing to rise.
Chris Neff: I like that a lot. I’m so pleased that you could join us here on Open for Discussion.
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