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The Fifth Estate
Green buildings and sustainable cities – news and views
Accelerating housing unaffordability – both rental and purchased – is the consequence of a larger system of relationships in which we all are complicit – the financialisation of everything.
Though many solutions have been proffered over the years, perhaps we should focus on the very commencement of the development process – the acquisition of land. This is part one of a two part article on this topic. See part 1 here
OPINION: Decrying the dire state of an architecture profession left to serve the interests of investment capital, Marianela d’Aprile’s Outrage column in the current Architectural Review, glumly observes that “Adding for-profit units to the housing market, and the increase in the power of for-profit developers, drive up housing prices and rent, all while people continue to struggle to afford a place to live.”
Peter Barber agrees that the for-profit housing system has failed. It cannot and will not – in Australia at least – build affordable housing.
For evidence look no further than the industry’s resistance to affordability measures like inclusionary zoning and value capture provisions, its monopolistic land banking, deliberate restriction on supply to elevate prices, seemingly endless building-fault fiascos requiring industry re-regulation, and the persistent market failure of unmet demand for affordable housing.
A clue to the origin of this failure can be gleaned from the name, “for-profit”. The industry wholly resides within the market economy for the sole and narrow purpose of making a profit.
To illustrate, endorsing recent UK moves to make social media company directors personally liable for harmful contents on their platforms, Stephen Bainbridge observes that corporations after all aren’t moral actors, “the corporation is simply a nexus of contracts between factors of production”.
Yet, the quest for affordable housing originates partly in moral notions of fairness. Moral concerns are for governments to address, or so a neoliberal critique would have it. We will return to this issue shortly.
Fortunately, alternative models of housing provision have existed for some time and can be grouped under the system-level heading of not-for-profit (NFP) housing.
Within that system there are many subdivisions of agencies, financing models, housing types, tenure types, and regulatory structures.
The NFP system exists in Australia but is currently more a niche provider compared to the overwhelmingly dominant for-profit system.
However, when viewed thus it is clear why attempts to address housing affordability, by isolated tweaks to the for-profit housing system, are not likely to be effective. They merely add fuel to the affordability fire as the same profit will simply be extracted from other points within that system.
Hence, of the many recommended interlocking policy remedies, the primary consideration must be the system in which they are to be applied.
Of the various remedies to improve housing affordability, one of the most fundamental and potentially impactful is to upscale the NFP sector while leaving the for-profit sector and associated investment structures untouched – neither enhanced nor diminished.
We have previously noted the complex components that interact in the provision of housing. Both the for-profit and NFP systems share many of the same features.
Redirecting our analysis from the composition of housing systems to the process – the sequence of events in housing provision – the very first step generally entails the acquisition of land.
It is at this point only that the two systems compete directly – the fork in the road beyond which they operate largely in parallel.
The significance of land is very simple to understand: no land, no development, no profit.
The value of land derives from two features. Firstly, it possesses commodity value as a piece of dirt and, secondly, what can be done with it, which in development argot is referred to as its yield.
Typically, the land cost for development is conceived as the price of land per dwelling. Hence, all other factors being equal, the greater the yield the greater the land value.
Yield is governed by planning controls, which typically cap the number of dwellings that can be built, and hence the theoretical value of the land.
However, most controls permit wiggle-room so that theoretical planning yield can be increased through the development application process. Thus, it is not the planning controls per se that define actual yield but the final development approval, which essentially is a licence to build.
However, because land is so fundamental to the development process many developers are prepared to outbid rivals in the hope of obtaining a higher yield through the development approval process and thereby recoup a higher initial bid cost of land.
Financial yield can be further elevated by controlling release of the finished “product” so as not to cause prices to drop. Clearly, controlling supply of new land is central to maintaining this strategy.
This is why for-profit housing provision as a system is monopolistic in character.
NFP providers, charged with providing cheaper housing, are unlikely to out-bid for-profit providers under these conditions.
Pausing here and returning to our discussion about the moral obligation on government to ensure fairness in housing provision, it is typical to suggest that it is discharged by direct provision of “social housing”, wholly at taxpayer expense.
However, social housing typically aims to serve the neediest 10 per cent or so of our population, yet housing unaffordability now exceeds some 30 per cent of the population in Australia, and as Marianela d’Aprile reports, some 42 per cent in New York and a staggering 84 per cent in London.
Plainly, government cannot be expected to generate housing fairness by direct provision at these scales.
Government could grant NFP providers higher yields than for-profit providers and thereby enable more even bidding for land
However, as the remits of governments typically straddle many interests, there are many other ways they can intervene, short of direct provision of social housing.
Firstly, and as rehearsed previously, government could grant NFP providers higher yields than for-profit providers and thereby enable more even bidding for land.
This might be conceived as granting a higher land value at the stroke of pen and then transferring that value to NFP providers charged with the policy responsibility of providing more affordable housing – a kind of value capture in favour of the policy objective.
The for-profit industry could not reasonably object as it currently does not pay for the value uplift it obtains when government similarly rezones land to allow more intense development yields.
Furthermore, if this policy were adopted, the for-profit industry would then reasonably press for relief of other planning imposts like inclusionary zoning.
Manifest market failure
Though unequal treatment of market participants is anathema under Australia’s competition policy settings, it is justified where there is a manifest market failure or if government is unreasonably encumbered with the negative externalities of other industries – such as having to provide affordable housing.
Consistent with competition policy, rapid growth of the NFP sector under these conditions would also introduce a degree of healthy market competition between systems that in time should dampen runaway house-price growth.
Secondly, government can “de-risk” NFP development by exclusively granting up-front rapid development rights of a kind that Chris Johnson had developed for medium density development. Similar codes have been prepared for lower-scale infill development in suburban locations.
Community concerns might be allayed if the requirement for architectural design of multi-unit dwellings were to be extended to NFP developments benefitting from these provisions.
Further allaying community concern, when fully matured the overall proportion of affordable development would likely be a fraction of current for-profit housing provision across all markets.
Thirdly, governments could adapt existing administrative measures applying to numerous industry sectors that would aim to increase the financial security, probity, capacity, and confidence in NFP affordable housing provision.
Maintaining the NFP sector
A further point needs to be aired – it would be essential to prevent the leakage of housing from the NFP sector back into the for-profit financialised housing sector.
The nature of the problem is well illustrated by the trajectory of social housing in Millers Point.
Social housing tenants were evicted in inner-city Millers Point and homes sold to private owners with the proceeds ostensibly directed to the construction of a greater number of social housing units elsewhere.
Yet, on Census night 1 in every 3 Millers Point homes were vacant, meaning the effective net increase in housing within New South Wales was diminished by the same quantum as those vacancies – a devastating policy outcome for affordable housing.
This is part one of a two part series, inadvertently posted in the incorrect order. See part 2 here
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This article is fantastic Mike!
Naming the major source of unaffordability for contemporary housing in developed countries, the too big to fail perpetual inflation of land values this country is hooked on. The first step in successfully making structural changes to the way society sanctions the development of land, recognise the major factor in increasing market values of property. Then find a way to mitigate the flaw.
Like you mentioned Mike, a sanctioned pathway for community to develop land for itself in partnership with state authorities, not-for-profit but for community benefit, would be the most positive solution in countering unscrupulous capitalist forces and creating affordability. An idea I first heard around a decade ago from Geoffrey London speaking at the Institute of Architects, when Victoria’s state architect. A concept that could be further enhanced via the Community Land Trust (CLT) model of land ownership, that seeks to hold land off the market for perpetuity. Instead buying and selling the market replacement cost of the building stock, with a formular that keeps a small percentage of the would-be land profit for the CLT and community benefit. The work of Louise Crabtree, from UTS, is gold when attempting to establish a CLT in this country for groups looking to navigate our property laws.
As I posted to the article ‘On housing to pine for’ CLTs are a successful approach from the US and UK that have the not-for-profit foundation + for-community-benefit purpose and number 300+ orgs in each country. The largest in US is the Champlain Housing Trust managing nearly 3000 homes, which was first established in 1984 by then Mayor Bernie Sanders. The CLT concept has its roots in the work of economist Henry George of the 19th century, and some say his visit to this country in June of 1890 was also inspirational for the formation of the Australian Labor Party and its peculiar US spelling. It certainly inspired Queensland’s first multiple occupancy in Alice River, very near to Barcaldine and the now dead but memorialised “Tree of Knowledge” where striking pastoral workers meet in 1891.
Reflections from a startup rural CLT group I’m a part of in SEQld, a sanctioned pathway of collaborating with local Council including a greatly reduced planning fee and headworks charges + more amenable cluster housing code enabling more long term residents on a single title, compatible with rural use zoning, would make for a rather economically viable project. Enabling affordable housing for many families seeking to run a regenerative organic farm and a number of value-add enterprises together. This pathway would not only help our project, food security and carbon sequestration or a net + project, it would help countless other projects I’m mildly aware of seeking the same goals. On the urban front, the same could be done for attached, low-rise infill housing projects seeking to propagate the beautiful community action of co-housing and co-living.
Thankfully there is a newly formed org out of Proper Australia, Grounded CLT Advocacy, collating information and seeking to lobby Government at all levels. Perhaps together we could help turn the corner on not only affordable housing, but also address climate change and the erosion of community via the commodification of everything.
02 8005 6525
info@aktengineering.com.au
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