Demonstrating the need for more Public Housing in Australia’s most Liveable Cities.

As an architect I have been interested in understanding and advocating for the strategic shifts that may be required to facilitate culturally responsive forms of housing at greater (than suburban) densities in Sydney. The design and planning perspectives are critical but more recently I have been attempting to understand the economic issues that might enable more equitable distribution and affordability, and how these could be achieved in the Australian Context.

The polarisation in Sydney’s housing supply in particular, between privately delivered new suburbs on the city fringe remote from existing infrastructure and work opportunities, versus dense towers in urban centres or worse, along transit corridors, is exacerbating problems of location, affordability and limited housing diversity.

I had originally thought - much like the assumptions of the recent NSW Productivity Commission report - that the private market (with some government reform) would be enough to steer us back on course towards delivering the necessary affordability and diversity we so desperately need, but it has become increasingly clear that this is not possible.

While the NSW Productivity Commission report is broad in its scope and in some respects should be commended, it is also limited in its approach and includes some really questionable recommendations with regard to reductions in design quality. The question it seems to be seeking answer to goes something like this:

‘What are the existing bottlenecks to housing development for the well established development players and how might we better enable them to deliver more housing that might improve affordability?’

But, is this the right question to be asking, given the current state of housing (un)affordability in Sydney?

Reading the report through this lens, with the understanding that primarily private enterprises and lobby groups were consulted in its preparation allows us to understand the limitations in its purpose, solutions and critique.

If we reframe the question to address the issue of affordability, rather than productivity, the question we might pose would be:

‘What is wrong with the current approach to the supply of housing in Sydney and what can be done to make housing not just ‘more affordable’, but affordable?’

The intention of this article is to put forward a clear direction towards addressing this question.

Historic Context

From the 1970s the average home could be attained for about 5.5 average salaries. This pattern persisted up until the mid 1990’s, before average dwelling prices started deviating progressively to the current 14+ salary multiples of today. If you’re after a house in Sydney’s inner to middle ring suburbs the average (well located) home creeps up to 25+ multiples - clearly unaffordable, while the ‘average’ home continues to move westward.

Many blame CGT and negative gearing for the escalating cost of housing in Australia yet a review of housing cost within the Angloshere suggests that prices rose globally at about the same time, due to declining lending costs ie. lower interest rates.

Others blame a relative shortage of supply. Or, to put it more bluntly a restriction in the supply that drives housing prices upward thereby establishing the conditions that developers (and investors) are dependent on for profits to build housing.

The housing cost/salary ratio does not clearly communicate the affordability issue, as it is interest rates (and the associated rental and/or mortgage payments) that limit what people can afford to live in, but it is the fixed cost of the escalating deposit that is escaping people’s capacity to save the 2.8 salary multiples (20% of 14 multiples) towards ownership.

Examining rents and mortgages as proportions of household disposable income provides a clearer measure and understanding of the constraints on households with regard to both renting or buying their home.

Below is a graph for the period 1999 - 2020 projected from ABS data to understand the constraints on the average Sydney householder. We can see for the period of available data that rents typically constitute about 36-40% of household disposable income while mortgage payments typically constitute about 42-45%. These ranges reflect the true paying / renting capacity of the average Sydney household for the average home.

Source:

Compiled by Chat GPT from ABS statistics for Median Rent and Mortgage payments as a proportions of Household Disposable Income.

So, we need to understand that rent or mortgage payment costs, as proportions of household income have been relatively stable over a significant period of time, commencing from approximately the 1990s where the purchase cost of dwellings began escalating relative to growth in salaries.

However, this too masks other changes over this period that exacerbate affordability; notably, the change in dual income households goes from about 37% to 47%, (a 27% increase), while mortgage holders; those that have not yet paid off their home, are representing an increasing proportion of households. Accordingly, the average householder is working longer and harder to keep up with the cost of ownership or rent.

We also need to understand that:

1. The proportion of Australians now renting has increased to historic highs, in excess of 30%, due to the greater affordability of renting relative to ownership and that raising a deposit towards initiating a mortgage is becoming increasingly unattainable. This pattern explains the emergence and support for Build-to-Rent.

2. House prices will continue to rise on the basis that in Australia we treat housing as an ‘asset class’, (thus CGT and negative gearing for dwellings as investments) and if the current growth pattern continues the average householder will need to work harder again for the ‘privilege’ of home ownership.

So how do we make housing affordable?

Some economists (such as Cameron Murray) propose that the property market in Australia operates like a monopoly to restrict availability of housing in order for developers to optimise development returns. While other economists (such as Peter Tulip) and the call of the broadening YIMBY movement, will argue that restrictive zoning is generating scarcity, yet each camp will generally disparage the other for suggesting the alternate’s cause.

I am no economist, but I have read the literature, and as an architect, I have witnessed both of these positions. Accordingly, I believe both are concurrently correct and that both need to be separately addressed. However the solutions towards genuine affordability cannot be addressed by the private sector to an extent that will make housing affordable without directly addressing the escalating cost of housing relative to wages; perhaps ‘more affordable’ (as sought by the Productivity Commission), but not ‘affordable’.

The problems of the private sector are peppered throughout the NSW Productivity Commission’s report, as are the proposed solutions - to speed up development through relaxation of; zoning, development controls, quality and environmental standards, restrictive lending practices and the like; in order to enable projects to be developed in locations where profitability can be optimised; notably, high yielding projects (ie. towers) in high yielding suburbs. It is this pattern of thinking over several decades that has contributed to the polarisation in the supply of housing and its diminishing quality and diversity.

Will these solutions solve the affordability conundrum? … No!

But consider this:

If we can’t halt the rise of property prices relative to salaries, do we need to challenge the system itself?

And,

What do we want this new system to look like? Does it make sense to stay on our current course towards encouraging an approach that is more favourable to long term private rentals (eg. Berlin - 75% of housing) or is it one that is favourable to ownership (eg. Singapore - 90% of housing)?

The key as it turns out is in much greater procurement of public housing.

Bold Statement, or is there a clear basis?

Learning from Abroad

Examining a range of international cities to examine relationships between zoning and containment policies in relation to housing affordability, liveability and the provision of public housing, may be able to inform a direction.

If we consider liveability indices which measure utility, amenity, safety and other factors that make cities attractive places to live, with affordability measures, and what impact the proportion of social housing may have with regard to improving conditions we may be able to infer some strategies with regard to the provision of social housing.

The table below compiles the top 15 Cities according to the EUI’s 2024 Liveability Index, with the 15 least affordable cities from Demographia’s 2024 International Housing Affordability Index, (noting it’s English speaking city limitations). To this table, are added key cities with strong public housing components - notably those with public housing exceeding 20%. There is clearly overlap between these three categories in spite of the limited selection criteria. Information was then compiled (sometimes from alternative sources) to complete the tabulation. The table was then ordered from least affordable cities at the top to increasing levels of affordability towards the bottom. The first three columns provide measures that may be indicative of housing supply constraints. These are indicative only but are representative of factors that could be contributing to housing restrictions and accordingly housing prices and affordability. Shades of orange indicate greater restrictiveness or unfavourable conditions, while green shades indicated favourable outcomes / conditions with regard to each column category (as categorised by the legend).

Some patterns emerge, and we can begin to broadly classifiy these cities into three broad groups.

The First group (Hong Kong to New York), Those with strict containment or zoning requirements (which include Sydney, Melbourne and Adelaide) are cities where housing has escaped reasonably affordability, and where more needs to be done to better enable affordability. These are places where housing price to household income ratios exceed 9.0, with typically inadequate provision of public housing to ameliorate the situation. Amsterdam and Hong Kong are notable exceptions which are discussed below.

The Second Group (Berlin to Copenhagen) are cities with moderate containment or zoning requirements where the provision of public housing is ameliorating the impacts of affordability. These are typically cities where housing price to household income ratios are in the range of 7.5 - 9.0, but we can include Amsterdam and Hong Kong from the above group in this broad categorisation. This is because the affordability index commonly excludes the public housing component which is typically rented. ie. the affordability index is driven by the balance of (market) housing that is ‘purchased'. For example, typically, for a city with a 20% public housing component, the affordability index is driven not by the mean household (50th percentile if there were no public housing) but closer to the upper 40th percentile. In this group, the provision of social housing has a direct impact on affordability, not just for the lower 20% of the population, but an indirect impact by allocating the higher cost of market housing to the upper 80% of the (more affluent) population - that have greater purchasing capacity.

The Third Group Singapore, Calgary and Perth, still score well on liveability indexes, but have not escaped affordability with, or without the provision of social housing. These cities typically have housing prices that are less than 7 multiples of household income. Singapore is noteworthy for several reasons. It has much better affordability (5.3) than any comparable city with strong urban containment policies. The important thing that distinguishes Singapore from many of the other cities, is that the provision of public housing has an impact on the entire population. While 80% of social / public housing is delivered by the state, ownership represents a total of 90% across both privately and publicly delivered housing stock. The Singaporean Housing and Development Board program has built the majority of Singapore’s housing which is either rented or subsequently sold on to householders to own and maintain on 99 year leaseholds. This approach has driven housing affordability to just 5.3 multiples of household income relative to Sydney’s 13.3.

Sources:

Affordability Index - Demographia International Housing Affordability, 2024 Edition, Wendell Cox, Chapman University - shown in black. Where not available from this source, compiled from available online sources, noting that methodologies may vary - shown in Grey. Proportion of Public Housing - Compiled from various available sources. Livability Index - Economist Intelligence EUI, The Global Livability Index, The world’s most liveable cities, 2024 (compiled from available online sources) Housing Elasticity, Regulatory Restrictiveness and Urban Containment Policies - compiled/extrapolated by Chat GPT from various sources.

The Singaporean model represents just one such model that could be explored to genuinely address affordability. Such a model could bring Sydney back in line with pre-1990’s levels of affordability. No matter the model, what is clear from this analysis is that the proportion of social and public housing delivered can have both a direct and indirect impact on affordability.

Summary

If we are genuine about our concern for affordability, we cannot rely on the private sector to drive the solutions as it is captive to economic concerns which are dependent on profitability, productivity and the ebb and flow of favourable economic conditions and investment cycles.

In our current state, of rising costs and increased bottlenecks, many of which are the subject of the NSW Productivity Commission’s report, we need to consider other models that put far greater emphasis on publicly procured housing, planning reform (for the appropriate diversity and locational delivery) and tax structures that do not treat housing as an asset class.

It is the proportion of publicly delivered housing that has the capacity to address the increasingly unattainable affordability issue, and it is imperative (as outlined in other post here) that we consolidate our city to put people closer to jobs, available infrastructure and amenity.