CURTIN INSTITUTE OF PUBLIC POLICY
HOUSING AUSTRALIANS :
THE CHALLENGES AHEAD
Shane Goodwin
Managing Director
Housing Industry Association
1 July 2010
PART 1 – INTRODUCTION
Good morning
Thank you to my kind hosts, the John Curtin Institute of Public Policy for this opportunity today to
outline some of the important issues affecting the residential housing industry.
I congratulate the Institute on the fine reputation that you have established as a centre for learning in
Australian public policy.
We remember John Curtin as a great Australian and a great Prime Minister.
Australia is at the crossroads. As a nation we are ageing. As the ‘baby boomers’ leave the workforce
in the next 10 years they will take much of our experience skills base and taxation pool with them.
This has profound implications for our economic and social landscape.
The ongoing debates about population, infrastructure, taxation and economic growth are inextricably
interwoven.
Today I intend to touch on a number of themes that must be considered as we tackle the issues of an
ageing population, population size, and housing.
At the outset I contend that as a nation we need to be asking the following questions.
Will our future taxation base be sufficient to support an ageing population and what must we do to
maintain our standard of living?
How do we pay for the aged – some options are – work longer, more skilled migration, pay more tax,
raise the retirement age, increase compulsory super, reduce retirement benefits.
These are all examples of options that will appear unpalatable to some or most of Australia’s
population. However, they are also examples of areas where tough decisions will need to be made to
accommodate Australia’s growing population, regardless of the rate at which the population actually
grows. The challenge is immense as tough decisions are rarely popular decisions.
A key challenge is how do we house Australia’s population in the years ahead?
How will we replace the skills that will soon be lost to ensure we have a sufficient pool of labour?
What type of housing will both an ageing population and younger Australians want and need?
Where will they want (or have) to live?
Page 1 of 29
If we are to become a bigger Australia where will we put our new arrivals?
Imagine Sydney with 7 million or Perth with 3 million, with their current infrastructure, roads, rail,
hospitals, schools, water and energy.
How will we design our cities and provide infrastructure to support them?
A common underlying theme to all these questions (and many more) is what action is required to
ensure Australia can deliver affordable housing for its people?
This is a time for focus, vision and leadership by governments, and I will touch on what government is
doing other than talking.
In this regard there are a raft of reports and agendas across levels of government and bureaucracy,
some of which I will outline. The latest Federal example is the former Prime Minister, Kevin Rudd,
announcing in mid June the members of the expert panel to review capital city planning systems.
Around the same time the Australian Council of Local Government (ACLG) released its 2010-11 State
of the Regions Report.
As I will touch on later, the key is for such focus to manifest itself in strategies for action. I am not
sure we just need more and more reports.
This paper endeavours to provide focus to the debate by identifying the issues that must be
addressed if Australia is to continue to enjoy the fruits of economic growth.
Demographic Population Profile
Let’s consider our demographic population profile.
Our population is ageing. In February of this year the Treasurer, Wayne Swan, said “In respect to
ageing, between now and 2050, people aged 65 to 84 years will more than double and the number of
people aged 85 and over will more than quadruple. By 2050, there will be only 2.7 people of working
age for every person aged 65 and over. Today there is five.”
A low population case for 2050, which would yield insufficient overseas migration to avoid a
substantial drop in our standard of living, generates a larger proportion of over 65’s and a ratio of only
2.3 people of working age for every person aged 65 or over.
Low and Base
Australian
Population
case Projections : Low and Base case
Percentage of total population
0-14
15-64
65-84
85 and over
Low = popn . growth of 0.8% p.a.
Base = popn . growth of 1.2% p.a.
2010
19.1
67.4
11.7
1.8
Source: Treasury projections
Our ageing population creates a number of issues:
•
•
•
How do we house, care (and pay) for an ageing population?
How do we replace their skills?
How do we maintain the tax base?
Page 2 of 29
2050
2050 - Low 2050 - Base
15.1
17.2
58.9
60.2
20.0
17.6
6.0
5.1
The answer appears obvious. Encourage an increase in the birth rate and top-up with immigration.
The Commonwealth’s ‘baby bonus’ appears to have worked and immigration levels are at a record, if
perhaps unsustainable, level, largely thanks to the student visa program.
It’s not that easy. This path will inevitably result in a larger Australia and a need for more housing.
Indeed even with minimal overseas migration and a declining fertility rate, Australia’s population will
still end up closer to 30 million than 20 million in 40 years time.
PART 2 – CURRENT TRENDS – WHERE IS NEW HOUSING NOW?
I want to briefly examine this issue of population growth in more detail and in the context of how it
translates to the number of dwellings required to house various population scenarios.
Where do we put an increasing population and how do we house them? At the moment it is more a
case of where can I afford the land rather than any considered plan of action around jobs and
community. This, of course, leads to a requirement for new community and urban infrastructure and
contributes to the problem of major infrastructure deficiencies for road, rail, water and energy, as
green-field sites are further and further away from jobs.
The following table highlights that even within the current population there is no shortage of demand.
The table of the top 20 Hotspots around Australia in 2008/09 includes Statistical Local Areas (SLA’s)
from Victoria, Queensland, Western Australia, New South Wales, and South Australia.
National Top 20 Building and Population Hotspots*
*SLAs with in excess of $100 million in residential building work approved in 2008/09 and with an annual population growth rate in excess of the national average
Statistical Local Area
State / Territory
Residential Building Approved,
2008/09 ($'000)
Annual Population
Growth Rate (%)
1
Whittlesea (C) - North
VIC
484,029
18.3
2
Wyndham (C) - South
VIC
283,717
12.8
3
Griffin-Mango Hill
QLD
149,930
12.8
4
Cardinia (S) - Pakenham
VIC
241,553
10.0
5
Melton (S) - East
VIC
285,195
9.5
6
Wanneroo (C) - North-East
WA
163,165
8.6
7
Wanneroo (C) - North-West
WA
205,488
8.6
8
Wyndham (C) - West
VIC
112,474
7.9
9
Condon-Rasmussen-Bohle Basin
QLD
145,866
7.9
10
Central Pine West
QLD
114,463
7.8
11
Canada Bay (A) - Concord
NSW
111,469
7.4
12
Ipswich (C) - East
QLD
260,177
7.3
13
Wyndham (C) - North
VIC
368,605
6.9
14
Casey (C) - Cranbourne
VIC
333,762
6.4
15
Melton (S) Bal
VIC
161,328
6.1
16
Hume (C) - Craigieburn
VIC
187,488
5.9
17
Onkaparinga (C) - South Coast
SA
117,129
5.6
18
Brisbane City - Inner
QLD
149,069
5.5
19
Melbourne (C) - S'bank-D'lands
VIC
335,165
5.3
20
Caloundra South
QLD
121,760
5.1
The top two Hotspots and four of the top five Hotspots were located in Victoria. Queensland had one
Hotspot in the top five and three in the top ten. The Hotspots for these two states are focused on
Greater Melbourne and the south east corner of Queensland, two areas earmarked for some of the
largest demands from a growing population over the next forty years.
For Western Australia, the Statistical Local Area (SLA) which topped the list of Hotspots for 2008/09
was Wanneroo-North-East. Population growth reached 8.6 per cent over the year to June 2009, and
over $163 million in residential building was approved by council over the year.
In addition to Wanneroo (C)-North East topping the list, Wanneroo (C)-North West was the second
ranked Hotspot for 2008/09.
Page 3 of 29
Outside the capital, there were particularly strong results for the Mandurah Council area, which had a
population growth rate of 5.1 per cent over the year to June 2009, and $188.5 million in residential
building approved in 2009. Busselton Shire was also a regional Hotspot for Western Australia, as was
Port Hedland.
The Hotspots were, however, predominantly located in Perth, once again indicating strong
contemporary levels of demand before we begin to consider the challenges of a growing population
over the next forty years.
WA Building and Population Hotspots**
**SLAs with in excess of $100 million in residential building work approved in 2008/09 and with an annual population growth rate in excess of the national average
Statistical Local Area
Statistical Divison Residential Building Approved, 2008/09, ($'000)
Annual Population
Growth Rate (%)
1
Wanneroo (C) - North-West
Perth
205,488
8.6
2
Wanneroo (C) - North-East
Perth
163,165
8.6
3
Mandurah (C)
South West
188,511
5.1
4
Port Hedland (T)
Pilbara
138,002
4.9
5
Armadale (C)
Perth
251,948
4.6
4.5
6
Cockburn (C)
Perth
255,129
7
Busselton (S)
South West
142,604
4.3
8
Swan (C)
Perth
241,569
4.1
9
Rockingham (C)
Perth
242,543
4.1
10
Gosnells (C)
Perth
172,573
3.1
11
Stirling (C) - Coastal
Perth
233,484
2.7
12
Stirling (C) - Central
Perth
218,341
2.6
13
Cambridge (T)
Perth
115,795
2.4
14
Canning (C)
Perth
113,397
2.4
Let’s return to the issue of our ageing population.
The Hotspots identified above provide one example of existing strong demand for new housing
generated by a fast growing and ageing population.
The vast majority of this fast population growth is occurring in coastal areas around Australia, as the
map below illustrates.
Retirees as well as other groups are on the move to the coast.
We have big challenges now in housing our population as in recent years new supply has failed to
keep pace with demand. Providing an adequate supply of affordable housing is an issue for our
current population as well as an issue for whatever future population size Australia experiences.
Page 4 of 29
Acknowledgement : Bernard Salt address to HIA’s National Policy Congress, Gold Coast, May 2010
PART 3 – ANALYSIS OF THE CRITICAL ISSUES
The Supply Challenge
Based on recent trends, there are around 150,000 housing starts in Australia per annum. By housing
starts I mean detached, medium and high density housing including high rise apartments. It is not
approvals but commencements (starts) that count – there is a widening and perplexing gap between
approvals and commencements which I suspect is about the dysfunctional planning system
compounded by a current lack of finance for both development and purchase – I will briefly touch on
that issue a little later in this paper.
Over the last ten years (2001 to 2010, inclusive) the high in housing starts was 174,370 in 2002 and
the low was 137,680 in 2009.
Current HIA forecasts, based on Treasury projections, estimate a need for Australia to average
194,000 dwellings per annum over the period 2011-2020.
Let’s look at a number of other plausible scenarios. But first, what is happening with population
growth trends?
Page 5 of 29
Australia's Population Growth by Component - Moving Annual Total
Source: ABS
500000
450000
400000
350000
300000
250000
200000
150000
100000
50000
Total MAT
Natural Increase MAT
Sep-09
Sep-08
Sep-07
Sep-06
Sep-05
Sep-04
Sep-03
Sep-02
Sep-01
Sep-00
Sep-99
Sep-98
Sep-97
Sep-96
Sep-95
Sep-94
Sep-93
Sep-92
Sep-91
Sep-90
Sep-89
0
Net Overseas Migration MAT
Based on current net overseas migration in excess of 300,000 there would be a requirement for
242,000 dwellings per annum. My view is that the current high level is an aberration and migration
levels will return in coming years to around 180,000 dwellings.
New Dwelling Requirements to 2020
Source: HIA
300,000
250,000
200,000
150,000
r
e
b
m
u
N
100,000
50,000
0
Current projections
Small Australia
Average annual starts required
Big Australia
Current trend
Housing Starts based on current trend
A ‘Small Australia’ where the focus is on natural population growth and a historically low net overseas
migration, yields a requirement for 182,000 dwellings per annum.
A ‘Big Australia’ based on net overseas migration of 210,000 per annum and a population ultimately
reaching 38 million by 2050, being one scenario highlighted in the recent Intergenerational Report,
requires 206,000 dwellings per annum.
Total Dwelling Requirements to 2020
Source: ABS,HIA
2,750,000
2,419,811
2,500,000
2,250,000
2,000,000
Current Trend
1,920,000
1,819,811
Current projections
Small Australia
2,059,811
1,750,000
1,500,000
1,250,000
r
e
b
m
u
N
1,000,000
750,000
500,000
250,000
0
Total new dwellings required
Big Australia
Current Capacity
Page 6 of 29
Current trend
Potential Capacity
Put another way, the total new dwelling requirement over the next ten years to 2020 ranges from
1.82 million dwellings for a ‘Small’ Australia to over 2.4 million dwellings based on current population
growth.
HIA assesses that when taking account of current supply side constraints, the industry has the
capacity to deliver 1.65 million dwellings over the next 10 years.
That capacity would lift to a projected 1.88 million dwellings if reasonably rapid progress was made in
key areas, particularly in reducing the price of serviceable land and in providing sufficient skilled
labour.
Average annual shortfall in Housing Starts
Source: HIA
100,000
90,000
80,000
Number
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Current projections
Natural growth
Big Australia
Current trend
Average annual shortage
The average annual shortfall in housing starts ranges from 31,600 for a ‘Small’ Australia to 91,600
based on current population growth.
Dwelling Requirements versus Industry Capacity
Source: HIA
210,000
200,000
Number
190,000
180,000
170,000
160,000
150,000
2010
2011
2012
2013
2014
2015
2016
2017
Dwelling requirement
Potential Capacity
Capacity with modest improvement on supply side
Current Capacity
2018
2019
2020
Current industry capacity and likely capacity, if only modest progress is made in reducing supply side
obstacles, both mean Australia would fall well short of building a sufficient number of dwellings over
the next decade.
If substantial progress was made in reducing supply side obstacles and the industry could build to its
potential capacity, we would still fall short over the next ten years, but it would be a manageable
situation.
I will return to the issue of supply and supply side obstacles, but first I would like to touch on the
demand side and, in particular, whether Australians will be able to afford housing in the years to
come.
Page 7 of 29
The Affordability Challenge
Under current conditions where supply side constraints and regulation have created a significant gap
between existing and new home values, actual (affordable) demand would fall short of the potential
demand of the population.
Housing Affordability Decline
Source: HIA Affordabilit y Report
300.0
275.0
250.0
225.0
200.0
175.0
150.0
125.0
100.0
75.0
Australia
Capital Cities
Mar-10
Mar-09
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
Mar-00
Mar-99
Mar-98
Mar-97
Mar-96
Mar-95
Mar-94
Mar-93
Mar-92
Mar-91
Mar-90
Mar-89
Mar-88
50.0
Rest of State
Note the upward spike in the March 09 quarter resulting from the drop in interest rates and the boost
to the First Home Owners Grant, but the long term trend is one of deterioration. Put another way, the
next table shows the gap between price and affordability.
This is already starting to bite as this table illustrates.
How Many Homes can People Afford to Build?
Source: HIA
200,000
195,000
190,000
Number
185,000
180,000
175,000
170,000
165,000
160,000
2010
2011
2012
2013
2014
Dwelling requirement
2015
2016
2017
2018
2019
2020
Actual (affordable) demand
The size of households is again increasing as a direct response to the lack of affordable housing for
young people – they are not leaving the nest until much later in life (much to the bemusement of many
of their parents!)
Page 8 of 29
Average number of persons in household - Australia
Source: ABS 4130.0
2.75
2.69
2.68
2.67
2.65
2.62
2.60
2.58
2.55
2.56
2.53
2.53
2003–04
Number of persons
2.65
2002–03
2.70
2.51
2.50
2.45
2007–08
2005–06
2000–01
1999–00
1997–98
1996–97
1995–96
1994–95
2.40
Average number of persons in household
Household formation is a sensitive measure. For example, an increase of 0.1% per year alters
underlying demand by nearly 40,000 dwellings per year.
Obstacles to Boosting Australia’s Housing Supply
Earlier I outlined the growing shortfall between underlying demand and actual housing starts. Clearly
supply must be boosted.
There are three primary and systemic obstacles to boosting Australia’s supply of housing stock:
•
•
•
Lack of readily available land;
Planning delays;
Infrastructure tax and charges.
In the current environment there is also a fourth obstacle, that being the lack of available finance for
residential development. Finance is being extended to credit worthy households (and that has
tightened), but there is a severe restriction of finance being extended to the housing industry to
increase residential development to meet the household demand.
The first obstacle is the lack of readily available land
A substantial part of the erosion in affordability that is manifested in a shortage of dwelling stock
relates to the escalation in residential land values.
Raw land prices have escalated rapidly over the last 20 years, by an average of over 200 per cent
across the three capital city examples for Sydney, Melbourne, and Perth.
The amount of affordable residential land available for development in 2010 and in coming years falls
considerably short of the amount required to meet the needs of Australia’s population.
This land constraint is especially prevalent in Sydney and regional New South Wales, the south east
corner of Queensland, Western Australia and, more recently, Victoria.
A lack of readily available land in the last new home building cycle was evident in median residential
land values increasing at a substantially faster pace than the cost of construction or the general rate
of inflation. This situation is now re-emerging. Over the year to December 2009, new house prices
(excluding land) grew by 2.8 per cent, building materials prices increased by 1 per cent, labour rates
fell marginally, but median land prices jumped by 13.1 per cent.
Page 9 of 29
Some examples of land supply difficulties across states are:
•
•
•
New South Wales simply doesn’t have enough available land and this was evidenced by a larger
proportion of first home buyers purchasing existing property while the First Home Owner Boost
(FHOB) was in effect than in any other state. Sydney, Wagga, and Bega are three examples of
areas where the land shortage is at a chronic level.
Queensland has a critical shortage of land and the south east corner in particular faces major
shortages.
Western Australia has sufficient zoned land, but in terms of registered land readily available is
rapidly approaching chronic shortage. (The timeline to deliver ‘shovel ready’ sites from zoned land
can be two to five years, sometimes longer.)
Construction costs have also increased considerably, but at a much slower rate, mainly as a result of
‘regulation creep’. For example, energy efficiency requirements have added significantly to
construction costs.
The second systemic problem is town planning delays
Delays in the local government approvals process continue to present a major obstacle to residential
development. This situation has deteriorated considerably over the last ten years, which is
unfortunate given that our population growth has been accelerating.
The recent First Home Owner Boost (FHOB), a very successful policy in stimulating demand for new
housing because of the increased assistance afforded new home buyers relative to existing home
buyers, highlighted the widespread impediment to new home construction caused by planning delays.
At the height of the positive impact of the FHOB the rate of increase in new home lending was running
at a considerably faster pace than the rate of increase in local government building approvals,
because of bottlenecks in these approval processes. The previous targeting of assistance to first time
buyers toward new homes, which occurred early last decade, yielded no such difference in the rate of
increase in new home lending compared to local government building approvals.
Planning delays are pervasive across the nation, although obviously there is some variability. There
are examples in the south east corner of Queensland of the approval process for a detached house
taking five months to complete after finance had been approved. Approval for high rise development
in Sydney takes around two years, while the equivalent time in the south east corner of Queensland is
six months.
For a single undeveloped block of land valued at $140,000, the holding costs associated with an
approval application sitting in a council in-tray amount to a minimum of $1,100 per month.
For the Queensland example cited above, where a single detached dwelling with development and
finance approval took five months to receive a building permit, the net holding cost over and above
what it should have been was nearly $5,000.
If you consider a 300 lot residential development where approval takes 18 months, which in some
geographical jurisdictions is a relatively short amount of time, the total amount of money lost in
holding costs is nearly $6 million.
The following table is aimed at providing an indicative guide to the approval process in place for the
majority of detached housing applications, whether on a green-field or in-fill site. (It is understood that
this process does not apply in 100% of cases.)
Page 10 of 29
State Planning & Building processes for Detached Housing Approvals (@ 1 May 2010)
State
Is planning approval required for
detached housing in your state?
Yes/No and % of applications captured
Queensland
No, for a standard house on a standard size
allotment no planning approval is required.
An approval maybe required on small
allotments, in character areas, or where
some environmental aspect is in place. 10 –
15%
Yes – 90%
State Housing Code introduced in 2008 with
target of 50% complying development
Yes – 10%
NSW
ACT
Victoria
No – general trigger is lots less than 300m2
(councils do vary this) or an overlay. %
required around 10-15%
South Australia
Western
Australia
Yes – 100%
No
Tasmania
Yes – 99%
Does your state have a combined
planning & building (single) approval OR
building approval only process for
detached housing?
Yes – Building (development) approval. Can
be done by building certifier
Yes – Complying development 10%. Can be
done by council or accredited certifier
Yes – Compliant exempt development –
100% green-field, 90% in-fill. Done by
certifier.
Yes – As of Right (ResCode) Building permit
only.
Variations can be considered by Council
under a report consent.
90%
No
Yes, but only when Variations are required to
the Design Codes, Local Government
Structure and DAP
No (Draft ResCode on exhibition currently)
The third systemic problem is infrastructure taxes and charges
From a low base, the fastest increase over the last 20 years has been in levies and charges.
House and Land Package Examples
Sydney
Melbourne
1990
2000
2010
1990
2000
2010
Land
$50,000
$75,000
$160,000
$46,000
$64,000
$130,000
House
$80,000
$145,000 $259,000
$85,000
$153,232 $242,000
Levies and Charges*
$5,000
$19,000
$110,000
$1,900
$7,080
$27,000
*Infrastructure charges, local government regulations, compliance costs. Excludes stamp duty
1990
$49,000
$75,000
$1,500
Brisbane
2000
$74,000
$132,791
$4,522
2010
$150,000
$263,000
$41,550
Source: HIA
Levies and charges have increased by $105,000 per lot in Sydney, nearly $40,000 per lot in Brisbane,
and over $25,000 per lot in Melbourne.
Page 11 of 29
This next table shows the break-up of government charges.
Charges for House and Land
Mid 1980's
Mid 1990's
2008
Sydney
Commonwealth charges
State charges
Local charges
Final price
$0
$3,500
$2,000
$157,275
$0
$17,500
$4,000
$196,750
$45,650
$50,150
$35,600
$510,594
Commonwealth charges
State charges
Local charges
Final price
$0
$300
$1,500
$93,063
$0
$2,692
$2,580
$144,475
$36,757
$10,920
$15,000
$507,723
Commonwealth charges
State charges
Local charges
Final price
$0
$500
$2,000
$124,435
Melbourne
$0
$2,568
$5,412
$149,494
$30,405
$10,966
$9,120
$343,746
Brisbane
Over the last decade especially, there has been an increasing trend towards a ‘user pays’ approach
to funding physical and social infrastructure for residential development. However, ‘user pays’ means
that new home buyers bear the burden for financing infrastructure for the whole of the community.
This trend has been to the detriment of new home affordability.
Sydney is the primary example of the trend towards the user pays approach and it is no coincidence
that new home building in Sydney has in recent years reached its lowest level in post war history.
The (hopeful) success of the recent announcement by the New South Wales Government to cap
council levies (section 94 charges) at $20,000 per lot will remove a considerable cost component from
the price of a serviceable residential lot in Sydney.
The table below provides an example of the impact of the recent announcement by the New South
Wales Government to cap section 94 charges.
Example of Reduction in Section 94 Charges
Pre December 2008
Local Council (s94)
$58,970
State Infrastructure
Up to $33,000
Water Charges
$18,000
Total
$109,970
December 2008 to June 2010
$58,970
$11,000
$0
$69,970
After 7 June 2010
$20,000
$11,000
$0
$31,000
Notes:
1. No exemptions existed prior to December 2008
2. The state Infrastructure Charge (SIC) of $33,000 was reduced to $11,000 in the December 2008 announcement. (HIA is currently
lobbying to retain this cap beyond July 2011.)
3. The water charge was also removed in the December 2008 announcement
4. The majority of councils in the SW growth area were granted an exemption to the December 2008 ($20,000) cap
In reducing the price of serviceable land, the capping of section 94 charges would help close the gap
in price between new and existing properties in the outer suburbs of Sydney. More generally this
policy has the capacity to bolster confidence in the new home building sector in Sydney.
A recent example for a green-field residential development in Sydney has a Section 94 Development
Contribution of $58,970 per lot. On top of this levy there is a State Infrastructure Charge (SIC) of
Page 12 of 29
$16,609.50 per lot. These charges render a house and package unaffordable for most aspiring home
owners.
Prior to the section 94 announcement (which came into effect on June 7 but is not retrospective), a
recent example for a green-field residential development in Sydney had a Section 94 Development
Contribution of $58,970 per lot. On top of this levy there is a State Infrastructure Charge (SIC) of
$16,609.50 per lot. These charges render a house and package unaffordable for most aspiring home
owners.
There is currently a draft Section 94 plan for West Dapto (in Wollongong) under the old section 94
regime where a low density residential levy would amount to $41,471 per lot. On top of this amount
there would be a State Infrastructure Charge. Until June 30 2011 this charge would be $11,000 per lot
and thereafter it increases to $23,000 per lot. We are advised that this residential development may
not proceed because this level of taxation on the land renders projects financially unfeasible. (The
land release is earmarked for 17,085 new dwellings over the next forty years.)
There are current examples of infrastructure charges in the south east corner of Queensland that total
in excess of $30,000 per lot. Proposed infrastructure charges for Rochedale in Brisbane are
estimated at between $50,000 and $60,000 per lot.
In Victoria the government has moved to introduce a new state levy known as the Growth Areas
Infrastructure Contribution (GAIC). This charge will be set at $95,000 per hectare. Melbourne is
currently the most affordable major capital city for new home building and current new home building
activity is clear evidence of this fact. The GAIC will erode new home affordability.
These examples of course relate to green-field sites, but there are funding and delivery challenges for
brown-field and in-fill sites as well and these challenges require their own action plans.
Regardless of where it is located and on what type of residential development site, at the end of the
day we do have to have new infrastructure and we do have to maintain and augment existing
infrastructure. But we need to have a fairer way of funding this.
The Infrastructure Challenge
The under-investment in our infrastructure is enormous. It is difficult to find up to date data. Here is
an extract from the 2005 Australian Infrastructure Report Card (Engineers Australia):
“The provision of infrastructure grants often only covers capital works with no allowance for
ongoing maintenance. Infrastructure renewal studies undertaken within various infrastructure
sectors throughout Australia have generally found that the level of investment in infrastructure
renewal and maintenance is not sufficient to maintain service level standards or achieve the
best lifecycle cost outcomes. There is an immediate need for increased funding for
maintenance and renewals.
Econtech has estimated that significant infrastructure investment backlogs had developed in
Australia. In particular:
•
•
•
•
•
Electricity has an under-investment of $1.15 billion;
Gas has an under-investment of $2.6 billion;
Road has an under-investment of $10 billion;
Rail has an under-investment of $8.06 billion;
Water has a potential under-investment of $3 billion;
The total estimated under-investment is $24.81 billion.
Recent public debate has emphasised the need for much better funding mechanisms to provide
for current infrastructure needs and, just as importantly, to provide infrastructure for future
generations.”
Page 13 of 29
These figures considerably pre-date the current debate around population and the 2010
Intergenerational Report. They do not contemplate a bigger Australia. How could Sydney or
Melbourne cope with 7 million people a piece without a substantial commitment to infrastructure?
The Skills Challenge
The challenge is twofold – we have a rapidly ageing workforce and we need to grow the capacity of
the workforce to satisfy underlying housing demand, which is not being met.
The highest proportion of the construction workforce lies in the 35 to 44 age cohort.
For some wet trades the age distribution is skewed more toward older age cohorts – for example the
average age of a bricklayer is 49.
20 per cent of the construction workforce lies in the 45 to 54 age cohort.
Age Profile of the Workforce: Construction Industry
Source: HIA
30
27.8
25.0
25
19.9
Age
20
15
12.0
10.3
10
5.0
5
0
15-19
20-24
35-44
25-34
45-54
Over 55
The ageing of the workforce is a symptom of the low rate of new entrants to the industry. The ageing
of the workforce also has implications for the acquisition of skills by the construction industry because
the proportion of people in the younger age groups with up to date skills reduces over time. There will
be skill shortages as the older workers leave the industry.
Trade and non-trade commencements, seasonally adjusted, 1999-2009 (‘000)
60.0
50.0
Number ('000)
40.0
30.0
20.0
10.0
0.0
Dec 1999
Dec 2000
Dec 2001
Dec 2002
Dec 2003
Trade
Dec 2004
Dec 2005
Dec 2006
Dec 2007
Dec 2008
Dec 2009
Non-trade
Training activity is lagging well behind the growth in building activity and employment resulting from
such activity.
Page 14 of 29
There were 428,100 apprentices and trainees in training as at 30 June 2008. Of these:
•
•
203,500 were in trades; and
224,600 were in non-trades.
The trade occupations where a decline in commencements has occurred include construction.
As long ago as 1990 HIA, in submissions to the Productivity Commission, reported an 8.5% decline in
the number of apprentices in the industry.
With respect to apprentices coming into the industry, the declining trend in apprenticeship enrolment
in the early 1990s was reversed during the building boom experienced in the late 1990s. However,
showing the cyclical nature of this industry, apprenticeship numbers declined again early last decade
as the level of activity fell from the peak achieved in 2002.
The disturbing aspect is that the level of apprentice activity in 2000/01 was 54 percent higher than
that of 1991/92 and the employment level in the industry in 2001 was 66 percent higher than that of
1991, but the training activity level (measured in terms of the number of apprentices in training) in
2000 remained more or less at 1990 levels. The next table shows it is not improving.
More recent apprentice commencements for construction:
Commencements
Qtr
31 Mar 2005
30 June 2005
30 Sept 2005
31 Dec 2005
31 Mar 2006
30 June 2006
30 Sept 2006
31 Dec 2006
31 Mar 2007
30 June 2007
30 Sept 2007
31 Dec 2007
31 Mar 2008
30 June 2008
30 Sept 2008
31 Dec 2008
31 March 2009
30 June 2009
30 Sept 2009
31 Dec 2009
7,400
3,300
4,200
3,400
7,500
3,500
4,200
4,200
8,400
4,400
5,200
4,500
9,700
4,800
4,300
3,500
6,300
3,300
3,400
5,780
Page 15 of 29
Year
Year total
2005
18,267
2006
19,392
2007
22,460
2008
22,276
2009
18,877
In 2009 the ratio of apprenticeship commencements to housing starts was virtually the same as it was
in 2005.
Apprentice and Trainee Attrition rates from Contracts, by
Occupation
(sub-major groups) and times of withdrawal, 2003 commencing cohort
60.0
46.9
50.0
49.2
Percent (%)
39.7
40.0
30.0
25.4
20.0
15.1
8.7
10.0
3.0
0.0
1 month
3 months
6 months
Source: NCVER
1 year
2 years
3 years
More than 3
years
Time Frame
Attrition rates are substantial in the first 12-18 months of the apprenticeship. 25% in the first year and
nearly half by three years.
We are just not training enough people.
It is unsurprising that the next table shows that almost every building trade makes it on to the
Commonwealth’s Skilled Occupation List used for immigration purposes and funding allocation.
Skills Shortages 1 July 2010
 Air-conditioning mechanic
 Architect
 Bricklayer
 Carpenter
 Carpenter & Joiner
 Construction project manager
 Drainer
 Electrician
 Fibrous plasterer
 Gasfitter
 Geotechnical engineer











Glazier
Joiner
Painter
Plumber
Project builder
Quantity surveyor
Roof plumber
Solid plasterer
Stonemason
Structural engineer
Wall & floor tiler
PART 4 - CAN THE GOVERNMENT SAVE US?
In this part I will briefly examine some of the key Government policies and responses to the issues I
have outlined, focusing in particular on skills and on land supply and infrastructure funding.
Greater Recognition of the Challenges Presented by Lack of Adequate, Affordability Housing
Supply
First, however, it is important and heartening to note the increased recognition that has been given in
recent times to the challenges presented by an inadequate supply of affordable housing.
In the last few years there has been increasing focus on both housing affordability and housing
shortages. In 2004 HIA lobbied the Commonwealth Government concerning worsening housing
Page 16 of 29
affordability, particularly for first home owners, resulting from severe supply side constraints. The
consequent Productivity Commission Inquiry found the problem was one of demand rather than any
significant supply factors!
In the last twelve months there has been something of an epiphany with the Reserve Bank and most
economic commentators agreeing the problem is in fact one predominantly of supply. There is now a
proliferation of bodies looking at this problem.
Foremost is the Commonwealth’s National Housing Supply Council. There is also a Housing Ministry
at the Federal level and a range of housing policies that have been developed in recent years.
National Housing Supply Council (NHSC)
Other than the usual material on demand and supply projections for the next 30 years, the next NHSC
report will pay some attention to ‘key market issues’. At this stage these key issues will be:
•
•
•
•
a finer analysis of what makes up the cost of producing land and housing in different states and in
different market segments to identify those costs which government actions might be able to
positively influence, eg infrastructure supply and charging;
an assessment of the implications of current government programs’ influence on housing supply,
including NRAS, HAF, FHOG, COAG reforms, stamp duty, etc;
a closer look at the drivers in the rental sector, both demand and supply, and the role of
non-private dwellings in supply, eg caravans, retirement homes, boarding houses;
analysis of the road blocks to greater production capacity in the industry including labour supply,
development finance and the productive efficiency of the industry and its rate of innovation,
including international comparisons.
The work on these issues will be supported by the research program that will include the usual
workshops on supply and demand methodology plus some research projects around:
•
•
•
The housing preferences and experiences of the different generations;
Where overseas migrants are living and their housing preferences;
Assessment of industry efficiency and growth potential.
The Council has received a report from the Federal Treasury about the Henry Review’s
recommendations that would affect the housing industry and an update on the COAG reform agenda.
The Treasury have advised that in the Treasurer’s group on land supply, some States have been
sceptical about the need for action, especially Victoria: in response Treasury produced a paper
highlighting the supply issues. By mid-year the group is planning to release papers on:
•
•
•
infrastructure supply and charging around the states and alternative approaches;
the impact of planning controls and their governance arrangements;
an audit of under-utilised government land.
By the end of the year the Treasury group is expected to have completed a review of all Federal
housing related programs, and a review of the findings of the housing aspects of the Henry Review,
eg removing income-related rents in public housing and extending Rent Assistance to public tenants.
The Treasury group is also expecting to receive a report from the Strategic Cities working group from
the Planning/Housing Ministers by mid-year. The Productivity Commission is also out consulting at
the moment for its inquiry into planning and zoning: it started off as a project limited to the supply of
supermarkets, but has been extended to include housing. A draft report is expected towards the end
of the year. This will not be a review, just identification of the issues.
The Department of Families, Housing, Community Services and Indigenous Affairs (FAHCSIA) also
advised that they had commissioned SGS Economics to prepare a paper on short-term initiatives that
might increase the supply of land.
It is interesting that the National Housing Supply Council will be reviewing government housing
programs, Treasury will be reviewing housing programs, the Major Cities Unit is developing a national
Page 17 of 29
urban plan, the Productivity Commission is reviewing planning and zoning and development
contributions and FAHCSIA is also reviewing the issue. There is a lot of duplication occurring. For
years we had nothing and now we have different agencies dabbling in the same pond. I hope the
outcome of all this effort is not just another statement by the Australian Government about the need
for the States to be more efficient in land supply and planning processes. There are severe data
limitations that inhibit the quality research required to generate the volume and transparency of data
required to add certainty to supply side reform across levels of government. Hopefully, there will be a
concerted effort to identify housing information gaps and a plan of action to rectify the situation.
Housing Ministry Portfolio
The Australian Government has introduced a number of new housing programs, such as the Housing
Affordability Fund (HAF), the First Home Saver Accounts and the National Rental Affordability
Scheme (NRAS). These were commitments contained in the Australian Labor Party’s Housing Policy
prior to the 2007 election. The proposal to utilise surplus Commonwealth land for housing (Mr
Costello’s principal housing policy proposal) has receded into the background.
When the global meltdown struck, the Government did not expand its new programs to increase
housing activity. Instead it increased its funding for social housing and reverted to utilising the First
Home Owners Grant to boost private sector activity.
Having developed a narrative around housing affordability in the lead up to the 2007 election, the
Government has found it hard-going in making progress on housing affordability.
There has been a burst of activity on planning and housing with a number of COAG processes,
committees and activities, a Treasury unit formed on Cities, Planning and Housing, a Major Cities Unit
developing a National Urban Plan, all operating outside of the federal housing department.
There is a risk the efforts will be fragmented. There is a need for tighter coordination. Bringing housing
supply under the Council of Australian Governments is welcome. But there is a risk that the work
program of COAG is too cumbersome and unwieldy to deliver tangible outcomes. Consider the
housing area:
•
•
•
•
In July 2009, COAG agreed to develop national performance measures for development
assessment by end 2009 with a release of the first report by June 2010;
In December 2009, the States agreed to have strategic planning systems in place by 1 January
2012. The strategic plans are to be integrated and prioritise infrastructure and land-use plans. At
the same meeting COAG committed to a housing supply and affordability agenda to be developed
by a working group comprising treasury and first ministers’ officials;
At its meeting in April 2010, COAG endorsed a housing supply and affordable housing agenda
covering the housing supply pipeline and infrastructure charges for a report by mid-2010. In
addition, the working group is to consider the impact of government policies on the demand and
supply of housing, including state and federal taxation. The latter depending on the Australian
Government’s response to the Henry Taxation Review;
In May 2010, the Productivity Commission issued a discussion paper on Planning, Zoning and
Development Assessments emanating from recent meetings of COAG and the COAG Business
Regulation and Competition Working Group.
There is ongoing concern about the efficient and effective delivery of government programs. This has
been highlighted in the media in recent times.
There should be regular, full effectiveness monitoring and evaluation of government-funded housing
programs. One of the most important functions to be performed in the near term is an evaluation of
the existing programs against their original objectives. What is working, what isn’t working, what
needs to be done to ensure that the programs deliver on their objectives? There ought to be scrutiny
of the effectiveness of government-funded housing providers. What progress has been made on the
National Affordable Housing Agreement?
Page 18 of 29
The effective monitoring of housing delivery systems, programs and providers should promote the
adoption of sound, evidence-based practices that can be used to encourage innovation in the
management and delivery of housing services.
The Australian Government can raise the performance levels of those within their national policy
frameworks and ensure there is a strong component of resource funding linked to good practices and
innovative proposals.
There are two broad functions that need to be accommodated: strategic policy development and
program delivery. These functions do not need to reside in one agency. Strategic housing policy
development involves consideration of population, infrastructure provision, resource capacity,
taxation, spatial development, sustainability, access and affordability. A line department will have its
perspectives on a particular policy issue without necessarily taking to account the housing market or
distributional effects of the policy proposal.
In the United States, the United Kingdom and Canada there is a central agency that is responsible for
the delivery of housing programs. These are the Department of Housing and Urban Development in
the United States, the Department for Communities and Local Government in the United Kingdom
and the Canada Mortgage and Housing Corporation.
In the United Kingdom, the Department for Communities and Local Government brings together cities
and regions, planning and the environment, building regulation, housing support and local
government. The delivery of housing programs is undertaken by an agency, linked to the Department,
called Homes and Communities Agency. There is a research arm of the Department called the
National Planning and Housing Advisory Unit, which was adopted in Australia as the National Housing
Supply Council.
On occasions, the Department for Communities and Local Government will co-author reports with
other departments, for example in the area of regulation reform. In the United Kingdom there was a
national commitment to reduce the impact of regulation on business and each department is required
to produce an annual report on simplification of business regulation relating to their area. For the
Department for Communities and Local Government that covers building and planning regulation
(Britain’s unitary system of government makes the task more attainable).
In relation to issues surrounding sustainable housing and low emission housing, the Department for
Communities and Local Government will take a lead role in developing the housing policy framework,
initiating reviews and research, notwithstanding there is a Department of Environment. Proposals for
major regulatory change require an Impact Assessment. The Impact Assessment on zero carbon
homes is the responsibility of the Department for Communities and Local Government and must be
signed off by the Minister.
It is significant that in the United Kingdom, the United States and Canada each has a separate
housing department. In Australia, the housing function was integrated within a social policy
department. The breadth of housing and related issues, particularly their relevance to macroeconomic
stability, economic performance and productivity, saving and sustainable growth make the portfolio
alignment less functional today.
One option to be considered could be a Department of Housing, Communities and Local Government
modelled on the responsibilities of the United Kingdom Department for Communities and Local
Government. There would be an agency that was dedicated to the delivery of housing programs, akin
to Defence Housing Australia. Policy development would occur in the Department or perhaps a
central agency.
Some of the important policy developments are being sponsored by the Department of the Prime
Minister & Cabinet. An option could be to have an Office of Housing in the Department of Prime
Minister & Cabinet that would be responsible for strategic policy development. A separate agency
would be required to undertake the delivery of housing programs.
Housing market policy and planning are disconnected from economic analysis. The Commonwealth
should take a much more pro-active role in developing information relating to housing market
Page 19 of 29
conditions, population, housing preferences, industry resource and infrastructure capacity,
employment patterns, state and small-area housing projections to assist States and Local
Government in land-use management.
The Commonwealth needs to invest in Australia’s housing research capacity. Retaining and
upgrading a federal department of housing is critical to providing opportunities for housing careerists.
Where is Australia’s Joint Centre for Housing Studies (Harvard), Joseph Rowntree Foundation, the
Centre for Housing Policy at the University of York, the Lincoln Institute of Land Policy, the University
of California Berkley Program on Housing and Urban Policy? The list goes on.
Skills
Government, particularly the Commonwealth Government, provides an impressive array of support for
apprentice training.
Can all these tables below be referenced to an Appendix?
SUMMARY OF INCENTIVE PAYMENT FOR APPRENTICES IN BUILDING INDUSTRY
COMMONWEALTH INCENTIVES
PROGRAM
NAME/No
Tools for your
Trade cash
payment
Commencement,
Recommencement
and Completion
PAYMENT
ELIGIBILITY/INCENTIVES/FUNDING
$3800
Paid at 3 month, 12 month, 24 month
$1250
$1500
$750
$2500
Employer
Employer
Employer
Employer
Adult Australian
Apprenticeship
(persons over 25
yo)
Rural & regional
Skills Shortage
Incentive
Employer
employing School
Based
Apprenticeships
(SBA)
Group Training
$7800 max per annum 1 year
nd
$5200 max per annum 2 year
Commencement Certificate 2
Commencement Certificate 3,4
Recommencement Certificate 3, 4,
Diploma, Advanced Diploma
Completion Certificate 3,4, Diploma,
Advanced Diploma
At commencement ($150 per week)
Second Year $100 per week
$1000
Special Commencement Certificate
3,4
Employer
$750
Employer
Kickstart
(apprentice aged
19 or younger)
Securing
Australian
Apprenticeships
Initiatives
$3350
Additional commencement and
retention at Cert 2-4 levels &
Diploma/Advanced Diploma
Continues to employ SBA after SBA
has completed Year 12
Employers who support an apprentice
to complete Cert 2
rd
Instalment 1 $850 at end of 3 month
th
Instalment 2 $2500 at end of 9 month
For employers who create new
opportunities for eligible Australian
Apprentices to continue their
incomplete (but formally STA
approved) training, or who successfully
complete Australian Apprentices, at
the Certificate III or IV level in skill
shortage trades, or in Diploma or
Advanced Diploma level qualifications
Employers
st
$750
$1000
$2,800
This consists of:
• Recommencement Bonus of $1,800
payable 12 weeks after
recommencement where the
recommencements occur on or after
1 January 2009.
• Completion Bonus of $1,000 payable
upon successful completion in
respect of Australian Apprentices
who successfully complete on or
after 1 January 2009
Page 20 of 29
PAYABLE
TO
Apprentice
Apprentice
or
employer
Employer
Employer
SOUTH AUSTRALIA CONSTRUCTION INDUSTRY TRAINING BOARD
D2C
$1000
Payment of $1000 to employer if student has
completed their D2C program Incentive payment to
encourage involvement to D2C program
Employer
Progressive
Completion
$1800
Payment of $1800 yearly. Payable to employer
Incentive payment to progress through the program
Employer
$1800
Payment of $1800 yearly. Payable to employer
Incentive to employer to provide OTJ training
Employer
Incentive to
complete
Payment of $1800 yearly. Payable to employer
Employer
On
the
Payment
Job
Final
Completion
WESTERN AUSTRALIA CONSTRUCTION TRAINING FUND
Employer
Support
Program
The following standard grants are available to
eligible employers of apprentices and
trainees
in
relevant
construction
qualifications:
To help to maintain the
development of a skilled
workforce
Employer
An $8,000 training fee to encourage the employment of apprentices
in the building and construction industry. This incentive is in addition
to all other Commonwealth and State Government subsidies
Employer
Apprenticeships
24
month
Certificate
III
36
month
Certificate
III
42
month
Certificate
III
48 month Certificate IV $9 000
$7
$9
$9
000
000
000
Traineeships
12
month
Certificate
II
24
month
Certificate
III
24
month
Certificate
IV
36 month Certificate IV $9 000
$3
$7
$7
500
000
000
An additional 20% loading applies to
those outside the CBD and in regional
areas
TASMANIAN TRAINING FUND
Training
Fee
$8000
The $8,000 training payment is available for Certificate III in
bricklaying, carpentry and joinery, painting and decorating,
plastering, plumbing, roof tiling, and ceramic wall and floor tiling.
Page 21 of 29
QUEENSLAND TRAINING FUND
Apprentice Out of Trade
Recommencement
Incentive
Direct Indenture $1,500 payable at the
end of the 3 month probationary
period.
Incentive payments to employers and
Group
Training
Organisations
recommencing out-of-trade or cancelled
apprentices.
A second $1,500 amount is payable
after the 6 month anniversary of
continuous employment with the
claiming employer.
Group Training is $1,000 payable at
the successful completion of 3 months
AUSTRALIAN BRICK & BLOCKLAYING TRAINING FUND
Brickstart
Bonus
$2,000
The bonus is payable on completion of the first year and applies for
new apprentices who start before 30 June 2010.
The Brickstart
Bonus follows on from the expiry of the Federal Government’s
recent Kickstart Bonus
.(it is expected that this incentive may be reviewed in light of
reinstatement of Kickstart in May budget)
Applies
in
WA, SA, Vic,
NSW,
Qld,
ACT
The normal subsidies will apply after that period ($6000 for life of
apprenticeship) (Between $125 – 300 a month depending on
regional factors.)
See http://www.becomeabricklayer.com.au/
Add:
•
•
•
•
•
•
•
Mature aged apprentice;
Rural and regional incentive;
Recommencing trade apprentice;
School based apprentice;
Date of commencement of apprenticeship;
Group Training incentive;
Special incentives eg Kickstart.
Then Add:
•
•
•
State based incentives;
Levy Fund incentives which vary greatly depending on funding policy which changes constantly;
Australian Brick and Blocklaying Foundation – Bricklayer incentives.
However, the construction industry must compete with other industries for young people and is not
always perceived as an attractive career option.
The reality is that we must import skills for the construction industry.
The design of the current immigration program and existing immigration categories are unable to
bridge this shortfall.
The 457 Visa program is inherently unsuitable for the residential construction industry as the industry
is based on the efficient and more financially rewarding subcontract system. The 457 visa program is
based on direct employment and sponsoring by an employer.
To help build the productive capacity of the housing industry HIA has presented to the Australian
Government a proposal for a Business Migration Agreement under which the HIA would enter into a
partnering agreement for a negotiated quota of self-employed business migrant visas.
Page 22 of 29
The Business Migration Agreement would not include employees and visas would be for a period of
up to four or five years. Successful applicants would have the opportunity of seeking permanent
residency at a later date.
HIA would take responsibility for assessing the professional capacity of business migrants and
assisting in the securing of business registration/licensing, income tax and GST registration, and
business-ready compliance with occupational safety requirements and building regulations.
In addition, HIA (and participating members) would provide a mentoring role for self-employed
business migrants and facilitate and promote business-to-business opportunities. Through the
running of a group apprenticeship scheme that employs close to 1,000 apprentices nationally and
close to 200 in Western Australia, HIA is well versed in case management and the placement of
apprentices with hosts. These skills are transferable to the positioning of migrant trade businesses
with local building businesses.
The Western Australian Premier gave in-principle support for a pilot business migration scheme for
Western Australia’s housing industry.
HIA has discussed the business migration proposal with the office of the Federal Minister for
Immigration and Citizenship, which has indicated in-principle support.
However, such a program would require legislative change. As recently as last week, a senior
immigration bureaucrat confirmed the Immigration Department’s opposition to the subcontract system
and an immigration program specifically targeted at trade contractors. Yet such an immigration
program has worked successfully in Canada, a major competitor to Australia for business skills.
I ask the question, how will we supply the accommodation needed in future years if we can’t train
enough trades people and are unable to address the deficit through targeted immigration?
Land Supply and Infrastructure Funding
When looking for barriers to increasing housing supply, beneficial outcomes are more likely to be
found in the reform of land-use management regulation, including arrangements for the funding of
housing-related infrastructure.
Sufficient land for new residential development, the financial viability of development and its timely
availability are vital to the achievement of housing affordability aims.
Many international studies have examined the role of the planning system in affecting land supply. In
the United Kingdom, the Treasury instituted the Barker reviews of housing supply and land-use
planning, which have informed policy development. In Australia, there has been next to no research
work on planning regulation.
Efforts to streamline and simplify the planning system are welcome. But progress has been painfully
slow. Planning reform has been elevated to COAG. The policy reform process is being lead by the
government sector without engagement by other stakeholders, creating the possibility that reform will
reflect the mindset of the regulators.
What does the road map for planning reform look like? There needs to be a clear vision in relation to
housing supply. What are the planned actions and policy initiatives? Past regulations and policy
actions should be monitored, evaluated and managed.
For land developers a key issue relates to the viability of sites. Expanding growth boundaries,
re-zoning land for residential development, does not guarantee development will proceed. Planning
approval for individual developments can be lengthy and costly for developers and subject to the
vagaries of shifts in market conditions.
Development charges have to be paid up-front, well before developers receive revenue from sales of
land. The requirement imposes a substantial financial burden and especially so when capital is
difficult to obtain.
Page 23 of 29
The industry contends that development charges for regional and community infrastructure have
impacted on the viability of residential development projects. On the other side, the local government
sector complains about the widening gap between development charges and the cost of providing
infrastructure facilities and services.
Local government has resorted to higher development charges in the face of cost shifting by State
Governments to local government for a range of social and community services and rate revenues
lagging behind the growth in community demands for services.
If developers cannot either pass through development charges to builders and householders or pass
back the charges to existing land-owners in lower acquisition prices, the level of development charges
can present a real obstacle to development proceeding. If development charges have to be
negotiated with a local council, there is little chance that developers will be able to negotiate lower
acquisition prices with land owners. Having a known formula for the setting of development charges
would create a level of certainty for developers, but would not guarantee the financial viability of a
project.
Finding more appropriate ways to address the funding of local infrastructure will be crucial to
facilitating land for development.
In the absence of Government initiative, HIA is holding an Infrastructure Funding Summit on 10
August.
Page 24 of 29
How can local governments be rewarded for enabling the provision of additional housing supply and
adopting more flexible and responsive planning requirements? Some programs in other developed
countries could be a guide.
In the United Kingdom, the local government sector is eligible to receive Housing and Planning
Delivery Grants (HPDG) in return for meeting planning-related targets. The targets can apply to
green-field and in-fill development.
The purpose of the housing and planning delivery grant is to ‘incentivise’ local government to improve
the delivery of housing through more efficient and effective planning procedures and to provide more
funding support to local councils that are endeavouring to increase the supply of new housing.
To be eligible for funding, local councils have to identify 15 years of land for housing, by way of the
strategic housing land availability assessment, of which five years should be deliverable land for
housing. Deliverability is defined in terms of availability, suitability and achievability – the latter
meaning there is a reasonable prospect that housing will be delivered on the site within five years.
There are two parts to the Housing and Planning Delivery Grant : a housing element and a planning
component.
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The housing element of the grant is provided to local councils with net additional housing completions
in excess of 0.75 per cent of their existing housing stock (revised down to 0.65 per cent due to the
recession).
The planning element of the grant is based upon the local government authority completing a range of
activities that support housing supply: demonstrating sufficient land for housing; publication of
strategic housing market assessments; development control performance; joint work on the
production of development plan documents.
Once identified, the supply of land is to be managed to ensure that a continuous supply of deliverable
sites is maintained. Local government authorities are required to undertake risk assessment,
scenario planning and contingency planning in the event that delivery does not occur at the rate
previously expected.
Checks are made of local government land supply assessments and the results of the planning and
housing grant monitored and evaluated to establish good practices.
Successful strategic housing market assessments rely on engagement by local councils with
developers, builders and land owners. Local councils are called upon to review existing sites to
decide suitable actions that can be taken to unlock sites and allow development to proceed and to
work closely with the development industry on the identification of new opportunities.
The Commonwealth’s Housing Affordability Fund was an innovative attempt to offer incentives to local
government and the private sector to embrace affordable housing developments. The Housing
Affordability Fund should be seen as the pilot to a much larger program initiative where the States and
the local government sector receive Commonwealth financial support for regional and community
infrastructure provided housing supply targets are met. Savings in development costs would have to
be passed through to purchasers.
Planning regulation is being utilised by local government authorities to achieve environmental goals,
but without rigorous cost-benefit assessments or consideration of the economic impacts. The case for
regulation should depend on a demonstrated net benefit to the community. In relation to building
control there is a clear line of coordination and authority for regulatory changes through the Australian
Building Codes Board. Proposed significant planning regulation should be subject to a similar level of
scrutiny.
The amount of information available to local government (and state governments) when considering
land-use planning is very deficient, calling into question the reliability of determinations about land-use
planning. Statistical information on land supply and the land development sector is very poor and
poses a hurdle to be overcome to assist policy making.
First Home Owners Grant (FHOG)
The First Home Owners Grant is under review. States and Territories have introduced a value limit on
the grant. Has the First Home Owners’ Grant out-lived its usefulness?
The recent experience of the grant in Victoria has demonstrated the value of tilting the grant to new
housing. In April 2010, 30 per cent of housing loans approved in Victoria were for the construction or
purchase of new dwellings, compared with 19 per cent for the rest of Australia.
Number of Loans for New Dwellings
(per cent of total loans)
April
2008
2009
2010
Victoria
20.9
25.5
29.6
Rest of Australia
15.7
16.8
18.8
Source: ABS-Housing Finance Australia, Catalogue 5609.0
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The new home grant has had a stunning effect on new dwelling activity in Victoria for a very modest
additional outlay. The grant has helped to close the gap between underlying housing requirement and
new housing supply.
With policy changes on energy efficiency, broadband and accessibility, there will be a cost effect on
new housing relative to the price of established housing which will risk diverting demand to the
established housing market.
Policy makers need to understand that housing producers respond to market sales and too many
policy decisions have distorted consumer preferences away from new housing leading to a churning
of established housing with obvious consequences for existing house prices.
If there is to be a FHOG it should be for the purchase of a new dwelling, not an established dwelling.
Increasing new dwelling activity adds to the stock of housing. Admittedly, the Commonwealth cannot
dictate design changes to the FHOG because the States and Territories ‘pay’ for FHOG through a
deduction from their GST receipts.
There might be little appetite for an overhaul of the FHOG in advance of a tight election. (There never
appears to be a desire to make changes, even though there is a view that the old grant has passed its
use-by date.) The success of the new home grant in Victoria in lifting the supply of new dwellings is
worthy of closer consideration.
If there is no desire to restructure the FHOG, then at least the Australian Government should be
looking to top-up the grant for new housing linked to the take-up of lower emission housing and to
assist new home buyers in meeting the additional cost of the broadband network. The grant could be
re-cast as a climate change initiative.
If the grant is to be maintained for the purchase of established dwellings it could be restructured to
link to energy saving features being included in existing dwellings. The Government could give notice
to the market place of prospective changes to the FHOG.
The Private Rented Sector
The private rented sector occupies an important role in providing choice and flexibility across the
housing market for households – young professionals, students, employment-linked housing,
migrants, households on benefits and changeover buyers.
More than a fifth of all households rent privately. Over the last decade, the buy-to-let mortgage market
has been highly variable, reaching a peak of about 40 per cent of lending for housing in the first part
of last decade. Some of the so-called investment lending picked up in the housing finance collections
would be construction loans for sale to owner-occupiers and investors. Most of the financing of rental
housing has been for the purchase of established housing, with little increment to the supply of rental
housing.
One of the big challenges is how best to achieve greater investment in new rental housing supply and
to support it with an effective policy framework and instruments. A valuable first step ought to be an
enhanced understanding of the private rented sector. The last survey of private investors in Australia
was conducted in 1997. Some States, particularly the NSW Rental Bond Board, have been collecting
information on private investors and rented dwellings for some years, but there has been little
available analysis of the sector.
The increased availability and reduced cost of mortgage finance for rental investment from major
lenders has been a key factor in encouraging small investor participation in the private rented sector.
But we need to better understand what motivates rental investment activity so that we can better
target initiatives to boost rental housing supply.
The Australian Government embarked on a major policy initiative to expand the social housing sector
through the National Rental Affordability Scheme. To date, there has been little information published
to ascertain the success of the initiative. Where is the information on the demographic and income
profile of tenants, family composition, rent paid, as well as the location and type of dwellings?
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The Government is keen to increase the participation of institutional investment in new affordable
rental supply. So far, institutional investors, such as superannuation and pension funds, have shown
little interest in the private rented sector, an issue that is by no means unique to the Australian
experience.
Various reasons have been advanced to explain the negligible involvement of institutional investors in
the private rented sector, such as lack of suitable parcels of rented property to invest in, poor rental
yields, financial risks and high management costs compared with commercial property.
For institutional investors, the private rented sector represents largely an untried form of investment.
Much of the return to investment in private rented property derives from capital gain, as opposed to
rental yield. House prices are less stable than rents, increasing the financial risk of rental investments.
Unlike commercial property, where asset prices are a function of the rental yield of an investment, the
market for residential property is dominated by the demand for owner-occupation. Consequently, in
the face of strong demand for owner-occupied housing the price of rented housing will track changes
in the price of owner-occupied housing and can diverge markedly from rental yields.
Australia does need to encourage long-term equity capital into new private rented housing. How that
could be best achieved is open to debate. Investment patterns are hard to move.
The Australian Government has sought to use the National Rental Affordability Scheme as a basis for
establishing residential rental property as a new asset class. Although noble, such high-sounding
objectives could fall short in practice, save for some special cases. The likelihood is that residential
rental property will have to compete for investment funds within property, against retail, industrial and
commercial property.
Encouraging investment in residential property will depend on the health of property as an asset class
and too often governments have taken decisions that have damaged the risk and return profile of
investment in property (the quarantining of negative gearing on income-producing property in 1985
and the ill-fated vendor tax in NSW).
Larger-scale investment in property is disadvantaged by land tax regimes and the failure to allow
developers of rental stock to claim a trading stock adjustment for stamp duty, similar to the application
of stamp duty to new motor vehicles. Within the property sector, new rental dwellings are at a tax
disadvantage relative to the commercial property sector due to the different application of GST.
These are by no means easy issues to resolve, in part because they are outside of the direct control
of the national government.
Unlike the equities market, Australia does not have a residential investment index, which would
provide a basis for benchmarking investment performance. It is an area where modest government
sponsorship could assist in the development of a credible residential investment index.
Institutions have contended the availability of a tax advantaged investment vehicle would encourage
institutional capital into new residential investment. In 2007, the UK Government launched the UK
Real Estate Investment Trust regime as a tax efficient vehicle for large-scale indirect property
investment. However, the response by large-scale institutions to the initiative has been very modest.
Some European countries have also provided incentives to encourage investment in private rental
housing. The incentives have been targeted at new rental housing. For example, in France the ‘Loi
Scellier’ scheme was introduced in January 2009 providing a reduction in personal income tax for
investors purchasing new rental property. The tax relief is directly proportional to the marginal tax rate
of rental investors and can be claimed for a period of nine years. In return, rental investors provide a
commitment to the rental market over this period. Allowances are more generous for new rental units
meeting higher energy efficiency standards.
Under the scheme, an investor is able to reduce their income tax equivalent to 25 per cent of the
acquisition cost spread evenly over nine years of the property purchased in 2009/10; for properties
purchased in 2011/12, 20 per cent of the acquisition cost will be rebated against income tax over nine
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years. The maximum acquisition cost that can be rebated is euro 300,000, so for a rental property
purchased in 2009/10 the maximum amount of tax rebate is euro 75,000 spread over nine years, or
euro 8,333 a year. If the full amount of tax rebate cannot be utilised in a single year, the residual
value can be rolled over for the next six years.
There are controls on the maximum rent that can be charged, but these limits are generally above
local market rents. The scheme is available in designated areas.
Germany has offered depreciation allowances for newly constructed rental properties. In the early
1980s depreciation allowances were 5 per cent for the first eight years after construction, followed by
2.5 per cent for the following six years, then 1.25 per cent for the remaining 36 years.
A Population Portfolio
In addition to a national urban plan being prepared by the Major Cities Unit, the COAG process on
strategic planning for cities, Infrastructure Australia setting infrastructure priorities, the Productivity
Commission benchmarking planning practices, we have Tony Burke developing a sustainable
population strategy, responsibility for which is located in Treasury. The Minister splits his
responsibilities with the Department of Agriculture, Forestry and Fishing.
The sustainable population strategy will consider the social and economic infrastructure required to
accommodate an increasing population as well as the impact of population increase on the
environment, water and urban congestion.
The Minister has three panels: sustainable development chaired by Bob Carr, productivity and
prosperity, headed by Heather Ridout and demography and liveability, chaired by Graeme Hugo. The
panels will contribute to the preparation of a consultation paper.
Whilst these initiatives are welcomed, the fragmentation of efforts is quite concerning. Having had
next to no strategic policy work occurring at the Commonwealth level for years, we now have a
smorgasbord of activity. Someone needs to take hold of this unwieldy conglomeration of activities
following the election under a clear vision.
PART 5 – CONCLUSION
Today I have endeavoured to identify the drivers of and issues confronting the residential housing
industry in terms of supply of sufficient housing for all Australians.
I hope it will stimulate further discussion and challenge your perceptions.
The challenges I have identified are not insurmountable but we need concerted and coordinated
action and a vision.
The time for action is now.
Thank you once again for this opportunity.
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