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Can Affordable Housing Even Out Construction Cycle?


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A recent study has found that subsidised housing could even out the construction cycle and help avoid the vast swings in development activity. 

By subsidising developers, the market would not just respond to pricing signals as a building incentive but would also take into consideration factors such as population growth.

The report, called "Inquiry into Increasing Affordable Housing Supply: Evidence-based Principles and Strategies for Australian Policy and Practise," seeks to address the reasons Australia is failing to deliver a sufficient supply of affordable housing. It recommends integrating and enhancing public subsidies, financial settings, policy levers and programs that currently exist across all three levels of Government. Thus, it would be possible to create a national framework for housing that would deliver long-term growth of affordable housing supply.

It is estimated that there is a shortfall of around 200,000 homes for low-income people. Private development alone will not tackle housing affordability issues; developers are mostly influenced by increasing house prices. This, in turn, impacts on the construction industry, creating the highs and lows that are evident today. 

"If we are entirely dependant on the private sector for new supply, the private sector will only create new supply when prices are rising." 

"If we are entirely dependant on the private sector for new supply, the private sector will only create new supply when prices are rising,” said Sydney University Professor Nicole Gurran of the School of Architecture, Design and Planning, and author of the AHURI report. “We need to make our housing system more resilient to market cycles,” she told the Australian Financial Review in a recent interview.

The report suggested that if Australia had a national housing strategy that was similar to Canada’s, with precise data concerning regional and localised accommodation needs, subsidies to developers could be created in a bespoke way in line with the type of housing needed.

“Tenure mix is generally a good thing,” said Professor Gurran. “And so if that means that part of the project involves some subsidy and part involves market housing, certainly in most countries and most contexts, that would be considered a good thing.”

Canada and the UK have recently moved forward on national whole-of-government strategies for housing which clearly define the directions for addressing affordability through a comprehensive framework.

The report highlights the importance of addressing housing need beyond the distinctions between public/social, intermediate (assisted), and private housing sectors. It called for holistic strategies that would address affordable housing as part of a more comprehensive planning and residential mix.

Some states, such as South Australia, are performing better with the delivery of affordable housing through its inclusionary planning targets, resulting in around 17 per cent of SA’s total housing supply falling into the affordable housing category.

By contrast, NSW can only deliver affordable rental dwellings. Therefore, only 1 per cent of new homes is targeted at the low-income sector. Affordable housing developers face barriers and delays in obtaining development approval, further impacting housing supply.

The report finds that reducing upfront debt loads and lowering both finance costs and risks to developers are critical to long-term viability.

The full report can be found here.

 

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