Left out in the cold by a state reluctant to invest by Kenneth Davidson

The Age, Monday 26th January 2015

Homelessness is only the tip of the iceberg of the growing failure of governments – state, federal, Labor and Coalition – to meet the basic shelter needs of the bottom 40 per cent of low-income households.

According to the Productivity Commission's 2014 Report on Government Services, the proportion of low-income households in rental distress in Australia grew from 35 per cent in 2008 to 41 per cent in 2012.

Without a fundamental change in policy direction, the problem will continue to worsen. Housing prices are probably the biggest single factor driving intergenerational inequity.

This is now a middle-class problem, according to a report published last year by the Foundation for Young Australians. It concluded that the current generation is likely to be the first post-World War II generation to be worse off than their parents. It pointed out the ratio of house prices to incomes is nearly twice as much as for their parents.

Average debt was 27 per cent of average income in 1985, compared to 136 per cent now and rents have increased almost as quickly as house and apartment prices.

The situation has been made worse by the reluctance of governments – state, federal, Labor and Coalition – to invest in public housing since the 1970s.

This is because there has been a bigger political payoff from pandering to developers, by paying rental subsidies instead of investing in the public housing stock, using gimmicks such as first homebuyer grants and maintaining negative gearing. The latter's main impact has been to redistribute income to the owners of the existing stock of housing.

Increasingly, the way governments have coped with the shortage of funds for public housing has been through the residualisation of the sector. Public housing now meets the needs of the politically powerless. The politicians and the bureaucrats who manage the sector without adequate funding are on a hiding to nothing on a par with those responsible for the welfare of children at risk.

It is a short step to arguing that the public housing model is not only broken but unfixable when the problem is clearly the reluctance of governments to properly fund the system. Governments need to undertake the necessary investment to expand and maintain the supply of public housing in line with demand.

In a 2012 report to the Victorian Department of Human Services, KPMG recommended that finance could be channelled via public private partnerships or the stock of public housing could be given away to allow private investors to leverage private investment in community housing.

Why give away the stock of public housing to allow private investors to leverage private investment when governments can borrow directly for housing at about a third of the cost of private financing?

The most egregious example of the PPP model of financing welfare housing was the decision by the Bracks government in 2006 to set up a PPP to redevelop most of the 26-hectare site occupied by the Kew Cottages for the intellectually disabled. It was claimed that this was in order to generate funds to integrate the cottagers into the community.

According to the DHS annual reports, somehow the government partner to this deal has lost the Victorian taxpayer $60 million up to 2014.

The immediate challenge facing the new Victorian government is a 38,000 waiting list for public housing and a maintenance backlog on one-third of the existing housing stock, costing up to $20,000 per unit to repair.

The capital cost of removing this backlog, based on the cost of building quality housing units in blocks of six to eight storeys along major tram routes, is about $300,000 for land and construction and maintenance. The interest expense on the cost of this required capital of $12 billion is about 4 per cent, or $450 million a year, compared to $712 million year if the East West Link had gone ahead. But spaced over six years such a program would require a drawdown of only $2 billion a year.

The superior comparative advantage the private sector has in relation to design and management of this type of public housing can be captured by competitive tender to private architects and community housing providers who have a good track record in managing affordable housing.

Everything related to urban development must be seen through the prism of financial viability, social cohesion and sustainability. A properly funded public housing authority can play a leading role in the future development of Melbourne, based on the vision set out by the City of Melbourne planner, Professor Rob Adams. 

Adams has sketched out how Melbourne can increase its population from 4 million to 8 million while minimising costly investment in new infrastructure. This can be done by limiting population growth to 7.5 per cent of the land within the existing city boundaries: 1 million around railway stations, 2.4 million on the existing tram and bus routes and the remainder in brownfield sites such as Fishermans Bend.

Kenneth Davidson is a senior columnist: kdavidson@dissent.com.au

link to the article: http://www.theage.com.au/comment/left-out-in-the-cold-by-a-state-reluctant-to-invest-20150125-12xq93.html