National summit on housing affordability

Marion Powall¹ and Glenn Withers²

¹Applied Economics Pty Ltd²ANU

Canberra, 27-29 June 2004
Resource paper

This Resource Paper assembles available data on the essential elements of housing affordability measures and trends, and presents basic information on key issues behind those trends. This latter includes both the demand and supply sides of the housing market. A summary of the array of major policy options put forward in public discussion over housing affordability is also provided. The data used are taken from official sources wherever possible, supplemented by other data provided by the Summit co-hosts.

The paper was prepared at the request of the Summit organisers, drawing together information in the public domain and further data provided by the Summit Co-Hosts. Any views therein are those of the authors unless otherwise appropriately attributed.

Introduction: the nature and importance of housing affordability

The importance of affordable housing should not be underestimated. Shelter, along with food and security, is amongst the most basic of human needs. Secure, appropriate and affordable housing is central to our standard of living and way of life.

Australia has rightly prided itself on its past achievements in providing excellent housing for its people. While highly urbanised and even suburbanised, low overall population density meant that land costs were low relative to Europe. High incomes combined with affordable land to foster one of the highest home ownership rates in the world for many decades. And this record should be recognised. But there has emerged a challenge to housing affordability that amounts to a fundamental challenge to our traditions. Never in our history has housing affordability been more difficult than now.

In addition the achievement has also been blighted by the circumstances of a minority of Australians for whom secure, appropriate, affordable housing has ever been only a dream and not a reality. Recent times have been even more detrimental for this group of fellow citizens.

A place to call home is one of the most fundamental basic needs in our society. The quality of life, security and general well being that stems from access to a home cannot easily be measured in any quantitative sense. However, in terms of health and well-being and social opportunity, it is often the first step towards a sure and confident future for individuals and families.

Whilst access to good housing provides shelter, safety, stability and a sense of community – home ownership can provide even further benefits including a sense of achievement in the accumulation of the wealth of an asset. In terms of creating an independent financial future, many people look towards owning a home. In their middle to older years there is considerable financial security that comes from the accumulation of a major asset, providing a solid base from which to transition into retirement. The social stability in neighbourhoods that is generated from home ownership is also something many families aspire to.

Further, in Australia the housing sector represents:

7.2 million homes for 20 million people
$2200 billion of national capital
66% of household wealth
84% of household debt
767,000 workers in building and construction
235,000 Australian businesses

The sector is crucially important, and for all of us there’s no place like home. The role of the family home in strengthening relationships within families and for the community and the nation cannot be underplayed. But, symmetrically, we must all therefore recognise that inadequate housing can cause serious limitations on family life, employment opportunities and can place emotional and physical strain on a family. In adequate housing policy is a danger to both our economy and our society. Getting housing right must therefore be a bed rock of national aspiration.

Measuring housing affordability and assessing its trends¹

The Price of Houses

At its most basic level housing affordability refers to the price of houses. These have risen inexorably since 1991. Even if we express this movement relative to the general cost of living, it is apparent that housing shows little sign of becoming more affordable in Australia.

In a recent comparison of the real change in housing prices for twelve developed countries², housing prices grew faster than the general cost of living between 1995 and 2002 for ten countries. Only in countries with dramatic population and economic slowdown were there real declines in house prices. The mean change for the twelve countries was 42% over seven years. Australia’s increase exceeded this at 53%, and this was prior to the major increases in house prices since 2002.

Graph 1: House prices – a cross country comparison

Nominal house prices doubled in Australia over the decade up to 2003 (Graph 2)³. Allowing further for general inflation, real house prices rose some 70 percent over that period - with over half of this being in the last three years. Price rises originated strongly in more expensive areas of Melbourne and Sydney but soon spread across these capitals to the other capital cities and to regional centres. Unlike some earlier booms in house prices this one has been Australia-wide.

The Cost of Finance

The house price alone is an inadequate measure of housing affordability. The cost of finance is also an important element. This may not seem relevant for established home–owners. And in Australia around 70% of households are home-owners. Of these some 32% have a mortgage but 38% do not. 25% are private renters and around 5% are in publicly provided housing. These days our home ownership is not the highest and is similar to quite a few developed countries, but mortgage-free ownership is high (and public housing low)⁴. Nevertheless persons with no mortgage do forgo interest because of their investment, those with mortgages feel the interest burden directly and renters understand the cost of interest if they aspire to ownership or feel it in their rent as a cost to the landlord.

Graph 2: Established house prices

The trend in Australia since financial deregulation has been to cheaper housing finance because of lower housing interest rates. The respective trends in mortgage interest and housing prices is seen in the following chart, where the lower interest since the mid 1990s has been accompanied by a strong rise in house prices. The latter rise has steadily eroded the advantage gained for purchasers from lower interest in the mid 1990s.

Graph 3: Mortgage interest rates

Housing Affordability Relative to Income

With housing being the largest single purchase made by Australian households, creating a measure of affordability that relates house prices to income is appropriate. Here we can say that median house prices are now nine times greater than average per capita income, compared to six times at the beginning of the recent upswing in house prices⁵. This trend is also seen in Graph 4 in relation to average household income.

Graph 4: House prices to household income

If we further factor in the cost of finance, several measures are in common use in Australia. They suffer from some methodological problems, including looking at different market segments such as renters vs owners, investors vs owner-occupiers, first vs established home-owners, capital cities vs regions etc. But they concur on the challenge to affordability that has re-emerged in recent years in Australia⁶. Graph 5 shows several such long-term measures of housing affordability.

Graph 5: Measures of affordability

Ownership and Affordability

A different way to approach affordability is not to look at costs and capacity to pay, but to look at actual outcomes of home-buyers’ decisions. One such outcome often discussed and of great political significance in Australia is home ownership rates. Australia has long had high home ownership rates, in common with other “New world” democracies but well ahead of the older European developed countries. In 1911 half of Australians owned their home, a figure reached by Britain only in the 1970s. More recent years however have seen a levelling out of ownership in Australia with no increase since 1990 and with what may now be a falling share, particularly for the younger age-brackets.

On the finance side, the share of housing finance for owner occupation is trending downwards. This is in part due to a very strong increase in investment by owners into rental properties. The number of Australians owning investment property has risen from around 8% in the early 1980s to over 12 % by 2001- with the increases being largest in the upper income groups. The increased share of housing finance that underpinned this is seen in Graph 6.

Graph 6: Investor housing loans

The issue that then arises, given this surge of investor buying plus changes too by owner-occupiers in established homes, is what is the position of first home-buyers? And here, despite prolonged and sustained low interest rates, first home buyers are finding the purchase of a new home increasingly difficult. This is seen in Graph 7, which shows how the absolute number of first home buyers has halved since 2001-and their share of new loan approvals has fallen from over 30% to under 20%⁷ In 2004 this may have fallen further to as low as 13.5% currently⁸.

The decline in first home buyer loans is not limited to any one state. The decline is apparent across all states and territories. Allowing for changes in the composition of first versus non-first home buyers the first home loan buyer segment has still dropped significantly. In examining the last 5 years, the number of first home buyer loans across Australia in March 2004 was 6,979, 51 per cent lower than the peak of 14,156 reached in August 2001. With the exception of the Northern Territory, first home buyer loan numbers were substantially lower in March 2004 than the peak reached in 2001, according to the REIA and HIA-Commonwealth indicators.

Graph 7: New housing loans

Finance Access and Affordability

An additional approach to affordability is to look at various measures relating to up-front deposits. A “deposit gap,” for instance, measures the difference between the price of a typical house and the maximum amount of loan that can be repaid by a household on average weekly earnings or average household income. A related measure compares actual incomes against the income required to repay a home loan on an average house and land package with a given level of deposit (Graph 8).

Graph 8: Required deposit on housing loan – percent of annual household incomes

In this chart a 10 percent deposit is taken as typical and related to median house price. The decreases in affordability since the mid 1990s are once again affirmed (Graph 8). In fact regardless of which approach is employed to measure accessibility, all rely on some combination of house prices, interest rates and incomes, and so all show similar trends.

However each approach adds new insight, since they each package the information a little differently. For example Graph 8 draws attention to the extent to which one particular factor, stamp duty, contributed to the decline in affordability in terms of the hurdle of up-front costs. In 1990 stamp duty on the median house in NSW was equivalent to 6 per cent of average annual income. This had risen to 14 percent by end 2003, though state governments have now begun to amend their provisions in this area somewhat, as is discussed in further detail below.

Renter Affordability

It is also recognised that whilst most Australians aspire to owning their own homes, for many renting is appropriate at various stages of their life cycle and for others the ownership dream is there but will never be a reality. In terms of averages, renters have not experienced the same degree of escalation as have home-buyers over the period of the recent housing cycle. Since the early 1990s rents have grown at 2.5% per annum - and have averaged 1.9% since 1996, using the rent component of the ABS consumer price index as an indicator (Graph 9). Vacancy rates have also risen over this period, though the regional pattern is more diverse here than for housing prices. For instance, Canberra, Brisbane and Adelaide have all had low vacancy rates relative to Sydney and Melbourne.

Graph 9: Rental growing and vacancy rate

These rental price trends have meant a deteriorating rental yield trend for investors in housing, since the modest growth in rents has been well behind the trend in house prices. For recent investors or, in terms of current opportunity cost for earlier investors, the yield is quite low - both historically and compared to overseas rental yields which average 7-12 per cent in the major

Anglo-American economies. In Australia earlier yields of around 8 per cent in the mid to late 1980s have fallen to around 3 per cent in the early 2000s.

Source: HIA; ABS

Graph 10. Rent and Income Movements

Graph 10 from ABS consumer price and income series shows the index of rent prices and household average disposable income since 1984. The main problems in the rental market relate to rental affordability for those sub groups who have not shared in the average income increase and of access by renters seeking ownership to the much more expensive housing ownership market where, as seen above, affordability has deteriorated very substantially. The next section looks at the lower income affordability issue for renters.

Affordability for Lower Income Groups

According to the Brotherhood of St Laurence⁹, even in the relatively favourable rental market private tenants are still hard hit, with many paying much more than 30% of their income in rental costs. The same research indicate that up to two fifths of Australians who rent privately have been doing so for more than 10 years – many being “trapped”.

The rental sector has historically been seen as a transitional tenure stage for individuals. However, in the last two decades the transition from rental housing to home ownership has been less clear cut. With rising prices on existing houses and land price hikes, combined with the cost of renting, many find it impossible to be able to save for the increasing deposit required to move into owner occupancy.

The emphasis in the measures above has been upon average indicators of affordability and their trends. But particular concern arises in such a fundamental area as the position of the less advantaged. One source of information here on affordability is from the impact of the federal rent assistance program, since this is specifically targeted at income support beneficiaries¹⁰.

Overall, for the 943,877 low income Australians receiving Rent Assistance, FaCS data for 2001-02 shows¹¹ that:

35% (around 330,360 people) spend more than 30% of their income on rent; and
9% (around 85,000 people) spend more than 50% of their income on rent.

Low income earners that pay more than 30% of their income in housing costs can be said to be in “housing stress”. Those households who pay more than 50% of their income in rent can be said to be in “extreme housing stress”. Therefore amongst the group receiving rent assistance, itself a subset of the less advantaged, affordability is not achieved even in the presence of assistance for over a third of recipients, and nearly one in ten of all recipients spend over half their total income on rent.

For example looking at sharer rent assistance, Table 1 shows that in the north west of Melbourne, 57% of sharer Rent Assistance recipients failed to achieve affordable housing and were in housing stress, according to the 30% net rent:net income criteria. Sydney postcodes are generally unaffordable for these recipients of rent assistance across the whole city. In Sydney, it makes little difference what type of housing is chosen, as even the cheapest options are not cheap enough to keep a Rent Assistance recipient out of rent stress. To put real dollar figures behind these stress data, average rents for Rent Assistance recipients range from $310.11 per fortnight in Sydney to $210.27 per fortnight in Tasmania outside Hobart. For comparison purposes Newstart and Sickness Benefit allowances range from $389 per fortnight for a single recipient to $351 each a fortnight for a couple.

Nevertheless, while the problem of lower income affordability is greatest in Sydney and in large parts of Melbourne, the problem is also evident in the inner parts of other capital cities and in a number of regional areas. It shows that inner suburbs in the major capital cities perform poorly against a range of affordability measures, due to low levels of income and rent assistance and in spite of average rental levels at least not rising as much as housing prices.

Table 1: Housing stress in top ten areas with highest concentrations of sharer Rent Assistance recipients, 2001

Area	Postcodes	No. of people in housing stress	Housing stress (%)
Melbourne, VIC (from Melbourne North West to Preston)	3047-3100	6,895	57%
Sydney, NSW (Bankstown, Campbelltown)	2160-2202	5,154	56%
Melbourne (Footscray, western suburbs)	3011-3046	3,630	54%
Brisbane, QLD (Northgate Central)	4005-4072	5,760	51%
Melbourne, VIC (Mulgrave, Ferntree Gully, Dandenong)	3149-3180	3,329	51%
Central/Northern NSW	2255-2574	12,924	50%
Brisbane, QLD (city suburbs)	4073-4209	6,612	48%
Adelaide, SA (city suburbs)	5006-5098	4,057	44%
Perth, WA (from Tangney to Brand)	6100-6214	3,982	44%

Source: FaCS, Annual Report, 2001

Access to ownership is even harder and beyond the realistic aspiration of most renters in these lower income situations. Indeed, a recent study by the Affordable Housing National Research Consortium found that in June 2000 no private renter in the bottom two income quintiles could afford to purchase in any metropolitan location in Sydney, Melbourne and Adelaide¹².

There is also the issue of affordability in public and community housing. This area is examined in detail below, but the key point that can be made here is that this is a proven tenure for affordability, in fact the most affordable tenure for tenants¹³.

Conclusion

Housing is a large part of Australian wealth and living standards. Its value underpins consumer confidence, its prosperity adds substantially to employment growth and the provision of secure, affordable and appropriate housing is central to community well-being.

The increase in housing prices since the mid 1990s has been large and widespread. Despite lower interest rates, housing affordability has now fallen to historically low levels. There is less increased pressure for renters in relation to average rent. But for lower income groups there remains major housing stress in rental markets and an ever-diminishing chance of moving to the Australian dream of secure, affordable, appropriate housing as owner occupiers¹⁴.

Even if some of the heat comes out of the current property market, including under Reserve Bank guidance, this will leave an affordability overhang in place for a very substantial time, at least short of a severe housing downturn that no-one wants. There is therefore a clear and ongoing need to understand the sources of this affordability crunch and to determine policies that can better ameliorate its adverse effects now and into the future.

Explaining affordability: Key demand–side issues

The preceding section identified the ingredients of housing affordability. These were: house prices, finance and income. Of these, house prices are the product of supply of houses and demand for houses, and finance and income indirectly affect this demand-side of house prices as well as feeding directly into the affordability equation in their own right.

Demand for housing comes from the size and structure of the population available to purchase or rent, its willingness to pay in terms of its housing preferences relative to other spending and investments, its capacity to pay directly from income, employment conditions and through borrowing, and any government incentives that alter that situation. The key direct government policies here are:

income and capital gains tax provisions including rates and conditions
finance and investment regulation
home purchase grants and rent assistance
stamp duty imposts

Supply of housing depends upon the availability and price of land, associated infrastructure and the availability of established housing for sale or rent and the costs of construction for new housing. It also depends upon any government regulatory or fiscal activities that alter that situation. The key direct government policies here are:

land release and planning approval processes
infrastructure development charges
building regulations and controls
industry competition and training policies
public housing provision

The remainder of this section looks at the demand side influences, with particular reference to those amenable to government action to improve affordability.

Population, Income and Finance

The basic trends in population, income and finance are well known. The period since 1991 has seen a steady expansion of population and employment. The population expansion has averaged over one per cent and as natural increase has fallen off there has been a tendency to increase migration levels somewhat. While external migration has focussed on Sydney and Melbourne, these cities have experienced high levels of internal out-migration. As a result they have grown at lesser rates than cities such as Perth and Brisbane. Over the last fifteen years Brisbane has grown at twice the population growth rate as Sydney. It is difficult to see population growth therefore as a major new factor behind the major deterioration in housing affordability commencing in the later 1990s especially, beginning in Sydney and Melbourne.

Similarly the growth of average income coming since the mid 1980s has been steady except for the 1991 recession. Certainly a long sustained increase since the early 1990s may have engendered substantial consumer confidence, particularly its prolonged continuation. At the same time, the period since the early 1990s has seen real incomes expand in a low inflation environment which has meant nominal interest rates have been kept low. Financial deregulation has kept real rates competitive and new entry has encouraged new innovative finance products, including for housing.

Growing incomes and enhanced access are therefore important parts of the explanation of the trends in housing affordability. Housing credit growth patterns clearly reflect this, as is seen in Graph 11.

Graph 11: Housing credit growth

The outcome of the process has been a growth in household debt that is amongst the fastest in the OECD. Only Spain and the Netherlands have experienced similar increases since the mid 1990s. Housing loans now constitute 84% of household debt, up by 15 percentage points since 1990.

So basic economic trends have been very favourable to housing demand. But the extra question is why the dramatic change over trend in the early 2000s? Part of the explanation may be found in the surge in investor purchases of housing. The large decline in share market returns and lower returns in commercial property have made housing investment attractive, mostly through capital gains and not rental yield. Table 2 summarises the Productivity Commission estimates of returns on alternative investments.

But, as suggested, such returns go beyond the simple fundamentals of income, employment and finance. And answers must be sought as to why this greater acceleration of demand has occurred beyond market fundamentals and what role government policy settings have played in this. In particular the key question is what government policies can do to moderate actual down-side consequences for some particular less-advantaged groups in our community and to moderate or avoid potential down-side consequences for home-owners and buyers more generally.

Table 2: Annual Pre-Tax Returns on Alternative Investments (per cent)

Asset Class	June 2000	June 2001	June 2002	June 2003
Australian shares	15.5	9.1	-4.7	-1.7
International shares	12.6	-6.0	-23.5	-18.5
Unlisted property	10.9	10.4	9.5	11.1
Listed property	11.9	13.9	14.9	12.1
Australian bonds	6.2	7.4	6.2	9.8
Cash	5.6	6.1	4.7	5.0
Melbourne residential property	12.1	20.9	17.3	25.3
Sydney residential property	13.1	6.3	22.0	20.0
Australia-wide residential	11.8	14.7	21.3	18.2

Source: Productivity Commission

A further issue is whether improved financial access and financial innovation has enhanced the position of the low income groups seeking affordable rent and home purchase, beyond the outcomes the general trends discussed. And here there seems less progress than might be hoped, at this particular end of the market. What might be looked to are various potential investment instruments for the funding of affordable housing solutions so as to specifically increase the stock of affordable housing , rented or owned, for low income households. This could encompass pooled equity funds to invest in portfolios of suburban dwellings and/or pooled debt funds to provide loans to housing providers for building new affordable housing stock, perhaps along the lines of the Dutch affordable housing model.

Presumably the purely private sector impediments are the very high capital costs of land and property and the low income returns, implying a need for government support and/or alternative indirect business developer models using land bank approaches- perhaps as innovations allied with the social housing sector in Australia, as discussed below.

Social and Employment Change

As indicated, the basic trends have however not been favourable for all. There is an important down-side at the less advantaged end of the market that should also be recognised. One factor is that the record low unemployment rates are being partly bought at the expense of record high levels of welfare support. Disability support and single parent support have risen very substantially, as has involuntary early retirement- putting many persons relying upon this support well out of the market for finance for home purchase.

Moreover even for those in those in employment there is a new character to the Australian labour market that may inhibit house purchase for many. Thus of 18 developed economies with comparable data¹⁵, Australia is ranked:

first on the proportion of temporary employment
second on the proportion of part-time employment
second on the proportion of part-time workers who would prefer full-time employment
fourth last on indices of employment protection legislation
last on the median and mean duration of employment.

These characteristics of employment have also been changing significantly in Australia over the 1990s. For example, part-time employment rose steadily from 23% in 1991 to 28% in 2001. And more than half of all new jobs created in the past 16 years have gone to casual workers. Today there are equal numbers of males as females in casual employment and all are less likely to have training, superannuation, sick leave or holiday pay. Sixty per cent cannot easily estimate their earnings forthcoming in any future week and one-third would prefer to work longer hours.¹⁶ This has occurred at the same time as wage and market income inequality have risen significantly. Australia has the third highest inequality of income amongst the major developed economies.

While labour market flexibility has increased to the advantage of some workers and employers, the optimal balance is hard to define. In relation to housing itself however what this trend means is that the security of income needed to sustain mortgage and rental commitments is therefore now much more uncertain in Australia. A tightly targeted welfare system does not compensate as it does in Europe.

Also, at the lower end of the income distribution, as opposed to average income, the income base for housing affordability has increased somewhat less than for others. Unless there is increased relative supply at the cheaper end of the housing market, this means that an even greater housing affordability problem exists at the low income end of the housing market than has been the case in the past. The current pattern for tenure type is shown in Graph 12.

Graph 12: Dwelling Tenure, 2001 Census.

Source: ABS

In sum, the rapid employment growth in the service sector and in information technology has tended to create more part-time and contract jobs instead of full-time permanent positions. The greater polarisation of wealth and income in Australia has also meant increasing numbers of households with incomes too low to buy a home. Low income and lack of permanency makes it more difficult for households to enter a long-term financial commitment such as a home loan, thus forcing them to rely on the rental sector to meet their housing needs.

Even among young people with the advantages of higher education, but with the burden of HECS debt, there is a growing trend to staying longer and returning to the parental home. Post-war cohorts left the parental home somewhat earlier than their pre-war counterparts. And the move to earlier parental home leaving continued through the post-war period reaching lows in the 1980s (men; median age of 19.6) and early 1990s (women; median age of 18.9). However, there is a recent rise in the age at which young people are leaving the parental home (the median age is moving closer to the 21 point).

Lifestyle factors and demographics show that young people are waiting longer to buy their first home. In 2000, almost half (forty six per cent¹⁷) of young people (aged 20-24) were living with their parents, when in 1979 the rate was under one in three (31 percent¹⁸). It is also found that those (currently) residing in Sydney and Melbourne experience lower rates of parental home exit than others. Housing affordability problems in these markets are clearly a driver of this outcome¹⁹.

Other demographic and societal changes have also contributed to this polarisation with an increasing number of single person households. There have been more marriages breaking up, which has created more one-parent families. The majority of these families have low incomes and even if they are left with the family home, they are often unable to maintain payments on the outstanding mortgage and are forced to move into the rental sector or into less suitable housing than before, often poorly located- which compounds the job acquisition problem and creates ongoing poverty traps.

The number of people residing in a typical household continues to fall, from an average of 3.3 people per dwelling in 1971 to 2.7 people in 1996. This demographic change alone drives around 40 percent of the underlying demand for new housing²⁰.

Income and Capital Gains Tax Concessions and Deductions

Turning to government policy settings and their effect on housing demand, and starting with tax, there are a range of fiscal measures that impact on housing directly. On the side of buyers, four main areas can be identified. Three have the effect of assisting with housing affordability: income and capital gains tax concessions, home-owner grants and rent assistance. The fourth reduces housing affordability: stamp duties and land tax. These are looked at in turn, beginning in this section with tax concessions.

Tax concessions refer to tax exemptions, reductions or rebates for particular activities. They are also known as “tax expenditures” since they come at a loss to the revenue flow that would otherwise accrue to government and hence are equivalent to direct outlays but are less transparent. Two main tax concessions apply: exemption of owner occupied homes from capital gains tax, and non-taxation of the imputed rent from owner-occupied homes²¹.

It is estimated that the value of such indirect assistance in 2001 was²²:

exemption from capital gains: $13 billion
non-taxation of imputed rent: $8 billion

This jointly represented some $4200 per owner occupier household, and will undoubtedly have risen significantly since 2001. In real terms the average value per owner-occupier household of these tax concessions had trebled since 1985 when estimated to be $1200 (in 2001 dollars). The increase arose then primarily from the exemption of owner occupied housing from the capital gains tax when it was introduced in 1985.

These tax concessions are available to all owner-occupiers but are of more value to some than to others. One mechanism that creates this uneven outcome, or distributional effect, is the application of progressive marginal income tax rates.

Although the scale of income tax rates in Australia is progressive (the more you earn the higher the amount of income tax you pay), these scales become considerably less progressive once tax concessions provided to high income owners are taken into account. That is because the more you earn, the higher the value of the concessions. Also important is whether the dwelling is owned outright or being purchased with a mortgage. Both owners and purchasers receive the full value of any capital gains. Only outright owners benefit significantly from the non-taxation of imputed rental income. Any potential benefits to purchasers with a mortgage are offset by their inability to deduct the cost of interest payments from their income.

On average:

outright owners receive more than five times the amount of assistance provided to purchasers;
high-income ($1210 to $2260 per week in 1999 dollar terms) outright owners receive a total tax benefit of close to $9000 per household per year;
home purchasers in the bottom 80 per cent of the income distribution (income levels at and below $1200 per week 1999 dollar terms) receive a benefit of less than $500 per household per year through the tax system.

In broad terms²³:

most benefits go to high-income households who live in high valued dwellings and have little housing debt;
benefits to high-income older households are considerably greater than those enjoyed by younger households;
young, lower-income purchasers aged between 25 and 45 with incomes in the three lowest quintiles receive minimal assistance.

Additionally the exemption or concessional treatment of owner-occupied homes for various income support means tests could be added, as could various concessions and rebates offered by local governments, though there does not appear to be evidence on their valuation.

In relation to investor properties, when landlords sell properties they pay capital gains tax – owner-occupiers do not. But landlords can deduct their housing expenses (for example, mortgage payments and maintenance costs) from their income tax liability–owner-occupiers cannot. Most attention here has focussed on the role of “negative-gearing” in allowing property deductions against non-property income. This is seen as influencing the increase in investment housing in recent years.

The provisions have long been there, but easier access to finance, high marginal income tax rates operating under bracket creep, declining relative returns in alternative investments and greater knowledge of tax-advantaged investment, including via a fast growing property advising sector, may have combined to expand such activity. A change in 2000 to capital gains tax rules to allow a 50 per cent deduction on nominal capital gains tax for assets held by individuals for more than a year may have helped accelerate the momentum. In the immediate past this change has increased investor returns and reduced tax payable. More growth in general inflation or a less buoyant housing market could alter this calculus, but it was supportive during the recent house price increases.

First Home Owner Grant

The First Home Owner Grant was established to offset the effects of the introduction of the Goods and Services Tax (GST) on home ownership. Since 1 July 2000, eligible first home buyers have been entitled to a one-off payment of $7000. Additional grants of $7000 and $3000 have been available to eligible applicants for the construction or purchase of eligible new homes during the period March 2001 and June 2002 with strict timing conditions on contracting, purchase and construction. For the continuing First Home Owner Grant of $7000, it is not necessary to commence or complete contractual homes within defined time frames, in order for applicants to be considered eligible for the grant.

Features of the Scheme relevant to policy are that:

it applies equally to new and (GST-Free) established housing; and
it applies equally to all housing irrespective of buyer means and house price.

The number of first home buyers buying new homes dropped substantially, even though total number of first home-buyers peaked at 187,000 in 2001 following the introduction of the Scheme. However the Commonwealth Additional Grant was very successful in restoring new housing's share of the first home owner market (historically around 20 percent) during its period of operation.

At the same time first home buyers have had to purchase properties that are relatively cheaper, compared to the median, than in the past. Thus if the ratio of the loan size to the house price paid has remained unchanged, data suggest that the average price paid by first-home buyers has increased by somewhat less than the median price of all houses over recent years (Graph�13). Since 1996 the average loan size of first-home buyers has risen by 100�per cent while the median house price has risen by 130�per cent. Thus, first-home buyers are buying homes that are further below the median price of all homes than was formerly the case²⁴. Nevertheless it is likely that the First Home Owners Grant scheme has made an important contribution to at least easing the “deposit gap” problem discussed above.

Graph 13: Average loan size for first home-buyer – percent of total median house price

In its first three years of operation the FHOG scheme has cost $3.8 billion for half a million home-buyers or an average $7600 per beneficiary. The extent of actual assistance depends on how much of this grant is passed through to house prices. The more responsive is supply, the less will be the impact on housing prices of this assistance.

Rental assistance

As seen, in recent times there has been a major increase in the level of investment in private rental housing. Coincident with these trends, housing assistance in Australia has continued to shift away from direct housing assistance such as through the Commonwealth State Housing Agreement towards an increased reliance instead on rent based subsidies for eligible private tenants. This increase in investment in private rental housing, along with a continued reliance on the private market to meet the housing needs of lower income households, raises the question of how well the private market meets these needs.

Only about 40 per cent of households living in low rent stock actually have a low income; a proportion that is fairly similar in metropolitan and non-metropolitan regions. In metropolitan regions, 60 per cent of higher income households pay low rents; the comparable figure for non-metropolitan regions is 62 per cent. At the same time there is a highly consistent pattern in which higher income households paying low rents tended to be aged less than 35 years, a couple headed household, and very likely to have two adults in the paid workforce. Given that this pattern holds true for both metropolitan and non-metropolitan regions, it appears that an element of estate agent/landlord gate-keeping plays a role. In a risk minimisation context, landlords and agents are more likely to choose an employed tenant over one who is outside the paid workforce.

Among low income private renters, young couple families are the ones who are most likely to be ‘missing out’ on the low rent dwellings and, consequently, paying high unaffordable rents. Again, very similar patterns are found in both metropolitan and non-metropolitan regions. Analysis suggests that the concept of a ‘risk society’ and the resultant economic and social insecurity that accompanies this environment is useful in explaining this outcome. In a climate of increasing part time and casualised work, becoming a low income household may be thrust rather suddenly upon a household. If the household contains a family with children, it may not be possible to down-size rental dwellings instantly. Therefore, it is not surprising to find a minority of low income households paying disproportionately high rents. The increasing unexpectedness of family transitions in a risk society, particularly divorce or separation, contributes the same outcome.

Government help for renters by way of the Rent Assistance Scheme provides supplementary income to around 1 million Australians in recognition of the additional cost of private rental housing. It makes housing more affordable for people renting privately, including site fees for a mobile home, service fees in a retirement village, and board and lodgings. Performance is stated to be monitored and measured by changes in client numbers and outlays, the impact on housing affordability, and the extent to which assistance is directed to those in most need²⁵.

Rent Assistance is provided as a non taxable income supplement to people receiving income support payments (except Austudy), including those who receive more than the base rate of Family Tax Benefit Part A (FTB A). Features of the Scheme are that:

Roughly one million (943, 877) Australians are currently in receipt of Rent Assistance;
Unemployed people receiving Newstart are the largest group of Rent Assistance recipients comprising 22% of the total number of recipients;
Sole parents are the second largest group of Rent Assistance recipients (20%);
Almost two thirds (64%) of all Rent Assistance recipients are women²⁶;
57% of the total recipients were receiving the maximum amount of Rent Assistance payable;
54% were single without children; 23% were single with children;
15% were couples with children, and 8% were couples without children;
39% of recipients were families (single parents and couples) with children;
14% were single sharers and 39% single non sharers 39% (total single = 53%).

The payment levels and the rent thresholds are uniformly applied across Australia, so it does not take into account significant regional variations in rents. Rent Assistance is only available to people paying rent over certain thresholds. In this way it is targeted to those paying larger proportions of their income in rent. Current maximum rates of Rent Assistance range from $62.13 per fortnight for single people (no children) in shared accommodation to $123.76 per fortnight for couples with three or more children.²⁷.

Almost one million “income units” are covered by the Rental Assistance scheme and funding in 2003-04 has reached $1922 million. Sixty four per cent of recipients are female. The numbers and their income support source of payment is summarised in Table 3.

Table 3: Number of persons or couples receiving Rent Assistance, 2002


Payment	Income Units		Gender of recipients (%)
	Number	%	Female only	Male only	Both members of a couple
Age Pension	151 120	16	56	26	17
Disability Support Pension	162 048	17	40	52	8
Newstart Allowance	206 317	22	41	55	4
Parenting Payment (single)	189 782	20	93	7	0
Parenting Payment (partnered)*	26 160	3	93	6	1
Youth Allowance	90 741	10	58	40	1
Family Tax Benefit*	81 179	9	88	12	0
Other payments	36 530	4	58	31	11
Total	943 877	100	61	33	6
* Counted only if neither they nor their partner receives any other income support payments.

Source: Centrelink

Rent Assistance is claimed to have the advantage over investments in public or community housing stock as it enables income support recipients greater flexibility in their choice of location, and housing type. In particular, it is claimed to potentially enable recipients to move to locations where there may be better employment prospects, though it does not cover threshold costs such as bond, removals, reconnection fees etc.

In fact FaCS data according to postcode areas shows that it is typical for high numbers of Rent Assistance recipients to live in areas with low rents but above average unemployment levels. This suggests that Rent Assistance is currently not effective, on its own, in encouraging and/or allowing recipients to locate to areas with better job prospects. As the underlying AHURI research concludes: “inequalities arising from the labour market and housing market are tending to reinforce one another – these mutually reinforcing processes of social disadvantage can take a spatial dimension whereby the disadvantaged are confined to particular parts of cities of outside cities”.²⁸

Stamp Duties and Land Tax

Through tax concessions, homeowner grants and rental assistance upwards of $25 billion or more of support is provided to home owners and renters. At the same time it is estimated that some $10.8 billion in indirect taxes (not including land tax and property rates) was levied on new housing in the 2002/03 year²⁹. State government stamp duty on new housing alone accounted for a $1.3 billion of this.

Stamp duty (excluding any duty previously paid by the developer/ builder which is included in the selling price) has risen to be as much as 25 percent of the entry costs into homeownership, or around half of the deposit itself and so can put homeownership out of reach notwithstanding the buyer’s earning capacity to service the loan³⁰.

During the past few years, for all home buyers, the failure to adjust the various rate thresholds to reflect the increase in house prices has resulted in substantial revenue gains to State governments and has pushed up effective stamp duty rates on average homes by up to 1.5 percentage points in some States and Territories. Stamp duty bracket creep has lifted the amount of stamp duty payable on a median priced house by more than 100 percent in the past eight years.

Graph 14: Stamp duty payable – percent of average full-time wage earnings

Graph 14 shows stamp duty payable on median house prices as a percentage of average annual full-time wage earnings. The stamp duty rose from under 10 per cent of full-time wages to over 30 per cent in NSW and Victoria by 2003³¹, but recent changes are now altering this picture somewhat as discussed below.

The method of levying stamp duty on intermediate stages of the sale of new housing is a major impediment during a time of increasing difficulty in affording housing. At a time of near record lows in housing affordability, stamp duty is paid on land purchased by the developer, paid again on the same land when purchased by the builder, and again on the house and land package (already inflated by GST and other charges) purchased by the home buyer.

Over recent months, however, a number of amendments have been made on a state by state basis to stamp duty concessions in Australia:

NSW has moved to a complete exemption of stamp duty for homes up to the value of $500,000. A concession applies on a sliding scale between $500,000 and $600,000. Effective July 1. Victoria has announced a decision to put an extra $5,000 in the pockets of all first home buyers purchasing a home valued up to $500,000.At this stage the additional $5,000 has only been guaranteed until the end of June 2005.
Queensland was the first state to move on stamp duty concessions. No duty applies to a home up to the value of $250,000. There is also a first home duty rebate which applies for homes valued between $250,000 and $500,000. In addition, no mortgage duty is payable for the first $250,000 of a loan to buy or build a first home.
South Australia has extended the upper limit for a partial concession from $130,000 to $250,000. A full concession applies to homes valued up to $80,000. For first home purchases where the property is valued between $80,001 and $100,000, the concession will reduce from 100% to 50% (2.5% reduction per $1,000 of property value). The concession remains at 50% where the property is valued between $100,001 and $150,000. The concession then reduces by $24 for every $1,000 increase in property value above $150,000 and phases out completely at $250,000. This is effective as of May 27.
First home buyers in Western Australia will pay no stamp duty on the purchase of a dwelling on land valued at up to $220,000, or on any land purchased up to the value of $100,000. Stamp duty is then phased in up to $300,000 for a home and $150,000 for the purchase of land. This is effective July 1.
The ACT has linked concession thresholds to the market value of properties. The bottom threshold for which a full concession is available applies to the bottom 25% of market value homes. The upper threshold up to which partial concessions apply cuts out at 65% of market value. Effective July 1.
Tasmania has introduced a duty concession up to a maximum of $4 000. If the duty is less than $4 000 then no duty is payable. If the duty payable is more than $4 000 then $4 000 will be offset against the duty chargeable with a requirement to pay the amount in excess of $4 000. No concession applies for properties valued at over $350,000. Effective May 20 2004 to June 30 2005.

In addition to stamp duty, states and territories impose a range of further taxes that directly impinge on housing. This includes land tax on unimproved value of land, which applies mostly to rental housing but also to high valued owner occupied homes in NSW. Growth here has not been as fast as for stamp duties, but does still represent an impost of $2billion on the sector³².

Explaining affordability: key supply side issues

The Housing Sector and Industry Issues

As an industrial sector, the housing industry has been responsible for the provision of Australia’s substantial stock of housing built over the years. It also adds annually to that stock with new housing, improves the stock through renovation and maintains the stock by repair and maintenance activity. Key features are³³:

The total housing stock at end 2003 is 8,092,519 dwellings: 2,654,407 in NSW; 2,000,328 in Victoria; 1,551,409 in Queensland; 663,709 in South Australia; 809,440 in Western Australia; 211,711 in Tasmania; 73,143 in NT; and 126,520 in ACT;
The supply of new dwellings was running at around 143,000 per annum in the 1990s;
The ratio of persons to occupied dwellings is 2.3, with this varying from a low of 2.1 per cent in Tasmania to a high of 2.6 in the Northern Territory;
Of the total stock of occupied dwellings detached homes comprise 68.4 per cent, semi-detached homes are 8.1 per cent, and flats, units and apartments are 11.8 per cent. There are 9.2 per cent of dwellings unoccupied at any one time;
Rental dwellings are some 29 per cent of the total housing stock, comprising over 60 per cent of all flats, units and apartments and over 50 per cent of semi-detached dwellings;
The building and construction industry employs 767,000 persons, 55 per cent of whom are employed in housing;
Of 235,000 firms in the construction sector, 91% employ fewer than 5 people.

In terms of industry operation both the market for established dwellings and the market for new homes seem highly competitive. There are numerous buyers and sellers and Australia’s building and construction industry has been found in studies to be amongst world best practice in productivity and practices³⁴.

An active renovations and improvements industry has probably added value exceeding depreciation in recent years but it is hard to see it as a source of major house price increase. Indeed building material inputs to building and construction and project house prices (excluding land) have not moved much differently to the consumer price index since 1986³⁵.

There are issues over work-force organisation in the broader construction sector that area source of political contention, but these are not focussed in housing. And there are issues of skill shortages that can influence construction costs and timely availability of new housing. For instance, a recent HIA survey reports shortages in all traders (Graph 15). And skill shortages are expected to increase in the period ahead due to the ageing of the workforce, with an increasing number of workers leaving the industry, but also because of difficulties in being able to attract new entrants.

Such industry issues bear close scrutiny and action lest they add to future deterioration in housing affordability. But, as indicated, the broad trend in building costs has been in line with general price movements overall in recent times. In so far as there is a contribution on the supply side to the housing affordability deterioration it must therefore come from the supply of land and/or government supply side planning, release and building regulation policies and/or from taxes and charges applying to housing suppliers, including for related infrastructure.

Graph 15: Construction Trades Skill Shortages, end 2003

There is also the related supply-side issue of provision of public housing and its trends and circumstances, in contributing to the supply of housing in Australia. These governmental issues are therefore the focus of the remainder of this section of the Resource Paper.

Land Supply and Housing Affordability

The increase experienced in land prices in recent years has been a major factor contributing towards housing affordability decline. In the face of the restricted land supply and substantial increases in land prices, the market has shifted towards smaller block sizes for detached housing and increased housing densities through more multi-unit development. But despite these changes and symptomatic of the extent of the supply pressures, the share of land cost in new house prices has increased relentlessly.

In Sydney, land has doubled its share of the average new house price over the past 25 years and now absorbs the majority of the home purchaser’s dollar. In Brisbane and Perth more than 40 percent of the new house price is accounted for by the land component, doubling over the last 25 years. Since mid-2002, the cost of raw land has risen dramatically again – as much as two-fold increases have been reported in the broad acre price of land in Sydney.

In Sydney, land has doubled its share of the average new house price over the past 25 years and now absorbs approximately 60 percent of the home purchaser’s dollar. At the city’s fringe average vacant lot prices have doubled in price since 1996. Even since mid-2002 the cost of raw land has risen dramatically again – as much as two-fold increases have been reported in the past year for broad acre prices in Sydney.

Table 4: Share of Land in New House Prices


	1976-77 (a)		1992 (b)		2002 (b)
	New House Price $	Land %	New House Price $	Land %	New House Price $	Land %
Sydney	49,010	32	189,800	44	338,150	60
Melbourne	63,200	24	169,000	24	276,200	37
Brisbane	46,280	21	164,690	39	234,300	49
Adelaide	53,970	16	125,970	26	177,430	32
Perth	57,640	22	115,730	32	163,340	42

Sources: (a) Report of the Committee of Inquiry into Housing Costs, 1978 (b) Sample of Builders and Developers

Although land prices have increased markedly, the cost of building a new house has increased modestly. Over the past 12 months, the cost of a project house in Sydney (excluding the land component) has risen by 5.7 percent³⁶.

The impact of land costs on housing affordability, however, is not confined to Sydney. In Brisbane and Perth more than 40 percent of the new house price is accounted for by the land component. A recent Adelaide market report³⁷ shows that vacant land prices in the Adelaide Statistical Division have increased by 60 percent in the past 5 years. The report contends that:

“Since the urban fringe has traditionally provided the lowest cost house and land packages, any reduction in the availability of fringe land will increase the pressure on the most vulnerable sector of the private housing purchase market. Either the fringe market must remain well supplied or alternative forms of affordable infill housing, such as higher density smaller footprint flats and residences, must be capable of being developed. Ideally, both options should be pursued ….”

and concludes that:

“The maintaining of a constant and readily accessible supply of land for residential development purposes is the most successful means by which affordability can be maintained.”

State governments increasingly are seeking to rely on land supplies from within established areas to meet the demand for residential land. The importance of proposed in-fill housing in meeting anticipated dwelling requirements and land supply in capital cities is indicated in the table below, based upon State planning strategies.

In Melbourne and Adelaide the planned reliance on in-fill housing is well ahead of current outcomes. In the absence of new policies to promote the supply of in-fill land these cities may run into problems of the kind experienced in the past in the Sydney region especially, with potentially poor affordability outcomes. These regional boundary issues are emerging as new sources of house price pressure, since what might be saved with infrastructure efficiencies may be more than offset by land price effects if the balance is not right.

Table 5: Infill Housing Need – Capital Cities

City	Year	Projected infill share of development %	Projected share for detached housing %	Current multi-unit/ detached housing mix %
Sydney	By 2008	69	31	64/36
Melbourne	By 2030	69	31	35/65
Perth (metropolitan)	By 2031	24	76	16/84
Brisbane	By 2016	40	60	36/64
Adelaide	By 2023	91	9	24/76

Sources: ABS and State planning reports

Building Regulation and Controls

All new private building work in Australia is regulated and therefore changes to regulations can have a direct effect on the cost of building work. Regulations cover all activities applicable to the life cycle of a building such as:

design of new buildings;
gaining approval for building work;
construction processes;
approval of completed buildings;
maintenance of buildings; and
demolition of existing buildings.

Building control regulation and processes have changed significantly over the past years and such changes can have major cost implications and affect housing price and amenity substantially. Since the regulation of building work is the constitutional responsibility of respective State and Territory governments, Australia has eight separate building control systems. A major issue therefore is whether this fosters best practice in regulation.

There has been some past focus on facilitating this ambition through greater uniformity with the establishment of the Australian Building Code Board (ABCB) under Intergovernmental Agreement in 1994.

The regulatory requirements of the Building Code of Australia have been developed to enable the achievement and maintenance of acceptable standards of structural sufficiency, safety, health and amenity. These requirements have been developed with the proclaimed objective of ensuring that they are cost effective and extend no further than is necessary in the public interest. However IGA included a provision for individual States and Territories to vary the content of the BCA at their discretion. This has been exercised significantly.

Similarly, administrative provisions covering the ‘paper work’ processes associated with building control, including the simple task of lodging an application for building approval, a process undertaken regularly by building companies varies substantially and not only at the state/territory level but, with delegation, across the 700 local government authorities in Australia. Local government had a major role in this area.

According to a recent Allen Consulting Group study³⁸ there are estimated savings in the vicinity of $400 million a year that could arise from improved national harmonisation in this field. The ACG Study did find that growing cross-jurisdiction operation may be encountering consequential increases in individual business costs due to inadequate harmonisation, but recent changes in affordability were unlikely to be attributable to this area. Rather the ACG points instead to some possibilities for cost containment that might help reduce affordability problems, without such issues having been in any way a serious contributor to the recent major decline in housing affordability.

Supply-Side Taxes and Charges

Housing is the subject of taxes, levies and charges by each level of government. The table below summarises the taxes and charges that apply to the delivery of a typical home, whether it is a new home in a greenfield development or an apartment in an inner city location.

Table 6: Fees, Taxes and Charges on New Residential Development

Land Development	Building
Developer Infrastructure Contributions Major Roads Drainage Public Open Space Sewer and Water Headworks Recycled Water Community Facilities Roads and Transport Levy Stormwater Retention Land Restoration Clearance Fees Water Corporation Council Land Titles Office Electricity Development Assessment Commissioner GST on Development Costs Stamp duty on sale of the land Land tax on land holdings	Council Fees and Charges Building Permit Levy Training Levy Kerb Deposit Water Corporation Development Application Fees GST State Taxes and charges Stamp duty on the sale of a house Training levy Long Service Leave Levy Compulsory Home Warranty Insurance Infrastructure levies

In addition to these taxes, developers and builders also pay company or income tax on their earnings and payroll taxes on their employees, and in some circumstances independent trade contractors.

Because individual taxes intersect at different stages of new residential development, the real tax impact is largely hidden from end purchasers. Graph 16 below, compiled by the HIA, shows the various components of a typical new house and land package in a large Sydney greenfield development, as calculated by HIA. In this case study, indirect taxes and charges levied by Federal, State and local government amounted to $196,000 of the final sale price of $635,000 representing an effective indirect tax rate of 31 percent of the total house purchase price, which is much more than the cost attributable to the building of the house (24 percent). Such an outcome is not transparent however.

Source: HIA Sample of builders and developers

Graph 16: Taxes and Charges for Sydney Greenfield Development

Indirect taxes on new land and housing have increased much faster than general inflation over the past decade. By way of example, whereas the consumer price index has increased by 25 percent in the past ten years, taxes on new housing and land development have increased by more than 300 percent, according to HIA calculation.

The replacement of wholesale sales taxes with a 10 percent GST had a major impact on the total indirect tax revenue from the housing industry when it was introduced in July 2000. From tax receipts of $170 million in 1999-2000 generated by wholesale sales tax, the GST lifted indirect tax receipts from new housing and renovations by more than $3.6 billion in the first year to in excess of $5 billion in the past financial year, 2003-2004.

Table 7: Indirect Taxes Collected by the Commonwealth Government on New Housing and Renovations

Year	$ Million
1998/99	140 ^(a)
1999/00	170 ^(a)
2000/01	3,830 ^(b)
2001/02	4,599 ^(b)
2002/03	5,396 ^(c)
2003/04	5,133 ^(c)

Sources: ^(a)HIA estimates of wholesales sales tax based on actual industry activity levels^(b) HIA estimates of GST revenues based on actual industry activity levels^(c) HIA estimates of GST revenues based on HIA’s forecasts of industry activity levels

As outlined at the beginning of this section, there are more than 20 different State and local government taxes and charges on a new housing development. Development taxes have increased much faster than general inflation and the GST is applied to the range of land development taxes and charges, and then stamp duty on top of that. Most of these taxes are levied as a percentage of the price, and so automatically compound in a rising market. On a new home, the total indirect tax take has been estimated as over $124,000 in Sydney and more than $88,000 in Melbourne (see table below).

Table 8: Total Indirect Taxes in a New House and Land Package

	Capital City $	Rest of State $
NSW	124,400	50,500
Victoria	88,700	43,900
Queensland	64,000	36,800
South Australia	54,800	28,100
Western Australia	59,100	34,500
Tasmania	33,100	-
ACT	48,700	-
Northern Territory	40,500

Note: HIA. Comprises fees, charges, taxes, levies and the GST.

As was discussed above for stamp duty, the imposition of the GST on development charges means that governments are effectively “double dipping” on new home taxes. If the Federal and State governments agreed to remove the double dipping of indirect taxes on new housing the cost of a new house and land package could drop by around $12,000 in Sydney, $10,000 in Melbourne and about $5,000 in Brisbane, Adelaide and Perth.

Infrastructure Charges and Levies

Infrastructure charges have increased significantly over time and have contributed to the increase in housing prices. They have not moved sharply enough to themselves directly explain the surge in house prices since the mid 1990s, but they have helped underpin that movement and any appropriate moderation would assist affordability in the future.

Urban infrastructure covers a range of ‘economic’ and ‘social’ infrastructure that produces services for individuals and the community. State and local governments are the main levels of government responsible for the provision of urban infrastructure and infrastructure costs across Australia for greenfield and infill development are funded through a complex array of taxes, fees, levies and charges.

Up-front developer levies have attracted especial attention in recent times. It has been especially prominent in NSW. In Sydney this type of local government development contribution, levied under Section 94 of the Environment Planning and Assessment Act averages around $20,000-25,000 per allotment in most council areas. In addition the NSW State Government is also is now asking for a $15,000 transport levy for new lots within specified release areas. Combined with the $25,000 contribution above, it is taking the cost of social infrastructure to $40,000 per lot³⁹.

The amount or standard of infrastructure that is required in conjunction with a development actually varies substantially across the states and territories and local government areas, and there is a ‘continuum of infrastructure’ items for which upfront development charges are levied.

Recent reports on infrastructure financing have concluded⁴⁰ that in many cases developer contributions are being used to raise funds from a subset of the community with only a weak link between the infrastructure and the benefits derived by those making the contribution. Even if this apportions the benefits correctly now there is the real issue of equitable treatment as between new and existing residents.

Social Housing: Public and Community

Social Housing refers to housing provided by public agencies and by community organisations. It has in the past been a significant feature of the Australian housing scene, with public housing being the larger component of the two. The sector generally charges rents as a proportion of household assessable income up to a ceiling equal to market rent. For this reason the social housing sector guarantees provision of affordable housing. But its relative funding support has been diminishing.

Today, on top of rentals paid by the tenants themselves, social housing is funded primarily by the Commonwealth and the States under the Commonwealth State Housing Agreement. Funding is agreed for set periods, most recently of four years, and can be used for any housing related purpose within the terms of the CSHA so long as it is agreed by the Commonwealth and the relevant State or Territory through a bilateral agreement.⁴¹

The sector is especially important for low income “special need” and “greatest need” households. These cover indigenous and disability housing and homeless, at-risk and related housing needs. For example, in relation to special need, some 27.8% of those receiving government income support in government rental accommodation were Disability Pension recipients. Or, again, it is clear that indigenous households are much more reliant on public and community housing than is the wider community (55% vs 18%). The picture for private rental for indigenous vs non-indigenous households is seen in Table 9.

Table 9. Type of Landlord for Rented Private Dwellings, 2001

Landlord Type	Indigenous	%	Non-Indigenous	%	Total	%
Private Rental	29,428	41.7	1,337,542	74.8	1,366.970	73.6
Public Rental	23,974	33.9	293,197	16.4	317,171	17.1
Community Housing	14,628	20.7	29,683	1.7	44,311	2.4
Other Type	1,587	2.2	105,833	5.9	107,470	5.8
Not stated	1,027	1.5	21,371	1.2	22,938	1.2
Total	70,644	100.0	1,787,676	100.0	1,858,320	100.0

Source: AIHW 2004

In relation to greatest need, one group illustrating a growing assistance commitment is the homeless. The 1996 Census gave a snapshot of the problem, recording 105,304 persons as homeless on Census night. Of these 46% found accommodation with friends and relatives, 22% in boarding houses, 12% in Supported Accommodation Assistance Program (SAAP) accommodation and 20% without conventional accommodation. The major targeted funding program to assist in this area (SAAP) has been growing by 13% real since 1996-97 and represented some $86 million in outlays for 95,600 clients in 2000-01⁴².

In these special and greatest need areas, public and community housing helps overcome discrimination in private markets and allows purpose-built construction to proceed more efficiently. It can also assist with housing affordability and availability for so-called “key workers” such as police and nurses in both metropolitan and remote locations.

That said, base Commonwealth funding for social housing is currently provided at an overall level unrelated to any such measures of housing need and is itself in fact declining in nominal terms by just over 1% each year. This raises questions of at what point public housing is reduced to unsustainable levels and whether the present stock profile and management is adequate to its changing role and focus. Certainly, public housing is carrying significant unfunded maintenance and re-development liabilities. Costs rise for special need and greatest need provision and segmentation away from a broader low-income mandate also carries stigmatisation concerns.

Public housing also faces a cash flow crisis which has meant little new stock has been added nationally as capital funding has been used to meet this gap. This is seen starkly in the following graph tracking the relevant history of the South Australian Housing Trust, as a case in point.

Graph 17: South Australian Housing Trust: Dwelling construction and disposals, 1938 – 2003

The decline in funding for public housing, renewal of an ageing public housing stock and greater Commonwealth emphasis on rent assistance has meant that low-income households have become increasingly reliant on the private rental market to meet their housing needs.

To contribute enhanced base funds to the CSHA would represent a lesser funding commitment than it would be if the social housing system did not exist and Commonwealth Rental Assistance had to be paid to all households currently living in social housing. These arrangements also provide States and Territories with considerable flexibility in how to spend available funds and to identify priority groups, including Indigenous people, at which to target funding.⁴³

However current base funding arrangements do not support necessary investment in social housing assets and growth either. Because there is insufficient funding, they also compromise the ability of social housing providers to address the needs of disadvantaged groups through mainstream base programs. In addition, the short term nature of the funding agreement restricts the ability of providers to enter public private partnerships to develop more affordable housing.⁴⁴

When linked to the need by housing authorities to spend a considerable proportion of their funds on refurbishment of older stock, this has meant that the level of public housing stock has not increased. Therefore, public housing has been unable to keep up with the increase in numbers of low-income households. Households with a simple affordability problem, through a lack of income, have increasingly found it difficult to access public rental, thereby forcing these households into the private rental sector, albeit with the help of rent assistance from the Commonwealth.

Spending on Rent Assistance has therefore increased while spending on public and community housing programs — the other major form of housing assistance to low income Australians — has declined. In effect, there has been a substantial shift in government support away from the supply of affordable housing under the CSHA, and towards the demand side Rent Assistance program (Table 10).

By 2004 total CSHA and CRA assistance has come to total $3.206 billion, with $1.922 of this being in Rental assistance and $1,284 billion in CSHA spending⁴⁵. For the decade to fiscal year 2004 this means government funding for CSHA has fallen by 54% and CRA has risen by 7%, in real terms. Jointly the effect is a 30.1% real decline in overall rental assistance outlays and a shift in assistance from 39% private sector to 60% of assistance.

In terms of stock, while there was a 34% increase in total private rental stock over the decade 1986-1996, there was a significant decline in stock at the lower end of the rental market. According to the Australian Institute of Health and Welfare (AIHW 2001), the number of low rent stock fell from 246,800 to 177,400, a reduction of 28%. The number of high rent stock rose from131,300 to 231,600 dwellings, an increase of 76%⁴⁶. The intermediate category rose 96%.

As the AIHW commented:
“ the decline in real expenditure on public housing means that people on low incomes are increasingly being forced to seek housing in the private sector. The apparent loss of low-cost rental housing stock raises the question of the degree to which the private rental market can provide a range of housing options for low-income households.”⁴⁷

Another way of making the same point is to recognise that CRA has had the beneficial effect of helping around 318,000 income units reduce their rental to under 30% of their income, compared to the situation in the absence of CRA. However 315,000 income units in the lowest 40% of the income range remain with rental payments in excess of 30%, even with CRA⁴⁸. By contrast the social housing approach precludes this problem for its clients⁴⁹.

Table 10: Government Expenditure on CSHA, Rent Rebate and CRA ($2000FY))

Fiscal Year	CSHA	Rent Rebates	CRA
1991	1505	903	841
1992	1572	985	1012
1993	1639	853	1323
1994	1549	935	1529
1995	1625	1144	1564
1996	1568	1272	1633
1997	1401	1262	1705
1998	1234	1232	1517
1999	1301	1256	1534
2000	1331	1175	1538
2001	1342	1210	1638

Source: AIHW 2004

In earlier analysis the AIHW reported that the weekly mean housing cost in 1999 for owners was $45, purchasers $228, private renters $153 and public renters $73⁵⁰.

Policy options

A range of possible policy options for improving housing affordability have been advanced in public discussion. In this section a listing of such options is given. No attempt is made to assess the relative merits of the options and the list may not be exhaustive. It is provided as a prompt for the information of summit participants. A grouping is adopted along the lines of the broad preceding structure of the Resource paper. A source of origin of discussion of each policy option is also indicated-though this may not be the original or only source, and the source may not necessarily even support the particular option. The listing runs as follows:

Broad Policy and Planning Approaches

A Federal Ministry of Housing [NHA]
A National Housing Policy and Strategy [ACOSS and NHA]
Stabilisation of Impacts of Activity Cycles in the Housing Industry [ACOSS; NHA]
Regional/Local Housing Strategies [ALGA; ACOSS]
Reform and standardise planning systems [NHA]

Demand-Side Policy Options

Housing Finance Options
Tighten regulation of property investment advice [ACOSS; Reserve Bank; ASIC]
Shared Equity [Menzies Research Centre; Task Force on Home Ownership; WA Government; PC]
Housing Lifeline [Task Force on Home Ownership; PC]
Access to superannuation [ACOSS; NHA; Reserve Bank; PC]
Savings investment accounts [Allen Consulting; ANZ Bank; ACTU; PC]
Home credit fund [Gavin Wood; ACOSS; PC]
Extend CRA to mortgage repayments [NHA]

Grant Programs

Targeting for First Home Ownership Scheme [PC]

State government finance assistance schemes [PC]

Taxation Options

Review/reduce negative gearing [ACOSS; Reserve Bank]
Review/reduce indirect taxation on housing [ACOSS; HIA]
Remove/reduce stamp duty [PC]
Tax deductions for mortgage interest costs [PC]
Changes to capital gains tax [PC; Reserve Bank; ACOSS]

Rent Assistance

Improve the Rental Assistance Program [ACOSS; NHA]
Housing Vouchers [USA – HUD]

Supply Side Policy Options

Land Supply and Planning Approval Processes [PC; ALGA; HIA]
Building Controls and Regulation [PC; HIA]
Review Infrastructure Funding Arrangements [PC; HIA]
Improve Support for Public and Community Housing
Revitalise the CSHA [ACOSS; ACTU; NHA]
Government housing construction schemes [PC; ACTU]
Group self-build projects [PC]
Improve Support for Affordable Private Sector Housing
Public-private partnerships [PC; Canada; USA – HUD Section 8]
Affordable Housing Innovations fund [ACOSS; Canada]
Subsidising “affordable” private construction [PC]
Low income housing tax credits [USA – HUD]

Broad policy and planning approaches

A Federal Ministry of Housing

While the responsibility for housing outcomes resides with all levels of Government, the Australian Government has a natural leadership role. A Cabinet Minister would provide a focal point for that leadership and recognise that addressing housing problems requires a housing systems response, not simply a welfare response.

A National Housing Policy and Strategy

The Australian Government should work with State and Territory and local governments, non- government organisations and the private sector to develop a National Housing Strategy that addresses all aspects of housing in Australian society. The strategy should incorporate an effective and efficient blend of public and private finance (including Rent Assistance) and ensure an equitable mix of public, community and private housing.

As part of this strategy the government should:

Establish a national advisory committee to inform the implementation of the strategy;
Develop housing affordability measures, including the setting of affordability benchmarks; and
Work with Indigenous controlled and other relevant organisations to develop and implement a staged, appropriate, and fully funded 10 year plan to improve Indigenous housing.
The formation of a ‘roundtable’ of governments, industry and community stakeholders would be a welcome step towards the development of a National Housing Policy.

Stabilisation of Impacts of Activity Cycles in the Housing Industry

The Australian Government should recognise and address the negative economic, industrial and personal impacts of the ‘boom / bust cycles’ in the residential development and home building industry, through policy initiatives to provide greater stability to industry, employees and consumers.

Government policy settings through regulation, taxation and spending can impact substantially on housing markets, and steps should be taken to eliminate or at least modify the boom bust cycle by targeted government spending.

Regional/Local Housing Strategies

Recognise and support the development of local/regional housing strategies. This would enable other stakeholders and local government to better understand local housing circumstances and to develop appropriate responses to the full range of local or regional housing needs.

Reform and Standardise Planning Systems

Governments across Australia should establish a mechanism for reforming, modernising and standardising planning systems to improve efficiency, transparency and accountability.

The planning system is extremely important in ensuring good land use and efficient housing development. However a wide range of inconsistencies can make it difficult to plan new housing supply and the range and amount of fees and charges can work against affordability. Nationally consistent standards can add to certainty, improve transparency and contain the politicisation of planning processes.

Demand-side policy options

(a) Housing Finance Options

Tighten regulation of property investment advice

Where real estate agents give advice base on the investor’s individual circumstances, they should be subject to authorisation requirements, standards of conduct, and investor redress mechanisms that are comparable to those that are available to retail investors obtaining personal securities advice.

A single government body should take primary responsibility for regulating the property investment consultancy sector. This should be legislated if necessary. The body should prepare and widely disseminate information in plain English on the risks faced by investors who borrow to invest in property and shares. A national publicity campaign should be launched to publicise this material.

Shared Equity

Prospective home buyers would be able to use equity as well as debt finance. Under this scheme, the purchaser would provide, say, 70% of the upfront costs of purchase, while the remaining 30% would be provided by a silent third party. In exchange, the third party would receive 60% of the capital gain on sale of the property.

In a similar scheme, the WA Government enables public housing tenants to purchase between 70%and 100% equity in their current rental property under the GoodStart program.

Housing Lifeline

A “Housing Lifeline” would offer bridging financial assistance to homebuyers suffering from temporary economic hardship. It is essentially a line of credit that would be available to renters or buyers that meet an assets-based means test. A household would draw down on a payment from the Federal Government to tide it over a short-term crisis, and repayment would be on a similar basis to HECS.

Access to superannuation

Permit access to superannuation, either through a loan or an early withdrawal, for approved housing purchase.

Introduce Targeting for First Home Ownership Scheme

Make modifications to the FHOS to target it to low income people, along the following lines:

Apply a means test and/or an assets test;
Adjust the value of the grant according to income;
Placing a cap on the value of the home;
Indexing the grant to median house prices.

State government finance assistance schemes

These vary state-by-state and include schemes such as direct lending, deposit assistance, interest rate assistance, advisory and counselling services and mortgage relief. Specific examples include:

HomeStart Finance in SA offers an advantage loan up to a maximum of $165,000;
Keystart Home Loan in WA offers low deposit loans to low income earners;
Victoria provides mortgage interest relief of up to $15,000 over 2 years for unavoidable change in financial circumstances.

Savings investment accounts

There are various permutations of this option. One involves government encouraging savings by low income households through matching payments. Among the possible uses for the accumulated savings would be the payment of housing deposits or mortgage repayments. Another option is that the government adopt special savings accounts which are given concessional tax treatment when savings are used for a home deposit.

Home credit fund

This scheme would encourage people on long-term welfare to move into employment by giving them a share in the resulting public expenditure savings. This share would be ‘credited’ to a trust fund that could be drawn upon to meet deposit requirements or mortgage repayments.

Extend CRA to mortgage repayments

Commonwealth Rent Assistance is available to a large number of low income renters but no assistance is available to home purchasers who are otherwise in the same financial situation. Extending CRA to mortgage repayments for low income families would remove the financial disincentive to purchase (by reducing the proportion of scarce income spent on debt servicing) while effectively providing a safety net in times of financial crisis.

(b) Taxation Options

Review/reduce negative gearing

Review those tax arrangements that enable investors to negatively gear an investment property for many years. The tax bias favouring negatively-geared passive investment in assets that appreciate in value, such as property and shares, should be reduced. This could be achieved by quarantining expenses associated with any new investments of this kind, so that they can only be deducted from income arising from the same class of investments and not from other kinds of income (such as wages).

Review/reduce indirect taxation on housing

Reduce or remove the plethora of indirect taxes affecting the price of a new home. GST is levied twice – on the inputs of construction, and on the final cost of the refinished house, and the price also includes the various land etc taxes paid by developers.

Remove/reduce stamp duty

Although Stamp Duty is a relatively small reportion of the price of arouse, it is a significant impediment to the reallocation and adaptation of the housing stock, and heightens price pressures in metro areas. Remove stamp duty and replace the revenue with more effective use of alternatives such as land tax, payroll tax or the growth component of GST.

Seek tax neutrality for housing

Options to improve tax neutrality with respect to housing include taxing imputed rental income, removing the CGT exemption for the main residence, extending deductibility of borrowing and other housing expense for owner-occupiers, and allowing negative gearing for the family home.

(c) Rent Assistance

Improve the Rental Assistance Program

The Australian government should address the significant affordability problems low income earners face when accessing or living in, private rental housing by:

1. Taking immediate steps to ameliorate the lack of affordable private rental accommodation and to fix anomalies in the program by:

raising the maximum RA payable by at least $10 per fortnight;
extending RA to single students 25+ on Austudy payment⁵¹;
extending RA to 16 and 17 year olds living in the parental home and regarded as dependent for the purpose of Youth Allowance (as they should similarly be regarded as dependent for RA calculations under family payments).
reviewing the ‘sharer's initiative’ and the breach penalty for ‘moving to a lower employment area’;

2. Reviewing the efficacy of RA in the longer term, with a view to exploring options such as:

the introduction of a ‘zoning’ system to take account of regional variations in rent;
if the program does assist people to ‘move to where the jobs are’;
the introduction of housing standards, affordability targets, and targets relating to security of tenure.

3. Working with State and Territory governments to guarantee adequate legislative protection for all tenants, and to develop core principles for good private rental market management which include the regulation of ‘bad tenant’ databases.

Housing Vouchers

Vouchers provide subsidies to low income renters in the private sector. Generally, the subsidy is the difference between the level of a typical private market rent in a local area, and 30% of a household’s income. Rental units must meet minimum quality standards, and renters must have incomes below a designated level.

Supply side policy options

(d) Land Supply and Planning Approval Processes

There is some evidence that constraints on the supply of land at the urban fringe have added to price pressures, particularly in Sydney. Land release requires long lead times and needs to be informed by strategic planning in all jurisdictions.

Victoria is currently undertaking a review of planning processes which aims to produce substantial improvements to the efficiency and effectiveness of the planning system.

General areas identified for improvement in planning processes include:

Institutional arrangements to promote separation of policy making from implementation
Streamline permit process, especially for minor or uncontentious development proposals
Reduce delays in appeals processes
Expand “as of right” provisions , whereby developments satisfying the agreed rules within a zoning category are able to proceed without scope for objections.

(e) Building Control and Regulation Improvements

In order to achieve cost savings and improve outcomes from better planning and administration practice, it is recommended that state governments should:

Review their planning legislation and ensure greater standardisation of processes, more as of right approvals for detached dwellings and medium density housing based on community standards and allow greater private sector involvement in the planning system.
Adopt, where possible, consistent requirements and a universal formula for development contributions
Establish regional planning strategies to manage the growth of major metropolitan centres.

(f) Review Infrastructure Funding Arrangements

The cost of basic infrastructure contained within a particular development should be borne initially by the developer and included in house prices. Where infrastructure is shared among developments, its cost should be apportioned according to use.

Regional-level infrastructure, where comparable benefits are provided to users across the community, should not be paid through developer levies but through general taxation (eg property rates base, local government borrowing, public-private partnerships) and user charges. Therefore state and local governments should also:

limit upfront development charges to the provision of local physical infrastructure in subdivisions
levy new and existing residents for the capital or ongoing costs of social infrastructure from which the whole community benefits
consider other funding alternatives for the provision of community infrastructure, such as extending rate bases and limited public sector borrowings
Introduce greater transparency in the methods used to set charges
Require charges to be justified on a whole-of-life cost basis
Allow appeals on the amounts charged, without jeopardising the consent on the project
Avoid scope for ‘double-dipping’ by differential property rating, or discounting upfront charges to reflect subsequent contributions over time.

(g) Improve Support for Public and Community Housing

Revitalise the CSHA

The Australian government should progressively increase the level of public and community housing to a minimum benchmark of 6% of national housing stock, through both the CSHA and by facilitating an effective mix of public and private investment options that allow for:

1. Upgrade and renewal of housing stock, including maintenance;

2. Increasing the supply of new stock;

3. Addressing the operational viability of State Housing Authorities by strategies to improve the gap between income streams and operational effectiveness.

Government housing construction schemes

Establish government-owned low-cost housing construction companies. The aim would be to address concerns that the private sector is not producing enough low-cost housing suitable for first home buyers. Government companies would buy and sell low-cost housing to specified target groups.

Group self-build projects

Implement schemes designed to increase the availability of land for housing, along the lines of some already operating in the states and territories. For Example, the Victorian Group Self Build Program provides help for eligible groups of households to build or purchase new housing. In addition, government-owned land development agencies operate in most jurisdictions alongside private developers to supply serviced residential building lots

(h) Improve Support for Affordable Private Sector Housing

Public-private partnerships

Provide land or grants to private enterprise or community organisations to construct affordable housing that can be sold at low cost to first home buyers.

In Canada, an affordable rental project (eg majority of units below 65^th percentile of rents) can be eligible for up to $100,000 interest-free loans for the development stage, to the point of financing, and with up to 35% forgiveness. An affordable homeowner project must have unit sale prices below the average price for similar units in the market, and is eligible for a $100,000 interest-free loan as above, with up to 20% forgiveness.

In the USA, HUD Section assists private housing producers to build or rehabilitate housing developments for occupancy by low-income households. The residents pay 30% of the income as their share of the rent, with the balance of construction and ongoing operating costs being met through a contract between the federal government and the owner.

Affordable Housing Innovations fund

The Australian government should establish an Affordable Housing Innovations Fund, with matching contributions from the States and Territories, to test the most efficient and effective models to deliver affordable housing within sustainable communities. This would include establishing effective mechanisms to encourage institutional investment in affordable housing development, including industry superannuation funds. It would encompass models of equity investment, and debt investment through such instruments as the sale of bonds. The Fund would particularly examine innovative ways of mixing public funding and private capital,�to deliver sufficient returns to investors, while at the same time meet the social interest of such investors in developing important social infrastructure.

Canada has an innovative housing program which provides a flexible package of tools designed to facilitate the production of affordable housing which can be customised to individual projects. These include: innovative approaches in housing design, technology, financing or tenure; being community–based, either by geography or affiliation; and affordable rental or homeowner projects.

Subsidising “affordable” private construction

This would entail providing subsidies to developers to include a certain proportion of “affordable’ housing component in new housing developments.

Low income housing tax credits (LIHTC)

This US program gives States the equivalent of nearly $5�billion in annual budget authority to issue tax credits to private investors for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households. Residents generally have incomes between 40%-60% of the median. Rents charged do not vary with the actual income of residents but are limited to a flat amount pegged to the local HAMFI (HUD-adjusted median family income).

References

Access Economics Pty Ltd, 2003, Financing Infrastructure for Residential Development, Canberra, (for HIA Ltd);

ACOSS, 2002, A Framework for Commonwealth/State Housing Agreement negotiations and beyond

ACOSS, 2003a, More Affordable Housing, Submission to the Productivity Commission Inquiry into First Home Ownership

ACOSS, 2003b, The ACOSS federal Budget Housing Priorities Statement 2004-2005.

ACOSS and National Shelter, 2003, Rent Assistance: does it deliver affordability?

ACOSS, 2004, Tables, unpublished working paper.

Affordable Housing National Research Consortium, 2003a, Summary Paper: Affordable Housing in Australia: Pressing Need, Effective Solution.

Affordable Housing National Research Consortium, 2003b, Stage 1 Report: Outlining the Need for Action.

Affordable Housing National Research Consortium, 2003c, Stage 2 Report: Identifying and Evaluating the Policy Options.

Affordable Housing National Research Consortium, 2003c, Stage 3 Report, Options for a Public-Private Partnership to Stimulate Private Investment in Affordable Housing.

Affordable Housing National Research Consortium, 2003e, Stage 4Rreport: The Subsidy Costs of the Preferred Option.

AHURI, Jon Hall and Mike Berry, 2003, Operating Deficits and Public Housing: Policy Options for Reversing the Trend, Final Report.

AHURI, Margaret Reynalds, Maryanne Wulf and Judith Yates, 2003, Changes in the Supply of and Need for Low Rent Dwellings in the Private Rental Market, Positioning Paper.

AHURI, Sean McNelis, David Hayward and Hal Bisset, 2002 , A private retail investment vehicle for the community housing sector.

AHURI, 2003, “Can effective housing management policies address anti-social behaviour?”, Research and Policy Bulletin, Issue 38.

AHURI, 2004, Work in Progress Seminar, Adelaide.(26 Seminar papers).

AHURI, Paul Flatau, Patric Hendershott, Richard Watson and Gavin Wood, 2004, Australian Housing and Urban Research Institute, Murdoch University, Western Australian Research Centre.

AHURI, forthcoming 2004, Vivienne Milligan, Peter Phibbs, Kate Fagan and Nicole Gurran, A Practical Framework for Expanding Affordable Housing Services in Australia: Learning from Experience

Applied Economic Pty Ltd, 2003, Financing Public Infrastructure for Urban Development , Sydney, (for the Urban Development Institute of Australia).

Australian Council of Trade Unions (ACTU), 2003, Submission of the Australian Council of Trade Unions to the Productivity Commission First Home Ownership Inquiry.

Australian Institute of Health and Welfare (AIHW), Measuring the Distribution of Direct and Indirect Housing Assistance, Canberra: AIHW, 2003 (forthcoming)

Australian Institute of Health and Welfare (AIHW), Australian Welfare 2003, Canberra: AIHW, 2004

Australian Local Government Association (ALGA), October 2003, Submission to the Productivity Commission Inquiry into First Home Ownership.

Brotherhood of St Laurence, February 2003, Changing Pressures.

Canada Mortgage and Housing Corporation, 2003, Affordable Housing, www.cmhc-schl.gc.ca

Gittins, R. and R. Tiffen, How Australia Compares, Cambridge University Press: 2004

HIA, 2004, Draft material for the Housing Affordability Summit.

HIA, 2004, Housing Activity, Fact Sheet

HIA, 2004, Housing Affordability, Fact sheet

HIA, 2004, Housing Stock, Fact Sheet

HIA, 2004, Industry Structure, Fact Sheet

HUD (US Department of Housing and Urban Development), December 2003, Targeting Housing Production Subsidies, www.huduser.com

HUD (US Department of Housing and Urban Development), 2004, Low Income Housing Tax Credits, www.lihtc.huduser.com

National Housing Alliance, 27 May 2004, Media Alert.

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National Shelter, 2003, Submission to the Productivity Commission Inquiry into First Home Ownership.

National Shelter, 2003, Rebuilding the Australian Dream, Policy Platform.

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Wood, Gavin A., Matthew Forbes, Ken Gibb, 2003, Direct Subsidies and Housing Affordability in Australian Private Rental Markets. Perth: Murdoch University

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Endnotes

¹ Much of the data, tables and charts used in this Resource paper draw on the submissions made to the Productivity Commission Inquiry into First Home Ownership, 2003. Particular use has been made of the submission by the Reserve Bank of Australia (especially for Graphs 1-9, 11, 14) and those of the Summit Co-Hosts, along with data presented in the Productivity Commission discussion draft and data provided by the Summit Co-Hosts from their own collections and analyses.

² R. Gittins and R. Tiffen, How Australia Compares, Cambridge University Press: 2004, pp. 208-9

³ There are alternative measures of house prices, including from the Australian Bureau of Statistics, Real Estate Institute of Australia and (jointly) the Commonwealth Bank of Australia and the Housing Industry Association. This chart uses the REIA measure as reported by the Reserve Bank of Australia (2003). All measures show broadly similar movements. Note that a semi-log chart of this kind visually makes fast growth look more linear than it is in natural numbers.

⁴ Ibid. Note again that a semi-log chart of this kind visually makes fast growth look more linear than it is in natural numbers.

⁵ Reserve Bank of Australia, 2003.

⁶ According to the latest data from the HIA Commonwealth Bank Affordability Index, the affordability index rose by 6.2 per cent in the March quarter of 2004. However, the index is still 18.8 per cent lower than a year earlier

⁷ Productivity Commission, 2003, p.57.

⁸ HIA unpublished data.

⁹ Changing Pressures, February 2003, Brotherhood of St Laurence

¹⁰ However there are some issues of horizontal coverage eg low-waged childless. Also Austudy allowance recipients are excluded.

¹¹ FaCS (2001): Table 39 'Ratio of housing costs to income, before and after Rent Assistance'. www.facs.gov.au/annreport_2001-02/volume2/part1/outcome2/2.1.html

¹² National Shelter, Submission to the Productivity Commission First Home-Owner Inquiry, 2003, p. 8

¹³ ABS, Housing Occupancy and Costs, Australia, Cat. 4130.055.001

¹⁴ A survey of the literature on additional benefits for the community accruing from increased home-ownership is provided in W. Rohe et al., The Social Benefits and Costs of Homeownership, Research Institute for Housing America, May 2000. Also see AIHW (2004), Chapter 5.

¹⁵ The data are from Tiffen and Gittins (2004), sections 4 and 8.

¹⁶ Commonwealth Parliamentary Library, Casual Employment: Trends and Characteristics, June 2004.

¹⁷ Housing Assistance – A Lifetime Perspective, Anthony King, A report commissioned for AHURI, January 2002, page 6.

¹⁸ Household and Family Trends in Australia, Special Article – ABS Year Book 1994, Table Two.

¹⁹ AHURI “What Drives Housing Outcomes”

²⁰ Better Living Environments, HIA 2001, page 8.

²¹ Countries such as Sweden and the Netherlands do tax imputed rents for owner-occupied homes, though most countries exempt them. Hence the characterisation of a tax “concession”.

²² J.Yates, A Distributional Analysis of the Impact of Indirect Housing Assistance, Sydney: AHURI, 2002.

²³ One further implication of this tax treatment is that a decline in home ownership may have implications for the distribution of income in Australia, perhaps leading to rising inequality as more households no longer hold assets not exempt from capital gains or inheritance tax.

²⁴ Reserve Bank of Australia (2003), p.23

²⁵FaCS (2002) ‘Annual Report 2001-2002’ - www.facs.gov.au. Emphasis added.

²⁶This includes 61% women and half of the 6% of both members of a couple. Also see ACOSS Information Paper 323, ‘Public and Community Housing – a rescue package needed’ October 2002.

²⁷As above.

²⁸“Has home ownership in Australia declined?”, AHURI Research and Policy Bulletin, Issue 21 May 2003.

²⁹ Australian Institute of Health and Welfare (2004)

³⁰ HIA, Submission to the Productivity Commission Inquiry in First Home-Ownership, 2003.

³¹ Reserve Bank of Australia (2003) p.30

³² Productivity Commission ( 2003) p.64

³³ These figures are drawn from a range of ABS and Industry sources especially HIA.

³⁴ W. Lewis et al., “What Ails Australia? Case Studies in Retailing, Banking, Aviation, Construction and Processed Food”, Mc Kinsey Quarterly, 1; IBIS World 2003 E-Construction in Australia, Melbourne.

³⁵ Productivity Commission (2003) p. 93

³⁶ ABS Project House Price Index.

³⁷ A Matter of Growth: Population, Land Supply & Policy Directions for Metropolitan Adelaide, UDIA report, July 2003.

³⁸ Harmonisation of Building Control Administration, Costs and Benefits of the National Administrative Framework, The Allen Consulting Group, December 2002

³⁹ HIA, Submission to the Productivity Commission Inquiry into First Home Ownership, 2003

⁴⁰ Access Economics Pty Ltd, Financing Infrastructure for Residential Development, Canberra, 2003 (for HIA Ltd); Applied Economic Pty Ltd, Financing Public Infrastructure for Urban Development , Sydney, 2003 (for UDIA).

⁴¹ ACOSS Paper prepared for the Housing Minister’s Advisory Council - August 2002

⁴² AIHW 2004, p.403

⁴³ ACOSS Paper prepared for the Housing Minister’s Advisory Council - August 2002

⁴⁴ ACOSS Paper prepared for the Housing Minister’s Advisory Council - August 2002

⁴⁵ FaCS Annual Reports 2001-02 and 2002-03 plus unpublished FaCS data.

⁴⁶ High rent is defined as $200 plus per week in 1996 prices. Low rent is less than $100 per week.

⁴⁷ AIHW, 2004, p.174.

⁴⁸ AIHW, 2004, Appendix Table A5.7

⁴⁹ The number of public housing dwellings fell from 360,765 to 354,124 over the period 1998 to 2002. Occupied dwellings however rose from 342,467 to 348,802 (AIHW 1999 p.143, 2002, p.190 per ACOSS communication)

⁵⁰ AIHW, Australia’s Welfare 1999, Canberra: 2000.

⁵¹ Costing based on single, sharer RA rate.

Applied Economics