A House is Still Not a Widget
In late 2018 I published a post with the title. ‘A House is not a widget’.
< https://www.mikeberrywriting.com/mike-berry-blog/2018/11/8/a-house-is-not-a-widget>
In it, I wrote:
“Housing policy in capitalist countries like Australia has been impoverished by a slavish reliance – bordering on religious – to a simplistic market model in which housing is treated as an homogenous product dancing to the tune of supply and demand on the head of a pin, as it were. If demand increases, prices will rise causing supply to increase until a situation is reached in which the number of houses exactly equals the number of residents with the resources to move in. What could be simpler? Let the market work it all out.”
I went on to point out that housing is not like homogenous products easily reproducible at scale over the short run. The idea that the highly diverse needs for shelter and location that exist in our highly unequal societies could be routinely met by the land and construction industries matching supply with demand appeared then to be fanciful. Five years on it is farcical. In the intervening period a global pandemic has tail-ended a period of austerity post the GFC that supercharged economic inequality across the capitalist world.
To make a simmering crisis into a full-blown social catastrophe, the world’s central banks have reversed gear in 2022 and are in the process of ramping up interest rates that are bursting like a lava flow into the homes of citizens everywhere. The prospect of homelessness is reaching beyond the ‘normal’ realm of the unemployed and precariat to sweep up mortgaged owner occupiers and private renters in full time jobs. (All this before a major economy tips over into recession due to the lagged impact of multiple rate rises – though come to think about it, Britain may already have jumped the gun and the IMF is ringing the alarm bells.)
The position in Australia is especially dire. The economic impact of the great pandemic has been particularly disruptive here. As a highly specialised resource provider on the global scene and highly dependent on the economic performance of the services sector domestically, the long and repeated lock downs in our major cities, especially Sydney and Melbourne, disrupted normal life to a never before witnessed scale. Overly dependent on global supply chains, including in the domestic construction sector, housing supply, always tardy, lagged demand and need.
The sharp fall in net immigration proved a temporary relief from looming shortages. With the opening up of immigration, this reprieve is coming to an end. With supply chains still clogged – as uncleared containers stack up on the docks – and skilled labour in short supply, housing construction remains locked in the slow lane. A report by the National Housing Finance and Investment Corporation forecasts an excess of new household formation over new dwelling supply over the five years to 2027 at over one hundred thousand. Slightly more pessimistic assumptions regarding supply constraints and household formation easily doubles that guestimate. The gap is forecast to close after 2027, but barely and again depends on conventional assumptions about supply elasticities (responsiveness).
But critically, this ignores the current shortages of housing affordable by the lower two income quintiles, the 40 per cent of people currently struggling to get and keep a roof over their heads. (Incidentally, if I hear again a politician or industry representative say, ‘people a doing it tough’, as a substitute for policy action, I will not be responsible for my actions.) Any success in the next decade in new supply outrunning new demand must also make major inroads into the current shortfall of 400,000 affordable dwellings. That is, roughly speaking (we really don’t have accurate figures) the number of households on lower incomes paying more than 30 per cent of their disposable incomes on rent or mortgages. Those in the bottom 20 per cent are paying up to 70 per cent for their housing.
The bald figures suggest that the problem is not one of relative numbers. At the 2021 Australian census, there were just under 11 million dwellings, slightly more than the number of households. The fact that so many of the latter are experiencing increasing financial stress has everything to do with the current inequalities of wealth and income. There is a direct positive correlation between increasing inequality and housing-related financial stress.
Although recent and current exigencies are bringing this picture into sharp relief, it is a tale long in the telling. The roots of the current housing affordability crisis go back decades to the rise of neoliberalism in the 1970s. As governments at state and federal levels studiously withdrew from the direct provision of housing, the deadly simple mechanics of economic inequality directed provision up the socioeconomic ladder. The much-lauded process of ‘filtering down’ has in fact reversed. New stock has not freed existing houses for lower income households; rather, the prices of existing houses has risen reflecting the situation of chronic excess demand in Australia. Policies designed to offset this market-directed trend were too little and too late, never making a discernible impact on outcomes. Indeed, policies like first homeowner grants made the problem worse!
The last burst of federal government investment in public housing petered out in the late 1980s. By that time the state and territory governments that managed the existing stock had well and truly lost interest in even maintaining what they had, still less in expanding it. But the rot had set in well before, in the high tide of the great post war boom. Public housing was an important component of the Chifley government’s post war reconstruction program. Once the immediate bottlenecks caused by the peacetime conversion of the domestic and global economies had eased, the new public housing program started to deliver new dwellings at sub-market rents to low-income people.
However, the scheme was quickly nobbled by the Menzies government and state accomplices in the second half of the 1950s. A proportion of Commonwealth funding for the scheme was diverted to assisting potential tenants into home ownership, twenty years before Maggie Thatcher reinvented the policy on a grand scale in the United Kingdom. Thereafter the proportion of public housing in the total housing stock began its remorseless decline to today’s pitiful level.
The roots of the Australian housing disease go even deeper in our history. What has been termed ‘the wage earners’ welfare state’ was established in the early years of Federation prior to World War I. The awards and arbitration system established provided for a regulated ‘basic’ (minimum) wage sufficient to support a man, his wife and three children (sic). Obviously, today’s demographics have changed remarkably, and the award system under neoliberalism has become much meaner. Single-person households are growing fastest. Mortgage markets favour dual income applicants. Low paid essential service workers, like aged and childcare workers, teachers, nurses and even fire and police officers are priced out of over-stretched rental markets in the major cities and towns. Single or divorced women over fifty are most impacted in a system that discriminates along class and gender lines. Owner occupiers who purchased at recent low fixed interest rates are coming off those rates to be greeted by the inflated variable mortgage rates engineered by the reserve Bank of Australia. Many are trapped not being able to refinance since they now fail to meet the lenders’ stress tests. Some will be foreclosed, swelling the demand for rental housing at a time of historic low vacancy rates and entrenched biased policies of tenant selection. (International readers should be aware that almost all residential mortgages in Australia are or revert to variable rates, unlike most other Western countries.)
In my earlier post mentioned above, I likened the urban housing market to a theatre that filled up according to who could pay the highest ticket prices. So, the seats were taken by the richest and the poorest were left out in the cold. This metaphor was meant to cast light on the time-conditioned lags and mismatches in housing supply where economic inequality and population growth drove the most vulnerable to the back of a lengthening queue.
If you prefer a different metaphor, think of a bathtub with the water flowing in faster from the tap than is draining out through the plughole. Eventually the bath overflows. The faster the inflow and the smaller the plughole, the more the overflow. Pretty soon, we are knee deep. Building bigger baths takes time; it will be alright in the long run. In the long run we’re all drowned – as someone famous might once have written. The overflowing bath metaphor also gives a more accurate meaning to ‘the trickle-down effect’ so beloved of neoliberals.
Governments have been bemoaning the ‘housing affordability crisis’ for decades. The policies that have been introduced have failed to make much of an impact, in fact it continues to get worse. Indeed, on current trajectories, things will get worse before they get worse. The National Rental Affordability Scheme (NRAS) was introduced by the Rudd Labor government in 2008. It provided federal and state government grants to non-profit housing providers and private investors who let their dwellings to eligible ‘low and moderate income’ tenants at rents at least 20 per cent under calculated market rents. Around 30,000 tenancies have been provided under this scheme. This still met only a fraction of the backlog in need. And the scheme had major weaknesses. The key is the word ‘moderate’ in the eligibility criteria. This inevitably biased provision under the scheme away from the most vulnerable towards tenants deemed by participating landlords the ’most reliable’. Discrimination already well entrenched in rental markets continued to prosper. And if you can’t afford 100 per cent of market rents, you can’t afford 80 per cent either, especially if you are unemployed, disabled or Indigenous. Federal rent assistance paid to the lowest income private tenants was never sufficient to lift them out of poverty or bump them up in the landlords’ queue.
But even the minimal benefits of NRAS to lucky households are about to end. The scheme winds up in 2026, when all existing properties revert to whatever rents their owners decide to charge, precisely at the time the inrush of skilled migrants and foreign students arrive; water gushes in and the overflow lifts bathroom flood levels to head height.
This sad state of affairs – tragic if you can’t swim – underlines the hopelessness of treating housing like widgets. Housing represents a cluster of vital use values for residents. Access to adequate housing is a necessary though not sufficient condition for a bearable life, with the criteria of ‘adequacy’ differing across and within societies and periods. The house for household residents, signifies much more than a base from which to launch themselves daily into the paid workforce, for those who are employed. The social construction of the home depends on accessing the material structure of a house and plot but extends well beyond to embrace patterned values, beliefs and norms embedded in deep wells of emotional significance and commitment. The type, location and quality of housing impacts on these emotionally charged determinants of home life. The house as home has come to define and redefine a domestic division and redivision of roles in the household. In other words, the home as a cultural artifact has changed and is changing its internal cultural configuration as the broader structure of advanced capitalism is being transformed through the third decade of the twenty-first century.
Access to education, transport, health facilities and other amenities depends on having secure, affordable housing appropriate to the needs of household members at various stage of their life cycles. Housing markets left to themselves are poor guarantors of effective and fair outcomes. Governments that fiddle at the edges with schemes like NRAS and the new Federal government’s ‘Housing Australia Future Fund’ (HAFF) are ducking their obligations, hiding under the tattered blanket of neoliberalism from the powerful vested interests in keeping things as they are.
HAFF is supposed to park $10 billion in an investment vehicle with the annual returns committed to finance the construction of affordable housing. Affordable for who? How many? The claim is for 30,000 new dwellings over five years. The arithmetic is shaky. Assuming the fund returns a consistent 5 per cent; that’s $500 million per year, a thousand new dwellings or 5,000 over the period; perhaps a few more if state governments kick in with land contributions and reductions in normal charges. Where are the other 25,000? To get there requires heroic assumptions about financial leverage from institutional investors, a prudent sector that has never really put its foot into this pool before. Such leverage will inevitably place pressure on resulting rents since superannuation (pension) funds must hit hurdle rates of return for their members. And who’s to say what the fund will return over the next five years and beyond? There are far more robust and demonstrably effective ways of involving serious investment into housing proven overseas, many of which have been canvassed by decades of housing research, including by yours truly.
Housing is not a policy area that can be approached crablike. Housing is a merit good, like health and education, that must be provided to all regardless of income and wealth. For this to happen, wholesale reform of the policy agenda is required. We need to embrace a new philosophy of public finance, involving major reforms to taxation and public investment, one that would better fit the lowest income households to get a foot in the housing market and provide as a floor a stock of well- maintained houses for those who still get shoved to the back of the queue. The former requires a generous guaranteed income scheme and progressive taxation of high wealth and income earners. The latter means a concerted construction program raising the public stock to 15 per cent of the total stock. Big policy indeed. Policies that allow the transfer of public housing into owner occupation and the progressive decay of what is left is no help at all. The sporadic attempts by state governments to build new public housing usually fails to achieve significant net increases in the stock allocated to the most vulnerable households, especially when delivered through cumbersome public-private partnerships. The grip of Australia’s wage earners’ welfare state lingers.
More detail on this and the way to analyse the complexities of housing systems in the current era of global capitalism can be found in my new book – A Theory of Housing Provision Under Capitalism – to be published mid-year by Palgrave Macmillan.
Mike Berry
April 2023.