More housing affordability non-solutions emerge

By Leith van Onselen

A group of academics from the University of Sydney have penned an article in The Conversation proposing a 5-point plan to ‘solve’ Sydney’s housing affordability crisis:

When even teachers and police workers need to travel to the city fringes to find an affordable home that strikes us as a sign of a deeply dysfunctional housing system. Our research shows key workers are being squeezed out of Sydney by a housing market which has left them behind. Yet Sydney stands out among global cities, like New York, London and San Francisco, for having neglected the housing needs of its essential workforce.

In our study, we identify five strategies to tackle the problem. These could make a real difference for key workers and other moderate income earners…

Reduce the deposit gap

Key workers have traditionally aspired to, and achieved, home ownership. But those not already on the property ladder face a median house price of around A$900,000 in Sydney. An affordable price for most key workers would be around A$650,000.

To bring home ownership into reach, a shared equity model would allow key workers to buy up to 75% of the home’s value. This would reduce deposit requirements to between 5% and 10% and also make loan repayments more manageable.

Shared equity schemes are offered in South Australia under the government’s HomeStart finance organisation. This has helped many low and moderate income earners into their first home.

Collaborative development models

“Collaborative” development and financing models provide an alternative to conventional multi-unit housing developments. Under these models, individuals are supported in collectively developing a residential project.

The group members collaborate to acquire a site, appoint an architect and manage professionals through planning and construction. Groups are able to save on developer premiums. They can also customise their building and apartments in ways that save on both capital and recurrent costs.

The Nightingale projects in Victoria are an example of this approach. Participants in these schemes can save around 10-12% on prices for comparable apartments.

Alternative tenure arrangements

Alternative tenure arrangements, such as community land trusts, can separate the cost of a dwelling from the cost of land (retained by government or the trust). Under this model, homes are purchased with a conventional mortgage and/or the land component is rented at a marginal rate. Community land trusts are well established in the UK and US, but yet to attract serious policy support in Australia.

Save on construction

Savings in housing design and construction could help increase the supply of affordable homes, provided these savings are passed on to eligible buyers. Innovations in design and construction, as well as reduced requirements for facilities such as car parking (in accessible locations) could reduce costs by up to 25-35%. That equates to savings of A$75,000 to A$100,000 for two-to-three-bedroom units or townhouses.

Increase inclusionary planning targets

Inclusionary planning requires that a proportion of new housing development be affordable for moderate or low income groups. This approach can support various combinations of affordable housing, to be made available as permanent rental housing or sold on the market. Mandating that 20% of dwellings in all major new housing developments are affordable for moderate income earners, including key workers, could deliver 6,000 to 7,000 affordable “start-up” homes per year in Sydney.

As you can see, none of these ‘solution’ are actually geared towards lowering the systemic cost of housing across Sydney, which is the fundamental issue. Rather, they are piecemeal ‘solutions’ aimed at sucking sub-prime buyers into the market (in the case of shared equity), or moderately boosting affordability by cutting corners on quality (in the case of “innovations in design”). None addresses the root causes of Sydney’s land price escalation and associated affordability problems.

If these academics genuinely cared about ‘fixing’ Sydney’s housing affordability woes they would argue for policies that that lower demand and boost supply. You know, obvious things like:

  • Normalising Australia’s immigration program by returning the permanent intake back to the level that existed before John Howard ramped-up it up in the early-2000s – i.e. below 100,000 from 210,000 currently [reduces demand];
  • Undertaking tax reforms like unwinding negative gearing and the CGT discount [reduces speculative demand];
  • Tightening rules and enforcement on foreign ownership [reduces foreign demand];
  • Extending anti-money laundering rules to real estate gatekeepers [reduces foreign demand]; and
  • Providing the states with incentive payments to:
    • undertake land-use and planning reforms, as well as provide housing-related infrastructure [boosts supply];
    • swap stamp duties for land taxes [boosts effective supply]; and
    • reform rental tenancy laws to give greater security of tenure [reduces demand for home ownership and reduces rental turnover].

MB has actively promoted these reforms for at least five years, yet they continue to be ignored.

[email protected]

Unconventional Economist


  1. Simply ban foreigners from owning plots of land that are smaller than 1500 sqm.

    That would allow foreigners to buy and subdivide – and the now subdivided plots must be sold to Aussie passport holders within 36 months.

    Also build high speed rail. If it does not improve housing affordability – it would at least allow people in Newcastle to access educational institutes in Sydney, thus improving the quality of life. The 12 submarines will only last 30 years each while the HSR corridor will be good for 100 years or more.

  2. Shared equity can work where the buyers can meet the interest payments but don’t have the deposit. In fact, doesn’t it address one of MBs major observations as to why buying a house now is harder than when interest rates were 17%?

    • It doesn’t “work” to improve affordability.

      It only “works” to suck people into paying the current excessive prices.

      It’s for suckers.

      • A Toyota Corolla for $80K paid off over 15 years would be very affordable, wouldn’t it Jason. That’s only about $100 a fortnight!

        But is it also overpriced and would you be a sucker to buy it?

      • Jumping jack flash

        Prices can never fall, at least due to policy added or changed, because of the debt that is attached to the houses.

        The only solution to get lower priced (affordable) houses is to create new affordable housing.

        Due to the way land is valued, affordable (cheap) houses cannot be situated near unaffordable (expensive) ones. Either the affordable ones become unaffordable, or the unaffordable ones lose price and therefore LVR, and that’s just not an option.

        So these solutions put forward by these giant brains on legs are clearly trying to preserve LVR while lowering the DEBT OBLIGATION.

      • @ Arrow: Well done, you are starting to see the difference between price and affordability and value.

        The concept of affordability (as opposed to just price) factors in features like ease of access, what the alternatives and lost opportunities might be, relativities between cohorts etc. Otherwise we would just call it “price”. So for first home buyers who can afford an 80% loan but can’t afford the deposit, something that helps them afford the deposit makes the entire property more affordable.

    • How long were interest rates at 17% for? What was wage inflation at the time? What was the ratio of median deposit to median wage? Compare all these metrics to now and you’ll have your answer. Anyway, try that line out in the MSM or perhaps the Kouk and you’ll have more luck.

      • Way to miss the point. MB has consistently argued that it is worse now for the reasons you’ve mentioned but also because it is much harder now to save for a deposit because the market keeps on running away from you. A shared equity scheme helps solve that.

  3. As long as there is regulatory, planned rationing of the overall land supply – i.e. “to restrict sprawl” or to “plan infrastructure” or whatever, there are no “solutions” without unintended perverse consequences.

    For example, all the evidence points to upzoning and redevelopment at higher densities, merely shrinking the size of homes and stacking people in tighter, without reducing the per-unit average housing price at all. In fact the evidence suggests that the tighter you can reduce the average housing unit to, the HIGHER the price goes, not the lower!

    Explain why Atlanta and all the median multiple 3 cities have a density of under 1000 people per square km, and Hong Kong with 26,000 people per square km has a median multiple of 17. The price of urban land is HIGHLY elastic to allowed density, and all the evidence suggests that as soon as people start to get crammed in at more than 2000 per square km, a perverse “bidding war at the margins” for more space, between each income-level cohort, kicks in.

    It would be similar to rationing the overall supply of basic foodstuffs, another necessity. Once the quota dropped below a certain number of average calories per person, there would be a similar bidding war effect.

    One of the illustrations of how far this irony goes can be seen in London, where now, after decades of utopian land-rationing policies, any “large site” that might hold promise for an apartment block, say, and for which developers might bid tens of millions of pounds, is instead won at an even higher price by some global oligarch who sees it as a perfect mansion for the 3 months of the year he is in London.

    But this “bidding war for more space” based on income level, applies at ALL income levels and ALL housing-unit sizes; hence the disastrous price inflation that is only worsened as planned housing supply is for smaller and smaller units. The very poorest are “renting” lofts and crawl spaces because they are being outbidded for the 15 square metre units by people in the bottom few percentiles; and the people in the 15 square metre units are being outbidded for 25 square metre units by the people in the next percentile up, and so on. In fact if you look at RE sites for any UK city, you will see all sorts of innovations in the rental market, like 1/4 share in a bedroom and 1/20 share in a bathroom and kitchen, for 200 quid a week.

    All these “innovations” do is enable more economic “land rent” to be gouged out of the victims of the racket for every unit of land. The same applies to innovative mortgages and equity “solutions”. This is why urban land in the UK everywhere is at LEAST 100 TIMES more expensive than the land in any median-multiple-3 city in the USA. The reason that the housing “median multiple” can be “only” 7 or 8 when the land is 100 times more expensive, is CRAMMING.

  4. It’s sickening that we are expected to read this smh and msm and blind academic rubbish. Day in, day out.

    • The law of inverse relevance in full display: “The less you intend to do about something, the more you have to keep talking about it.”

      • Haha I like that, also I like that academics came up with this nonsense. It’s as if nobody can say that lower prices are achievable?

    • It’s even worse that they obviously want to support the current destabilising stratospheric NSW property values because they themselves have skin-in-the -game! These “corrupt-academics” would do better researching the relationship between Australia’s largest banks low cost funding and their own largest shareholders…..cute! But preventing the necessary restructuring of Australia’s economy in the process away from property to a more productive one.

  5. Australian academics have been steadily going backwards on this subject since Chris Joye et al did their PM’s Task Force Report for John Howard in 2003. That report pretty much got everything right, including land supply. It is almost as if there has been some sort of “invasion of the body-snatchers” going on incrementally since, or maybe more accurate to call it an invasion of the brain-snatchers. The MB team contains good people who have not yet succumbed, even if they are a bit unclear about the crucial decisive role of land supply, which would actually enable immigration and negative gearing and buyer subsidies and many other things to be “net beneficial” (just as the many median multiple 3 cities in the USA with explosive growth illustrate).

    If you could devise a formula for inputs and outputs for house prices, “land supply” would have to be an integer outside a set of brackets that contains everything else and nullifies them to produce a median multiple of 3 regardless if land supply is elastic. In fact several academics have done this to explain US cities widely disparate house price performance; Mills and Jansen did it, Heeboll and Anundsen did it, Evans and Guthrie did it, and Glaeser and Gyourko have done it more recently.

    But the global econ profession is painfully slow with the institutional learning, which is a shame when too many consecutive cycles under this nonsense could be the death of whole economies.

  6. Mining BoganMEMBER

    An affordable point for our key workers would be around $650k…

    Right there is why the rest of the world is laughing at us.

    • Yes. Also, don’t forget that median prices going to $650k would not be a “solution”, it would be a huge problem. It is something that everyone (everyone who matters) wants to avoid at all costs.

    • Barely affordable. Definitely not good value. It’s about average for middle-tier suburbs of Brisbane, and when you factor in amenity, it’s obvious prices have disconnected from reality a long time ago. Brisbane is no Melbourne, not even Melbourne twenty years ago. And Melbourne is only a “world city” because its financial institutions make it a gatekeeper to the resources of the smallest continent. As much as they like to boast about their coffee, they’re no Vienna.

      • Melbourne has F1 and Melbourne Coup – Melbournians think the world stops during those events – couples stop kissing on the streets or Paris or drinking coffee in Vienna.

      • Having been to Vienna let me just say that Melbourne is far more interesting place to live. But Vienna is probably far more livable.

    • Even a $400k loan is tight for a family with a single income at $70-$80k. Especially if interest rates increase.

    • What is it that academics do?? Research sponsored by industry? ‘Teach’ and that term is used loooooosely, lecture? Mmmm telling a bunch of fee paying foreign students what to think and correcting papers when they fail to grasp concepts because class spoken in English – never mind like everything else it’s just a computer entry!
      Zero respect for academics. They simply regurgitate the same crap they were fed and call themselves ‘thinkers’ & ‘researcher’
      What evidence supports their opinion?
      Give me a break. Education and again I use that term looooosely lies at root of the politico – housing – finance problem. iMO

  7. @ Jacob…
    Simply enact a foreign citizen (dual also) land act where they cannot buy if Australians can’t buy the equivalent in their country. Simple and fair. No single country is targetted.
    I know it would eliminate a few landed ‘citizens’ of certain countries for sure.

  8. reusachtigeMEMBER

    See, your ridiculous proposals would lower house prices and no one wants that. Thankfully these smart education people have proposed a real solution that will both get young people on the ladder AND help raise house prices. That’s a win win for everyone! Youse just can’t see that.

    • Rising house prices always lead to greater affordability, which in turn leads to rising house prices in a virtuous circle thanks to human ingenuity and adaptability. Cut teh rates, go interest only, negative gear, grab a tax break, get a better job, work two jobs, don’t have kids, retire later – still in debt, spend your super on housing.

      And if you still can’t afford a house, why not buy just part of a house?

  9. In Listen,Liberal, Thomas Frank observes of the professional classes: ( consultants, academics et al ) that their conformism is very high, the result of their shared values, experiences and education. They are not creative, nor generally insightful; their job is to protect the status quo because that is the system that nurtured them. It seems as good as any explanation as to why this issue is never solved with the same old notions from the same old hacks.

  10. Has anyone modelled the reduced retirement contributions over a lifetime at current prices. This is the big one for me.

    • Well I just ran some numbers : Back of the envelope, guess what
      The cost of unfunded pension liabilities and Medicare is 2x to 3x the published national debt.
      Punters will have to sell houses “investments” starting now , to fund their ongoing, extended, retirement
      Spending by the boomers has peaked
      The ongoing automation of the services sector will wipe out the middle class in the next 10 years
      Without an increase in capital per worker, worker productivity will fall through zero
      WW the place is rooted for the foreseeable future, for most

  11. Ha!

    Who needs retirement contributions when any house you buy now will be worth $8m come retirement time?!

    Pension assets test exempt, btw, so the government will pay you a pension, too.

    • I hope so. We should get a Gen-X / Gen-Y politician to write into law that if we are excluding the home from the pension assets test now then that has to be the case forever. Else we will include it now and screw some boomer whilst we have the chance.

  12. When even teachers and police workers need to travel to the city fringes to find an affordable home that strikes us as a sign of a deeply dysfunctional housing system.

    where exactly are those affordable homes on city fringes?
    Why is everyone pretending in this country that affordable housing exist somewhere.
    fringes of Alice Springs are not affordable, small towns 500km from the coast are not affordable. House (actually land) price distribution in this country is completely screwed. There is no single house anywhere near 100km from any city or bigger town (>100k population) in NSW (and only 5000 out of 30000 for sale elsewhere in the state – mostly in the middle of nowhere) for under $250k – 3 times median income and there are 1.3 million households who earn under $80k per year.

    compare that to any other country around the world, especially those with the lowest population density. There is no single 3bdr house anywhere near Alice Springs but there are over 1000 homes under 80k in and around Liverpool UK (2.2m metro area), there are almost 10000 homes under $250k in or near Montreal CA (3.5m metro area), almost 10000 homes under $300k in NYC metro area (18 million population)

  13. Quite disappointed to see MB’s immigration bullet point softening to “i.e. below 100,000 from 210,000 currently” from the usual 70k, when it should be going the other way. Each day that passes with this ridiculously high human tsunami needs to be countered with lower future targets, or to put it in language econotypes understand:

    If we stop taking immigrants tomorrow we can start again in 2032.

    • Indeed, very disappointing, it’s almost as if MB are embarrassed and have surrendered their 70,000 figure in light of the massive permanent intake program, currently running at 207,000pa.
      The other problem, a bigger one in my opinion because it’s irreversible, with this massive intake, is that more than 80% of the intake is from the 3rd world.
      The face and culture of Australia is being altered – no discussion is permitted.

    • Don’t worry, given that MB describes immigrants who would be working in modern technology roles on six-figure incomes as “coolies” (and thus, unacceptable), it’s a struggle to see how even a 70k target would ever be reached by the kinds of people they’d approve of.

  14. Jumping jack flash

    ” An affordable price for most key workers would be around A$650,000.”

    650K Affordable for “key workers”?
    Far out. What do teachers and nurses get paid these days?


    The ONLY solution to create affordability is to create affordable, completely undesirable, slum housing far enough away from the expensive housing that all the debt is attached to so it never loses value. Losing value would be disastrous for the LVR, you see. The only measure of risk that matters.

    This completely undesirable slum housing would be fabricated from old shipping containers. Not the good ones though.
    The government would subsidise their construction in the name of providing affordable housing solutions.

    A shuttle bus would be provided to transport “key workers” to the city so they can work, their children attend schools, for shopping, hospital, etc. Not a train, that’s far too fancy and expensive. None of these services would be located anywhere near the slum housing, otherwise they would become desirable, rise in price, and become unaffordable.

    • That would work, but it’s much much better to cut the immigration intake to 70,000, moving towards zero net intake levels.
      That way we also fix congestion stressed infrastructure, reduce public/private debt, reduce unemployment/underemployment, increase wage growth, reduce pollution and stop the changing face of Australia’s population.
      It’s all good.

      • Raise rates and eliminate immigration.
        Just make sure you throw the current economic model stupidity overboard first.

  15. “A group of academics from the University of Sydney….”
    No need to read any further – you know it’s BS!

    Bloody hell!!! The problem is not about housing as such. The REAL problem is a fundamental massive irreversible distortion of the Australian economy. We didn’t just suddenly get ridiculous house prices in Sydney and Melbourne with those places being the ONLY place to live.
    Can’t somebody THINK????

    • “Can’t somebody THINK????”

      Ah. Now, that’s difficult. After being seduced by the Moron Side of the Force for so long, most people will have headache after thinking for 2 seconds.

    • You really think a bunch of academics from Sydney Uni who live in fancy terraces in Darlington, Redfern, Newtown etc want the price of their homes to go down???

  16. Treating the symptom rather than the cause is simply avoiding the real issue. Once the clever dicks start facing up to the cause, then they can prescribe the correct medication. In the meantime we continue to live the big lie, otherwise known as self delusion.