The horror story of demand driving supply in a failed housing market distorted by perverse incentives
The final inquiry report of the Productivity Commission inquiry into Human Services – "a public inquiry into the increased application of competition, contestability and informed user choice to human services" – was released late last month.
Its section on social housing declares simply: "Australia’s social housing system is broken."
The Productivity Commission calls on governments to rethink the way they meet the needs of tenants who are eligible for housing assistance — to shift the focus of providing financial assistance and tenancy support services according to whether a person lives in private, public or community housing. It recommends moving instead toward a single system of financial assistance that can be accessed regardless of the type of housing a person chooses to live in.
In the article below, Adrian Pisarski, Executive Officer of the housing policy peak body National Shelter, says it's not the social housing system that's broken.
What's broken, he says, is the broader housing system, "distorted by perverse tax incentives, unable to return the value of publicly generated increases to land value to a social purpose, divided by access to jobs, opportunities, inflated by stamp duties, competition pressure from investors and with insufficient specific supply strategies."
(Many homeless services are today marking Youth Homelessness Matters Day (YHMD) - a national campaign, held annually since 1990. Readers may be interested to hear this RN Breakfast report exploring new preliminary research that couch surfing can be no less harmful, particularly for mental health, than rough sleeping. Here too is a post from Council to Homeless Persons in Victoria on the issue.)
Adrian Pisarski writes
At the heart of Productivity Commission Inquiry Into Human Services Reforms is a fiction which is used to justify the thinking, conclusions and recommendations the inquiry ultimately finds.
It is tempting to quip that Commissioner Stephen King is actually the author of horror, suspense and fantasy, often atop the best seller list, but that would be to trivialise the significance of the inquiry's final report and the directions it would have Australia travel to improve human service delivery, funding and framing.
The fiction I allude to is that consumer choice is improved only through demand side assistance which "empowers" consumers to “have greater control over their lives”, which “enables people to make decisions that best meet their needs and preferences, which in turn “generates incentives for providers to be more responsive to users’ needs and drives innovation and efficiencies in service delivery”.
I agree that improved consumer choice is a good thing, however the singular lens of this approach ignores salient facts which are relevant to the provision of social housing.
National Shelter and I contend that social housing and affordable housing more generally ought to be considered as infrastructure, a view we have long held and which was recently verified by Professor Duncan Maclennan in Making Better Economic Cases for Housing.
To make an obvious point: we don’t fund hospitals, water, sewage, roads, airports, police, defence, electricity, the NBN and other essential services and built forms by waiting for consumers to demand them or by providing a consumer subsidy.
We provide them as an essential supply and then try to ensure a degree of consumer choice around their usage, or not.
Competition and contestability become secondary elements within the infrastructure, not the means of providing it in the first place. Human service provision can benefit from competition and contestability but it is a fiction to use the desirable consumer ‘choice’ as a justification for demanding service provision be provided only through this lens.
The housing system is broken, not social housing
The Productivity Commission says the social housing system is broken. I beg to differ and say, rather, that our housing system is broken, distorted by perverse tax incentives, stamp duties and weak planning measures. These have led households that can afford it to over-invest in their own homes and in additional investment properties, driving inflationary competition in a low supply ‘market’.
This has made housing very expensive and deterred states from maintaining an adequate supply of social housing. Add to this the extremely low level of funding provided for social housing, and rapid population growth, and it is not difficult to see why social housing as a proportion of total housing has plummeted. This has meant that available housing has been rationed to only those with the highest need and lowest incomes.
However, the social housing that still exists does exactly what was intended: maintaining an inexpensive form of housing for those who occupy it. The fact that there are many households in higher stress outside of social housing is not the fault of social housing itself, but of a broken housing system which has allowed runaway gains to owners while consigning the rest to an insecure, expensive and often low-quality rental market and increasing numbers experiencing homelessness.
The Productivity Commission report contains some positives, including calls for improved regulation across public and community housing, the separation of housing assets and tenancy management, improved tenancy supports and a supplementary payment for tenancy support.
In keeping with the National Shelter submission to the Human Services review, these elements of the report are commended.
However other key changes proposed in the report would reduce the supply of social housing, cause low income households to be worse off financially by treating social housing and private market rental tenants equally, and ultimately detract from consumer choice.
The Productivity Commission's central recommendation around housing assistance is to move to a single financing system, using the Commonwealth Rent Assistance (CRA) to provide a subsidy via tenants to utilise in either social housing or the private market.
While superficially attractive it assumes states would fund its call for a supplementary payment for high cost areas and, without being honest enough to say it, implies an end to the National Housing and Homelessness Agreement, because the quantum of funding for making social housing tenants eligible for CRA is about the same as the NHHA.
Ultimately this would undermine the supply of social housing and over time mean all tenants faced the same expensive housing faced by private market tenants now. The 15 per cent increase it recommends to the CRA is inadequate to come close to lifting households to affordability but the Productivity Commission thinks this provides them with incentives to "choose wisely" instead of lazily choosing the most expensive option government may provide.
Build, but also create incentives for social housing
Instead we have consistently argued for a National Housing Strategy to lift the supply of dedicated affordable housing. We know governments won’t find all, or even most, of the money required to build sufficient low-priced housing, but they can create the incentives which bring private institutional investment into the equation. That’s what treating housing as infrastructure requires.
The Productivity Commission pretends it stands for efficiency, equity and consumer choice, but the recommendations in this report around social housing will undermine choice. That's because the available supply won’t be there because governments won’t be directly supporting social housing. Ultimately that will be an inefficient, inequitable and optionless way forward.
We need a National Housing Strategy that treats affordable housing as essential infrastructure – not the fiction that demand creates supply, because it is markets and systems that have failed and are so distorted these so-called rules don’t apply.
Adrian Pisarski is the Executive Officer of National Shelter