Let's clear the air about housing.

First let's stop talking about 'low cost' and 'affordable' housing.  'Low cost' and 'affordable' are such relative weasel words that they don't assist understanding.  Affordable for who?

Rental flats in Melbourne are in such high demand and short supply that rents and land values have both been pushed up.  In particular, the lack of rental housing for those on very low incomes is huge and massive intervention from governments is needed as happened after the end of the 39-45 war.  We must accept that there are retired people and people in our wealthy society with such low incomes they simply cannot afford the so-called 'economic' rents that are required to pay back the full development costs of purchasing land and building new buildings, much less providing a profit for the developer.

If we want to lay claim to being a civilised society, sustained financial commitment is needed to subsidise their rents.  Decent public housing for poor people should be seen, not just as a moral obligation, but also as one that would have a positive impact on employment and other factors in our economy.  
And let's be absolutely clear that only governments are in a position to play this role.  Conservative market oriented people have argued successfully in the past that given the right incentives 'the market will provide' and this is how negative gearing happened.  It was claimed that if investors were given the right tax incentives they would be encouraged to provide rental housing in order to benefit from the tax concessions.

Tax accountants quickly saw that rental flats would not only provide good tax relief for their clients but also a tax-free capital gain in a rising market when they were eventually sold.  This has since been dubbed 'middle class' welfare and has become such a sacred cow that the main political parties have been unwilling to abolish it.

It not only hasn't achieved the original objective of providing more rental housing, but at the same time the enormous amount of tax that was forgone would have gone a long way towards the cost of building new rental housing for low income people.  
The Victorian Government recently set an example by borrowing to implement much needed public transport improvements.  They now should face up to borrowing more to provide low-income rental housing.

The large gap between for-sale housing for the wealthy, and subsidized housing for old and poor people, has till now been filled by people taking out mortgages to buy their own home.  However more and more middle class people, particularly young people, are unable to afford the mortgage costs the way their parents were.  We have to face economic facts and change the dreaming; the baby-boomers are probably the last generation to own their own homes.  In my opinion owning your own home will gradually disappear in Australian cities, and rental housing will become the norm as is the case in cities like London and New York.  The overwhelming need in our cities right now is for more well designed rental housing at all economic levels.  Read more.

Developers have been slow to develop financial models for the construction of rental family apartments for what is the largest segment of the market.  I see no reason why the normal model, where a developer builds an office building and when it's fully let, sells it on to an insurance company as a long-term investment, shouldn't also apply to rental apartment buildings. 
Rental apartment buildings would become profitable long-term investments where, like the NY example quoted in my earlier article, stable middle class tenants will rent apartments and bring up their children there for twenty years or more.

There are also other options than that above.  We should not ignore the earlier example of the Co-operative movement in this regard or the possibility of not-for-profit rental buildings being built and managed by universities, unions, corporations and other groups for their own members.  There have even been a few recent architect-led residential buildings designed for themselves and a group of friends; a very commendable lead role for the architectural profession to play.

All the usual strictures apply; the current design standards of multi storey apartments needs to be greatly improved, and they should also be designed to be low energy sustainable.   See my earlier proposal that the Minister for Housing should build demonstration buildings to improve standards. Walk through examples are better than words and would go a long way to overcome resistance to new ideas.  Read more

It's also not commonly appreciated that the higher densities we need in our cities don't automatically mean high-rise towers.  There are excellent examples of four storey housing that achieve densities as high as individual high towers on the same site at lower cost.  Lower height buildings are not only cheaper and quicker to build but are more acceptable visually to most people.

However one of the problems in redevelopment areas like Fishermans Bend is that amalgamation of existing sites is often required to enable 'low-rise, high-density' to be possible.  Amalgamation is a hassle for the developer and pushes land prices up, so it's too easy for a developer to acquire a small already subdivided site where a multi story tower is the easiest and most profitable way to develop the site.  Incentives should be given to encourage amalgamation of sites that would make more lower rise development financially feasible.

Don Gazzard LFAIA
July 2016

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