THE debate over housing and development erupted again in Merri-bek when council recently voted to scale back an apartment building in Brunswick.
The community debated whether council should allow developer Nightingale to build a seven storey apartment building when the original permit and local height controls allowed for only five stories. As a trade-off for building above the preferred height limit, the developer offered to include three “affordable”, social housing units. These units were to be sold at 90% of the market rate to a registered housing provider.
With a narrow majority which included my vote, council approved the development but reduced the proposal to six stories. The developer then deleted the “affordable” housing units from the proposal when they didn’t get the seventh story. Defining “affordable” housing as 90% of the market rate seems a bit of stretch to me in the current cooked housing market.
The media portrayed the issue as a battle between self-interested, inner city elites protecting their property values against the invasion of social housing, versus a benevolent property developer trying to give back to the community.
The problem with the media hysteria surrounding the Nightingale decision is that it assumed a shortage of private housing supply is the root cause of the housing crisis.
The popular myth, peddled by the banks, property lobby, politicians, urban planners and the media, is that building more private housing will put downward pressure on house prices, making them more available to everyday people. Anyone who gets in the way of supply, especially pesky local councils, are said to exacerbate the crisis.
But in the real world, the housing market doesn’t operate according to this version of play school economics.
The reality is that house price fluctuations are caused by interest rates, not housing supply. When interest rates are low, there’s more money in the property market, which pushes up prices. When interest rates rise, the reverse happens – there’s less money in the property market, which reduces prices.
The Reserve Bank of Australia is well aware of this, stating that the “reduction in real interest rates accounts for most of the subsequent boom in dwelling prices” since 2011. Given that house prices are the product of interest rates, adding more private housing supply won’t change prices.
The housing supply myth also assumes that developers have an interest in closing the gap between supply and demand. This is another myth which ignores the profit-driven logic of the market. To shield themselves from falling house prices, developers build up large collections of property (“land banks”), up to 15 years’ worth, which they drip feed to the market according to house price fluctuations (as driven by interest rates). When house prices increase, developers release properties onto the market. When prices decrease, they slow or stop the release.
The idea that councils get in the way of supply ignores this baked-in market logic. In demonstrating that housing demand is divorced from supply, leading property economist, Dr Cameron Murray has shown that housing supply has actually outpaced population growth in Australia since 1996, leading to a “cumulative over-supply of 458,000 dwellings”. That’s right, there’s been an oversupply of private housing in the Australian housing market since the 1990s.
This oversupply of private housing is partially reflected in the persistent vacancy rates across all Australian states and big cities. According to Prosper Australia’s 10th Speculative Vacancies report, vacancy rates in Brunswick, West Brunswick and East Brunswick ranged from 8.1-11.1% in 2019. At a state level, there were 69,000 vacant properties in Victoria in 2019, with a capacity to house over 185,000 people, “making short change of Victoria’s 80,000 person public housing waiting list”. The housing crisis is therefore a crisis of distribution, not supply.
The existence of vacant homes in the midst of a housing and homelessness crisis is an absolute disgrace. Homes should not sit empty to accumulate capital gains for investors – they should be given to those who need them, like homeless people, people fleeing domestic violence, and essential workers who can’t afford to live locally. A hefty vacancy tax is one way to achieve this, not gifts to developers.
Once the housing crisis is reduced to a simplistic mismatch between supply and demand, proponents of the housing supply myth argue that councils should apply their planning rules more flexibly to encourage developers to build more housing. In the Nightingale example, many commentators suggested that Merri-bek Council should’ve given away two stories to the developer for free, to increase housing supply.
The deregulation “solution” is really just an open invitation to property developers and land speculators to come to Brunswick and gamble on our planning rules being changed so that developers can make tax-free, mega profits without necessarily building anything.
The supply myth is used by the banks and property lobby to pressure state and local governments to loosen planning and zoning controls to increase the value of land held in their land banks. Politicians benefit from this economic fairytale because it allows them to obfuscate their responsibility to fix the problem by intervening in the housing market.
Let’s be real – the housing supply myth is quintessential, trickle down economics. You’d think 50 years of neoliberal housing policy would have emphatically disproved it.
It’s a narrative which serves the banks and developers well, but does nothing to help the growing number of people who are in desperate need of a home.
If we’re really going to solve the housing crisis, we need to stop treating housing as a speculative commodity to make money from. This will involve ending negative gearing and capital gains discounts, capping rents and giving renters real rights, plus building a huge amount of publicly owned, public housing. And we should be tightening, not loosening planning regulations to reduce land speculation which gift developers free, mega profits.
James Conlan is a Merri-bek Councillor for South Ward and a former town planner. He Tweets at JamesMConlan