Over the past decade in Australia, how housing for those in need is delivered and maintained has radically shifted. Public housing, which is managed and owned by state and territory governments, is on its way out. Community housing, which is managed (and often owned) by private not-for-profit organisations, is on its way in.
This has fuelled strong public interest in saving public housing from renewal programs aimed at demolishing out-of-date builds to replace them with social alternatives, as well as calls for governments to return to exclusively building public housing.
What’s missing in this discussion though is genuine introspection into the question of why governments are getting rid of public housing.
It’s easy — and reasonable, frankly — to be cynical about the intentions of any government, assuming it just wants to avoid taking responsibility for our most vulnerable or trying to line the pockets of its “developer mates”.
But imagining ourselves as the decision-makers enables us to understand the ending love affair with public housing — and it all has to do with the way the federal government funds the states and territories.
States and territories are tasked with the bulk of the service delivery, which is another way of saying they spend a lot of money. However, they also have limited tax powers to raise that money. On the other hand, the Commonwealth has significantly more money-raising capacity than its need to spend. This is why on average a whopping 45% of state and territory funding comes from Commonwealth grants. This is the much-dreaded vertical fiscal imbalance.
This 45% of funding, of course, doesn’t come without strings attached. A majority of Commonwealth contributions are tied up in grants or agreements that control the way the states and territories spend the cash. So if a state or territory government wants to enact ideas unaligned with the Commonwealth, they will often be left to foot the bill with the little pocket money they have, kneecapping the ambitions of any pricey policy pursuits — such as a public housing agenda.
We saw this with the 2017 Homes for Victorians package, which contained $341 million solely from the Victorian government to “renew and expand public housing stock”. Of this, $185 million was allocated to the controversial Public Housing Renewal Program, the implicit aim of which was the demolition and rebuilding of well-located, old public housing by leveraging public-private partnerships to produce higher-density developments with a mix of private and non-profit-run community housing.
But why focus on demolition and renewal if you’re aiming to expand the number of homes? Because, without Commonwealth money, state and territory government bean counters need to stretch each dollar as far as it can go.
The advantage of renewal is that it expands supply while eliminating the rapidly growing maintenance costs of older stock, as well as also expanding the overall social housing stock — albeit primarily via community housing. The associated public-private partnerships — selling or leasing public land to the private sector — also net the government more bang for its buck.
In the case of Victoria’s Public Housing Renewal Program, the partnership decreased per-housing costs from $300,000 to $104,000. From the state government’s perspective, the model absolutely works.
But this raises another question: why build the social housing stock through community housing instead of public housing? This is where the fiscal imbalance rears its ugly head again in two distinct ways.
First, state governments, and public housing providers by extension, have to pay GST on the goods and services they consume. Meanwhile, non-profits are exempt from GST, making community housing at least 9% cheaper to build and maintain thanks to federal government taxation settings alone.
The second fiscal imbalance: public housing tenants are not eligible for Commonwealth rental assistance (CRA), while community housing tenants are. This doesn’t usually make a difference to tenant costs, but it does enable community housing providers to charge extra rent to capture a federal subsidy made available to nonprofits — but not to states.
The sum of these deliberate choices by the Commonwealth was most starkly highlighted by Simon Newport, the CEO of the government agency managing Victoria’s social housing system, Homes Victoria. During the Victorian inquiry into the rental and housing affordability crisis, Newport testified that the GST exemption and CRA eligibility changes would boost the Homes Victoria budget by upward of $150 million per year.
To put this into perspective, as part of the National Housing and Homelessness Agreement, the Commonwealth funded $209.9 million of Victoria’s social housing expenditure in 2022. These funding reforms would match that every one and a half years.
Vital in the fight to save public housing is remedying the perverse fiscal imbalance between the federal government and the states and territories. While state governments are forced to do the dirty work of implementing austerity, the Commonwealth holds the levers to reverse it.
More funding and more certainty will empower social housing bureaucrats to stop worrying as much about how they’re going to pull off fiscal miracles and focus on delivering better outcomes for their tenants — both existing and future.
Can the battle to save public housing be won, and how? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
How about redirecting all the billions in Commonwealth community grants into public housing. Think car porks, sports fields etc. etc.
So Ethan is saying that part of the problem is unintended effects of various Commonwealth policies. I like to debunk unintended effects. Once they have been revealed they can be fixed. If they are not fixed they are no longer unintended. They are what the originator of the policy wants. The next question needs to be Why.
Many Australians are implicit or guilty of silently or unwitting approval of strangling social and public housing by state governments.
Surely has nothing to do with our obsessions from MSM and word of mouth reinforcement on supposed property prosperity and conserving house values or prices?
A lot here of why things can’t be done because of rules in place. Well here’s an idea, get new rules. Duh. It seems we can waste tens of billions of dollars on housing schemes that don’t deliver, waste tens of billions on tax cuts for the rich, waste hundreds of billions on useless subs, but somehow providing affordable housing is beyond us. There are plenty of public housing models in Northern Europe that actually work, yet, again, our pollies are looking to the private ‘not for profit’ sector to solve the problem. Haven’t we learned anything from the last 40 years of privatisation?
“Haven’t we learned anything from the last 40 years of privatisation?” – in regard to the political class, I think the answer has to be No, and that goes all the way from the top to the most remote shire.
I think that if people had the choice between 12 submarines and affordable housing, education and healthcare, I suspect that most, apart from the absurdly parochial, would opt for affordability.
I fear that governments run the risk that, should our sovereignty be threatened (by an unkown, unidentified, undeclared hostile entity), there will be a whole insurgency of the disadvantaged who might side with that entity.
And the kicker is that unlike spending dead money on useless subs, public housing is an investment. The money spent on housing actually comes back into the coffers over time. As with the construction of the NBN, MSM loves to couch these expenditures as huge sums we can’t possibly afford, never explaining that it comes back over time. People pay for the services, just not as much as if it was a for profit enterprise. People will pay rent for affordable housing based on their ability to pay, just as they do in so many countries around the world.
A well built apartment or house can return it’s cost several times over in its lifetime.
Not to mention that people in decent, secure housing are much less likely to be costs on the health & law enforcement budgets. Hell, the kids may even do better in school and become tax payers.
Now that would be a return on investment.
They focus on up front costs with big numbers to deflect from fact that it’s public investment and the investment, if amortised over time, then it’s not so significant.
Those ‘huge sums we can’t possibly afford’ need to be thought of as investments. Governments cannot stop investing; they need to do it unceasingly. When governments stop investing, democracy collapses. They are not passive bystanders in our economy.
Well why am I bothering. I agree with the thread of the comments. One has to remember that politicians promise the World and deliver nothing. Like Albo the once pacifist who recently sent troops to the Middle East.
Suddenly I am getting a warm feeling in my pockets.
Create a Commonwealth Department of Public Housing and start building Public Housing where needed. The economies of scale would save a motza. Simple as that.
PS Many years ago the Director of the Housing Commission used to regularly drop into my office for a chat. Almost as if to get away from it and I was the sounding board. I was amazed by the brilliant ideas and people out there not being given the opportunity to excel. Politicians have a lot to answer for.
I figured that when the previous government (and no doubt subsequent governments, once the ethics had been breached) decided that to invigorate the construction industry by throwing money at the ‘haves’, by underwriting their extensions, instead of investing in social housing, that it was clear that the aspirational were so much more worthy than those shiftless working poor.