What is affordable housing and why do we need it?

26 May 2016 | Posted In: 129 – Winter 2016, 132 – Winter 2017, Affordable Housing, Housing Types and Issues, | Author: Nicole Gurran

When cities prosper, house prices and rents tend to rise. So the loss of lower priced homes to rent or purchase can be an unfortunate by-product of success for global cities such as Sydney. Nicole Gurran explains the problem and what can be done about it.

ahThere is clear evidence that this problem has been growing in Sydney for many years. Concern about the loss of low cost rental apartments and boarding houses was first raised in the 1980s when the inner city began to gentrify and attract new residents and tourists. Since this time there has been a steady decline in affordability across the metropolitan region. By June 2015, less than two per cent of Sydney’s home sales and only 18% of rental properties were affordable to those on low incomes (down from a third of all rental properties in 2001)[i]. Over 70% of low and 95% of Sydney’s very low income earners were in “housing stress” at the time of the 2011 census – paying more than 30% of their income on rents or mortgage[ii].

A lack of housing options near jobs forces people to travel long distances and work longer hours, while others might be unable to participate in the workforce. Low income households often live in overcrowded and inadequate conditions, and forgo basic requirements for food, medicine, or education. As well as social costs, an inadequate supply of housing choices may undermine global competitiveness in an international economy which depends on ‘key workers’ such as police, nurses, automobile mechanics and teachers. International firms may hesitate to invest in cities where their staff will face high housing costs.

Isn’t new and diverse housing supply enough?

Some say that an increase in the supply of new and diverse dwellings – particularly medium and higher density apartments – should resolve affordability problems.

But over the past decade there has been a phenomenal growth in the number of new dwellings in the central Sydney region, with the majority being medium and higher density apartments. In the City of Sydney area an additional 21,641 dwellings were added in the decade between 2001-2011; an increase of 25% in the housing stock [iii]. This compares to a 10% increase across the entire Sydney metropolitan area, roughly in line with the city’s net population growth. Yet affordability problems have worsened over this time.

Neither the supply of social housing, nor new residential development produced by the market, has been able to meet the needs of Sydney’s low or moderate income earners. So more must be done to support the provision of affordable housing, for these lower and moderate income groups.

Defining affordable housing

The term ‘affordable housing’ is used in many different ways by policymakers, politicians, and the property industry, and indeed varies across Australia. Broadly speaking, affordable housing means homes that are available for low and moderate income earners to rent or purchase, while still meeting other basic needs like food, transport, electricity, health care, education and so on. Housing costs of up to 30% of income are usually said to be ‘affordable’ for very low, low or moderate income households. Currently, that means income levels of around $24,000 for a very low income individual to $120,900 for a moderate income couple with two children.

Many types of accommodation can fall within the affordable housing umbrella. However, a distinction is often made between ‘affordable’ and ‘social’ housing since a wider group of people are eligible for affordable housing, and the forms of provision are more diverse. Adequate quantities of ‘affordable housing’ usually depend on government intervention and funding.

Affordable housing might be offered as a fixed term lease for below market cost (80% of market value is a common benchmark). In NSW, ‘affordable housing’ has been defined as rental accommodation for very low, low and moderate income groups. By serving a wider range of income groups, including moderate income earners who can pay higher rents, affordable housing providers are able to cross subsidise their operations.

Other jurisdictions like South Australia and the ACT, extend the definition of affordable housing include low cost home ownership – offered at a discounted price or on an equity sharing basis. In South Australia, where the planning system requires that 15% of housing in new residential areas be affordable, eligible households can obtain a discounted purchase price or enter into an equity sharing arrangement. These models can be structured so that the subsidy (and a portion of capital gains) can be recycled to provide an ongoing funding stream.

In addition to the use of government land, financial grants or incentives, the planning system often leverages affordable housing as part of new projects. Internationally, the benchmark requirement for affordable housing inclusion is usually around 15-30%, depending on the amount of government land and other resources invested in the scheme, and or the extent of value uplift associated with planning approval. Under South Australia’s 15% quota providers of social rental housing or eligible households can obtain a discounted purchase price for dwellings delivered in this way.

Lower-cost forms of housing delivered through the private market for rent or purchase – such as modest apartments, senior’s accommodation and sometimes boarding houses – can also be a critical supply of affordable accommodation. It is important to monitor the availability of such housing in the market and to encourage its ongoing provision.

Affordable housing development in inner Sydney

Affordable housing is often provided by non-profit management and or housing developers, but could also be developed by the private sector. In Sydney, the City West housing company was established in 1994 to develop, build, and manage affordable housing initially in the Pyrmont/Ultimo urban renewal area and now over a wider area. Currently, City West has delivered over 730 units of affordable rental accommodation in Pyrmont/Ultimo, Green Square, and North Eveleigh (which won the UDIA NSW Excellence in Affordable Development award in 2015). However, overall less than one per cent of new supply in major renewal areas such as Green Square / Victoria Park has been in the form of dedicated affordable rental units [iv].

While investing in transport infrastructure and new urban facilities improves accessibility and catalyses housing and economic growth, it is critical to ensure that these benefits are not solely capitalised in higher rents and prices which exacerbate the affordability pressures faced by lower income groups. Rather, the value created through urban renewal and development processes can and should be used to leverage a pipeline of diverse and affordable homes to meet the needs of households across the income spectrum.

Nicole Gurran is Professor of Urban Planning at the University of Sydney where she teaches and researches on housing and urban policy.

References

[i] Center for Affordable Housing. (2015). Local Housing Information Kit. Sydney: Family and Community Services.

[ii] Center for Affordable Housing. (2015). Local Housing Information Kit. Sydney: Family and Community Services.

[iii] Center for Affordable Housing. (2015). Local Housing Information Kit. Sydney: Family and Community Services.

[iv] City of Sydney. (2015). Housing Issues Paper. Sydney: City of Sydney.

 

 

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