Can't See the Forest for the Trees, or Catch 22?

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For those who have missed the recent news that infrastructure charges are to be capped at $20,000 for studio to two bedroom accommodation and $28,000 for three bedrooms plus is going to positively impact the building industry in the short term might be mistaken.  The implementation of the charges at the end of the development process rather than an upfront fee is arguably a better stimulus to the development cashflow given the time taken to make sales and develop land.

So whilst we agree that this is a step in the right direction, the reality is that the building industry will continue to struggle as more government “steering committees” and “workshops” are formalised to network the problem.  In addition to this, nothing has really changed with the planning mechanism which has profoundly eroded the speed at which development can occur.  In fact, much of the more recent planning mechanism was implemented when the economy was strong, population growth was at record highs and government feared there would be no green space remaining from Cairns to Melbourne as the entire coastline would be developed into houses and highrises.  Now that the economy, population growth and property sales have dropped, one wonders whether the planning scheme is as relevant now or if has the flexibility to cope with the changing cycles.

However, one of the major reasons that the building industry is struggling is because the government has privatised many of the functions it used to provide in the “good old days”.  Like power, water and a host of other services that have gone the way of the private sector, so too did much of the non-private sector accommodation work.  The adjoining graph shows just how little government spending now occurs in this part of the economy.  And whilst there is an argument that the Private Sector can often do things more efficiently than the Government, there is the counterargument that the private sectors’ interests are not always aligned to those of the community.

With the government’s stimulus package during the GFC that helped with school building, haff schemes etc, there is yet to be even 5% of house building commencements that can be attributed to the government.  This is during a time when housing unaffordability is at near record highs and rents in certain locations are out of control.

So if the government is interested in getting the construction industry back on track, particularly house building, there is arguably just cause to suggest that they should become involved in allocating more resources to public housing.  As shelter often represents the biggest stress for anyone that either doesn’t have it or is borderline losing it, a lot of anxiety would be removed from society.  It would also provide the opportunity for people to actually save in order to buy a house.

However the flipside to this argument is that a lot of people would be removed from the rental pools.  This would take pressure off rents, but at what cost?  When investors are already difficult to find for both new and/or established property, falling rents are not going to inspire any buying decision.  In fact, the investment market is so tough at present because rents in the vast majority of properties are not paying off mortgages and in many instances have a long way to go before they do.  

So asking the government to step up and provide significant numbers of housing for those people who need it is arguably counterproductive to many developers and investors best interests.  Like most things though, moderation seems to be the key.  Additional funds for public housing wouldn’t go astray and in the broad scheme of things, it is unlikely the government could provide enough housing to detrimentally impact the rental market, at least in the short to medium term.  The upside though is that many people who work in the construction industry would be put to full time employment and again start to hire new staff.

If one was to adopt a different economic perspective, it is highly probable that a well funded housing strategy would provide benefits outside of creating more jobs for a struggling house building industry, it is suspected that it would also provide better health for individuals as there is a causal relationship between homelessness and health, overcrowding in housing and mental illness as well as a bunch of other issues that positively impact other aspects of the economy.

Perhaps it is time that the Government no longer relied on the private sector to provide another of its core functions, providing housing for those who can’t provide for themselves.  As a society we will be better off and people will again be able to save their way into home ownership and move off the welfare train.  This may well be the “win:win” that both the public and private sector needs.