Articles – The Centre for Independent Studies

Put simply, public housing is a bad investment

Simon Cowan

04 December 2021 | Canberra Times

This week has seen several proposals for increased social housing. The Grattan Institute released a plan for a Social Housing Future Fund, while Senator Jacqui Lambie — a long-time social housing advocate  — was arguing for an increase in funding when her speech was interrupted by an accusation that a Liberal Senator was making animal noises.

Social housing is an umbrella term encompassing public housing (provided by government) and community housing (usually managed by not-for-profits).

Governments at the state and federal level have largely been reluctant to commit additional funding, so more of the growth in social housing is coming from community housing. Most advocates in the space focus heavily, if not exclusively, on the need for government ‘investment’.

The Grattan plan, for example, attempts to solve this funding problem by creating a needlessly complicated funding mechanism that is completely separate from the social housing component. Grattan proposes borrowing $20 billion at low interest rates and using the investment returns to fund social housing grants.

But if this funding mechanism was a good idea — it’s not; but if it was — why limit it to $20 billion and social housing? Why not borrow ten or twenty times as much to fund health or education?

One reason this is a bad idea is that there is no guarantee interest rates will remain low or returns high. Also, having just massively run up government debt in the pandemic, it seems like a bad idea to effectively speculate with more debt.

In fact, it could be strongly argued that effectively operating a leveraged fund to generate revenue is not a proper function of government. The government is not an investment bank.

Not only that, it’s unnecessary. Government can get the same outcome with zero risk by taxing returns from leveraged funds run by private investment banks.

In reality, though Grattan’s Brendan Coates — who made the proposal — may well disagree, the data in the Grattan proposal demonstrate clearly that public housing is actually a bad investment, and providing additional government funding would be a policy failure.

In fact, government would be far better off significantly winding down its investment in public housing.

One of the biggest issues with public housing is the waiting list, where eligible potential tenants can spend years waiting for a place to become available. CIS research in 2017 suggested that potential tenants in Sydney could wait more than 10 years before a home is allocated to them.

The benefit from getting into a public housing vacancy — the value of the subsidy — actually creates a disincentive to work for those who have been on the list a long time. Taking a job might remove you from the list, and put you at the back of the queue if you end up unemployed again.

As Grattan notes, the annual subsidy to public housing recipients is significant. Typically public housing tenants pay just 25% of their income in rent — an amount that is fixed as a percentage of income.

This means public housing tenants on JobSeeker could pay less than $5,000 a year in rent, regardless of the size or location of their property. Grattan suggests this subsidy is worth approximately $15,000 a year, but in parts of Sydney this subsidy could be worth far more.

This subsidy is almost equivalent to the JobSeeker payment for singles, which is about $16,500 on an annualised basis. By contrast, the maximum amount of rent assistance for a single is less than $4,000.

It is not just that the benefit creates a disincentive to work for those on the waitlist, it also creates an incentive to remain in public housing. When combined with the fact that, once attained, public housing tenancy is very secure, it’s hardly surprising that public housing tenancies are longer than five years on average.

These are not the only problem with public housing. The current public housing stock is not well aligned with the average public housing tenant, with most being single individuals but many occupying multi-bedroom houses and apartments.

Other problems include the high costs of maintaining aging housing stock, exacerbated in some cases by damage and / or neglect by tenants who don’t have financial or ownership ties to the property. Not to mention the perception, if not the reality, of anti-social behaviour centred in clusters of social housing.

All of this suggests that, instead of massively increasing the spending on public housing, public welfare would be better served by redistributing the subsidies currently given to public housing tenants to those on government benefits who are renting in the private market. Improving rent assistance would be far better.

Public housing, to the extent it is needed, should be focused almost exclusively on short-term crisis accommodation and transitional housing for those with special, additional needs; for example for those fleeing domestic violence. Longer term tenancy should be strongly discouraged.

Governments at the state level in particular should liberalise planning laws to combat housing affordability concerns. Government doesn’t need to increase the housing supply directly through public housing to improve things for lower income renters.

Some advocates who see public housing investment as a preferable alternative to ‘greedy developers’ profiting, would also do well to remember the addition of supply at any point in the market will improve affordability at all levels of the market, including low-income private renters who are potential public housing tenants.

Overall, the case for public housing is very weak. Instead of inventing elaborate funding mechanisms to increase the public housing stock, the focus should shift to policies that work.

Housing affordability remains a very real problem, one that is not helped by ideological blinkering on preferred solutions.

Print Friendly, PDF & Email