the long road of causes to a housing crisis

To create real, sustainable and effective solutions that will eventually solve this crisis, we need to understand the causes and deal with each contributing factor, while understanding the impact of each change in other areas of the issue so as to ensure we create a cure, rather than a new issue elsewhere.

Real solutions, real fixes.

This section expands on the causes outlined in the detailed section - The Insight

Government responsibility failure and cash grab

A perfect example of a ‘pretend’ approach to fixing the cause is financial support to first home buyers. First home buyers don’t have an affordability issue when there is plenty of supply. The market takes care of itself. However when you don't have enough supply and prices rise due to competition, giving more money to people to ‘compete’ further drives up prices. You give them more money to buy … what? You can’t treat supply side issues with demand side solutions. 

Similarly, with the financial regulator concerned about an investor led boom in 2015 increased restraints across the board on all borrowers, and particularly targeted investors. At the time approximately 43% of all lending was for investment purposes with the long term trend being around 33%. The changes in regulation drove down the amount of lending by investors and once it dropped below the 33% threshold, didn't release the brakes enough to see an adequate level of investment lending - noting that investors are major contributors to new supply, with the market of investors having sat around 29% for an extended period of time. Prices wouldn't have been escalating if supply had been at sufficient levels - yet with stringent regulation put in place to ‘protect’ the economy from an overheated housing market, they didn’t release the breaks in line with market changes, on the contrary, the increased some regulation at a time they should have been easing. Again dealing with supply side issues with demand side solutions. Kicking the can down the road … 

Yet this crisis at a national and state level didn’t start in 2015. Its been building for a number of years through these key contributing factors.

The first being social housing, which has halved since the mid 90s - successive governments have actively reduced the percentage of housing stock over the last 25 years from 6% to 3% of housing stock. This means that the heavy lifting has needed to be done by the private or institutional sector.

Regulation and tax bases in Australia have made it hard for the Build To Rent model, highly successful in other countries, to really take off here. So the only solution has been private residential investors. 

Keep in mind, the vast majority of residential investors are individual Australians, mums and dads, who don’t believe the government will look after them in their retirement so are seeking other means to increase their wealth. They play a VITAL role in providing rental accommodation. 

The challenge for residential investors is that tenants see them as ‘rich landlords’ and governments as an opportunity to ‘revenue grab’. Why should someone who is playing such an important role in our society pay more in stamp duty and rates, and then pay an entirely different tax (land tax) when the government haven’t done their part in supply and placed the burden on them. 

Similarly, reductions in tax benefits that were instituted to encourage these same mum and dad’s to take up the burden have been reduced. Some see negative gearing and capital gains benefits as ‘interfering with a free market’. That misses the desperately needed role played in supply by residential property investors, and the reduction in burden in supply by government, much less on superannuation and pensions. This sector needs more support not less. Not withstanding those that are adding to the undersupply but not releasing their properties to the market, which we will cover later.

On top of all of this, the regulatory changes, predominately over 2015-2019 (such as higher interest rates, limitations in the number of investment loans, as well Loan to Value limits) have seen a reduction in new supply from this important group. 

It also needs to be said that the discussion around rising rents and placing blame on property managers and landlords fails to understand the true cost. On top of all the additional finacial burden noted above, even when you take into account recent rent increases, rent increases have been less than inflation. With new interference in rental regulation (more on this to come), is it any wonder investors have been selling out in droves? We should expect this trend to continue.

So, at a big picture level, as government supply of property has declined, so has the supply from residential property investors due to the increased cost burden and regulation. 

PLANNING TO FAIL

Town planning has inputs from a Federal level yet predominately lies within the realm of State and Local Council. 

Fundamentally town planning rules are so complex and prescriptive that they fail to provide the type of product needed and result in a reduction in the number and density of properties that should otherwise be achieved for the zoning. 

Put simply, the rules are so hard, that supply is less than what it should be or does not occur at all. 

CAUSE: INSUFFICIENT PLANNING/FORECASTING

With such dramatic impacts being felt across the community, it’s important to explore how insufficient planning/forecasting by our closest levels of government, State and local, have caused or exacerbated the issues.  

STATE

To explore the local government challenges, it’s important to understand the key property supply and demand data that Sunshine Coast Council uses.  Ultimately, to deliver a planning scheme, Council seeks its modelling and inputs from State sources.  

  • Land Supply and Demand Monitoring report (LSDM) 

  • Queensland Statistician's Office population forecasting 

The LSDM report is a document Council uses as their benchmarking ‘bible’ when determining the status of property ‘supply’. State development does not have the maturity in their inputs, including using those that come from the Queensland Statistician’s Office (QSO), to accurately support regional area data.  In the absence of regional area data, we believe there are failings in how the LSDM report applies for the Sunshine Coast.  

Ultimately, the LSDM report is issued with outdated and unsupported data until the model catches up. Although the LSDM report continues to be used as the source of reference by Council, the Queensland Government is undertaking a ‘peer review’ of the LSDM report based on acknowledging that land supply has been significantly overstated. 

In addition, the QSO shows that by 2041 the Sunshine Coast’s population (LGA) will increase to around 520,000 people (medium series projections). These calculations are based on data that suggests that from now until 2041, every 5 years less people will move here.

It’s important to emphasise that the QSO data is used to justify supply in the LSDM, and therefore Council planning instruments because Council is required to work to State provided forecasting.  

The Sunshine Coast is on a growth trajectory like no other region in Australia. The major projects and infrastructure being built here means it is difficult to calculate the impact it will have as there is nothing to measure it against. It’s because of this we believe the Sunshine Coast is likely to reach a population of 520,000 much sooner than 2041. We’re currently in a major property undersupply, and if Council doesn’t have accurate data in its planning, that undersupply can only continue to grow. The impacts being felt now with incredible price growth, low rental vacancies and increasing homelessness can only get worse. 

How could QSO get the forecasting so wrong? We believe there are two major issues:

1. QSO uses historical data - looking back and expecting our past to be our continued future 

2. Using a ‘regional’ model that lumps the Sunshine Coast into the rest of QLD or even SEQ (eg. one set of assumptions do not fit all) when what is occurring here hasn’t occurred before so its own, new, modeling is required. 

Realistically, any real updates to key modeling will likely happen on the other side of the next planning scheme (with the current revision due for release in 2024). That means, unless action is imminent, we will still have the same disappointing outcome. 

COUNCIL

Noting Council starts on the back foot by using what we believe is insufficient forecasting, there are three other areas that require Council’s immediate attention, the political, strategic planning and development services. 

The Political

We often hear people say they don’t want the Sunshine Coast to ‘become another Gold Coast’ and with that statement often thrown around, we are seeing a lot of resistance and no unity between Council, the community and local businesses. We haven’t come across any councillor, council officer, developer or community member who wants to see the beaches on the Sunshine Coast or our protected green spaces developed. 

Single Issue Groups (SIG) are currently creating fear around development. Rather than joining in to create solutions, they are bonded in their emphatic view of the problem - what they don’t want - and focus on that as their singular outcome. They arduously fight against council decisions, and while this is a great part of our democratic process, it has multiple unintended consequences when not exercised with a full understanding of the planning challenges. By pushing back on projects that are key to providing affordable housing, they are actually creating an outcome that is undersupplying the market, creating homelessness and forcing people out of the community. 

Strategic Planning

Sunshine Coast Council has identified housing affordability as an issue for consideration in its 2041 Planning Scheme Project. It notes there is a need for a greater diversity of housing choice and that housing stress and affordability continue to be a challenge with increasing household running costs. 

Yet in that very same document, Council also wrote this:

“While the planning scheme can encourage and support housing diversity, it is limited in its ability to deliver affordable housing options and housing affordability outcomes (which are more directly influenced by other factors such as demographics and migration trends, investment preferences, economic conditions and government policy).” 

If the planning scheme is not giving due consideration to the updates in demographic mix and volume of migration to the Sunshine Coast, as well as changes in accommodation demand, how can it efficiently plan for our future?  

It would appear that this lack of ‘visibility’ of the current undersupply has continued to hamper the recognition of urgency and the degree of change required. An immediate need exists for a ‘blinkers off’ review of the planning scheme rather than the proposed ‘tweaks’ to what is already in place. 

Development Services

Council’s Development Services branch is in the height of a cultural battle. Years of SIG resistance and personalised public scrutiny have contributed to council officers approaching development applications with a lens of fear. Increasingly, Council officers are escalating decision-making to the political arena, distancing themselves from making a decision so as not to be the source of blame, or denying an application which forces the developer to go through the Planning and Environment Court to have the decision overturned. The process of bringing the property to the market is then delayed and unnecessary cost burdens are being borne by ratepayers. 

This is then made worse by what developers have described as a ‘lack of commerciality’. As fear of retribution translates to onerous conditions on development approvals, it is evident council officers are not considering whether, once all conditions are met, the development can make a profit (the only way it can be built), or if it’s a product the market even needs. Instead, it would appear decision makers are exacerbating the homelessness and lack of affordability situation by complicating the process and by making decisions based on external pressures they expect to have to respond more so than due process.

Increasingly, developers are demonstrating projects that meet council requirements, are absent of any community resistance and meet the planning scheme still being delayed due to an unworkable approval or ability to understand the solutions offered.

Summary

The Causes, explained above may be summarised as:

CAUSES

  • Government Responsibility Failure

  • Cost Base for Residential Investment

    • Macro-Prudential Regulation - investor limitations and borrowing costs

    • Taxation 

      • Negative gearing

      • Capital gains

      • Land tax

    • Fees

      • Stamp duty

      • Rates

  • Town Planning Limitations & Application

  • Lack of Understanding & Awareness

SOLUTIONS

  • A CRISIS RESPONSE - Political Courage

  • SUPPLY by public and private sector

  • SUPPORT to aid supply

  • PLANNING CHANGES