"The industry has to market that big is not better."

Cameron Alderson, GM of National Housing Affordability, Stockland

 In a country built on widespread home ownership, it is now almost impossible for Australians on moderate incomes to buy their own home, according to Federal Housing Minister Tanya Plibersek.

The Minister told a recent CEDA event in Melbourne that the Federal Government aimed to leverage $13 billion in new investment to boost the supply of housing, through its National Rental Affordability Scheme.

In a forum that balanced some pessimistic economic news, with practical and creative solutions, the Housing Affordability conference encouraged government, industry and analysts to debate this pressing national issue.

With Plibersek asserting "affordable housing is crucial to economic growth and social stability", the challenges are clear. Up to 200,000 new dwellings are urgently required. This figure - generally agreed upon by the forum's panellists - will require rapid and efficient movement in land supply, construction, and recruiting skilled labour.

View from the states

State housing ministers from Victoria, WA and SA outlined the specific initiatives developed to increase housing supply, and assist first home buyers to enter the market. With 1000 people migrating to WA every week, the state had experienced unprecedented growth in demand, according to housing minister Michelle Roberts.

"Every year we have to house a community the size of Shepparton, Bundaberg or Maitland," she said. The government has focused its efforts on a shared equity scheme for first homebuyers, joint ventures, linking residential areas with transport, and sustainable communities.

With Melbourne's rental vacancy rate at a historically low rate of one per cent, governments must address the needs of the low-income and the homeless, said Richard Wynne, Victoria's Minister for Housing. Among other initiatives, the state government has funded a pilot project in which six local council re-zone parcels of land for potential construction projects.

All the states will have a role in the Rudd government’s National Rental Affordability Scheme, to boost the supply of residential units.

In this context, South Australian Housing Trust general manager Philip Fagan-Schmidt emphasised the private rental market here must become an attractive long-term rental and investment proposition, just as it is in Europe.

Boosting housing supply

Several speakers noted that tenants were suffering the greatest financial hardship in the current climate. "Many more low-income renters than home-owners are in stress", said Treasury executive David Gruen.

"This has important consequences for how we think about housing policy".

Outlining Treasury data, he indicated Australia’s experience of rapidly rising house prices did not stand out among other low-inflation, OECD countries. It was a very broad phenomenon 

From 1995 to 2007, "it's very widespread that house price increases have been much more substantial than consumer price increases".

During a period of financial deregulation and low inflation, we drove up house prices in line with our ability to pay, he said.

Improving housing affordability over a longer term required reducing development costs at the urban fringe, and raising the effective supply of well located housing.

"We can’t build more land within five kilometres of  the CBD, so we need policies to enhance urban consolidation; better urban public transport infrastructure; and better use of the existing dwelling stock."

From an industry perspective, Robert Harding, executive director of Victoria's Housing Industry Association, said builders and developers faced a daunting task buying land and building a house for a first homebuyer with $350,000 to spend.

Increased steel and fuel prices "all add to the cost of what we put on to the ground". Attracting skilled labour also had a major impact on increasing housing affordability. He advocated reforming Commonwealth-state financial relations, and promoting a saving culture among potential home owners.

Cameron Alderson, Stockland's general manager of national housing affordability, emphatically put the case that Australians must build smaller homes.

"The industry has to market that big is not better," he said.

In the current climate, developers must consider dropping the price of house and land packages by up to $150,000 to sell to the "forgotten middle" sector of  families on incomes of $55,000 - $100,000.

"They get the least government assistance, and form a growing demographic."

Alderson also proposed approval reform, equity assistance, and a government rethink on the range of property taxes.

The house prices we deserve

BIS Shrapnel's managing director Robert Mellor delivered sobering statistics. Only 3000 detached houses had been built in Sydney in each of the past two years. This indicated a market failure, compounded by a land supply shortage across the country.

Investor demand has fallen, the rental market has tightened and too few construction projects proceed.

"This is a disaster that cannot easily be rectified," he said.

"In the next three to five years in the rental market, rents will rise by a minimum of 8 per cent per annum. No government policy can avoid that, there’s just not enough supply." Net overseas migration is forecast to rise towards 2010, contributing to higher demand for housing.

"We're in this mess partly because of poor decision-making and also because of underlying demand," Mellor concluded.

With cheap finance available, greed ultimately drove up house prices, he added. "Low interest rates were bad for us, and we’ve got the house prices we deserve."

The tight labour market and high petrol and commodities prices would remain with us for some time, in his view. "I wouldn’t be surprised if interest rates go to 10 per cent."

Julian Disney, chair of the National Affordable Housing Summit, agreed that tax concessions had damaged the industry. "It's massively generous to the wealthy, and hinders those on low incomes."

He identified another 750,000 "hidden victims" of the affordability crisis; "people who have only kept their homes by being in poor quality housing, or living far away from where they work".

He called for 120,000 more dwellings to be provided for public housing and low income residents. Disney also advocated greater regional development, encouraging more people to move to medium sized cities, to ease the population pressure – and high house prices – afflicting  major cities.

This echoed an observation from David Gruen, made earlier in the forum. Australia has a very large percentage of its population in the two major cities of Sydney and Melbourne, a factor in forcing up house prices, he said.

"There are benefits to agglomeration. Cities are there for a reason."

In her keynote address, the Federal Minister also outlined the government's National Housing Supply Council, established to release an annual state of supply report; and first home saver accounts, a tax-effective way of  working towards a house deposit.

The re-fashioning of social housing remained a challenge for governments, she said. "It's an absolutely integral part of housing solutions. Social housing reform has to give tenants a strong platform to participate in social and economic life."