A sister act at the AHURI National Housing Conference (on what’s missing from the private rental sector)

My sister Steph and I both work at PwC, and we both specialise in housing affordability – despite our very different skill sets and the unplanned nature of the situation. In fact, when it dawned on us that we both knew quite a lot about the same topic, we were taken by surprise - as if we’d known each other our whole lives and only just realised we were related.

How did this happen? Well, I’m a reformed finance lawyer who was drawn to social and affordable housing via an unstoppable urge to overcome funding barriers; and Steph’s an urban planner who gets excited by the potential to use the planning system to create urban communities (she also has a fantastic level of creativity that sees her coming up with potential reforms to improve the system itself). For completeness, Laura (the dark-haired middle sister) is a professional editor who is called upon on a regular basis to make sure that we are making proper use of the English language. Watch your reflective pronouns, everyone!

I’m excited to say that both Steph and I will be presenting tomorrow at the 2017 AHURI National Housing Conference. We are speaking on different topics, but those topics are highly complementary - like two movements of the same symphony. We’ll be outlining what we consider to be missing pieces of the puzzle of what makes a diverse and healthy housing continuum – one that enables access, choice, affordability and stability for all residents (regardless of tenure). And both of these pieces are particularly relevant to renters, adding into our system well-located rental housing where hardworking Aussies can live closer to work, spend more time with their families, lay down roots and be active members of the local community.

The first piece (Amy) is the potential of large-scale high-quality Build to Rent (BTR) developments and the positive benefits to communities, Government and our economy, and the second (Steph) proposes a planning amendment that would see multi-dwelling housing (the ‘missing middle’) being permissible in low density zones, provided that a proportion of the dwellings are designated as affordable rental housing for low to moderate income earners.

Re-imagining via Build to Rent (Amy)

The private rental sector is playing an increasingly important role within the housing continuum for a very diverse group of Australians. I believe that every person has the right to viable and secure housing choices, to be free from housing stress, and to be given the ability to make the house that they are living in their home (whether they own it or not). With over a third of Australians (that’s 7.5 million people) in rental accommodation, how can we ensure a better customer experience for such a notable portion of us?

You’ve probably already heard about the potential new product in the Australian housing market called ‘Build to Rent’ (or ‘multi-family housing’ in the US). And you’ve probably also heard that, in its infancy at least, this asset class will need Government support to help make developments viable and (ideally) attract institutional investors into this sector, so that it can happen at scale.

Why?

But the question I’d be asking if I were Government is ‘why?’. Why should government provide some sort of contribution (be it in the form of discounted land or tax or planning concessions or incentives), at the potential expense of other investments or initiatives? What exactly is this product going to do for its citizens, its cost base and (ultimately) its economy that is so different, so that the associated effort is worthwhile?

1.    Increased supply and choice

It’s important to recognise that – because BTR has different investment characteristics than Build to Sell (BTS), it represents a supply of housing that:

a.    we would not otherwise have. And it’s not just any supply – it’s large scale, well delivered, maintained and connected supply

b.    can continue to be brought to market in a situation where supply of BTS slows (for example, if there were to be a decrease in accessibility of mortgages, creating less competition and lowering prices).

Further, if one of the relevant Government-enablers involves planning permissions to develop BTR in areas where there has previously been a lack of residential permissibility, this housing will be in (well-located and connected) areas where it would not have otherwise been. The more connected the area, the greater positive impact BTR will have on the economy via improved productivity of the people who reside there (eg. by living closer to work).

This product also increases choice for consumers. It represents a diverse form of housing which is not currently present within our continuum. It’s a product that puts the consumer at the centre, being developed by the same people who will be there for a long term. They care about livability, quality, placemaking, additional amenity, improved services and features that enhance community – let’s face it, they’d be crazy if they didn’t, because people wanting to live there and stay living there is how they make their money. In our current market, these compelling features are not usually an accessible option.

2.    Significant, long term job creation

For any residential development, the very development itself creates jobs. For example, a $310 million construction project would result in 1,441 fulltime-equivalent (FTE) jobs (about half direct and half indirect).

The knock-on effect of this is a contribution to Gross Regional Product (GRP) of $177.2 million ($95.4 million direct and $81.9 million indirect).

BUT, far more notably, BTR requires a very labour-intensive workforce during its long term operational period – that’s one of its key features and ‘unique selling points’. For example, Greystar (one of the biggest providers of multifamily in the US) has a total staff of 12,000 FTEs, and 11,000 of those are located onsite at BTR developments, providing the high quality customer service, concierge and maintenance that Greystar are known for.

3.    Empowering individuals and public dollars saved over the long term

In order to fully appreciate the importance of improved conditions of renting for individuals, we need to understand the base position across our nation. According to a recent national survey undertaken by the National Association of Tenants’ Organisations, National Shelter and CHOICE, 83% of renters in Australia have no fixed-term lease or are on a lease less than 12 months long, and 62% feel they’re not in a position to ask for longer term rental security. Unstable tenure doesn’t simply result in inconvenience and moving costs (Australian renters spent $2.4 billion on moving in 2013-14), but has much more serious implications in terms of the difficulty people face in laying down stable roots and investing in the local community, in terms of schooling (40% of Aussie renters have kids), forming a relationship with a local GP or embarking on new work opportunities, for example.

Half said they’d been discriminated against and were worried about being blacklisted on a ‘bad tenant’ database. 21% have had to wait over a week for a response to an urgent repair, and many mentioned they haven’t complained about substandard conditions (eg. 27% reporting pests, 24% doors or windows that don’t close properly) for fear of eviction. 42% were concerned their rent could increase at any time, 23% lived in constant fear of eviction and 24% in fear of their lease not being renewed.

Regardless of what proportion of gross income these people are paying on rental costs, that is housing stress.

I’ve heard it said that improving this situation isn’t a justification for BTR (as long term rental isn’t a particular feature in BTR developments in the US), but I don’t think such comments take into account how behind other OECD countries we are in terms of tenant rights (eg. Ireland which offers an initial 6 month lease which rolls into 6 years; Switzerland which has no eviction without cause; and the Netherlands offers an initial lease which rolls into 5-10 years). The exception to this is Victoria who is in the process of reforming its Residential Tenancies Act to address these issues. So in my view, if BTR with long term institutional owners (rather than individual landlords) represents an option for an improved scenario, then that’s just one more reason to promote it.

And you know what? When individuals feel secure, stable and empowered (through a variety of factors including their housing situation) they do better in life. They feel courageous enough to take that TAFE course or go for that job or enroll their kids in the local girl guides or boy scouts. They form proper relationships and discover mentors for themselves and their children. They take part in community activities and get involved in volunteering - and their aspirations start to flourish. And, Government, this means that those individuals and families cost the public service less over the course of their lives, as they become less reliant on the health, justice, subsidised housing and welfare systems. So worth the investment? I think so.

A choice for Government

Unfortunately the current returns in BTR aren’t sufficient to sit within the mandate of many institutional investors (eg. superannuation funds), and so this is where Government enablement comes into play. This can be in the form of discounted land or tax or planning concessions or incentives – but I won’t go into detail here. Government has heard from tenants, investors, developers, peak bodies and overseas operators. Now is the time to decide – is BTR a missing piece of the puzzle of a diverse and healthy housing continuum which enables quality of life for all?

Re-imagining via the ‘missing middle’ (Steph)

Steph’s proposal focuses on enabling low to moderate income earners (eg. household income of up to $115,000 pa for a couple with 3 children) – in particular our city shapers and key workers – to rent in locations with high amenity of living and community benefit that are also near to jobs and services.

The answer doesn’t have to be high-rise developments.

Steph’s thesis rests on the fact that a one-size-fits-all approach to housing is neither realistic nor suitable for everyone. The diversity of the population should drive the diversity of our housing, which can be achieved through building types, dwelling sizes, floor space configurations, lot arrangements and location. Housing options such as townhouses, terraces and manor houses can provide places of high amenity, where communities interact in public and private realms and where services and jobs are within proximity. These ‘missing middle’ options are also more energy efficient than detached houses, offer more variety and flexibility for Sydney’s changing demographics and have less impact on the character of existing suburban areas. In fact, well- designed medium density housing can potentially improve the character of a street, creating vibrancy and a greater sense of community.

Her proposed planning amendment would be targeted at community housing providers, small developers and individual landowners, encouraging them to convert single dwellings on large lots into a handful of townhouses (for example), with an element of ‘social good’ via the provision of one or more dwellings designated as affordable rental housing. This form of low-rise development would remove the need for lot amalgamation and limit large-scale development in low- rise residential areas, making it much more palatable to the local community.

In addition to starting to fill in the ‘missing middle’, the key social benefit from this initiative is an increase in the supply of affordable rental housing across Sydney, which would ease commute times by allowing key workers (for example) to live closer to jobs and services. Not only would this ease road congestion, but it would also reduce commuter- related stress and improve worker productivity.

I’m proud to say that – 9 months after releasing our paper, A Place for Everyone, outlining the proposed initiative - PwC are continuing conversations with Government on this important issue.

Endnote

And so, that is the two movements of our AHURI symphony. Both are aimed at boosting options within the private rental sector, increasing supply of high-quality housing across metropolitan areas, connecting people to work and opportunities, and improving life for those in the rental market.

We’re hoping that the Sister Act will grab the attention of at least some attendees who are able to influence these important and high-impact decisions faced by our leaders regarding what to do with the Private Rental Market. And, if you need us to put anything in writing, we always have Laura to edit it.