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There's A Fix For The Housing Affordability Crisis That Everyone's Overlooking

It's the Elephant And Castle in the room.

Gladys Berejiklian is tripping on her own spin about Sydney's housing affordability crisis. The NSW Premier says that all's well that ends well if the city's developers crank up supply. Increase production of houses, flats and apartments; in time, prices fall. Crisis over.

But if a drug dealer's code is: never get high on your own supply, the politician's equivalent is: don't be taken-in by your own spin.

More supply in Sydney won't end this crisis. It won't even come close. The planning department says Sydney needs 147,000 new homes by 2019 just to keep pace with population growth. Even if the government manages this ambitious feat, housing affordability will only remain at existing levels -- the worst in Sydney's history.

Meaningful action on housing affordability requires bold action on the demand side of the housing equation. We need to examine just who is buying Sydney's homes, the power they wield, and how we can transfer some of it to working people -- especially first-home buyers.

Addressing investor privilege is the first priority. Australia is alone among advanced nations in letting investors socialise their losses through the tax-system, using negative-gearing. We are equally unique in allowing them to almost completely privatise their profits, using capital-gains tax concessions. This tax cocktail urgently needs Commonwealth re-mixing.

We need to examine just who is buying Sydney's homes, the power they wield, and how we can transfer some of it to working people -- especially first-home buyers.

The next priority is to correct a glaring market failure in Sydney housing: the absence of industrial-scale affordable housing players, whether they are buyers, developers, lessors or managers. They are commonplace in other global cities similar to Sydney.

In Europe, there are 43 institutional-scale buyers, developers, lessors and managers of affordable housing stock. These organisations are behemoths. They have investment-grade credit ratings. They manage thousands of properties. They redevelop entire city precincts. Their mission is to hedge against excessively high-levels of housing stress.

Take the Elephant and Castle re-development in London. This decade-long project is the result of a joint venture between Southwark Council and the Australian firm Lendlease. A housing estate, close to the city centre, is having 3000 new homes built. High standard of sustainable design apply; there are links to public transport, and people live close to their place of work. While gentrification pushes poor people out from surrounding neighbourhoods, in this London corner rich-professionals are slated to live side-by-side with affordable housing tenants.

In Sydney, a similar project could not happen. Even-though an Australian multi-national pioneered this housing innovation overseas, no local housing corporation has the balance-sheet power, access to debt markets, or time-horizons needed to partner with them or government, on behalf of Sydney's middle-classes.

Addressing investor privilege is the first priority.

This must change. On current trends it would take decades for the community-housing sector to organically obtain the economies of scale they need to tilt house prices towards affordable. Sydney can't wait. So the city should immediately transfer the title of 20,000 additional Department of Housing's dwellings to the non-for-profit community-housing sector. Over time, we should transfer all of them.

This decision's short-term effect is impactful. It will enable those providers to gain more access to federal housing programmes than if those properties remained with the Department of Housing; tenants swap their dealings from a monolithic bureaucracy to community-controlled housing organisations. Yet, the long-term impact is even more dramatic. Post-transfer, Sydney gets a pack of not-for-profit institutions powerful enough to make a meaningful dent on the housing affordability crisis. A meaningful number of people benefit.

With increased scale, Sydney's community-housing sector could raise funds from the bond market to increase the City's affordable housing stock. During economic downturns, an expanded sector can help people stay in their homes for longer because their bigger scale lets them shoulder higher levels of rent-risk. And, as they undertake redevelopments, the sector could reverse one of Sydney's worst ever public-policy mistakes: the decision to concentrate high-numbers of disadvantaged people on the city's fringe.

Free market, or unreconstructed State intervention? This proposal is neither. Instead, it is an example of public sector innovation combining with private -sector reform to deliver a better outcome for ordinary people. If paired with new housing supply, the resulting alchemy is a come-down in Sydney housing prices. And that will trigger euphoria amongst the hundreds-of-thousands of people locked out of Sydney's overheating property market.


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