Australia's Unintended Cities: The Impact of Housing on Urban Development

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Introduction: a housing lens on Australia’s unintended cities

Richard Tomlinson

The election of the Labor Party in 2007 saw the return of housing and cities to the government agenda. There has been a drum roll of documents that directly or indirectly affect policy for, investment in and the planning of Australian cities: Our Cities – building a productive, sustainable and liveable future; Our Cities, Our Future – A National Urban Policy for a productive, sustainable and liveable future; Sustainable Australia – Sustainable Communities; Creating Places for People; Communicating the Imperative for Action in respect of infrastructure planning; National Public Private Partnerships Policy and Guidelines; performance benchmarking of business regulations and planning; capital city strategic planning systems, and the introduction of annual State of the Cities reports. Housing is emphasised in some of these documents, generally in respect of affordability and location.

Aside from the introduction of the annual State of [Housing] Supply reports, there has not been a similar roll-call of housing policy documents. In federal government policy and expenditure, housing is viewed as one of five national service delivery areas along with, for example, disability services and health care.

Left adrift by government is the 2010 Henry Review of Australia’s Future Tax System, which was prepared for the Treasury. The Henry Review made a number of recommendations around the tax-induced distortions that affect private investment in home-ownership and rental housing and that increase housing prices. The recommendations, if taken up, would also address the inequality resulting from housing-related subsidies¹ for those already housed considerably exceeding the housing subsidies for those needing housing (Ch. 4, this volume).

The failure to link housing and city-building and to formulate a policy for the housing sector is reflected in the Australian Cabinet. There is no one Minister responsible for all of the government’s housing programs. There is a Housing Minister, among a number of Ministers located in the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA). FaHCSIA is responsible for the homelessness, social and indigenous housing programs that are grouped under the title of the National Affordable Housing Agreement (NAHA). NAHA was referred to as Australia’s ‘national housing policy’ by the Australian Housing and Urban Research Institute at its conference on 27–28 October 2011. A larger program, measured in terms of its budget, is the Commonwealth Rent Assistance scheme. This is an income supplement for eligible ‘customers’ who rent in the private rental market and is not, strictly speaking, a housing program but nonetheless is administered by FaHCSIA (and implemented by the Department of Human Services through Centrelink). The most successful ‘housing’ program in recent years is the Social Housing Initiative that temporarily reduced the increase in the backlog of those in need of government-supported housing. The reason for using ‘…’ is because here housing served as vehicle for expenditure intended to safeguard jobs in the constructions sector and the initiative was not, in the first instance, a housing program. It was devised by the Treasury during the global financial crisis as part of the Nation Building – Economic Stimulus Plan. Yet another prominent housing program is the National Rental Affordability Schemes² (NRAS), which is administered by the Department of Sustainability, Environment, Water, Population and Communities with a different responsible Minister. Issues of infrastructure provision for residential development come under the administration of the Minister of Infrastructure and Transport. At both Commonwealth and state levels there is the sense that Treasury is the real driver of decisions around housing and urban development, but without any policy coherence driving such decisions.

Overlaying government institutional and policy disarray, is the problem that the agenda for policy and planning has largely been captured by property developers’ interests. This view is so prevalent that a community organisation, in its Review of the Victorian Planning System, recommends that ‘donations to political parties from property developers [should be] illegal’ (Save Our Suburbs 2011, p. 6).

Turning to policy for the cities, the Department of Infrastructure and Transport, along with the Department for Regional Australia, Regional Development and Local Government and the Department for Sustainability, Environment, Water, Population and Communities, leads government activities that have a bearing on cities. FaHCSIA is not included. This is despite the immediate link between investment in transport infrastructure and services and the type, cost and location of housing. It also reflects on the failure to view the effects of housing on labour productivity, income distribution and the form (land use and density) and structure (infrastructure, especially transport infrastructure and services, and economic and higher density housing nodes) of Australia’s cities.

It transpires that being on the agenda of the federal government does not imply a whole-of-government approach either to cities and housing, or to housing as a sector. This is curious as housing in Australia’s cities often evokes the word ‘crisis’, with both the national housing supply shortfall and the affordability problem as evidence of the crisis. For example, a Google search for ‘affordable housing Australia’ elicited 11 million results.³ Eleven million results suggest an extraordinary level of concern with the cost of well-located housing. While affordable and accessible housing is included in the long-term challenges identified in the National Urban Policy (Major Cities Unit 2011, p. 6), the Action Plan (Ch. 7), does not provide a substantive indication of how affordability and location will be improved. There is a mismatch between policies for cities ‘confronted by significant long-term challenges’ (Australian Government 2011), inadequately funded government housing programs and private market failure in terms of providing affordable, available and appropriate housing.

Yet this book does not represent a call for housing policy, let alone a call for a national urban policy. Instead, the thesis underlying this book is that the housing being built and the urban form and structure of Australia’s cities seldom reflect housing and urban policies and plans. The disjuncture between intent and outcome is perhaps most evident in the strategic plans prepared by the states for metropolitan regions which, in practice, appear to have little significance aside from the release of land for property developers. It is argued throughout the chapters that housing outcomes and city-building primarily reflect the unintended consequences of economic and social policies, governance and programs that, most often, were not formulated with housing and city-building in mind. Examples of the sources of unintended consequences include taxation policy, deregulation of bank mortgage lending, government infrastructure grants, and policies and programs whose substance is affected by the roles and responsibilities assigned to, and the resources of, the federal, state and local governments.

It might seem that the claim being made is that the federal and state governments have engaged in sloppy policy processes, formulated poorly conceived policies, drafted ill-considered legislation and engaged in inept planning, but this is not being asserted. Instead, we should refer to the ‘Law of Unintended Consequences’. This law holds that interventions in complex systems can have both positive and negative unintended consequences. Cities are complex. Australia’s housing sector is complex. It is inevitable that government policies, governance and programs will have many unintended consequences whose effect is to structure the incentives and disincentives within which households, the private sector in general and property developers in particular, operate. It should also be noted that while unintended, many of the incentives or disincentives and their consequences are well-known. Negative gearing⁴ is an example where the Australian tax system exacerbates the housing affordability ‘crisis’ but is not reversed because the beneficiaries have political clout (Ch. 4, this volume). Further, the limited ability of federal and state governments to address the long-term challenges, which is demonstrated in the following chapters, emerges from the institutional disarray and the location of policy, funding and implementation roles and responsibilities within and between different levels of government. As a result, the claim underlying this book is that these unintended consequences outweigh existing policies for housing and for the cities; in effect, Australia’s cities are not those intended (Forster 2006) and the market is not delivering the housing options sought by the public (Kelly 2011).

It is the basis for this claim that the contributors have been asked to investigate. Each contributor has been asked to examine the effects of specific policies, governance and programs on housing and on the building of productive, sustainable, liveable and fair cities. The relative emphasis on housing and city-building, and on the links between them, varies depending on the issue being addressed, but a central concern of each chapter is housing. This book looks at Australia’s unintended cities through a housing lens.

Housing institutional and policy disarray

The judgemental title to this section – housing institutional and policy disarray – arises from my efforts, after arriving in Australia, to understand the country’s housing policy and, later, to understand the reasons for the lack of a housing policy. The search was based on the principle of subsidiarity, which means that roles and responsibilities should be exercised by the lowest level of government and governance competent to address the issues that arise. The word ‘governance’ is added because the formulation of housing policy desirably includes government, the private sector and civil society; the funding of certain housing and related infrastructure projects inevitably requires intergovernmental transfers and private investment; and the implementation of housing policy necessarily includes government, the private sector and civil society. The search for understanding was conducted for Melbourne and the state of Victoria, where I am based, and for Australia. It is recognised that we cannot generalise from one city or state to the other cities and states, but the findings emerging from this search are little affected by differences between them.

In the context of subsidiarity, the search started with the City of Melbourne. The City does have a ‘Homelessness Strategy 2011–13’ that is intended to serve the 1302 people identified as experiencing homelessness (City of Melbourne 2011). This is a minimal contribution to housing policy but then, as Victoria’s capital city, the City of Melbourne is but one of 31 local governments that make up metropolitan Melbourne. The City itself can contribute little to housing policy. The limited attention to housing is not unique to the City of Melbourne.⁵

Moving to state government, I approached personnel in the Department of Planning and Community Development. The department prepares strategic plans for metropolitan Melbourne which include projecting population growth and the demand for housing, determining urban growth boundaries (mentioned in plural as the boundary has intermittently been extended), and planning for housing density and location in respect of infill, fringe housing and higher residential density transport nodes. Despite responsibility for housing aspects of strategic planning, and aside from asserting that extending the urban growth boundary reduces the cost of land for housing, the department disclaimed responsibility for housing policy.⁶ As a result I approached the Department of Human Services, which provides public housing and supports non-government and community-based housing organisations that provide social housing. There too there were no claims for responsibility for housing policy. Ultimately I was directed to a relatively junior official in the state Department of Treasury and Finance. He said that in the financing of public and social housing in Victoria there was no attention to the state’s strategic plan for Melbourne, related infrastructure needs and urban growth boundaries. When asked who was responsible for housing, he replied ‘Notionally, FaHCSIA. In reality, Treasuries, federal and state’.

In effect, it is through the federal system of government, with its confused roles and responsibilities within and between levels of government and fiscal transfers from federal government, that we have to understand the vacuum in sectoral housing policy and the present failure to link housing to city-building. There are some government agencies that arguably try to bring some order to this chaos. Of particular significance for policy advice and the process of policy formulation are the Productivity Commission, a federal government research and advisory body, and the Coalition of Australian Governments (COAG) as the peak intergovernmental forum in Australia where National Partnership Agreements are negotiated.⁷

The negotiation of the Constitution that frames the federal system occurred between six self-governing British colonies, and the Commonwealth of Australia was formed in 1901. The Constitution does not mention housing and does not contain a Bill of Rights that would oblige government to ensure that all Australians are adequately housed.⁸ Local governments are not mentioned in the Constitution. Instead, local governments have the powers and functions devolved to them by state governments. Except in the case of Brisbane, state governments shun the idea of metropolitan government and retain responsibility for metropolitan strategic planning. However, the roles and responsibilities of the states are circumscribed by their financial dependence on the federal government.

Successive federal governments have sought to ‘centralise control’, with this tendency exacerbated by ‘vertical fiscal imbalance’,⁹ such that the ‘states are for practical purposes unable to raise sufficient revenue to fund their spending responsibilities’ (Silver 2010, p. 326). Silver (2010, p. 330) notes that the tendency towards centralisation is especially apparent in respect of housing, transport, infrastructure and the liveability of the cities; health and education are the two other sectors she mentions. The imbalance is apparent in tax revenue: approximately 82% accrues to the federal government, 15% to states and 3% to local governments. Including state taxes and other own-source revenue, states raise approximately 55% of the revenue needed for their spending responsibilities (Henry Review 2010). This means that states are dependent on fiscal transfers from federal government. Fiscal transfers come in two forms, grants that the states may spend according to their own priorities and special-purpose payments with prescribed outputs. National Partnership Agreements reached at COAG represent special-purpose payments; NAHA and NRAS are examples where payments are made by the Treasury to, in the case of Victoria, the Department of Treasury and Finance. In effect, policies for various housing programs and their funding emanates from federal government.¹⁰

Continuing the search for policy direction, I looked for housing policy among federal government departments. In broad terms, the housing policy process is as follows. Federal and state government departments formulate policies that have a bearing on housing, most often in the form of National Partnership Agreements. The Agreements are subject to the provisions of the Intergovernmental Agreement on Federal Financial Relations that contains ‘the objectives, outcomes, outputs and performance indicators, and … the roles and responsibilities that will guide the Federal government and States in the delivery of services’ (COAG 2011). The deliberations are informed, in particular, by the Productivity Commission and by COAG’s Reform Council¹¹ whose agenda includes housing and the cities. However, policies that have important but indirect impacts on the performance of the housing system such as taxation policy, income support and labour market reform are not normally woven into debate around such partnerships.

In negotiation, the federal government plays a lead role in the policy process and is responsible for funding the large part of the ‘housing policy’. The state governments likewise play a role in the policy process and then are responsible for implementing the policy. Local governments are responsible for urban planning and building and development approval processes. The funds provided to state governments have specified policy outputs. It is up to the states to determine how policy is implemented. State Treasuries work out how best (economically efficient) funds can be used within the parameters of the policy outputs and allocate resources to individual departments. The reality is that, while there are housing and other policies and programs that have a bearing on housing, there is no coherent housing policy that concerns the sector, the needs of all low-income households and/or the contribution of housing to city-building.

In respect of federal departments, and putting aside NAHA and NRAS as the visible and limited dimensions of housing policy, the policy premise appears to be that market-led urban development will provide the ‘cities Australians want’ (Productivity Commission 2011, Vol. 1, p. xix, emphasis added). While personally supportive of market-led outcomes, the likelihood of realising intended outcomes critically depends on the structure of incentives and disincentives that shape private investment. This structure is critical and the present ‘hands-off’ approach to the role of the market in housing and city-building is problematic. For example, the Productivity Commission’s treatise ‘on the operations of the States and territories planning and zoning systems, particularly as they impact on business compliance costs, competition, the overall efficiency and effectiveness of the functioning of cities’ seeks to further deregulate planning.¹² Similarly, Infrastructure Australia is of the view that ‘Governments achieve better value for money because PPPs [public–private partnerships] help facilitate better, more optimal risk transfer, management synergies, increased innovation, more efficient asset utilisation and integrated whole-of-life asset management’ (Murphy 2010, p. 53). However, the comparative history of PPPs in urban service delivery urges caution, especially in respect of governance and accountability (Johnston and Gudergan 2007; Hodge and Greve 2009). Continuing in this vein, the Victorian government intends to ‘allow industry to do what industry does best – that is to build our communities and our cities’ (Govt of Victoria 2012). My adding the emphasis in italics reflects an element of disbelief, for surely the government is alert to the community-led suburban backlash (Lewis 1999) that arose from deregulated property development and helped to unseat the Kennett government in Victoria.

Summarising, the federal government is responsible for policy and finance, the states are responsible for policy and delivery, and local governments are responsible planning and development approval. Responsibility is a relative measure as the actual delivery of housing and the cities has largely been outsourced to the private sector. Governments are commonly portrayed as preventing the effective functioning of the market. In the case of local government this is due to slowing the development process and creating uncertainty, and in its vulnerability to communities organising to prevent social housing and increased densities. In the case of state government, this is due to not releasing enough greenfield land on the urban fringe. In both cases the competing demands of the property developers’ need for profits and the protection of liveability for local communities helps to explain the instability of strategic plans and the reluctance of government to put any actions of substance behind the rhetoric of strategic plans, for example, around urban consolidation (Ch. 8, this volume).

The intended cities

If housing policy is in disarray, what might we say of policies and funding for the cities? Here we run into a conundrum, for are not Australia’s cities the most liveable cities in the world? In 2011 the Economist Intelligence Unit (2011) ranked Melbourne the world’s most liveable city, with Sydney, Perth and Adelaide included in the world’s top 10 cities. This ranking, however, is not for the ordinary citizens of a city; it is primarily a guide for the international location of well-paid executives. If you can afford to live in them, Australia’s cities have a great deal going for them. In this light it would seem churlish to wonder whether all is well. Is it not customary for academics to be given to alarm? Yet the Department of Infrastructure and Transport worries that the rapid growth of the cities ‘has imposed challenges relating to patterns of growth, water supply, urban congestion, patterns of advantage and disadvantage, climate change and adaptation, and pressures on public finance’ (DIT 2011).

We go in search of metropolitan policy and planning for cities, again with the principle of subsidiarity in mind. We already know that local governments and their roles and responsibilities are determined by state governments and that, except to a limited degree in Brisbane, metropolitan planning by representatives elected by, and accountable to, residents is impossible. Instead, the states prepare strategic plans for an agglomeration of local governments within metropolitan regions, with varying degrees of public participation. Kelly (2010), of the Grattan Institute, demonstrated what is needed for effective strategic planning for metropolitan areas, emphasising who makes decisions and how they are made, and calling for active public engagement, the inclusion of business and civil society, bipartisan politics and consistency of strategic direction that extends beyond the next elections, and other characteristics. These characteristics are not suggested in the last of the nine criteria for Capital City Strategic Planning Systems prepared by the COAG Reform Council. Intended for implementation in 2012, the ninth criterion includes a call for, in effect, limited coordination and consultation:

9. provide effective implementation arrangements and supporting mechanisms, including: …

b. coordination between all three levels of government, with opportunities for Commonwealth and Local Government input …

d. appropriate consultation and engagement with external stakeholders, experts and the wider community (COAG 2011).

It is no wonder that strategic metropolitan plans prepared by the states serve to illustrate the disconnect between the intended Australian city and the cities Australia is building. All the states share the same objectives for the cities: ‘containment, consolidation and centres’ (Forster 2006, p. 173, emphasis in original).

In 20–30 years time, if the plans come to fruition, our major cities will be characterised by limited suburban expansion, a strong multi-nuclear structure, with high density housing around centres and transport corridors, and infill and densification throughout the current inner and middle suburbs. Residents will live closer to their work (p. 179).

In terms of broad vision (i.e. intent), the states are seeking to change both the form and structure of Australia’s cities, but the practice is not consistent with the intent. The 2011 State of Supply (National Housing Supply Council 2011) report, aggregating for all the cities, has it that new housing is almost evenly balanced between infill and new greenfield housing. However, the location of infill is not aligned with increased densities at nodes served by public transport or along public transport routes. Instead, in the case of Melbourne, ‘Without a credible policy to guide higher-density housing the result is amenity-damaging random development in existing areas, plus continued growth at the urban fringe’ Mees (2011, p. 6). Trends are not proceeding according to plan. Why might this be the case?

Regarding the location of housing, this has already been described in relation to the structure of incentives and disincentives for households and investors, large and small. In respect of infrastructure, while numerous infrastructure services are relevant to giving effect to strategic plans areas (e.g. water and sewerage capacity may constrain increasing density), transport infrastructure is especially relevant to urban structure and it is the focus here.

We proceed to the institutional and policy environment in the transport sector, focusing on decision-making processes, institutions and funding that affect the structure of the city; the location of business; the location, type and density of housing; and transport modes available to household members. The public frequently hears of a ‘whole-of-government’ approach to policy and investment and should anticipate that urban planners engaging in strategic planning and transport planners work closely together. This is not always the case, with the Western Australia Planning Commission in Perth an exception. Too often, it seems ‘bureaucratic silos remain intransigently present in the culture of Australian governance … One of the implications of this silo effect is that the rationalities for transport development based on land use restructuring, economic growth and urban regeneration observed in other countries are virtually unknown in Australia’ (Low and Sturup 2008, p. 3).

However, in the context of a Labor federal government this probably overstates matters, and certainly so for Victoria.¹³ The reason for mentioning a Labor federal government is that during the Howard years capital grants were only made available for roads; none for public transport. The state Departments of Transport and Planning and Community Development do seek to integrate strategic plans for metropolitan Melbourne. At the same time, it should be noted that within the Department of Transport VicRoads is a powerful agency responsible for the construction of freeways in the context of a strong roads lobby; the contracted franchisees that operate public transport do not have an equally influential public transport lobby for the augmentation of existing services. The key to understanding the significance of the link between transport and other features of strategic plans arises from funding sources.

State governments have limited appetite and capacity for borrowing for major capital projects. For major augmentations, they depend on capital grants from federal government or PPPs that finance, build and operate specific projects within state networks. The investment contributed by PPPs, while small compared to federal capital grants, is significant in respect of the augmentation of existing transport infrastructure. This is one route to funding. PPPs have been useful, particularly for road projects, when federal money has not been forthcoming and the state has not had the capacity to undertake the project. Federal grants for many years have been dominated by freeway projects but recently priorities have shifted. The first grant announced by the Rudd/Gillard government was a public transport rail project in Victoria, the Regional Rail Link. In effect, this was a symbolic statement of change.

Before turning to federal government to understand why it chooses to support some projects and not others, we have to understand what the dependence on federal government means for strategic planning. Essentially, can state government develop plans looking five, 10, 15 years and more into the future without having control of transport infrastructure funding decisions? There is strong competition among states for federal grants and state governments, uncertain of which capital projects will be prioritised, are prone to alter priorities according to federal priorities, as shown in Sydney’s recent changes to metro and rail link plans. States can go only so far in planning an integrated infrastructure investment program spread over a number of elections when the largest projects depend on federal government or private money rather than on their own resources. Yet these two additional funding streams have allowed the progress of projects that might not otherwise have been built.

Proceeding from state strategic plans to federal government roles and responsibilities, responsibility in respect of urban and infrastructure policy and planning, and projects recommended to COAG for Treasury funding, lies