Shifting the Australian housing dream

From the daily media cacophony comes a continuous discourse on housing unaffordability and what might be done about it.  The words – unaffordable, housing crisis, locked out, generation war and rental abuse are sprinkled throughout this discourse.

It is a strange world of contrasting trends; home ownership is declining, the rental market is extremely tight yet the number of empty and single occupant homes is rising.  It is a complicated and somewhat gloomy story.  We have now got to a point where home ownership is unattainable for more than half the population who have arrived at the age when home ownership is the usual expectation.  If we had equitable rental laws and regulations this would not be such a problem but we don’t: they are heavily weighted to the landlord.

The dream of owning a bungalow home in the suburbs is fading and it is likely that our best future lies in a more intense urban life. There is a vision now for such a life to be the norm and there is money being invested in that vision. Still, there are visions and then there is the achieving the visions.  Can we do it?

If we are to be successful in this, it is important that we understand how we did housing before so that is my starting point.  Then we need to understand what went wrong and there is much discussion and opinion on this.  Finally and crucially, we need to find the best way to make the transition to a different form of urban living.  Australia is, after all, predominantly, an urban society.

How did we manage housing before?

This is a story that is best told on a city be city basis.  I have chosen Melbourne, where I have lived for forty of the last fifty-seven years, as the place to tell this story.

Melbourne in the late 1940s had a population of just over one million.  It was a compact city with most homes being densely occupied terrace or row homes.  Cars were a rarity but the public transport system served the population well.  Yes, there were the grand Victorian buildings of the Central Business District (CBD) and the wealthy suburbs but for most, life was simple and for many, very basic in the Melbourne of the 1940s. Struggle Town: Public and Private Life in Richmond 1900-1965 by Dr. Janet McCalman gives a detailed account of working class Melbourne up until the era of gentrification.

As the 1940s became the 1950s and then the 1960s, Melbourne experienced a transformation.  The city grew rapidly and began to take on a new suburban form.  People had the confidence that comes with secure well paying jobs to move out of the crowded tenements.  As car ownership increased people chose to move into new homes in the ever-expanding new fringe suburbs.  At the same time, as people moved out of the old inner-suburbs, immigrants and students replaced them.  A home to your taste and budget was available to most.

Up until around 2000, the suburban fringe expansion seemed to be limitless with the suburbs extending in all directions and as far as fifty kilometres from the CBD.  The CBD also grew but as a commercial, business and entertainment centre for the whole of the metropolitan area.  The CBD and the surrounding older suburbs lost population.  So Melbourne became a city with two parts – an inner commercial core and the vast dormitory suburbia.

Since around 2000, the city form began to change again in response to the pressure of population increase.  By 2000, the population had increased to over 3.5 million and now, over only a quarter century later, it has gone past 5.5 million.  The major change in city form has been a slowing of fringe growth and an increase in medium to high density homes in the inner and middle rung suburbs.  However both types of home building are increasingly constrained.  The constraints include land availability, land assembly, housing industry concentration, NIMBY resistance and tighter controls on and slower approval of the development of properties.

It seems that the post-2000 urban transformation has not met our aspirations in a number of ways.  The dream of owning a bungalow home and garden in a reasonably accessible suburb has slipped away from many young people.  This is a somewhat traumatic realisation for Australians who have experienced some five decades (two plus generations) of this suburban bliss.  At the Sydney 2000 Olympics opening ceremony we celebrated the suburban dream with the Victa lawn mower and the Hills Hoist clothesline.

Interestingly, we celebrated at the very time the dream began to fade for future generations. There is an element of cultural crisis in this as we were, in 2000, becoming comfortable with being home-owning and living suburbanites.

The housing problem

In the post-2000 world we began to see in a more concrete form what was happening – the price of homes began to rise much more rapidly than average salary earnings.  In the past, even during the worst days of the 1970s to early 1990s of high inflation, growth in house prices had tracked pretty closely to average household income.  In other words in a homeowner world, demand matched supply.  There was nothing to worry about.  Post-2000 this all changed.

I have already mentioned the increasing constraints to building more homes on the urban fringe.  This was not the only problem.  Now the urban fringe is too far from anywhere of relevance for work or play. The problems of isolation and inadequate facilities were becoming manifest.  Furthermore the daily commute was becoming a significant source of stress.  The affordability of housing on the fringe was becoming far less a point of attraction to choosing life in the suburbs.  However, for many, particularly those with a family or intending to have one, it remained the only option.

There was also a cost issue at the public level.  The cost of infrastructure on the urban fringe is higher than elsewhere in the metropolitan area.   On the fringe everything is new – there is no utilisation of spare capacity. An estimate by the NSW Productivity Commission puts this infrastructure cost as up to $750,000 more than in established suburbs.

The other cost of significance is the skyrocketing of house prices in established suburbs. In the language of housing affordability (ratio of house price to salary), the average price paid for a home was for decades in the order of three to four times average annual salary.  After 2000, this ratio rose rapidly and is now in the order of eight to nine – a more than doubling.  Alan Kohler’s 2023 essay, The Great Divide, Australia’s housing mess and how to fix it, published in Quarterly Essay Issue 92, offers a good account of what has happened.

There are many factors contributing to the ever-increasing unaffordability of residential property.   However, two federal government tax policy inducements – negative gearing and capital gains discounts were the catalysts that allowed investment in housing to become a national “sport”.

The net effect of all this is the Claytons choice for a prospective first homebuyer – abandon the idea of home ownership or somehow sign up for a lifetime plus of mortgage repayments. The Australian residential property market is now the second most expensive (after Switzerland) in the world.  The historian Judith Brett in her response to the Kohler essay sees this denial of home ownership as threatening the ethos of the nation:

“The current panic over housing affordability which threatens to price many young people out of ever owning a home is not just a panic about individual life options but about the sort of society Australia is becoming, about the weakening of social cohesion as inequality increases and we lose our sense of shared fate.”

The worst aspect of this inequality is that it pitches the old against the young.

Solving housing affordability

Housing affordability can be addressed via demand curtailment and increasing the supply of houses. Many also consider there must be demand-side reform to remove tax discounts, stamp duty impediments to selling, grants and to curtail immigration. However the political leadership are reluctant to do anything to curtail the demand or facilitate the freeing up of under-utilised property.

Hence governments are increasingly seeking ways to increase housing supply.  However building houses on the urban fringe as in the past is increasingly seen as undesirable.  Hence for Melbourne, the Victorian government has decided to pursue an urban renewal solution.  This is set out in Plan Melbourne 2017-2050.  The central idea of Plan Melbourne is a transformation of the Melbourne of a single dominant commercial and business centre and the vast suburbia into a “city of centres”.  Since 2017, the concept of “activity centres” has evolved and now some 60 activity centres have been identified and detailing planning is proceeding for a first trial of ten activity centres.

By 2050, the population of Melbourne is projected to be around 8.5 million.  This means adding an additional three million people primarily within the existing urban area.  It is understood that fringe growth will continue but will be restrained to provide housing for only one third of the projected increase of these new citizens of Melbourne.   For the other two million, the 60 activity centres might house around 750,000 people, assuming an average of 2.5 people per home. thus leaving around 1.25 million people to be housed elsewhere within the existing metropolitan area.

There are two descriptors, which are central to the transformation of Melbourne into a city of centres.  These are connection and liveability.  For the former, the Victorian government is investing hundreds of billions of dollars in a major upgrading of the road, rail and tram system to provide the rapid movement mainly via public transport for the new more densely populated metropolis.  Of course there is considerable debate about the efficacy of this financial commitment to public transport but that is another story.

On the second descriptor – liveability – the aim, as I judge it, is to have a form of medium to higher density living that will be seen as an attractive replacement to our lingering longing for the bungalow and garden.  This needs a closer look.

From the bungalow to the loft

Plan Melbourne 2017-2050 highlights the need to have activity centres that are liveable. What does this liveability mean?  Firstly It means good transport access and this is being provided by the upgraded public transport system.

With regard to the immediate neighbourhood, Plan Melbourne 2017-2050 introduces the concept of “20-minute neighbourhoods” where a person is within walking distance of most of what they need.  Other liveability requirements are specified as “walkable streets, cool and comfortable streets, well designed buildings and streets, energy efficient buildings, sports and recreational facilities, nature, parks and open spaces and places to play, meet and gather”.

In summary the aim is that the activity centres be “inclusive, vibrant and healthy neighbourhoods”.  Achieving this liveability is crucial of the activity centres are to attract first homebuyers who might otherwise choose a bungalow on the urban fringe.  However, achieving liveability will be challenging and most unlikely if the Victorian government doesn’t change its approach.

The current intention is for the redevelopment of the activity centres to be managed only in terms of building height limits and the building codes.  It will be left to developers to identify sites and build according to the set regulations.  This approach is profoundly problematic in a number of ways.  The central problem is that much of the landholding in the activity centres is in the form of relatively small suburban lots.  This is how Patrick Fensham, the President of the Victorian Division of the Planning Institute of Victoria sees the challenge of renewal in this context, per his Future reforms need to focus on supporting housing delivery in Victoria, Sourceable, September 1, 2025.

“The preferred locations for renewal need sites and precincts for development at scale.  The long and narrow lots of land which characterise the suburbs developed over the last 100 years aren’t a great platform for transformational urban renewal.  If developed one by one at best, we might average 3 or 4 for each single dwelling removed.  And we can picture the built form that results.  Our suburbs are already dotted with two large garage dominated dwellings which have replaced a single-family house which had front and back gardens; or three or four town-houses jammed along the length of the block, driveway down the side.  The loss of space and vegetation is profound.

We need a targeted program of land assembly to create larger development sites which can accommodate a mixture of different housing types of different heights supported by the new private and public spaces necessary for quality living environments.  Development Victoria is the government’s development arm.  It hasn’t been called into action in the service of the housing agenda.  It should be tasked with identifying sites and opportunities in partnership with local councils, in the preferred development locations, and negotiating site purchases (including compulsory purchases if necessary) to create larger development sites with high quality plans.”

This key task of land assembly is also a problem with regard to the remaining 1.25 million who will need to find a suitable home elsewhere in the existing urban area.  To date much of the medium density redevelopment or renewal that has been occurring is also questionable when considered against the liveability criteria. Nicolas Reece, in his response to the Kohler essay “The Great Divide” published in Issue 93 of the Quarterly Essay in 2024, highlighted this issue with regard to redevelopment on single suburban lots:

“Converting many low-density suburbs to moderate medium-density is hard.  Currently we are seeing scores of large single suburban blocks being converted into rows of units with a gun-barrel driveway.  Robin Boyd would be turning in his grave at this latest addition to the Australia Ugliness.  From a design perspective, the outcome is hideous.  Land assembly can help overcome this problem by aggregating multiple blocks, which can then be master planned and developed to deliver high-quality, well-designed medium density housing.”

Both of these urban planning and built form experts highlight a need for land assembly to ensure the liveability of the various forms of urban renewal.  In turn, liveability is crucial for the acceptance by future first homebuyers (and future families) of the renewal approach to housing supply.

It might also be argued that without a high degree of liveability the planned renewal will not arrest the decay that is occurring in many established suburbs.  This decay is in the form of boarded up homes, vacant homes, homes in need of repair and neglected gardens.  Some middle ring suburbs are experiencing population decline because of the difficulty of getting approval for redevelopment proposals.

High density suburbs

The suburban dream as it was once, is in the process of becoming a nightmare.  It is no longer affordable for a young family or indeed most families. Amongst we ordinary folk the debate seems muted.  However there is a growing awareness and support for change but equally there are plenty who want things to stay the same.  Ironically they are united in pursuit of a something reasonable – a liveable environment.

All three tiers of Australian government are now beginning to sharpen their pencils and are moving forward to plan for massive redevelopment of suburban Australia.  They see this as the main means for ensuring future families can afford to live within the cities and have reasonable access to all the opportunities that the cities offer.  The housing affordability crisis is actually an urban social crisis.

The Federal Government has recently agreed with the States on a National Housing Accord.  This accord provides for the Federal Government to give the States $3.5 billion to aid “an aspirational target” for the building of 1.2 million “well-located” homes over five years.  Within this funding, there is a specific allocation for social and affordable housing.  Other parties to the Accord are the Local Government Association, superannuation funds, other institutional investors and peak bodies with a major interest in home building.

For Melbourne, the Victorian government is ramping up its efforts to convert planning strategies into reality.  Indeed, there is plenty of good will although at a funding level, the position of Local Government appears the weakest.

This national commitment is valuable and when included with what the various states are doing represents an admirable intent.  However, do the powers-that-be fully understand that the transformations of a city like Melbourne require much more than dollars, the setting of building heights and adherence to building codes.

What is missing in the intent of government is a commitment to be active in the redevelopment of the activity centres.  Without government directing the detailed planning and redevelopment including required land assembly an acceptable degree of liveability will not be achieved and it will take too long to carry out.

Land assembly will be crucial to the satisfactory conversion of the existing and often crumbling mosaic of old suburban commercial centres into suitable residential precincts.  In the words of Plan Melbourne, the activity centres will not be inclusive, vibrant and healthy neighbourhoods.

Why is the Victorian choosing to take this “hands off” mechanism for carrying out the redevelopment?  Two factors may be involved – one financial and one cultural.

The Victorian government is presently heavily in debt because of the need to deliver the Big Build transport transformation.  Housing issues are a lower profile in terms of current financial commitments.

At the cultural level, our past tradition of home building was largely laissez-faire. The Australian way of leaving it to the developer must change.  For this massive renewal, Government must direct, guide and be part of it like no time before.

Patrick Fensham sees the government role just beginning:

“The government has reached base camp in the planning reform journey since the release of the Housing Statement.  To get any further toward the housing supply summit the infrastructure value capture and land assembly delivery levers need to be activated with a degree of urgency.”

As someone who was a student in the late 1960s, I sometimes wonder at the placidness and acceptance of the young of the hand they have been dealt.  At the coffee shop in North Fitzroy across the road from where I write this, everyone is polite and the conversation remains banal.  Then, as I am finishing this essay, one of my own sends me a report of a fiery council meeting in Inner West Sydney where the battle lines are being drawn between YIMBY – representing the disenfranchised young and NIMBY – representing the entitled of existing suburbia.  I am pleased to hear of this awakening of anger.  How this battle plays out will be crucial to the future form Australia’s big cities.