Speech by The Hon Brendan O’Connor MP

D.R. Dosseter Address – Housing Industry Association President’s Dinner, Hilton Hotel, Cairns

Location: Ballroom, Hilton Hotel, Cairns


Thank you for inviting me to the Housing Industry Association’s President’s Dinner. I’m very pleased to be able to deliver this year’s D.R. Dosseter Address, and to meet and speak directly with you as an industry early on in my relatively new role as Minister for Housing, Homelessness and Small Business.

I think all of you here would understand the synergies that exist between the different aspects of my portfolio responsibilities.

This evening I want to focus on housing supply issues, but I also want to recognise that many of you will have a particular interest in the issues affecting the small businesses which make up a key element of the housing industry itself.

In delivering tonight’s Address, I am continuing what has become a bit of a tradition for Labor.  Since 2008, the former Prime Minister Kevin Rudd and former Ministers Tanya Plibersek and Tony Burke have each delivered this lecture. And this is testament to the importance that we as a government place on you as an industry.

Together, we share a vision for Australia’s future – we want all Australians to have a place to call home.

Indeed, there is little that is more important for Australians and their families than having a roof over their head.

And at the outset I want to acknowledge that without you, this is a goal that government could not achieve. We can only achieve our goal of access to safe, secure and affordable homes for all Australians if there is a thriving industry to build them.

Backdrop As my predecessor Tanya Plibersek said to you all in 2010: “We want a housing market where an ordinary person who works hard and saves hard can afford a reasonable home of their own.”

All of us in this room know how important the housing sector is to our economy.  But we know that residential approvals and finance for new houses and apartments are currently weak. We know that over the last decade, private sector rents have risen by 81 per cent, according to REIA data – slightly less than house prices, which are up 87 per cent according to RP-Data.

And we expect that housing investment will contract by around 1 per cent in 2011-12 and remain soft in 2012-13. This weakness follows relatively strong conditions in the housing market in 2010, with housing investment growing by 4 per cent and Australian property prices rising strongly by 12 per cent.

Budget I am proud of the Budget that we handed down last week. This was an important Budget.

It is clear that working Australians are worried about the cost of living. Electricity, rents, school uniforms, groceries. This Budget is all about spreading the benefits of the mining boom across the economy, because while our economy has strong fundamentals, we know that not everyone feels the benefits of this boom.

So this Budget is about delivering much needed new financial relief to families and businesses under pressure.

We are returning the Budget to surplus to provide a buffer in uncertain global times and give the Reserve Bank room to cut interest rates further if it needs to – as it did earlier this month in a very welcome move.

The official cash rate is now lower than at any time under the previous Government, and a family on a $300,000 mortgage is now paying around $3,400 a year less in repayments.

We’ve achieved a surplus despite global uncertainty ripping around $150 billion from government revenues.

Our economy is envied by the world. We have solid growth, one of the lowest rates of unemployment in the developed world, contained inflation and an unprecedented pipeline of investment gearing up.

But even with a strong economy, we know that we are not building enough houses – particularly in our bigger cities.

Housing supply In fact, the National Housing Supply Council has estimated that underlying housing demand had outstripped growth in housing supply by 187,000 homes in the nine years through to June 2010.  It is important to understand that this gap does not mean 187,000 households are out on the street. It is a theoretical concept.

The Council has come to a view that the widening housing gap is effectively a decline in satisfactory levels of housing.  This is not a new phenomenon. A gap has probably always been with us – and in fact may always be with us – as the housing we aspire to falls short of what we actually have.

But the concept of a housing gap is useful because it reflects real constraints that have real consequences, such as exclusion from home ownership and increasing pressure in the private rental market.  The Council has identified a number of consequences likely to flow from this, which have varying social or economic impacts.  For example:

  • New households may not form at the expected rate.  Adult children may live at home longer, and parents may move in with their adult children.
  • We may see bigger households and overcrowding amongst some groups, such as students.

The question is – why is the market not providing enough homes? And there is no simple answer.  But it is clear that there are both cyclical and structural impediments at play.

Many of the structural barriers to building new homes come from the planning system and local hostility to new developments.  There is community opposition to building new homes and increasing dwelling density in areas of high demand.  But while this may be understandable, it means development is forced further towards the urban fringe or prevented from happening at all.

We hear daily about the problems this creates in our capital cities – such as nightmarish two-hour commutes to get to and from work.

There are also challenges around how to deliver and fund infrastructure to support new homes.

This infrastructure can significantly increase the cost of producing new dwellings, either making these homes more expensive to buy, or making them commercially unviable.

One possible consequence is that developers may choose to build homes for the higher end of the market, because the costs faced in producing more affordable homes makes this financially unviable.

There is also a cyclical element that is slowing the delivery of new housing supply at the moment.  Much of this is an echo of the global financial crisis.

As many of you will know first-hand, housing developers are facing higher borrowing costs than in the past, and this is a factor in slowing construction commencements.  And fragile short-term consumer demand, partly from nervousness from seeing falls in overseas housing markets and wariness over taking on additional debt, is making it more difficult to sell new homes.

Current policy initiatives Since we came to office in 2007, this Labor Government has put a range of policies in place to begin to tackle housing supply and affordability.  We made housing a priority at the federal level – for the first time in over a decade. And we have made unprecedented investments in housing supply and affordability – to the tune of more than $20 billion dollars. Much of this is still in the pipeline.

And now having a Housing Minister at the Cabinet table reinforces our commitment.

I won’t go into detail about the various initiatives we have put in place – most of you would be aware of them.  But for example there is the $4.5 billion National Rental Affordability Scheme, the more than $400 million Housing Affordability Fund and the $100 million Building Better Regional Cities program.  And there’s the stimulus investment we made during the global financial crisis including the $5.6 billion Social Housing Initiative and the $2.2 billion First Home Owners Boost.

Of course these have all been important programs, but none of them are the silver bullet – they will not be able to overcome all the housing supply issues on their own.

Addressing the problem There are no easy answers on tackling the housing supply issue.   Many of the levers controlling the planning system are held at state, territory or local authority level.  But that’s not to say that the Australian Government does not have an important role as well.

We have been working with the States and Territories on examining measures that could improve the planning process and bring more homes to market.  In 2009, COAG formed a working group to conduct a review of issues around housing supply and affordability.

The final report has yet to be released.  However, I can say that work has focussed on a number of key issues that will no doubt have the support of many of you here.  These include:

• helping ensure more efficient use of existing land and housing stock;

• decreasing the time and expense of bringing new dwellings to market by increasing developers’ certainty and reducing their holding costs, for example by overcoming delays in development approval processes;

• reducing unnecessary costs and charges for developers and home owners; and

• reforming policies that impede supply or that artificially stimulate demand.

This report has been a long time coming. So I encourage the States and Territories to sign up to it as quickly as possible so that we can get it released in the very near future, and jurisdictions can begin implementing any recommendations.

The potential benefits from reforms in this space cannot be overstated.  For example, the Productivity Commission noted in its report on the Impacts of COAG Reforms released earlier this week that full implementation of the development assessment reforms under COAG’s Seamless National Economy agenda would provide an ongoing cost saving to business of around $350 million per year.

Of course governments are just one of the stakeholders here. It will be critical to tackle communities’ underlying objections to new housing.

Many people understand the pressures faced by younger generations in getting a foothold on the housing ladder, and appreciate that more homes are needed.   However, some communities, often in the most desirable suburbs, will object to new blocks of apartments in their own area.

But new homes need to be built somewhere, and the areas in greatest demand tend to be well established and well serviced by existing infrastructure. It is vitally important that we recognise the importance of both existing and aspiring residents if we are to keep our cities growing and retaining the dynamism that comes from a mixture of age groups and socio-economic backgrounds.

Tackling this must involve early engagement with communities. There must be a discussion with communities about the pros and cons of maintaining the existing form of their suburbs and trying to get in principle agreement on plans for the future shape of those suburbs.

Local residents will need to be brought on board.  Residents will need to be convinced that they will benefit from better transport links and local amenities in return for higher density developments.

We also need to make better use of the existing housing stock. At present, the system works against those who may wish to downsize, such as empty nesters.  They face high transaction costs, particularly stamp duty, if they sell their family homes and move to smaller accommodation.

There is now a considerable body of work that argues in favour of replacing stamp duties with a wider reaching land tax to remove some of the friction in the market.

COAG These are some of the issues that will need to be addressed. And we will need a wide range of interlinked processes to take us forward.  All governments must work together and give housing a higher priority.

A key, and largely unreported development, occurred at the COAG discussion in Canberra last month. A new Select Council for Housing and Homelessness was established, giving these issues the priority that is needed in a stand-alone COAG Council that I will Chair.

This will be an important forum that brings social housing issues together with housing supply in recognition of their inherent links.  It will drive through changes that can complement and build on these two policy areas that have not had strong linkages in the past.

Another key development is the extension of the Standing Council on Transport and Infrastructure. This Council has now been given responsibility for development assessment reform. This will complement the work it is already doing on public infrastructure and strategic city planning.  This will result in better and more cohesive outcomes.

Perhaps most importantly in terms of housing issues at last month’s COAG meeting, the States and Territories acknowledged the need to ensure their development assessment processes operate efficiently and do not create unnecessary delays for development proposals.

Premiers and Chief Ministers agreed to consider adopting ambitious targets to improve development assessment processes for discussion at the next Business Advisory Forum.

This process has the strong support of the business sector.  The Business Advisory Forum is scheduled to meet in the second half of this year and I look forward – as I’m sure you do as well – to this being a catalyst for genuine development assessment reform.

Conclusion In closing, I would like to thank you again for the honour of delivering tonight’s address in recognition of Randall Dosseter.

Through Randall’s significant contributions to your industry and the HIA, he did much to promote the dream of home ownership in our country – something that has over time become central to our national character. If this dream is to be a reality for Australians and their families we have some work to do.

So my message to you this evening is that there is a strong agenda on housing reform.  While many of the issues are not new, there is – I think – a more genuine recognition that we cannot ignore housing supply as a significant issue facing our nation.

Certainly there is a momentum building and there are great opportunities in this period ahead to make a difference.

This Government understands the issues you are facing as an industry and the importance you are to our goal of tackling housing supply issues into the future. It is my intention to drive reforms that will see real change for the long term, and I look forward to working with all of you to see that happen.

Thank you.