Offering developers cheap debt but limiting their profitability, as well as exempting home owners from property tax for a number of years, are two ways cities can make affordable housing a reality, according to recent World Economic Forum research.
The forum’s new housing report, Making Affordable Housing a Reality in Cities, showcased Vienna in Austria, where supply of affordable housing rose when developers were given debt at 1 per cent interest rate but were not allowed to make large profits.
Lombardy in Italy developed its own ethical real estate fund to support rental homes at discounted prices, expanding the supply of affordable homes.
New York recently exempted multi-family rental homes in certain areas
from property taxes for up to 35 years.
These funding solutions are only some of the many critical supply-side tools that can be used, the report says. Other supply-side tools are more innovative land acquisition strategies, more flexible land zoning, and creative design of housing using materials that bring construction costs down.
On the demand side, the report says housing can become more affordable if different types of tenures of rental and home ownership are made available.
To that end, cities and countries must interrogate the meaning of “affordability” to provide the best mix of homes, the report says.
The meaning of affordability
“It is not only about being able to afford to buy or rent a house, but also
being able to afford to live in it,” the report said.
“This goes beyond meeting expenses related to operations and maintenance. It also involves considerations of transport, infrastructure and services.
“If a house is cheap enough to buy and run, but located far from livelihood opportunities or amenities such as schools, it cannot be said to be affordable.”
Sydney epitomises this problem. It has plenty of greenfield housing land far from job centres, which is not connected by good infrastructure, although the city is stepping towards better public transport, with the Sydney metro rail opening.
To increase the supply of housing amid a recovering market, the Urban Development Institute of Australia (UDIA) NSW has called for a Housing Recovery Plan, which includes a 12-month stamp duty concession for new owners, re-capping infrastructure contributions to encourage developers to restart, and the removal of foreign investor surcharges to encourage foreign investment, which can lead to more supply for locals.
“The key issue currently facing the development industry and housing affordability in the medium term is achieving pre-sales to unlock project finance and commence new housing projects,” UDIA NSW chief executive Steve Mann said.
The World Economic Forum also gives the example of Chongqing and Chengdu in China, where innovative land acquisition strategies have been used. The two cities are trialling “tradeable land quotas”, which permits developers to construct housing in a city in return for opening more land for development beyond city boundaries.
Sydney’s Communities Plus Program also got a mention. These “public-private partnerships” combine private sector and community housing funding and expertise with government contribution, such as land.
In Los Angeles, new laws allow motels to be converted into “permanent supportive housing” for the homeless, regardless of zoning.
Tenures matter, which is why Bristol in the UK is building 161 homes on a former primary school site with six different types of tenure.
The ownership model within the Barnett Model Development in North Melbourne is creating home ownership by offering homes through a “deferred second mortgage” model that reduces the deposit and repayments, the report adds.
Source: Financial Review