More Australian social housing is the obvious answer to more than one question
The latest building activity data highlights that the construction sector was falling well before the coronavirus hit and that the government is failing to respond as occurred during the GFC, when massive stimulus both sustained employment and also provided much needed social housing.
No one should be surprised that the latest building activity figures show that both work done and buildings commenced have all fallen in June quarter.
The 6% annual fall in private sector building work was never going to be enough, in this year of massive economic collapse, to cause any shock: Graph not appearing? View here And yet these figures are unsurprising not only because we are in the middle of a recession but because private sector building work has been falling for so long now that we now just expect these figures.
This was the fifth quarter in a row in which total private sector building work was below what it had been 12 months earlier, and the sixth consecutive case for residential building work.
That is a time that goes back long before the pandemic.
Since 1980 there have only been five times when building activity in each state and territory was below what it had been the year previous – the 1980s and 1990 recession, after the introduction of the GST, in 2011 when the RBA began cutting rates from 4.75%, and in December last year.
Graph not appearing? View here So we cannot say the collapse of building work has taken us by surprise, nor can we say it is due to the pandemic.
The big issue has been the fall in residential building work – and especially apartments and flats:
Graph not appearing? View here
The fall began in early 2018, and was observed across the board. In every state and territory the fall in construction of apartments from the 2018 peaks has been much greater than the fall in housing construction:
Graph not appearing? View here Western Australia has had the biggest collapse, but its fall began in 2015, when the mining boom came to an abrupt end.
In New South Wales, Victoria and Queensland, what has occurred is more the end of the housing boom that began back in 2011 when the Reserve Bank started cutting rates. That boom drove house prices but not so much house construction. The big boom was apartment building.
And it came to an end in 2018:
Graph not appearing? View here And so we found ourselves entering a recession with building construction already falling – not a good state of affairs.
And of course we also entered the recession with interest rates already at record lows and with little space left to cut them.
During the GFC the RBA cut rates by 3.25% pts in the space of eight months. In response to the slow recovery after the GFC, the RBA cut rates by 2.25% pts over 18 months.
At the start of this year the cash rate was already 0.75%. With the rate now at 0.25% there is little else to cut to encourage people and developers to build homes and apartments.
But the private sector is not the only sector that can build residences.
During the GFC, the Rudd government undertook a social housing initiative under its “Nation Building Economic Stimulus Plan”.
This involved spending $5.6bn on building social housing in 2010 and 2011.
A look at the share of residential building done by the public sector over the past 50 years reveals how significant the expenditure was – lifting the public share of residential building work from 2.4% to 10%:
Graph not appearing? View here A report on the program by KPMG found that the work generated an extra $0.30 of activity for every dollar spent, created approximately 9,000 fulltime equivalent (FTE) positions during the period of stimulus, and added approximately 0.1% of Australian GDP in 2011-12.
And just in case you think it is all about economics, the report also found that the work “injected 19,669 dwellings into the social housing system” and “almost 12,000 dwellings” were able to be returned to the social housing stock “through the repairs and maintenance program.”
It exceeded its production targets by 13% and the average costs of the buildings were below the “target of $300,000 per dwelling”.
It was a GFC stimulus success story (and so is barely referred to among the ongoing plethora of misinformation about fires from pink batts).
It was both good economic and social policy.
But the KPMG report had a crucial conclusion. “The future effectiveness of homelessness programs” it noted, “could be limited in the absence of further increases in housing stock.”
Since this time the share of public sector housing construction has continued fall to below 2%.
At a time of falling private sector building work, a need for economic stimulus, and a sector crying out for help, social-housing stimulus is very much needed.
And the government doesn’t even need to think for itself – there is already a successful policy it can copy.