Dominic Behrens: Against ‘Affordable’ Housing

It’s not the same as social housing, and it doesn’t help those most in need. Australia is spending big on ‘affordable’ housing—but we shouldn’t.

In “Against ‘Affordable’ Housing”, Dom Behrens and Ethan Gilbert argue the reality that ‘affordable’ housing is deeply, intrinsically flawed. 

It is a wasteful use of public funds that redirects government support away from the people who need it most. It provides those who do benefit with help they don’t particularly value, and the criteria and rules set up to administer it result in bizarre outcomes. Most importantly, the policy is wholly ineffective at delivering the outcome Australians actually want: not ‘affordable’ housing, but inexpensive housing. 

Economist and Sydney YIMBY Secretary Dominic Behrens co-authored “Against ‘Affordable’ Housing” with Ethan Gilbert, and is our guest on today’s show.

Hosted by Jonathan O’Brien, Editor-in-Chief of Inflection Points.

Read the article: inflectionpoints.work/articles/against-affordable-housing

Transcript

SPEAKER_00 0:09

In November of last year, residents of a brand new tower on Sydney Harbor discovered something strange about their building. The pool was off limits. The gym, the spa, the sauna also off limits. So was the main entrance. To get into their own homes, they had to walk in the back of the building using a separate door. These were not squatters, these were people paying $1,500 a week in rent for the privilege of this arrangement. The story made national news. The Greens called it dystopian. The Herald called it apartment apartheid. The Guardian christened it poor doors. The outrage focused, understandably, on the spectacle of segregation in 2025 Sydney. But the strangest thing about the building is not the door. It's that to deliver this product, segregated rentals at $1,500 a week to people on six-figure incomes. Australian taxpayers are picking up an implicit subsidy of around $20,000 a year per unit for 20 years. All this money for an apartment whose tenant still pays nearly the median Australian salary just in rent. Welcome to affordable housing. I'm Jonathan O'Brand, editor-in-chief at Inflection Points, and welcome to the Inflection Points Podcast. Before we begin, a couple disclosures. In addition to my work here at Inflection Points, I'm also the lead organizer of Yimbi Melbourne. And the essay today is co-authored by Ethan Gilbert, Yimbi Melbourne's deputy lead organizer. Our guest today is the other author, Dom Barens, an economist writing in his personal capacity, and also the co-founder and secretary of Sydney Yimbi. Dom and Ethan are the co-authors of this new Inflection Points essay titled Against Quote Unquote Affordable Housing. It is, to our knowledge, the first proper economic and policy analysis of Australia's booming affordable housing product that has come out of nowhere and started to bloom for better and for worse. And as we'll discuss today, mostly for worse. Discussing with me is co-author Dom Barens. Dom, welcome to the show. Thank you, Jonah. It's great to be here. You're an economist, uh, but you're also sort of moved into housing advocacy. Take us briefly uh through what brought you into Sydney Yimby, how you got involved, how you got on the ground, and what that trigger event was.

SPEAKER_01 2:15

I first got involved in housing when I moved to Sydney. I I grew up in Canberra, very suburban area, very low density, you drive everywhere. And it was it was great. But I moved to Sydney and I all of a sudden realized that there were people around. You don't see people in public in that way in Canberra. There were buildings from sort of 250 years of of modern history, uh buses that came more than once every half an hour. You could walk places. It was um I was basically just discovering sort of the great vibrancy of of urban life in a in a big city. And this really got me got me thinking about the importance of cities and and how much they impact the lives of people who live there. Uh at the same time, I was seeing firsthand how ludicrously unaffordable Sydney's housing was. I was looking for a sharehouse near UNSW. We had we had friends who went to look at an apartment that was advertised as a three-bedroom unit. They rock up, it was a two-bedroom unit, and they said to the estate agent, like, what's going on? And they said, Oh, just fine, just whack a divider down the middle and that's your third bedroom. We had the roof of our sharehouse bathroom collapse and not get fixed for months at a time. I've personally had, you know, $200 a week rent increases put on me. And so at the same time as I was realizing how wonderful and great big cities can be, I was realizing how many people could get priced out of them and all the negative impacts that uh our housing policy settings were having. And so I'd sort of had started talking about this uh a bit online with some people. And then in sort of early 2024.

SPEAKER_00 4:00

2023, actually.

SPEAKER_01 4:01

2023, yeah, 2023.

SPEAKER_00 4:03

Yeah, troubling troubling it was that long ago.

SPEAKER_01 4:05

Yeah, we're getting we're getting old. There was uh a meeting in in the inner west of Sydney where a few friends of mine turned out uh to try and speak in favor of a housing development that was quite controversial. And at this meeting, the local MP was there, all the local residents' associations were there, and one of my friends sort of stood up to speak and said, I'm in favor of this development, and had the mic physically ripped off him and shoved off the stage. Um I think at that point we realized that we needed to do something about this. We needed to start making the case for more homes and cheaper housing. And so we we met at the Royal Like Heart, about 10 of us, most of whom are still involved in the organization now. Uh, and we've gone from there. Um we've it's been an amazing journey learning about how you can actually try and influence policy making the case. And I'm I'm really, really proud of where we've got to so far.

SPEAKER_00 5:01

Yeah, you guys have done great work. I think the shoving story is is so interesting to me as like a compartmentalization of how Sydney Yimby and Sydney housing fights are like so different from Melbourne. We've never had anything remotely close to that even cross our minds as something that could happen. What is it about Sydney that seems to have like raised the stakes or you know, the shamelessness of the kind of anti-housing?

SPEAKER_01 5:32

I think there's just they they've had their way for so long, and they've never really had any pushback. There's pockets of Sydney where there literally haven't been any houses built in 50 years. Places like Haberfield, a lot of the eastern suburbs, these have been just completely locked in amber. And because they've been completely locked in amber, the people who live there have gotten really used to it being locked in amber and have also become incredibly wealthy as a result of that. And I think just because the housing crisis is so severe here, and because our planning systems have been so damaging and so much worse than I think other parts of the country, it's just sort of raised the stakes uh and pushed sort of everyone to the most extreme version of themselves. Um I do think as well Sydney is a very it's a unique place. People feel incredibly strongly about Sydney. I I absolutely love it here. And I the way that I manifest my love for Sydney is trying to help more people to move here. But I think there's a lot of people who feel that same real powerful emotional connection to this place, and their reaction is to try and sort of draw the walls up and pull the ladder up behind them. And because it is such a great place to live, I do think people sort of go to the extremes in both of those directions.

SPEAKER_00 6:54

There is there is an element, um, I think for Melbourne of it not having the astounding natural beauty that you know Sydney does, which which means that like there is an element of Melbourne that is very comfortable, or not very comfortable, but more comfortable with the idea that we need to build things that are that are beautiful in order to in order to uh become the cultural capital and and and you know fight with you guys um in order to uh you know be Australia's now fastest growing city. I believe we're faster growing than you. Um and uh, you know, hopefully that continues and uh we convince you to move down. But for now, um let's get into affordable housing itself. I think the most important thing to do to start is to get our definition straight. So affordable housing, it's not the same as social housing. That is so important. Why is that distinction so important to get right before we start?

SPEAKER_01 7:53

It's really important to nail down this definitional issue for for two main reasons. Uh, I think the first reason is that the politicians often would like you to think that they are the same thing and they like to conflate it. You know, you you will so often hear politicians talking about we need social and affordable housing, or we need uh we're sort of linking these two things as if they're one and the same and they're the same concept. But they're really not. And the reason why it's so important that we don't let the politicians get away with that conflation is that they are targeted at very different groups of people, very different groups of people live in them, and they're sort of provided in a very different way. Um, so probably first of all, it might be good just to define exactly what social housing is, which is it's government uh subsidized housing. Uh so public housing is run by the government, owned by the government, and it's leased out to people at uh a share of their income, but usually about 30%, to people on very low incomes. And so the eligibility criteria for public housing, if you're able to if you're eligible to live in one of these units, you're you're truly vulnerable and you're on a very low income and you would really struggle to afford any housing at all without this support. Ummunity housing is a similar sort of thing to public housing, but it's operated by a community housing provider, which is a non-profit that owns and manages these units, finds tenants, does the maintenance, uh, rather than the government itself. And so together you hear public and community housing referred to as social housing. Uh social housing's really good, it's really important, it's an important part of our social safety net. And for a lot of people, it's it's uh the only way that they're going to be able to afford to live in our cities. Affordable housing is not that. Affordable housing is still subsidized housing, but it's explicitly targeted at moderate uh income earners, so people who often have uh much higher incomes and wouldn't be eligible for for social or public housing.

SPEAKER_00 9:52

Right. So affordable housing, it's not social housing. Then what is it? How can it actually be defined? Is it different across states? Um talk us through what affordable housing is.

SPEAKER_01 10:05

Well, so this is the first thing that in in researching this piece really stuck out to me is no one can actually give you a definition for what is and isn't affordable housing. The National Housing Supply and Affordability Council last year in their state of the housing report, they spent a whole chapter trying to define affordable housing and running through all of the various affordable housing programs around the country, and that they couldn't even come up with a sort of a single pithy definition. Um, this is because there's a just complete accumulation of affordable housing programs run by state governments, run by local governments, run by federal governments, and none of these are coordinated. They all have different eligibility criteria, and no one actually tracks or or measures this stuff. So, somewhat remarkably, given the amount of energy and discourse and money that is going into this sector, no one can actually tell you how many affordable housing units there are in this country. To give you a few examples of some of the uh schemes that are out there, there's a scheme in New South Wales uh which uh is requires rent units to be rented out at 20% below market rates. And so you can imagine in very expensive areas of Sydney, these units are still incredibly expensive, as we'll we'll get to later. Uh there's a program in Victoria where it's only a 10% discount to market rates. There are other programs around the country where it might be tied to a tenant's income. There's often income limits, and so you have to earn below a certain threshold. Sometimes there's income minimums, and so you have to earn above a certain threshold. These schemes all, I think, are well-intentioned, and they all are people trying to help people. Uh, but because of they've all been sprung up in this sort of hodgepodge fashion across different levels of government and different stakeholders in a completely uncoordinated way, we've ended up with a system that no one would even dream about designing if they were coming up to it from first principles.

SPEAKER_00 12:11

It might be good to lay the cards on the table. You know, uh the obvious uh question for a podcast host to ask now would be: well, how would you redesign this system? But the reality is that your ultimate recommendation in the essay is that we actually shouldn't be doing this affordable housing product at all. Can you step us through kind of how you land at that and and what your view is, and then we'll we'll step backwards from there rather than, you know, burying the lead.

SPEAKER_01 12:43

So we think that we have two main sort of central policy recommendations from this essay. Uh the first one is we think that the money that we're currently spending on affordable housing, so anything that's going towards units that are subsidized and rented out at a below market rate, this should be going to social housing instead. And the reason for that is just that the people who are living in social housing or at need of social housing are far more vulnerable and on far lower incomes and at far higher risk of homelessness and severe, really, really bad outcomes than the people who are going to be living in affordable housing. And so we see it as uh you you've got to be helping the people who are in most need first before moving up the up the income spectrum. So that's the first case. The second case, I think, is that because these subsidies are implicit in a unit, you can only have the discounted rent if you live in a affordable housing unit. It doesn't help the people who benefit from them as much as it costs the government to provide. And so you're better off for people who are on these moderate incomes and struggling to pay the rent, providing them help directly in cash and letting them trust and trusting them to make the decisions and choose the housing and the uh their lifestyle that suits them, rather than saying you have to live in this specific unit. So I think that for it's it's about uh retargeting the system where it makes the most sense. For people who are most vulnerable, we should be providing them social housing units. For people who might be struggling but a little bit further up the income spectrum, the best thing we can do for them is is giving them cash and letting them spend that in the way that best suits them.

SPEAKER_00 14:20

So then would you say that for people on moderate incomes, it's worth giving them cash?

SPEAKER_01 14:26

I mean, I think the So, John, I I'm the secretary of Sydney Yimby, you run Melbourne Yimby, where 99.9% are planning reformers. We've spent countless hours, days, weeks, nights of our lives advocating for planning reform. If we do the changes that we need to make to unban housing in the parts of our cities where we most want to live, in the long run, we are going to get to a situation where a typical person on a moderate income can afford a decent unit at the market rate. Over time, we are going to be able to move that market rate down, and that's the most sustainable and the only real way that we're ever going to end the housing crisis is when the market rates are affordable for people on normal incomes.

SPEAKER_00 15:09

So when when when we when when when I think about like the critiques of this, right, is that planning reform is is a long-run thing. And so someone might say, well, okay, you're right. We should be absolutely doing social housing. That is the thing that makes the most sense. But we want key workers, quote unquote, to be able to live in Bondi, to be able to do jobs in Bondi. Can you step us through kind of the response to that critique that this is something that we need now to hold us over?

SPEAKER_01 15:42

I think it's so again, I think it's worth thinking about what the alternative is here. And I think this is how we ended up in this situation of affordable housing is people not necessarily thinking through counterfactuals and what the opportunity cost of what we're doing actually is. And so I agree. Nurses should be able to afford to live in the eastern suburbs. Teachers should be able to afford to live in the expensive, in sort of the expensive currently but desirable parts of our cities. But it's important to think about the best way to do that. So, first of all, we're we're never going to be able to build enough quote-unquote key worker housing for absolutely everyone who is a key worker to live in. You know, there's there's hundreds of thousands of teachers and nurses, and even with sort of the full might of the government pushing affordable housing, we're not getting anywhere near that level. So there's always going to be people missing out regardless. Um The other thing is that often these these units, uh, it comes to a really tricky, like definitional issue. Who is and isn't a key worker? If you're a key worker for a year and then you change career, are you kicked out of your home? Uh is a cleaner a key worker? They're certainly important to the functioning of our cities, but we don't often, they're often not included in these key worker programs. Shelf stackers. There's all sorts of sort of really tricky administrative problems that come along with this. Uh, and so really you might help a few people, but you're not going to on a on a systematic level help enough people to sort of reverse the damage of the housing crisis. The other thing that I think is important to think about is that these subsidized units don't actually provide as much help as you might think. So, say, for example, you're you're you're a young nurse or teacher and you and your partner live in an affordable one-bedroom unit that's discounted well below market rate. And in the eastern suburbs of Sydney, that could be sort of equivalent to several hundreds of dollars a week, which in current terms is equal to hundreds of thousands of dollars of value that you're getting. If you're in this one bedroom unit that you want to have a family, in order to upgrade into a unit that's big enough for you to have children, you're not gonna be able to live in that affordable housing unit anymore. And so you've effectively got these sort of golden handcuffs. If you're maybe a bus driver who wants to go back to university to train up to do something else, if you're gonna do that, but you're currently got a really good deal on your affordable housing unit tied to your job, then this puts you in a really tricky situation. Um, I think people sort of intuitively understand in the context of the American healthcare system that having these sort of really big life-altering important services tied to your job makes it hard for people to move jobs, and having it tied to your housing makes it hard for you to change housing. So I think it's better off if we're wanting to improve the well-being of our teachers and nurses and keyworkers and the people who help our cities run, we should pay them more. We should provide them cash. We should let them actually live where they would most likely where they would most like to live and have the circumstances that suit them. Um so I think it it's a bit of a category error. I think it's people wanting to have something they can point to for the key workers rather than thinking about what would benefit the key workers themselves.

SPEAKER_00 19:06

That makes a lot of sense. One of the things that's important to step through is how these things are paid for. So obviously, we have the half. That is, you know, payment availability payments are being made for affordable housing units as well as social housing units. One thing the SA notes is that just over 50% of the half uh units funded have been affordable housing units. It's hard to know whether it's 50% of the funding, but it's certainly 50% of the units. But affordable housing doesn't just get paid for in cash, it can also get delivered as a requirement of planning regulation. How is that not free money?

SPEAKER_01 19:42

So again, I think to my earlier point about people not understanding alternatives and opportunity costs here is how we've ended up with this with this situation. So, yeah, on its face, if you say you can only build an apartment building here on the condition that you rent a few of them out at a discounted rate, that seems like free affordable housing. The government hasn't paid any money for that to be there and there's no uh no doesn't turn up on a balance sheet somewhere. But it's important to think about what we could have done instead. So that discounted rent or the discounted unit, that is a cost that is paid by the developer. And in many cases, they're quite happy to pay that in exchange for things like additional height. There's a few schemes around the country that do that. But that cost, we are taking it in the form of an affordable housing unit. But we could also take it in the form of just cash. We could say, all right, instead of leasing this unit out at $600 a week less than you would like to, you can just pay us $600 a week, and then we'll take that and go do more good with it somewhere else. And you can imagine that this can make the system a lot more efficient if we take it in cash, because you're not having to negotiate with sort of two units in this building here, three units in this building here, a community housing provider managing one unit here. There's all these challenges that come with having affordable housing units embedded in in market rate housing buildings, like we heard about in Brangaroo. It's it's it makes it a lot less efficient. And I think it's important to recognize the the opportunity cost here. So every time that there is a unit that is below market rent, someone is paying that subsidy somewhere. It's not coming for free. And we think it's important to recognize that and then to make sure that we're doing the most with that opportunity cost that we're paying.

SPEAKER_00 21:34

One of the uh things to note is that not only is the definition different state by state, but also the function of how it's paid for. So in New South Wales, correct me if I'm wrong, but you can get sort of a 30% height uplift for 10% social, right? That's kind of the current calculation for how to do the quote unquote funded inclusionary zoning. In Victoria, uh, the development facilitation. Program either offers the choice of 10% affordable in the building or 3% of the capital value going to the Social Housing Growth Fund. Now we at UMB Melbourne have advocated for the latter, um, that that the cash contribution should be made for all the reasons that you've laid out. There are political incentives here. 10% affordable housing sounds like a really good thing from governments. And as you sort of laid out at the start, the compound noun nature of social and affordable is really doing a lot of heavy lifting here. How do we overcome the uh political incentives to announce bigger number?

SPEAKER_01 22:40

I think the probably the first thing I'd say is that I don't think it necessarily actually works that strongly. So this infill affordable housing bonus scheme that we've got in New South Wales, I think it's great. But I think the thing that really matters is the fact that we've effectively increased height limits by 30% across the city. That's like unambiguously a major win for housing affordability. And in Sydney, we're seeing more units being built, we're seeing taller buildings being built, and we will see lower rents out of it as a result. But if you go and see the Facebook groups and the local council meetings and the uh NIMBY groups turning up the news and speaking to journalists, all of them are saying that this affordable housing is a joke. It's not actually doing anything. So I'm not sure that it really is potentially sort of buying the social license that maybe the politicians think that it is. So that's the first thing is I I'm not actually convinced that it is this sort of vote winner in terms of sort of helping people getting on board with development.

SPEAKER_00 23:42

Yes, it doesn't certainly seem to be a winner uh for those who are who are most opposed. And hopefully, I think after this article, there'll be a real tent pole thing to point politicians to in terms of understanding that this really is not even a good policy, let alone not a good vote winner. Uh how what do you think is the next step for kind of getting the politicians to understand the differences between, say, social and affordable housing?

SPEAKER_01 24:08

I think we just need to really beat the drum and educ like I think it's an education problem, right? Most people don't understand that these are different things and they don't understand what this thing is going for. And I think if we can really lay out to people what this actually means, I think that starts to to break this down and hopefully not let the politicians get away from it. Sort of in in writing this piece and talking to people about it, speaking to my family people who, you know, pay attention to the news, are very politically engaged, but not deep in the weeds of housing policy. I'll say, Oh, I'm writing a piece about affordable housing, and they say, Oh, so like social public housing. Like people think these are the same things. And so I think it's really important that we just break that aspersion uh and really show that this is not actually doing what people think it is. And if that's the case, then I think the politicians, the political incentives start to start to come back around.

SPEAKER_00 25:01

I want to go back to the 30% uplift, right? I think you're right. The best thing about the program is that it has lifted the height limits around around Sydney. But it's done it under this sort of false guise of this funded, yes, inclusory zoning project, but it's completely based on the idea of rationing the number of homes, right? And this this kind of uplift only works if you assume that there will be a constant and consistent housing shortage. How do you how do you kind of square that and and make people understand that that a lot of the policies we're dealing with here are policies that rely on housing being scarce and unaffordable?

SPEAKER_01 25:49

I think there's an instinct in a lot of circles and academics, certainly the the market outcomes are kind of set in stone, and there's not really much we can do about it. You sort of you hear, you know, town planning academics arguing that town planning doesn't actually impact how much housing gets built. You get Pia, the Planning Industry Association, arguing that town planning doesn't impact how much housing gets built, despite I think pretty incontrovertible evidence that it that it really does. And so I think the there's sort of this idea that if we can't do anything about the market rate and how much people who aren't in subsidized housing are paying, then that means that what we need to do is get everyone into subsidized housing and get as many people as we possibly can. But that's going like that's not going to work. And I think we can see in places around the world that have sort of really embraced this approach that that doesn't lead to successful outcomes. If you look at places like the UK, they have extraordinarily high affordable housing and social housing requirements. They have extraordinarily high sort of subsidized housing shares of the housing stock. But because they're not building anywhere near as much market rate and overall housing as any of their peer countries and have massively underbuilt for decades, London is like quite possibly the single least affordable city in the entire world. And so I think it's just recognizing that we can actually influence market rates. We can actually have policy levers that are going to make market rent housing more affordable. And if we pull those levers, that's gonna benefit absolutely everyone who is in the housing market, rather than just picking out one or two sort of a few lottery winners from each building to get there. Even in sort of the maximalist affordable housing unit view of the world, you're getting maybe 20 to 30% of your housing being built as affordable housing. And so that means that even in the absolute ideal world where you've sacrificed a lot of market rate housing to get the most subsidized housing as you can, you still got 70% of people living in this market rate housing that you you don't think does anything and you don't think is valuable. And so even in sort of their own world, there's a really small number of people who are actually benefiting from this stuff. So the only sort of sustainable way that we're actually going to get out of this is by reducing overall rents. It's what everyone pays. Uh, and I think we can do that. And once we do that, then we're not gonna have the need for these subsidized programs because sort of an ordinary family will be able to afford an ordinary home in a good location.

SPEAKER_00 28:27

Right. And this is where you come in in the article at the very end with this really lovely, lovely line uh that I will read to you your own work, which everyone loves. Uh, by making common sense changes, we can make sure the funds we do choose to spend on subsidized housing goes as far as it can possibly go for the benefit of the most number of people. And then governments can focus on the real policy task ahead of them, not just making housing quote unquote affordable, but by making it inexpensive. Inexpensive housing really is the goal. But that's a long-term goal, right? The reality is that, you know, Sydney's uh development uh has kind of been heavily, heavily constrained since the early 70s, uh similar to Melbourne. Um and, you know, 50 years of locking the eastern suburbs and and areas that were developed uh previously and were developing previously. What's the reason, I suppose, for young people and people in housing insecurity to feel kind of optimistic about the impacts of Yimby-style land reform policies, given that given the long timelines on which we just have to operate?

SPEAKER_01 29:40

I think there's two reasons. I think it's a long timeline that we have to operate on because we've got an absolutely mammoth task ahead of us. But we can actually start making progress on that relatively quickly. We've got a long way to go, but we can move quite quickly when we get our policy settings right. We see with the Todd reform program in New South Wales, thousands of units have basically started springing up out of the ground overnight like that. We have seen in in Auckland, which is probably the most well-studied example of planning reform in the world, that sort of within a decade, Auckland went from being by far the least affordable city in New Zealand to being one of the most affordable cities in New Zealand, which is insane given it's like half the population of the entire country living in one city. So there's a mammoth task ahead of us, but we can make progress on it really, really quickly. And I think that's the first thing that we should keep in mind. I think the other thing as well is that it requires being honest and recognizing that it's the only thing that we really can do. The fact that we've got a mammoth task ahead of us doesn't mean that we should we should give up. The fact that we've got a mammoth task ahead of us means that we should get going as quickly as we possibly can and pull out all the stops to make sure that we get there. We we know that this stuff works. We know that this stuff can make a real difference in the short term and then a massive difference in the long term. And given that we know that that's the case, I think that is some reason to be optimistic because we can get there rather than worrying about the fact that it will take time to get to where we should be, but we can get to a better place much more quickly.

SPEAKER_00 31:13

This is a really nice uh loop into some of the defenses of affordable housing that we see across the board. One of the kind of critiques of uh say upzoning and building new homes and the defenses of affordable housing inclusion is this idea that, well, new homes are all luxury homes, you know. Uh we know new things are more expensive. We don't really think on this podcast we need to go into that. But what is argued is that, well, okay, let's let's say there are other reasons to spend on affordable housing. Maybe mixed tenure development is really socially good because it allows people to be mixed, it creates a uh greater cohesion in our society. Is the evidence base for this particularly strong? Like, where does this break down or is this compelling to you? I I I don't find it compelling.

SPEAKER_01 32:08

I think there's two points here. So, in sort of general affordable housing schemes around the country, obviously it varies, but I'll take New South Wales as an example, 20% off the market rate. In a fancy new apartment building in Sydney, 20% off the market rate is still extremely expensive. And so that means that we're not getting this sort of benefit of mixed tenure people, people from different incomes living in these places. It's just, it's it's slightly poorer people than would otherwise be able to afford to have a really nice new shiny unit. People sort of upgrading out of an older unit into a newer one, which I don't think does achieve these sort of broader uh societal benefits that that people might be claiming about. Um and the second thing I think is sort of taking that to the next step is recognizing that most people don't live in new units. I live in a building that's 60 years old, and it's sort of one of the cheapest buildings in the suburb that I live in. And I think the important thing to recognize is that housing markets are linked, and so although the only thing that the planning system controls is the flow of new housing, that has a really big impact on everything else that's going on in that area. And so I think because people are trying to sort of press the button that they directly control and say, we need new units to be affordable, is how you end up in this place of affordable housing. But even if we build expensive new shiny housing, that means that someone who can afford a sort of $1,500 a week apartment is going to go into the shiny, nice new one and then not be lining up out the front of the 70s walk-up. You know, we have, if you go to the inner west of Sydney, you will see quite wealthy young couples lining up at inspections for objectively pretty dire two-bedroom red brick walk-ups that go for well over a million dollars. In a functioning housing market, quite wealthy people would have a higher standard of housing than that. And then what you would have is that the flow-on effects of that is that those units are then much more affordable for the students and the people who are on lower incomes. And so I think sort of by trying to have something be both new and affordable, you end up having to throw lots of money at the problem. Whereas if we recognize that nude housing is going to be expensive and that's okay. And the benefit of that new housing is that it gets the rich people out of the line at the inspection that you're currently in and you don't have to try and outbid them, then that benefits everyone else. And then again, there's just really, I think, very incontrovertible evidence that these effects are real and important. Um, and so I think basically we should just get comfortable with the idea that new units are expensive. My unit was at when it was brand new, it would have been like top of the line back in 1962. But now that it's 2026, it's you know, it's a bit dated and the buildings are a bit old and not quite up to date. And so it's a lot more affordable than it used to be. And so when things are new, that will be expensive, but they will get cheaper over time. And the moment that they come in, that then makes housing more affordable for everyone else. So it's about trying to recognize the sort of flow-on and systematic impacts of our decisions rather than trying to say, this is the button I control. I want to say that this is an affordable unit that I've I've produced.

SPEAKER_00 35:20

The other thing that gets said about sort of, yes, planning controls the flow of new housing, you know, the flow of new housing stock is, you know, one to two percent, unfortunately, only at the moment. We'd like to see that obviously be much more. But one of the arguments is that because planning controls that flow, and because when you do upzone land values increase, affordable housing is just a way of capturing some of that land value uplift. And because that value is generated, it should be taken, and affordable housing is a really good way of doing that. That's the argument. Is it correct?

SPEAKER_01 35:59

It's it's not correct. I I think it makes sense in some contexts to capture some of that value, particularly in the short term. And so, if, for example, you've got like a really large precinct redevelopment where a major landowner is getting some substantial changes to planning controls, that is creating a windfall gain. And I think it does make sense in that context where you have really large changes in planning controls to capture a little bit of that value and take it and take it for the government and for public use. I don't think that capturing that as affordable housing is a good way of doing it. We can take it as cash, there are schemes around the country that do take it as cash, and then we can take that and do more effective things with it elsewhere. The other thing is that I think it's really important to be careful when doing this. I think there's an instinct in planners and in people making these policy decisions that they see this uplift as sort of a pot of gold that they want to try and take as much away from the developer and into the public purse. But there's really good evidence that that is not actually the correct way of looking at it. Um there's a there's a fabulous paper by an economist called Vincent Rolle looking at the New York housing market. And he shows that it's this uplift is basically the thing that gets developments to occur. When there is a highly valuable development potential, that is far more likely to go ahead than one where you've taken away a lot of the value that you get that has been created. And so it makes development a lot less likely if you overdo it. The other thing that's really important is that the only time you should be doing this kind of land value capture is when there is a substantial uplift. Because if there isn't this substantial uplift in planning capacity, effectively all you're doing is just putting a tax on new construction of housing, which is the thing that's actually going to get us out of the housing crisis. And at that point, it's just straightforwardly counterproductive and harmful. Um and so I think it it it doesn't really it there are some limited cases where it can be good, large-scale, large increases in planning controls. But you need to be really, really careful. And when you do do it, you should take it as cash rather than sort of having a few units here and there, which adds all these administrative costs and complexities that that don't actually really uh that mean that you don't get as much value out of it as you probably should.

SPEAKER_00 38:17

I I'll add to that because this argument sort of has has bothered me increasingly more and more. And you know, in some initial Gimbi Melbourne uh work, you know, three, four years ago, we we did sort of advocate pretty strongly on on the the value capture um kind of element. But I I I kind of these days have have a couple of of problems with it. Number one being that I think there is a lot of value in delivering homes for people into the market. Um I think that is valuable in and of itself. And I think we we make a kind of risky um a risky kind of and incorrect concession of this idea that that there's not public value in less expensive housing. Yeah. Um the the uh the other is simply that that well if the value is increasing when you upzone, that that value is is increasing because you have removed a restriction. The the default state of the world is is not zoned, right? If I were to upzone in, say, you know, Griffith or somewhere sort of uh sort of regional, I wouldn't expect to see the same value uplift as I would in the eastern suburbs of Sydney. And that tells us something real about the underlying value in these two places and sort of you know reinforces this uh idea that I put in my article on on uh the problem with urban planning, which is that planning can't enable things, it can only restrict things from happening. And so, so when when I hear these kind of ideas of, oh, we need to capture the value, it's it's it's important, I think, like you said, for like precinct-based stuff. You know, if we're doing brownfield development that is a huge change of use and a large pot of land that is already amalgamated, you know, there are reasons to do things with those kinds of plots. But when we're thinking about upzoning people's uh like residential streets and whatnot, I think it's a much different conversation.

SPEAKER_01 40:15

And I I would just also add one further point to that as well, which is that I think it's people have the idea that they're creating value out of thin air when they relax planning restrictions. But to a really large extent, and there's good evidence to support this, it's actually just a transfer of this scarcity rent from other sites onto the site that you have then enabled. And so, for example, there's some really good research coming out of Auckland, which shows that when you upzone to allow additional townhouses and apartments, sites that already had townhouses and apartments on them became less valuable. And so effectively you're you're not creating value, you're just sort of shifting it around. And that's a good thing. That means that the people, though those units and those townhouses that already exist have become cheaper overnight because you've taken away this scarcity premium that people are happy to pay. Um, so yeah, I I I fully share your your hesitancy to go too far with this inclusion rezoning problem. Um in the short run, it can it can help and it makes sense, but in in the long run, and on a sort of broader precinct scale, a broader scale across the state, it doesn't make much sense.

SPEAKER_00 41:25

The essay ends with kind of three principles and and three recommendations. We sort of went through the recommendations up the top, but I would love to talk through these three principles to wrap. So aim low, trust people, and be explicit. So aim low. The most good is done by helping those on the lowest incomes. What does that look like in practice across housing?

SPEAKER_01 41:47

So for me, that means we should be turning them or taking the money that we're currently spending on subsidizing affordable housing and turning it into funding for public and social housing instead. 80% of the people who move into public or social housing are in highest need. These are people who are on the brink of homelessness in really, really inappropriate housing situations, paying absurd amounts of their income as rent. And for those people, getting access to a social housing unit is genuinely life-changing and is going to allow them to sort of lay down roots in a community, help them. There's there's amazing amounts of evidence about the sort of the flow on social effects, more likely to be in employment, more likely for their kids to stay in school. There's there's massive, massive benefits to these people. And I think that we should be focusing on that while we've still got sort of six figures numbers of people waiting on this wait list and in real desperate need before we uh are spending money subsidizing uh for much people who are much more uh well off. So I think it's basically about just targeting the money that we do spend as precisely as we can in uh to make sure that we're we're changing lives of people rather than just getting a slightly nicer apartment for someone on a moderate income.

SPEAKER_00 43:01

The second piece uh follows on from that nicely, which is trust people, give people cash, not units. What's the strongest version of the paternalist objection to that and how do you answer it?

SPEAKER_01 43:14

I think the strongest unit exam objection to this is that the new units are genuinely adding to supply uh rather than and that if you give people money, that just results in higher rents rather than that actually flowing through. So by building a house, you're providing extra supply. And like, look, you and I love housing supply, we want more housing to be built. But I think it's important to recognize what's the limiting factor on housing supply in this country. It's not insufficient government subsidies. There's places around the country where you get developers absolutely busting to build as much as they possibly can, but they're held up by by the planning system and by infrastructure and by by these other sort of restrictions that we've placed on our cities. So I think it doesn't the If it doesn't add to supply, then that substantially undermines mines that point. The other argument you often hear is that by providing people sort of cash support, that just leads to bidding up rents and it doesn't actually benefit the people in the first place. And we've actually got really good evidence on this. Commonwealth rental assistance is a really well-designed scheme in many ways. It provides cash directly to the people who receive it, just in their sort of income support payment income. It doesn't go directly to the landlord. And all of the empirical evidence that we have suggests that a very, very tiny share of that flows through to higher rents, sort of less than 10% for most people. And so it really directly does benefit people. It helps them pay for their housing, but it also helps them pay for the other things that they need and that they get out of their life. I think a really good example here is the US sort of food stamp system, where the government says, you get this money, but you can only spend it on sort of these specific items, you can only spend it on these things. You get all these sort of weird administrative issues, and people end up having to often like they'll sell their food stamps for 80 cents on the dollar rather than spending it themselves because they don't value the things that they can spend it on. If we just gave people the cash, people know what they need the most. People, we should trust them to make the decisions that would help them the most. We should trust them to live where they think they will most likely to live and spend the money on the things that will improve their life the most. And sort of by taking this paternalistic view, you you end up providing support that's just as costly, but doesn't actually deliver the benefit to the people representative of that cost. And it's far more efficient just to give them the cash instead.

SPEAKER_00 45:45

That makes sense. And leads us really nicely into the third principle, which is to be explicit. Accounting tricks don't hide costs, they hide measurement. Why is this principle so hard to be implemented within the housing sector?

SPEAKER_01 46:00

It's really tricky because we have such a sort of messy, complex system with so many moving parts that there's there's so many nooks and crannies that you can hide these sort of implicit subsidies or implicit handouts to uh in without really anyone noticing. The other reason it's really tricky is that because there's so many different actors at play. You've got local governments, you've got state count governments, you've got you've got uh federal governments. There's most of the councils in Sydney run their own affordable housing programs. Waverly Council in the eastern suburbs has 68 affordable housing units that they manage. The City of Wright has has 75. These schemes are sort of, they come out of planning schemes. They're these sort of opaque, implicit subsidies. They're not operated particularly efficiently. You know, they've got long policy documents and teams of people managing really small amounts of units. It doesn't, it doesn't work. Um, and so I think it's the reason that it's so important to get beyond this is because it is this opaque, unclear, complex structure which leads to the absurd outcomes that we've got with affordable housing, where you have affordable housing that's incredibly expensive, affordable housing where someone on less than 80 grand a year isn't able to live in it if then if they wanted to. You because it's so opaque, you get these really negative, complex, and bizarre outcomes that aren't what anyone's intended. People are well-intentioned. I think the people who run and support these schemes are genuinely trying to do the right thing, and they're working in the constraints that they've been given. But the result of that is that they're not actually doing the most good that they possibly could. And I think it's important that we really do.

SPEAKER_00 47:41

There's a great line to end on. I recommend everyone go and read yours and Ethan Gilbert's piece Against Affordable Housing in Inflection Points out at the same time as this podcast. As always, our final question on the show. What's one thing you think more people should know about how Australia works?

SPEAKER_01 47:58

I think people should pay far more attention to their state government than they do. I think we're really good in this country at having policy discussions at the federal level and about the sort of the tax and spend and sort of major federal policy government, federal government policy levers that we have. I don't think we're good at having those conversations at a state level. And I think most of the really, really important issues that we have in this country are in large part determined by state governments. Planning policy is the obvious one, but infrastructure spending, states run our schools and hospitals, and we don't pay anywhere near as much attention to what's going on in our state parliaments as we do in our federal parliaments, despite them impacting our day-to-day far more. And so I think people should, you know, pick up your local newspaper and try and learn a bit more about what's going on in your in your state parliament house and maybe pay a little bit of less attention to Canberra, because I think it it's a it's a really so many of these important issues are not determined at the level that we have. And I think it leads to us putting our priorities in the wrong place. I think negative gearing is a really good example of this. It's been sort of this totemic pillar of housing discourse over the last decade because it's something that we're comfortable talking about as a tax policy that the federal government controls. I think the evidence is pretty clear that it's not gonna make much of a difference to housing affordability. We've seen this week, even the people who have long supported it don't think that it is gonna have an impact on housing affordability now.

SPEAKER_00 49:30

Which I think losing our minds on Twitter.

SPEAKER_01 49:33

I don't for a week. David Shoebridge saying it's gonna, you know, drive up rent. So I'm like, what is going on, guys? You've been doing this for decades. And I think that's because we don't pay attention to the places that really matter. And so, yeah, I'd encourage everyone to spend some more time thinking about their state member and a bit less time thinking about their federal member.

SPEAKER_00 49:51

So, what you're telling me is that Inflection Points should be doing state budget podcasts as well as federal budget podcasts.

SPEAKER_01 49:58

I look forward to to hosting the New South Wales one with you.

SPEAKER_00 50:00

That actually sounds like a lot of fun. All right, Dom Barons, thank you so much. Thank you everyone for listening. And uh, this has been the Inflection Points Podcast, a production of Inflection Points Publishing, hosted by me, Jonathan O'Brien, and we will talk to you very soon.