Why the Greens are pushing for affordable housing in the City of Melbourne

In July, the Victorian Greens announced their Lord Mayor candidates for Melbourne, and are using the moment to put one issue at centre stage; affordable housing.

The lack of affordable housing is an issue that has plagued Melbourne for some time, and has worsened as of late.

The Greens have proposed a very specific and targeted solution, requiring at least 30 per cent of new developments in urban renewal areas in the City of Melbourne to be public and genuinely affordable housing.

This required investment into higher volumes of more affordably priced homes has the potential to address a wide range of issues impacting Australians, from job security to mental health. 

Domino effect

It’s no secret that the Australian economy has seen better days, and some of the numerous casualties of that broad financial slowdown have been Aussie builders.

This is no shock to economists for a wide variety of reasons, but is nonetheless a problem that will drive consolidation in the construction industry and reduce competition, which will inevitably lead to higher prices. 

Perhaps the broadest factor impacting Australia’s ability to generate new contracts for Aussie builders has been the struggles in the Chinese economy.

We’ve experienced a massive drop in Chinese investment capital, with nearly half a billion dollars of foreign direct investment into the Australian real estate industry being withdrawn in the early months of 2024.

This is largely a result of China’s own homegrown real estate and construction market collapse, with Chinese President Xi Jinping taking substantial measures to reduce excessive spending and indebtedness by Chinese real estate investors and construction companies in order to address the country’s over-leveraged property investment sector.

A decline in Chinese production of crucial building materials, including steel, and the coincident rise in prices have also contributed to rising costs for new Australian projects.

Incidentally, declining Chinese production has also contributed to a decline in Chinese raw materials imports from Australia. T

his has played a part in contributing to yet another factor hurting the construction industry: the economic downturn we’ve experienced at home.

Problems in Australia

The volume of new construction projects is being hurt nearly as badly by the economic struggles occurring right here in Australia, and the resulting rampant inflation, as by the reduction in foreign investment.

With international demand for Australian raw materials falling, and prices across the economy rising left and right, the domestic cash flow available for investment into new construction projects is also under strain.

As a result, home-grown investments in construction are also on the decline.

That same inflation has indirectly triggered another factor contributing to the contraction of the domestic economy, including the real estate sector; a bottleneck in the accessibility of loans available to builders and investors as a result of prolonged high interest rates from the Reserve Bank of Australia.

The bank is responsible for monetary policy which affects the availability of bank loans; higher rates make those loans less affordable for builders, who as a result, cannot afford to take out loans for high risk projects that may not even be profitable.

It also hurts buyers’ ability to take out affordable loans for purchasing new construction, which has, in turn, contributed to the decline in demand.

In a time with so many structural factors working against Australian builders, the forced investment in affordable projects by real estate developers proposed by the Greens could help keep builders in work, and sustain competition in the industry.

This could ensure lower construction prices in the future by ensuring that big builders still have competitive pressure to keep prices low.

What’s it all for?

At the end of the day, all of this business about the construction industry only serves one real purpose, and it’s the same purpose shared by every industry; to improve public wellness by keeping people in a job and in a home.

After all, homelessness is on the rise in Victoria, and housing stress is also all-too-common.

In a study among people who sought assistance from a Salvation Army Emergency Relief centre in the 12 months leading up to May 2023, 75 per cent of respondents said they were experiencing housing stress, spending more than 30 per cent of their disposable income on housing. 

Secure housing is crucial for many reasons, particularly mental health, as anyone with a Graduate Certificate in Mental Health online would know.

These conditions are an ongoing contributor to the mental health crisis in Australia. As far back as 2012, studies done by the Mental Health Australia showed a clear relationship between housing stress and the exacerbation of mental health issues.

But the issue has only worsened in the intervening decade, as shown in a recent study by Melbourne University social epidemiologist Rebecca Bentley.

In it, Bentley et al. found that entering unaffordable housing is detrimental to the mental health of those living in low-to-moderate income households.

As relevant as these studies are to the ongoing situation here in Australia, this is a truth that exists the world over.

A comprehensive literature review conducted in 2022 encompassing studies from the past decade across a wide variety of populations and cultures established with clarity a fact that we should all know intuitively; no matter who you are or where you come from, if you’re a human being, living in insecure or low quality housing contributes to poor mental and physical health, reduced productivity, and worse outcomes of nearly every imaginable variety.

With evidence this clear for both the urgency of the housing situation faced by many Australians, and the negative consequences that follow from failing to address it, there is no denying the importance of accessible and affordable housing, and the reality that Australia needs to take action now.

Whether or not the policy proffered by the Greens will be implemented, or will have the desired effect, only time will tell.

Either way, it’s urgent that we do something, lest the consequences ripple even further and more deeply across the Australian population and economy.