Urban Policy and Research

ISSN: 0811-1146 (Print) 1476-7244 (Online) Journal homepage: https://www.tandfonline.com/loi/cupr20

Private Developers and the Public Good: Can

a Socially Constructed Market Deliver Quality
Affordable Housing for Australian Cities?

Andrew Martel, Carolyn Whitzman & Alexander Sheko

To cite this article: Andrew Martel, Carolyn Whitzman & Alexander Sheko (2019): Private
Developers and the Public Good: Can a Socially Constructed Market Deliver Quality Affordable
Housing for Australian Cities?, Urban Policy and Research, DOI: 10.1080/08111146.2018.1557042

To link to this article: https://doi.org/10.1080/08111146.2018.1557042

Published online: 24 Jan 2019.

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URBAN POLICY AND RESEARCH
https://doi.org/10.1080/08111146.2018.1557042

Private Developers and the Public Good: Can a Socially

Constructed Market Deliver Quality Affordable Housing for
Australian Cities?
a b
Andrew Martel , Carolyn Whitzman and Alexander Shekoa
a
Faculty of Architecture, Building and Planning, University of Melbourne, Melbourne, Parkville, Australia;
b
Architecture, Building and Planning, University of Melbourne, Parkville, Australia

ABSTRACT ARTICLE HISTORY

Australian government housing policy relies on the private housing Received 5 October 2017
industry contributing to the supply of affordable and social housing in Accepted 20 November 2018
cities. However, the diminishing availability of suitable housing for many KEYWORDS
households raises the question of whether the private housing industry Neoliberal housing policy;
is interested in, or capable of, catering for this market segment. affordable housing
Engagement would require both inducements and regulation, partner- partnerships; investment;
ships with government and non-profit actors, and an alignment of deliberative collaboration;
attitudes regarding the need and responsibility for providing dwellings Melbourne
in housing sub-markets. This paper explores perceptions and strategies
of actors regarding the role for the industry in the context of Melbourne.

澳大利亚政府的住房政策中，私营房地产业是城市可付担住房和社会
住房的一个重要来源。然而，对许多家庭来说，合适的房源越来越
少，人们不得不问私营房地产业是否有兴趣，或者是否有能力，满足
市场这一块的需求。对这一块应兼顾刺激和规管，需要与政府及非营
利机构合作，并要调和对住房次级市场中的需求和提供居所责任的不同
态度。本文探讨墨尔本不同方面对房地产业角色的不同认识和策略。

1. Introduction
Current Australian policy places responsibility for provision of housing across the spectrum of
housing needs squarely with the private sector. This includes recent changes to disability services
through the National Disability Insurance Scheme, and aged care provision via the Australian Aged
Care Quality Agency, where service provision that has been previously directed and provided by
various levels of government are now to be Accessed via a competitive market based on a person-
centred, choice and control model by the service user (Bridge et al. 2011, Wiesel and Habibis 2015,
NDIS 2016). In the social housing sector, policy changes have been characterised by a shift from direct
and hierarchical control of housing to a more “modulated, variable and diffuse” model (Dodson 2006,
p. 3). Except for the Social Housing Initiative under the Commonwealth Government’s National
Partnership Agreements between 2008 and 2013, which delivered 20,000 new social housing dwellings
over five years (Ruming 2014), supply-side approaches have largely been abandoned at the national
scale. Instead, government responsibility for housing has been progressively narrowed to focus on
supporting the most vulnerable segments of the population, through demand-side programmes such
as the Commonwealth Rent Assistance (CRA), which has:

CONTACT Andrew Martel aamartel@unimelb.edu.au Architecture, Building and Planning, University of Melbourne,
Melbourne, Australia
© 2019 Editorial Board, Urban Policy and Research
2 A. MARTEL ET AL.

. . .sent a strong signal that the housing policy agenda would be concerned with linking housing assistance
with related [safety net] services. Policy in terms of affordability, market outcomes [. . .], decline of home
ownership, performance of the private rental sector, sustainable communities, links to planning and
infrastructure development became irrelevant. (Tiernan and Burke 2002, p. 93)

Absence of federal finance levers and state government regulatory approaches to support large-scale
social housing production has left these problems in the hands of the private sector to solve. As will be
detailed later in the paper, supply-side interventions such as the National Rental Affordability Scheme
(NRAS) have been short-lived, whereas demand-side levers delivered via the taxation system, including
negative-gearing (where losses including loan repayments are fully deductible from an investors tax
liabilities) and the capital gains tax discount (where the capital gains tax of 30% is discounted by half to
15% of capital gains made when selling an investment property), have continued until very recently to
receive bi-partisan political support. One effect of this preferential tax treatment to individual investors is
to incentivise small investors into low yielding investments that larger institutional investors cannot
justify, forcing them out of residential development in favour of commercial developments with
significantly higher yields (Duncan et al. 2018).
Like much essential infrastructure provision, public–private partnerships abound, where the private
sector assumes risk but financing is underpinned by government guarantee (in the way of CRA
assistance), there is minimal “steering” from all levels of government (Milward and Provan 2000,
Austin et al. 2014). Formal and informal partnerships between local and state government, private and
philanthropic funders, private and non-profit developers, and advocates arise at both the project scale
(McDonald 2014) and the metropolitan policy scale (Whitzman, 2017) try to fill the breach, by working
deliberatively with limited resources to create new opportunities.
This research uses as a case study an affordable housing partnership that was in its initial stages based
within the City of Melbourne (shown in Figures 1 and 2 – hereafter “central Melbourne”), the central
municipality of the greater metropolitan area.
The use of the term Affordable Housing follows the definition included in the Victorian
Government’s Planning and Environment Act (1987) that states;

Figure 1. City of Melbourne in the context of Greater Melbourne.

 URBAN POLICY AND RESEARCH 3

Figure 2. Map of the City of Melbourne’s suburbs.

For the purposes of this Act, affordable housing is housing, including social housing, that is appropriate
for the housing needs of any of the following – (a) very low income households; (b) low income
households; (c) moderate income households. (Victorian Government 2017b)

Where very low income is considered 0–50% of median income in Victoria, low 50–80% and
moderate 80–120% of median income. We investigate the perceptions and strategies of key
stakeholders towards the question of how much the private sector can meet the needs of low
and moderate income households wanting to afford living in the central city.
This research is based on a university–industry partnership, which from 2013 onwards has
engaged researchers, private and social housing developers, philanthropic and private sector
investors, and state and local government, with a goal of scaling up the amount and quality of
well-located and well-designed affordable housing (Sheko et, 2015). In Melbourne, there has not
been a strong history of effective inter-sectoral action in recent years (Rowley and Phibbs 2012,
Sharam et al. 2015). To understand whether there is the capacity for inter-sectoral partnerships
and to suggest ways that housing actors might work together to improve collaboration, this paper
draws on initial interviews with 10 key stakeholders in Melbourne’s housing industry, including
private developers, non-profit housing providers, state government departments and agencies, and
local government planners. Industry stakeholders were identified and approached to participate
based on the level of current activity of their organisations in multi-unit housing development in
central Melbourne. Consideration was also given to the depth of their experience in the
Melbourne housing market, as early investigations by the research team had identified
a considerable level of experience among professionals operating in the housing development
field in central Melbourne (Name removed for review, 2013). These interviews build upon
4 A. MARTEL ET AL.

dominant themes highlighted in the established literature on affordable housing supply in

Australia (Berry et al. 2006, Gurran et al. 2008, Milligan et al. 2009, 2013a).
A follow-up set of nine interviews were conducted in Melbourne with key stakeholders from the
development, non-profit and government sectors. This second set of interviews focused on gauging
the feasibility of introducing some of the mechanisms found to be effective in other jurisdictions into
the Melbourne housing policy sphere, specifically around tax-based schemes and planning-based
value capture mechanisms. While the interview schedule did not represent a complete survey of
Melbourne’s housing production industry, the range of interview participants allowed us to gather
information from actors at various levels of power and influence over policy formation and action. As
such, it enabled the different strategies that supported or resisted policy change to be examined.
This paper builds on the intellectual tradition of investigating housing markets from a social
and cultural perspective, following on from Smith et al.’s (2006) work on housing intermediaries
in Edinburgh in the UK, and Rowley and Phibbs (2012) work on housing producers in Sydney
and Perth in Australia. This approach uses “social rather than economic, qualitative rather than
quantitative” research (Smith et al. 2006, p. 81), which treats economic ideas like supply, demand,
competition, efficiency, price and value as socially constructed concepts. Smith et al. (2006) note
that there is greater research emphasis on the social outcomes of market failure in relation to
housing, or what the state can do to influence housing markets, rather than empirical data on how
markets are developed out of interaction between various actors. This reflects the tendency, noted
by Peck and Ticknell (2002), for neoliberal policy to be applied initially to deregulate and remove
existing structural platforms, only to then replace them with new, often technical, state entities in
response to market failures or concerns, in effect utilising neoliberalising policy failures to
strengthen the process of neoliberalisation. Peck and Ticknell (2002) coined the terms “roll-
back” and “roll-out” to describe the phases of destruction and rebirth.
In the Australian housing context, the roll-back phase was effectively completed during the
1990s. Australia has had a national housing policy based on neoliberal market principles since the
1980s, as successive governments have sought to wind back the interventionist policies prevalent
since the late 1940s (Gleeson et al. 2004, Beer et al. 2005, 2007, Dodson 2006). This trend has
broadly mirrored that in other English-speaking nations such as the UK, US, Canada and New
Zealand (Dodson 2006), and the process of roll-out has been deployed strategically when concerns
about housing affordability or homelessness, for example, become politically uncomfortable.
Consequently, since at least the mid-1990s, the free market approach has been frequently
criticised in Australia, as in other countries, as misplaced and unlikely to solve ongoing housing
problems, such as diminishing housing affordability, a shortage of low-cost rental and other
subsidised housing, ballooning waiting lists for social housing, a mismatch between intensification
aspirations and outcomes, and poor quality of housing (Tiernan and Burke 2002, Milligan et al.
2009, Gurran and Whitehead 2011, Sharam et al. 2015). One recent study suggested that the
current frameworks were embraced by government because they enabled them to “look busy”
without actually doing anything to address underlying issues (Gurran and Phibbs 2015).
The discourses which create understandings of these concepts are often analysed in relation to
power, rationality and rationalisation, as articulated by theorists such as Flyvbjerg (1998).
Flyvbjerg defines the terms rationality and rationalisation in relation to power, by stating that
“the context of rationality is power” and that “power requires rationalisation not rationality”
(Flyvbjerg 1998, p.2, 98). That is, power (or those in positions of power) defines what is reality and
makes decisions accordingly, then rationalises afterwards. In the context of government
policymaking:

What emerges is a picture of technical expertise used as rationalisation of policy, of rationality as the
legitimisation of power . . . that power based decision(s) are given a techno-rational appearance. (Flyvbjerg
1998, p.26)
 URBAN POLICY AND RESEARCH 5

Empirical investigations of how housing markets are discursively formed in a place matter because
it is increasingly taken for granted that collaborative approaches work best in countries that have
adopted neoliberal planning regimes, including the US, Canada, the UK, Australia and New
Zealand, without necessarily understanding the institutional power dynamics that might distort
collaboration (Larner and Craig 2005, Allmendinger and Haughton 2012). Allmendinger and
Haughton (2012, p. 90), critically argue that cross-sectoral collaborations, based on consensus
between diverse social actors, have become central to planning policy, while radical political
economy approaches have been pushed to the margins of teaching, theory and practice. Several
writers (Healey 1997, Forester 1999, Innes and Booher 2010) have positively described the ways in
which key urban actors, including various levels of government, private developers, investors and
non-profit organisations, can work together to negotiate solutions. On the other hand,
Allmendinger and Haughton (2012) argue this discourse papers over conflict between individuals
and institutions, and virtually ignores deeply entrenched power differentials. As described by
Innes and Booher (2015), collaborative planning mechanisms challenge a series of dichotomies
such as community knowledge/science, communication power/state power, collaboration/conflict
and process/outcome. The notion that collaboration is about conflict, and that dialogue can
“reframe” otherwise intractable questions that can then be accommodated (Innes and Booher
2015, p.203) echoes Giddens’ reflection that although structure constrains agency, agency changes
structure over time (Giddens, 1984). From collaboration/conflict comes the concept of collabora-
tive rationality as an antidote to the rationality/rationalisation described by Flyvberg.
While housing markets in different countries each have different characteristics, including
diversity within their sub-markets, there are several themes that run through neoliberal housing
markets, most prominently the idea that housing markets are expected to become “practical
enactments of economic models” (Smith et al. 2006, p.88, see also Sagar 2009; Watkins 2008).
Those housing markets are expected to be largely self-regulating and perform rationally, in
relation to theoretical laws of supply and demand. This has proved difficult enough to achieve
in even the most private sector market-friendly housing segments, the owner-occupier or housing
investment sectors, but the “centrality of private property and market mechanisms in neoliberal
foundation myth” makes public or subsidised housing particularly problematic for the neoliberal
agenda (Harvey 2007, p.20), although as noted above, neoliberal policy has been effective in
turning its failures into strengths.
Part of this difficulty arises from the fact that the neoliberal approach treats the overall housing
market as an independent and autonomous entity to be understood rather than one made or
constructed by actors. It also does not consider the particularities of the social housing sub-
market, which consists of public housing, community housing and other subsidised non-profit
housing. As such, these sub-markets are not seen to behave economically like the private market,
whether catering for owner-occupiers or investors. But as Smith and others have noted, all
“markets have to be made economic, through a complex interplay of cultural, legal, political
and institutional arrangements” (Smith et al. 2006. p.95), and collaborative planning mechanisms
attempt to do this in a way that moderates power imbalances.

2. The Current Provision of Housing in Central Melbourne

Ninety-seven per cent of new housing in central Melbourne is supplied by the private develop-
ment industry (City of Melbourne 2013a). Ninety-two per cent of new dwellings are studio or
one- or two-bedroom apartments in medium- to high-density developments. A significant pro-
portion of these – over 90% in some areas – are purchased by housing investors for the rental
market (Birrell et al. 2012, Charter Keck Cramer 2012, City of Melbourne 2013a). Non-profit
housing providers have a small presence in central Melbourne, including in areas such as the
CBD, as well as adjacent suburbs. However, their ability to develop new dwellings is constrained
by high land and construction costs in these areas and reservations about the appropriateness of
6 A. MARTEL ET AL.

high-density housing for their clients, as well as the absence of an ongoing construction subsidy
stream in Australia, and of inclusionary housing mechanisms in Victoria (Housing Choices
Australia 2013a).
In the last decade, there have been a limited number of collaborations between the non-profit
and private sectors, most notably in the Docklands area which has produced residential develop-
ments with both market-rate and subsidised apartments. These collaborations occurred primarily
during the Social Housing Initiative, which made federal government construction subsidies
available at a time when private funding for new developments was limited (Council of
Australian Governments (COAG) 2008).
In recent years, the City of Melbourne has also collaborated with the state government and the
non-profit sector to develop affordable housing projects on local government land (City of
Melbourne 2013b, Housing Choices Australia 2013b). So, although there is currently a boom in
apartment approvals and construction in central Melbourne, the apartments are largely marketed
towards investors. A significant proportion of these are international investors, with estimates that
14% of new sales in central Melbourne are to Chinese investors (Janda 2014). Investor activity is
targeted to this type of property development, as Australian foreign investment regulations are far
less restrictive for off the plan (or pre-construction) buying of new dwellings by non-nationals
compared to existing property. This type of investment contributes to the dominant method of
financing these developments, where pre-sales of a majority of dwellings are required before
funding is provided for construction to commence (Sharam et al. 2015).

3. Australian Discourse on the Need for Affordable and Diverse Housing Choice
Several recent reports (Kelly et al. 2012, SGS Economics and Planning 2013a, 2013b, Urban
Coalition 2013) as well as the state government’s metropolitan planning strategy Plan Melbourne
(Victorian Government, 2017a) have highlighted the increasing divergence of Melbourne into
“two cities”. On one hand, the choice-rich inner area is characterised by high densities of housing
and employment and is serviced by quality services and facilities, including public transport. In
contrast, the choice-poor outer Melbourne has fewer well-paying job opportunities, a lack of
public transport options, fewer community facilities and low-density housing options that are still
unaffordable to many moderate-income households. These reports suggest there is unmet demand
from a range of household sizes for apartments and townhouses in the inner and middle suburbs
(Kelly et al. 2011, SGS Economics and Planning 2013a).
All levels of government have acknowledged, at least in rhetoric, the social, environmental and
economic benefits of curbing sprawl by providing a diverse range of housing types and price
points in well-serviced, established urban areas. The recently disbanded Commonwealth
Government Major Cities Unit, in its National Urban Policy, advocates that government should:
Facilitate the supply of appropriate mixed income housing by encouraging a range of housing types to suit
diverse households’ needs across metropolitan areas [and] support affordable living by locating housing
close to facilities and services, including jobs and public transport, in more compact mixed use development.
(Major Cities Unit 2011, p. 20)

This type of idea has been reflected in both state policies, such as Plan Melbourne (Victorian
Government 2017a), and local government policies, such as the City of Melbourne’s housing
strategy, which states:
Our housing has to be suitable for our residents as their needs change over their lifetime. It should be
accessible to people from all walks of life. To meet these needs, our housing must be affordable, support
diverse communities and be good quality. (City of Melbourne 2013a, p. 7)

While all levels of government agree on the importance of diverse and affordable housing in cities,
there is an extensive list of research reports highlighting the lack of progress towards affordable
 URBAN POLICY AND RESEARCH 7

housing in Melbourne (Birrell et al. 2012, Beer et al. 2007, Burke and Hulse 2010, Charter Keck
Cramer 2012), suggesting that the housing development industry has not responded. Part of the
disconnect lies in the language used in these policy documents, which is social in nature rather
than economic, in Smith et al. (2006) terms, where housing needs are discussed in social terms but
potential options are discussed in economic terms.
While the sample size of Melbourne-based developers was small, the interviews suggest they
fall into two camps. On one hand, some do not see low- and moderate-income earners as their
target market; on the other, there are those that believe there is potentially enough demand for
good quality, lower cost housing products, but that it is not viable to operate in that space in the
current environment:
Affordable housing could become part of the investment mix in Australia. There is international money
looking to come in at wholesale level [pension funds etc.] but the maths doesn’t work yet here. (We) already
deal with the wholesale market directly investing with us in projects and buildings. Those funds are looking
to diversify their product and risk and would work with us in the investor affordable housing market.
(Interviewee A: Melbourne based Developer)

The language here reflects a desire for this market to act economically that is to deliver a return on
investment, but admits frustration that it “doesn’t work” yet. These responses reflect industry
perceptions on the demand for central city accommodation options for low-income family
households. Some believe that households with children, regardless of income, would not want
to live in the central city because of a lack of services such as childcare centres and schools. This is
consistent with the narrative described by Fincher (2007) and Costello (2005) in which demand
for central city living is seen to be coming from young professionals or empty nesters, despite an
increase of 2650 households with children in the City of Melbourne in a decade (City of
Melbourne 2012, p. 18). Fincher (2007) notes that housing professionals such as developers,
architects, planners and real estate agents have displayed strongly conservative attitudes reflecting
the established housing orthodoxy, despite espousing rhetoric on housing innovation. In
Flyvbjerg’s (1998) terms, the rationalisation of existing policy is strong from the dominant sector
represented by the development industry.
However, other industry actors believe there is unmet demand for low-income families to live
in the inner city, particularly in areas that are well serviced by facilities, but that the price point of
such housing is likely to be too high. While Kelly et al. (2011) found that people were willing to
compromise on the desire to have a detached house and would be willing to live in a townhouse
or apartment if this was located closer to jobs, public transport and services, this was only the case
if there was a sufficient price differential between a house and a townhouse or apartment. Some
informants suggested that this would be unrealistic currently in the inner city:
Is there a need for affordable family housing in the inner city? The base costs are too high, like the cost of
concrete for example, so from an equality point of view the numbers don’t stack up, the trade-off not worth
it for low income families. The life style aspect, as well as the economic, it can work for townhouse versus
a detached house but much less for high rise apartments. (Interviewee A: Melbourne based Developer)

Note again the technical, economic language used to rationalise the status quo: “from an equality
point of view, the numbers don’t stack up”. This second group of developers did see some room to
expand in that sector, but only if investors could create their own market niche:
At the moment, the reality is building two small one-bedroom apartments and selling them to an investor to
rent out is more profitable and viable than building a bigger family friendly apartment suitable to sell to an
affordable housing association. So the market is broken in that sense. (Interviewee B: Melbourne based
Developer)

There were potential benefits to involvement in affordable housing identified, if and only if
investors could create large-scale, managed low-income housing products, currently disadvan-
taged by Australian investment conditions (Kelly et al. 2013).
8 A. MARTEL ET AL.

4. Stakeholder Reflection on Who Has Responsibility for Affordable Housing?

Interviewee A and B both commented that the housing market system is either somewhat
“broken” or could be improved by better Commonwealth policy towards large-scale, low-
income housing investment. As several Australian researchers have suggested, the role of govern-
ment planning policy and regulation is contentious, with individual actors often advocating for
both more and less government intervention in different areas. Rowley and Phibbs (2012) note:
The suggestions put forward [by the development industry. . .] reflect, on the one hand, a desire for less
public sector involvement to let the market operate efficiently, but, on the other hand, necessary public
sector intervention to secure affordable housing in what are often high value areas. (Rowley and Phibbs
2012, p. 2)

This reflects a feature of neoliberal worldview that its ideals are often overridden by local
pragmatism (Harvey 2007, Peck 2010), and of the roll-back, roll-out nature of policy development
(Peck and Ticknell 2002). Similarly, housing and urban infrastructure built in Australian cities
seldom reflects housing and urban policies formulated by government, in part because of the lack
of vertical coordination between Commonwealth, state and local government, as well as absence
of horizontal integration between different strategic planning functions of state government
(Tomlinson 2012, Lowe et al. 2016). An attitude of letting the market rule prevails, as a senior
planning officer at the Metropolitan Planning Authority (MPA), an arm of state government,
noted:
We use the term “infrastructure coordination”, as the MPA doesn’t actually build things. So if the market
doesn’t want something at the time then it doesn’t get done. However, we run a number of forums and
design meetings with developers and peak body organisations, to understand their concerns and see where
government can assist. (Interviewee G: Metropolitan Planning Authority – now the Victorian Planning
Authority)

This “letting the market decide” attitude, with its implicit resignation to the autonomy of the
market, has been previously documented in central Melbourne (Dovey 2005). The various
elements of planning policy that do affect development, such as restrictions on land use, height
limits, approval processes and community consultation, the levying of developer contributions
and third-party appeal rights, all act to restrict what developers may do rather than encourage
what could be done, such as policies that mandated provision of social housing. From a State
Treasury perspective, while the Victorian Government is tasked with providing housing services,
it is seen as “ultimately a federal government responsibility for funding housing or state-based
services, like homelessness services” (Interviewee F: Department of Treasury and Finance). More
broadly, housing is viewed by Treasury through the lens of economic productivity and the overall
function of the economy, not just the property market. Social justice issues of affordability and
accessibility for low-income people are bundled with concerns about job creation and labour
productivity under a general rubric of “liveability” (Lowe et al. 2016). Any large-scale intervention
in providing affordable housing is seen as an economic “good”, but not necessarily a social
necessity:
The [Commonwealth] Social Housing National Partnerships housing policy is economic policy. (Interviewee
F: Department of Treasury and Finance)

At the local government level, housing affordability is viewed from the perspective of community
diversity and resilience, with the recognition that gentrification and rising property values creates
losers as well as winners. Yet local government action to address affordability and equity issues
must also proceed through market-based mechanisms. Current state regulation such as the Local
Government Act (1989) and Housing Act (1983) enforces a separation between the roles of
planning authority and developer. Local councils cannot provide their own social housing but
must operate through a third party, and all development must proceed via an open tender. In
 URBAN POLICY AND RESEARCH 9

addition, local government best practice guidelines for the sale of land stipulate that before any
sale of land is conducted, the land must be valued based on its “highest and best use” by the state
Valuer General (Department of Planning and Community Development 2009). This does not
prevent councils from donating or selling land below this value, but is intended to ensure the
process is transparent. Local governments can facilitate the development of housing through their
local planning schemes but continuity of planning intent and therefore policy certainty for
developers can be an issue:
Local government long term strategic planning is unstable because priorities can fluctuate between elections.
(Interviewee H: Local government housing officer)

Interviews with Melbourne-based development firms were largely consistent with the findings of
Rowley and Phibbs (2012) in discussions with Sydney- and Perth-based developers. Although
there was a strong preference for the government to not interfere with the operation of the
market, there was also an expectation that government policy direction and some form of subsidy
was necessary to increase developer action in the affordable housing market. It was repeatedly
noted in interviews that the “business as usual” model was working economically in the current
inner Melbourne market, although less so in terms of design quality or social justice. Any change
would need to be driven by government policy and regulation action rather than rhetoric:
Intervention from government is needed to fix that broken rental market, but to date there has been no
government intervention that makes being in that space viable for us. (Interviewee B: Melbourne based
Developer)

The emphasis on government taking the first step and providing support was also made by the
non-profit sector, but with several qualifications. It was suggested that government support tended
to favour larger and more sophisticated private and non-profit housing organisations with
economics of scale and improved governance, consistent with the findings of Milligan et al.
(2013b), but that this could lead to mismatch between apartment types and tenant needs. There
was a perception that government increasingly encourages partnerships between non-profit
organisations and private developers. But these relationships were often viewed as problematic
for the non-profits, particularly where their ownership model involved an equity component on
the part of their tenants rather than the usual tenant–landlord relationship:
Dealing with developers is not usually a good experience. . . we are reluctant to deal with developers.
(Interviewee E: Non-Profit Housing provider)

This reflects the conflict between market economics on the one hand and the partnership models
used by some in the non-profit sector and in local government, again a mismatch between
“economics” and the “economy”. Where the different parties have different access to power and
policymaking, the development industry can rationalise that the “market” doesn’t work that way,
whereas the non-profit and local government sector must struggle to present an economic
rationale for change. It is in spaces such as this that a collaborative deliberation approach pursued
through a partnership model facilitated by the university sector may have considerable influence
in reframing the current impasse.

5. Private Sector Perceptions of Opportunities for Involvement in Affordable

Housing
Despite the weakness of current collaboration and partnership approaches in Melbourne, and
more general cautions about bringing together actors with significant power differentials, one
potential source of partnership collaboration is the application of existing solutions from other
jurisdictions. The shortage of affordable housing for low-income households is an issue faced by
many cities. Particularly where a concentration of jobs, infrastructure and services creates strong
10 A. MARTEL ET AL.

demand for housing that is difficult to meet given restricted availability of land. While no city has
found a perfect solution to this issue, there are approaches in other cities that offer useful lessons
for Melbourne.
In Australia, a scheme partly modelled on the US Low Income Housing Tax Credit (LITHC),
the NRAS operated from 2008 to 2013 (Milligan et al. 2009). This was the first large-scale financial
incentive aimed specifically at leveraging private investment into affordable housing in Australia,
where investors were subsidised by government to deliver rental housing stock to the market at
20% below market rate. As of 2015, around 27,000 new dwellings had been constructed, with
a further 9900 in progress, with NRAS incentives. A majority of these (76%) were built in major
cities, with most being medium-density dwellings (apartments 39%, studios 9% and townhouses
22%), and the rest detached houses (22%) (Rowley et al. 2016).
Reaction to NRAS from the Victorian development industry and Treasury was mixed. One
developer was positive:
We have done some NRAS and “affordable market apartments”. The product itself is not much different; the
determining factor has been the level of government support that has flowed into those projects.
(Interviewee D: Melbourne based Developer)

While the state government verdict was more moderate:

NRAS stock was more expensive than Melbourne’s suburban median, so the rental subsidy was high, the
stock was in an intermediate market and the delivery was also slow. . .. The regulatory burden on the State
was heavy due to poor design in regulating private developers. However, we felt that it was good for Housing
Associations; the “best” players were not-for-profits. (Interviewee F: Department of Treasury and Finance)

There was nevertheless support for government initiatives that might encourage major institu-
tional investment into the affordable housing sector:
Government has a role in facilitating how projects are set up. Capital wants an income stream, so helping
capital in engaging with the income stream potential via supplementing that income stream via PPP (public
private partnership) like structures would be effective – and they would work. (Interviewee B: Melbourne
based Developer)

The potential for schemes such as this to smooth boom and bust cycles in private housing
investment were also noted during the recent credit tightening immediately after 2008:
Nothing much happens without government funding. Nation Building (National Partnership Social Housing
Initiative) really helped us during the GFC downturn. (Interviewee D: Melbourne based developer)

Two other value capture mechanisms were discussed with the stakeholders, localised property
uplift taxes and inclusionary zoning. The former involves using localised property taxes to capture
property value uplift as an area gentrifies or is improved through government investment in
infrastructure. In the US and elsewhere, this is known as Tax Increment Financing (TIF). TIF has
been proposed for use in Australia, but generally for large infrastructure projects rather than
affordable housing (Sinclair Knight Merz 2011). Discussions with Treasury officials raised some
perceived barriers to the use of this mechanism, such as Treasury’s reluctance to hypothecate
funds. The complexity of involving both state and local government taxes was also raised, for
example, as Australia local government municipalities have limited recourse to raise their own
financing in comparison with cities in the US.
The other mechanism, inclusionary zoning (or inclusionary housing), is one that has been
widely adopted in cities including London, New York and San Francisco, and to a lesser extent in
Sydney, Adelaide and Brisbane (see City of London (2011), Davison et al. (2012), and Gurran
et al. (2008)). Several municipalities in Melbourne have attempted to introduce inclusionary
zoning in recent years but without enabling legislation or policy at the state level, these attempts
been overturned by appeals to the Victorian Civil and Administrative Tribunal (VCAT, 2012).
Inclusionary zoning schemes come in a variety of forms, with differing degrees of voluntary/
 URBAN POLICY AND RESEARCH 11

compulsory participation, percentage of dwellings affected (typically from 5% to 50%) and

flexibility in developer contribution, either a direct contribution of dwellings in the development
concerned, more dwellings in a separate location or a direct cash contribution (see Nico and
Mallach 2010). To date, the Melbourne proposals developed independently by local municipalities
have called for a mandatory 5% to 10% of dwellings in a development to be included, with little
scope for alternative contributions (SGS Economics and planning 2015).
There was recognition among some industry stakeholders that inclusionary zoning has worked
effectively overseas but a strong consensus that, if it were to be introduced in Melbourne,
a substantial lead time would be required to allow land prices to adjust for the reduced yields
available to developers. Perhaps more importantly, although inclusionary zoning is being supported
by the planning function of state government, there was little support from Treasury and Finance:
The Department has economic objections to inclusionary zoning as it is seen to increase the price of
housing. (Interviewee F: Department of Treasury and Finance)

Here, we see again the dominant state government player stating opposition to a social equity
promoting mechanism in straightforward demand–supply economic terms.
Another potential approach is using well-located but underutilised land assets that are owned
or controlled by state or local governments. Providing land at a reduced cost can prove to be an
alternative to a direct financial subsidy for governments that are “cash poor” but “asset rich”.
There is a variety of ways in which this can occur, including discounted sale, providing air rights
or making land available through a trust. There is support for more flexibility in accessing
government owned or controlled land within Melbourne’s development community:
If the state is brave enough to donate the land, then the savings in the cost base can be considerable,
particularly if you are not selling the properties but transferring ownership to a housing association – no
need for marketing budget and so on, so you can probably strip out 30 percent of the cost. (Interviewee B:
Melbourne based developer)

Some municipalities in Melbourne have already facilitated the development of affordable

housing in partnership with community housing organisations by using the air rights, given
at a nominal rate, above at-grade car parks. Despite initial concern from residents, these
projects have been successful in unlocking underutilised capacity without the community
losing access to a valuable amenity. This strategy has largely been accepted as a useful one,
albeit still complicated:
Vacant land is sellable but airspace use above used land is easier to ‘give away’. (Interviewee H: Local
government housing officer)

For government land, there are incredible processes that you need to go through to sell for less than the Valuer
General’s evaluation – it’s designed as protection for taxpayers. (Interviewee G: Victorian Planning Authority)

Capitalising on the interest from the development industry in accessing government-held land,
with support from other actors such as the non-profit sector, and local councils, has the potential
to continue to grow government, private sector and non-profit sector partnerships, providing
much needed examples and experience for the private sector about the possibilities for collabora-
tion. The development of government land by the private sector fits neatly with neoliberal
economic rhetoric around governments as inefficient market actors compared to the private
sector, and so provides a consistent rationale for policy action that incorporates the private sector
in the provision of social housing.

6. Reflection on Deliberative Collaboration as a Pathway Forward

Melbourne’s planning system characterises the inconsistent application of neoliberal policy towards
government intervention in the market, reflecting the difficulty of accommodating the affordable
12 A. MARTEL ET AL.

housing sub-market with the central tenets of private property and autonomous market mechanisms in
the neoliberal agenda. Government regulation is highly permissive in some instances and highly
restrictive in others. However, there appears to be a growing recognition across the development
industry and policy stakeholders that the system is not delivering socially sustainable outcomes – that
even if you believe in the wisdom of the market, it is “broken”. Several mechanisms to expand
affordable housing have been tested in Australia over the past decade, including the NRAS, the
Social Housing Initiative and associated expediting of planning processes, and development above
local government-owned car parking lots. To date though, advocates have been unable to influence
policy sufficiently to ensure an ongoing and reliable mechanism for stable and significant development
of affordable housing. While a partnership approach is fraught with power differentials and conflicting
worldviews relating to housing, it does provide a potential way to bring governments, developers and
investors closer to a common language. A collaborative deliberation approach does not treat any
particular housing sector stakeholder as a unitary institution with one opinion, and by encouraging the
expression of conflicting views in de-escalated settings, aims to move the arguments forward or at least
allow for established positions to be reframed. Although there is a rationality created by an economic
world view, articulated not only by development sector actors, but by government officials working in
Treasury and Finance, opinions can be swayed through discourse that engages in economic and social
argument, particularly where precedent from elsewhere can be used to rationalise change.
The interviews conducted with stakeholders suggest that the development industry is, if not actively
seeking greater government intervention in the sector, largely willing and able to respond to govern-
ment initiatives in this area. This indicates a shift away from the general unwillingness to reconsider
housing orthodoxies regarding low-income families’ housing preferences that was found by Fincher
(2007) a decade ago. However, the shift was not uniform amongst all developers interviewed, and
where it existed, it resided largely in individual firms. There is not yet a critical mass of support for
policy change on the boards of the major development peak body groups, and there continue to be
influential advocates for laissez faire neoliberalism within government. The research also suggested
that local government was similarly ready to act on state government initiatives that would give them
greater ability to exploit development opportunities, particularly on local government-owned land.
Along with the non-profit sector, the strategies of the local government actors relied heavily on socially
based argument for change, often citing international best practice in support. Successes in North
American cities, and elsewhere, provide the rationality required for a policy shift in planning- and
taxation-based initiatives. Currently, it is the power relationships within different levels of government
that remain most resistant to change. State-level governments control a variety of “hands on” planning
tools as discussed, but their preference for policy change (and responsibility) lies with Commonwealth
level fiscal implements (like NRAS or the SHI), rather than localised planning instruments such as
inclusionary zoning or TIF-style revenue allocation. Rather than seeing this as an example of
government obstructionism, a deliberative collaboration approach should embrace this position as
an opportunity to continue to engage with state governments in areas where coalitions of partnerships
are forming between the development industry, investors and social housing providers, over the social
and economic importance of growing Australia’s affordable housing sector.

Disclosure statement
No potential conflict of interest was reported by the authors.

Funding
This work was supported by the University of Melbourne [Carlton Connect Initiative 2014–2015].
 URBAN POLICY AND RESEARCH 13

ORCID
Andrew Martel http://orcid.org/0000-0003-2008-7636
Carolyn Whitzman http://orcid.org/0000-0001-8544-0328

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