Is Social Housing the Treatment and Vaccine the Australian Economy Needs?

In May 2020 I published an article on How Program Management can assist in driving economic stimulus, commenting on international examples of stimulus programs implemented during the GFC, and how large programs of small/medium construction works can successfully stimulate economies. Social housing was identified within this article as a key area where demand outstrips supply and Australia’s economic recovery would benefit from investment in large programs of work in this sector.

Following the GFC, a review of global fiscal stimulus was carried out by the European Commission (EC) and the International Labour Organization (ILO). Their report highlighted the significant economic benefit that a well-considered strategy harnessing the construction sector to stimulate the economy would, and should, incorporate large programs of works delivering multiple small to medium construction projects.

The reason for this was simple: for buildings up to three storeys, over 50% of the total project cost relates to on-site labour. Of the remaining project budget, the vast majority of materials are Australian-made. Hence, programs such as housing have been proven to be very effective in creating jobs, both directly and throughout the wider economy through extended supply chains.

The construction industry is one of the lynchpins of the Australian economy. It accounts for around 10% of our GDP and employs 1.2 million people, or 9.1% of the entire Australian workforce. The industry provides more full-time jobs than any other sector of the economy and is made up of 395,000 businesses – 388,800 of which are SMEs.

Australian Council of Social Service (ACOSS) reports investment in social housing provides a greater boost to growth in GDP per dollar spent by government than tax cuts or other transfers to households because the money is spent and not saved, and relatively little of it is spent on imports. The ‘multiplier’ (boost to incomes per dollar spent) from the last major boost to social housing investment in 2009-12 (the Social Housing Initiative or SHI) was 1.3 (1.3 dollars in additional income for every dollar spent).

Just last week both the Victorian and NSW Governments announced a combined total of $6.22B of economic stimulus.

Deciphering government media announcements is much of an art as science and in an attempt to understand Australian social housing commitments, I have adjusted budget data to reflect a 12-month period as per the table below:

From the data above it appears that somewhere around 4,330 houses are forecast to be delivered across Australia over the next year.  Although this investment is welcome it is accepted that demand continues to significantly outweigh supply in this sector and more needs to be done to address the housing crisis.

The national shortfall in social housing is estimated at 438,000 dwellings in 2020 and set to grow to 729,000 by 2036.

Aware that their industry is about to stall, Master Builders Australia and the construction union CFMEU set aside their usual differences to jointly call for the government to spend $10.0 billion building 30,000 new dwellings. Based on their calculations it appears they have allocated an average $333,000 per house.

To address the estimated shortfall Australia would need to construct 45,563 houses per year to reach 729,000 by 2036.  At this number and applying an average cost of construction of $333,000 over $15.17 billion needs to be allocated per year for the next 16 years.

To put these numbers into perspective, Post WWII, in 1943, a year-long commission of inquiry led by HC Coombs warned that Australia faced a shortage of 300,000 dwellings.  Over the next 25 years, about one in every six new houses in Australia was built by government.

In other words, even before the virus, Australia already had a housing crisis, comparable to the situation during WWII.

According to economist Saul Eslake, in the post-war decades public sector agencies built more than 15,000 dwellings every year. Today fewer than 4,000 are constructed annually, which is barely enough to replace the number demolished or sold.

Over 20 years I have delivered large numbers of social and Indigenous housing throughout WA, NT and SA including Strategic Indigenous Housing and Infrastructure Program (SIHIP), National Partnership Agreement for Remote Indigenous Housing (NPARIH) and a plethora of other state and federal programs. 

These programs included alliance, early contractor involvement and traditional Fixed Lump Sum contracts. While no program was perfect, what we learnt was that when established appropriately, there is significant opportunity to deliver large volumes of work in short timeframes that deliver benefits such as:

1. Economies of scale
2. Consistency in design and material selection
3. Application of innovation in design, construction and ESD
4. Connecting programs to large training and employment programs 
5. Incorporating employment and training outcomes, including indigenous outcomes.

By applying the lessons learnt from previous programs of work, the proposed social housing investment will play a significant role in stimulating Australia’s economy.

At APP our Program Solutions division specialises in delivery of large, complex programs of work across multiple sites and multiple states. With appropriate planning, we’re confident that an integrated design, procurement and delivery strategy for the large programs of work required, will go a long way to addressing Australia’s social housing needs.