Home truths: How the housing crisis is hurting business
Download The Business Of podcast today on your favourite podcast platform.
Professor Philip Oldfield explains the economic toll of Australia’s housing crisis and suggests business has a role in building better workplaces – and cities
About the episode
The social impacts of Australia’s housing crisis are well documented, and we’re starting to feel its effect on business.
“We know in Sydney, for example, the housing crisis costs the economy $10 billion a year. So it is not just a social crisis, it's a productivity and economic crisis as well.”
Professor Philip Oldfield, Head of School at UNSW Built Environment, explains how a lack of affordable housing near major employment hubs is impacting the people who work there, and how businesses can build better workplaces.
This episode is hosted by Dr Juliet Bourke.
Want to know more?
For the latest news and research from UNSW Business School and AGSM @ UNSW Business School, subscribe to our industry stories at BusinessThink and follow us on LinkedIn: UNSW Business School and AGSM @ UNSW Business School.
Transcript
Dr Juliet Bourke: The housing crisis is one of the biggest challenges facing the Australian economy.
News anchor: Authors of a new report say Australia's housing crisis is the worst it's ever been.
Anthony Albanese: Housing is an issue that has been growing as an issue for a long period of time.
Radio Host: Homes have never been so hard to buy. In Sydney, you now need 13 times the average wage to buy a house.
Dr Juliet Bourke: Professor Philip Oldfield is the Head of School at UNSW Built Environment. He says the impact of housing affordability goes beyond just individuals who are trying to buy or rent.
Prof. Phillip Oldfield: Increasingly, we're becoming aware of the productivity impact of the housing crisis, and the impact that has on the economy and on businesses as well. We know in Sydney, for example, the housing crisis costs the economy $10 billion a year.
Dr Juliet Bourke: So, how does the housing crisis impact business, and how can we futureproof our companies to be resilient to these economic pressures?
Dr Juliet Bourke: This is The Business Of, a podcast from the UNSW Business School. I'm Dr Juliet Bourke, an Adjunct Professor in the School of Management and Governance. So Philip, what do we mean when we talk about the housing crisis?
Prof. Phillip Oldfield: When we say housing crisis, what we fundamentally mean is housing affordability crisis; and really, housing is becoming increasingly unaffordable for a huge amount of Australians. And this is not a new thing – we hear about it more and it's certainly intensified in the past few years, but for a number of decades now housing has been really challenging to afford. In particular, for people who have less income, for example the lower quartile of income earners, and that has a huge impact on a number of different parts of our lives. And so, you know, we see an increasing amount of rental stress, and that's people who are paying more than 30 per cent of their income on rent or mortgages, for example. We see house ownership in under 35s has just tanked, it's reduced by half almost. And you see an increasing amount of stress, anxiety, medical issues because of all these things happening. So it's having a really significant and negative impact on our society.
Dr Juliet Bourke: So when you say it's not just now, we've had in the past, was there a point at which it changed from what we would consider a normal issue around affordability to something that's become extreme?
Prof. Phillip Oldfield: I think there's been a creeping number of factors that've played into this, and they impact both the supply and demand side of housing. So if you go back to the 1960s, a typical household size was about three and a half people per household. Now it's closer to two and a half people. Now that increases the demand for housing. At the same time, we're building some of the biggest houses in the world here in Australia. So again, you go back to the 60s, typical house size was 100 square meters. Now it's about 220-230 square metres an average house size. And why is that? Well, people want more floor space at home, they might want the indoor cinema, the bigger lounge, etc. So we need more homes. We're building bigger homes. I think other factors are structural and tax changes that typically happened around the late 1990s. So impacts on changes to Capital Gains Tax negative gearing that were put in by the Howard Government, and they made it more attractive to invest in property. And all of a sudden, housing became a wealth accumulation tactic as well, so that increased the demand on housing as well. And then finally, you know, we've not been building enough homes, I think it's arguable to say. So we have some of the lowest rates of number of homes per 1000 people in OECD countries as well. So there's clearly a need for us to build more from a supply end of the perspective as well.
Dr Juliet Bourke: And so talk me through if you can what that current state is doing for businesses. What does it mean if there's housing pressure on people for the owners of businesses?
Prof. Phillip Oldfield: I think a lot of the narrative around the housing crisis focuses on the social impact. So we know 10,000 people a month are becoming homeless, which is a really shocking figure especially in a wealthy, relatively low populated country like Australia. But increasingly, we're becoming aware of the productivity impact of the housing crisis and the impact that has on the economy and on businesses as well. So at a fundamental level, the real base level, if you are spending more of your money, more of your income, on housing, you've got less money to spend elsewhere. So if your rent goes up, you may be spending less on coffees, less on lunch, less on leisure. And so that's going to impact small, medium and large businesses, because there's money in the economy to be spending. But then you've got the impact on employees as well, so businesses who hire people. So if you are a business in, say, a CBD area, or an area with high density and a high amenity, where housing is particularly unaffordable and you're seeking to hire people, you will find that it might be quite difficult, because it's particularly unaffordable to live in that area. So, people you hire might be having to commute 20-30 kilometres even. And we see this evidence for example in Melbourne, there was a recent study that showed that of essential workers – childcare workers, cleaners, delivery drivers – 50 per cent who work in the CBD live at least 20 kilometres away. So if you're a business, if you're an employer, you're going to find that you might have increased absenteeism. Your staff might be more stressed after a long commute. You might find it challenging to retain those staff, because they may be looking for other employment local to where they live. And so there's this whole kind of spectrum of indirect impacts on businesses which is going to make it challenging. And we know in Sydney, for example, the housing crisis costs the economy $10 billion a year. So it is not just a social crisis, it's a productivity and economic crisis as well.
Dr Juliet Bourke: The government's come into power with some new promises around housing policy. What does that look like?
Prof. Phillip Oldfield: So the Labor government have said they will be spending $10 billion on 30,000 social and affordable homes, and that's part of the 1.2 million homes that have been promised by the government. And for me, social housing is a key characteristic of how we're going to tackle this housing crisis. And social housing is effectively subsidised housing, government-subsidised housing. And in typical market-led housing, people pay whatever the market says for rent. In social housing, it tends to be what people can afford, so it tends to be capped around 30 per cent of income. And that's important because it allows for particularly an option for lower income families and communities to live in those kind of high density and high amenity places and contribute to things like businesses. I would say, though, that those 30,000 new homes... I think we need more. There's good evidence that while that $10 billion is an investment, it's a cost to the government, that when we build social housing, we get an economic benefit back. So Andy Nygaard from Swinburne University has shown there's a multi billion dollar benefit to the economy, because you've all of a sudden got communities who were paying more than they could afford were in housing stress, and then all of a sudden they have potentially more money to invest in businesses and leisure and other things. And also they've got greater access to things like employment, and all that has an indirect benefit to society as well. So social housing should be seen not only as an economic cost, but a societal benefit as well.
Dr Juliet Bourke: Can you talk a little bit more through this idea of what impact does it have on businesses? Are there other impacts that you can think of?
Prof. Phillip Oldfield: So when we look at the statistics, SGS Economics have this fantastic dashboard that shows the level of affordability or unaffordability in different council areas. And so if you look at Sydney, for example, Greater Sydney, and if you look in the east, the central and the inner west, for hospitality workers, much of the housing, virtually all of the housing, is severely or extremely unaffordable. And that effectively totally limits that cohort of workers from being near their places of work or a lot of places of work. So if you're a coffee shop owner in the CBD, for example, you open up at six o'clock in the morning, you know, people are going to be commuting in probably an hour, an hour and a half potentially, because they find it extremely challenging to afford to live near that place of work. And that's going to have all those knock-on effects, potentially stress, potentially fatigue, challenge us to retain staff as well. So there's a real mix of impacts.
Dr Juliet Bourke: Don't we see that in every city around the world? The gentrification and its around those CBDs. I think about London, I think about New York, and Sydney is obviously an example of that. Isn't that what we would expect?
Prof. Phillip Oldfield: I think we do see this in many cities, but we also see many cities challenging this. So if you look in Paris, for example, they are fostering what are called '15 minute cities'. And in a 15 minute city, you seek to provide a mixture of affordable housing, social housing and market-led housing, alongside jobs and amenity, all within a 15 minute cycle or walk. So, I think we do see this in many developed cities around the world, absolutely. I think just in Australia, it's pushed to that level of extreme.
Dr Juliet Bourke: I think I've heard about that before, this idea of 15 minute cities, and I thought it was part of New South Wales Government policy to develop these hubs. So Parramatta being one of them, and maybe Central Coast... is that the idea that's in our own policy planning?
Prof. Phillip Oldfield: In Sydney, there's a Greater Sydney Commission plan which talks about three main cities. So you've got the Eastern Harbour City, which is the kind of CBD, the central River City, which is Parramatta, and then the new Western Parkland City, which would be aerotropolis. I think in reality, Sydney has got far more hubs than that. You've got Liverpool and Blacktown and Chatswood, and all these are hubs – are centres of density, centres of business – and we call that a 'polycentric city'. So that is a city with multiple different centres. And that has many benefits, because it creates that kind of mix of different places to work, places to live, amenities that allow for and kind of challenge that kind of monocentric idea that all the jobs are in the centre, and then you've got this hinterland of suburbia and everyone has to commute in the same kind of direction. So if you think about 20th century urban planning was all about zoning different activities. And so you had the central business district, the finance district, and then you had suburbia where people lived, and then you might have industrial areas, and then you might have the kind of cultural... the West End, for example. And everything was about creating these kind of zones, almost like Sim City I guess, and then connecting them with highways. And we know now that is not an effective way to plan a city – because you get great transport congestion problems because everyone's going in the same direction, and that costs you time, it costs money as well, and you don't get that vibrancy of different areas as well. So really, the kind of 15 minute city as well is about vibrancy of mixed use. If we look at the City of London, for example, the City of London is a square mile of major office and finance buildings – skyscrapers often eight meters apart from each other, big glass towers, a real hub of knowledge and expertise, and that has benefits of proximity, innovation and entrepreneurship. And the Chief City Planner from the City of London, a guy called Peter Wynne Rees, talked about the benefit of that, and that is that you had the benefit of proximity. You had these different companies all close together, but you also had the pubs down at the base of all these buildings. And so people would work and they'd come down to the pubs in the evening, and that's where the deals were made. And so that had a great benefit. The problem was if you go to the city of London in the weekend it's a ghost town, because it had a very low residential density. No one lived there. And so if you're a business there, you're only going to be open Monday to Friday. And so we see now cities seeking to find a better balance between work and residential as well, to ensure there's vibrancy, to ensure people are safe, to ensure that streets are full, there's activities, and we've got that kind of buzz of life that goes on, you know, at least during the kind of daylight hours.
Dr Juliet Bourke: So there's always going to be a place for a CBD in the future.
Prof. Phillip Oldfield: I think there's always going to be a place for the CBD. I think the idea of the demise of a CBD is probably misplaced. I still think a lot of employers, big multinational employers, want to be in the centre. And the value of the CBD is a proximity of talent that you're bringing together into one place. You know, these World Trade Centres, which are 100s of 1000s of people, talented people, in a close proximity together. And I think that has an attraction for many businesses, an attraction for many employers. And you can't create that everywhere, so you tend to have these bigger CBDs and then these smaller kind of satellite CBDs as well. And I think getting that balance right between them is going to be key.
Dr Juliet Bourke: And what does that mean then for Australian cities? Because I think we have used that model of a CBD, that is basically where you do your work and then you live somewhere else. Should we be having more cities that are built for residential as well, or does that create its own problems?
Prof. Phillip Oldfield: We are seeing, I think, Australian cities move to more polycentric models. So if you look in the City of Sydney, for example, they've definitely increased residential provision. But again, they're seeking to find that kind of right balance, because if you develop a lot of residential buildings in a CBD, residential buildings are very difficult to redevelop later. And the reason is we tend to stratify them, and so they're divided up into different owners and if you want to change that building to an office building later in 20 years time, it's very difficult because you need the majority of owners to agree to that. And so there's this real balancing act in our CBDs, in our urban centres, trying to find that right mix between amenity, between culture, between residential apartments, between offices, because the other benefit of a CBD is that intensity of workplace, is that intensity of business. And there's a reason why all the tech companies want to work in San Francisco, it's because they can collaborate, they can talk to each other, and we haven't yet replicated that digitally. You know, we can't quite do that on screens at the moment. And I still think a lot of people are talking about how in our age of teams and zoom that maybe the CBD is dead, I don't think it's dead at all. I think intensity of workplaces are always going to be appealing to companies because they can bring different levels of talent together.
Dr Juliet Bourke: Just thinking about multiple uses for buildings... Is there anything innovative that you've seen? Innovative ways that we could share space that means that this issue that we've got with affordability changes?
Prof. Phillip Oldfield: I think that would be challenging for office and residential, because if you think about the qualities of a residential space... and we know we spend around 60 to 70 per cent of our time at home, that's quite a lot of time, and that means the environmental and spatial quality of the home has a huge impact on mental wellbeing, physical health, psychological health as well. And offices are not really great places to live. So think about what a typical 1980s office building looks like, and we have a lot of them in our city centres, and they are quite low occupancy at the moment because not a lot of people are working there. A lot of people are working at home, they're not very attractive assets at the moment. If we want to try and convert them to residential it's actually quite difficult. And it sounds like a great idea – we've got this glut of empty offices, we need some homes, let's put them together. But residential buildings tend to be slimmer, and the reason they're slimmer is because we want access to the envelope. We want access to the window. And so bedrooms need windows, living rooms need windows, and so they're very difficult to plan into deep office buildings. But I do think there's many office buildings, there's many stranded assets, older buildings, that can be converted to homes. Effectively, there's no silver bullet for the housing crisis, and I think part of the challenge is everyone's looking for this singular solution. In reality, we're going to need to do lots of different things. Build more homes, build lots more social homes, convert stranded asset offices to residential, change tax and structural systems as well. There's a whole suite of different things we're going to need to do.
Dr Juliet Bourke: So what role can business play in tackling the housing crisis more broadly, Professor Barney Tan says housing initiatives implemented by UNSW for its students could provide a blueprint for other large companies.
Prof. Barney Tan: Universities, like large businesses, indeed do draw people to seek housing in specific areas. Rather than just talk about the housing crisis, UNSW has really rolled up its sleeves and gotten involved directly. They've recognised that housing isn't just a student issue, it's a workforce and community issue. So instead of just offering support services, they're actually building affordable housing using data to shape policy and even developing new low-cost modular homes. And when you think about it, that's exactly what large employers should be doing too because whether you're a university or a major company, you are part of the housing demand in that area. So what is UNSW doing specifically to address the housing crisis? Well, we have a few things going on. Firstly, they've pledged to double the number of student beds on campus over the next decade, and they're aiming to do it in a way that cuts rent in half as compared to the private market. And that's huge, especially in a city like Sydney where housing affordability is a real barrier to education. But what I especially love is that they're not just building more dorms, they're designing mixed tenure housing. So for instance, early career researchers or essential workers like nurses or teachers can live there too. It's about creating a stable, diverse community on and around campus. And then the UNSW housing analytics lab that was established recently, it's basically an entity that is going to be using data – things like zoning, rental prices and transport networks – to figure out where affording housing is most needed and how to get it built. And they're working with partners like Commonwealth Bank, Mirvac and even Amazon Web Services to make sure that research actually translates into informing policy and subsequently real world action. And on top of that, UNSW is also piloting these modular, low carbon housing pods that are quick to build, cheap to run, and ideal for infill sites on regional campuses. So they're not just trying to lower rents, they're rethinking the whole housing model from the ground up. So large organisations can certainly be looking to replicate some of these initiatives. Big employers, whether it's a hospital, a law firm or a tech company, they may feel the same pressure. Long commutes and rent stress often lead to employee burnout, absenteeism and high turnover. Investing in housing solutions isn't just good for employee wellbeing, it's actually smart business. And the UNSW approach actually gives us a little bit of a roadmap – you don't need to become a property developer, but you can certainly partner with build-to-rent operators and offer staff access to subsidised accommodation that is close to work. You can also use data to figure out where your staff live, what their commute looks like, and what kind of housing would actually help. And you can actually advocate for zoning and planning reforms that allow more affordable housing near employment hubs. That's something universities and businesses can do together, but the underlying thing is that this has to be based on data. It has to be grounded in data that you deliberately gather and analyse. At the end of the day if UNSW can make it work in one of the toughest housing markets in the country, there's no reasons why large organisations can't take some of these ideas and run with them, because housing isn't just a social issue, it's an economic one. And more and more, it's becoming a competitive advantage.
Dr Juliet Bourke: It reminds me of a piece of research that I was involved in some years ago where AMP Capital was looking to develop QTT down in Circular Quay. And the question that they asked us was, 'If we think about a building that's going to stand for 80 to 100 years, how do we build that now when we know that the use of it will change over time?' And one of the things that we looked at was then the different sort of trends that could happen – one of those trends being we're going to be doing more work virtually, and it creates this paradoxical effect that we want to be together locally, so we want vibrancy in our places of work. Are you seeing that as a trend?
Prof. Phillip Oldfield: Absolutely, I think office workplace design has changed quite radically. So you go back to the 1960s or basically any office building in the 20th century, what we did is we drew an efficient floor plan – big floor plan, deep floors – and we extrapolated it 30-40 times, and we fitted people in and they had their cubicles, they had their space, they came in every day. And then around the turn of the millennium, there's this realisation and evidence came out to show that might not be the best way to work, that might not be as productive way to work as we would like. And we saw impacts like sick building syndrome, where if you work in a very air-conditioned kind of stuffy environment without access to natural light or greenery, you can get quite ill. You know, you can become fatigued, you can have coughs, you can get dry eyes, and that increases things like absenteeism and causes many problems. And so around the turn of the Millennium, offices started to change their designs. They built atriums in them so people could see each other, and different teams could see each other, and there might be stairs you could walk up. Gardens started to emerge, windows that actually opened, access to natural light. Now we've seen that really accelerate, because all of a sudden the office is competing with the home. If you can do your kind of focused individual work at the home, the office then becomes a place of community, collaboration and creativity. And so we see office buildings now emerging that are really challenging what a workplace could be. And one example I would give is the Atlassian tower, because I think that's really interesting. It's a tech company, they're building their headquarters in Sydney. Firstly, they're building it above Central Station, right? So it's easy to get to. They're making commuting easy. But this is a 40 story building that effectively has one concrete floor every six stories, and they're building timber floors in between, basically stacked timber villages with gardens all wrapped around. And there'll be three types of spaces you can work in – you can either work in a garden space, an air-conditioned space, or you can work in a mixed-mode space as well. And many offices we're seeing as well might have beehives on the roof, might have vertical farms that grow your own food for lunches. So we're seeing, I think, a series of employers and businesses really creating these great spaces to attract their employees in but with great sustainability credentials as well, because another part of working for a company is having the same values as that company. So that Atlassian tower will have half the carbon footprint of a standard tower, so great sustainability credentials, and I think that's a part of feeling belonging with the company as well, its part of the value proposition. And that is part of these trends that we're now seeing post kind of COVID that's really reinventing that idea of what the office can be.
Dr Juliet Bourke: I think that's really interesting, and it makes me think as a business owner you want to select a building, but also the space around that building, that is going to attract people to you and going to give them a good employee experience. Would that be a trend that you see that business owners are making different choices about which buildings to lease or design?
Prof. Phillip Oldfield: Yeah. And you can ask, what's a business model here? Why are they doing this? And if you think about a 50-year life cycle of a building – let's say the Atlassian tower will last 50 years – that building costs $1.4 billion to build. It is not a cheap building. Let's say 10 per cent of that $140 million is all the gardens and all the extra kind of things. That's a big sunk cost. But over 50 years, we know that for a business owner, 10 per cent of their costs are to build the building, 5 per cent to maintain it, and 85 per cent are the salaries of the people who work in it. So if you can create a space that builds better belonging, that improves productivity, makes people happier, makes people work a little bit harder, makes people more comfortable, reduces sick building syndrome, the economic argument is really there.
To stay up-to-date with our latest podcasts as well as the latest insights and thought leadership from the Business School, subscribe to BusinessThink.