Tag Archives: neoliberalism

Rental Affordability Help: Comparing Public Housing and Commonwealth Rent Assistance

When it comes to rental affordability, the two main ways Australian governments provide assistance to those who would struggle most (or miss out on housing entirely) are through the provision of public housing, and through the payment of Commonwealth Rent Assistance (CRA) to households with Centrelink incomes in the private rental market.

Background

These programs are generally the responsibility of different levels of government. State governments provide public housing (although sometimes with federal funding), while the federal government provides CRA (although state governments also provide some cash-based assistance to renters). But the two schemes also represent very different philosophical or political economy approaches to housing support. Public housing is a direct intervention involving government provision of goods and services, while CRA is premised on the primacy of the market and private rental, with the government role simply to assist those on the margins.

To put it crudely, the former is a social democratic approach, the later a neoliberal one.

Unsurprisingly given this broader political economy, since the 1980s we have seen an increased role for rent assistance at the expense of investment in public housing. (The parliamentary library has provided a nice summary of the shift in the 1980s and 1990s). A comparison of how the two approaches to rental affordability assistance stack up (and for who) therefore not only has relevance for the policies themselves, but also has broader political economic implications.

The following comparison does not deal with important issues of renters’ rights, landlord behaviour, or the maintenance and condition of properties, but simply focuses on rental affordability – “following the money” at a number of levels. While the data is South Australian, the patterns are likely to be similar in other states.

Results: Rental Affordability and Costs to Government

The results can be summarised in a simple graph, noting that it refers only to public housing (i.e. government-owned and managed housing) and does not include community or other social housing.

Graph: Benefits and Costs of Public Housing vs CRA, 2020-21. Public housing has higher support for renters, costs government about the same as CRA in current costs, and less when capital gains are included. Numbers are in the table below.

The numbers are based on calculations made primarily from Productivity Commission data, supplemented by the SA Housing Trust financial statements, and are summarised in the table below. The rationale and detail are set out in the methodology section below, along with some caveats.

Table: Public Housing v CRA, South Australia, 2020-21. Summary data. The figures are available in the methodology section.

Based on these figures it is clear that public housing provides a higher level of support to tenants and gets renters out of housing stress. Further, public housing costs the government/taxpayer about the same as CRA in year-to-year expenses, and slightly less when capital costs and changes in asset valuations are taken into account.

These figures do not include, on the one hand, the opportunity cost of the upfront investment in public housing, and on the other hand, the full capital gains and land tax implications. There are some estimates of these below, but the figures get rubbery and are incomplete.

In summary though, the conclusion from the more concrete rental affordability comparison is simple and stark: public housing is better for tenants and for tax-payers.

Commonwealth Rent Assistance to private renters is important (and is currently too low), but even an increased CRA is no replacement for public housing. The fact that recent years have seen a chronic under-investment in public housing and a preference for support in the private market is another neoliberal own-goal.

Method and Explanation

Comparative Level of Support

The Productivity Commission (PC) data shows that in June 2021, some 26,804 SA public housing tenants were paying less than market rent (Table 18A.5). This was around 89% of all SA public housing tenants. That is, 11% of public housing tenants received no financial support for renting: they were paying the full market rate (and in theory, with efficient management the government should have been receiving a return on investment from these renters).

For the rest, there is a simple calculation of the level of financial support. PC Table 18A.5 estimates that for the week of 30 June 2021 the difference between total market value of rent for all public housing and the rent actually collected in South Australia was $3,483,000. Based on the number of tenant households paying less than market rent, this equates to an average subsidy of $130 per household (per week). (With higher average market rents, the figure for the whole of Australia is $192 per week).

By comparison, the maximum CRA at that time was $70.40 per week for an individual household (or $82.81 per week for a household with 2 children, going up to $93.52 for three of more children).

There are of course great intricacies in eligibility criteria and rates for CRA, and there are fundamental difficulties accessing public housing with long waiting lists, but on the basic comparison above, provision of public housing provides far greater level of support per household than Commonwealth Rent Assistance.

Implications for Rental Affordability

The provision of public housing is not only a more generous benefit to those who could not afford market rental, it makes a significant difference to the household budget. Public housing rent in South Australia is capped at 25% of household income, so by definition no public housing tenant should be in housing stress (based on the widely-used 30/40 rule: housing stress = being in the bottom two income quintiles and paying more than 30% of income for housing).

By comparison, calculations I did for a recent SACOSS Cost of Living Report showed that even with CRA, key Centrelink recipients would still be in significant housing stress. The rental affordabilty table from that report is reproduced below and is based on SA government data for median rental prices in the cheapest Adelaide suburbs of $300 per week for a 2-bedroom unit, and $400 for a 3-bedroom house.

Table: Rental Affordability for Low Income Earners, (Dec 2021). Table from SACOSS Cost of Living Update, https://www.sacoss.org.au/cost-of-living-49

Overall, ACOSS estimates that 45.7% of CRA recipients nationally are paying more than 30% of their income on housing as CRA has failed to keep up with increasing rents over recent years. Accordingly, advocates are calling for a 50% increase in CRA (alongside significant investments in public housing). However, on the figures above, even this would not be enough to get many households out of housing stress (as other income support increases are also urgently required).

Again, CRA fares badly in the comparison to public housing.

Cost to Government

The figures above might suggest that public housing is more expensive than CRA (because the support is more generous). However, this is not necessarily the case due to the rent paid and capital gains (which, as I have pointed out elsewhere in relation to private housing, is a game-changing income stream which is often ignored).

Current Yearly Costs

The Productivity Commission data (Table 18A.43) shows a net current expenditure of $10,361 per public housing dwelling (a figure in line with the South Australian Housing Trust financial statements (SAHT) for 2020-21 when capital costs are subtracted from expenses). However, calculating from PC Table 18A.5 which shows total rent collected in the week ending 30 June as $4,169,000, the rent collected equates to $6,730 annually per property (rent collected x 52 weeks, divided by 32,212 properties as per Table 18A.43). Deducting this rental income from the annual expenditure, the net current expenditure is $3631 per household.

The expenditure for CRA is simply the weekly rate of $70.40 multiplied by 52 weeks for the year. The total is $3,661, which means the recurrent cost of assisting one household through CRA is about the same as the public housing current costs above.

Including Capital Costs

The Productivity Commission data (Table 18A.43) shows an annual depreciation of $1,578 per property in South Australia – which equates to nearly $51m for the whole public housing estate (again, broadly in line with SAHT data). However, the Productivity Commission does not account for any capital gain.

By contrast, Note 5.2 to the SAHT financial statements includes the periodic revaluation of public housing rental properties with increases in 2020-21 of $69.6m in land value and $24.4m in buildings. This $94m equates to $2,799 per household when allocated across the 33,590 public houses (including State-Owned and Managed Indigenous Houses [which are included in the SAHT data, but not in the PC data used above]).

The difference between this capital gain of $2,799 and the depreciation of $1,578 per household results in a net capital gain of $1,221 per public housing household. This is not cash income, but represents a fair accounting of capital income based on the official data.

Subtracting this capital income from the net current costs to government gives the bottom line of public housing costs of $2,410 per household. Again, this is cheaper than the $3,661 yearly cost of Commonwealth Rent Assistance to one household.

However, this capital accounting is not complete – although in going further the figures get rubbery. For this reason, they are not included in the summary table above, but are discussed here.

The big drawback of public housing is the cost of the upfront investment to build the houses, or as the Productivity Commission describes it: “the cost of the funds tied up in the capital used to provide social housing”. While the PC suggests caution in interpreting the data, at Table 18A.43 it estimates this “Indicative user cost of capital” at $18,933 per year for each SA public housing dwelling – an imputed figure which dwarfs all other public housing costs (and would make CRA much more attractive to government).

Yet this accounting is one-sided and does not complete the picture because while capital costs are imputed, the capital gains are not included – and not even fully recognised in the SA Housing Trust revaluations of its rental properties.

The SAHT (Note 5.2) estimate of a total value of rental land and buildings of $7,121m at the beginning of the 2020-21 year, and so the $94m revaluation noted above represents only a 1.3% annual increase in the capital value of public housing assets. This was at a time when market analysts CoreLogic were suggesting a 17.9% increase in Adelaide housing prices. It is not clear why the capital revaluation was so low, but is perhaps based on accounting practice based on depreciated asset (book) value rather than changes in current market price.

That said, market prices are very volatile and uncertain, and both the Productivity Commission’s indicative user cost of capital, and any market valuations, require bold assumptions about interest rates and market behaviour. But if, or to the extent that the Productivity Commission’s imputed cost of capital represents a market value of public housing assets, it is equivalent to about 8.5% of the $7,121m public housing estate valuation. That is, when housing prices go up by more than about 8.5%, the government makes a net capital gain on public housing (or loss when less than that) even with the inclusion of the cost of capital.

Again though, I am not confident of this figure as a true market costing or representation of capital gain. If the market value of public housing properties is significantly higher than the book value, then a smaller capital gain is needed to balance the cost of capital.

Final Caveats

There are a two final caveats to the calculations above.

Firstly, there is no accounting for differences in land tax revenue to government from public or private ownership of rental properties. The SA Housing Trust financial statements show $139m in land tax equivalent expenses – which was 42% of their rental property expenses. While this is the government paying money to itself, it is legitimate accounting and necessary for a comparison to private market support costs – not least because if rental properties are left to market provision with government subsidy through CRA, the land tax take may be considerably less.

For instance, apportioned evenly across all public housing rentals, averaging the total land tax paid across all public housing properties gives a land tax bill of $4,179 per property. By contrast, if a property with the average (book) value of a public housing dwelling ($215,000 based on the $7,121m total valuation) were a private landlord’s only investment property, they would pay no land tax. Even if the private landlord owned 4 such properties, they would only pay $2,535 land tax – about 15% of the housing trust land tax bill for four properties.

It is impossible to calculate the extent of the difference in land tax income for government because it depends on private landlords’ individual circumstance, but rental housing in public hands clearly maximises land tax revenue. Accordingly, in the comparison of public housing costs vs CRA, public housing costs to government should theoretically take account of this land tax gain.

Finally, while the comparison is not a support for existing tenants or a cost to government, there is a difference in the impact of public housing and CRA on rental affordability more generally. CRA payments create no new housing, and while they assists renters into the market they also allow them to bid up rental prices because those renters have (slightly) better rental affordability. By contrast, public housing brings new supply to the market and puts downward pressure on market rents.

Given the above caveats, my calculations are incomplete, but even without precise cost-benefit calculations, the figures above that are available and robust suggest a strong case for public housing.

The Gender Wage Share: History and Implications

This post traces the gender wage share and women’s increasing share of the total wage pool in Australia since the mid-1980s. Women as a whole currently earn just 38% of all wage earnings in Australia. This is a product of the aggregate of the gender wage gap and the difference in labour force participation, and by my calculation amounts to a difference of around $200bn a year.

In a previous post I argued that the magnitude of the difference constituted a significant macroeconomic flow with an important role in the reproduction of society – and of gender relations in particular.

The rationale for the use of gender wage share data and the conclusions drawn are set out in that previous post. Here I want to consider the changes over time in those gender economic aggregates, and the implications of those changes for our understanding of inequality.

Time Series

The graph below shows the female share of “total earnings” in the ABS Average Weekly Earnings data from 1984 to the present. This is a simple calculation based on average employment earnings multiplied by the number of workers.

It is important to note that “earnings” here refers only to employment income. In the ABS data it is called “total earnings” because it includes overtime – as opposed to ordinary time earnings (which is also in the data set). However, that should not be confused with a total of all earnings, which could include social security payments, investment income or other mixed income. The World Economic Database now has this all-earnings data for Australia, but the time series is more limited and contains a bold assumption that mixed income is shared in the same proportion as other income. In any case, the results are similar with the data for 2019 showing a female share of 36.6% of total earnings, while my data has the female share at 38%.

Line graph of Female Share of Total Earning 1984 - 28.6% 2020 - 38%

The graph shows three phases in a history of an overall increase in women’s share of the total wage pool over the last 36 years. From the mid-1980s through to 1992, there was a significant increase in women’s share going from 28.6% of wages to 33% of the total wage pool. This was based on a small narrowing (2 percentage points) of the full-time gender wage gap, but a more significant increase in women’s share of jobs – going from 37.9% of employment in 1984 to 42.6% in November 1992.

After 1992, women’s share of the wage pool continued to increase, but at a slower rate until 2012. There is a change in ABS data series here so some data discontinuity, but women’s share of total wages has grown significantly since then from 34.9% of all wage earnings in 2012 to 38.5% in May 2021. This has largely been on the back of a decrease in the full-time gender wage gap (4.5 percentage points) and a more modest (1.9 percentage point) increase in the share of jobs.

These drivers are shown in the following graph which creates indexes showing changes in the gender wage share alongside the proportion of the workforce who are women (participation) and the changes in proportionate remuneration (that is, average female full-time earnings as a proportion of male full-time earnings). This last index is just a different presentation of the commonly-cited gender wage gap.

As can be seen, the increased gender wage share tracks most closely with increased participation. However, between through the 1990s and early 2000s the wage share is dragged down below the participation rate increase by a stagnation of the remuneration gap (evident in the F-T wage proportion) from 1992 to 2007, followed by a widening of this gap after the onset of the global financial crisis in 2007. From 2014 this dynamic largely reversed with the decreasing remuneration gap accelerating the female wage share faster than the increase in participation.

Index of Gender Wage Share, Gender Wage Gap (F/T Ordinary) and Participation (female proportion of jobs).

The overall trend of an increase in women’s share of the earnings is not unique to Australia. The World Inequality Report 2022 data shows that women’s share increased between 1990 and 2020 in most regions of the world (with China being the notable exception).

Implications

This gender wage share data has implications for how we understand and speak about inequality. With the female share of the total Australian wage pool growing significantly and (relatively) steadily since the 1980s we have seen a move towards greater gender equality (at least in terms of labour market incomes). Yet, particularly following Piketty’s work, it is now a fairly standard claim on the left that inequality has increased since the early 1980s.

This claim of increased inequality is certainly true based on the usual measures of household income (the data is well summarised by ACOSS/UNSW), but given the data on the female wage share we need to recognise that claims about increasing inequality are gendered, or at least gender-blind, statements. They are not wrong, but they are privileging particular data and the gender-blind category of the household over other standpoints and data which focus on women’s income.

Or to put it another way, such measurements of increasing inequality are based on (and promote) views of society as households stratified along a continuum, rather than as structured by gender (and other) inequalities.

Further, the gender wage share data puts a different light on the left critique of neoliberal or right-wing labour market policies. The standard argument is that the removal of labour protections, penalty rates and working conditions, and the increasing precariousness of work are likely to impact disproportionately on women who are in the most marginal and disempowered jobs. (See for instance Alison Pennington’s excellent critique of last year’s Industrial Relations Bill).

There is no argument from me with these critiques of the neoliberal reforms of the last 30 years. But what the gender wage data shows is that these neoliberal advances have been counterbalanced and ultimately outweighed by the movement of women into the labour market in greater numbers and some closing of the gender wage gap.

This is not an argument for complacency, but rather to argue for a more nuanced and multi-level analysis of our analysis of inequality. There are other forces beyond neoliberalism which are also shaping economic outcomes.

Caveats and Conclusion

While greater gender equality would (and should) normally be seen as a good thing, the increased female wage share is not unproblematic. Firstly, it should be recognised that this is an increasing share of a proportionately decreasing pie as the labour share of total income has been decreasing over much of the period. (See the Journal of Political Economy’s Special Issue on the Declining Labour Share).

Further, it must also be recognised that, in an era of stagnating wages and increasing cost of living (in particular, rapidly rising housing costs), one of the drivers of increasing female workforce participation is the need for households to have two incomes to stay afloat.

Unequal symbol with words "inequality - not what you think"

Ultimately though, regardless of these caveats on the increasing gender equality story, what the gender wage share data shows is the importance of standpoint and the questions we ask about inequality (and much else). Asking questions about structural inequality (such as gender, class, race, geography) provides different perspectives and different conclusions than the traditional focus on household income – a theme I will return to in future posts about other structural inequalities.

And of course, there is also the sheer size of the $200bn gap in the gender wage share, which is important in its own right (and not visible in the mainstream statistics).

Talking about Public Housing: Political Economy, Neoliberalism or Welfare?

This article is a background to political economy, and why it matters in policy advocacy – in this case, in an approach to public housing. But it is also about political messaging, channelling Henry Lawson into a 2-minute housing video, and calling out neoliberalism.

This piece began as a background to the making of a short SACOSS video on why public housing matters, but ended up trying to explain what political economy is and what it offers to (and challenges in) social change advocacy.

Public housing matters. South Australia needs more of it.
A link to the video is in the text below

Political Economy

The doyen of Australian political economy, Frank Stilwell describes the political economy approach as having four key features (in contrast to mainstream neoclassical economics). Political economy has:

  • A central focus on inequality
  • A pluralist method engaging different economic traditions
  • An interdisciplinary inclination
  • An ethical orientation in explicitly putting values, as well as facts, at the heart of analysis.

I plead guilty to all of the above. I would also note that the focus on inequality is a systemic one, not one based on individual differences, and that in a pluralist and interdisciplinary inclination, people’s stories matter. People are not simply economic actors or statistical units. They have unique stories and their representation matters.

This latter perspective is standard fare for advocacy in the charitable sector, but often at the expense of systemic analysis. This approach is encouraged by the demands of media and communications for powerful images and personal stories, but can end in disempowering “poverty porn” rather than social change.

But how do we do and communicate political economy, foregrounding the systemic nature of inequality, people’s experience and values?

Public Housing

This was the challenge for me at work earlier this year in developing a campaign call for a significant investment in public housing.

South Australia once had a national (and even international) leading public housing system, but over the last twenty plus years it has been diminished by aging stock and the sell-off of houses and land. Where public housing tenants made up 44% of renters in 1994, and 12% of the total housing market, in 2020 those numbers had reduced to 17% of renters and less than 5% of the total housing market (ABS data).

Unfortunately, the need for public housing had not diminished in that time. At 30 June 2020, the public housing waiting list was over 17,000 applicants – equivalent to 53% of total public housing stock (Productivity Commission data).

This decline and deficit was not an accident. It was driven by government policy and a significant ideological change in seeing public housing as a last-resort welfare measure (at best), or at worst simply overly expensive and counter-productive. This contrasts with the earlier vision of public housing as a market intervention at scale which reduces housing costs for all by increasing supply – a piece of public capital conditioning the private rental market.

In an era of neoliberal dominance where economists and governments had already decided that public housing is old-fashioned and a burden on the taxpayer, we were told it was best to highlight the waiting list and identify people/groups in need that were missing out. To appeal to sympathy in telling those personal/representational stories of stress and homelessness.

This approach ticks the box of a values-based policy, and it is a much easier policy and communication ask. With it, perhaps we could eek out some investment to house some more vulnerable people. But it would takes us back to the neoliberal frame of public housing as a welfare measure – the very approach which is part of the problem.

Economic Approaches to Public Housing

To develop this argument more, I again borrow from Frank Stilwell, in particular his categorisation of modern economic thought into conservative, liberal and radical schools.

In this framework, a conservative economic view sees a housing stress and homeless as an individual issue and government intervention in the housing market as counter-productive. Such intervention competes with productive capital and stops the market’s efficient allocation of housing. I know the theory, but personally, I just can’t see that the problem with Australia’s insane housing market is too much public housing!

A liberal approach might see homelessness as a market failure requiring intervention – for instance, subsidies or supports for individuals. While such interventions may be useful, by the nature of the underlying analysis, they are narrow in their focus and constrained within a market framework.

A more radical political economic approach would see housing stress and homelessness as systemic and relating to more than market supply and demand – a problem that also encompasses income, geography and infrastructure, cultural expectations, competing property rights, and entrenched and reinforcing patterns of inequality.

If this political economy analysis is correct, then it is easy to see how the provision of public housing at scale will help address the problem. Beyond just the provision of housing to those in need, it puts supply into the market creating downward pressure on all rents. It also provides for a different property regime (public rather than private ownership) where tenants have more rights through rent capping and tenancy protections. In contrast to fixed term private leases, public housing also provides a security of tenure and a permanency that challenges a cultural perception that renting is simply a pathway to the preferred status of home-ownership.

That is why public housing is important – and why ideology matters. The different ideological assumptions and analyses drive policy. And in this case, arguably the dominant schools of thought simply don’t have the breath of focus or the scale to address problems of housing stress and homelessness.

Henry Lawson and the video

And so, we arrived at the point of how to sell a political economy perspective on public housing. A short video would be nice!

Enter Henry Lawson. From my childhood I remember the great Australian poet’s “Faces in the Street”:

They lie, those who tell us in a loud decisive tone
That want is here a stranger, and that misery’s unknown;
For where the nearest suburb and the city proper meet
My window-sill is level with the faces in the street —
Drifting past, drifting past,
To the beat of weary feet —
While I sorrow for the owners of those faces in the street.

I wanted to channel that anger, the personalness of it, into a systemic ask that was not about poverty pornography or a charitable helping of the unfortunate. But I also knew that Lawson’s Red Revolution’s marching feet was probably not a winning argument!

So, I drafted words, and my colleague put music and images to create a short video. Thanks to her, it turned out to be much more than I anticipated.

It remains an amateur production with basic technology and limited resources. And it is a short piece which can’t do the full political economic analysis. But as a prototype, from my point of view it does a few things of particular interest/importance:

  • It uses the sympathy-inducing images and music of a charitable fundraising video to go in a different direction
  • The emotional sadness is not just about the plight of individuals, but about a loss of common wealth (named as such) and the implications of that
  • At the point where the “you can help” fundraising ask would normally come, it instead names and shames government strategies and calls out politicians, think-tanks and the ideology that is to blame
  • The warm inner glow of hope at the end is for government/community action, not an individual gift or act of charity.

You can view the video here.

It is for others to judge whether the video is successful in making its point, or ticks all the boxes of a political economic analysis, or is useful as a communications tool. But regardless of the video, I remain convinced that the key issues around housing and homelessness (and much more) are ideological and political-economic, not ones of charity or welfare provision.

With apologies to Mr Lawson:

And so ’twill be while e’er the world goes rolling round its course,
The warning pen shall write in vain, the warning voice grow hoarse,
But not until a city feels political economy’s beat
Shall its sad people miss awhile the terrors of the street —
The dreadful everlasting strife
For scarcely clothes and meat
In that pent track of living death — the city’s cruel street.