Do Public Private Partnerships Facilitate Affordable Housing Outcome in Queensland?

Abstract

Internationally, Public Private Partnerships (PPPs) are becoming a fashionable supplement
to traditional public sector funding models for delivering public infrastructure and related
services by using private funding (Broadbent & Laughlin, 2003; Edwards & Shaoul, 2003).
The Queensland government released a PPP policy in September 2001 with the aim of
improving ‘value for money’ in public infrastructure and service delivery projects,
including housing. As a consequence of the reduction of Commonwealth government
funding for housing, these partnerships with the private sector are seen as providing an
opportunity for the supply of affordable housing.
This study aims to identify current problems in implementing PPPs in affordable housing
by conducting open interviews and literature searches. PPPs become a specious attraction
for the public sector. No affordable housing projects have been implemented using the
PPP framework in Queensland because of the restrictive definition of PPP projects.
Moreover, the contradiction in traditional investment decision-making criteria between
public and private sector has impeded the implementation of PPPs. Accordingly, PPPs
may not facilitate increasing the supply of affordable housing without major guideline
changes.

Full text

COVER SHEET
This is the author version of an article published as:
Susilawati, Connie and Armitage, Lynne (2004) Do Public Private
Partnerships Facilitate Affordable Housing Outcome in
Queensland?. In Proceedings 11th European Real Estate Society
Conference, Milan, Italy.
Copyright 2004 (please consult author)
Accessed from http://eprints.qut.edu.au

1
DO PUBLIC PRIVATE PARTNERSHIPS FACILITATE
AFFORDABLE HOUSING OUTCOME IN QUEENSLAND?
C. Susilawati
1
and L. Armitage
2
1
Lecturer at Petra Christian University, Surabaya, Indonesia and currently PhD candidate
at Queensland University of Technology, Brisbane, Australia
2
Queensland University of Technology, Brisbane, Australia
Abstract
Internationally, Public Private Partnerships (PPPs) are becoming a fashionable supplement
to traditional public sector funding models for delivering public infrastructure and related
services by using private funding (Broadbent & Laughlin, 2003; Edwards & Shaoul, 2003).
The Queensland government released a PPP policy in September 2001 with the aim of
improving ‘value for money’ in public infrastructure and service delivery projects,
including housing. As a consequence of the reduction of Commonwealth government
funding for housing, these partnerships with the private sector are seen as providing an
opportunity for the supply of affordable housing.
This study aims to identify current problems in implementing PPPs in affordable housing
by conducting open interviews and literature searches. PPPs become a specious attraction
for the public sector. No affordable housing projects have been implemented using the
PPP framework in Queensland because of the restrictive definition of PPP projects.
Moreover, the contradiction in traditional investment decision-making criteria between
public and private sector has impeded the implementation of PPPs. Accordingly, PPPs
may not facilitate increasing the supply of affordable housing without major guideline
changes.
Keywords:
Public Private Partnerships, Affordable Housing, Housing Supply,
Queensland, Australia
1. Introduction
Public Private Partnerships are an arrangement for facilitating more effective outcome
between public and private sector organisations (Broadbent & Laughlin, 2003). The
Queensland government has recognised the potential for using this approach to achieve
value for money for public infrastructure and service delivery projects, including housing
projects. In September 2001, it released a policy document (State Development, 2002a),
which was expanded in August 2002 through a series of guidance materials. This initiative
is in line with current proposals under the Commonwealth State Housing Agreement
(CSHA) which requires state governments to pursue PPPs as an option (Department of
Housing, 2003b).
The lure of PPPs has been recognised for a number of years with the National Housing
Strategy recommending further research since 1991 (National Housing Strategy, 1991).
Despite a number of initiatives in this area, private sector involvement has been sporadic

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and limited with co-operation extending to little more than cases of swapping government
land for affordable housing construction by the private sector, for example.
This study is aimed at identifying issues relating to stakeholders’ problems in
implementing Public-Private Partnerships for affordable housing. However, prior to a
discussion of these issues there is a need to clearly identify the terminology, as the review
of literature suggests that there has not yet been a widely recognised definition of the
terms.
2. Public Private Partnerships
This section provides a brief history of Public Private Partnerships and general as well as
specific definitions are discussed. Although various terms have been used for addressing
private sector involvement in public infrastructure projects, they reflect a similar purpose.
The benefits and threats of partnership agreements are discussed to highlight the
partnership outcomes.
The private sector has participated in many public infrastructure projects over the last 30
years or so (Carroll & Steane, 2000). Private sector participation has also been referred to
as Private Finance Initiative (PFI) and Public Private Partnerships (PPP) but the latter is the
more commonly used term (Melbourne University Private, 2003).
In Australia, the Commonwealth government has introduced a private financing policy
which has been extended to each state’s partnership policy under different names, for
example, Partnerships Victoria, Privately Financed Projects for New South Wales and
Public Private Partnerships for Queensland, South Australia and Western Australia.
Northern Territory is also developing a similar policy (English & Guthrie, 2003;
Melbourne University Private, 2003; Richman, 2003a).
At the international level, the Canadian Council for Public-Private Partnerships defines
PPPs as:
‘a cooperative venture between the public and private sectors, built on the expertise of
each partner, that best meets clearly defined public needs through the appropriate
allocation of resources, risks and rewards’ (The Canadian Council for Public-Private
Partnerships, 2003).
HM Treasury in UK stated that PPPs bring ‘public and private sectors together in long
term partnership for mutual benefit’ (Crown, 2000). The Queensland Department of State
Development defines PPPs as ‘a risk-sharing relationship between the public and private
sectors to deliver timely public infrastructure and related non-core services’ (State
Development, 2002c, p.2).
McQuaid (2000) classifies the main benefits of partnerships into three groups. The first
advantage is to increase the available resources in each organisation, with resources not
only limited to financial aspects, but also to skills, information and power. The second
benefit is that partnerships may increase each organisation’s effectiveness and efficiency
and lead to higher productivity. Finally, the increased opportunity for the participation of

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other stakeholders in policy development will lead to a greater legitimacy for policy-
implementation decision (McQuaid, 2000).
Besides the benefits, McQuaid also discussed partnership threats. Managing a partnership
is difficult due to the incorporated nature of partners in the partnership. In the
implementation process, the parties do not value the diversity of philosophy of other
partners and do not share equal benefits, risks and power. Transparency in the partnerships
is very important to reduce the potential conflict in partnerships, but it is often found to be
lacking (McQuaid, 2000).
The Queensland government has been interested in attracting private financing in public
infrastructure projects since 1992. However, the development of policy (September 2001)
and guidance materials did not eventuate until August 2002. The policy only applies to
major infrastructure projects where ‘the expected capital value will exceed $30 million or
the net present value (NPV) or the strategic priority will exceed $50 million during the
term of the contractual relationship’ (State Development, 2002b, p.5). The Minister of
State Development has appointed an Infrastructure Partnerships Taskforce to coordinate
PPP projects, to provide advice and assistance throughout the process of developing PPPs
from preliminary assessment to final closure.
The Queensland government uses the same guidelines for all major public infrastructure
projects, including economic infrastructure and social infrastructure. Social infrastructure
that requires government subsidy (such as schools, hospitals, prisons, affordable housing
and other public buildings used to provide services which were user pays) are insufficient
to satisfy investors’ required rates of return on the project (Halligan, 1997). Prior to
discussing the application of PPP for affordable housing, the next section will illustrate the
issues in the affordable housing arena.
3. Affordable housing issues
This section addresses more specifically two aspects of the affordable housing discussion:
firstly, the identification of a common definition of the very term ‘affordable housing’ and,
secondly, the structural problems which inhibit the supply of new affordable stock.
Affordable housing has various definitions and discussion in this paper uses the American
and Australian definition.
‘As a general rule, housing can be considered affordable for a low- or moderate-
income household if that household can acquire use of that housing unit (owned or
rented) for an amount up to 30 percent of its household income’ (Miles, Weiss, &
Berens, 2000, p. 293).
Households who pay more than 25 per cent of their income on rental housing and are in the
lowest 40 per cent of the income distribution range are to be considered in financial
housing stress (National Housing Strategy, 1991). They may have difficulty having
enough money to buy other essential needs such as food, clothing, transportation, medical
care and education (National Housing Strategy, 1991; United States Department of
Housing and Urban Development Affordable Housing, 2003).

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The Queensland Department of Housing has a very complex definition of affordable
housing. There are six categories that need to be satisfied when providers deliver
affordable housing: appropriateness of the dwelling, housing and social mix, tenure choice,
location, quality of environmental planning and design and cost (Department of Housing,
2001a). In summary, affordable housing should fit the household needs and should be well
located in relation to services, employment and transport and the cost for housing should
not be more than 30 per cent of income.
The housing system is a complex set of interacting tenures and sub-markets (Badcock &
Beer, 2000). The tenure categories are owner-occupation, private rental, public rental and
community housing. The sub-markets can be categorised by housing type, condition and
location. In Queensland, affordable housing is classified into two categories: social
housing and private housing. Social housing receives direct subsidy from the government
and includes public housing and community housing. Whereas, private investors provide
the other types of accommodation such as boarding houses, caravan parks and private
rental houses and units.
The Commonwealth government has reduced the funding for delivering new public
housing stock as well as maintaining and upgrading existing stock (Department of
Housing, 2003a). Moreover, housing prices are being escalated by indirect taxes and by
land shortage (Housing Industry Association Ltd, 2003). Both the public and private
sector have the same problems in providing affordable housing construction. The
government does not provide attractive assistance to increase the affordable housing
supply. On the other hand, the private affordable housing stock has been declining because
of the upgrading of older houses for the higher end market segment especially in the high
land value area.
Demand for low-income housing has increased because of two major reasons. Firstly, the
workers’ ability to access housing has declined due to constraints on income; that is rent
increases have not been equally matched by increases in income. Furthermore, because
many people have shifted their working status from full-time to part-time, their income is
less certain. The other evidence of great demand for low-income housing is the number of
people on the waiting list for public housing (Department of Housing, 2003a).
Some researchers have explored the possibility of increasing the supply of affordable
housing by stimulating private sector involvement in affordable housing projects.
Affordable Housing National Research Consortium has completed some studies on finding
solutions to affordable housing problems in Australia which recommended proceeding
with a direct government subsidy for private (debt) investment in affordable housing
(Berry, 2001). Similarly, a recommendation was suggested in the community housing
sector using private finance to deliver community housing in Australia to increase the
supply of community housing (Brian Elton & Associates & National Community Housing
Forum (Aust.), 1998). The involvement of the key stakeholders in increasing the supply of
affordable housing is discussed in the next section.
4. Application of Public Private Partnerships for affordable housing
After exploring the nature of Public-Private Partnerships and some affordable housing
issues, this section will investigate the possibility of applying partnership agreements for

5
increasing the supply of affordable housing. Both supports and constraints of partnership
building are discussed. Finally, the lack of application to real projects has been
demonstrated as the real implementation problem.
This preliminary research is focused on open interviews of key stakeholders in affordable
housing development. Three groups of key stakeholders have major roles in the affordable
housing system: government, the private sector and non-profit organisations. The main
objectives of the initial interviews were to obtain a comprehensive picture of the major
players’ roles and their opinions on the possibilities of building Public Private Partnerships
for affordable housing management by determining the strength of each organisation in
this arena.
The management of affordable housing is not only a matter of design and construction but
also the long term operation, maintenance and asset management process. In the
construction process, the State Housing Authority and Project Services (Department of
Public Work) have been working together in producing public houses and community
houses. Private builders and developers are generally more efficient in constructing
houses. The private sector consortia are more successful than the governments in shifting
risk and at achieving value for money (English & Guthrie, 2003). The profit-oriented
organisations have been forced to search for innovative ways to produce efficiently for
survival in a competitive market.
In the asset management area, the Queensland State Housing Authority has been
developing an effective system for public housing since 1992. A performance
measurement system (Property Standard Index (PSI)) and decision support system
software have been developed in collaboration with the Construction Research Alliance
between QUT and CSIRO (O'Shea, Then, & Tucker, 2000). This system allows the
Queensland housing authority to optimise the limited funding allocated for the
maintenance and upgrading program.
Queensland Community Housing Coalition (QCHC) is the peak body of community
housing organisations which are specialist in tenancy management. The organisations are
generally recognised as being good at tenancy management, although other stakeholders
may have doubts concerning the transparency of their tenant selection. Moreover, these
organisations could manage affordable housing more cost effectively than either
government agencies or the private sector, due to their privileged tax status. QCHC has
explored the possibilities of building successful community/ private affordable housing
initiatives (Queensland Community Housing Coalition, 2003). Moreover, Earl suggested
the collaboration between private and community sectors will enhance the supply of
affordable housing for the aged (Earl & Regan, 2003).
Local government has also been involved in affordable housing initiatives by providing
relaxation of the planning regulation for affordable housing projects. The developers who
gain higher density bonuses because of rezoning have to pay contributions for affordable
housing. This affordable housing contribution is based on a similar system used in Sydney
and other big cities in the UK, Canada and the USA, as part of inner city development.
The funding will be used to build affordable housing in the inner city area. However, these
collaboration initiatives have been frozen due to a lack of state government approval, a
condition that will hopefully be resolved by the end of the year (Richman, 2003b).

6
Each stakeholder has worked individually within their organisation using traditional
methods and policies. Moreover, each stakeholder has its own interests and expertise in
specific stages of producing and managing the affordable housing asset. Furthermore, a
lack of trust and confidence with other stakeholders has constrained innovation and
partnership options. This lack of coordination among stakeholders has seriously
constrained the development of affordable housing in Queensland. They need to work
across boundaries to be able to coordinate and to optimise the resources and to maximise
affordable housing outcomes (Sullivan & Skelcher, 2002). However, the best practice in
certain areas as an individual player might not work well in a partnership context.
Both affordable housing and PPPs will be very important issues for the Department of
Housing in Queensland in the near future. The Department of Housing has emphasised the
partnership initiatives in its Strategic Action Plan (Department of Housing, 2001b). One of
the key performance measures for the Department under the proposed 2003-2008
Commonwealth State Housing Agreement (CSHA) is the increasing private and
community sectors and local government involvement in social housing (Department of
Housing, 2003a).
The guideline under which the Queensland PPP system operates is currently so restrictive
(in terms of acceptable project identification and funding parameters, for example) that
there are no projects which can fall within its ambit. However, partnerships defined in a
broader context, might be suitable for affordable housing. Thus, the Department of
Housing does not limit the type of partnerships to those between two parties (public and
private sectors) and not only under a PPP type of agreements (Department of Housing,
2003b).
From the preliminary interviews, no stakeholder was very keen to apply Public Private
Partnerships for affordable housing for many reasons. For example, the benefit is
inadequate to attract the private sector entering affordable housing projects; PPPs are too
complicated for non profitable projects; players have no confidence using it without
learning from success stories from other projects and the traditional procurement methods
and short term partnership agreements are still preferable to long term options such as
PPPs.
One of the major incentives for increasing the affordable housing supply is tax benefits or
government subsidy in other forms. State and local governments only gain a very small
percentage of tax income because Federal government absorbs 80 per cent. Therefore,
without Federal government support, affordable housing will not be attractive for most
developers.
In summary, the stakeholders still exercise their traditional roles and adopt traditional
concepts for housing developments; the private sector requires reasonable financial return
from its investment and the government wants to tightly control affordable housing
development to maintain maximum social benefits. The contradiction between investment
decision-making criteria of government and the private sector has impeded the
implementation of partnerships. Each party wants to minimise risk and maximise return on
its investment.

7
5. Conclusion
The widening gap between demand and supply of affordable housing in Queensland has
provided an opportunity for both the public and private sector to find innovative ways to
increase the supply of affordable housing. PPPs are one way proposed by researchers and
government. Although policy and guidelines are ready to support partnership initiatives, a
lack of application to real projects is the real implementation problem.
The Queensland state government has too restrictive a definition of PPPs, thus affordable
housing projects cannot fall into this scope. Moreover, the private sector requires other
benefits and more incentives to deal with lower cash flow return from affordable housing
tenants. The contradiction between investment decision-making criteria of public and
private sector has obstructed the implementation of partnerships.
PPPs may not be a suitable way to facilitate the increasing supply of affordable housing
without major changes and a more comprehensive approach. However, partnerships in a
broader context might be suitable for affordable housing projects.
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