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Making apartments affordable: from speculative to deliberative development
Abstract
Urban planning policies in Australia presuppose apartments as the
new dominant housing type, but much of what the market has
delivered is criticised as over-development, and as being generic,
poorly-designed, environmentally unsustainable and unaffordable.
Policy responses to this problem typically focus on planning regulation
and construction costs as the primary issues needing to be addressed
in order to increase the supply of quality, affordable apartment
housing. In contrast, this paper uses Ball’s (1983) ‘structures of
provision’ approach to outline the key processes informing apartment
development and identifies a substantial gap in critical understanding
of how apartments are developed in Australia. This reveals economic
problems not typically considered by policymakers.
Using mainstream economic analysis to review the market itself, we
find high search costs, demand risk, problems with exchange, and lack
of competition present key barriers to achieving greater affordability
of apartments and limit the extent to which ‘speculative’ developers
can respond to the preferences of would-be owner-occupiers. The
existing development model, which is reliant on capturing uplift in site
value, suits investors seeking rental yields in the first instance, and
subsequently capital gains, and actively encourages housing price
inflation. This is exacerbated by lack of density restrictions, such as has
been the case in inner Melbourne for many years, which permits
greater yields on redevelopment sites. The price of land in the vicinity
of such redevelopment sites is pushed up as landholders' expectation
of future yield is raised. All too frequently, existing redevelopment
sites go back onto the market as vendors seek to capture the uplift in
site value and exit the project in a risk-free manner.
This paper proposes three major reforms, which together would
enable development of better, more affordable apartments for
housing consumers:
§ Firstly, that the market for apartment development be re-designed,
following insights from the economic field of ‘Market Design’ (a
branch of Game Theory). A two-sided matching market for new
apartments is proposed, where demand-side risks can be mitigated
via consumer aggregation.
§ Secondly, consumers should be empowered through support for
‘deliberative’ and ‘do-it-yourself’ (DIY) development models, in
order to increase competition, expand access, and promote
responsiveness to consumer needs and preferences. A ‘Smart
Housing Market’ is proposed to broker the necessary connections
and simplify the process.
§ Finally, planning schemes need to impose density restrictions (in
the form of height limits, floor space ratios or bedroom quotas, for
example) in localities where housing demand is high, in order to
dampen speculation and de-risk development by creating certainty.
Restrictions on over-development on larger infill sites can be offset
by permitting intensification of ‘greyfield’ suburbs. Aggregating
existing housing lots to enable precinct regeneration with
moderate height and density increases would permit better use of
airspace thus allowing design outcomes that can optimise land use
while retaining neighbourhood amenity.
... Deliberative development is when a group of prospective owner-occupiers become the proponents of a multi-unit development in place of the developer (Sharam, Bryant and Alves, 2015c). There are a number of ways this might occur, ranging from groups of friends coming together to develop, to strangers being brought together by an architect or developer who is facilitating a deliberative development. ...
... In Germany, some governments have been actively supporting deliberative developments by specifying some state-owned land for development in this way, or ensuring brownfield redevelopment precincts have appropriately sized lots for deliberative developments (Sharam, Bryant and Alves, 2015c). ...
... Research into deliberative developments (or Baugruppen), which has similarities to cohousing in the manner in which future residents are heavily involved in the development of their housing, indicates that savings of up to 25%-30% (in terms of $/m2) can be achieved on market rates with comparable housing. This research has predominantly been in Germany, however one Australian case has demonstrated similar cost savings (Dolin et al 1992, cited by Sharam, Bryant, & Alves 2015c). Savings can be achieved through avoided marketing costs (removing the need for presales), and through reduced risk (and hence lower profit margin requirement) to the developer by working with a guaranteed group of future residents (Sharam, Bryant and Alves, 2015c). ...
This literature review is an update to the literature review prepared for the previous research project. It therefore discusses key demographic and social trends in ageing and housing for older people in Australia. It then considers the characteristics of cohousing, and how and why it might be a suitable alternative housing model for older Australians. It outlines the possible cohousing models, and provides some case studies. It builds upon the previous literature by providing a focused review of the barriers to cohousing, and the economic, social and environmental benefits of cohousing.
... [29 p455] The structure of provision of apartments in Australia is qualitatively different to that of detached dwellings and other types of housing. [30] The different process of property subdivision associated with the provision of apartment housing (strata subdivision) affects the size, complexity and the risk profile of development projects. ...
... Government intervention in housing markets (planning, taxation and the like), or rising construction costs (frequently attributed to unionised labour), are often examined for their contribution to what is implicitly assumed to be a regulatory failure. [44] Elsewhere, the author (with others) has challenged this assumption [30], arguing instead that the issue is one of market failure, constituted by the problem of coordinating supply and demand for apartments, and the transaction costs that thereby arise. ...
Despite the low-density form of Australian cities, metropolitan planning policies have long supported urban consolidation and residential densification, with the objective of achieving a more sustainable urban form. However, recent high levels of apartment development, especially in the capital cities, have failed to deliver the social and environmental advantages anticipated from providing higher density housing in established areas. Instead, rapid densification has occurred alongside, and is directly related to, a substantial decline in the affordability of housing for rent and purchase, and spatial polarisation of housing markets.
Drawing upon the author’s direct involvement in policy development and regulatory reform, the paper provides a detailed investigation of the policy, governance and regulatory frameworks for apartment development in Australia’s major cities, and the specific attempts in recent years to reform these to achieve better outcomes. The research uses Ball’s ‘structures of housing provision’ framework of housing systems analysis to offer a unique contribution to the literature on urban sustainability transitions.
The paper finds that apartments represent a persistent problem for Australian planning and, furthermore, that resolving this problem will be critical to managing Australia’s transition to urban sustainability, while improving access to quality, affordable housing. Relevant strategies and successful points of intervention are identified.
Apartments as a development type pose a unique set of challenges for planning and other regulatory systems. Recent proliferation of apartments has highlighted the contingent nature of existing development controls, which have evolved in conjunction with market processes and established structures of housing provision, principally suburban housing growth. Apartment development presents a challenge to this established model, akin to the challenge that integrated sustainable development represents for planning systems as a whole. This paper provides a framework for understanding emergent pathways from the current impasse and some practical directions.
... This focus on investment value has therefore had a significant impact on the dwelling form on offer in urban renewal developments (Sharam et al. 2015). In particular, the developments on offer overwhelmingly consist of small one-and two-bedroom properties (Australian Bureau of Statistics 2013). ...
... One prominent development approach that allows future residents input on design is 'deliberative development'. Deliberative development is when a group of prospective owner-occupiers become the proponents of a multi-unit development in place of the developer (Sharam, Bryant & Alves 2015c). There are a number of ways this might occur, ranging from groups of friends coming together to develop, to strangers being brought together by an architect or developer who is facilitating a deliberative development. ...
Australia's population is ageing rapidly, yet we continue to make housing choices as though we will never grow old. New housing typologies, including alternative finance and governance models, will be needed to provide housing options suitable to our ageing population. An emerging response is cohousing, which has the potential to provide liveability, affordability and connectivity benefits to residents. This paper reports on the outcomes of empirical research involving interviews with housing providers and professionals, as well as focus groups with older people. This research investigated areas of need, demand and desire amongst older people with regards to their housing needs and desires in old age, with particular reference to the potential of cohousing models in response to these gaps. Older Australians are a very large and diverse group. Age does not constrain the diversity of other demographic factors such as financial situation, health conditions and household structure (single or couple), which strongly influence the housing needs and desires of older Australians. Thus, there is not a single typology that will be suit older people-and this is especially so when it comes to cohousing-a relatively niche sector. Our research identified three different typologies of cohousing that may be appropriate as housing alternatives for different cohorts of older Australians. These are: deliberative development;; low-income rental cohousing;; and small-scale owner-occupied cohousing. This paper will describe these typologies, the market segments targeted by each and outline challenges and opportunities that each typology presents.
... which combined state and private funds in developing intentional communities. Regarding private sector development, Alves (2015a, 2015b) have called for the role of developers to be reduced, if not removed, and for architects to act as design intermediaries translating resident objectives into a finished product through a similar process to that of Urban Coup, which Sharam et al. (2015b) term 'deliberative development'. That resonates with the experience of the cohousing sector in the USA, which greatly benefited from the presence of sector-specific architects liaising between various stakeholders, especially when addressing affordability (Crabtree, 2011). ...
While many jurisdictions have seen the recent failure of market and state mechanisms to respond to a crisis of housing provision and to the collapse of markets, Australia's housing prices have experienced primarily ongoing growth, amongst persistent concerns regarding a lack of affordable stock across all tenures, and the concentration of ownership of housing assets in an ageing and shrinking demographic. In this context and building on a tradition of self-organised housing through the nineteenth and twentieth centuries, there exists a range of self-organised efforts for housing provision. However, the sector is poorly known and relatively under-researched. Consequently, this paper presents a review of various forms of direct self-organised housing provision in Australia, and of affiliated advocacy and lobbying efforts. The paper uses community economies and slow housing frameworks to present a dynamic and diverse arena for future research.
Reimagining Home with older women on low income explores issues of at risk homelessness for this tribe of women in Australia. Liz explores housing options and the systemic failures to provide affordable, safe and secure homes for older women so they can age well. Liz has developed a design and process framework that includes women as key collaborators in housing development. Liz has been an action and social justice researcher and thinker for nearly 35 years. She is an older single woman with lived experience of poverty, housing stress and homelessness. Along with this document Liz has created a Look Book of 40 great examples of social and affordable housing developments
German Baugruppen are the most well-known of the collaborative, self-organized alternatives to speculatively produced multi-residential housing, delivering housing at a significant price discount to market. However, Baugruppen have been criticized for excluding less affluent households with financing and social capital barriers identified by Hamiduddin and Gallent as reinforcing socio-economic stratification. Collaborative, self-organized housing is, however, under-researched and there has been scant attention to financing. Collaborative, self-organized multi-residential housing in Australia is known as ‘deliberative’ development to differentiate it from ‘speculative’ development. We draw on case studies of deliberative development in Australia to reveal how projects are financed and how financing impacts on social equity considerations. Proponents of contemporary deliberative development in Australia are deeply concerned about housing affordability and declining rates of home ownership. This has focused attention on development financing as a key to systemic change paving the way for inclusion of less wealthy households.
A key area of system impact of the fourth industrial revolution (4IR) is the radical improvement in the functioning of matching markets. Matching markets are markets in which agents seek to be paired with someone or something with the criteria for matching often highly specific. Traditionally, the cost and difficulty in matching means many of these markets have not functioned well. Uber and Airbnb are examples of new matching market matchmakers that have been ‘turbo-charged’ by new digital technologies, resulting in what Parker et al. describe as a ‘platform revolution’. In this article, we examine the traditional, but poorly functioning, matching market for new multifamily housing development in Melbourne, Australia, and the potential for disruption offered by a new platform, Nightingale Housing Ltd. (NHL). Improved matching has been critical to the model and the Internet has been central to this. The NHL model has the potential for systems impact as outlined by Schwab in his conception of 4IR.
Older Australians face housing challenges including supply, accessibility, affordability, security of tenure and isolation. This article examines the potential for cohousing to address these challenges. In interviews, professionals indicated that cohousing promises benefits for older people, but identified financial and planning barriers. In contrast, focus groups with older people found significant resistance to the concept of shared living; many participants did not see value in cohousing. Resistance stemmed from negative associations with cohousing and cultural lack of familiarity with shared living arrangements. Cohousing has an image problem in Australia that needs to be overcome if it is to thrive.
In this chapter, we examine impediments to environmentally sustainable and energy-efficient change in multi-owned properties and how this impacts on the capacity of the strata community to achieve economic and environmental goals. Our research identifies four major impediments to sustainable adaptation in the Australian context. First, there are missed opportunities to integrate core environmental sustainability principles into initial design and construction. Second, centralised systems create difficulties in terms of facilitating consumer awareness of on-site energy and water use and waste. Third, decision-making for environmentally sustainable adaptation of dwellings is complex with strata managers remaining key gatekeepers of environmental and financial product information in this process. Finally, the market does not provide appropriate financing mechanisms to facilitate loans within the multi-owned property sector.
This paper examines approaches to self or custom-build in the Netherlands and the UK to offer comparative insights into self- and custom-built housing contexts and cultures, and specifically, the relationships with local and strategic planning arrangements. The paper reviews arguments for self-build as a means to address housing shortages and examines the evidence of completions in practice. It positions the discussion in light of arguments that self-build can become a mainstream source of housing provision. The paper critically considers the role of think tanks in advocating housing policy solutions. Adopting a social constructionist perspective, the paper examines the work of the National Self-Build Association which has devised and implemented an action plan to promote the growth of self-build housing in the UK. Almere, which is located east of Amsterdam, is one of the case studies explored to inform thinking around self-build in the devolved UK. The conclusions tease out some of the implications for democratic and technocratic arguments around self-development and the right to design and build one’s home.
Traditionally, markets have been viewed as simply the confluence of supply and demand. But to function properly, they must be able to attract a sufficient number of buyers and sellers, induce participants to make their preferences clear, and overcome congestion by providing both enough time to make choices and a speedy means of registering them. Solutions to these challenges are the province of market design - a blend of game theory and experimental economics. Roth, a professor of both business and economics at Harvard, is a leading market designer. He and his colleagues have rescued failing markets by, for example, designing labor clearinghouses through which U.S. doctors get their first jobs and auctions through which the Federal communications Commission sells licenses for parts of the radio broadcast spectrum. They have also created marketlike allocation procedures that involve neither prices nor an exchange of money; these include systems for assigning children to schools in Boston and New York and for facilitating exchanges of kidneys. Computers enable the design of "smart markets" that combine the inputs of users in complex ways: In kidney exchange, they run through every possible match of donors and recipients to arrange the greatest possible number of transplants. In the future, computers may make it possible to auction bundled goods, such as airport takeoff and landing slots. As online markets - like those for jobs and dating - proliferate, a growing understanding of markets in general will provide virtually limitless opportunities for market design.
The book explains why the real estate and construction industries are organised in the ways they are and then relates those characteristics to long-term market behaviour. It covers market dynamics - supply and demand; the interaction of property development and construction - and examines institutions and market structures. Real estate development and construction tend to be separate subjects in the literature. But construction is an inevitable part of any property development process and so has a major influence on the institutional structure of development. Markets & Institutions in Real Estate & Construction argues that these structures are best explained as a series of modern economic theories, based on competition and current production technologies. offers focus and breadth, and deal with controversial debates economic arguments made accessible through a non-technical writing style presents long-run international comparison of property market behaviour reflects internationalisation of property and construction markets.
Adequate housing supply to accommodate the projected growth in Australian cities is an issue of growing significance. The National Supply Council has indicated that housing supply is unable to keep pace with demand (NHSC 2011). Previously the concern of state and local governments, in recent times the Federal Government has shown an increased interest in the issue of housing and land supply. This increasing interest is welcome. However, as policy-makers grapple with these important issues, the policy formation process is hampered by a lack of fundamental understanding about the nature of housing supply, the relationship between land and housing supply and, in particular, the challenges of increasing supply through infill development. This is especially interesting given the important role awarded to infill development in the metropolitan planning strategies of Australia's major cities. The development industry delivers housing in return for a profit. Without this profit development does not occur. Assessments of development feasibility take into account market demand and supply, what is permissible under planning policy, development costs, infrastructure contributions as well as finance charges, professional fees and land costs. Developers will assess many sites and reject perhaps 95 per cent of them because they are financially unfeasible. On infill development sites there are a variety of additional barriers to generating profit and therefore the delivery of infill housing of all types. The barriers to delivering diverse and affordable housing are even greater and are shown in Figure 1 below. Figure 1 uses an outline of the basic development process to illustrate the blockages in housing supply. In order to overcome these barriers the industry needs to deliver a range of innovative solutions. Identifying these solutions is the primary aim of this Investigative Panel Project. The panel brought together around 50 experts from the public and private sectors across four panels in two cities, Sydney and Perth. Rather than just reporting the barriers to infill development, the objective of this panel was to put forward a range of suggestions from those working in the development industry designed to increase housing supply on infill sites. Consequently, this report is very much a synthesis of expert opinion rather than an academic exploration of the issues. Sydney and Perth were chosen as the case study cities because they represent two extremes in the delivery of medium and high-density housing on infill sites. In Perth, around 80 per cent of housing supply comes from detached dwellings; the figure is closer to 60 per cent in Sydney. In Perth the new metropolitan plan, Directions 2031 and Beyond, seeks to double the rate of infill development to around 50 per cent of all new housing, a level already being achieved in Sydney. The Project hoped to take lessons from Sydney and apply to Perth, but it quickly become clear that there were also significant barriers to infill development in Sydney, often quite different to the challenges facing Perth. The panels provided twelve hours of discussions. Synthesised from these discussions were 40 suggestions put forward to overcome the barriers to delivering diverse and affordable housing. Suggestions range from the simple to the ambitious, achievable to the near impossible. For each suggestion, further analysis explores the origin of the ideas, the level of opposition and the route to implementation. The aim of this report is not to analyse or promote particular suggestions but rather to provide a platform for them, to generate ideas, promote debate and hopefully elicit change. Central to the suggestions is the role of the private sector. The vast majority of infill housing will be delivered by the private sector and a profit must be achievable in order for housing to be completed. While it became clear that making the development approval process more certain, more efficient and less costly is crucial (deemed approval at the expiry of specific time limits is one solution), the panels' identified a complex range of other interconnected issues. The delivery of affordable housing on infill sites is a major challenge. Land prices and construction costs require revenues from developments that more often than not preclude the delivery of affordable housing. With land prices and the cost to revenue balance forcing many sizable developers out of large scale infill development in the short-term, it is left to medium-density developments to provide this housing. For the private sector to deliver diverse and affordable housing on any significant scale, there need to be partnerships with the public sector and community housing organisations, ideally on public sector land to maximise contributions. Planning agreements and inclusionary zoning requirements from re-development organisations will provide an important, but limited, quantity of housing. The suggestions put forward in this report 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. Financial feasibility will drive market development but, given development costs and landowner price expectations, revenues need to be sufficient to generate the required minimum level of profit necessary to compensate for the risks of development. Therefore, without intervention within the development approval process, the market is unlikely to deliver a product considered affordable to those on low to moderate incomes in all but the lowest value areas. Planning policy could be used to intervene to make the provision of affordable housing integral to the approval process, but this can lead to market distortions and is particularly problematic when developers already own land and therefore any reduction in revenue will affect their profit. There needs to be in place a method of incentivising private sector developers to deliver an element of affordable housing on typical, small-scale infill development sites. This could be through development incentives, such as density bonuses, but such incentives must be targeted at the developer and not inadvertently passed to the landowner in the form of land value uplift. Incentives that increase land values do nothing to enable the delivery of affordable housing. Inclusionary zoning would enable developers to pass affordable housing contributions on to land owners but it would take considerable time for policy to become embedded within planning documents and overcome the complications that stem from existing ownership issues. Additional requirements within the development approval process would also need to be administered efficiently to ensure that there are no delays as a consequence. Construction costs, particularly labour costs, and a building industry structured to deliver a traditional single story product, at least in Western Australia, need to be addressed and banks should be more flexible in their lending practices to promote infill development by smaller developers (one of the more ambitious suggestions). Encouraging smaller developers to deliver small-scale, infill development projects such as three-storey walk up apartments was identified as the most effective way to increase housing supply. Large-scale residential towers are not the solution. However, as noted previously, securing large quantities of affordable housing in high land value areas (inner & middle suburbs) will require policy intervention. In many ways the decline in affordability, for first home buyers in particular, may force developers to provide a different type of product, and we are already seeing evidence of this in Perth. Smaller lot sizes, smaller houses and generally a greater diversity of dwelling is starting to be developed delivering a lower priced product to the market at price points where demand is greatest; below $400 000. The success of such housing demonstrates how profits can be made from non-traditional products and this is the most effective way to increase the number of developers delivering such housing. In combination with partnerships with the public sector, more intense use of publicly-owned land, a more efficient and less political development approval process, and better coordinated and funded infrastructure provision, medium-density development within inner and middle suburbs provides the best opportunity to increase the supply of diverse and affordable housing. A consistent theme from the discussions was the degree of consensus between the private and public sectors. The majority of public officials agree with the private sector that increasing the supply of infill development is a crucial strategy for Australia's cities. Both the private and public sector agree that the issue of leadership is very important: leadership promoting the benefits of infill development, coordinating infrastructure provision and driving public acceptance of higher density development and affordable housing. Figure 2 below presents a summary of the suggestions, synthesised from the panel discussions, which could apply at various stages of the development process. One of the key findings is the contradiction between decreasing government intervention in the market and the delivery of non-subsidised affordable housing. Many of the 40 suggestions pertain to simplifying the development approval process and allowing developers to meet the requirements of the market. By removing levels of intervention it will be almost impossible to secure affordable housing as developers would not be maximising profits by adding an element of affordable housing to market developments in the vast majority of infill locations. © 2012, Australian Housing and Urban Research Institute. All rights reserved.
Housing price inflation is a national concern given the serious decline in the number of low- and middle-income households able to purchase housing. In addition housing supply lags well behind demand. In Melbourne, urban consolidation policies explicitly seek intensification to promote housing supply but planning regulation is often criticised for being a significant cost driver for medium density housing. It is assumed that easing supply constraints will improve affordability. We suggest that laissez-faire planning exacerbates affordability issues because this approach fails to address the basic economic problem: the current inability of the market to efficiently match supply and demand in order to progress an orderly and de-risked development process. The role of ‘exchange’ one of the four housing market sub-systems identified by Burke has until recently generally been ignored but our examination reveals significant economic transaction costs that manifest as development risks that impact on affordability. Fortunately these can be mitigated, but only if there is a more consumer-driven supply response.
A major challenge for urban Australia and its fast growing cities in particular is the provision of an adequate supply of appropriately located, affordable and sustainable housing across a range of dwelling types. A related challenge involves attempts by the metropolitan planning agencies in the capital cities to restrict residential sprawl and deliver more compact cities. Residential infill in the established suburbs has emerged as one of the principal urban planning policies designed to address this dual challenge. Infill targets, typically in the 50–70 per cent range, are now integral to all capital city planning strategies. This article examines the current pattern of infill housing development in Melbourne, Australia's second largest and fastest growing capital city. It highlights the existence of two infill segments—brownfields and greyfields—each with distinctive patterns of development that need to be better understood if urban regeneration is to figure significantly in delivering more liveable and sustainable cities. Current urban policies, programmes and practices are lacking an effective response to redevelopment of the greyfields.