Government prepared to underwrite housing projects to boost viability

The NSW government will consider underwriting private housing projects or guaranteeing finance to make developments more feasible amid the housing supply crisis, but has ruled out suspending developer infrastructure fees.

Meanwhile, a financial analyst has said rental affordability in Sydney was not as bad as people thought, and unit prices and rents needed to rise by 30 per cent to make new projects more viable.

The state government will consider underwriting private projects or guaranteeing finance to make housing developments more feasible.Credit: Jessica Shapiro

Housing Minister Rose Jackson told a development industry function in Sydney the government was open to a range of options to get projects moving.

“Is it government intervention in the form of guarantees? Risk assumption. It’s a conversation we’re willing to have,” she told the Property Council of NSW Housing Summit on Thursday.

“What role can we play taking on risk, whether it’s in financing or other parts of the matrix of things that come together to make a project viable and feasible? Is there a role for government interventions or guarantees to assume risk to get projects moving?

“Those are the conversations that we want to have so that the question isn’t, ‘Well, if we want to get supply moving, we’re just going to have to make things more expensive.’ ”

NSW Housing Minister Rose Jackson.Credit: Dominic Lorrimer

Jackson later said taking on risk was just an idea, but the government had been clear that every part of the housing supply chain was under the microscope.

“These are options that have been presented to us by the sector. We are listening and need to be able to have frank conversations about what course of action government can take to help build more homes sooner,” she told the Herald.

Such measures could extend to underwriting deposits on presales, as meeting presale targets to secure construction finance had become a key hurdle for developers. Planning Minister Paul Scully told the same conference the number of NSW dwellings approved but not commenced rose from 13,700 to 15,600 in the December quarter.

Jackson’s speech followed a presentation by CBRE’s Asia-Pacific head of research Sameer Chopra, who said unit prices and rents in Sydney needed to increase by 30 per cent to make developments more feasible.

“Right now one of the big constraints in supply is: the price is not right. Construction costs have gone up by 35 to 40 per cent and are starting to increase again this year,” he said.

“If the sale price or the rent isn’t right, you just do not have the right economic motivation to bring stock to market. To activate supply in earnest, we’re going to need to see prices move up by 30 per cent.”

Domain’s latest rental report found the median unit rent in Sydney had reached $700 a week - an increase of 13 per cent in one year. But Chopra said rents were not as expensive as in other world cities, as a professional couple could easily earn a combined $300,000 a year.

“In Sydney, about 28-30 per cent of median income goes towards rent,” Chopra said. “That sounds like a big number; it’s actually not a big, big number. In markets like New York and London, people spent about half their income on rent.

“The affordability barrier is much higher than what we are assuming. A large part of Australia can afford to pay between $1000 and $1500 a week for a two-bedroom apartment.”

Jackson told the audience she “just about fell off my chair” at Chopra’s remarks.

“I have not cleared this with cabinet … but I’m here to inform you the NSW government’s position is that prices cannot rise by 30 per cent,” she said. “That is going to be a major challenge for any government to deal with.”

Jackson also gave a strong indication next week’s state budget would contain funding for public housing. The government knew it had to put resources on the table for social and affordable housing, she said, and this would be “reflected in the budget”.

Property Council of NSW chief executive Katie Stevenson, who was chief of staff to former Liberal cities minister Rob Stokes, said she expected any government intervention in development finance would lean towards the consumer side, such as underwriting deposits.

“We’ve been talking really intensely about some of the market pressures. [People in] the room were really pleased to hear that was being considered as an option,” she said. “It’s not just ‘change the planning controls and the market will jump’. There are a whole lot of other factors in play.”

The industry used the summit to call for the temporary suspension of developer contributions for enabling infrastructure, including water and sewerage, arguing this would boost project viability.

However, Scully shot that idea down. “That is a short-term solution to multiple pressures, and one that has long-term consequences,” he said. “I must have an eye, and the government must have an eye, to those long-term consequences.

“If we don’t have that enabling infrastructure, and a means to pay for it, we can’t approve development applications.”

Start the day with a summary of the day’s most important and interesting stories, analysis and insights. Sign up for our Morning Edition newsletter.