A proven policy roadmap for delivering more affordable & better quality housing supply

Recently as I've been trying to process all the change in our world that seems to be happening at once, I've been going deep on the work of an anthropologist.

The work of David Graeber has resonated with me as his work challenges common held narratives about the reason things are the way they are.

Narratives we are all questioning.

And one of his observations in particular, that "the ultimate hidden truth of the world is that it is something we make and could just as easily make differently", has stuck with me.

In the spirit of this observation, I want then to recount a story from our collective past.  From another country yes, but from a city that faced many of the same challenges we do today.

Claire O'Neill has been calling for "boldness and ambition" if we are to fix the housing crisis.

In sharing this narrative, I hope to surface some ideas that will challenge common perceptions on how difficult it is, and how much subsidy is required to shift the dial on housing market supply.

The policies this city introduced empowered it's citizens to take an active role in building more homes, which at its height saw between 5-15% of new housing supply across the city being delivered in this way.

If you are involved in politics, policy, the housing industry or are simply owning or renting your home, I hope some of the elements in this story will resonate, and maybe even inspire you.

As it feels like we are all in need of some inspiration at the moment.

 

The wicked problem of housing supply. Viability - the many headed Hydra

 

It is now clear to everyone in the industry that at the root of the crisis is the intrinsic problem of viability in delivering more supply.

Building housing, particularly medium density infill housing, in most areas of our cities is simply not profitable enough to take on the risks.

Some larger builder developers be well placed to take on this risk because they are vertically integrated, but generally, these days the risk premia for developers that need to contract with a builder and sell in the short term is just not there. Unless the focus is on the luxury segment of the market.

Put simply, the return on equity capital is not high enough to incentivise developers to take on the risk to build permits they have obtained, or progress new projects.

Charter Keck Cramer in their recent H2 2024 State of the Market report into the apartment market pronounced that "the new housing market has broken down".

The current reality is that in a Melbourne metropolitan context townhouse projects are not financially viable unless sales (value) rates can achieve circa $10k per square metre (psm). For apartments this threshold benchmark is nearly $14k psm.

If a location can support these benchmarks, it is inherently unaffordable.

Developers, like most enterprises are competing for resources and remain sustainable by maximising profits, so when the viability of developing in affordable suburbs is under duress, this is a very big deal when we and our governments rely on private developers to deliver close to 100% of housing supply.

Incapable of resolving the underlying construction cost and other market factors making most development of new homes unaffordable, state governments try to encourage supply by rolling out new planning controls, policies and processes, with the view that this will increase development yield or cut red tape.

These levers would normally have an impact, but the gap between what a development costs to deliver and what the market is able to pay is still too great, so the only sector still producing new homes is the luxury segment, or community housing providers (CHPs).

The rest are having to sit on their hands and permits, waiting for market conditions to improve or the reintroduction of state subsidies (which have run out) or the next round of federal capital grant subsidies, via the Housing Australia Future Fund (HAFF).

It's clear that no one is in control of the system. Our three tiers of government struggle to co-ordinate themselves to coherently solve urban and town planning constraints, let alone slay the multi-headed Hydra of development viability.

This makes the production of housing in large swathes of the city unprofitable and therefore unviable for the vast majority of developers to build.

So we face the very real spectre of a housing supply crunch in the foreseeable future.

From what I can see the future construction of homes, will be largely restricted to the luxury segment of the market (including premium Build to Rent - BTR), and the social housing projects that the handful of mostly "tier 1" CHPs have been granted subsidies for, or have balance sheets large enough to partner with large infrastructure players.

For context, when researching the market in Melbourne's west last year, a valuer contact of mine was of the opinion that there were no locations that hit benchmark value rate viability thresholds.

Further, that virtually no apartment projects were proceeding in the inner or middle west of Melbourne without some form of government subsidy. None.

This is a wicked problem for governments to address and it will take a long time. There are no easy fixes.

On the value or revenue side, developers need increased revenue to compensate for the circa 30% rise in new home construction costs since the pandemic. But 30 years of finalisation of housing means that a few interest rate cuts back to around the RBA's neutral rate, will boost prices to a degree, but probably not to the levels needed to make infill projects stack up.

On the cost side, the time savings from codifying planning are laudable and will improve things at the margins, however construction cost escalation is still predicted to occur at around 5% per annum for the next few years. The unicorn of modular and prefabricated modern methods of construction, will only achieve significant cost savings with significant repetition and scale. A major challenge in an infill context without serious government support. Finally and perhaps most significantly, the cost of capital, particularly from higher priced private credit markets presents a significant headwind for developers to negotiate.

 

Some inspiration from over the seas.

 

It's hard to stay positive.

Conversations with peers frequently turn into lamentations on the state of the market, the Hydra raises a few of its heads, and then someone changes the subject. Sport. The weekend. Got to stay positive.

But I am a positive person. There must be a pathway to a better future. One that doesn't require wholesale structural reform and billions in subsidies to stimulate demand. We can't wait that long. Can we?

Personally, when I need some housing system inspiration, I mostly look overseas.

In particular to northern & western Europe.

And when reflecting over the summer on this, I couldn't help to see some parallels between our city's current predicament, and the city of Berlin in the aftermath of another crisis, the dot com crisis.

There are some good lessons here that I hope we in Australia can learn from and adapt to our current situation.

They may not be a panacea, more ambitious supply side measures than are currently contemplated are required.

However, they can play a significant complementary role, particularly when the toughest metric to tackle - the return on equity for speculative developers to build in the sub luxury market - remains unattractive for these developers to move on production. 

 

Berlin created a vibrant new sector of the market by putting its faith in local communities and design fraternity.

In 2002 the Berlin Senate cut funding for all housing programs. It was broke. With this change in policy, along with a severe economic recession, investors and developers effectively stopped building housing. Sound familiar?

At this time many people, mainly families who wanted to remain in the inner city, were not finding what they wanted, predominately in the rental market.

Architects picked up on this potential market and started to develop projects themselves with a design for an empty site, then found enough partners to buy it and build.

The projects were innovative by nature, often with high sustainability features, but more importantly residents that got involved had a vested interest in their local community and the new buildings became instant micro-communities within larger neighbourhoods.

Believe it or not, Melbourne has a similar tradition starting in the early 1990s.

We recently explored these stories and history at the Robin Boyd Foundation's Home Made Melbourne panel event, with architects like Rossetti Architects, McBride Charles Ryan and Six Degrees in suburbs like Richmond, Prahran and Brunswick. Our building group model since 2010 has built 82 homes across 10 projects using this group self build approach.

Berlin policymakers encouraged the growth of these baugruppen (building groups or group builds or group self build) as the projects were seen as a welcome way to promote sustainable, community-driven housing.

These projects were unique because the building groups were:

1. Resident-led, where future residents form a group early in the process and co-design and co-develop the project, maintaining greater control over the built form outcome, and
2. Not for profit, by cutting out the developer and eliminating profit-driven costs residents can direct more budget to where they see value, usually in the form of shared spaces to encourage community-oriented living or enhanced sustainability features.

As the economy improved many private developers became focused on the luxury segment of the market, worsening diversity and social outcomes in many neighbourhoods. Sound familiar?

Berlin continued to support community-led building groups as they were seen as a way to counter speculation and deal with a housing affordability crisis. Social and community-oriented housing was seen as something that should be promoted as traditional housing developments prioritised profit over quality and social outcomes.

With continued support from the city, the ecosystem grew and projects became larger and more sophisticated.

Different financial models like cooperatives were supported often in collaboration with local versions of our community housing providers (CHPs). A great diversity in scale and form emerged with building group projects varying widely with:

1. Small groups (4-8 units) and medium sized urban infill projects (15-30 units), typically underpinned by direct home ownership via partnerships (GbR) and limited liability companies (GmbH) structures that come together for a one off, project specific collaboration. Similar to many of the building groups or collectives we have built since 2010.
2. Large cooperative projects (50-150+ units), delivered by Genossenscharften (cooperative associations) and Wohnungsbaugenossenscaft (housing construction cooperatives), which are well-established institutions with extensive portfolios. These cooperatives deliver mixed income housing for low to middle income households where members purchase and collectively co-own a share of a building and have a right of residency. These projects serve a wider array of societal groups than the smaller building groups, including low to middle income residents, the socially conscious, elderly seniors seeking intergenerational community, as well as artists, freelancers and those seeking non-traditional living arrangements. The larger cooperative projects typically feature around 10-30% social housing in new-generation baugruppe style projects, or 50%+ where public land or major subsidies are involved.

So unlike the Australian CHP sector, these cooperatives have a broader mandate than just social housing. They prioritise collective decision making and ownership and promote more participatory approaches to urban living. Mockernkiez  is one example. A large eco-focused cooperative of around 470 units across 14 buildings where 30% of units are social housing and the rest of the units are allocated based on income with all rents being below market.

Berlin fostered a viable alternative to relying on the speculative housing development sector

 

By their peak (around 2010-2015) there were around 500 projects across Germany, particularly in Berlin, Hamburg and Freiburg.

At around this time building groups accounted for approximately 10-15% of new residential builds in central Berlin districts like Prenzlauer Berg, Kreuzberg and Friedrichshain. City wide it is thought these projects probably accounted for around 5-7% of all new builds during this most active period.

To put this in perspective, in 2010 Berlin was a city of around 3.5m residents and between 1990-2010 around 160,000 new dwellings were constructed in Berlin, an average of around 8,000 per annum. So baugruppen was delivering somewhere between 400 to 1200 dwelllings per annum.

By comparison, in 2010 Melbourne was a city of 4 million and there were around 5,000 apartment completions in Melbourne.

 

Seven key policies that worked and how they could they be adapted

 

The rapid growth of Baugruppen projects was facilitated by a combination of supportive policies, financial incentives, and urban planning strategies implemented over a 10-20 year period. The movement was influenced by a number of architects, urban planners, policy advocates, facilitators and community organisers.

R50 project in Kreuzberg, Berlin

 

People like Florian Kohl (an architect and co-creator of the R50 project in Kreuzberg), Winfried Kretschmann (a Green politician) who championed policy reforms, Dr. Cordelia Polinna (an urban researcher) who advised the city on collaborative housing policy, and Dr Kristien Ring (an architect, researcher and director of the German Architecture Centre DAZ), who provided a theoretical & practical framework for how baugruppe could reshape urban living, supporting the idea that citizens could be proactive urban developers.

The combined impact of this suite of policies and the ecosystem that evolved, helped create socially sustainable neighbourhoods, with energy-efficient high performing buildings that featured more considered shared/communal spaces that supported more cohesive mixed income communities.

Sounds good.

In a local context, most policy objectives for local and state governments I've read have similar objectives. But objectives without committing to practical and actionable interventions to deliver them, are little more than motherhood statements. Lip service. Hope is not a method.

The 7 key policy interventions were:

1. Concept-Based Land Allocation (Konzeptverfahren)

 

Probably the most critical policy were preferential land sales, which gave Baugruppe groups genuine opportunities to develop properties at accessible prices.

By prioritising community oriented proposals, Berlin effectively created a pathway for innovative housing models.

The city prioritized selling public land to building groups rather than to the highest bidder. A concept-based evaluation process was used, where groups had to demonstrate social, ecological, and community benefits to acquire land, rather than just financial capacity. Land was often sold at fixed prices, making it more affordable for Baugruppen than speculative investors.

In a local Australia context, concept based land sales could be introduced where state or local governments allocate say 10% of government land in urban renewal areas to baugruppe with the balance to private developers. Similarly local councils looking to facilitate housing outcomes on their land, could take a portfolio approach to their land holdings where some of their land could be used to support innovative solutions beyond purely social housing outcomes. Both approaches would attract engaged long term residents who are looking to create community and are willing to invest in innovative designs and quality outcomes. Too often these kind of divestments are done in a hurry, to maximise returns with little consideration for how to curate great long term outcomes.

2. Integration into Large-Scale Urban Redevelopment

 

Berlin mandated that a portion of new urban developments include Baugruppen projects, particularly in new residential areas undergoing urban renewal. Some former industrial and railway lands were specifically zoned for community-led housing. Larger development sites were subdivided to allow smaller, community-led projects to participate. This was all to provide resident groups with a more level playing field versus commercial developers and to ensure more diverse and community-driven housing.

In a local context, bodies like Development Victoria could allocate peripheral lots in some of their urban renewal projects to building groups. Our experience is given enough time to organise, and reasonable certainty that the effort is worth it, groups will form around an opportunity. Building groups have typically been able to afford to pay market prices for land given their motivation is long term owner occupation. The way Victorian state and local governments divest land at the moment does not prioritise innovation over financial return and risk minimisation. It's very difficult for innovators to get a look in. Some of the innovative work of Renewal SA and the Suburban Land Authority in Canberra are worthy of closer review.

3. Financial Support & Low Interest Loans 

 

Critically for Berlin, KfW Bank (Kreditanstalt für Wiederaufbau), Germany's state development bank and Investitionsbank Berlin (IBB) provided low-interest loans to baugruppen, which were also allowed to access publicly subsidized loans, particularly for sustainability-focused developments that met passive house standards and green building certifications.

Some cooperatives received tax benefits and exemptions based on the percentage of social housing they could support.

The net effect being that it became more financially viable for middle income residents (who couldn’t qualify for social housing) to participate in these projects.

In a local context, one of our key challenges in scaling is creating pathways for middle income families to participate. Allowing building groups or their members to be eligible for government supported low interest loans via say the Clean Energy Finance Corporation (CEFC), and benefit from government home guarantee schemes or shared equity schemes would be transformational. Particularly if the timing of this support was structured to assist with equity capital investments in the acquisition or pre-permit approval stages of projects. This is the most impactful part of any development project.

In 2024 we completed The Victoria Street Collective in West Brunswick. The average NatHERs rating for the 10 oversized apartments was 8.7 with the best performing home achieving 9.2 stars. There was no additional financial support for achieving this outcome. Despite it being an exemplar for the type of housing the state wants to see happen, these projects are frequently seen as subscale to receive any serious attention.

4. Zoning & Planning Preferences for Baugruppen

 

Certain areas of Berlin were designated as priority zones for Baugruppen, allowing easier planning approvals. Berlin’s urban planning policy encouraged mixed-use, community-led developments. Some restrictions on building height, density, and shared spaces were relaxed to accommodate Baugruppen.

In a local context, we welcome the Victorian state government's recognition of building groups as representing "good value" in its recently released Great Design Fastrack initiative. However the only current policies that are similar to Berlin, come from the City of Banyule, who have a narrow definition of "cohousing" in their planning scheme that exempts qualifying applications from some minor statutory charges. When Nillumbik Council forced us to go to VCAT to for our Eltham Collective, we sought to have this 21 home project considered through the state government's Development Facilitation Program (DFP). However, the project was effectively deemed too small as it did not meet the thresholds of Clause 52.23 so this pathway was refused.

In approving our Eltham development, VCAT described the application as:

"an exemplar of an innovative approach to dealing with the challenge of diverse housing opportunities to meet the needs of Victorians". Moreover VCAT pointed out that "the proposal addresses the call for diversity in housing supply that is one of the key plans of the Nillumbik Planning Scheme. In our view, this is a project that could and should have been supported and fast tracked because of the qualities we have outlined above. The instead the project was met with substantial delays and opposition, is part of a wider trend we are observing, that will fail to produce appropriate housing projects that can start to address the existing shortfall in housing supply presently being experienced across Metropolitan Melbourne."

5. Public Land Leases & Long-Term Affordability Guarantees

 

The Berlin Senate leased public land to cooperative housing groups at low-cost, long-term rates instead of selling it outright. Some Baugruppen were required to cap rents and resale prices to maintain long-term affordability. Not all baugruppen projects received subsidies, only those meeting explicit social or public interest criteria.

 

6. Technical Assistance & Advisory Services

 

The Berlin Senate and local councils established Baugruppen advisory offices. Non-profits and architecture firms provided guidance on legal structures, financing, and group formation. Online platforms were supported to help people form Baugruppe and connect them with support networks. Some districts provided public workshops and educational resources as well as expert consulting to help residents form and manage Baugruppen as well as guide groups through the planning and development process.

In a local context, governments could partner with any number of universities who have done work in this space to offer training, workshops and networking events. Organisations like RMIT, Monash, University of Melbourne, University of Griffith, University of Wollongong or University of Technology Sydney (UTS) have already researched this space. For instance University of Technology Sydney (UTS) has already created resources like a collaborative housing website and guide to resident-led housing, as has the RMIT PlaceLab.

7. Cooperation with Housing Associations (Cooperatives or Genossenschaften)

 

Berlin promoted partnerships between baugruppen and non profit housing cooperatives, enabling more affordable financing models and shared ownership structures. Some Baugruppen received non-profit status, enabling tax advantages via these partnerships, with cooperatives providing existing legal frameworks for baugruppen to operate within, reducing bureaucratic hurdles and fastracking the delivery of more impactful housing outcomes.

In a local context, Australia has a national network of rental cooperative focused CHPs (the Australian Cooperative Housing Alliance), that could collaborate with community groups to support lower income households into building group projects in a similar way to the Genossenschaften. However, given these CHP's main focus is lower income households that qualify for social housing, these organisations would need additional resources to seriously invest in innovating outside of their core charitable focus.

Democratising housing production turns people into producers rather than consumers of housing

 

The Baugruppe approach effectively democratises the production of housing.

Doesn't it make sense that part of the answer to our housing challenge lies in supporting more horizontal rather than vertical structures to participate in the market?

This is systemically important as mobilising this equity capital is critical to delivering better housing outcomes. The investment of equity capital is the key driver in the production of housing.

How equity capital thinks determines the outcome of housing investment.

Community focused equity capital makes decisions based on long term value, which in our experience ensures authentic triple bottom line outcomes.

It underpins the construction of homes not just units.

It doesn’t make decisions based primarily on short term equity internal rate of return benchmarks.

It is irrational to expect different housing outcomes if it remains the case that short term profit maximising equity capital continues to determine how the vast majority of our housing production. Alan Kohler recent piece "Australia's housing crisis is driven by lip-service, hypocrisy and an investment culture", sums up for me the challenge perfectly:

Kohler points out that "what gets built, with what materials, ceiling heights, room sizes, storage, garaging, and whether it comes with grass, is up to the developer and the margin in its business plan.

And the "products" as they call them, won't last 20 years".

What the Berlin experiences shows is that with the right set of policies, governments can facilitate the mobilisation of community equity capital that is focused on creating higher quality, more community oriented and more affordable infill housing.

Leveraging government and institutional leadership to support alternative approaches like this, and to rally community focused equity capital is now more critical than ever. This is of course if we are serious about doing something about inequality & productivity.

Or is all the talk just lip service?

Policymakers should be making it easier for initiatives to rise up from relatively small, self-organized, autonomous groups rather than being conveyed downward from centralised profit maximising organisations. Moreover by empowering people to be the producers of housing rather than simply consumers of housing, making it easier for people participate on the supply side of housing can even generate equity capital for participants versus simply buying off the plan.

Mike Zorbas from the Property Council recently said,

"now we have maxed out the national credit card, and with big state deficits, we are going to need other people's money to build the best parts of our cities".

I might be taking Zorbas slightly out of context given the PCA membership, (I suspect he was alluding to more foreign investment), but his point is spot on.

The next few years will reveal how serious we all are about building better housing outcomes. Particularly in infill locations where speculative developers are unwilling to invest in production at reasonable prices.

Our work since 2010 has proved there is a groundswell of community demand for these types of housing outcomes, particularly for small group and medium sized infill projects (of 4 to 25 units). And that cooperative commercial structures exist that can intelligently govern and negotiate the process of development. Banks like CBA, Bank of Melbourne and Bank Australia have also gained confidence in this approach, and continue to fund these resident led initiatives and structures. So this approach is ready to scale.

Community demand for this type of housing is further reinforced by community led groups like WINC Cohousing in Castlemaine, and the work of Nightingale in relation to their collaboration with the resident "buying group" Urban Coup in Brunswick.

 

The next step? More inspiration less procrastination.

 

Do we want more community ownership, empowerment and stability?

Do we want reduced pressure on the rental market and more affordable homes near employment hubs?

Do we want more sustainable, high quality housing focused on collective well-being?

Do we want more diversity in our housing system?

If policymakers want to support these outcomes, the playbook to support the communal self-organisation of groups has been written, the lessons learnt.

We only need to look to places like Berlin to find the inspiration.

Indeed the UK seems to be learning these lessons and looks to me to be ahead of Australia in translating them into a local context.

The UK government has announced  £20 million investment to support the delivery of community-led housing. The government invested into a social finance fund with experience in supporting the delivery of community-led housing for a 10-year period. This is the first time the government has supported this approach to finance housebuilding at this scale and will help overcome critical barriers to community-led housing delivery, such as community groups accessing the capital needed for construction.

The UK also introduced a "Self-build and Custom Housebuilding Act" in 2015 to support housing built by an individual, a group of individuals, or persons working with or for them, to be occupied by that individual. Such housing can be either market or affordable housing. Local government's have a legal obligation to maintain a register of households interested in this type of housing and are required to issue sufficient planning permissions on an annual basis to meet that demand.

A great example of how proactive some UK governments have been is Cambridge Council's facilitation of Marmalade Lane, a project which Oliver Wainwright from the Guardian wrote,

"imagine a world where homes were built according to the needs of residents rather than the profits of house builders, a place where land was allocated with the best long-term value in mind, rather than flogged off to the highest bidder, and where politicians’ claims of “creating communities” actually rang true. It might be something like Marmalade Lane in Cambridge”

 

What we need now is more built examples of market interventions that can inspire everyday Australian's that there is another way.

 

The Berlin experience shows that government can support their constituents to have genuine agency to take a more active, deliberative and democratic role in creating housing outcomes.

I am not suggesting that adopting these policies is an alternative to the more fundamental structural supply and demand side housing policies that Australia needs. However these interventions would serve as complementary measures in the short term to boost supply as more politically challenging policies are progressed.

Our local experience facilitating the group build of 82 homes since 2010 is that if you give Australian's a chance to participate in something better, they will gladly accept the opportunity.

Everyone knows the system is broken. No one is going to be criticised for trying something different that is rooted in empowering the community itself to drive change.

What we need to scale up the nascent ecosystem that exists, to make this type of housing more affordable and more accessible to a wider section of society, is more demonstration projects.

Projects that are enabled and championed by people who are passionate about seeing better outcomes in their streets and neighbourhoods.

These are where the stories will be created that can inspire change.

Please Get in touch with us if any of these ideas have resonated, and you are interested in contributing to changing the direction of our current system. We'd love to connect...