Strengthening economic cases for housing: the productivity gains from better housing outcomes

Professor Duncan Maclennan, Policy Scotland associate, has published research which models how housing outcomes impact economic growth and productivity.

The research makes a case for housing construction to be classed as infrastructure investment, akin to investment in transport links, water and communications.

Cover of the report for Strengthening Economic Cases for Housing Policies reportThe Strengthening Economic Cases for Housing Policies report published by the City Futures Research Centre (CFRC) at the University of New South Wales (UNSW) shows that housing has a substantial impact on the economy.

The report uses established  scenario building and economic modelling techniques to investigate the impacts of building more subsidised and affordable rental housing closer to areas of job density.  It establishes that there are strong productivity effects for the economy from such developments arising from saved travel times and locating workers closer to a range of jobs that better match their skills. The impacts are on at least a par with the productivity gains from transport investments.

Duncan Maclennan, who has a longstanding record of high-level housing and cities policy work, is Visiting Professor at the City Futures Research Centre.

He said, “The conventional view in Australia is that housing expenditure is primarily a social role of government. But our work shows that by building affordable housing at reasonable distances from where people work and in sufficient volume, there is a significant reduction in travel times that reduces costs to households, which also releases time for work and increases labour supply.”

The study found that living closer to job markets also means increased job mobility and higher incomes over time.

Professor Maclennan said:  “So there is a productivity link. Housing policy is not just about redistribution, it’s about growth and productivity too.”

The study was jointly commissioned by a consortium of not-for-profits, government and private sector organisations, including the Community Housing Industry Association of NSW (CHIA).

Professor Maclennan argues that the evidence supports the need for such subsidised housing to make the Sydney metropolitan economy work more effectively and, more widely, he argues that finance and treasury ministries around the advanced economies that see housing simply as a redistributive policy have to think again and that housing is also real economic infrastructure with productivity gains.

He urged governments to address the housing affordability problem, which he said “affects younger people, but also those up to the age of 40 in really disproportionate amounts”.

Professor Maclennan has called on governments to assess public policy expenditure by treating housing like roads and public transport: as economic infrastructure.

Scottish context

Professor Maclennan argues that the economic content of Scottish housing policy has been weak for most of the four decades he has been working in the area and that neither government nor the housing lobbies have made serious efforts to address the issues. Now with Edinburgh manifesting housing growth pressures (at internationally low rates of metropolitan growth) and the Scottish Parliament increasingly reliant on productivity growth and incomes in Scotland there is a real need to address the issues.

Some of the approaches that Policy Scotland has been developing for major metropolitan areas may now be relevant to Scottish housing policy and practice. A merging with housing, transport and planning portfolios in the Scottish government might help and the new Infrastructure Commission for Scotland, that represents a welcome step forward in Scottish policy (and that has talented and enthusiastic commissioners), should take the lead in exploring this issue for Scotland’s benefit.

Read the report

The full report and an executive summary are available from the City Futures Research Centre website