Does public housing hurt property values?

For property investors, few questions generate as much instinctive advice as whether to buy near public housing.

The conventional view is straightforward: avoid areas with too much public housing because it will limit capital growth.

The data is considerably less straightforward.

New analysis by HTAG Analytics of 4,135 Australian suburbs suggests there may be a threshold at which the concentration of public housing becomes more relevant to long-term property performance.

Rather than finding that any presence of public housing automatically drags on values, the research points to a relationship that changes when social housing accounts for around 10 per cent of dwellings.

That finding comes with an important qualification: the analysis identifies a correlation at suburb level, not proof that public housing itself causes lower property growth. In addition, other research reaches differing conclusions.

A surprising capital growth result

HTAG measured the share of dwellings owned by state and territory housing authorities against house price growth over periods ranging from one to 10 years.

At first glance, the results appear to challenge the conventional wisdom.

Suburbs where public housing represented 10–15 per cent of dwellings recorded median five-year growth of 71.1 per cent, compared with 57.4 per cent in suburbs where the share was below 1 per cent.

But there is an important reason for that result. High-public-housing areas tend to be at the more affordable end of the market, and affordability has been a powerful driver of Australian property growth.

“If you only look at the last few years of raw growth, high public housing suburbs look like winners,” said Dr Matija Djolic, CEO of HTAG Analytics.

“That’s the trap. The growth is real, but so is what comes with it.”

HTAG found average socioeconomic advantage fell from 6.8 in suburbs with less than 1 per cent public housing to 2.6 in areas with more than 15 per cent.

The proportion of suburbs outperforming the national growth average was also far from universal. Only around half of suburbs in the higher public housing bands beat the national average.

The more revealing result emerged when HTAG looked at the longer-term trend.

Where the 10 per cent line appears

HTAG’s segmented modelling identified a breakpoint at about 10 per cent public housing.

Below that level, a higher share was associated with stronger growth. Above it, the relationship turned negative.

“The debate is usually a yes or a no but the data says it’s a threshold, and it sits at about 10 per cent,” Mr Djolic said.

“It’s the concentration that matters, not the presence.”

HTAG classifies public housing of 8 per cent or more as a structural risk flag, while 5 to 8 per cent is a prompt for additional due diligence.

The analysis also found that the growth trajectory weakened as concentration increased. In the 10–15 per cent band, the annualised growth rate fell from 11.3 per cent over one year to 7.5 per cent over a decade.

For investors, it’s an important distinction to pay heed to. A suburb can produce strong recent growth because it is cheap without necessarily having the characteristics needed to sustain that performance over the long term.

There is also a potential trap in rental data.

HTAG found a negative correlation between public housing share and vacancy rates. High public housing suburbs can therefore appear to have exceptionally tight rental markets.

But public housing is generally occupied, meaning a low overall vacancy rate does not necessarily indicate strong demand for privately owned rental properties.

“Low vacancy in a high public housing suburb can tell you almost nothing about private rental demand,” Mr Djolic said. “Government stock doesn’t sit empty. Investors see the number and assume a tight market.”

Why investors shouldn’t use a simple rule

The HTAG findings should not be interpreted as a case for automatically excluding suburbs with public housing.

Other research sources demonstrate why.

An analysis of more than 57,000 property transactions by Microburbs found that properties in areas with less than 3 per cent public housing recorded average annual capital growth of 10.9 per cent, compared with 9 per cent once the share crossed 3 per cent. It also found stronger growth where public housing was absent from nearby pockets.

Meanwhile, InvestorKit research found no consistent long-term relationship between the proportion of public housing and house price growth. It also found no clear correlation between public housing density and crime rates.

Realty.com.au similarly concluded that the impact is localised and that broader forces, including supply and demand, population growth and interest rates, have a much greater influence on property prices over the long term.

The differences partly reflect the fact that these studies are measuring different things and at different geographic scales. HTAG’s analysis is based on suburbs, while the Microburbs research examines individual “microburbs” and nearby pockets.

Social housing levels

The debate about the appropriate level of public housing is as passionately argued as the impact it has on surrounding property prices.

There is also a broader supply issue behind the debate.

AHURI found that just 3.8 per cent of Australian households lived in social housing in 2021, down from 4.9 per cent in 1981. At the same time, 6.1 per cent of households were either living in social housing or had requested access to it, based on the previous Census and latest waiting list data.

Social housing remains a relatively small share of Australia’s housing stock despite demand exceeding available supply and is far below that of most European nations.

Sweden and the Netherlands, with GDP per capita roughly comparable to Australia, had levels of social housing that were 4.5 to 7.6 times greater than for Australia.

When the 17 EU countries are ranked by percentage of social housing, we see the median lies with Slovenia (6 per cent). Australia’s 3.8 per cent sits well below the EU median average.

Useful lesson for property investors

Public housing is not a binary variable. Where it is, how concentrated it is, what surrounds it and what is happening to the area are all vital components to consider.

The wider housing context is also important. Australia had about 3.8 per cent of households living in social housing in 2021, down from 4.9 per cent in 1981, according to AHURI. At the same time, AHURI found that 6.1 per cent of households were either living in or had requested social housing in 2021, highlighting the gap between supply and demand.

For investors, the practical conclusion is therefore less dramatic than either side of the debate might suggest.

Don’t automatically reject a property because there is public housing nearby. But don’t ignore concentration either.

Before buying, check the proportion of public housing at the local level, examine whether the share is rising or falling, investigate the surrounding streets and assess the suburb’s socioeconomic and development trajectory.