Wayward governance : illegality and its control in the public sector / P N Grabosky
Canberra : Australian Institute of Criminology, 1989
ISBN 0 642 14605 5
(Australian studies in law, crime and justice series); pp. 197-210
It is said that every Australian dreams of owning one's own house on a quarter-acre block. The Australian dream has proven elusive for many, however; millions of Australians are unable to afford their own homes. Indeed, many are unable to afford rental accommodation on the private market. To assist such unlucky inhabitants of the lucky country, state governments provide housing for low income people through statutory authorities. Such a body was the Housing Commission of Victoria. Originally established in 1938 to oversee slum clearance in the city and inner suburbs of Melbourne, the Housing Commission presided over the construction of the Olympic Village in 1956, built houses at various locations around the state, and made its mark on the Melbourne skyline during the 1960s in the form of high-rise blocks of flats just off Lygon Street in Carlton.
It soon became apparent, however, that the aesthetics of vertical accommodation (not to mention the social and psychological consequences) left a great deal to be desired. The alternative was to provide more low density housing, at some distance from the city. As the gap between rich and poor began to widen, and the cost of accommodation on the private market became more elusive than ever, the queue for Housing Commission dwellings lengthened. By 1973, there were in excess of 14,000 pending applications for public housing in Victoria.
In the face of this demand, and in light of increasing public pressure to meet the basic needs of the state's disadvantaged citizens, the Hamer Liberal government decided to act. The pace was hastened by the aggressive housing policies of the first federal Labor government in twenty-three years, which made substantial funds available to state housing authorities. Continued failure by the Victorian government to address the housing problem would almost certainly evoke an increased federal presence in what was hitherto predominantly a state domain.
Plans for metropolitan development had previously been based on the concept of 'growth corridors' radiating outward from the city of Melbourne, and separated by 'green wedges'. In 1973, however, the government of Victoria announced that its development plans would be based on the concept of satellite towns'. It was with a view towards providing low density public housing in these satellite towns (and a view, no doubt, towards the forthcoming state elections), that the Housing Commission set about purchasing large tracts of land in 1973.
By the end of 1974, the Housing Commission had spent just under $11 million in purchasing a total of 3,346 acres in Pakenham, Sunbury and Melton, semi-rural areas less than 50 km from the centre of Melbourne. The real beneficiaries of this government largesse were not low income tenants, however. Nearly half of the $11 million was pocketed by speculators and developers who saw the government coming, purchased the land at low prices, and sold it to the Housing Commission at a handsome profit.
The vendors of the land at Melton realised a gross profit of $2.5 million, which represented a tax free capital gain of approximately $1.25 million in less than two years. On 24, September 1973, a finance company executed an option to buy land at Sunbury for just under $1.9 million. Later that same day it signed a contract with the Housing Commission to sell the land for over $3.4 million. Their profit, after costs and expenses, was $1,175,951. The losers in these deals were the Victorian taxpayers - whose public servants paid millions more for the land than they might have - and the clients of the Housing Commission, whose access to low cost housing remained restricted after the Commission's assets were squandered. Indeed, such land as the Commission did purchase remained undeveloped for years afterward. Some was flood prone, and other land remained subject to zoning restrictions. Land prices in general became inflated, thus contributing to the double digit inflation of the time. Private accommodation lay increasingly beyond the reach of low income Victorians, thus adding to the waiting list of the Housing Commission (Sandercock 1979, p. 43).
In addition to allegations of patently incompetent management, allegations of corruption were made against the Minister for Housing, Vance Dickie, and the Minister for Planning, Alan Hunt, as well as against officers of the Commission. Indeed, as official denials of wrongdoing and mismanagement persisted over the following seven years, the legitimacy of the Victorian government was increasingly called into question.
The standard procedures by which the Housing Commission purchased land were not complex. The Commission's interest in acquiring land in a certain area was communicated to an agent, who set about locating suitable acreage. The land under consideration was then inspected by the Commission's engineer, to determine if problems of topography, drainage or other physical considerations would add prohibitively to the cost of development - for example, putting in streets, sewers, etc. The land was then subject to valuation by professional valuers, formally attached to the Valuer-General's Office but seconded to the Commission on a semi-permanent basis. A decision to make an offer for the land was reached at a meeting of the Commission, and a proposal for purchase submitted in writing by the Commission's Chairman to the Minister for endorsement, and approved by the Treasurer before a contract could be signed. Such formalities were, of course, designed to ensure that public monies would not be subject to abuse. In practice, they were totally inadequate.
Widely heralded ministerial pronouncements that the government intended to acquire large blocks of land for public housing may have been useful to the government in the run-up to an election, but it alerted speculators to the possibility of a windfall. The inflationary effect on a market which already had begun to show signs of overheating could only have worked to the disadvantage of the Housing Commission.
The use of private agents to seek out land for purchase was as dangerous as it may have been convenient. In the event, the agent on whom the Commission came to rely, one Robert Dillon, proved to be a singularly unfortunate choice. He in effect operated as a double agent, receiving commissions from vendors and their agents, and had absolutely no incentive to reduce the cost of government land acquisition.
The engineers' technical reports on land under consideration for purchase were at times grossly inadequate, and the Commission's reception of the reports insufficiently critical. The survey of the Pakenham land revealed a significant part of the area to be flood prone, and no detailed estimate was made of the cost that the necessary drainage works would entail. Moreover, an earlier report by the State Rivers and Water Supply Commission maintained that urban development should not be permitted in the area. Nevertheless the engineer concluded:
It is doubtful whether a more centrally located area of land in the Pakenham area could be found, and accordingly, it is recommended for purchase (quoted in Victoria 1978, p. 23).
The failure of the Commission to seek further details on the economics of drainage was unwise, to say the least.
The valuation system employed by the Housing Commission, rather than serving as a safeguard against the payment of excessive prices, not only had an inflationary effect, but was also vulnerable to manipulation. The officers seconded from the Valuer-General's office were situated within the Housing Commission, and thereby exposed to the attitudes and values of their colleagues. Not only was their objectivity jeopardised by the knowledge that the Commission was firmly committed to a prospective purchase, but they were also upon occasion advised of the vendor's asking price.
In the case of the Pakenham purchase, they were not adequately appraised of the zoning and drainage problems which could affect the market price of the land, nor were they advised that the land actually consisted of two separate parcels, each with different zoning and development considerations. The valuers were also exposed to deliberate misinformation by a corrupt officer of the Commission who was receiving payments from those with land to sell to the Commission. In the Pakenham and Sunbury cases, valuers were told that other developers were keenly interested in the land, when they were not.
Another aspect of the land scandals was the tension and conflict which occurred between the Ministries of Housing and Planning. The responsibility of the Ministry of Planning, to ensure that development occurred in an orderly fashion and that sufficient open space be conserved for aesthetic and recreational purposes, stood in conflict with the desire of the Ministry of Housing to provide as much low cost accommodation as it could, as soon as possible. Indeed, a considerable amount of the land sought by the Housing Commission was not at the time zoned residential. Purchases were actually completed without any concrete assurances that the land in question would actually be re-zoned. Conflict between the two ministries actually reached Cabinet. In one instance when the Minister for Housing was opposed both by the Premier and the Minister for Planning regarding a proposed purchase, he advised them that contracts had already been signed. It was subsequently revealed that the contracts were dated later than the Cabinet meeting in question.
Public attention was first drawn to the land deals in June 1974. An article in The Age (Hills & Chubb 1974) disclosed the windfall profits which flowed to developers and queried the processes of acquisition which could have led to such expenditure. The Minister for Housing denied any impropriety, maintaining that the purchase was in fact, a wise one.
Shortly before, however, Geoffrey Underwood, Private Secretary to the Minister for Planning, was advised of allegations that someone in the Housing Commission was in receipt of questionable payments. Underwood notified the office of the Minister for Housing, but no action was taken.
In August 1974, renewed allegations of graft in the Housing Commission prompted the appointment of an Assistant Commissioner of Police (Crime), Bill Crowley, to inquire into the matter. The investigation could not have been intensive, having lasted all of one week. Whilst conceding that the price paid for the land in question appeared to be relatively high, the Crowley report concluded that there was no real evidence of corrupt dealings. The Assistant Commissioner appeared unusually keen to lay the matter to rest:
Indeed, any extension of the inquiry at this stage would almost certainly extend current rumours and play into the hands of journalists and others who have recently been making further inquiries (Jost 1977b, p. 19).
The issue, however, would not go away. Continued questioning by the media and by the parliamentary opposition served to heighten suspicion among members of the public at large. The situation became untenable when, in 1977 a vote of no confidence against the government was defeated, but with two government back-benchers abstaining. The two were subsequently expelled from the Liberal Party (Sandercock 1979, p. 40).
In August 1977, continued pressure from press and opposition finally moved the government to appoint a Board of Inquiry. Sir Gregory Gowans, Q.C., a former Victorian Supreme Court Judge, presided. The Board's task was made more difficult by the time which had elapsed since the land purchases had been made. Jack Gaskin, Chairman of the Housing Commission at the time of the purchases, died late in 1974. Robert Dillon, the real estate agent who had acted for the Commission as well as for the vendors, claimed to have lost his diary. Many witnesses claimed an inability to recall details of transactions completed four years earlier. Vance Dickie, who had been shifted from the housing portfolio to that of Chief Secretary in 1976, claimed to have destroyed his personal ministerial files on the land transactions shortly after the reshuffle.
The inquiry began on 4 September, recessed for the holidays, and concluded on 25 January after hearing sixty-two days of evidence from fifty-five witnesses. The Gowans Report found that an officer of the Housing Commission, Neil Riach, had received a total of $31,000 from the agent Robert Dillon, and that both had given false evidence to the Commission regarding these payments. It recommended that charges be laid against both Dillon and Riach for perjury, conspiring to commit misbehaviour in a public office, and for the payment and receipt, respectively, of a valuable consideration. The day following the presentation of evidence alleging his receipt of gifts from Dillon, Riach was suspended from his public service position pending disciplinary and criminal proceedings.
A tangentially related casualty of the Gowans Inquiry was the Federal Treasurer, Phillip Lynch. In the course of the inquiry, it became apparent that a partnership which included Lynch family interests had recently realised a gross profit in excess of $74,000 from land dealings in the Mornington Peninsula. Unfortunately for Lynch, the other partner, Nandina Investments, had profited handsomely from earlier transactions with the Housing Commission. Moreover, one of its principals was a former Chairman of the Liberal Party Electoral Committee for the Federal Electorate of Flinders, and a former ministerial aide to Alan Hunt, then under scrutiny by the Gowans Inquiry. Although Lynch himself never became the subject of criminal charges, many regarded it as inappropriate that a federal treasurer be even remotely linked to questionable commercial transactions. With the 1977 federal election fast approaching, this view became even more widely held. On 18 November, Lynch tendered his resignation to the Prime Minister Malcolm Fraser, who accepted it.
Aside from the findings against Dillon and Riach, the Gowans Inquiry found that a number of individuals and firms had been in breach of the Estate Agents Act 1958 (Vic) by receiving sums in excess of specified maximum commissions. It was noted, however, that prosecutions were barred by lapse of time.
Despite considerable speculation that one or more state ministers might be implicated in criminal activities, the Gowans Report failed to find such a degree of ministerial misconduct. It found no evidence of criminal activity on Dickie's part, but singled him out for trenchant criticism. Dickie's enthusiasm to acquire land for public housing contributed to a lack of oversight:
the appropriate standards of ministerial responsibility could hardly be regarded as satisfied by an assumption by the Minister that all requirements had been met which the Housing Commission thought necessary . . , The Minister has command over the procedure to be followed in such circumstances, and it ought to have been the subject of his attention. It is considered not too high a standard to expect of a Minister that he should enquire ... (Victoria 1978, pp. 51-2).
The publication of the Gowans Report did not succeed in laying the land scandals to rest. Five years after the first land purchase, not one home had been built on the land. Part of the Pakenham land had been re-zoned for farming only, and the queue for public housing had reached 18,000. The Housing Commission had even failed to charge local graziers rent or agistment fees for use of the land (Sandercock 1979, p. 41). Privately, government members were relieved to learn that no minister had been recommended for prosecution. The Premier continued to express his support for Dickie, in the face of calls from the press, the Opposition and even the National Party for the Chief Secretary's resignation. In a very narrow interpretation of the criteria of ministerial responsibility, Hamer said:
a Minister should resign only when he loses the confidence of his parliamentary colleagues or commits a criminal act ...
Cabinet supports what the Minister did. He was carrying out Government policy and we stick by that policy (The Age 23 March 1978).
For all that Premier Hamer may have seen in him, Vance Dickie was somewhat lacking in charisma. A number of unfortunate remarks had been attributed to him during his tenure as housing minister, statements not likely to have endeared him to a cross-section of the Victorian public. During 1974, in response to expressions of discontent on the part of Housing Commission tenants, he is reputed to have invited them to move out and make room for those on the Commission waiting list. Subsequently, in response to the disclosure of windfall profits gained by developers and speculators, he is said to have replied:
What's wrong with a company making a million dollars? That's what we Liberals are supposed to support. Those of us who are against that sort of thing are socialists (quoted in Jost 1977a, p. 3).
Soon after the release of the Gowans Report, Dickie, in his capacity as Chief Secretary, departed on a two-month overseas study tour to explore road safety policies. Upon his return to Australia, it was apparent that criticism had not abated. A total of five months elapsed between the publication of the Gowans Report and Dickie's eventual resignation from parliament in August 1978, on grounds of failing health. Members of the Hamer government were reported to be privately relieved (The Age 16 August 1978).
Meanwhile, criminal proceedings against Dillon and Riach began to unfold, albeit slowly. On 16 June 1978, they were committed for trial on a total of twenty-one charges, including giving and receiving secret commissions, conspiracy to commit misbehaviour in a public office,. and defrauding the Housing Commission. The trial was initially scheduled for November 1978, but both of the accused applied for a postponement. The application was unsuccessfully opposed by the Crown, and cynics speculated that the Hamer government wished the matter disposed of prior to the 1979 elections.
With the elections looming and the land scandals remaining high on the agenda for debate, the trial was adjourned until July 1979. Continued debate, the subsequent appointment of a Royal Commission and explicit reference to the matter by a Minister in parliament, saw proceedings postponed yet again.
The terms of reference of the 1977 Gowans Inquiry were limited to the purchases at Pakenham, Sunbury and Melton in 1973 and 1974. Not surprisingly; Housing Commission purchases since 1974 had also aroused suspicions.
In response to opposition demands, in an effort to lay the land deals to rest as an issue in the run-up to the 1979 election, the government leader in the Legislative Council and Minister for Planning at the time of the land purchases investigated by the Gowans Inquiry, Alan Hunt, declared his willingness to table files relating to purchases made over the previous five years. Two days later, Vance Dickie's successor as Minister for Housing, Geoffrey Hayes, commissioned an inquiry into additional land transactions involving Dillon and Riach. Upon completion of the inquiry in December 1978, the Minister announced that the report had revealed no irregularities, but had queried one transaction at Noble Park. Cabinet decided against pursuing further investigations.
The 1979 election campaign was a long one. On 6 February the Premier announced that the election would be held on 5 May. This timing obviously served to minimise the government's vulnerability to attack in Parliament, if not on the campaign trail. The strategy there too was one of defence. Three weeks into the campaign, Cabinet decided against releasing further files to the opposition. This unannounced policy of stonewalling, accompanied by assurances that purchasing irregularities were now history and that all dubious transactions had been investigated, endured until election day. The Hamer government survived a five per cent swing against it, and was returned with a majority of one seat.
Thus assured of another term, the government adopted a remedial approach to what had long since become the bane of its increasingly fragile existence. The announcement of the new Ministry saw the former Minister for Housing, Mr Hayes, dropped from Cabinet. Three weeks after the election, the new minister, Mr Dixon, off-handedly announced to parliament that he had referred a number of files to the Victoria Police Fraud Squad. These cases, it was noted, had been conveniently concealed from the opposition during the recent election campaign. Amidst allegations that the government had misled the parliament and the people of Victoria, the government, less than one month after the election, announced a Royal Commission.
The Royal Commission was intended to complement, rather than to overlap with, the earlier Gowans Inquiry. As such, its terms of reference confined it to purchases between 1 July 1973 and 5 December 1978 excluding the Pakenham, Sunbury and Melton purchases reviewed by Gowans. The conclusions reached by the Royal Commissioners were consistent with those of the earlier inquiry, and showed that the Pakenham, Sunbury and Melton purchases were by no means uncharacteristic of Housing Commission procedures.
The overwhelming impression with which we are left by the evidence and from our careful observations of the principal actors over the relevant period is that the land purchasing function during the period was handled badly and with a notable lack of initiative and perspicacity on the part of many of those most directly involved in it (Victoria 1981, p. A15).
The Commissioners spoke of 'widespread ineptitude going far beyond anything which could be regarded as a normal or usual incidence of error and misjudgement' (Victoria 1981, p. A15).
Whilst they uncovered no unlawful conduct on the part of the two Ministers who had held the housing portfolio during the period in question (Dickie and Hayes) the Royal Commissioners were critical of ministerial conduct. The ministers, they concluded, were 'not as well served by the Commission as they ought to have been' (Victoria 1981, p. A20). It was implied that this was compounded by a lack of adequate ministerial oversight.
In our view, both ministers failed to maintain a satisfactory degree of control over the Commission in its land purchasing functions ...
On several occasions, false or misleading information was included in letters to the Treasurer to which the Minister was expected to, and did, endorse as approved by him (Victoria 1981, p. A21).
The Royal Commissioners found that ministerial communications to the Commission tended to be of an informal nature, and that there was insufficient ministerial attention to files in general, and to the procedures followed in given land acquisitions. Thus, additional broadacre purchases were made without conventional and appropriate feasibility studies. Purchases continued to be made without valuation, or based upon uncritical acceptance of those valuations which had been done. Pressure continued to be placed on valuers, and false information provided to them. In a number of cases, Housing Commission officers failed to negotiate with vendors, paying the asking price without delay or resistance. There was no serious attempt to maximise the Commission's advantage by identifying potentially suitable alternative land, and making appropriate inquiries of its owners. By failing to exploit its position as a large cash buyer, the Housing Commission wasted millions of taxpayers' dollars in addition to the sums identified by the Gowans Inquiry.
In October 1981 Riach, no longer a public servant, and Dillon, each began four-month prison terms for perjury committed during the Gowans Inquiry. Under oath, Riach had denied receiving, and Dillon had denied giving, any consideration. In March of 1982 they were convicted on the bribery, conspiracy and fraud charges. Dillon was sentenced to 5 years imprisonment; Riach to 6 years 6 months, although Riach's sentence was later reduced to 5 years on appeal.
At the time he announced the 1979 Royal Commission, Premier Hamer announced a new valuation policy designed to prevent future profligate purchases. Henceforth, the expenditure of over $100,000 would require two independent valuations, one by a representative of the Valuer-General. The expenditure of over $1 million would require three independent valuations. In addition, a new government agency, the Property and Services Department, was created to monitor every proposed purchase over $100,000 by a government department. The new department would ensure that the proposed purchase price was an appropriate one, and that the circumstances of the proposed transaction were above question.
In addition, the Hamer government restructured the Housing Ministry and the Housing Commission. Henceforth, the Director of Housing would also chair the Commission, whose members would include outside representatives.
The Hamer government was relieved once again to learn that its ministers had been absolved of criminal responsibility by the judicial inquiry. It sought to claim that the days of maladministration had passed into history, that the ministers responsible had been removed, and that at long last, housing and land would not be at issue in the forthcoming election. But eight years of less than successful efforts to sweep the issue under the rug had exhausted the tolerance of Victorians. Two ministers had resigned, and a public servant was in prison. In October 1981, the state Director of Housing resigned after the Royal Commission found that he had conducted private business, on very favourable terms, with contractors working for the Housing Commission. Hamer himself was deposed by his Liberal colleagues before the 1982 elections. Victorians sought more than a change of Liberal leadership, however. In 1982 they returned the first Labor government in twenty-seven years.
- The Age 23 March 1978.
- ibid. 16 August 1978.
- Hills, B. & Chubb, P. 1974, 'Big Land Profit for Developer', The Age 14 June, p. 1.
- Jost, John 1977a, 'Dickie "destroyed personal ministerial files" on land deals', The National Times 12-17 September, p. 3.
- Jost, J. 1977b, 'Land Deals: Some More Questions for the Inquiry', The National Times 7-12 November, p. 18.
- Milliken, Robert & Jost, John 1978, 'Land Scandals: Hamer Takes a Calculated Risk', The National Times 20-25 March, P. 11.
- Sandercock, Leonie 1979, The Land Racket: The Real Costs of Property Speculators, Silverfish Books, Melbourne.
- Victoria 1981, Report of the Royal Commission into Certain Housing Commission Land Purchases and Other Matters, S. Frost & A.J. Ellwood, Royal Commissioners, Government Printer, Melbourne.
- Victoria 1978, Report of the Board of Inquiry into Certain Land Purchases by the Housing Commission and Questions Arising Therefrom, (G. Gowans, Board of Inquiry), Government Printer, Melbourne.