Labor’s housing policy ignores the homes migrants want
Australians should decide where they live and what kind of homes they want. This should not be decided by a planning department or a political slogan.
If this week’s Economic Reform Roundtable in Canberra wants to address the housing crisis facing our nation, it will need to go beyond slashing red tape.
Australia’s housing shortage is the result of a supply shortage exacerbated by regulation, but not all supply is equal. We don’t just need more dwellings – we need the type of dwellings people want to live in, situated in areas they want to live.
The National Housing Accord promises 1.2 million homes over five years. NSW and Victoria have set their own targets in the tens of thousands. None of these targets are currently on track.
Instead of speeding up approvals for new builds, Victoria and NSW have deliberately slowed approvals in growth areas to enforce a 70–30 split favouring inner-city density.
The 70–30 principle posits that 70 per cent of new developments should be in inner urban areas. The idea is that this preference for concentration in urban areas will take advantage of existing infrastructure – roads, public transport, schools and hospitals – by “filling in” low-density inner urban areas with multi-story apartment developments. State governments have decreed that only 30 per cent of developments should be built outside areas defined as inner urban.
It may sound logical, but the logic is flawed. This approach is not what most people want for themselves and their families. According to my experience gauging the market, and investing in housing developments that people want to buy, these percentages are the wrong way around.
No amount of government aspiration will persuade parents with two or three children to settle in a two-bedroom flat simply because that is where the state wants them to live. In any case, these dwellings are often more expensive than the type of house many would like to live in.
Migrants – who often aspire to live in houses large enough to accommodate multi-generational families, in areas favoured by their broader community – are unlikely to trade the dream of a backyard for a high-rise balcony.
The result is predictable: a supply crunch. Investors have been hesitant to develop housing for which there is no demand, and that carry significantly higher construction costs.
The Productivity Commission shows housing construction productivity has barely moved in 30 years. In fact, the number of homes completed per hour worked has more than halved since the mid-1990s.
Add to that a deliberate rationing of land supply, and you have a recipe for unaffordability. The shortage of land zoned residential in the outer urban fringes inevitably pushes up house prices. Families pay more.
I may be talking against the interests of my firm and our clients here. The current supply constraints give a competitive advantage to the owners of land that is appropriately zoned.
This is not theoretical. Residentially zoned land sales in growth areas of Melbourne, for example, are achieving record prices. Instead of heeding the price signals, governments are dismissing them.
“If governments are serious about addressing the housing crisis, they need to stop coercing the market and start enabling it.”
State governments argue that housing growth areas often increase the burden on infrastructure because they require new roads, schools or hospitals.
But a child needs a classroom, whether they live in an apartment in Parramatta or a townhouse in Pakenham. A patient needs a hospital bed, whether that is in the CBD or the suburbs. Governments that herd families into high-rises are just delaying investment while creating additional strain on existing infrastructure, much of which is already overstretched.
That is not planning. It is social engineering. And it does not work.
Another government policy that sounds like it will create more dwellings for Australians, but has the opposite effect, is the affordable housing requirement.
Under the policy, developers must designate a percentage of every new build to affordable housing in order to attract planning concessions or fast-track approvals.
But nothing is for nothing. Ultimately, this is paid for by the buyers of the non-designated dwellings, shifting the costs on to families working and saving to get into the market. There are less visible costs, too, including environmental and heritage requirements, which are often subjective and onerous to navigate.
As much as 40 per cent of the cost of a finished house comes from these government-imposed charges, taxes and delays. Add to that the hidden tax of land rationing, and affordability collapses.
If governments are serious about addressing the housing crisis, they need to stop coercing the market and start enabling it. Productivity reform in construction is vital, but ineffective if supply constraints are ignored.
Australians should decide where they live and what kind of homes they want. This should not be decided by a planning department or a political slogan.
If policy continues down the current path, the crisis will only deepen. The 1.2 million homes pledged under the National Housing Accord will remain a promise unfulfilled. And the economic reform process will remain an architect’s drawing that never gets realised.