This paper, by property expert Ross Elliott, explores the reasons behind our current housing shortages and identifies a range of policy measures which have contributed to – rather than alleviated – the magnitude of the current housing ‘crisis.’

To download the full paper click here.

It also proposes alternatives to the policy settings which could significantly improve both the volume and affordability of basic housing.

The paper does not touch on the provision of social housing: this is a government responsibility and is not something that can be delivered in volume by the market. Generally there have been inadequate initiatives to involve the private sector in public housing development.

Failures by governments to provide adequate social housing, or to better manage the existing social housing stock, are exacerbating the housing ‘crisis’ but this paper is focussed on the delivery of new market housing where greater volumes and real gains in affordability are possible.

Key findings

• Worsening housing affordability owes itself to a series of policy decisions around population growth, land use, taxes and regulation. These decisions by Federal, State and Local Governments were mainly made around the late 1990s/early 2000s – also the point at which affordability began to deteriorate and housing shortages began to appear.
• Since 2000, Australia has gone from a median house costing 4 to 5 times a household income, to now nearly 10 times. Australia is now amongst the least affordable markets in the world.
• Rapid population growth via Federal Government immigration policy is a key driver of housing demand. Recent decisions to rapidly increase population growth have exacerbated an already failing regulatory and land use policy environment which is unresponsive to demand.
• Taxes, as they apply to new housing (including the GST), now amount to roughly one third the cost of a new house or apartment.
• Limited outer suburban growth in favour of higher urban densities – described by the RBA as ‘the zoning effect’ – also adds substantially to the cost of housing.
• The preferred urban model of higher densities within a constrained boundary has been the de facto planning model for three decades. However, higher densities are proving to take longer and cost a good deal more than the detached house alternative. It is now virtually impossible to deliver a new two bed unit for less than $1.3 million in the Brisbane region. Increasing the supply of the more expensive housing product will not improve affordability.
• The introduction of upfront “per dwelling” housing levies (also known as developer levies) has immediately flowed through to higher prices for the new dwelling buyer.
• Planning regulations have expanded exponentially, adding to costs and time. The 1990 Planning Act was 120 pages in length. It, including related provisions and referred acts and provisions, now numbers in the thousands. This has not delivered any perceived improvements in planning.
• Building code changes – such as recent National Construction Code amendments – have also added significantly to new house costs while all existing households – irrespective of how energy inefficient or disability unfriendly – are exempt. These additional costs levied on new housing only are both unfair and ineffective.
• There has also been a widely reported escalation in housing construction costs. Poor productivity and excessive union wage demands have mostly affected the higher density housing market though there are flow-through effects in the cottage building sector which has to compete in the same market for trades.
• It is theoretically possible to reduce the costs of a new house by $120,000 and a new home unit by $160,000 by taking a series of relatively simple measures, not including benefits that would flow to lower costs via simplified regulatory processes.
• The current ‘crisis’ is not something that happened to us. We did this to ourselves via policy decisions outlined in this report.

Key recommendations

• Population growth must be slowed to a pace that regulatory and supply side industries (development and construction) can accommodate. This is a Federal Government responsibility.
• A new compact between all levels of Government – each of which ‘clips the ticket’ on housing in their own way – is essential for meaningful reform to the new housing market.
• Policy makers and regulators are advised to focus on means to improve the volume and lower the cost of new housing – detached and attached. Attempts to moderate or adjust the entire housing market via incentives or regulatory tweaks are a distraction.
• Alternatives to the upfront charging of infrastructure associated with new housing projects need investigation. Successful alternatives such as MUDs (Municipal Utility Districts) or related instruments warrant a try, even if just a pilot project.
• Unnecessary and largely ineffective building codes which penalise the new housing sector only, but which exempt all established housing, should be reversed.
• The supply of land for outward suburban expansion around major cities is deliberately restricted via urban growth boundaries. A quarter century of evidence tells us these have a detrimental effect on the competitive market for land for housing. They should be relaxed to encourage greater competition and downward pressure on englobo land prices.
• The preferred model of urban consolidation via infill housing must be re-evaluated in the context of consumer preference, in addition to the real challenges of identifying sites, obtaining approvals, and construction costs. As the preferred model of urban development, it is taking longer and costing us more.

To download the full paper click here.