Many people see the NSW planning system as a social or environmental system but two recent reports have highlighted the importance of the planning system to the state’s economic health.
Most developers, architects and planners who are trying to get real projects approved have become very frustrated at the slow and confusing approach to planning. The impression given is that the applicant is out to hoodwink the system to make maximum profits so the government or council planner should delay the process then require more reports and generally hope the project will never happen. The result of this unsupportive culture is that enormous costs are added to projects such that housing costs go up as a result of the delays. But two recent reports have seen the planning system in economic terms and they are not very positive about how NSW performs.
The NSW Productivity Commission has issued a 140 page report on ‘Kickstarting the productivity conversation’ that has a specific focus on housing affordability and on planning for housing and jobs. The analysis from a productivity perspective is not good. The Commission says that development application approvals take twice as long in New South Wales as they do in other states. The Commission also says we have 12 zones for commercial and industrial development when Victoria only needs two. The clear indication from the report is that our productivity in relation to planning is way behind other states.
I suspect much of the New South Wales slow and confused planning system is because we are not confident about change to our towns and cities. In the lead up to the state election in March a very negative attitude to new development evolved that was fueled by local politicians looking for votes. “We will stop this over development” they will claim even when the key levers about growth are really with the federal government related to immigration numbers. But the negativity around new development has led to a risk adverse government and council planning system where it is safer to say no rather than yes. An example is the Star proposal for a hotel in Pyrmont where despite years of following Planning Department requirements for submissions the Department then said the proposal should be rejected. The millions of dollars spent on planning were clearly not helping the state’s productivity and a similar waste of potentially hundreds of millions of dollars occurs from the many projects in the planning system where applicants are led on through multiple reports and design competitions to then have the planners rejecting the proposal after this massive investment.
The Reserve Bank of Australia have recently also raised concerns about the state of the new housing industry with a paper by Deputy Governor of the RBA, Guy Debelle, stating that housing construction has ‘turned down sooner and by more than we had expected’ He goes on to say that across Australia housing approvals have dropped by around 40 per cent since their peak in late 2017. The New South Wales decline is closer to 50 per cent. The RBA is forecasting a further 7 per cent decline in dwelling investment over the next year with a risk that this could be even larger. They point out that a downturn in housing construction will have a flow on effect to professional consultants and the manufacturing industry. The RBA report points out that housing projects are often very large and involve long lead times. So the development industry response to more supply is likely to be slow.
The previous Governor of the RBA, Glenn Stevens, in a report to the NSW Premier a few years ago raised concerns about the planning system not taking into account the needs of new people coming to New South Wales. He saw the planning system only relating to existing residents and that council or government planners only took into account the concerns of existing residents who generally do not want change in their neighbourhood. Stevens was concerned at the impact this was having on housing supply and therefore on the economy generally.
The economic messages from the NSW Productivity Commission and from the Deputy Governor of the Reserve Bank of Australia paint a picture of concern about the supply of new housing and the effect on productivity of a slow and complex planning system in New South Wales. The two reports should be a wake-up call to the NSW Government to make its planning system more efficient to help with the state’s productivity but there is little evidence that any change is likely. The result of inaction will be that housing supply falls behind demand and that dwelling prices start going up again. We need to move the debate on Sydney’s housing away from emotive issues about over development onto an economic argument that understands about productivity and the impact on housing affordability. Hopefully the Department of Planning, Industry and Environment is listening to the NSW Productivity Commission and to the Reserve Bank of Australia and is developing new approaches to ensure a smooth supply of affordable homes for New South Wales.