With housing affordability becoming such a big political issue in Australian cities, it is very interesting to see how the former Governor of the Reserve Bank of Australia, Glenn Stevens, sees the way forward.
Stevens was appointed by the NSW Premier to advise her government on what policy levers could be pulled at a state level to help contain rapidly escalating housing costs in Sydney. As someone with a macro economic background, his review will be of interest to all Australian cities.
The NSW government took many of Stevens’ recommendations on board, but amazingly the governments two biggest policy shifts - to remove stamp duty for first home buyers and to add levies to foreign purchasers - were not ones supported by Glenn Stevens. He said that removing or reducing stamp duty will tend to inflate prices.
“I am unconvinced that the effect is all that large," he said. "The point is rather that the government may be able to achieve a lot more by using those funds differently.”
His preference was to use any extra funds to “expedite re-zoning and development approvals and facilitating infrastructure investment.” Clearly, politicians see the value of a direct contribution to struggling first home buyers as being a political priority over long-term economic outcomes.
The second big policy shift by the NSW Government was to double the foreign investor surcharge from four to eight per cent on Stamp Duty. In his concluding observations, Stevens raises the need to make new responses if there is a slowing in dwelling prices then taxing foreigners may not be a good thing.
“One area for caution might be demand side measures like taxing foreigners; if foreign purchasers are slowing down anyway, we may not want to push them down further," he noted.
Stevens’ preamble gives a very interesting economic perspective on Australian society. He sees Australian cities as being inhabited by “an increasingly affluent and growing population” where our purchasing power has increased greatly over many things.
“As incomes have risen and preferences about housing have changed, the prices commanded by land in the more desirable locations have increased a great deal,” he went on to say.
This has led to densification so that land is used more efficiently.
“We certainly cannot all live in traditional detached-bungalow, low-density housing with views and expect to walk to work,” he noted.
Stevens sees that the supply side of the market in Sydney has struggled to keep up with demand and quotes a cumulative shortfall in dwellings of 100,000. Ultimately, he sees the need for the supply side to respond to demand in a more elastic way which means increasing productivity. A crucial difficulty is the way existing communities are concerned about increased supply and their “collective unwillingness to think ahead” means there is a need for stronger leadership by governments to lead on the discussion about the values of growth. He defines three types of residents whose interests must be considered:
Firstly, there are those existing residents who value quiet suburban neighbourhoods of detached dwellings.
Secondly, there are existing residents who are keen to realise the potential uplifted value of the land they live on.
Thirdly, there are the potential new residents.
Stevens is concerned that no one represents this third group and that this is where political leadership at the state and federal levels is critical. This leadership needs to champion why we need to accommodate more people and that “an even worse outcome would be stagnation. After all, houses tend to be quite affordable in locations that are declining - because people don’t want to live there.”
Stevens sees the value of a greater use of ‘complying development’ or ‘code assessment’ as he believes NSW has a smaller proportion of this type of faster decision making process than other states. One very interesting observation he made is that NSW seems to regulate for standards that are at a higher level that those of other states. Clearly, these higher standards come at a cost. Stevens indicates that he has had information from the property industry that if Melbourne standards were used in Sydney, $150,000 could be saved from the cost of an apartment. This is clearly a major issue and Stevens has been able to get the NSW Planning Minister to issue guidelines to facilitate smarter and compact apartments.
One of Stevens' most important recommendations is that an Office of Housing Co-ordinator be established to ‘resolve impediments to housing supply’ and it seems that $40 million will be allocated in the upcoming state budget to resource this office.
Overall, the input of an economic guru like Glenn Stevens into the planning processes and their impact on housing affordability has been very positive. He has removed the petty politics of local anti-development groups from his argument in favour of ‘the supply side to respond to the community’s needs. This means we need to have the supply side able to respond to demand in a more elastic way.”
It is good to see the clear thinking about the complex systems that are constraining housing supply in Australia from a large scale thinker about economic systems. But local politics may trump clear thinking.