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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.

 
  • Glen Stevens would make a fine diplomat where you had a lifetime available to persuade another group to create change.
    Most Australians have a likeness for the man.
    What no one is saying is that the present system is making huge profits for some people and they do not want change.
    Farmers and a few others in Australia have cut back on production to make bigger profits for producing less. Building is the same, and, everybody is just sitting back enjoying the easy dollar; while rents and house prices keep going up. Every level of Government just keeps putting taxes and fees up without thinking Australia’s basic wage no longer is enough to house and feed a family. Housing services, water & energy keep going up and the poorest pay the same as the rich pay. We no longer see the working class having a political representation in the Parliaments of Australia, and the only way to improve their lot will be by sitting on the run ways stopping planes bringing more migrants and taking the limited housing from them.
    The system that discourages productivity and competition will eventually eat itself out of existence.
    Melbourne might have a better planning system than in Sydney only because the culture of corruption is not as strong. That does not mean it’s doing much better. When you look at the waste of land and opportunity for much more productive development in Melbourne one has to think we do not have an honest Government or they are totally incompetent.
    We may be spending billions on "planning" to deliberately create shortages.
    The present system functions by punishing a big part of the population when it does not have to. Like in every society in the past their saviour will be an upper class hero talking about change or revolution. Let us hope we are all smarter than most, and, we take the very easy route.
    Poor outcomes are all about poor thinking.
    I am disappointed that we do not have a Henry Ford in Australian big business that can see that having low wages and poor people is not good for business. Stalinist attitudes in business are undermining the free enterprise system and Australia.
    Let us hope we do not go the unproductive USA way where 25% of its population is living poorer than they should be, with a flag and a gun as the only hope. It scares me when I see poor and uneducated Australians waving flags, and, talking like poor uneducated Americans. For some Australian uneducated poor Patriotism has replaced God, and, the Saints are the sons that volunteer to go overseas to have their legs blown off some place where the people look different from us.

  • A mountain of money does not produce a house – skilled people do

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