In an amazing debate in the NSW Parliament on Thursday, August 3, the Liberal Party, the Labor Party and the Greens competed to see who could look most sympathetic to those struggling to get into Sydney’s increasingly unaffordable housing.

The debate occured because the St Vincent de Paul Society had presented a petition to the parliament with 16,000 signatures calling for all new housing to provide 15 per cent of new units back to community housing providers as affordable housing. The petition called for this to be through ‘inclusionary zoning’ where the developer must donate the 15 per cent of all dwellings to an affordable housing provider.

In the bidding war in the parliamentary debate, the Greens committed to a 30 per cent affordable housing levy, followed by the Labor Party at 15 per cent and the Liberal Party at five to 10 per cent depending on feasibility.

As may be expected the Greens won the day with the highest percentage of 30 per cent of homes on private land to be handed back to those wanting more affordable homes. The Greens’ spokesperson, Jenny Leong, did not seem concerned at all about how providing almost a third of a new housing project to someone else could be afforded or whether the banks, who lend developers the funds to build their project, would provide loans for the one third that would be given away such that the bank would have no potential ownership.

Leong applauded the fact that a bidding war was underway between the various parties.

“We are seeing here a bidding war on the percentages, and that is a true sign of a community campaign that is moving in the right direction,” she said. “We recognise that we should approach the issue of housing in the same way that we approach health care.”

The implication was that private doctors should treat 30 per cent of patients for nothing without any government subsidy. Clearly governments subsidise those that can’t afford health care, but they do not seem to be keen to do this with housing.

Regarding the Labor Party’s 15 per cent levy, party leader Luke Foley said the St Vincent de Paul case “was so compelling that we have adopted its policy.”

He went on to say “a Labor Government led by me will mandate that 15 per cent of new floor space on privately developed land will be affordable housing.”

Labor Planning spokesperson Michael Daley qualified their position slightly by slipping in the concept that the 15 per cent would apply on ‘rezoned’ land presumably where some uplift may help with funding the levy, but his boss was pretty clear about supporting the St Vincent de Paul proposal for a flat 15 per cent levy.

The Liberal Party seemed to best understand the reality of not killing off housing supply by lumping high taxes on the suppliers. Housing and Planning Minister Anthony Roberts made a pretty clear statement where he said “in this case, the argument must be made against the mandated 15 per cent targets.

“There is no point in having a target that cannot be met. The result will be that there is no development and our housing crisis will worsen.”

The Minister referred to the Greater Sydney Commission approach to housing affordability which recommend targets between five and 10 per cent based on the consideration of economic analysis.

It seems that those politicians outside government pitch for developers to give the highest percentages of new homes into an affordable housing pool with no idea about the impact on the economic system of housing production. The fundamental problem with these no doubt well-meaning programs to help with housing affordability was a misunderstanding about economics. For a business to give away 30 per cent of its goods will only lead to bankruptcy or to a big jump in pricing of the other 70 per cent of the goods.

Imagine if every supermarket was instructed to give away 30 per cent of its groceries to people in need and what the impact would be on the pricing of the rest of their stock. Housing is a bit different as it must take into account the cost of land. Some theorists in economics believe a 30 per cent levy will simply flow through to reducing the price of land across Sydney and presumably the value of existing homes. The more likely result will be that land owners will hold out for higher prices in the future.

A new housing project in Parramatta, for instance, must contribute massively to new infrastructure that the council believes is needed. It must contribute around 10 per cent of its new homes to the council, then the NSW Transport Minister requires $20,000 from each new apartment to help fund the light rail. All up, well over $100,000 is added to the cost of each new home.

On top of this, the NSW government has announced, ironically as part of its housing affordability package, that it will lift the cap on infrastructure contributions over the next three years. This will add another $15,000 to each home, but after three years the industry expects this to lift to around $50,000 a home. The rule of thumb used in the industry is that a third of the cost of a new dwelling comes directly from the taxes and levies and the cost of an inefficient planning system. This is the area that the government should be reducing but it seems hell bent on pushing housing prices higher by adding more levies.

The Dutch auction on how to force developers to provide a third or more of the homes they produce to those in need seems to be most unrealistic if the political party is not in government. There is a problem in our democracy where opposition parties can promote unsustainable targets that help those in need without understanding how our economy can deliver this. The reality is that the fanciful ideas to just tax all new housing to help those in need will only damage all housing supply.