A casual review of submissions to the Commonwealth Parliamentary Inquiry into Housing Affordability and Housing Supply reveals a consistent theme in submissions from the property and construction sector and from independent economic analysts. Housing supply takes years to build up. 

This is exacerbated by slowness of planning authorities to adjust their plans when the demand for new housing changes. The planning system has constrained supply of housing and this is a long term driver of rising prices.

By way of illustration of the problems arising from an inflexible system, when COVID-19 caused the abandonment of locked down cities, commercial buildings were left empty with questions surrounding whether it would ever return as lifestyle choices and flexible working options became more available (in many cases compulsorily).

Did this result in the planning system immediately pulling out the zoning rule book and looking for ways that under-utilised assets could be converted into housing stock? No.

Even conversions into much needed affordable housing for key workers was not considered.  It is true that any conversion would mean compromises of the Apartment Design Guidelines (ADG) in terms of cross-flow ventilation, set backs from other buildings, more south-facing apartments and therefore less “solar access”. But that is why they would be sold at a discount to key workers who might choose to eschew ADG mandates for proximity to work and entertainment options.  Home buyers can easily factor in compromises in amenity when considering a fair price.

But the real issue is, the undersupply has been accumulating in Greater Sydney since at least 2003.  This has now spread to the regions of NSW where housing supply has become a massive constraint on economic development.

The debate on housing supply has become messy.  The political defence from Government has been to attack those producing housing:

“If, as some developers claim, the planning industry is in crisis, why are there more than 100,000 dwellings already approved, where construction has not started. We would expect the housing sector to get on and start building these homes”.

Mr Jim Betts, Secretary, DPIE, quoted in the Telegraph (p.18, 22/9/21).

This is not correct.

Just because a developer has a Development Approval from Planning does not mean it is necessarily feasible to develop the property under the conditions of that approval. No amount of cajoling can change that.

There are entire corridors where the Government encouraged developers to buy land, to consolidate parcels of land, in expectation of increased density and height. Then the same Government agencies changed their policies. They reduced the heights – or worse – gave up altogether and handed the responsibility for planning back to local Councils. They then give approvals, but way below the yield necessary to secure banking finance to develop the land, so it sits idle.

This scenario is all too familiar to those with land holdings along the Parramatta Road corridor, the Sydenham to Bankstown Corridor, the Crows Nest to St Leonards corridor, in Chatswood, Macquarie Park and indeed, throughout Sydney.

Approvals are often sought – but once they go through the torturous process of the NSW planning systems assessment framework – they come out the other end looking very different. This is where our planning system fails. They do not consider the feasibility of development when undertaking assessments – they simply presume that an approval will lead to the construction of a new home.

Worse than that, the assertion is wrong on the numbers.  Development Approvals are valid for the commencement of construction for 5 years. An assessment of planning approvals the new home completions in Greater Sydney published by DPIE shows:

  • Greater Sydney: New home (all types) Approvals over the last 5 years: 221,512
  • Greater Sydney: New home completions over the last 5 years: 181,644
  • Difference = 39,868 (not 100,000)

 

Is DPIE referring to land zoned for residential development?

Perhaps the quote is referring to land that is zoned (and not yet DA approved) for residential development? The Government can re-zone as much land as it likes – from here to Broken Hill – but unless it is serviced by infrastructure (roads, water supply, sewerage, power etc) it cannot be developed. Further, unless there is demand for new homes in those locations, it will not be developed.  A re-zoning is not a development approval.  Due to the complexities of our planning system and the reasonable expectation that development will not be funded unless they are feasible, there is often a significant non-conversion rate between zoned land and new housing completions.

(see link for data source)

The data above is taken from DPIE’s Metropolitan Housing monitor.  It shows that prior to 2018/19, the NSW planning system was doing well. Housing approvals were up and, with a logical lag (it takes time to build a new home), so were new home completions. The NSW Government was meeting the long-term target for Greater Sydney of 40,000 per year. The NSW Intergenerational Report released this year adjusts the yearly quota to 42,000 per year between now and 2041. However, from mid-2018, housing approvals dropped right off.

 

The planners are planning for failure

The front page of the newly published Greater Sydney Urban Development Program Dashboard tells the story – and it is a sad tale indeed. See link .  The fact that the data is available is outstanding – and this is a significant reform that Mr Betts can take credit for.

But this honest assessment is very clear – DPIE not only state their planning system’s under performance over the past 5 years, they forecast a further drop in supply of 21.5% over the next 5 years at the very time when the opposite is needed to assist with housing affordability and economic recovery.

 

Image source: Greater Sydney Urban Development Program and Metropolitan Housing Monitor, DPIE (Highlights added Screen shot taken 24/9/21).

 

In simple terms, the NSW Housing Strategy Housing 2041 establishes anticipated demand of 1 million new homes in greater Sydney between 2016 and 2041. That equates to 40,000 new homes each year.

The failure to achieve this over the past five years has contributed to the current housing affordability crisis – but the Department of Planning is not only owning the problem – they are boldly predicting that under their policy settings, it will get worse!

Even the normally reserved Property Council have expressed concerns in a recent media release:

“We know that Sydney’s housing challenge is not meeting the Government’s own target of 42,000 new homes per year.” (L. Achterstraat, 21/9/2021)

The nexus between a consistent under supply and rapidly escalating prices brought on the Commonwealth Parliamentary Inquiry.  Even the International Monetary Fund has joined the call for planning reform. Last week IMF managing director Kristalina Georgieva met with Prime Minister

Scott Morrison and the associated statement called for further supply side reforms, including more efficient planning, zoning and better infrastructure, in addition to transitioning from stamp duties to broad-based land taxes.

Now we face the drastic step of having APRA re-introduce tighter prudential controls on banks when it comes to loans for new homes.  This will result in an easing of demand, but it will also result in great stress for those left out of the housing market, particularly the 25-40 year old millennial cohort, as a result of the undersupply of Housing.