Are Urban Growth Boundaries Driving Up House Prices?

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Friday, January 8th, 2016
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As housing affordability deteriorates, opinions are divided about whether or not urban growth boundaries (UGBs) are adding to the problem by restricting the supply of land upon which to construct new dwellings.

Many industry representatives and lobby groups suggest the relationship between urban boundaries and affordability is significant. In September, the Master Builders Association, Housing Industry Association and Property Council all slammed proposals for a new growth boundary in Adelaide, saying its introduction would impact the availability of land and long term housing affordability and choice. In New South Wales, while not referring to metropolitan boundaries specifically, Brickworks has called for the state government to release no less than two decades worth of new land.

In a University of Canberra address in June, Reserve Bank assistant governor Christopher Kent said land supply shortages were becoming increasingly evident particularly in Sydney, where greenfield releases have not kept pace with population growth and demand. Median land prices, too, rose 9.4 per cent in Western Australia throughout 2014 and are up 15 per cent in Sydney since 2012 according to an Urban Development Institute of Australia report released earlier this year, although prices are generally stable elsewhere.

Others, however, do not share this view. Speaking particularly of the Melbourne situation, SGC Economics and Planning principal Marcus Spiller says depending upon the density levels which are adopted, the city has between 15 and 30 years worth of available land supply within its boundaries. As a result, he says affordability challenges result not so much from the UGB but rather from the pace at which we are getting infrastructure into land awaiting development, the sporadic nature in which development is taking place and the lack of new housing being provided more so in the inner and middle suburbs as opposed to the urban fringe.

On the first point, Spiller says Australia is lacking in terms of systems by which local and state governments are able to raise capital for new infrastructure to service greenfield sites. He says developer contributions in Melbourne are generally small and there is little in the way of value capture mechanisms in place to capture part of the uplift in property values which new infrastructure creates in order to help fund the infrastructure in question.

On the second point, he says the sporadic nature by which development is taking place is creating challenges in terms of putting new infrastructure in place in a sequenced and planned manner. In the outer western Melbourne suburb of Wyndham, for example, he says development is currently happening on around eight different sites.

While not suggesting that developers be made to ‘sit in a queue,’ Spiller says he would like to see greater sequencing for infrastructure development, with developers wishing for infrastructure to be provided out of sequence generally being able to ask for this to happen but being made to pay ‘acceleration costs’ based on present-value type calculations in order to have their requests granted.

At any rate, when it comes to affordability, Spiller says the changing nature of the economy means any focus upon creating more housing on the urban fringe largely misses the point.

Whereas housing provided in the outskirts of cities may have offered reasonable proximity to employment opportunities in the manufacturing economy of 30 years ago, he says, this is largely not the case in the service-focused economy of today. Indeed, according to a Grattan Institute report published in 2013, residents of many outer suburbs in Melbourne and Sydney are finding that less than 10 per cent of all employment opportunities available within the respective cities are within a 45 minute journey by car. In Brisbane, the majority of residents in outer suburbs are finding they face commutes of more than an hour in order to reach more than 90 per cent of available employment opportunities via public transport. As a result, Spiller says, urban fringe housing is not a viable option for many, and the provision of more housing on greenfield sites will not materially impact affordability issues within the inner or middle suburbs in which many who work in or near the city centre realistically need to reside.

“Given that situation, if you put more houses in greenfield areas, it doesn’t really change the pressures much at all,” he said. “People are still going to be bidding up the prices of whatever is available within those inner to middle areas and established areas. That’s where they want to be in order to access jobs and other opportunities.”

Spiller is not alone. While acknowledging that outer urban land supply is more constrained in Sydney compared with other capitals, RMIT Professor of Environment and Planning Michael Buxton says land within current metropolitan boundaries across other major capitals was in plentiful supply and claims about the effect of urban boundaries upon affordability do not stand up to scrutiny.

Buxton says it is important to look at overall land supply across the entire metropolitan area as opposed to that in outer urban areas in isolation, and that across all cities there are large quantities of land available within metropolitan boundaries within established areas as well as greenfield sites. At any rate, governments could achieve significant gains in the capacity of existing land reserves through modest increases in density, he adds.

On affordability, Buxton says this could be addressed by requiring developers to provide a proportion of affordable housing as part of urban renewal developments as well as a greater mix of housing options. He agrees that more provision of outer urban dwellings is not the answer, and adds that these exacerbate affordability issues through greater fuel expenses for residents to access employment opportunities.

“It’s a little bit different in Sydney because Sydney was much more constrained in outer urban land,” Buxton said. “But in every other city, there is no lack of urban land – urban growth boundaries haven’t constrained the supply.”

Spiller does not believe governments are holding back development in order to keep property values and tax revenues high, given political pressures to address affordability issues and a desire to maximise the flow of transaction activity in order to keep transaction related receipts in areas such as stamp duty rolling in.

Moreover, the volume of supply available, especially in Melbourne, suggests nothing untoward is happening in practice, he adds.

“It is true that state governments do well when you have a buoyant property market,” he said. “Aside from the GST that flows back to the states, the biggest thing that states can do (to raise revenue) is really limited to the money they can pull out of the property market through property taxes.

“But I would have thought that their main interest would have been in keeping a high churn rate in the property market with lots of buying and selling rather than keeping prices up per se. I find it hard to believe that state governments would deliberately go out to keep property values high.”

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