Over the past 20 years, there has been a long and inexorable shift among government decision makers away from trust of the private sector to deliver housing that will meet market demand at an affordable price.

The great irony is that it is often those that seek to add more regulation, end up causing the very market failure they bemoan.

The imposition more fees, taxes and charges (at Local, State and Commonwealth levels); the strategic planning obsession with zoning and compliance along with highly constraining  land use controls; design competitions, design reviews and compliance with design guidelines; place making and active transport; height, density, minimum dwelling sizes, overshadowing of neighbours or public open spaces, protection of the most minor heritage items (which often sterilizes the entire property) have all added to the cost of the delivery of new housing supply; not to mention the now infamous burgeoning of the National Construction Code and its foray into social engineering.

One factor that does not get much airtime is the massive impact the GST is making. It applies to newly built homes, but not existing dwellings. This makes newly built homes uncompetitive in terms of price with existing or second-hand dwellings.  The GST is only applied to new builds.  One policy that One Nation has gotten right is their proposal to cut GST from newly-built dwellings.  This would make a material difference to improving feasibility and increasing supply. In the context of the housing supply and affordability crisis that we are facing, that would be commensurate policy reform worth implementing.

The states would cry poor, but the fact is they would pick up the extra revenue from the extra homes built through increases in stamp duty and payroll tax.  Further, they might just get close to their Housing Accord targets!  But to the extent that this does not occur, the Commonwealth could support the States with some of the windfall gains they have picked up through immigration driven population growth at a time of low unemployment and rising income tax revenue as well as company tax revenue.

Removing some or all of the GST from new housing supply would make an immediate difference in terms of support for housing supply.  It’s the sort of thing you’d do if you really thought there was a crisis to deal with.

The Federal Budget shattered investor confidence with its changes to Capital Gains Tax and Negative Gearing. The changes largely protect investments in new dwelling construction, but the sales pitch for the Budget changes from the Albanese Government was abysmal. The NSW Budget was not negative, but more a missed opportunity to boost housing supply. It is hoped that there will be more to come in the context of the upcoming NSW State election next March.

Affordable Housing Policies – are key factor making the crisis worse

Notwithstanding the GST issue which is one for the Commonwealth, the most counter-productive, counter intuitive policy implemented by state and local governments, particularly here in NSW, is the affordable housing contributions policy (all of them) applied to any land parcel which sees an uplift in dwelling yield associated with a re-zoning.

The reason why re-zonings are taking place at all is to increase housing supply.  The supply of housing is the social dividend that the policy produces. To then hit this extra supply opportunity with a new tax is economically foolhardy and manifestly counter-productive (as noted above), particularly when the rate of “contribution” (don’t be fooled, it is a tax) is such that it makes the entire housing development project unfeasible.

The NSW Government has been particularly drawn to the siren’s call of affordable housing. Not just one type – but the entire gambit of schemes!

Before I go on – it is worth remembering the housing supply crisis began when planning departments failed to give approvals for enough new dwellings to meet population growth and demand.  This happened when interest rates were low and finance was available.  The supply and affordability crisis was worsened by the impact of the pandemic, the consistent increases in building costs (some associated with the NCC and others with union EBAs), declining workplace productivity and rising materials costs.

But the impost of affordable housing policies are an ongoing thorn in the side of housing supply and the policy makers just don’t seem to get it. Month after month after month, the evidence comes in from the ABS.

By taxing new home buyers to pay for this affordable housing, those new buyers often drop out of the market because of the increased cost of the dwelling beyond their budget (particularly when they are also faced by three interest rate rises in a short period of time). The affordable housing contributions reduce feasibility, and often stop the development progressing.  As we keep telling the politicians, what ends up happening is in all but the most wealthy areas (where demand has a greater propensity to absorb price increases), you get no new affordable housing and no market housing either.

This financial year alone, we’ve seen planning proposals for affordable housing from Randwick, Ku-ring-gai, City of Sydney, Ryde (see Council Watch), Canada Bay, and the Inner West, and now Woollahra, Lane Cove, and (soon) Mosman are joining in. These, in all cases, seek the handover of a cash payment or GFA in-perpetuity – in some cases up to 15% of the GFA for the entire building (not just the increase arising from the re-zoning).  Worse, they are applied on top of the State Government mandate for affordable housing through a range of different planning pathways including TODs, the Infill Affordable Housing bonus scheme and the Housing Delivery Authority.

These policies are developed in isolation from industry; lack ground truthing with data from Quantity Surveyors, valuers and cost estimators; and they result in the worsening of feasibility problems which are already constraining housing supply. Such considerations are anathema to Government planners’ mindset, philosophy, education or even their zeitgeist!

The affordable housing agenda is now a complete mess

To start with, the definitions and rules that apply to the definition of who is eligible and what the discount must be, are all different. Despite the massive Commonwealth HAFF scheme leading the way in promoting government support with private sector involvement in the delivery of affordable housing, the rules are completely different to those in NSW.

The successful Infill Affordable Housing Bonus introduced by the Minns Government in late 2023 involves a trade-off between an increase in height and density of between 20-30% and affordable housing of between 10 and 15% of total development yield being made available for management by a CHP for 15 years, before they revert to market housing, though in many cases they will be sold to CHPs at a discount, often with support from the HAFF. This is the one NSW State Government affordable housing policy that has actually worked.

Inexplicably, the Minns Government implemented a different policy for TODs – requiring affordable housing to be gifted to a CHP in the form of GFA dedication, in perpetuity.

Many Councils are applying their own LEP based local affordable housing contributions schemes to the bonus floor space generated under the Housing SEPP. That is – they are double dipping on the contributions. In most cases, contributions are being levied across the entire bonus floor space, including the portion that is itself is required to be delivered as affordable housing.

The additional floor space provided under the Housing SEPP is no longer being used solely to fund the affordable housing required by that scheme. Instead, it is also being used to fund affordable housing obligations imposed under local contribution schemes.

For NSW Housing Delivery Authority (HDA) EOIs, the NSW Planning Department is pushing for council Local Environment Plans’ (like those mentioned above) and their in-perpetuity affordable housing rates, to be the minimum for HDA determinations.

Disaster!

Confused? Everyone is!

One thing is certain. The current state of affordable housing policy is damaging both housing supply and their delivery against National Housing Accord targets.

Affordable housing will continue to be a challenge until all parties get a better understanding of the impacts of overzealous “contributions on housing development project feasibility. Inclusionary Zoning has never worked.  Councils’ promises have never resulted in solid numbers of completed and occupied affordable homes.

Consider this:

The same Woollahra Council that is now seeking to hit new home buyers with affordable housing levies has a history of two-faced hypocrisy. The bold headline in this  Sydney Morning Herald article tells the story:

Like many councils, Woollahra has zero commitment to affordable housing.  It is nothing but a tool to stop housing supply per se’ – and it is working because DPHI has been taken for a ride!

The worst failure of all is the requirement that any developer that wants to pay an affordable housing contribution in cash, as is preferred by most Councils and CHPs, is required to make that payment prior to the start of construction.  A developer is required to borrow funds to pay for this tax and for any apartment or mixed use development of any scale, that is three years away from occupation and financial settlement with new home purchasers.

The construct of the policy could not be more of a shambles and is making the housing supply task so much worse.  If only those responsible could see it.

If we are going to solve the housing supply crisis, the Treasuries across Australia need to get on board.  They need to stop policies and regulations that work against housing supply from being implemented and they need to examine policies and tax changes that will support it.