It is unusual for economists to dive into the detail of the nations’ planning systems, but the intense interest from the Reserve Bank of Australia, the NSW Productivity Commission and the Commonwealth Productivity Commission in the regulatory burden of the respective planning systems on State and National productivity, is cause for alarm and highlights the need for urgent and bold reform.

Housing, its supply, affordability and location are critical factors that impact of government and private sector efforts to boost productivity, especially in our cities.

Controlling inflation is a national imperative and we all need to do our best to help or interest rates will keep going up.

Housing supply, along with both the hard and soft costs associated with new home delivery, is a critical factor driving inflation.  To put it simply: if there are 10 people each wanting to buy a banana, and we only have 7 bananas, the price will keep going up until the market clears.  But in the case of housing (for rent or for sale), because it is a “critical good”, there are no alternatives.  You can’t simply change your choice to an apple because the price of the banana is too high.  The failure in the housing market has been caused by regulatory failure.  The inflexibility of the system to supply new homes to meet changes in demand is now on show.

Productivity underpins concepts such as 30-minute cities that have been embedded in NSW urban planning documents over the past 2 decades. As the Commonwealth Productivity Commission notes in its interim report, working smarter is crucial to productivity gains. We need the workforce to work smarter, not necessarily harder or longer. And the location of one’s home to one’s place of work is critical.  Housing supply is also critical to affordability – but homes must be affordable in all locations, otherwise we are surrendering to long, unsustainable commutes.

In the case of NSW, Strategic Planning has been largely handed back to local Councils following the humiliation of the Government over their efforts to force amalgamations in 2017.

But by leaving the strategic decision making to local councils, many of which are antithetical to height and density, Sydney is simply not building the number of houses which its growing population requires.

The impact of a consistent under-supply of housing has a direct result in reducing the relative affordability of housing in what is the economic engine of the nation. This, over time, has an impact on the productivity of the nation.

According to the Frontier Centre for the US Public Policy for the Urban Reform Institute: Demographia International Housing Affordability Report 2022, Sydney is the second-least affordable city for housing in the world.  This is a deterioration since last year, with Sydney moving from third least affordable to second. The analysis takes into account after-tax household income and compares that to housing prices. A score under 3.0 shows an affordable housing market – 5.1 and over reflects a severely unaffordable market.

The analysis found:

“The least affordable market is Hong Kong, with a median multiple of 23.2, followed by Sydney at 15.3, Vancouver at 13.3, San Jose at 12.6 and Melbourne at 12.1.”[1]

The Jobs Summit unanimously and sensibly determined that we need to boost permanent and skilled migration numbers.  But we are not the only western economy bidding you educated migrants.  Housing prices (relative to income) are turning away many of the best and brightest and that has an impact on our productivity and our capacity to pay for the government services we have become used to.

“A poorly functioning housing market, one where supply is constrained from fully responding to sustained demand, will also lead to lower productivity and lower welfare. In this case, the resources that would otherwise be put to satisfying demand for housing will ultimately be used on less valued activities. At the same time the higher prices paid for housing reduce households’ capacity to purchase other goods and services.”

Dr Steven Kennedy, 2010[2]

The Secretary of the Federal Treasury gave a speech, 12 years ago, which set out the linkages between productivity and housing supply.

AHURI’s 2017 Report, Inquiry into housing policies, labour force participation and economic growth, highlighted how “housing policies might promote labour force participation and economic growth through four channels—housing supply responsiveness, labour mobility, employment decisions and consumption.”[3]

The report urged Governments to bring housing policy to the centre of their economic deliberations and looked towards a “co-ordinated policy treatment of housing as an economic asset” as a key factor in promoting (or limiting) economic growth[4]

Similarly, Danielle Wood of the Grattan Institute, when addressing the recent Australian Government’s Jobs and Skills Summit, noted that housing and its cost had direct impact on productivity:

“The two-decades-long run up of house prices relative to incomes means that any young person hoping to get on the property ladder can expect to take on vastly more debt than a young homebuyer 20 years ago. High household indebtedness constrains the capacity of young people to take on the risk of starting a business or even considering a mid-life career change.”[5]

Housing, along with the regulatory and tax environment surrounding it, must be addressed. Beyond economic theory – the community and one would assume Governments at all levels should be able to appreciate this is a more practical sense.

The fact that this issue is now dominating media commentary, from 4-Corners to A Current Affair, from 2SM to ABC Radio National, from the AFR to the Daily Telegraph, the universal attention shows the extent of the crisis.  It also reflects the extent of the regulatory failure.

When planners fail, their powers are simply usurped by the more pressing imperative of economics.  That is not good for anyone – but sadly, that is what is happening.

The over-regulation of zoning; the arbitrary controls on height; the outdated social engineering manifest in design regulations; the irony of pushing up housing prices with levies to pay for a small number of “affordable homes”; and the high impost of infrastructure fees and charges!  These are just some of the burdens that well-meaning planners have applied to the development of new homes at the expense of housing affordability and reductions in supply.

Then there is the question of the time taken to comply with the Planning Legislation in each jurisdiction.  The volume of expert reports required before an application is even considered is exhausting and expensive.  It has become an industry all of its own with lobby groups in place to push for an extension of these rules and regulations.  Thank goodness for the work of State and Commonwealth Productivity Commissions.

Urban Taskforce Australia has recently made a comprehensive submission to the Commonwealth Productivity Commission 2022 Productivity Inquiry including 15 targeted recommendations for reform.  We are beyond pointing fingers towards those that caused the housing supply crisis.  It is now critical that the need for the Commonwealth to take greater control with both carrots and sticks to encourage the States to improve housing supply outcomes.  Other recommendations relate to the Commonwealth’s taxation treatment of Build to Rent housing, foreign investment in Australian housing supply (including foreign pension funds and institutional investors), Seniors living and the development of housing for those with disabilities.

 

CLICK HERE to see a copy of the Urban Taskforce Australia submission to the Commission’s Inquiry.

[1] Cox W, ‘Demographia International Housing Affordability Report 2022’, Urban Reform Institute and the Frontier Centre for Public Policy, Canada, March 2022, p.2

[2] Kennedy, S., Housing Supply and Affordability, Address to the Council of Capital City Lord Mayors’ Towards a National Urban Policy Summit, 27 May 2010

[3] [3] Ong, R., Wood, G., Whelan, S.,  Cigdem, M.,  Atalay, K., &Dodson, J., Inquiry into housing policies, labour force participation and economic growth | AHURI, 2017, p.1

[4] Ibid., p.1

[5] Wood, D, Address to the Jobs and Skills Summit, Canberra, September 1, 2022

 

Enjoying Sourceable articles? Subscribe for Free and receive daily updates of all articles which are published on our site

 

Want to grow your sales, reach more new clients and expand your client base across Australia’s design and construction sector?

Advertise on Sourceable and have your business seen by the thousands of architects, engineers, builders/construction contractors, subcontractors/trade contractors, property developers and building industry suppliers who read our stories across the civil, commercial and residential construction sector