Has Aussie housing policy exacerbated property market woes?

The size of Australian households, which has steadily declined since 1990, suddenly further shrank as the pandemic saw many Australians yearn for space and subsequently move into their own home.

This trend created a demand for 140,000 homes, thus offsetting the trend of falling population growth, per estimations produced by the Reserve Bank of Australia (RBA).

Mr Coates said that the current stresses felt by renters, such as the surge in rent over the past 12 months, have not been a result of the markets themselves, but rather a failure of housing policy.

Research conducted by the RBA posited that land-use planning rules add “up to 40 per cent to the prices of houses in Sydney and Melbourne, up sharply from 15 years ago.” 

“More recent research suggests that planning rules have added substantially to the cost of apartments, where building height limits in and around the urban core of our major cities prevent more construction,” he added. 

“The key problem is that many states and local governments restrict medium-and-high density developments to appease local residents concerned about road congestion, parking problems, and damage to neighbourhood character.

“The politics of land-use planning — what gets built and where — favour those who oppose change. The people who might live in new — were it to be built — don’t get a say.”

He does acknowledge the importance of land-use planning, since it guarantees “we don’t build abattoirs next to schools or apartment buildings.”

One such area of policy planning that was outlined as having the greatest detrimental impacts on the release of housing stock was heritage site protection. While such locations may be vital to enriching and preserving our historical understanding of place, these endeavours are done “with little acknowledgment of the costs of conserving heritage sites, which includes stymieing the supply of housing in areas where people most want to live.”

Sydney City, the Inner West and North Sydney are the regions throughout the NSW capitals with the most heritage protected sites, with areas such as Randwick and Waverley also high on the list.

This relates back to Mr Coates’ argument that “cities offer too little medium density housing in their inner-and-middle rings”, and is ratified by the fact that “the stock of smaller dwellings — townhouses, apartments etc — made up 44 per cent of Sydney’s houses in 2016, and 33 per cent of Melbourne’s.” 

“Yet, Australians say they want those numbers to be 59 per cent in Sydney and 52 per cent in Melbourne,” Mr Coates said.

He posited that such policy failures have forced the great Australian dream of home ownership to resemble a nightmare with fewer and fewer Australians owning a home now — exemplified by the statistic that just 40 per cent of people aged 25–34 owned their own home last year, as opposed to 60 per cent in 1981, while an increasing number of Australians — typically those on low incomes and renters — spend a higher portion of their income on housing.

These woes are extrapolated by the fact that one in five working-age households that rent is in financial stress, meaning they are skipping a meal or opting to not heat their home, leading to more people without a home. 

Home ownership declines are not only occurring among younger Australians. Mr Coates explained that the rate is decreasing among all age and wealth brackets, including poorer, older Australians, with just half of the poorest 40 per cent of 45–54-year-olds owning their home, compared to 71 per cent four decades ago.  

He believes that while it’s the states, rather than the federal government, which have constitutional responsibility for land-use planning, “the Federal Government can and should help to boost the supply of housing, especially now that the government has committed to boosting the permanent migrant intake from 160,000 to 195,000 for this year.”

The problem is that fixing land-use planning issues is a “politically hard endeavour for state governments because many residents don’t want more housing where they live.” 

“The Federal Government should make it worth the states’ while to do so by paying them for building more housing,” Mr Coates said.

In good news, there is precedent, according to Mr Coates. 

“Under the National Competition Policy, the federal government paid the states nearly $6billion over 10 years in exchange for much-needed regulatory and competition reform. The Productivity Commission later concluded that the benefits of the policy massively outweighed the costs,” Mr Coates said.

He added that a similar approach today could “solve Australia’s housing affordability crisis and also boost Australia’s lagging productivity growth.” 

“A sustained increase in housing supply would have a big impact on house prices in the long term. For example, if an extra 50,000 homes were built each year for the next decade, national house prices and rents could be 10-to-20 per cent lower than they would be otherwise,” Mr Coates concluded.