The Role of Planning and Other Factors Impacting on Housing Supply and Affordability in Australia

To what extent might planning system constraints or demand side effects explain Australia’s high house prices? Gurran and Phibbs (2013, 2015, 2016) have examined charges against Australia’s planning system, which may be loosely summarised in relation to land supply, development controls, inefficiency and delay, and excessive infrastructure levies. On the question of land supply the NHSC (2008) (drawing on data supplied by planning agencies and industry bodies), concluded that existing reserves of broad-hectare (greenfield land) across the eight Australian capital cities were sufficient for more than a decade’s total supply of dwellings. Another indicator as to whether Australia suffers from a shortage of housing land is the price of residential lots. Examining rates of greenfield lot production against median land values per square metre, the Productivity Commission (2011) found that prices plateaued around 2002—03 and did not rise over the following six years despite a sharp downturn in the number of new allotments created. Sydney’s current pipeline of greenfield land is sufficient to accommodate at least 166,808 dwellings (well over a decade’s supply of new suburban growth based on current figures), and over 5000 zoned and serviced allotments remained vacant and available for sale or building in mid-2015 (NSW Planning and Environment 2015).

In relation to indicators of planning system ‘certainty’, ‘speed’ and the overall burden of regulation, again evidence to support the notion that

Australian Population, Household & Dwelling Growth 1911-2011 (Source

Fig. 9.4 Australian Population, Household & Dwelling Growth 1911-2011 (Source: ABS Census various years)

Australia’s state and local planning processes are holding back housing production seems thin. For instance, comparing ‘performance’ data on the decision speed and approval rates of local authorities in Melbourne and Sydney, Gurran and Phibbs (2013) found few patterns, with overall rates of approval consistently high (above 90 % of applications are approved in NSW) and decision times very similar in both jurisdictions. Differential rates of housing production thus seemed to reflect more differences in local market cycles rather than planning system efficiencies. The question of whether rising development contributions for infrastructure have impeded housing development is more difficult to examine, but qualitative research (Gurran et al. 2009) suggests strongly that development charges have been incorporated into feasibility assessments and factored into bids for raw land. In jurisdictions such as NSW where contribution requirements have been volatile (due in part to changing state regulations), and in

Victoria and Queensland where new infrastructure charging systems were introduced in the early 2000s, industry sources did report frustration with charging regimes. But rather than objecting to the idea of infrastructure charging overall, many expressed a strong desire to ‘self-provide’ facilities (such as recreational centres or road upgrades) rather than depend on the capital works programmes of local governments. Critically, informants advised that infrastructure charges are not simply ‘tacked on’ to the final price of a residential lot or dwelling but rather that prices reflected the current market value at the time of sale (Ruming et al. 2011).

One issue not fully examined in the Australian context at least, is the question of what happens to potential housing development once planning permission is secured. Figure 9.5 shows the changing relationship between the stock and flow of housing consents in NSW, with the backlog (stock) of sites with permission to build but which have not yet commenced construction. As shown, whilst the number of dwelling proposals applications/approvals coming forward shows variability over the period (ranging from around 5000 approvals to about 13,000

Stock and flow of residential approvals in NSW 2003-2013 (Quarterly)

Fig. 9.5 Stock and flow of residential approvals in NSW 2003-2013 (Quarterly)

(Source: ABS 8750, Table 80)

approvals in a single quarter), the overall stock of approvals ready to commence has remained much steadier, at around 10,000 dwellings at any one time. Although there has been a tendency to focus on changing rates of dwelling approval, with low approval rates interpreted as one indicator of planning system constraint, in fact, the real picture as shown in Fig. 9.5 might suggest one of market responsiveness, with permitted projects brought forward in response to changing market demand.

In the final evaluation of Australia’s planning systems and potential impacts on housing development, some important comparisons between the UK and the USA can be drawn. Firstly, although there has been a policy emphasis on urban consolidation and containment in Australia, this has not been at the expense of greenfield development, which has continued to occur, although the market preference remains focussed on established homes in existing suburbs as noted by the Productivity Commission in 2004. Second, the deliberate use of local planning controls as an instrument to maintain social exclusivity as has occurred in the USA does not have a direct parallel in Australia where state government policy or oversight can often override local controls, particularly in the highest value markets of Sydney, NSW (Gurran 2011). However, there is some evidence of third party appeals providing an opportunity for exclusionary behaviour in parts of Melbourne, Victoria (Taylor 2013).

A deeper explanation for Australia’s mounting housing affordability crisis lies in its concentrated settlement structure. The shift away from regional development and public infrastructure development in the 1970s and 1980s probably reinforced the increasing economic primacy of the state capital cities, although this may also have reflected global and sectorial economic trends whereby the more dynamic sectors tended to cluster in the major cities (State of Australian Cities 2015). Either way, this capital city primacy has meant inherent supply constraints and a growing premium for housing anywhere within commuting distance of the employment centres (Productivity Commission 2003).

At the same time, the failure to implement value capture mechanisms, when land is rezoned and when planning rules are varied, has left the state and local planning agencies unable to recoup the significant windfalls accruing to private landowners from planning decisions (Gurran et al. 2008). Similarly, infrastructure investments such as

Illustration 9.1 'Self-build' housing, greenfield suburb, Australia. Despite the increasing tendency towards high-density housing in inner suburbs, greenfield housing development continues in outer suburban Australia. The size of residential allotments has shrunk, but new homes are getting larger. This is sometimes called the 'McMansion' phenomenon.

(Image credit: Sam Phibbs 2015)

public transport schemes also have the effect of raising property values without any associated mechanism for securing an affordable housing outcome.

Further, the capacity to deliver affordable housing through projects led by government development corporations has been limited. Those states which retained land development functions (e.g. NSW, Victoria, Western Australia, South Australia, the Australian Capital Territory [ACT]) reorganised in the 1980s and 1990s around a corporatised model (Gleeson and Coiacetto 2005; McGuirk and Dowling 2009). Whilst retaining social goals within their corporate charters, in most jurisdictions affordability goals appear to have been subsidiary to the quality of physical development outcomes and maximising commercial returns to government.

The positive wealth effects of rising property prices are recognised by all levels of government, and the latent political influence of property remains a powerful explanation for the persistent focus of Australian housing policy. This has led to a growing inequality of tenure-based wealth with home owners able to accumulate much greater assets than renters (Fig. 9.6). Although there have been periodic debates over the impacts of tax incentives for property ownership, these have usually been stifled in favour of the status quo (Yates 2010). For instance, at the height of concerns over a property bubble in 2015, former Prime Minister Tony Abbott famously declared that he welcomed the increased value of his home and accused the opposition of trying to engineer a fall in property prices (Hurst 2015).

Net household wealth and wealth distribution, Australia, by Tenure and Landlord Type 2011/12 (Source

Fig. 9.6 Net household wealth and wealth distribution, Australia, by Tenure and Landlord Type 2011/12 (Source: ABS Cat 65540, Table 18)

A year later, similar comments were made by his successor, Malcom Turnbull, in reaction to proposals by the (opposition) Labor Party to wind back generous tax incentives for property investment, and reduce the discount on capital gains (Massola 2016). The Property Council of Australia raced to defend the current system of entitlements, likening the housing market to a fragile house of cards. Its well funded campaign, which broadcast on national television, carried the implicit message that national economic stability—and household wealth—would collapse if proposed changes to tax benefits were introduced (Property Council of Australia 2016).

As in other nations, foreign real estate investment has been another issue to emerge in the context of growing anxiety over price increases in the capital cities, particularly Sydney and Melbourne. Although rates of foreign investment in Australian real estate have grown in recent years, this has been concentrated in particular markets (such as off the plan apartments) and overall impacts are likely overstated (Rogers, Lee and Yan, forthcoming). Nevertheless, responding to negative media attention in 2015, the federal government launched a parliamentary inquiry into the issue, ultimately resulting in new laws for foreign ‘rule breakers’ as well as a new administration fee on purchases (Fuary-Wagner 2015) but little substantive action to overcome barriers to first home buyers or to increase the supply of affordable rental accommodation (Rogers, Lee and Yan, forthcoming).

The following remarks made by Prime Minister Malcolm Turnbull in March 2016 sum up the position which appears to have been followed by both sides of Australian politics since at least the turn of the new millennium:

“My Government recognises that the family home is the most important single asset for just about every family, and it is the largest single asset class in Australia [...] But time and time again, we are told that the real problem is not too much demand, but too little supply. Let’s face it, every dwelling built in Australia - whoever owns it - adds to our national wealth. Study after study tells us [...] that it is restrictions on supply, planning restrictions, restricted land supply, inadequate transport infrastructure which drives up prices. [...] And that is why we are tackling housing supply at many levels in our economic plan. At the demand level, we are enforcing existing foreign investment rules to ensure foreign investment in housing is directed to create new housing stock. We will work on the supply side with States to review planning and zoning regulations to make housing supply more responsive—through reforms ...” (Turnbull 2016)

For their part, state governments have also tended to deflect any potential blame for affordability pressures, for example, by accusing recalcitrant local councils of restricting new housing supply through slow and inconsistent development assessment or rezoning practices. Concerns about housing supply and affordability have provided a key rationale for state planning system reform (Gurran and Phibbs 2013), showing a parallel with experience in England. But despite continued appetite for planning system reform generally, there has been very limited support so far in Australia for reforms designed explicitly to increase the supply or support the inclusion of affordable homes as part of new development.

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