The Regulators White-Anting New Homes

housingNew South Wales Premier Mike Baird claims  there is “a massive housing boom” underway in Western Sydney, explaining that he has “released” land sufficient for 6,600 new houses. Talk of a boom is decidedly relative.  On the edge of the city the market is hardly being driven by demand, since the Premier is looking to extend the first-home-buyer grant of $15,000 to new properties worth less than $750,000 — a near-impossible sum for the vast majority of aspiring home owners.

The subsidy is trivial compared to the excessive costs stemming from regulatory action.  At a minimum of $500,000, and usually much more, new house prices are massively inflated by a land shortage caused by government regulation.

Land on the periphery of Sydney — indeed, all Australian cities — would sell at considerably less than $100,000 per developed block if government planners got out of the way of buyers and sellers.  Instead, a new housing block goes for at least $350,000. The Premier’s self-congratulatory statement offers the palliative of a $15,000 subsidy to selected new buyers, rather than deregulatory policies that would reduce house prices by at least $150,000 and, more likely, as much as $250,000.

Over the past 40 years we have seen a gradual revolution transfer to governments the rights landowners formerly exercised over the use of their properties. Each milestone along the way, like NSW’s 1979 Environmental Planning and Assessment Act and Victoria’s 1980 Metropolitan Strategy Plan, represented incremental steps.  But the outcome has morphed a process whereby only exceptional circumstances prevented landowners selling their properties for housing development into one where it takes exceptional circumstances for the government to allow this to happen.

This severe attenuation of private property rights has starved the housing market of land.  Now Baird can, without batting an eye, claim the credit for “land releases” that allow people to buy and sell private property so that new housing can be built. Moreover, even current land releases leave new home building at only two-thirds the levels of the 1980s.  The population has grown considerably since then and demand for housing even more so, given the constrained supply forced upon potential buyers by successive governments.

A knock-on effect of the regulatory-induced housing shortage is seen at the periphery of  all Australia’s major conurbations.  In the inner city this is amplified by NIMBY opposition to redevelopment (2014 prices in Sydney and Melbourne are up 16% and 9% respectively).

Perhaps, anxious to protect capital gains accruing to existing house owners from inflated prices, governments hide behind notions that there is a genuine shortage of land, that new infrastructure would be too costly, even that “urban sprawl” is a problem. None of these claims is supported by the facts.

Meanwhile, Australia’s is among the world’s most expensive housing markets, despite the ample land on the periphery of all our major cities.  Even the IMF has recognised our housing costs are out of whack.  IMF data shows house prices in Australia are the second-highest among the world’s 25 most affluent economies.  By rights, with massive supplies of low-productivity agricultural land and a very efficient home-building industry, we should be among the lowest.

Forty years ago, Alan Bond made his first fortune by selling quarter-acre, ready-to-build blocks on what was then Perth’s periphery for the equivalent, in today’s money, of $40,000 apiece.  That number is a fifth and tenth of current prices.   The incursions of regulatory planning overlays have made broadly affordable blocks an impossibility, obliging politicians to claim as victories any modest increase in new permits to build.  Sometimes those same politicians quote estimates that many years’ supply remains available for development.  What they fail to add is that those estimates are based on the reduced demand due to the massively inflated prices their policies have created.

Incumbent house owners may be pleased with the value of their properties.  But much of that value is derived from regulatory constraints on supply.  The losers are those priced out of ownership, as well as tenants forced to pay excessive rents.   What is needed is a radical roll back of the regulatory layers enacted over 30 years or more. This would allow the supply of land for housing to increase, thereby driving down prices to affordable levels.

It is a simple concept. The wonder is that the truth of it appears not yet to have dawned on Baird and his counterparts in the other states.

Alan Moran is the Director, deregulation at the Institute of Public Affairs



One thought on “The Regulators White-Anting New Homes

  • jeremyhearn@optusnet.com.au says:

    Very true!! More detail would help though. For instance, 40 years ago people were allowed to buy ‘unimproved’ land ie. without sewer, stormwater, power or gas connections and with gravel roads. This was very popular, and young people would buy a block and pay it off quickly and easily. As time went by the council would offer to connect sewers or pave the road at a cost and people could opt in or out of such plans. At the time one could choose between various levels of services on the block one bought. A block with gas, electricity, sewer and made roads or one that was still bush. There was competition and choice. Currently all suburban councils require blocks to be fully serviced prior to sale as well as comprehensive environmental reports etc. This is what makes the first step on the ladder so much higher now. Incidentally, despite the propaganda, this method is the opposite of sustainable as alternative approaches to dealing with waste water, storm water, energy supply, road paving etc. are forbidden, or excessively bureaucratised.

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