Promised 67,000 homes a year would send building into freefall

Another day, another “radical” proposal to fix the housing supply and deliver more affordable homes. Promises to deliver 67,000 additional homes a year, reduce rents by 12 percent and reduce prices by $100,000 sound great. Even better, new homes will be located close to transportation and businesses.

The Grattan Institute’s latest “plan” to lift Australia’s lagging housing development is actually an anti-plan. The legislation proposes allowing six-storey apartment blocks around railway stations or centers by default across the country, and three-storey townhouses and apartments within 15 kilometers of CBDs.

Grattan has solid economic credentials and his economic modeling is generally tight. But reality sets in when economic modelers try to plan real cities.

The first reality check is the bold claim that increasing housing supply by 67,000 homes per year (almost a third more than our current national target) would lower prices by $100,000. Maybe so. However, the model assumes the existence of a private sector willing and able to finance new projects in a falling market. In fact, empirical evidence tells us that building completions decline when prices remain constant; A $100,000 drop is more likely to send new development applications into free fall.

The second is the assumption that planning regulation is the only thing stopping overbuilding. I repeat, this is contrary to the evidence. Actually, getting permission to build a new house is not a problem. There is a backlog of housing approvals; Turning these permits into housing completions slows us down. Nearly 35,000 homes remain in limbo, according to Australian Bureau of Statistics figures. approved but not yet launched.

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The third hitch is that developers dislike uncertainty more than local residents. While an individual landowner wants full authority over their own land, they do not want it to block neighbors’ views or sunlight, overlook gardens or balconies, or hinder future potential. What looks like red tape to economists is often a place-based rule designed to maximize development opportunities while minimizing off-site impacts to neighbors and the broader community.

The closer you get to the center of Australia’s eight capital cities, the more diverse and complex the terrain becomes. Local planning rules are designed to calibrate these complexities, from topography to the road and street network to the combination of current and former land uses, including hazards and contamination risks. The most effective way to increase housing supply and diversify the housing stock is to engage in advance strategic planning at local and regional scales. The default “direct” codes work well for simple developments, especially on green areas that have not been developed before.

But in current environments, the complexity of current and previous land uses means that regulations must either be very cautious (unnecessarily limiting opportunities) or very open-ended. Secondly, it means that it still takes time for proposals to be evaluated. Otherwise, serious problems will arise when it is too late. Recent quality issues in the NSW apartment sector stand as a cautionary tale.