Red tape adds $320,000 to new home builds, Productivity Commission finds

The Productivity Commission’s report estimates that restrictive zoning laws are the largest regulatory cost on new homes, at 50-80 percent.

For units that use less land, the largest regulatory cost is administrative and evaluation paperwork, at 33-36 percent.

While the government cost of a house in Brisbane was about the same as a house built in Melbourne, the regulatory cost was highest in Sydney.

Safety and quality regulations are essential to ensure consumer confidence in home purchases, but the balance of ensuring homeownership is affordable has been skewed by regulatory requirements that have been creeping up for decades, Wood said.

“This is an increasing burden, sometimes for good reasons, but often without sufficient awareness of the trade-offs, and that trade-off ultimately makes homes more expensive and less easy to supply, at a time when we are facing a real affordability problem,” he said.

The federal government could focus on promoting state-controlled regulatory changes, such as planning or heritage laws, rather than housing targets, and its success could be affected by a range of factors not always under states’ control, Wood said.

Housing Industry Association chief economist Tim Reardon said his organisation’s modeling showed the cost was much higher in Sydney and Melbourne, where the bulk of the population lives.

He said HIA estimates 50 per cent of the cost of a new house and land package is regulatory.

“Upper limit [the Productivity Commission] “Does it reflect the costs in Sydney and Melbourne… so it’s more accurate to think of that cap as a conservative estimate of how much the average Australian will be exposed to,” he said.

He said a move to pause the National Building Code, which scraps thousands of pages of requirements on new builds, was welcome but there was more to be done to reduce house prices.

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“This balance between accessibility and energy efficiency came before affordability, and the same decision-making process we have seen for 25 years is at the heart of why housing is no longer affordable,” he said.

Reardon said the system should be reformed so that reapprovals are only required once and foreign investment in construction is encouraged.

Master Builders Australia managing director Denita Wawn said the report should be a wake-up call for the federal government, which must reassess the impact of regulation on growth.

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“The increased volume of regulation imposed at all levels of government, including the NCC, has contributed to decreased construction productivity,” Wawn said.

He called on the government to cut red tape by 25 percent and said a fundamental shift in regulatory norms was required.

“Setting a target to reduce red tape and have a clear agenda for regulatory reform and regulatory burden reduction as recommended by the PC is critical to supporting a sustainable and viable building and construction sector in the long term,” Wawn said.