It's time misguided land starvation was stopped

Bookmark and Share Housing: The Great Australian Dream Project | Alan Moran
The West Australian 18th March, 2010

With boom times returning to WA, the housing market is once again overheating. The median house price in Perth is now $512,000, according to the December quarter figures from Australian Property Monitors, putting it beyond the reach of any new homeowner without substantial savings or parental support.

Even in the new suburbs, prices have left all but the most affluent with no foot on the home-ownership ladder.

Typical of these is Ballajura, where the average house costs almost $400,000. That's up 60 per cent from $260,000 five years ago. The suburb's average house price increase has massively outpaced prices in general, which are up only 15 per cent. And more importantly for the prospective buyer, house prices have far outpaced average earnings.

It is not difficult to pinpoint the cause of this price escalation.

During the second half of last year, new lots approved for building in Perth and Peel were running at an annual rate of under 9000. This is extraordinarily low. Even in the mid 2000s, when supply was being far outpaced by demand, annual new lot releases were running at more than 15,000.

Last year in its report, the Great Lock Out, the Institute of Public Affairs reported how, over the past two decades, Perth had been transformed from one of the most affordable housing markets in Australia to having the unenviable reputation of rivalling Sydney as the least affordable.

The reasons for this were shown to lie squarely with the Government's land-starvation policy. The Government just won't allow enough blocks to be developed for housing, thereby preventing competition from driving down prices.

This has stemmed from unfounded fears of the high cost of providing new infrastructure, a mania for central planning and groundless opposition to urban sprawl in a State that has more natural bush and farmland than anywhere else in the world.

Government resistance to allowing land to be used for housing has also been abetted by ministerial dreams of creating a compact city with teeming inner suburbs populated by bohemian theatregoers and by downright contempt for new-homebuyers' preference for McMansions on individual lots.

With a new Government in WA we might have expected to see a reappraisal of the restrictive land release policy. Instead, the figures show Perth going backwards in new housing development permits. This is particularly unfortunate with population growth at 3 per cent a year and every expectation of a strong renewal of resource based development.

Rather than tightening the vice over new development approvals, now is the time for energetic action to remove restraints on land availability. Predictably, the upshot of the intensified squeeze on land availability has been skyrocketing prices. Land, as with any other product, will see prices rise if supply is rationed.

Land around Perth is particularly suitable for home building. It is flat and sandy. On the city edge, the land is overwhelmingly used for farming and is worth at most $20,000 a hectare. Even with allocations of the land to common space, each hectare can accommodate at least 10 decent-sized blocks. Developing the land grading, roads, water, sewerage and so on costs at most $65,000 a block, so we should be seeing lots ready for building on at under $70,000 all around Perth.

Instead, because supply is rationed by the Government we see lot prices at $200,000. In other words, Government policy is inflating land values by around $130,000 a lot. That's terrific if you're a landowner who has got development approval but it is a cruel injustice on the people who don't have a house of their own. Forcing those without a home of their own younger and less affluent people to pay an additional $130,000 means a monthly mortgage bill of more than $1000.

A liberalisation of Perth's highly restrictive planning policies would see three- bedroom, two-garage houses on an average sized block at $250,000. And unlike most other policies, bringing about such a benefit costs the taxpayer nothing. The excess prices are the result of Government policies giving windfall gains to landowners and developers who win the right to convert raw land into land for housing.