Help Not Hinder Housing Developments

25 March 2024
Help Not Hinder Housing Developments - Featured image

We all know there is a problem with the supply of housing in Australia, but we should be wary of the solutions being proposed by the bureaucrats and activists who control the levers of power and twist the national debate. For example, a new report released in October, ‘OECD Economic Surveys: Australia 2023’, correctly notes that Australia faces a series of protracted housing supply challenges, but troublingly recommends amending zoning and planning laws to promote higher-density housing.

That the Organisation for Economic Co-operation and Development should recommend high density housing in the Australian context is peculiar given the vastness of the continent on which we live. In New South Wales, the most highly populated State in the Commonwealth, only approximately 0.1 per cent of the land area is used for residential purposes. Similarly, housing takes up only a minute portion of the area of each of the other States. High-density housing ought to be a last resort in a country as vast and sparsely populated as Australia. The call for ever-denser urban centres reflects a radical green attitude that prefers cramming more people into smaller spaces.

No doubt there is a market for high-density housing, particularly for those who wish to live in extremely close proximity to other people in population centres such as inner-city Sydney and Melbourne. However, this is not the ideal form of housing for families and for building local communities, which is generally served best by detached houses with backyards. The root cause of Australia’s housing crisis is the successive policy failures of the Federal, State and local governments, which have created artificially high levels of demand while also imposing punitive restrictions on the construction of housing that the country needs.

AUSTRALIA’S HOUSING CRISIS

On census night in August 2021, the Australian Bureau of Statistics found that 122,494 people were experiencing homelessness across the nation. Those affected by homelessness either slept rough, out on the streets, or were sheltered in a range of temporary lodgings such as hostels and homeless shelters. Back then Australia’s rental vacancy rate—defined as the percentage of all available rental units that are unoccupied or available for lease—was 1.92 per cent, according to property market research house SQM Research. According to the latest data from October, the rental vacancy rate has since collapsed further to below one per cent.

The ANZ and CoreLogic’s May 2023 ‘Housing Affordability Report’ found:

The median income household would require 30.8% of income to service a new rent lease nationally, though at the lower household income and rent level, an unmanageable 51.6% of income would be required.

Rental stress is defined in the Rental Affordability Index (RAI) as housing costs exceeding 30 per cent of a family’s income, with anything over 38 per cent representing severe unaffordability. Australian renters are going through a period of stress. Not just renters are feeling the pinch. The portion of income required to service a new mortgage was found to be higher still at 42.7 per cent, with houses in Sydney demanding 62.6 per cent of household income.

Recent data from the International Monetary Fund reveals that Australia now has the highest level of mortgage stress in the developed world. Another survey released in July 2023 called ‘Brutal Reality: The Human Cost of Australia’s Housing Crisis’ conducted for the Everybody’s Home campaign group shows that 75 per cent of mortgagees and renters are scared about their financial security because of the housing crisis.

The chart on page 27 shows the impact of Australia’s housing supply problems on rental vacancy rates. This situation is unsustainable. Governments, at all levels, are to blame.

EXACERBATING THE CRISIS

The price and the quantity of a good or service in a market are determined by the interactions of the supply of and demand for the good or service. In the case of housing in Australia, government policies have simultaneously elevated demand and repressed supply—resulting in price inflation and a chronic undersupply.

A June 2023 research report by IPA, ‘Mass Migration Induced Housing Shortage’, highlighted the failure of the Federal government to rein in unsustainable levels of migration. Australia is a tolerant and welcoming nation, and sustainable immigration has been an important part of its success. But an immigration program must be complemented by the policies and planning for housing and other social and economic infrastructure to accommodate the resultant population increase.

The failure by the State governments and the Federal government to manage the intake has contributed to persistent housing availability and affordability challenges, and also has undermined community support for migration.

Australia has no shortage of developable land.

Currently, the Federal government does not enforce a limit on long-term arrivals to Australia. Rather, a permanent migration target is set each year. This target is broken into three streams: skilled migration, family migration, and special eligibility. In November 2022, the permanent migration target was increased from 160,000 to 195,000 people. In May 2023, it was adjusted to 190,000 people to arrive as part of the 2023-24 permanent migration program.

But ‘permanent migrants’ are only one category of people Australia takes in each year. There is no limit to how many long-term, non-permanent migrants can come into the country. They include international students and temporary work visa holders. Unlike short-term travellers, who normally stay in temporary lodgings such as hotels and youth hostels, long-term migrants compete with Australians and one another for housing, resulting in higher prices and fewer available dwelling units.

The unplanned surge in net overseas migration between the financial years ending 2023 and 2028 was estimated to result in the net intake of 1.755 million migrants. IPA research estimated the number of households formed by net long-term and permanent arrivals to Australia would account for about 81 per cent of all new houses added to the market from 2023 to 2028, and would contribute significantly to the cumulative housing shortfall of 252,800 homes over that period.

Rental vacancy rates in Australia 2014-2023

The migration-induced growth in the labour force and increased working hours are the only factors keeping the Australian economy growing, with labour productivity having declined by 3.5 per cent in the financial year ending 2023. To put this into context, annual labour productivity growth in the two decades between 1960 and 1980 was positive at 2.4 per cent per annum. In the 1990s, it averaged a positive 2.2 per cent per annum. Between 2010 and 2020, labour productivity only averaged 1.1 per cent per annum; but at least it remained positive. Labour productivity in the last full financial year entered negative territory for the first time in 12 years.

The government’s addiction to economic growth through immigration—rather than productivity—needs to be addressed. A consequence of growth relying on population growth rather than productivity growth is that the benefits of economic growth are not being felt by Australians on the ground. Indeed, Australia has just undergone two consecutive quarters of per capita negative economic growth, meaning that on a per person basis Australia has just experienced a recession despite nominal growth floating above zero. Keeping nominal growth above zero through increased population has come at a cost. IPA research estimated that about $142 billion worth of housing development will be required to address the aforementioned housing shortfall to 2028.

BARRIERS TO LAND DEVELOPMENT

Australia’s residential developers are willing to take on the challenge of ramping up housing supply, but they are continuously met with resistance from government bodies. Developers and builders are now persistently confronted by a shortage of development-ready land. This shortage, according to a statement released in August by the Urban Development Institute of Australia, is “created by a lack of enabling infrastructure, zoning, integrated planning, and approvals”:

UDIA National urges political leadership across the nation to lock in housing targets, streamline planning systems and deliver enabling infrastructure, and most critically, facilitate the types of housing that Australians need and can afford.

Australia has no shortage of developable land. The shortage is in available land that is ready to develop. Excessive planning and other red tape rules are locking up parcels of land outside of Australia’s overcrowded metropolitan areas, often for unjustified environmental reasons. Despite the increasing demand, the latest ABS data on dwelling approvals, as of the time of writing, shows a declining trend over the last three years. Taking a broader overview, the number of annual building approvals for residential dwellings per 1,000 population has also declined markedly from a high of about 10 dwellings per 1,000 people in the financial years ending 2015 and 2016, to below seven in the financial year ending 2023.

In reality high-density housing is more expensive.

Modelling by the National Housing Finance and Investment Corporation’s ‘State of the Nation’s Housing’ report, released in April 2023, anticipates a continuous decline in the supply of new dwellings. In fact, new housing supply is expected to fall from a high of 197,104 in the year 2018 to a low of 127,500 in 2025. This aligns with the continuing decline in the number of building approvals shown in the charts.

Monthly building approvals for residential dwellings

A recent case study from the Lismore City Council in NSW illustrates the hoops that residential developers have to jump through before they even get to start building on their own land. The award-winning developer, the McCloy Group, recently lost an appeal in the NSW Land and Environment Court to overturn the Council’s refusal to allow for an expansion of the developer’s proposed 196-lot Eastwood Estate. The purported reasoning for the rejection revolved around risks of environmental impacts, including the potential impact of the expansion on koala habitats, and, apparently, the interest of the public. What is critical to note is that the Council’s decision to reject McCloy’s development application was taken despite Council staff and external consultants recommending the development’s conditional approval. That recommendation followed extensive rounds of environmental assessments of the development application.

The refusal came not from the Council’s secretariat but rather from its political arm, in a controversial split decision. It is believed the McCloy Group’s legal bill alone already exceeds $1.5 million. The more it costs to get development going, the more costs end up being passed onto homebuyers. In this case, it could be in the form of an $8,000 increase in the price of each lot.

A BAND-AID RESPONSE

The tragedy is that Australia has swathes of land that could readily be developed into housing for families. In Australia, most dwellings are standalone houses on a block of land, known as detached homes. This accounts for 65 per cent of housing in NSW, and up to 80 per cent of all housing in Western Australia. The other form of housing is units and apartments, which are higher density housing on smaller blocks of land. When it comes to land use, detached housing takes the lion’s share of the area reserved for residential development in Australia.

An analysis of housing in the five mainland States shows detached housing only accounts for a very small portion of available land, ranging from 0.02 per cent of all land in Western Australia to 0.48 per cent in Victoria. These pale in comparison to the amount of land permanently locked up for biodiversity, cultural, or environmental reasons. According to the Federal Department of Climate Change, Energy, the Environment and Water (DCCEEW), 22 per cent of all of Australia consists of protected areas, the equivalent to 1.7 million square kilometres. Also, about 40 per cent of Australia’s landmass is covered by native title, according to an analysis published in the Guardian Australia in 2021.

Punitively restrictive administrative and environmental red tape imposed on developing the rest of Australia’s landmass will have the effect of cramming more and more people into its already crowded capital cities. It has, however, found support from authorities such as the OECD, and figures like then Victorian Premier Daniel Andrews, whose near-to-last act was to launch a new housing strategy—but with supposed red-tape cutting measures focussed almost entirely on medium and high-density developments.

In September 2023, ABC News reported:

Medium and high-density development in established suburbs is being spruiked as the solution to Australia’s housing crisis. In suburbs across the nation, apartment blocks are popping up everywhere, providing homes for new residents and headaches for some of the more established residents.

A common assertion by advocates of high-density housing is that it is more cost effective. But, as noted in the recent report commissioned by the IPA, ‘The Once Lucky Country: Can It Be Again?’,

In reality high-density housing is more expensive. (In the USA) going from five to 10 stories increases the cost of each square foot by over 50 per cent, notes the Breakthrough Institute’s Judge Glock, in large part due to the need for more expensive, energy hungry materials like steel rather than wood. To this problem, regulators have added fees and other costs that further bloat prices. Local and State governments began charging up-front per-housing-lot fees and charges and regulatory regimes exploded in complexity, which added further compliance costs and inevitable delays [to construction].

Joel Kotkin, an author of that report and previously, The Coming of Neo-Feudalism (2020), describes the drive to build upwards and not outward as a self-serving mechanism for urban elites and the upper echelons of the political and media establishment. This has the effect of entrenching the class divide between property owners and renters, and binding young people to the crowded capital cities where home ownership is near impossible—thus giving rise to a class of lifelong renters. Morevoer, this shifts the political pendulum towards the radical progressive ideology advocated by inner-city elites.

The housing issue reveals the hypocrisy of activists.

One need only consider the results of the 2023 Voice referendum, which showed that the views and agenda of the inner-city elites and the insiders of the Canberra bubble deviate remarkably from the views and aspirations of mainstream Australians in the suburbs and the regions.

ENVIRONMENTAL HYPOCRISY

The housing issue reveals the hypocrisy of activists and the political elites, who dominate the inner cities of Australia’s capitals. They demand less housing development and an increase in housing density in inner-urban areas, usually on the basis that residential land use is detrimental to the environment. In January 2023, NSW Greens Member of the Legislative Council Cate Faehrmann launched a campaign against housing development along the NSW coastline. In the report at the centre of her campaign, Concreting our Coast, the MP accused developers of instigating an “onslaught destroying our coastal villages and environment”.

The campaign, aimed at characterising builders as greedy and irresponsible villains “who just want to make a quick buck with scant regard for the communities and habitat they’ll destroy in the process”, is ironic given the Greens’ relentless advocacy in favour of renewable projects, which Net Zero Australia says will:

… have significant environmental impacts including land damage, habitat loss, wildlife destruction and displacement, and other pollutants (e.g., noise, reflections, heat, waste) … land clearing for renewables and transmissions will generally reduce [biodiversity].

The Greens’ proposed solutions of a rent freeze, the Victorian government’s proposal to increase housing density, and the increase in the Commonwealth Rent Assistance by $31 per fortnight cannot possibly amount to anything more than a makeshift response to a severe problem requiring a real solution. This is because throwing money at renters and having government intervene even more in the market do not result in homes magically appearing from the ground up. Cutting red tape and streamlining developer approval processes, on the other hand, will.

Sydney aerial.
Photo: Denis Bin

WHAT NEEDS TO BE DONE

The Housing Industry Association estimates Australia will need 1.66 million new homes by 2030 just to keep up with demand from population growth, the majority of which will come from migration. This is one part of the broader issue of Australia’s economic and social infrastructure failing to keep up with unplanned migration.

In the immediate term, the Federal government must commit to properly planning for its migration program. This means aligning government policy with a comprehensive targeted intake number so that home ownership is no longer out of reach for young Australians, and renters are not left in a perpetual state of stress and uncertainty. Addressing the migration issue will dampen skyrocketing demand for housing, as well as challenges to other social and economic infrastructure.

Australian hospitals are failing and its health systems are crumbling, despite health expenditure continuing to climb and, over the years, Australians’ out-of-pocket health spending increasing by more than the growth in the wage price index. A report this year by the Australian Medical Association, titled ‘Australian public hospitals in logjam’, found that only three of the 201 public hospitals analysed were delivering care within recommended timeframes.

Governments at all levels must stay out of the construction sector’s way.

Australian schools are failing our students, despite all levels of government together spending around $120 billion each year on education. The 2023 NAPLAN results revealed a system in steady decline, with a third of all students not reaching the minimum standard in literacy and numeracy

Stress is also being placed on Australia’s energy system. A survey of experts conducted by the International Institute of Management Development found Australia’s global energy infrastructure ranking has fallen dramatically over the last two decades. Out of the 64 countries observed by the IMD, Australia’s energy infrastructure ranks 52nd today—way down from 15th back in 2003. Increasing energy demand from higher population is putting considerable strain on infrastructure already made increasingly vulnerable because of the ill-considered rapid switch to renewables. Australia’s economic and social infrastructure—including housing, hospitals, schools, and energy networks—are struggling to cope with the influx of migration to which the Australian government has become addicted and without which economic growth cannot be sustained. This addiction needs to be overcome by taking back control of our borders through a sustained and controlled immigration program.

This is consistent with the views of the Australian community. IPA polling in April 2023 found that 60 per cent of Australians agree that a temporary pause should be placed on Australia’s intake of new immigrants until more economic and social infrastructure is built to accommodate them better.

Moreover, governments at all levels must commit to a red tape reduction program with respect to residential land development. Local councils should be compelled to work together with developers to streamline residential development approval processes. And a framework should be created whereby the burden of proof when challenging the approval for residential development—on social, environment, or public interest grounds—is returned to the objecting party rather than being placed on the developers, who are effectively subject to an adverse presumption that their development should not go ahead unless they can prove otherwise.

The construction sector is ready and willing to take on the challenge in front of it and play its role in addressing Australia’s housing shortage by boosting supply. What is needed right now is for governments—at the Federal, State, and local levels—to stay out of its way. Across the nation—rather than being beholden to inner-city elites and environmental activists—governments need to show leadership by putting their constituents first, making tough decisions to cut red tape and take advantage of the abundance of land with which Australia and Australians are blessed.

This article from the Summer 2023 edition of the IPA Review is written by IPA Senior Fellow Kevin You and IPA Research Director Morgan Begg.

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