Australia’s restrictive planning laws are locking millions of people out of well-located housing and driving up prices, according to a new report from a leading think-tank, that calls for a radical overhaul of land-use rules in the nation’s capital cities.
The Grattan Institute report, “More Homes, Better Cities: Letting More People Live Where They Want”, argues that three-storey townhouses and apartment developments should be permitted on all residential land in Australian cities, and that six-storey developments should be the default housing style around major transport hubs and commercial centres.
“Housing in Australia’s cities is among the least affordable in the world,” says one of the report’s authors, Grattan Institute Fellow Brendan Coates.
“A lack of well-located homes is dividing families and communities and robs younger Australians of economic opportunity.”
The details
According to Grattan’s modelling, decades of underbuilding in Australia have left housing supply lagging far behind demand.
“Australia just hasn’t built enough homes to meet the rising demands … since the ’90s,” says Grattan researcher Matthew Bowes.
“We’re one of the few developed economies that has seen the number of homes per adult decline significantly.
“We need the number of homes to grow faster than the population,” he says.
The report blames restrictive zoning in Australian cities for adding “hundreds of thousands of dollars” to the price of homes.
Much of the problem, according to Grattan Senior Associate Joey Moloney, lies in the way planning systems default to refusing new developments.
“80% of established residential land within 30 kilometres of central Sydney, and 87% in Melbourne, is restricted to housing of three storeys or fewer,” he says.
“In Brisbane, Adelaide, and Perth, it’s roughly about two storeys.”
Mr Moloney says planning systems have a built-in bias towards preventing higher-density developments, even when development rules technically allow them.
Because planning decisions are often left to local councils, he says “local politics tends to favour older, wealthier homeowners”, who often have considerable time and resources to spend opposing greater density in their neighbourhoods.
The Grattan report argues that state governments should take back control of planning and zoning decisions.
“The core goal of our planning systems should be to allow as many people as possible to live in the places that they want,” Matthew Bowes says.
The Grattan Institute recommends new planning rules to allow three-storey apartments, townhouses, and terraces to be built on all residential land in Australia’s major cities, while allowing for buildings of at least six storeys in areas around commercial centres and transport hubs.
“There’s a really strong case for state governments to step in and upzone the most high-demand areas … to something like 12 storeys or higher,” Matthew Bowes says.
The Grattan researchers estimate that their proposed reforms could lift housing construction by up to 67,000 homes a year, cutting rents and house prices by around 12% over a decade and boosting economic growth by about $25 billion by 2050.
Brendan Coates points to the experience across the Tasman and big planning reforms that were undertaken in New Zealand’s largest city a decade ago.
“Auckland did a big up-zoning in 2016.
“Within six years, the estimates are that added 4% of the housing stock that wouldn't have otherwise been there,” Mr Coates says.
“Rents are 28% lower than they otherwise would be.
“Auckland's the one city in New Zealand where house prices have not risen vis-a-vis inflation since 2016, while they're up across the rest of the country.”
To streamline approvals, Joey Moloney proposes a simpler, rules-based system:
“Your system should set the rules, and things that fit within those rules should be allowed to proceed — “yes”, by default.”
“For larger developments, create these ‘deemed-to-comply’ standards … if you meet them, then the planning scheme says ‘yes’, rather than having a fight against a bunch of subjective criteria,” he says.
Matthew Bowes says the case for reform is now overwhelming.
“Inner Sydney is actually lower in terms of its population density than Los Angeles, which is a pretty famous example of American urban sprawl,” he says.
“That’s pushing younger and lower-income people out, with flow-on impacts for the job market, productivity and commute times.”
The Grattan researchers say the good news is that state governments are showing they are open to overhauling planning systems.
Brendan Coates says Victoria and New South Wales “have done variations of what we recommend, both upzoning for more gentle density across large areas of the city and those higher density apartment buildings being allowed more around transit hubs.”
He says that reforms already announced in the two states could theoretically allow about 70% extra housing stock in Melbourne and 40% extra in Sydney.
“To put that in comparison, when Auckland did their upzoning, they essentially increased the amount of capacity by the equivalent of 100% of the existing housing stock,” he points out.
Reaction
There’s been a largely positive response to the Grattan Institute’s report.
James Brooks from state government agency Renewal SA is effusive:
“It’s hard to overstate how good this new Grattan Institute report is on why Australian cities need to embrace greater housing density to tackle affordability,” he says.
Independent housing analyst Cameron Kusher is more cautious.
“I think a lot of what they are recommending makes sense,” he says, but then adds, “In saying that, I think up-zoning the whole city all at once is incredibly misguided and shows a lack of understanding of the capacity of existing infrastructure to cater to additional dwellings and people.
“Just because established areas have water, sewerage, electricity and amenity already, it doesn’t mean it will be sufficient to cater to a lot more people being added via higher density housing.”
David Wardlaw, from developers Orb Property Partners, says planning regimes aren’t “the real issue stopping affordable housing delivery.”
“It’s the cost to bring projects to market.”
Commenting on recent planning reforms in his home state of Victoria, Mr Wardlaw is blunt.
“You can speed things up 100x, but if construction costs outpace what buyers can afford, nothing changes.”
The Melbourne-based developer says Victoria is the most heavily taxed state in Australia, with taxes accounting for over 40% of the cost to deliver higher-density housing.
He points out that on one of his prime development sites in Sunshine in Melbourne’s west - “an area crying out for affordable housing” - it’s now impossible to make a project stack up.
“Last year, land tax on that site was $28,000.
“This year?
“$498,000.
“That’s criminal,” he says.
My view
The Grattan Institute’s work should be taken seriously.
The left-leaning think tank clearly makes an important contribution to public policy in Australia, especially policy formulated by Labor governments.
For example, much of the initial modelling for the $10 Billion Housing Australia Future Fund - the centrepiece of the Albanese government’s housing platform - was done by the Grattan Institute.
But reforming planning processes is only part of the solution.
Until state governments stop treating the property and construction industry like a giant cash cow, developers are going to continue to put housing projects - particularly large “in-fill” developments in the major cities - on the backburner.
If you look around our major cities, you will see hundreds of large, vacant blocks of land - often located close to shops, services and transport - which have sat abandoned for years.
They may be old car yards or industrial premises that have been rezoned for housing.
Yet they sit idle because the developers who “land-bank” them still can’t make a large residential development - which they may already have approval to build - stack up financially.
Granted, construction costs are high, tradies are hard to source and developers need to make a profit.
But time and time again, developers will tell you the number one factor preventing really great housing projects from getting off the ground is the outrageous levels of taxation and charges they will be forced to pay to all tiers of government.
And until governments agree to forgo some of that revenue - which won’t happen - Australia’s housing crisis seems set to continue.