When it comes to housing policy, why aren’t we talking about building more homes?
Housing affordability is one of the key issues of the upcoming Federal Election. Accordingly, both the Coalition and Labor have promised policies to help more people into home ownership by giving them greater borrowing power.
The LNP has promised to expand the Home Guarantee Scheme – whereby the government acts as guarantor for homebuyers with a deposit of less than 20% – and is introducing the Super Home Buyer Scheme which allows first homebuyers to borrow from their superannuation for funds towards a home.
Labor, meanwhile, has proposed Help to Buy, a shared equity scheme whereby the Commonwealth Government will contribute to the cost of purchase of a home for lower- and middle-income earners.
However, economists say that these policies are not an effective means of addressing Australia’s housing affordability problem. In fact, they may worsen the issue.
The problem with these sorts of schemes is that they increase demand – putting upward pressure on house prices – while doing nothing to address supply.
As independent economist Saul Eslake told the ABC: “Schemes that allow people to pay more for housing than they otherwise would result in more expensive housing rather than in more people owning housing.”
At YIMBY Qld, we believe the time has come to turn policy towards increasing supply, and not just increasing supply of social and community housing, which is of course important, but all forms of homes along the housing continuum.
“The only long-term solution to housing affordability is to build more homes where people want to live,” said Angus Moore, an economist with PropTrack.
However, this is not as simple as it seems. Those places where people want to live are subject to planning and zoning policies which often favour a ‘NIMBY’ mentality that makes building new homes where people need them difficult.
The Grattan Institute’s recent submission to the Productivity Commission review found that:
“The historical shortage of housing in Australia is largely a failure of housing policy, rather than housing markets. Australia’s land-use planning rules are highly prescriptive and complex. Current rules and community opposition make it very difficult to create extra residences in the inner city and middle-ring suburbs of our capital cities. And so new housing construction in Australian cities is relatively unresponsive to demand, and the density of Australian cities has barely changed in the past 35 years.”
The result is that Australia has among the least housing stock per person in the developed world, with just over 400 dwellings for every 1,000 adults.
YIMBY Qld has long been concerned with the role restrictive planning and zoning play in housing unaffordability and we are not alone.
Brendan Coates, Economic Policy Program Director at Grattan Institute and co-author of the submission told ABC News that “We won’t succeed on housing affordability until we start tackling the hard choices, which is boosting supply by reforming planning rules to make it easier to build housing in the major cities.”
We believe urgent Federally supported/driven Planning reform is needed in many Australian cities and regions to increase opportunities for smaller homes, greater housing choices and reduce the time and cost of obtaining housing approvals. This could include things like reducing minimum lot sizes for new houses, removing minimum car parking requirements for new apartments close to rail, metro and ferries, and increasing scope for medium-density development in their cities’ middle ring suburbs. These changes could make housing more affordable to buy and rent, not just because greater density means greater supply, but also because smaller houses are less expensive than larger ones. Less land component per home means less expensive homes. The opportunity to rent out your granny flat on the open market may help someone step up into home ownership or cover their mortgage as interest rates rise.
Politicians do not have the political will to properly address the supply side of housing as they fear devaluing homes already owned in the market, hence wreaking havoc on their re-election prospects. This, of course, does not need to be the case as a properly set up body to scientifically monitor the supply and demand equation will ensure that values continue to increase modestly with inflation.
To give them their due, both major parties have pledged funding which will go towards creating new social housing to address the supply side of the equation. However, reforming planning and zoning rules would create more systemic and impactful change.
Although planning and zoning is usually a local or state issue, the Federal Government can also play a part. Several sources have suggested the Federal Government provide a monetary incentive for other levels of government to loosen constraints on planning and zoning.
The Grattan Institute recommends incentivising State and Territory governments to reform land-use planning rules through payments “based on clear and achievable targets” linked to housing outcomes.
Shane Wright, senior economics correspondent for The Sydney Morning Herald suggested a “‘supply increase’ bonus” for local councils to change planning laws to increase the number of homes available in their areas.
Alternatively, the Australian Government could follow the example set by our Kiwi cousins and take direct action on planning laws.
Last December, the Government of New Zealand passed legislation with bipartisan support to boost housing supply in the country’s five most populous cities. The Resource Management (Enabling Housing Supply and Other Matters) bill allows up to three three-storey dwellings on a single lot by right. An early estimate from Pricewaterhouse Coopers suggests that this could add as many as 105,000 extra homes in a country facing a similar affordability crisis. Similar reforms have swept major US States in recent years, strongly supported by the YIMBY movement.
If we are serious that housing is a human right, or that home ownership should be an attainable goal for all Australians regardless of how much they earn or who their parents are, simply giving people more money to spend is not going cut it. We need reform to ensure that there are enough homes to go around.
Thanks to Greater Canberra for the featured image.