A harsh and unpalatable reality was recently brought home to aspiring home owners when Reserve Bank governor Ian Macfarlane described the Sydney housing market as "so expensive that it is in the interests of people, particularly a lot of young people, to go elsewhere to where their lifestyle is more affordable".
In Australia during the past five years a game of musical chairs has been playing out in the housing market as the young, the old, the baby boomers and the upwardly mobile all attempted to grab a seat in suburbia before it was too late. Now it is too late and the most vulnerable Australians - those with limited resources and moderate incomes - are left standing on the sidelines wondering what happened.
It was not that long ago - only five years - when households with an income of $50,000 a year could have bought a house in Sydney. At that time the median house price was less than $300,000. It is now more than $500,000. According to international research group Demographia, housing in all the main Australian cities is among the most unaffordable in the Western world. In Sydney, as in the rest of Australia, these dramatic price increases were not driven by the cost of housing but by the cost of land.
State governments, through their land management and planning authorities, invoked urban containment policies in the form of growth boundaries, zonings and other planning instruments that conspired to slow land supply to a trickle, sending land prices through the roof. In what must have been some kind of world record attempt, the Carr Government in NSW added layer on layer of woe for home buyers in the form of rules, regulations, taxes and development charges that add more than $100,000 to the cost of developing a block of land. It takes more than five years for a new subdivision to be brought on line.
One could be forgiven for thinking that these outrageous charges - applied on an up-front basis - were all part of an elaborate plan to drive young families and low and middle-income earners out of Sydney. Whatever their intention, that is the effect and the RBA governor simply affirmed the reality of the situation.
Numerous state and local planning authorities are making a robust contribution to this planning plague, as it is known. Take, for example, the following excerpt from a letter to a builder in respect of a dwelling application: "Please provide a letter from the owners of the new dwelling stating that they understand that no heating or cooling devices are allowed to be installed in the dwelling for the life of the dwelling."
And this: "The internal planning and orientation of the dwelling do not suit a desirable sustainability outcome ... there is insufficient room in the open courtyard for a [barbecue] or swimming pool ... the letterbox materials are to complement the dwelling ... downpipes are to match the external colour of the house" - and on and on it goes.
As is so often the case, these planning extravaganzas lead to serious unintended consequences. Take the reactive attempt to save mature trees by legislating against their removal if they have a trunk circumference greater than a certain size. Today, the tree lopping business is booming as home and land owners, fearful of having trees on their property that they will not be able to remove, cut them down before they reach this mandated size. Without doubt, the mature trees of tomorrow are being felled by the regulation of today.
It has often been claimed that stopping urban growth is important because of the high cost of new infrastructure and the effect urban growth has on the environment. International evidence, however, refutes these claims. Building new infrastructure on the fringe is cheaper than upgrading services in the inner suburbs and lowering densities increases biodiversity and lowers air pollution levels.
This rise in land cost has been much more dramatic than most people realise. In the past five years the price of residential land has doubled. In Sydney, where land once represented 30 per cent of the cost of a new house-land package, it is frequently 60 per cent and more. This is a disaster for a family trying to build their first home. By comparison, the cost of constructing a new house has barely moved.
Bear in mind that the scarcity driving land prices is contrived; it is the product of artificial restrictions invoked through planning regulation. A drive through the outer suburbs of our cities will reveal that there is abundant land suitable for housing development. Land shortage is a matter of choice, not of fact.
It would be a tragedy for young Australians if the key legacy of the Carr Government era was a Sydney in which young families and those on low and middle incomes could no longer afford to live. Other states need to beware; they are not far behind.
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