THE CHALLENGES THAT HOUSING AFFORDABILITY POSE IN AUSTRALIA ARE COMMON IN MANY COUNTRIES AROUND THE WORLD. IN FACT, WE CAN LEARN MUCH FROM THE PERSPECTIVE OF OTHER NATIONS ON THIS INCREASINGLY IMPORTANT ISSUE.
In a recent address to the Victoria University Business and Investment Club, the New Zealand Deputy Prime Minister Bill English echoed many of the concerns being voiced in Australia on housing affordability. Mr English identified the Auckland housing market as the single biggest imbalance in its macro-economic system because of the big lag time between increased demand and subsequent increase to housing supply. He says it can take about eight years for the housing market to respond to a shock to demand because a slow planning-approvals process. In fact, planning delays often exceed the length of the house price cycle.
Delays in the planning process tend to drive prices higher in the upswing of the housing cycle and by the time excess supply comes to market, the demand is no longer there and this can lead to a market crash.
Mr English cited studies in the US undertaken after the GFC that found more intense regulation of urban development was associated with higher house-price volatility. He went on to say that 25 years ago, about 30 per cent of new homes on to the marker were priced in the lowest quartile, while another 30 per cent were priced in the upper quartile.
Today, only 5 per cent of new homes are priced in the lowest quartile and nearly 60 per cent in the upper. Therefore, it isn’t surprising to see prices and rents rising disproportionately at the bottom end. Developers who were canvassed on the issue said that in Auckland they needed to build a house worth $600,000 to make a development commercially viable. They say it is difficult to build cheap housing on expensive land because of the planning rules that reduce opportunities to build affordable homes.
Included in these rules are urban limits, minimum lot size and maximum site coverage. Recent studies also reflect that rules setting minimum floor space and balcony requirements in apartments can add $50,000 to $100,000 to the cost, in addition to further costs associated with rules setting minimum ceiling heights. A study examining minimum carpark requirements in Auckland also showed that costs exceeded benefits by a factor of at least six. Developing efficient, affordable and liveable cities is a challenge and it is critical we learn from the lessons of other jurisdictions.