In NZ the government has long proclaimed a determination to reduce house prices by deregulating land availability, the clear number one reason why prices are excessive. NZ outcomes have been disappointing and the government has replaced the responsible minister. Such an admirable example of ensuring ministerial accountability should be followed in Australia.
The problem there as here is that the regulatory measures have grown so thick and interlinked over the decades that politicians don’t know how to cut through them. Moreover, their advisers inside the bureaucracy and sometimes even their staff, are seasoned participants in the existing system. Much the same is true of the building and land development industry – many of the more successful operators have stocks of land bought at inflated prices and might incur losses if land was freed up for housing development; incumbents have also learned how to work around and profit from a system which would involve new entrants in some considerable initial familiarisation costs while they navigate the hundreds of different approval steps that are required.
I have the following article in the Herald Sun this morning
The ninth annual Demographia survey of house prices across the world was published this week. It again shows Australian house prices, adjusted for income levels, are well above those in the UK, US, Canada, and Ireland. Out of the 81 large cities in the survey, Melbourne’s prices were the fifth highest. The typical Melbourne house costs seven and a half years average household income, more than twice the household income required in Chicago, Houston, Ottawa and Atlanta.
If you have owned your home in Melbourne for the past 10 years ask yourself, “Could I afford to buy it today?” In spite of low interest rates, chances are you couldn’t.
That’s because over the ten years the average house price increased by 92 per cent while average earnings increased only 68 per cent. The reduced affordability is due to skyrocketing land prices – prices for the “bricks and mortar” component increased by only 28 per cent.
New Zealand also has high house prices. Commenting on the survey, New Zealand’s Deputy Prime Minister, Bill English placed the blame on “regulation that locks up land for development” making it artificially scarce. He said the NZ government is addressing misguided environmentalism which he blamed for the cumbersome and restrictive planning controls that cause the excessive prices.
The Victorian Minister responsible for planning, Matthew Guy, has tried to increase building land availability. But so far, he has had little success. Prices have remained high and new starts have remained depressed.
Politicians favouring deregulatory measures that allow land development are thwarted by several factors.
Among these are concerns by existing home owners that increased land supply may dampen property values. Recent home buyers in the outer suburbs may be especially fearful of seeing negative equity in their home values.
Adding to such fears are noisy environmental lobby groups seeking to prevent “urban sprawl”. Even though only half a per cent of Victoria’s land area is urbanized, these slogans are attractive to many in the media and to politicians, found in all major parties, who oppose development.
In addition, the accumulated regulatory barriers are formidable. Thus, in Victoria, even proposals inside the Urban Growth Boundary face an array of further regulatory hurdles to clearing land and building houses. Plans need to be prepared and approved by multiple government agencies. Surveys must ensure there are no rare species or “threatened ecological communities” on the land and woe betide a prospect should there be any “remnant native vegetation” or traces of aboriginal settlement present.
According to the Victorian government’s Growth Areas Authority, 540 different regulatory ticks are required between an area being designated as open to urban development and the completion of a house on it. This means years of uncertainty and costly too-ing and fro-ing all adding to the cost.
Regulation once in place attracts vested interests making it difficult to remove, even though it imposes colossal costs to consumers and businesses. In Victoria, the government has recently established a Red Tape Commissioner to tackle over-regulation generally. Planning regulations are only one target area, but for people being denied housing by regulatory inflated land prices relief cannot come too soon.
PS The NZ Prime Minister in his State of teh Nation Address has just raised the stakes
“We want to work co-operatively with local councils and I believe our goals in the end are the same,” said Key. “In particular we are keenly awaiting the Auckland Council’s spacial plan, and I’m expecting it to include multiple options for both greenfields and brownfields residential property developments.
“But if councils aren’t able to change their planning processes, then the government would have to get a lot more proactive, because we are very serious about resolving this issue.”