'C' conservative

Alan Kohler is out this morning on Business Spectator with a big swipe at Conservative state governments.  Yes, that is conservative with a capital ‘C’.

He sees at last the destruction the cost of land is wreaking from Port Hedland to Hobart.

The high price of land in Australia is one of the reasons businesses like Holden and Qantas are uncompetitive and the combination of several recent developments is making the situation much worse.

Australian house prices are already among the highest in the world, both in absolute terms and relative to income, and are now starting to rise rapidly again, especially in Sydney.

Yet new developments in planning laws by Conservative state governments in NSW and Victoria are drastically restricting supply, and at the same time demand is escalating because apartments have become a financial commodity being sold by investment spruikers and the business is rapidly becoming globalised, with powerful demand coming from China especially.

It is a combination of factors that will tend to make Australia even less competitive as housing costs rise and put upward pressure on wages, and put huge intergenerational pressures on families as first home buyers are priced out of the market.

Anyone reading just the mainstream media would have no idea these problems exist. Kohler has taken public the arguments Prosper Australia, Macrobusiness and others have shouted themselves hoarse over.

He now sees the land traps Conservatives are inserting into zoning, and dislikes their new planning regulations nearly as much as we do. 

Meanwhile, in Melbourne the state government has given local councils the right to impose restrictive new planning zones that prevent high density housing in the suburbs, and therefore contain the apartments to diminishing areas close to the city.

The Victorian government has introduced what it calls “Plan Melbourne”, which proposes 393,000 new dwellings in established suburbs, as well as 200,000 in an “expanded central city” to make housing more affordable, but the plan is now being subverted by the freedom the government has granted to councils at the same time.

Specifically, councils have been given the right to impose what’s called a “Neighbourhood Residential Zone” on most of their suburbs, and they’re doing it. NRZ limits development to a maximum of two dwellings per lot plus a range of strict design constraints – effectively banning suburban blocks of flats like the ones that were built in their thousands during the housing boom of the 1960s and are still dotted around the suburbs.

Glen Eira has already applied NRZ to 78 per cent of its land and others like Boroondara, Yarra, Brimbank and Whitehorse are looking to apply it to up to 80 per cent.

These municipal vices need to be stopped dead.  If we paralyse development in inner-middle suburbs, the only options for buyers become inner apartments or greenfields housing now up to 100 km from the CBD.

Kohler’s entry into this debate is warmly welcomed.  He outlines the problem well.  The challenge becomes, what is to be done about it?

Three things:

  1. Zone more land for residential development.  Zone so much, so far ahead, that private developers cannot hold builders and buyers to ransom, and instead must compete for the right to provide.  Keep the green wedges introduced by far-sighted Liberal Premier Dick Hamer and describe broad corridors for the extra 2.5 million people expected by 2050.
  2. End the popular narrative that fortunes are to be made in land speculation without risk or effort.  Millions of Australians are trying their hand at landlordism.  They are doing it without the deep financial reserves this strategy needs and at the very time Australian land prices are so high it takes my breath away. They cannot all succeed.
  3. Reform the tax system.  We call it the Henry Review, but the document Australia’s Future Tax System is the work and thinking of the entire Commonwealth Treasury.  So scrap 125 very bad taxes that distort behavior and impose staggering private costs, and migrate to immovable bases – notably Land Value Tax and Resource Taxes.

Here, Mr Kohler, is an agenda worth pursuing.  These changes would lay the foundations for a Golden Age, not the tin-plate economy we now endure.