Prosper Australia recently submitted to the 2021 Federal Inquiry into housing affordability and supply.
In response to repeated calls for supply-side policy interventions, especially planning deregulation and buyer subsidies, Prosper has been trying to ‘get under the hood’ of the supply/demand dynamics in the Australian Housing markets for at least a decade.
Our key conclusions are:
- Density and land supply are not the key factors that influence the amount of potential development for an area (aka the “build out rate”)
- Build-out rates are determined by economic factors that maximise returns on developer assets. Developments are not constructed nor priced on a cost + margin approach.
- There is a financial return to varying build-out rates to maximise the profitability of development over time. For the developer this is rational, but comes at the expense of higher house prices for homebuyers. In one large estate we investigated this amounted to a premium of $137 million off 2,131 dwellings over 6 years.
- Property taxes and regulations generally do not have detrimental impacts on housing supply or affordability, although it depends on the market context. States should be supported to broaden the base of land taxes.
- Land supply does not appear to be a significant factor constraining completions, which have more than matched population growth.
- ABS’ work on ‘dwelling capacity’ indicator is in the right direction.
- Escalating prices and affordability issues stem more from housing as an asset market than supply shortages and increased housing consumption costs.
- Affordability at the lower end of the market is compromised by the private sector favouring upmarket dwellings, increasing income inequality, and lack of income contingent affordable/social housing stock.
- Housing supply is undermined by poor utilisation of the stock for speculative vacancies and short term rentals, which artificially reduces available dwelling supply.
Along with other think tanks, we have looked at the relationship between housing affordability and housing supply. Our contribution has focused on better understanding vacancy rates as a measure of housing capacity, and the rate of dwelling supply in greenfield precincts zoned for urban growth. We have also investigated land value uplifts due to rezonings, and non-market housing options.
Our research has exposed common misconceptions about the relationship between zoned land supply, taxation, and the rate of housing build-out. Regrettably, the public discourse has often, incorrectly, attributed ‘housing unaffordability’ to environmental regulation, built-form controls, and property taxation. The litany has been that planning systems need to get ‘out of the way’ and that governments need to stop adding taxes to the sticker price of housing.
These ill-conceived messages have continued, in part, due to the absence of easily parsed metrics for the volume of additional dwellings allowed by planning but not yet built (zoned capacity). But also because it has been expedient to scapegoat planning systems and state taxes rather than deal with the distributional issue at the heart of Australia’s housing affordability problem: one man’s unaffordable rental is another woman’s capital gains-attracting, wealth-producing asset. This inquiry will not find the solution to expensive housing within the remit of overzealous State planning authorities.