housing regulations
Philip Lowe’s comment echoes that of recent calls to cut red tape in the planning regulations sector that restricts housing supply. Image: Canva.
  • RBA Governor calls for planning regulations to be sufficiently flexible to allow housing supply to respond to high demand
  • This comment echoes recent calls by others to relax Australia's planning regulations
  • High demand for housing outpacing supply means prices have continued to rise

In his latest speech at the Australian Farm Institute Conference, Philip Lowe, the Governor of the Reserve Bank of Australia (RBA), cited strict planning regulations as a challenge to increasing the supply of housing.

Dr Lowe has acknowledged the remarkable rise in house prices, which has been a nationwide development these past few months. There has been strong demand in particular for properties in regional Australia due to people moving out of capital cities and fewer leaving regional areas.

House Prices (March 2020 = 100, seasonally adjusted)

Capital cities index captures the 8 capital cities; the regional index captures the rest of Australia. Source: CoreLogic, RBA

The effects are evident in house prices and rents, which have risen in many regional centres.

Advertised Rents (March 2020 = 100, seasonally adjusted)

rba rents
Source: CoreLogic; RBA

Although the rise in house prices is encouraging more housing construction, Dr Lowe said the following:

“The challenge here is to make sure that planning processes are sufficiently flexible to allow the supply side of the market to respond to the extra demand; regional centres should be better placed on this front than capital cities, although this is not always the case.”

This is not a new call to action. Dr Lowe is just the latest public policy official to argue that stricter planning regulations restrict the supply of housing such that it cannot keep up with the ever-increasing demand of it.

A recent report from the Organisation for Economic Co-operation and Development (OECD) cited Australia’s planning approvals and zoning restrictions play a key role in limiting housing supply.

The OECD’s director for economic policy development, Luiz de Mello, issued similar sentiments to that of Dr Lowe:

“Greater flexibility in land use regulations and zoning such as height caps in cities, and the speed of administrative processes for construction, would make supply more responsive to the increase in demand.”

Furthermore, NAB’s chief Ross McEwan urged state governments to speed up the development of land for residential construction to increase supply and cool house prices. The Productivity Commission’s chairman, Michael Brennan, echoed McEwan’s call to action.

In addition to urging the relaxation of planning regulations, housing economist Saul Eslake has criticised the Federal Government for pursuing policies that inflate the demand for housing without also stepping up to expand its supply.

“Media coverage is rightly sounding alarm at recently booming house prices that are locking more young people out of the market. But this is far from a short term or cyclical issue.

“It’s a structural problem that’s been building for decades. And it’s one that won’t be solved by policy initiatives that just tinker round the edges.

“It’s been more than amply demonstrated that what governments need to do is step back from policies which serve mainly, or only, to inflate the demand for housing, and step up to pursue policies which expand the supply of it.”

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