- OCED report finds planning approvals and zoning restrictions play a key role in limiting housing supply
- Other recent studies confirm the stifling effect of red tape on housing supply
- There have been mounting calls to action for state governments to slash red tape
Calls to slash red tape in the property market have continued to intensify – with a new report from the Organisation for Economic Co-operation and Development (OECD) saying Australia’s planning approvals and zoning restrictions play a key role in limiting housing supply.
House prices have continued to rise across the nation, driven primarily by historically low interest rates. But according to OECD director of policy studies in the economics department, Luiz de Mello, restrictive regulations in the housing market are also a key reason why supply has failed to keep up with demand – even before the pandemic.
Speaking with the Australian Financial Review (AFR), Mr de Mello said:
“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.”
Recent studies support OECD findings
The findings of the OECD report also reflect the results of studies done by Australian researchers and think tanks.
A widely cited 2018 Reserve Bank of Australia (RBA) study found that restrictive zoning laws have contributed to the rise in apartment prices across the nation, particularly in Sydney. These effects were found to have been exacerbated over the years due to the existing restrictions binding more tightly as demand continues to increase.
A 2019 Centre for International Economics study came to the same conclusion – finding that greater delays caused by red tape were a key driver of Sydney’s rising house prices.
Furthermore, it highlighted that many housing developments could take decades to get off the ground, resulting in cascading costs from red tape and taxes.
Public policy think tank, the Grattan Institute in their latest Housing Affordability Report found that “over much of the last two decades, constraints have limited new supply that would normally respond to higher demand. Planning rules that restrict the construction of more homes in inner and middle-ring suburbs have dragged on development.”
Call to action
As the research continues to expose the stifling effects planning regulations have on housing supply, many have called on state governments to cut red tape and streamline the planning process.
In April, 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.
The Property Council of Australia’s (PCA) Chief Executive, Ken Morrison, also pointed out the loss of construction jobs caused by reduced investment in apartments.
“Apartment construction is a critical component of Australia’s future housing supply and a vital job-creator for our economy.”
“While approval numbers are increasing, they mask a decline in construction activity that will lead us to a severe structural undersupply by 2024.
“Without changes in policy, our apartment building industry will shed 30,000 direct jobs and produce $5.9bn less in housing assets over the next four years.”
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 the supply of it.
“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.”
The WA Government seems to have followed through with the recommendations, commencing the second phase of its planning reforms to “streamline the planning system, slash red tape, and create and provide consistency across local government.” Meanwhile, other state governments have committed to property tax reform. Only time will tell when they will also take up the challenge of major planning reform.