The New South Wales government’s current planning agenda is characterised by random, ad hoc bonuses and giveaways not linked to a broader strategic intent or public interest case – with no understanding of how the housing market works, nor its relationship strategic planning.
Just last week the NSW Treasurer Daniel Mookhey garnered media attention when he made a number of remarks, suggesting that building taller apartment blocks and more of them in the eastern suburbs would improve affordability.
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The NSW government, backed by mainstream media, are painting the housing crisis as almost solely the result a lack of housing supply, which in turn is a result of planning “red tape”.
Premier Chris Minns announced at the Bradfield Oration that “a lack of supply is the reason for the housing affordability disaster in NSW” and that “supply is fundamentally being hampered by excessive delays in processing development applications”. It was also strange to hear him complain about the development industry having to pay for independent overshadowing reports for development approvals.
Mainstream media has swallowed the “supply myth”
It feels like barely a day goes by without another article in the mainstream media about the housing crisis and how a lack of housing supply has been created by a recalcitrant planning system.
Interestingly, these articles often highlight falling housing approvals and falling housing finance ( a drop off in the demand for new housing), but then conclude that the solution is more housing supply ala faster approvals and more rezoned land: “Supply has dropped because people have stopped buying – quick, we need more supply”! This reasoning wouldn’t stack up for any other product or service – why is this myth so persistent when it comes to housing?
Investigative journalism is expensive and time consuming and it’s easier to regurgitate media releases in a 24/7 media cycle.
Unfortunately, by misdiagnosing the planning system as the cause of a lack of supply and unaffordable housing they’ve unwittingly(?) become useful idiots for the development lobby and the ‘trickle-down economics’
Increasingly the YIMBY (yes in my backyard) movement has been gaining traction in the housing policy debate, giving credibility to the idea that overly strict planning controls and approvals are the reason Millennials are locked out of the housing market.
In principle, planners would agree with the key tenets of this movement – urban renewal in highly accessible locations is more sustainable and liveable. And ultimately, planners all strive to achieve a YIMBY outlook.
Unfortunately, by misdiagnosing the planning system as the cause of a lack of supply and unaffordable housing they’ve unwittingly(?) become useful idiots for the development lobby and the trickle-down economics.
Home truths: is there a shortage of housing?
In the past couple of years there has been record high levels of population growth in Greater Sydney created by record net overseas migration, coupled with falling housing supply, albeit from a historic high in 2017.
At the same time, average household sizes have reduced thanks to more people working from home and greater household formation rates, further increasing aggregate demand, particularly on the rental market.
If the government continues to pursue this population growth rate and supply continues to decline – or even if it increases back up to the record levels seen in recent years – there is likely to be insufficient stock built to accommodate population growth.
Imbalances in housing demand and supply occur because population growth doesn’t necessarily equate to new housing supply – for every new household there is not a new house. This is because while population and household growth represents “underlying demand”, new housing relies on “effective demand” or real demand, represented in the purchase of dwellings, for example.
Effective demand for housing is influenced by macroeconomic conditions, interest rates and access to finance.
The housing market is “build to order”, not “build to stock”
Build to order products are linked to a specific sales order, whereas build to stock products are based on sales projections or anticipated customer demand.
Housing is a build to order product and supply drops off (and its markers such as housing finance, approvals, completions) when people stop buying it (effective demand). And people stop buying housing when the macroeconomic conditions are not right.
Supply is determined by the market
In other words, housing supply is determined by the market – it has little to do with council approval rates (which can be slow at times) or the amount of zoned land – evidenced by the fact there are always many more approvals than completions.
When the market is booming, approved projects progress to construction. When the market is declining, applications drop off and approved projects are delayed. Developers don’t want to build into a declining market where prices are falling – and the banks often won’t lend to them or prospective purchasers of their product.
Since 2016 the cumulative gap between approvals and completions in NSW is around 100,000 dwellings. This large buffer stock of approvals makes it clear that housing supply completions is not being hindered by slow approvals or a lack of zoned capacity.
Moreover, the market does not deliver housing as a build to stock product – developers don’t and can’t build and stock housing waiting for demand to come along. It’s also the reason governments and industry have been eager to push build to rent housing as a counter cyclical form of housing supply.
Social and affordable housing construction could also be a great counter-cyclical supply focus and it’s probably the only way to match supply with underlying demand, given the market failure evident in the housing market.
Unfortunately, these home truths on the build to order nature of the housing market aren’t built into the neoclassical models used by NSW Productivity Commission and even the Reserve Bank of Australia when they declare more housing widgets can be built by unlocking or abolishing zoning.
As I argued here, falls in approvals and commencements are a result of a collapse in demand, not an excess of planning red tape.
If industry is lodging fewer applications because of softer market conditions, that’s not councils’ fault Provide as much planning incentives and rent-seeker giveaways as you like, but this won’t resolve the current housing crisis
Councils across Greater Sydney have identified sufficient housing capacity to meet population targets in their local housing strategies.
Councils don’t deliver targets given they don’t build housing, they only determine applications lodged. If industry is lodging fewer applications because of softer market conditions, that’s not councils’ fault. Provide as much planning incentives and rent-seeker giveaways as you like, but this won’t resolve the current housing crisis.
NSW Treasurer: build taller towers and more in Sydney’s eastern suburbs
At NSW Treasury’s Productivity Commission Housing Symposium. it was proclaimed that if the typical apartment block built in the last five years had been 10 storeys instead of seven, then we would have had 45,000 more dwellings and rents would be $35 a week lower (5.5 per cent lower) – not a groundbreaking number when rents fell 10 per cent in the space of 12 months during Covid and then have increased by 66 per cent in the three years since.
Given what we know about the housing market as a build to order product, the obvious retort is that if some new apartment blocks were 10 storeys instead of seven, then the people who bought those extra dwellings wouldn’t have bought apartments in other projects to get them pre-sold and out of the ground.
In other words, industry would only build those extra 45,000 dwellings if there were people to buy them. Remember those excess of 100,000 approvals from this same period I mentioned above? It seems NSW Treasury has conflated housing capacity (that is zoned stock) with housing supply (annual flow of dwellings built), which I’ve discussed at length here.
Are Sydney’s eastern suburbs pulling their weight?
The Treasurer also pointed out the eastern suburbs (Randwick, Waverley and Woollahra) councils only added about one fifth of the dwelling numbers as Blacktown City Council. Interestingly enough, the eastern suburbs is around one fifth the geographical size of Blacktown local government area.
The eastern suburbs is one of the most dense areas in Greater Sydney. Waverley is the third densest council in Australia, where two thirds of dwellings are apartments. It has a density similar to London and almost twice that of Berlin.
More to the point, the eastern suburbs is one of the areas in Greater Sydney. Waverley is the third densest council in Australia, where two thirds of dwellings are apartments. It has a density similar to London and almost twice that of Berlin.
In this context it makes sense that other areas of Sydney are catching up to the denser eastern parts. The east will accommodate growth and it’s important that it has the best planning tools, infrastructure capacity and collaborative relationships to do so to get the place-based planning right.
Final Act: planning “s-tragedy”
It has been challenging for strategic planners, and public interest advocates alike to deal with the constant stream of ad hoc reforms, typically in the form of development bonuses or giveaways.
In the last week or so the NSW government has continued its messaging, this time with the NSW Planning Minister Paul Scully introducing a bill to axe the Greater Cities Commission under the auspices of bringing housing targets back to the Department of Planning and Environment.
Then there is the plan to allow blanket provision of two-storey apartments in R2 Low Density Zones and six storey apartments in R3 and some employment zones, seemingly without a spatial strategy and no reference to infrastructure provision or affordable housing requirements.
We also have the arbitrary 30 per cent height and floor space ratio bonus developers can access across virtually any apartment project in Greater Sydney – provided they contain 15 per cent affordable housing for 15 years – and now the proposed axing of the GCC, with its potential to undermine the coordinated and strategic plan-led approach to housing delivery in NSW.
Local councils and their planning powers have long been the convenient distraction for state and commonwealth governments who wield the powerful demand-side levers of taxation such as negative gearing and capital gains tax and migration and have neglected to sufficiently fund social and affordable housing.
Even still, it feels like strategic planners are in the final days of Rome, with Premier Nero at the helm.
And while the development industry and Treasury are long critics of urban planning, what’s been particularly worrying is the NSW Department of Planning and Environment’s top bureaucrat Kiersten Fishburn’s approach, who apparently won’t “pussyfoot around with councils” with a threat to pull 20 reform levers all at once.
Given that housing supply is led by the market and macroeconomic conditions – not planning – and housing completions have been falling for years and will likely continue to fall, the government needs to stay their hand off the levers.
Ad hoc incentives can never be a replacement for strategic plan making, where trade offs are balanced and growth is aligned with transport and social infrastructure – and affordable housing requirements – to deliver inclusive renewal and quality, place based outcomes. To continue on this path undermines the integrity of our strategic plan-led planning system, risks diminished liveability and further erodes community trust in the NSW planning.
