ANALYSIS: The New South Wales Productivity Commission’s report on fixing the housing crisis released this week says that the major barriers to fixing the housing crisis are finance costs. You can see this in the tables and charts they produced. But you have to dig for it, because the biggest, showiest focus of the report is on doing away with quality in apartments, such as sunlight, amenity, and loosening up the planning regime so that projects are fast tracked.
Things that won’t save much money at all in the scheme of a raging market.
More alarming is that the commission proposes that recent building reforms be unwound or halted if they affect costs, and this after all the tough work done by Building Commissioner David Chandler, who recently stepped down.
The commission proposes that the government:
- evaluate the impact of recent building reforms on development feasibility [Ahhh, what does this mean? That building reforms are now subject to profitability or development feasibility?]
- this one is worse – that the government should pause further building reforms that add to construction costs unless they can demonstrate an overriding public interest, such as addressing building defects or risks to public safety. [So, when did they not? Or maybe the commission means that shoddy apartments should be allowed only if they affect the occupants of a building.]
Quality
The quality issue has most concerned the design professions – years of hard slog to improve the quality of apartments about to be ditched or up for grabs, it seems.
It’s hard to see how lower quality of apartments and the removing building reforms can fix the supply and affordability issue. Philip Oldfield, head of School of the Built Environment at the University of New South Wales, says these reforms will unlikely lower costs.
And the chair of the National Housing Supply and Affordability Council, Susan Lloyd Hurwitz, told the National Press Club a week ago that Australia has no chance of building enough housing to meet its needs [which would bring down prices if the demand/supply curve held true].
The big hits to cost are from finance
Look at where the biggest hit to costs has come from in the past few years: finance.
If you look at the table on page 22 of the commission’s report and, reproduced here, you can clearly see what happened. The most astounding jump in the cost of producing mid-rise apartments between 2018 and 2023 was the cost of finance, which shot up a massive 142 per cent or $49,000 for each apartment.
There’s land tax and stamp duty that showed a 61 per cent increase or $4000 and land acquisition at 51 per cent or $50,000.
Construction jumped 29 per cent or $76,000 over the period.
The feasibility gap dropped to -125 per cent or by $102,000.
Then there’s the commission’s weird focus on the costs of labour
Sure, labour capacity has been swallowed by the infrastructure boom that every man, woman and their dogs told the government to jump into when the pandemic looked like sending us back to the Dark Ages.
The commission wants government to let the flood gates open to migrant workers to prop up the construction industry.
But according to Seek the average wages of a carpenter is currently $70,000 to $90,000.
Does the commission propose that these new migrants work for $40,000 or $60,000 a year to plug the developers’ feasibility?
How does the commissioner propose they support any family members on that wage during the cost of living crisis we’re having? Perhaps he proposes they live in tents or dongas like the early migrants did when they built the Snowy Hydro and so on.
We’re sure local labourers and builders would be less than thrilled they could now meet the market and provide abundant and low cost labour – for others.
And yet the biggest emphasis from the commission is in some magical belief that removing quality and regulation can have any sort of significant impact on the overall cost of property when you’re facing such dire numbers.
A fraction, if not a marginal drop in the pricing of apartments might occur if they were really quite dreadful and small.
But in the scheme of things, when the market is roaring, it bids up anything it can get its hands on, so given that’s the case for the next several years, the lack of quality is unlikely to improve the overall affordability results. Will it improve supply? Not according to a litany of analysts who say there are plenty of approvals, but very few housing starts thanks to existential risk and according to the commission’s own numbers on feasibility.
And another thing. Any savings the occupant can actually make on price may well be forked out again on meeting the costs of storage that not provided, parking, or doctors and medical bills to compensate for getting sick or miserable in an airless, sunless apartment.
(Ah, the South Australian model of externalising the cost of completing the house for heating and cooling. )
One big issue that would prove the commission’s point that regulation is to blame is if there had been a surge in regulation over the past few years that could be shown to have pushed prices up. Perhaps these are buried in the table, but they don’t jump out as a major factor.
Perhaps the commission is responding to a rise in energy efficiency required by the building code or other factors such as not building on flood plains or other actual safety issues – the kinds of things the housing lobby always whines about.
Some of the Productivity Commission’s ideas make sense. They really do!
There’s the call for:
- higher density, especially around transport nodes, or TODS (transport oriented developments)
- even expanding the density initially proposed by the state government from 400 metres from a TOD to 800m.
- relief for people experiencing housing stress
- going easy on financial incentives because this tends to boost demand while doing nothing about supply, forcing prices up
[Which brings up another thought: that prices in property will rise quite fast in response to strong demand but are relatively inelastic on the way down. Perhaps because people live in houses and once they have a mortgage, they will cling to it for dear life and absolutely avoid taking a haircut, hanging on until prices rise. Again, there’s that inconvenient human behaviour spoiling the nice demand and supply curve.]
- legislate the concierge and clearinghouse functions in a mechanism similar to Queensland’s State Assessment and Referral Agency to ensure whole-of-government coordination and accountability. [Do we really want to follow Queensland in anything related to planning?]
- develop contribution plans upfront as part of the zoning process [makes sense]
- as a priority, restrict the use of design panels and competitions [Architects will have something to say about this; we’ve heard the competition is a massive drain on time and money]
- prioritise the recruitment and training of certifiers, as well as regulating and enforcing their responsibilities, to improve building quality. [A good move]
- remove regulatory barriers to modern methods of construction, including through the Building Commission NSW’s work
But overall, this is state capture by the subprime development industry that has spotted an opportunity in human suffering from the housing crisis to advance its agenda. Nothing more.