Red tape limiting the supply of new housing: RBA

Alistair WalshSeptember 12, 20120 min read

Planning inefficiencies and government bureaucracy are limiting the supply of new housing and raising its cost, according to research published by the Reserve Bank of Australia.

The new report finds the length and complexity of the planning process, issues related to the provision and funding of infrastructure, land ownership and geographical constraints, and other challenges are all are limiting the home building sector.

Protracted planning processes are one of the chief constraints to the fast delivery of housing projects, according to the Supply-side Issues in the Housing Sector report, published in the RBA’s September quarter bulletin.

“While there are sound reasons for councils and government agencies to impose stringent tests during the planning phase, the uncertainty and time typically taken to settle planning issues can increase the cost and risk of housing development,” says the RBA.

“In particular, because developers incur holding costs on land (both the cost of financing its acquisition and land tax), the time it takes to get through the planning process increases total development costs.”

The report also finds that a shift by state governments towards user-funding of water, sewerage, transport and energy infrastructure as opposed to state funding is increasing the cost of housing.

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“Infrastructure charges raise the final sale price, reduce developer margins and/or lower the value of the undeveloped land, all of which can make the process of housing development less viable.”

The structure of land ownership is another big issue when it comes to developing greenfield land, with multiple owners of land at the fringe of cities complicating the process, according to the RBA report.

“Liaison contacts note that existing landholders often resist selling for lifestyle reasons and/or because their price expectations exceed the current market valuation.”

The cost of developing infrastructure in Sydney was significantly higher than in other capital cities, the report found.

In 2010 it cost $44,000 per lot to build adequate infrastructure, compared with $26,000 in Brisbane, $21,000 in Perth, $12,000 in Melbourne and $7,000 in Adelaide.

Part of this cost was put down to government charges which added just under 15% to the cost of each lot in Sydney, 10% in Brisbane and Perth and 5% in Melbourne.

This means the profit margins for developers in Sydney are much lower than in other capital cities.

The report says recent policy changes have party alleviated the situation but says “it is likely that these important issues will remain on the policy agenda for some time”.

Alistair Walsh

Deutsche Welle online reporter
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