Planning alone will not fix Sydney’s housing affordability crisis

While dinner parties and barbecues have been temporarily replaced by Zoom calls and virtual drinks, the big topics of conversation remain unchanged.

It’s fair to say that talk of the pandemic is tiring most by now. But what is clear is that property prices are still a perennial hot topic for Sydneysiders, no matter what the social get-together is.

Sydney house prices have accelerated during the pandemic.Credit: AFR

Surprisingly, the pandemic and ensuing lockdown has done little to diminish Sydney’s insatiable appetite for property, whether it’s people buying their first home, those downsizing or investors taking advantage of record low interest rates.

Indeed, Sydney’s property market has enjoyed a not-so-steady rise for more than 30 years. This is good news if you’re already on the home ownership ladder. But for people in NSW living on average, and even above-average incomes, saving for a deposit or outbidding investors grows more and more difficult.

Sir Robert Menzies identified home ownership – the home material – as the bedrock for one’s own contribution to family and society – the home human and the home spiritual – giving individuals “a stake in the country”. If this is so, we should be very concerned about those aspiring young people denied the first step towards a stake in Australia.

This isn’t a new phenomenon. Home ownership rates grew quickly from 50 per cent of households in 1947 to around 70 per cent by 1961. This wasn’t a result of young people cutting back on avocado toast. The Commonwealth, led by Sir Robert Menzies, made home ownership a national policy objective.

Robert Menzies identified home ownership – the home material – as the bedrock for one’s own contribution to family and society.Credit: R. L. Stewart

A series of measures were introduced including prudential controls, concessional loans, and direct financing by the Commonwealth. These measures, together with state and local governments providing a steady supply of serviced land, help young families get a leg up into home ownership.

Fast-forward to today and the story is very different. Since the 1980s, home ownership rates have steadily fallen but for 25 to 34-year-olds, it has collapsed from 60 per cent to 45 per cent in 2016. This trend outlasts the boom and bust of housing construction cycles. It’s a structural change that arises from conscious policy decisions across Australia.

Planning and housing supply certainly play a part. The NSW Government has delivered a step change on this. Housing approvals have averaged 58,084 since the 2011-12 financial years, compared to 38,358 in the 10 years prior.

Federal politicians, developers, economists and large sections of the media are quick to blame all our housing affordability woes on slow supply, slow state planning systems and stringent controls.

But the idea that the planning system alone can solve housing affordability is ludicrous at best; wilfully negligent at worst.

The housing asset boom has been a global phenomenon during the pandemic. Australia places 11th in The Economist’s 28-country House Price Index of housing price rises over the 12 months to March 2021, at about 7 per cent, below New Zealand (at over 25 per cent), Canada, the United States, Britain, and Germany.

Even American sunbelt cities, vaunted for their simplified and liberalised planning system, have seen sharp rises, such as 20 per cent in Houston and 27 per cent in Atlanta in the 12 months to May 2021.

Planning can make important changes to the housing stock in the long term, but it cannot explain the huge price jumps we have seen. It simply makes no sense that at a time of historically low population growth and great economic uncertainty, the cause of escalating prices is insufficient supply.

Low interest rates and high disposable incomes have both fired housing booms in the past, and both are true of the current conditions driving prices high now.

The Federal Parliament’s inquiry into housing affordability and supply may well find some new insights, and I hope it does. But I’m sceptical it will find solutions not already found in the Henry Tax Review of 2010, the Productivity Commission’s inquiry of 2004, or the Prime Minister’s Home Ownership Taskforce of 2003, among other much-vaunted inquiries. All of these included recommendations – never taken up by the government of the day – which recognised the Commonwealth policy settings could have a substantial effect on affordable home ownership.

Ideas like shared equity, which could help families overcome that first huge hurdle to ownership without inflating prices, may be the sorts of tools we need to restore the home ownership dream. We need to be open to new ideas.

What we cannot do is compromise our standards in response to the specious reasoning that house prices are so high because of the NSW planning system. In the long run, planning matters for the nature of our cities and communities – whether it be in sustainable design, diverse housing, or great public spaces. We must only accept the type of housing our city deserves. Minimum standards do not result in minimum prices.

Home ownership gave rise to the conditions that made the Liberal Party the natural party of government in Australia. Undermining this objective could put this assumption at risk, and it’s on all of us in government who share Menzies’ vision to restore home ownership as an attainable dream for all.

Rob Stokes is the NSW Minister for Planning and Public Spaces.