Chris Johnson: Council feeding frenzy over affordable housing
MORE taxes and demands that developers set aside space for ‘affordable’ housing will just make matters worse, writes Chris Johnson.
Opinion
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EVERYONE seems to believe that the best way to make housing more affordable in Sydney is to add a tax to new housing. Everyone that is except the developers of the new housing who will inevitably pass the new taxes onto the purchasers of new homes.
There seems to be a feeding frenzy under way with council after council bidding up the inclusionary zoning tax from 10 per cent to 15 per cent or even up to 30 per cent of new housing to be donated back to the council to provide homes for key workers. We are told it works in America but a quick Google search finds headlines that say just the opposite.
“The problem with inclusionary zoning” comes from the Marron Institute in New York, quickly followed by “Failure of Inclusionary zoning” from New York, and “Failure — mandatory inclusionary zoning” from Seattle and “How inclusionary zoning backfired on Madison” and “Failed affordable housing program in Washington DC”.
The fundamental problem with these no doubt well-meaning programs to help with housing affordability was a misunderstanding about economics. For a business to give away 15 per cent of its goods will only lead to bankruptcy or to a big jump in pricing of the other 85 per cent of the goods.
Imagine if every supermarket was instructed to give away 15 per cent of its groceries to people in need and what the impact would be on the pricing of the rest of their stock.
Of course housing is a bit different as it must take into account the cost of land.
Some theorists in economics believe a 15 per cent levy will simply flow through to reducing the price of land across Sydney and presumably the value of existing homes.
The more likely result will be that land owners will hold out for higher prices in the future.
The state government does not seem to be doing much to quell the feeding frenzy that is forcing new housing to subsidise affordable homes. Housing Minister Anthony Roberts recently said he hoped the 5 or 10 per cent affordable housing levy proposed for the Parramatta precinct could be improved upon.
Admittedly the Greater Sydney Commission has said a 5 to 10 per cent target would apply only to zoning uplift when it was financially viable but the rush by councils and politicians to demonstrate a commitment to housing affordability has simply resulted in higher and higher percentages being championed across all new housing.
I am sure the proponents will feel they are helping out but in reality they are only meddling with the economic system that underpins housing supply to such an extent that new housing will slow down dramatically. A fundamental problem is that the housing industry is the recipient of multiple taxes and levies from councils and various silos in the state government.
A new housing project in Parramatta, for instance, must contribute massively to new infrastructure that the council believes is needed.
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After that, the project must contribute about 10 per cent of its new homes to the council, then the NSW Transport Minister requires $20,000 from each new apartment to help fund the light rail. All up well over $100,000 is added to the cost of each new home.
On top of this the government has announced, ironically as part of its housing affordability package, that it will lift the cap on infrastructure contributions over the next three years.
This will add another $15,000 to each home but after three years the industry expects this to lift to about $50,000 a home.
The rule of thumb used in the industry is that a third of the cost of a new dwelling comes directly from the taxes and levies and the cost of an inefficient planning system.
This is the area the government should be reducing but it seems hell bent on pushing housing prices higher by adding more levies.
The government should appoint a Housing Ombudsman to protect the interests of consumers of new homes from the multiple levies and taxes being added to the construction costs.
Sydney’s homes are already the second most expensive in the world and the main reason for this is that state and local governments love to add multiple costs to every home.
Each levy might sound like a good idea. But when they are all added up they increase housing costs away from the affordable end of the market. The tax stack needs controlling. It is not the answer to housing affordability but the root cause of the problem.
Chris Johnson is CEO of the Urban Taskforce
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