New research finds building more fringe homes will help fix housing affordability crisis

Both the state and NSW governments are against boosting housing on the city fringes, but new research has found this may be one part of what’s needed to make housing more affordable.

Opening up more property on capital city fringes must be part of a short-term solution to the housing crisis being fuelled by a recent migration boom, a new study says.

Increasing outer suburban growth, resisted by Victorian and NSW governments, is required because a push to turbocharge affordable housing in established suburbs is not working.

Researchers say that as well as looking at growth areas in the short-term, there must be a shift in monetary and migration policies, new transport links, and an embrace of construction methods such as for prefabricated houses, to tackle rental and first-home buyer woes.

The research, by Australian Population Research Institute demographers David McCloskey and Bob Birrell, uses census data, housing approvals and construction market analysis to show that the aim of making middle suburbs more dense will not solve looming problems.

Making middle suburbs “more dense” won’t solve looking housing supply problems, according to new research. Picture: David Crosling

It says developers are making profits in high-end builds rather than affordable suburban high rises, largely due to sky high land prices and baby boomers resisting downsizing.

It also breaks down migration trends to show how big waves of new arrivals – such as almost 1 million net overseas arrivals in 2022 and 2023 combined – fill up rental capacity before shifting to the first home buying market in 5-10 years.

“The only feasible solution in the near term is to open up fringe housing development

in Sydney and Melbourne,” say the authors.

“This option is currently gummed by State Government commitments to slow fringe

growth, in the mistaken hope that densifying policies will work.”

In Melbourne, the State Government has aimed to create 70 per cent of new housing each year in established areas, but current approvals average about 50 per cent.

Part of the Allan Government’s strategy to correct this has been to mandate housing targets in local government areas and to build a $35 billion Suburban Rail Loop it hopes would usher in denser accommodation in middle suburbs.

But the APRI research says current settings mean developers cannot make a profit from providing affordable rental accommodation in the “missing middle” or from high-rise inner-city apartment projects.

“In the case of the ‘missing middle’, developers can’t build such units or townhouses because of escalating site costs, mainly due to the high price of the land on which they have to be built,” it says.

The research found other possible fixes to the housing crisis include changes to monetary policy, new transport links and innovation in construction. Picture: David Crosling

Site costs are escalating due to competition for detached housing not just from aspiring homeowners but from investors and “financially strong upgraders” seeking tax-free capital gains from high-end house price rises, and the “lagged demand for the purchase of detached housing from earlier arrived migrants”.

As properties have become harder to buy, the share of households in Melbourne headed by a 30-39 year-old who rent has grown from 38 to 43 per cent between 2011 and 2021.

For those aged between 40 and 49 years old, the share has risen from 25 to 30 per cent.

In Sydney, where house prices are higher, the proportion of renters in middle-age brackets is also higher.

“The situation has worsened since 2021 as housing prices have continued to rise,” the report says.

“This is in a context where just over half of all the detached housing stock in Sydney and Melbourne is held by baby boomers, few of whom are downsizing.”

The research says strategies to fix the housing crisis include opening the fringe to new housing, changes to industry and migration policy, changes to monetary policy, new transport links, and innovation in construction such as prefabricated housing.

“All these factors have a role to play in restoring our housing system to equilibrium,” it says.

Originally published as New research finds building more fringe homes will help fix housing affordability crisis