Housing plans count for nothing without honesty on migration

The sprawling new housing estates of Oran Park in Sydney. Picture: Getty Images

Here’s the vision: everyone living in high-rise apartments close to railway stations in the middle suburbs. Windows, sunlight, ventilation and carparking all optional. Current minimum size requirements to be scaled back.

In a nutshell, this is the solution proposed by the NSW Productivity and Equality Commission to the current housing supply challenges in that state. There is no mention of the need to restrict demand for housing by curtailing the migrant intake.

There is also no mention of the multiple problems associated with apartment living or the fact that most people prefer detached housing.

It’s worth pointing out here that the NSW Productivity and Equality Commission – it used to be just the Productivity Commission until the Labor state government added the woke bit – is not an independent statutory authority like the federal Productivity Commission.

It doesn’t have any staff apart from one commissioner. When something is being investigated, the staff of the NSW Treasury are conscripted into service. Use is also made of outside consultants. Its latest offering is the “Review of housing supply challenges and policy options for New South Wales”. The final report was released in August.

There’s plenty of material in the report that we already know. In particular, the cost of a new apartment in a typical mid-rise block in Sydney has risen by close to 40 per cent between 2018 and 2023, to more than $900,000.

Given that this price point puts these apartments out of reach of many potential purchasers, the market has reached a stalemate. It is so expensive to build apartments that enough pre-sales can’t be achieved to enable construction to go ahead. Even with appropriate zoning and development approvals in place, the fact is that the costs are too high to produce apartments that people can afford to buy.

Now the report wrongly calls this market failure. It’s not market failure; it’s the market. The fact that excessive government spending on infrastructure has dragged workers and materials away from housing construction is clearly part of the explanation.

But, again, this is not market failure; it’s an obvious consequence of bad government policy and the failure to prioritise and appropriately sequence infrastructure projects.

Now one of the policy proposals supported in the report, admittedly with some qualifications, is for the state government to pre-purchase a whole lot of planned apartments so the developers can secure finance, and the projects can go ahead. Indeed, there is a pilot along these lines that has just been launched.

Just think about that idea for a minute. How will the developments be chosen? What happens if the projects are not completed within a reasonable time frame and at an acceptable standard? Does the state government then sell those apartments, or are they kept as rentals? Which lucky tenants get to rent them? Is it really a good idea for a state government to become an investor in the private property sector?

The NSW government’s obsession – one that is shared by the Victorian government – with greater housing density almost completely overlooks the problems associated with the construction of high-rise apartment blocks as well as the ongoing problems for those living in them. There are also some serious question marks over the ultimate political popularity of a Soviet approach to town planning.

For example, we know of the monumental construction failures in NSW, including the Mascot and Opal buildings. But they are really the tip of the iceberg as current owners and tenants deal with serious building defects and the challenge of rectification, including the potentially crippling costs.

Federal Housing Minister Clare O’Neil addressing the media, watched by Queensland Deputy Premier Cameron Dick, Prime Minister Anthony Albanese and Queensland Housing Minister Meaghan Scanlon. Picture: Steve Pohlner

It is hopelessly optimistic to think these problems have gone away, notwithstanding some regulatory response on the part of the state government. As the report notes, workers have been enticed to work on large-scale infrastructure projects, thereby potentially reducing the average quality of the workers in housing construction. The report also notes the tiny trickle of skilled construction migrant workers to have entered the country.

There is also the vexed issue of the management of the body corporates of these apartment blocks. Indeed, an ABC Four Corners program devoted a whole episode to this topic, recounting harrowing tales of residents being ripped off and inadequate service being provided.

One of the problems is that the developer of an apartment block will often hold many of the units when the body corporate manager is appointed, often for an excessively long period. There is clearly scope for kickbacks, but these are difficult to verify. The regulation of these arrangements is grossly inadequate.

Developers will also often sell the building management rights well before construction has been completed. These managers can direct work to related parties as well as fudge the nature, magnitude and cost of any work required. Residents can face rapidly rising body corporate fees well beyond those anticipated at the time of purchase.

It is a statement of faith by many town planners, and more recently state governments, that undesirable “urban sprawl” involving new estates of detached housing must be discouraged. We are told, incorrectly, that the cost of providing infrastructure to these new areas is prohibitive – an assertion made in the report.

In fact, previous work by the real Productivity Commission shows the unit costs of infrastructure for new housing are much less than those of upgrading infrastructure in occupied suburbs. It can’t be assumed there are swathes of under-utilised infrastructure – think here schools, shops, medical facilities, water and sewerage, local roads – in these middle suburbs.

There is also an unfounded assumption that rail connection to the CBD is essential because that’s where all the jobs will be. There is a distinct possibility that other employment hubs will become important over time, a trend that is already apparent.

But the bottom line is this: the core reason there is a housing supply challenge in NSW and elsewhere is that demand has been allowed to grow far too rapidly through the massive increases to net migration since the end of the pandemic.

Paradoxically, state governments have not objected to the rapid increases in their populations. It is just not possible for a market to adjust to this sort of surge in demand – there have been close to one million net migrants in the past two financial years – and expect supply to adjust rapidly. That’s not market failure, it’s how markets work.

Until the federal government really acts to reduce net migration – it has failed to meet any of its targets thus far – there is no chance the housing situation will improve soon. Paradoxically, state governments have supported high rates of migration.

We are simply not making the required progress on the supply of new housing, with the latest figures pointing to a shortfall of at least 20,000 dwelling commencements in the June quarter. The idea that there will be 1.2 million new dwellings in the next five years is completely fanciful.

But just in case you are worried about living in an apartment with no sunlight, the NSW Productivity and Equality Commission tells us there could be a lower incidence of melanoma – I kid you not.