The apartment tweak that could have saved renters $1800 a year

Sydney’s renters would have saved $1800 a year if the average apartment complex built between 2017 and 2022 was just three storeys taller, while prices could fall by up to 40 per cent if enough stock was introduced into the market, a NSW Productivity Commission report has found.

Instead, the city’s rental prices have led to a mass exodus of people aged 30 to 40, with Productivity Commissioner Peter Achterstraat concluding: “If we don’t act we could become a city with no grandchildren.”

A NSW Productivity Commission report backs the Minns government’s housing reforms.Credit:

The third report on housing from the NSW Productivity Commission, titled “What we gain by building more homes in the right places”, concluded greater density in areas closer to Sydney’s CBD had both financial and equity imperatives, saying the biggest gains would flow to low- and middle-income earners.

The report supports housing reforms outlined by Premier Chris Minns last December, as he faces concerted pushback from some Sydney councils over his density plans, with one claiming turning dual occupancy on properties would turn “western Sydney into Kolkata” and end backyard cricket.

Productivity Commission analysis found increasing the average apartment size from seven storeys to 10 from 2017 to 2022 would have contributed an additional 45,000 units, representing a 2 per cent increase in the city’s private dwelling stock, lowering apartment prices and rents by 5.5 per cent.

“In dollar terms, this is a saving of about $35 a week in rent on the median apartment – or $1800 a year. For a median income earner, this is equivalent to a 2.75 per cent increase in their real purchasing power, similar to a typical year’s wage rise,” the report stated.

“Housing costs could be reduced further still with higher densities and even more supply ... In principle, this could be as much as 40 per cent for Sydney apartments.”

In addition to the economic benefits, the Productivity Commission argued greater density would increase the ability for a higher proportion of children to attend quality schools. On average, families were paying a 2.7 to 3.3 per cent premium to live within the catchment of a school with strong credentials, or about $50,000 extra on a $1.5 million home.

Cheaper rents would help stall the exodus of young Sydneysiders who were moving to other states and regional NSW to find housing. Approximately bout two-thirds of departures are from people aged 25 to 64, with 30- to 40-year-olds the largest-contributing cohort to outflows between 2016 and 2021, the report found.

“Why do we see this out-migration from Sydney and NSW? A simple explanation is that Sydney’s high housing costs erode much of the benefit of its higher wages,” the report stated.

In 2021 almost twice as many upper-income households lived within five kilometres of the CBD compared with the lowest-income households, the report said.

The lowest-income households in 2019-20 spent a third of their income, on average, on housing — triple the share of the wealthiest households. In Sydney, the typical household living in a private rental spends almost a quarter of its annual income on housing, compared with only a fifth in Melbourne.

Sydney’s anaemic rate of home building in the early 2000s plunged to lower levels than during the Great Depression and World War II, the report found. The experience of Auckland, New Zealand’s largest city, since 2016 provides an example of how opening up more of the city for low- and mid-rise medium-density housing could reduce rental prices.

Overall, academic evidence suggested prices for a three-bedroom Auckland dwelling could be rented for 22 to 35 per cent less than without the changes.

The proliferation of Heritage Conservation Areas (HCAs) across swathes of Sydney had “greatly reduced” the availability of land for new housing in Sydney’s most desirable areas, putting upward pressure on prices and rents across the city while simultaneously suppressing land values for owners.

“Preserving the city’s heritage should not prevent our cities from meeting the needs of their
current and future residents,” the report said.

“We need a balanced approach that protects what is important while allowing more people to live near and enjoy the city’s heritage and valued locations. Density can achieve both goals.”

With criticism of the government’s lack of community consultation, the report called for consideration of how to reduce reliance on current, “opt-in” approaches to community engagement, such as community meetings or online submissions, and “recognise its substantial flaws”.

The sampling methods “disproportionately attract those with strong political views and/or the time to engage in such processes. These mechanisms are therefore liable to produce skewed and misleading pictures of community views,” the report found.

“There are genuine issues to be worked through as to how far community engagement should go.”

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