Urbis Think Tank
Current zoning restrictions are making housing more unaffordable for the average household
Housing affordability has fallen
The most recent release of “Measures of Australia’s Progress” from the ABS shows that on the elements of Society and Economy, life in Australian is better than it was 10 years ago. However, Housing was one element of the Economy where we are not progressing. The ABS commented that “The home ownership aspiration of Australians has widely been referred to as ‘the great Australian dream’. For higher income households, purchase affordability is an issue of choice rather than access. For those with more modest means, affordability is a more significant issue.”
The ABS found that the proportion of homes sold that were affordable to moderate income households declined from 36% in 2003-04 to 27% in 2007-08. They acknowledged a number of factors including the rise in interest rates during this period, and the strong rise in house prices.
Zoning and height restrictions are playing a role in forcing up prices
Another discussion paper released last week by the Reserve Bank analysed the relationship between urban structures and housing prices. One part of the paper focused on the role of zoning restrictions in constraining the supply of housing – with a particular focus on building height. The current system is creating anomalies, and impacting on housing affordability.
The following chart shows that where there are city-wide building height restrictions, the price of land in the middle suburbs is higher than what it would be without any zoning restrictions. It also shows that under our current system where ‘spot rezonings’ are possible, that landowners reap a very high return on achieving such a rezoning.
It also cites evidence from Australia, NZ, UK, US and the OECD that confirms that supply-side constraints such as zoning are playing a role in driving up prices.
Reducing height restrictions would make housing affordable for more households
So, what would happen if the maximum floor-to-area ratio (FAR) was increased by one story? For a population of four million, housing prices would be 13% lower. This would translate directly into more affordable houses and apartments for middle Australia.
According to the most recent report from Residex, the median price of an apartment in Melbourne is $445,000. If this fell by 13% as predicted by the Reserve Bank calculation, this would fall to $387,000. The median house price is $582,000, which would fall to $506,000. Although home owners would be concerned with the short term decline in their asset value, such a policy change would sharply increase the proportion of moderate income households who could afford to buy a property.
For further details refer to:
ABS: Measures of Australia’s Progress, 2010 – Housing chapter
Reserve Bank of Australia: Urban Structure and Housing Prices: Some Evidence from Australian Cities