While zoning regulations provide benefits, retaining the liveability of suburbs and block sizes, it places a substantial premium on house prices, according to new research from the Reserve Bank of Australia.

The RBA research discussion paper, The Effect of Zoning on House Prices, reported that zoning raised detached house prices 73 per cent above marginal costs in Sydney, 69 per cent in Melbourne, 42 per cent in Brisbane and 54 per cent in Perth.

The analysis showed that the average Sydney house price is inflated by $489,000.

“The myriad of planning restrictions, delays in gaining approval, taxes and charges are at the core of our affordability challenges which have resulted in decades of under-supply of new housing, particularly in metropolitan areas,” HIA principal economist Tim Reardon said.

“Restrictions on the adequate release of land for new dwellings and on the type of dwellings that can be built are at the core of this undersupply of housing.”

After quantifying the additional cost home-owners are paying as a consequence of these planning decisions, the RBA deliberated that these costs range from $159,000 in Brisbane to $206,000 in Perth and $324,000 in Melbourne.

Reardon said the problem of housing affordability comes down to supply and demand.

“More land needs to be freed up, and the punitive taxes like stamp duty that come with buying a home need to be done away with,” he said.

House Decomposition

It is a sentiment that was recently backed up by the Grattan Institute, who said that restrictive zoning was having a negative effect on housing affordability.

The report, Housing Affordability: Re-imagining the Australian Dream, suggested building an extra 50,000 homes a year for a decade would decrease Australian house prices by 5 to 20 per cent.

The RBA provided examples of the zoning effects on land and property values. Large profits have been made on former industrial sites that have been rezoned for residential development in Sydney, the appendix cited the Goodman group’s profits of $400 million to $600 million as an example.

A 6.9-hectare site near Erskinville, purchased for $16 million, was sold for $350 million after rezoning. Two sites in Rosebery, initially valued at $96 million were sold for $190 million.

Consolidating nine houses in St Leonards, valued at up to $18 million, in a site for 200 apartments, raised the land value to $55 million.

When hidden taxes are added in, the tax on new housing was an estimated 44 per cent of the purchase price of a new house in Sydney.

“Increasing the tax burden on housing will exacerbate the affordability challenge by discouraging investment in new housing, force up the cost of renting and make it harder for first home buyers and renters to buy a house,” Reardon said.

Read more: https://theurbandeveloper.com/articles/restrictive-planning-drives-up-australias-housing-prices-