Land costs go beyond the fringe
22 July 2004
Melbourne and Adelaide have been put on notice that they face an
emerging threat to housing affordability.
These cities run the risk of another round of land price
inflation on the urban fringe, where cheap house-land packages
are traditionally found, a report for the Housing Industry
Association said.
"These regional boundary issues are emerging as new sources
of house price pressure," according to the report by Marion
Powell of Applied Economics and Glenn Withers, professor of
public policy at the Australian National University.
Policies against urban sprawl, especially in Sydney, have slowed
land release at the fringe and tried to concentrate more new
housing closer to the city centre.
But residents and councils have resisted this urban
consolidation.
At Sydney's outer edge, vacant lot prices had doubled since
1996, and land accounted for about 60 per cent of the purchase
price of a new house, the HIA said.
Elsewhere, that land price share was 49 per cent in Brisbane, 42
per cent in Perth, 37 per cent in Melbourne and 32 per cent in
Adelaide. But the report - prepared for last month's housing
affordability summit - singled out Melbourne and Adelaide as
facing a fresh risk of land price inflation because of their
ambitious plans for urban consolidation.
By 2030, Melbourne hopes to meet 69 per cent of housing needs
from infill, multi-unit development and 31 per cent from
detached housing, typically built on the urban fringe. The
current mix is 35 per cent multi-unit and 65 per cent detached.
By 2023, Adelaide wants to have a mix of 91 per cent units and 9
per cent detached; the current mix is 24 per cent units and 76
per cent detached.
The HIA report said that in the absence of new policies to
promote the supply of infill land, Melbourne and Adelaide might
run into the affordability problems experienced in Sydney.
In last month's first-home ownership report, the Productivity
Commission said urban consolidation policymakers "may have
overestimated" their ability to increase housing densities and
thereby improve affordability.
There needed to be more rigorous and public scrutiny of the
"trade-offs between greenfield development and urban
consolidation", the commission said.
A NSW Government decision to release new land on Sydney's
southwest and northwest fringes was tacit acknowledgement that
supply had been too constrained, the commission said.
This decision would not ease the undersupply for three to five
years, Simon Tennent, chief economist with the HIA, told The
Australian last week.
Mr Tennent said the Government released about 5000 lots a year
in Sydney yet there was underlying demand for 13,000.
Asked how serious a risk Melbourne and Adelaide ran of repeating
Sydney's mistake, Professor Withers said: "There is always a
risk - given the short political cycle - that rhetoric rather
than serious long-term planning implementation will prevail.
"But I am optimistic that greater professionalism in government
and bureaucracy - combined with lessons available from Sydney -
are cause for more optimism in these other locations."
The productivity commission argued that while tight land supply
had pushed up prices in Sydney, it was not the chief culprit.
This was because land supply decisions had long lead times; new
building typically added only 2 per cent each year to the number
of houses; and most of the price pressure was a result of
established homeowners trading up.
Reproduced from The Australian newspaper, 22 July 2004.
