National Housing Supply Council State of Supply Report

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Contents

• Table of contents
• Foreword
• Executive Summary
• Chapter 1 - Introduction
• Chapter 2 - Demand
• Chapter 3 - Supply
• Chapter 4 - Projections of the demand-supply gap
• Chapter 5 - Affordability
• Chapter 6 - Conclusions
• Appendices
• Glossary and abbreviations
• List of Figures and Tables

Chapter 3 - Supply

• Key points
• Overview
• Existing supply
• Tenure characteristics and changes in social housing stock
• Projections of future supply
  • Estimates based on dwelling completions
  • The land and housing supply pipeline
  • Estimating and monitoring conversion of land supply to housing
  • Influences on supply
• The supply pipeline
  • Planning approval processes
  • Infrastructure provision and charging
  • Taxation and other charges
  • Construction costs
  • Alternative construction and design approaches to reduce housing costs
  • Other government intervention

Key points

• The total national supply of occupied and unoccupied dwellings at June 2008 is estimated at approximately 8.9 million.
• Average annual growth in the number of dwellings between 2001 and 2006 was 127,000 dwellings.
• Based on the trend in growth of aggregate housing supply since 1980, adjusted for losses due to demolition, annual net growth in housing supply is projected to be 130,000 in 2010, increasing to 142,000 in 2028.
• The Council estimates that land is available that could, if fully utilised, add an extra 357,000 dwellings to Australia’s housing stock over the next two years.
• A substantial amount of additional land is also in the land supply pipeline, but there is considerable uncertainty about the dwelling yield and timing of new construction.
• There has been a decline in social housing’s share of the total housing supply.
  If the number of social housing dwellings as a proportion of the total stock had been maintained at the 1996 level, there would have been an additional 90,000 social housing dwellings in 2008.

Overview

This chapter presents estimates and projections of housing and land supply from several sources and examines factors that influence the efficiency of the supply pipelines in producing housing. This information is then used to assess whether the supply side of the market, as it currently operates, is likely to meet the expected future demand for housing.

Two methods have been used in this report to estimate future supply:

• the trend in growth of aggregate housing supply since 1980
• information provided to the Council by State and Territory planning agencies on the land and dwelling supply pipeline in major cities.

For future reports, the Council intends to develop more robust estimates based on:

• improved data on housing markets and supply factors, including input constraints
• macro- and micro-economic modelling of housing demand and supply
• refinements to the supply-side data collected, using the experience gained in preparing this report and working more closely with planning agencies.

Existing supply

Estimates of dwelling stock

As a starting point for the projections of supply outlined below, the stock of private dwellings in Australia was estimated at 8,860,000 in June 2008 (see Table 3.1). Between 1996 and 2006, the stock of private dwellings grew by 17 per cent, or 1,251,322 dwellings (see Appendix 2, Table A4.2).

Table 3.1: Existing supply, 2008

Description of Table 3.1

Characteristics of dwelling stock

Approximately 74 per cent of the housing stock in Australia in 2006 consisted of separate houses (refer Figure 3.1). State and Territory details are shown in Appendix 2, Table A3.5.

Figure 3.1: Total dwellings by dwelling structure, Australia, 2006

Description of Figure 3.1

Source: adapted from Australian Bureau of Statistics, 2006 Census Tables, ‘Dwelling Structure by Occupied/Unoccupied Dwellings’, cat. no. 2068.0, ABS, Canberra, 2007.

Dwelling utilisation and vacant dwellings

Many Australian households occupy dwellings that have spare bedrooms. At the time of the 2006 Census, 85 per cent of single-person households lived in dwellings with two or more bedrooms and more than three-quarters of two-person households (75 per cent) had three or more bedrooms. Nearly one-third of three-person households (32 per cent) had four or more bedrooms. More than a fifth (21 per cent) of three-bedroom dwellings and 7 per cent of dwellings of four or more bedrooms had only one person living in them.²²

The average number of persons per household declined from 3.1 in 1976, to 2.7 in 1996 and 2.6 in 2006.²³ Over the same 30-year period, the proportion of dwellings with four or more bedrooms increased from about 17 per cent to 28 per cent, and the average number of bedrooms per dwelling rose from 2.7 to 3.0.²⁴

The 2006 Census also identified 830,000 vacant dwellings, representing 9.85 per cent of the total dwelling stock. Further discussion of the implications of these vacant dwellings is in Chapter 4.

Tenure characteristics and changes in social housing stock

Table 3.2 shows how the relative tenure shares have changed from 1996 to 2006. While the number of occupied dwellings has risen from 6,496,000 in 1996 to 7,596,000 in 2006, home ownership has remained a fairly constant share of the total, rising by less than 1 percentage point. Private rental share has increased from 20.5 to 21.7 per cent. Social housing declined from 5.8 to 5.1 per cent of the occupied housing stock over this period.

Description of Table 3.2

Table 3.2: Tenure and landlord type of occupied private dwellings, Australia 1996, 2001, 2006

	Number			Per cent
	1996	2001	2006	1996	2001	2006
Fully owned	2,763,586	2,950,600	2,667,941	42.5	41.7	35.1
Being purchased(a)	1,721,866	1,965,164	2,635,586	26.5	27.8	34.7
Subtotal	4,485,452	4,915,765	5,303,527	69.0	69.5	69.8
Renter:
Private (b)	1,330,505	1,454,968	1,649,777	20.5	20.6	21.7
Social housing (c)	377,530	381,608	385,249	5.8	5.4	5.1
Other renters (d)	232,070	213,575	186,884	3.6	3.0	2.5
Other tenure type (e)	70,515	106,287	70,743	1.1	1.5	0.9
Total	6,496,072	7,072,202	7,596,181	100.0	100.0	100.0

The proportion of private rental dwellings affordable to low income households has not kept up with overall growth – in 2006, there was an overall shortage of affordable and available private rental housing suitable for low income households in Australia equal to some 251,000 dwellings (see Table 5.1). The supply of rental dwellings affordable to low to moderate income households declined between 1996 and 2006, despite growth of 20 per cent in the number of private rental properties – see Chapter 5 for further discussion.

The social housing stock has also declined as a proportion of total stock. If social housing’s share of total dwellings in 2008 had been maintained at 1996 levels, the 2008 estimate of social housing dwellings would have been 484,000 – around 90,000 more than the current 2008 estimate (refer Appendix 2, Table A5.2).

Projections of future supply

Estimates based on dwelling completions

The following supply projections of construction activity are based on the trend line for ABS data on completions over the period 1 July 1980 to 31 December 2007, extrapolated to the projection years presented (see Appendix 2, Table A3.1).

As shown in Table 3.3, in 2007–08 there were an estimated 153,000 new dwellings completed. Based on the trend since 1 July 1980, the number of completions per year is expected to be:

• 155,000 dwellings in 2009–10
• 157,000 dwellings in 2012–13
• 161,000 dwellings in 2017–18
• 169,000 dwellings in 2027–28.

The shorter term projections could prove to be optimistic given present economic circumstances, particularly with regard to the relatively low levels of commencements of multi-unit developments, unfavourable investor sentiment, and credit restrictions in the property development sector.

As shown in Table 3.3, taking demolitions into account, there were an estimated 129,000 net additional dwellings completed (new dwellings less demolitions) in 2007–08. The net additions per year are expected to be:

• 130,000 dwellings in 2009–10
• 132,000 dwellings in 2012–13
• 135,000 dwellings in 2017–18
• 142,000 dwellings in 2027–28.

It is possible that the demolition rate could increase more than this, i.e. by more than in proportion to completions, perhaps in line with the ageing of Australia’s housing stock and as infill development accounts for a larger share of housing growth. The Council will consider this for future reports. In the meantime, demolitions are projected to increase in line with completions.

The cumulative impact of this projected building activity on the total supply from 1 July 2008 is estimated to be:

• over the next two years, 308,000 new dwellings (covering the financial years 2008–09 and 2009–10), or 259,000 net of demolitions
• over the next five years, 777,000 new dwellings (by 30 June 2013), or 654,000 net of demolitions
• over the next 10 years, 1,574,000 new dwellings (by 30 June 2018), or 1,324,000 net of demolitions
• over the next 20 years, 3,229,000 new dwellings (by 30 June 2028), or 2,716,000 net of demolitions (Table 3.3).

While the average net increase in dwellings from 1 July 1980 to 31 December 2007 was 136,000 per year, this supply varied from between 105,000 and 162,000 over any one-year period from 1980 to 2007. Adjusted for demolitions, these rates would result in:

• a minimum of 2,091,000 net additional dwellings by 2028 under the low supply scenario (with a trend rate based on the lowest number of net additions in any one year for Australia as a whole between 1980 and 2007)
• a maximum of 3,246,000 net additional dwellings under the high supply scenario (where the trend rate is based on the highest number of net annual additions in one year for Australia as a whole between 1980 and 2007).

The projected total of 2,716,000 net additional dwellings produced under the medium supply scenario is based on a trend rate using the average annual net additions between 1980 and 2007. Table 3.4 provides projections by states and territories based on the lowest, average, and highest trend data for each individual state and territory. The sum of these state and territory figures would not be expected to add to the low, medium, and high trend data for Australia as whole.

Description of Table 3.3

Table 3.3: Projections of total dwelling completions and dwelling completions net of demolition under the medium supply projection, Australia, 2008 to 2028 (selected years)

Year	Completions	Net completions (less demolitions)	Cumulative financial years starting 1 July 2008 and ending 30 June of relevant year
			Completions	Net completions (less demolitions)
Number of dwellings
2008	153,000	129,000
2009	154,000	129,000	154,000	129,000
2010	155,000	130,000	308,000	259,000
2011	155,000	131,000	464,000	390,000
2012	156,000	131,000	620,000	521,000
2013	157,000	132,000	777,000	654,000
2018	161,000	135,000	1,574,000	1,324,000
2023	165,000	139,000	2,392,000	2,011,000
2028	169,000	142,000	3,229,000	2,716,000

Source: Projections are based on dwelling completion trend, 1 July 1980 to 31 December 2007, from Australian Bureau of Statistics, Building Activity, Australia, December 2007, cat. no. 8752.0, ABS, Canberra, 2008 and NHSC estimates for completions net of demolitions.

Description of Table 3.4

Table 3.4: Net additional dwellings produced between 2008 and 2028, by State and Territory, low, medium and high supply scenarios (completions adjusted for demolitions)

	Low supply	Medium Supply	High supply
NSW	429,000	620,000	787,000
Vic	489,000	741,000	979,000
Qld	484,000	797,000	1,143,000
SA	69,000	124,000	174,000
WA	236,000	380,000	531,000
Tas	10,000	23,000	34,000
NT	3,000	6,000	11,000
ACT	21,000	38,000	63,000

Source: Projections are based on building completion trend and high and low estimates, 1 July 1980 to 31 December 2007, from Australian Bureau of Statistics, Building Activity, Australia, December 2007, cat. no. 8752.0, ABS, Canberra, 2008 and NHSC estimates for completions net of demolitions.

This methodology could be further refined and a number of different assumptions on construction capacity or productivity changes used to present a range of other housing supply projections.

The land and housing supply pipeline

In addition to examining the supply of housing by monitoring dwelling completions, it is equally important to examine activity in the preceding stages of the housing and land supply pipeline. The housing and land supply pipeline includes:

• dwellings currently approved or under construction
• land that currently has development approval, with development activity likely in the next two years
• land that has no development approval but has subdivision or division approval, with potential for development activity within two to ten years.

New supply in any given year is primarily the result of development planning and approval processes in previous years. Estimation of the number of lots or dwellings in each stage of the dwelling supply pipeline – and the translation of this into likely dwelling completions in future years – is complex and is not a simple addition of all the elements. For example, there is no guarantee that the land that has development approval or subdivision approval will be developed at all – or, if it is, when this will be. Data from Western Australia indicate that around one-third of lots given subdivision approval, which is generally valid for four years, are not converted to titled lots within this time frame.²⁵

Taking into account these limitations, useful estimates of the future supply of dwellings can still be made using data on land supply, planning approvals and construction activity.

Table 3.5 shows estimates of dwelling supply activity in 2008 across states and territories. This table is based on the Australian Bureau of Statistics data on construction activity.

Description of Table 3.5

Table 3.5: Dwelling activity by various stages by State and Territory, 2008

	NSW	Vic	Qld	SA	WA	Tas	NT	ACT	Australia
Building Approvals	31,000	43,000	45,000	13,000	24,000	3,000	1,000	2,000	162,000
Commencements	31,000	42,000	44,000	12,000	22,000	3,000	1,000	2,000	157,000
Completions	34,000	40,000	40,000	10,000	23,000	2,000	1,000	3,000	153,000
Completions adjusted for demolition	26,000	33,000	39,000	7,000	19,000	2,000	500	2,000	129,000

Source: Australian Bureau of Statistics, Building Activity, Australia, June 2008, cat. no. 8752.0, ABS, Canberra, 2008; ABS, Building Approvals, Australia, June 2008, cat. no. 8731.0, ABS, Canberra, 2008; NHSC estimates of completions net of demolitions.

Similar nationally comparable data are not currently available for the land supply pipeline. Timelines for the development of residential lots as well as the terminology and data collections used at different stages of the land development process vary between the states and territories.

Improving national information on the land and dwelling supply pipeline is one of the major priorities of the Council. To achieve this, it will work with the Data Sub-Group to map and develop standard definitions and to improve national measures of key stages in the land development and dwelling supply pipelines. These measures may be in terms of total dwelling potential, the years of land supply this potential represents, and how these numbers have changed since the previous reporting period. To assist examination of activity at a national level, and improve comparability of information, the Council has initially developed a framework for a six-stage generic development pipeline. Details are provided later in this chapter (see Box 3.4).

Further work is also required on the translation of supply potential into actual lot production. This is usually dependent on market conditions and economic factors.

Estimating and monitoring conversion of land supply to housing

There are two sources of land for new housing: undeveloped greenfield (fringe) or broadhectare residential land, and land for redevelopment to achieve higher density within established areas, commonly known as infill. The underlying factors that distinguish the delivery of housing outcomes in broadhectare and infill areas are as follows:

• Broadhectare development. The timing of broadhectare lot production is generally cyclical and varies in accordance with economic cycles, industry capacity and underlying demand. The availability and price of land in favoured locations for growth are potential key constraints.
• Infill development. As well as the factors identified above, implementation of infill strategies can be affected at the local level by consideration of heritage, infrastructure capacity (such as stormwater drainage, roads and car parking) and local community concerns about population density. For developers, the commercial viability implications of high land and construction costs, particularly for high-density dwellings (including the costs of car parking and any demolition required), are also a consideration.

Expansion of the urban fringe has been restricted in recent times in most cities in order to economise on infrastructure and to further environmental and social sustainability. State governments have strategic planning frameworks governing infill and redevelopment for housing at the metropolitan level, with local governments incorporating such policies into their local plans.

Each jurisdiction has a plan that contains information on current and future land supply activity, although the way in which this information is collected is not nationally consistent. For example, for broadhectare development:

• New South Wales in 2007 reported 7.3 years’ supply of rezoned and serviced land (where trunk water and sewer services have been constructed) that provided for a potential 55,000 dwellings or lots by 2009 in the 2007 update of the NSW Metropolitan Development Plan.²⁶
• Victoria has identified 92,860 zoned lots in metropolitan Melbourne for future broadhectare lot construction but not all of this land had yet been serviced. According to best estimates in the Urban Development Program Annual Report, there was approximately 7–8 years supply of zoned broadhectare land in 2007.²⁷ The Victorian Government has recently announced the extension of Melbourne’s growth boundary to make more broadhectare land available for development.²⁸

In the absence of national administrative planning data, the Council has used the information available to it to develop broad estimates of the likely land release for the eight capital city areas (for Queensland, the south-east Queensland area was used). The methodology is described in more detail in Appendix 3.

Based on this information, there is estimated to be enough land in the latter stages of the land development pipeline to allow for the addition of up to 357,000 new dwellings within the next two years (see Table 3.6).

Description of Table 3.6

Table 3.6: Estimate of land release potential (dwelling yield), eight capital cities across Australia by type, 2008

Total eight capital cities	Time of release
	<2 years	2–5 years	5–10 years	>10 years	Total
Broadhectare (greenfield) land
Urban density land	131,000	221,000	339,000	432,000	1,123,000
Low density land	5,000	13,000	20,000	40,000	80,000
Total	136,000	234,000	359,000	472,000	1,203,000
Redevelopment areas
Major redevelopment (50+ net additional dwellings)	199,000	199,000	136,000	4,000	538,000
Minor redevelopment (10–50 net additional dwellings)	22,000	21,000	9,000	2,000	53,000
Total	221,000	220,000	145,000	6,000	591,000
Total dwelling yield	357,000	454,000	504,000	478,000	1,794,000

These data also suggest that up to 1.3 million extra dwellings could be provided within the next ten years (see Table 3.7). This estimated land supply encompasses 729,000 broadhectare lots and 586,000 dwellings in redevelopment areas. The number of dwellings that could be built on land that is ready for construction across the eight capital cities over each of the next two years is estimated to be 357,000 dwellings.

There are many obvious caveats on these estimates, especially with regard to the conversion of available land to dwellings. For instance, some or many lots may not be in locations desired by the market in the relevant time frame. Similarly, economic conditions in the short to medium term may mean that development is deferred.

Description of Table 3.7

Table 3.7: Estimate of cumulative and average land release potential dwelling yield, eight capital cities across Australia by type, 2008

	Total dwelling yield
	Over next 2 years	Over next 5 years	Over next 10 years
Cumulative yield over time period
Broad-hectare (greenfield) land	136,000	370,000	729,000
Redevelopment areas (10 + net additional dwellings)	221,000	441,000	586,000
Total	357,000	811,000	1,315,000
Average per year
Broad-hectare (greenfield) land	68,000	74,000	72,900
Redevelopment areas (10 + net additional dwellings)	110,500	88,200	58,600
Total	178,500	162,200	131,500

Note: This table excludes redevelopment areas with an individual dwelling yield of less than 10 net additional dwellings.

Source: NHSC estimates.

Estimates in Tables 3.6 and 3.7 above exclude small-scale infill activity of less than 10 dwellings on a site, which may be a significant data omission. Some jurisdictions collect data on redevelopments of 5 to 10 dwellings, but only Western Australia fully captures data on small-scale redevelopment (fewer than 5 dwellings per lot). This is an area that warrants further examination, as the Council has been advised that in Western Australia and Victoria small-scale redevelopments and infill projects account for substantial numbers of new dwellings in mature (i.e. 30-year-old) suburbs. A better understanding of the potential to increase housing supply through small-scale infill developments might also help to address concerns – such as those raised as a result of a Residential Development Council report (Box 3.1) – about the ability of major city planning authorities to achieve their urban infill targets.

The Council recognises significant uncertainty about realisation of the estimates in Tables 3.6 and 3.7 above. As previously described, there are significant delays inherent in the process of transforming raw land into completed residential estates or infill developments. These delays can be increased by the need to address environmental and community amenity concerns, and constraints relating to the cost and availability of finance, labour and dwelling construction materials. In addition, some of the land identified for residential development, may subsequently be set aside for environmental protection purposes or for transport corridors or other community uses. Changes in economic conditions and access to finance add another major source of uncertainty.

The Council is keen to improve confidence in the reliability and comparability of these data and to identify where further research and data development could usefully improve knowledge and understanding of land supply and lot utilisation for residential and related urban development.

An examination of dwelling approval data shows that the relationship between broadhectare and infill development can vary significantly over time. This may reflect the timing of large-scale redevelopment projects as well as demand factors. An example of how the distribution of lot approvals has changed over time is shown for the Perth Metropolitan Region in Table 3.8. This shows that the annual share of infill development has varied between 20 per cent and 43 per cent of total metropolitan residential development over the past decade. Note, however, that there is much less variation in the absolute level of infill development than applies to outer sector development, and that high proportions of infill development correlate with relatively low levels of aggregate growth in housing stock. In other States, especially New South Wales, it is likely that infill is progressively assuming a larger share of metropolitan development²⁹.

Description of Table 3.8

Table 3.8: Perth Metropolitan Region final residential lot approvals, 1997–98 to 2007–08

Financial year	Inner-middle lots		Outer Sectors lots						Perth Metro Total
	Inner- middle	% of Perth Metro	Eastern	North- west	South- east	South- west	Total	% of Perth Metro
1997–98	2,809	42.6	896	1,364	676	848	3,784	57.4	6,593
1998–99	3,185	36.1	1,043	2,298	621	1,672	5,634	63.9	8,819
1999–2000	3,680	36.6	1,255	2,284	1,359	1,469	6,367	63.4	10,047
2000–01	3,084	43.2	891	1,640	655	866	4,052	56.8	7,136
2001–02	2,677	29.9	1,136	2,621	953	1,554	6,264	70.1	8,941
2002–03	3,258	27.9	1,292	3,311	1,122	2,675	8,400	72.1	11,658
2003–04	3,390	25.9	1,784	3,110	1,223	3,595	9,712	74.1	13,102
2004–05	3,074	22.6	1,233	4,102	1,538	3,625	10,498	77.4	13,572
2005–06	3,182	21.8	1,451	4,402	1,807	3,760	11,420	78.2	14,602
2006–07	2,693	19.8	1,941	3,530	2,136	3,277	10,884	80.2	13,577
2007–08	2,860	24.6	1,239	2,311	2,693	2,538	8,781	75.4	11,641

Influences on supply

A market response to current or projected supply shortages will depend upon the ability of the construction industry and developers to provide appropriate dwellings at accessible prices, by converting raw land into serviced lots or accessing infill opportunities.

It is unlikely that land will be developed and housing built if the cost of that development exceeds the revenue that can be generated from it. The price that people are prepared to pay for new housing will also depend partly on its location in relation to jobs, transport and community services.

Generally, surges in housing demand will push up prices in the short run, but the extent to which affordability problems persist depends on how well the supply of housing can respond over time. As the Productivity Commission has observed, ‘even in a best-practice supply chain, it can take several years to bring new land on-stream, to provide the associated infrastructure and to construct new dwellings’.³⁰

Further obstacles to industry responsiveness in the short to medium term may include: labour shortages, shortages in, and/or high prices for, building materials; strategic and statutory planning processes; developer contributions; other taxes and charges; and lack of knowledge of—or confidence in—consumer preferences.

The cost of, and access to, finance for housing development will also impact on housing supply. Recent moves to tighten credit availability for developers may, for a while, result in developments being reduced in scope and staged over longer periods. In late 2008, developers were reporting that they could not procure construction finance unless 75 per cent of units in their projects were pre-sold. Given that some 65 per cent of apartment sales have historically been made to investors, this means the commencement of construction of new multi-unit developments in 2009 is likely to be heavily dependent upon a resurgence of investor interest.

The supply pipeline

This section summarises some aspects of the supply pipeline that can affect the responsiveness of housing supply to demand. These aspects include planning systems and related timing issues, infrastructure provision and charging, and construction costs.

Planning approval processes

The relationship between housing costs and planning regulations, charges and procedural requirements—including the impact of planning controls on the responsiveness of supply—has been raised regularly in the course of inquiries into housing affordability.³¹

The planning system regulates:

• the types of land and locations that may be used for housing development
• the amount or density of housing that may be developed
• the configuration and design of this housing
• the sequencing of development
• the types of services to support development (from utilities to parks to community centres)
• some charges for infrastructure.

It should be noted that planning also encompasses a range of referrals and approvals by local government and other State authorities in regard to matters such as roads, environment, education and infrastructure. At the Commonwealth level, proponents may have to obtain separate approvals for matters of environmental significance under the Environmental Protection and Biodiversity Conservation Act.

Planning, zoning and development approval processes undoubtedly add time and cost to the operation of the housing market. However, the Council acknowledges that there are sound reasons for cost-effective regulation of the private use of land, including to:

• achieve an efficient and accessible urban structure that promotes productivity and social inclusion
• protect environmental quality, cultural heritage and amenity
• facilitate equitable access to services, work, education and recreational opportunities.

Planning approval processes require due diligence and this takes time. Changing community expectations for high-quality urban environments require rigour and community consultation in planning approval processes. In the context of global environmental concerns, urban planning is now also being charged with reducing dependence on fossil fuels and, where possible, extending forest cover and vegetation to offset emissions, as well as ensuring basic protections against natural hazards.³²

It is inevitable there are trade-offs that need to be made between the aims and purposes of planning and the objectives of increasing the speed and affordability of changes to housing supply.

Box 3.4 gives a general outline of the development stages that make up the housing supply pipeline, identifying key roles of the major stakeholders.

As well as development application or administration fees and any contributions they may make for physical and social infrastructure, developers also incur expenses in participating in the planning process, through staff time and site holding costs while approval is sought. Interest must be paid on these expenses until projects are completed and sold. Extended development delivery time frames can increase risks for investors, given the cyclical nature of demand factors such as immigration and interest rates, and supply factors such as availability of credit. In addition, there is always scope for unforeseen changes in the policy environment that may affect final pricing. Developers may choose to hold land or delay the approvals process for a range of reasons, such as awaiting information on infrastructure developments, project redesign, changed market conditions and decisions about staging land release.

The foregoing does not imply that planning and development approval processes are consistently beyond reproach and cannot be improved. There is well-recognised scope for reducing compliance costs and improving efficiency and effectiveness by, among other things, modern lodgment and processing systems, making outcomes more consistent and predictable by harmonising requirements across State and local government jurisdictions, and reducing opportunities for third party appeals when proposed developments are demonstrably consistent with jurisdictions’ precinct development plans.

There have been ongoing efforts to reform planning systems at the State and Territory level. At the national level, the Development Assessment Forum has a primary role.³³ These efforts aim to streamline or rationalise processes in ways that reduce transaction costs and delays without compromising legitimate environmental or heritage goals at the operational and strategic levels.

Reforms to planning administration seek to streamline processes for gaining approvals for development applications – for example, through better coordination of information requirements relating to environmental impact reports, public notification, multiple agency referrals, assessment against planning provisions, and review and appeal mechanisms.

Reforms to planning governance seek consistency and clear separation of responsibilities and powers in the institutional arrangements that govern decisions about permissible development at state and territory and local government levels. Delays can often arise because of unclear or uncertain allocation of decision-making powers among different jurisdictions. For example, when local governments are called upon to make development approval decisions in the metropolitan or regional interest when their mandate is to represent local interests only, protracted disputes and deferrals are sometimes inevitable.

The Council sees a need for continuing effort to improve the efficiency of the planning system and acknowledges that planning system changes may well be required to achieve the level of density envisaged by state governments’ urban consolidation plans. It was reported to the Council that, in many states, increased densities are being achieved in existing urban areas and that planning instruments are increasingly facilitating provision of increased densities.

Infrastructure provision and charging

All State and Territory jurisdictions have provisions in place to collect contributions towards the site-based, neighbourhood or local level infrastructure required for development to proceed. This covers upfront charges for supplying direct works needed by individual dwellings, such as water and sewerage connections, and ‘indirect’ infrastructure, such as open space, waterways, pedestrian and cycle paths and other community infrastructure.

The efficient and equitable provision of, and charging for, housing-related infrastructure can promote efficient location decisions by home buyers.

A number of government reports have examined issues relating to the level of infrastructure charges, including differences between states and territories, who should pay and when, and the impact of those charges on supply and housing affordability.³⁴ These reports contain a range of views, particularly about the equity of infrastructure charges, the extent to which developer charges are passed on to home buyers, and the impact they may have on the development of land and cost of housing in various locations.

Infrastructure costs are a substantial component of development and construction costs. The Housing Industry Association, the Property Council of Australia and other bodies have expressed concern that infrastructure charges are too high and that they are being levied on an inappropriate basis. The Housing Industry Association has provided a range of data showing the levels of direct and indirect charges for infrastructure relating to housing provision in a number of states and changes in these over time. This information is provided in Appendix 2 (Tables A3.5A and A3.6) which also includes data from a report by ACIL Tasman for the Urban Development Institute of Australia (UDIA).³⁵

Generally, there are three different ways to justify contributions from private developers as part of the planning approval process: user-pays charges, impact mitigation levies, and betterment levies (see Figure 3.2).

Figure 3.2: Overview of development contribution types

Description of Figure 3.2

Recognising the differences in rationale is important in decision making on the nature and application of regulatory principles governing how these contributions should be levied. For instance, it has been argued that:

• developers should pay user charges according to their projected share of beneficial usage of the items, sometimes specified in a contributions plan
• additional impact fees could apply when a development creates unanticipated or unplanned demands on local infrastructure because of its design
• additional betterment levies recognise the uplift in land value created by the scope of the development permitted by the community on a particular site – and could be collected at point of rezoning from sales proceeds.

While infrastructure charges affect the cost of housing throughout Australia, there is much variation among states and territories as to the level of these charges and the extent to which levies and infrastructure provision costs are shared between land sellers, developers, consumers and taxpayers generally. There is currently no national benchmarking of the minimum acceptable standards of infrastructure provision for new residential areas, or agreement about who should pay for this infrastructure.

The Productivity Commission has observed that cross-jurisdiction adherence to some general charging principles would help to promote more efficient and equitable outcomes.³⁶

Taxation and other charges

Other government taxes or charges affecting housing in Australia include the goods and services tax (GST) on construction costs and stamp duty on property transactions. The GST (10 per cent) applies to maintenance and renovation expenditure for existing housing, and to land development and new buildings.

States and territories levy stamp duties on the purchase of homes, at varying rates and with varying concessions for first home buyers and in some states for buyers in nonmetropolitan locations. In some jurisdictions, there may be further costs associated with property purchase, including transfer fees and mortgage duty.

The Australian Government’s review of Australia’s future tax system (the Henry Review), which will provide a final report to the Treasurer by the end of 2009, is relevant to both supply and demand. Further information is provided in Chapter 2.

The Council will be interested in the findings and recommendations of this review. Several members of the Council are contributing to the work of the review as individuals or as representatives of organisations.

Construction costs

The determinants of housing affordability on the supply side obviously include construction costs, many of which have risen significantly in recent times.

Recent issues impacting on construction costs include:

• a very tight market for skilled labour in the construction industry during 2008 with competition from the resources sector, commercial construction and major infrastructure projects
• increased interest costs for projects due to delays in construction schedules caused by financiers’ higher pre-sale requirements and because of skill shortages
• until recently rising costs of materials, particularly in tradeable commodities such as steel, which is used extensively in multistorey construction
• higher costs of mid- to-high rise multi-unit developments vis-à-vis low-rise housing due to the cost of common areas, lifts and fire escapes, regulatory requirements including occupational health and safety requirements, varying trade union jurisdictions and specialist labour costs, and more complex structural designs and requirements
• meeting the demand for better quality finishes and fit-outs in larger houses in response to changing consumer expectations
• rising fuel costs on construction inputs
• increased environmental requirements (such as five-star energy and resource-use requirements), which impose additional costs at the construction stage (although they may be partly or fully recouped over time)
• the imposition of GST on the supply of new residential property, which has added approximately 9 per cent to the delivered costs of a residential lot and 10 per cent to the construction cost of a typical new house.³⁷

Implementation of emission pricing as part of the Carbon Pollution Reduction Scheme will increase the price of goods that are relatively emission intensive, such as concrete or iron and steel and will thus also add to construction costs.

Appendix 2, Table A3.7 provides a comparison of the costs of constructing detached houses, semi-detached dwellings and units by State, capital city, and rest of States where available, from 1995–96 to 2007–08. Information for 2008 is further summarised in Table 3.9 below.

Description of Table 3.9

Table 3.9: Average cost ($) per square metre for new detached houses, semi-detached dwellings, and units, by capital city or State or Territory, 2008

City or State or Territory	House	Semi-detached	Unit
Sydney	917	1,173	1,890
Melbourne	933	1,161	2,149
Brisbane	947	1,385	2,313
Adelaide	916	1,402	1,376
Perth	961	1,186	3,907
Tas	955	1,080	951
NT	1,153	1,322	1,666
ACT	1,023	2,115	1,986
Australia	950	1,231	2,141

Source: Australian Bureau of Statistics, Building Approvals (data available on request)

There are some curious apparent anomalies in these data, such as the comparably low cost per square metre of units/apartments in Sydney vis-à-vis other locations such as Perth. There are many possible explanations for such variations ranging from data issues like sampling error though to differences in the nature of the housing product across locations in the relevant time period. As they are at present, the data serve principally to illustrate the cost gradient per square metre from detached houses, through semidetached houses to units/apartments. As noted elsewhere in the report, the Council intends to develop a stronger approach to measuring and modelling the cost of the various components of land and housing development.

Alternative construction and design approaches to reduce housing costs

The Council is aware that individual states and territories are exploring a range of approaches to housing planning, design and construction aimed at reducing overall costs. A few examples are set out below:

• Markedly reduced construction times to cut home building costs are a feature of a current Western Australian Government demonstration housing development known as ‘Revolution Road’ – with one home being built within 14 days.
• This includes innovative design and construction techniques with alternative materials such as modular panel systems, aerated concrete and lightweight composites. The use of these materials show homebuyers what may be possible in new homes with accelerated completion times and enhanced energy and climate performance. Display homes introduce building design options using passive solar design, WaterWise gardens, grey water and roof water.³⁸
• The Queensland Government’s Smart Housing initiative promotes good practice in designing, planning and constructing homes to be more socially, environmentally and economically sustainable.³⁹
• The Smart Housing initiative incorporates requirements for adaptable designs for new housing to enable the housing to be modified easily in the future to suit the occupant’s needs, including making it fully accessible, without requiring structural changes and at a minimal cost.
  • The Green, a small residential caravan park in Greenbank, Brisbane, is progressively replacing onsite caravans with ‘smart’ kit homes that are resource and cost-efficient and flexible to meet the changing needs of residents.⁴⁰
• A recent waterfront development in Queensland will include a number of smaller more affordable apartments ranging down to about 40 square metres in size.⁴¹
• In relation to planning reforms, the Australian Capital Territory has introduced a compact housing code for blocks under 250 square metres to help facilitate affordable house and land packages.⁴²

The Council considers that it would be valuable to share information on initiatives such as these so that successful innovations can be more widely applied.

Other government interventions

As noted elsewhere in this report, the social housing stock comprised 393,000 dwellings in 2008 and had fallen from 5.8 per cent of the total occupied housing stock in 1996 to 5.1 per cent in 2006.43 Analysis of data from the 2006 Census also indicated the need for an additional 251,000 rental dwellings to be made available at an affordable cost for low income households44 (see Table 5.1 for details).

The Australian Government has recently announced some responses to these supply shortages.

Under the new National Affordable Housing Agreement, the Australian Government will provide $6.2 billion to the states and territories over 5 years from 1 January 2009 for measures including homelessness, social housing and home ownership.

Additional funding will also be provided by the Australian Government through National Partnership Payments specifically for homelessness ($400 million over 5 years to be matched by the States and Territories); improved housing for Indigenous people in remote communities ($834.6 million over 5 years, $1.94 billion over 10 years); and the construction of new social housing ($400 million over 2 years).

Under the National Rental Affordability Scheme (NRAS) the Australian Government is also offering incentives to help to build 50,000 new rental properties across Australia by 2012. The two key elements of this scheme are an annual Australian Government tax offset or payment of $6,000 for each dwelling, and a State or Territory contribution of $2,000 per dwelling per year. Properties will be rented out to eligible households at 20 per cent below market rates.

While these measures will not fully address the shortage of affordable housing for low income renters, the Council acknowledges that these initiatives are important first steps towards addressing needs that are not currently being met.

The Australian Government’s Housing Affordability Fund, a five-year, $512 million investment, will also address some areas identified earlier in this chapter that represent significant barriers to the supply of affordable housing, namely:

• the ‘holding’ costs incurred by developers as a result of long planning and approval times, such as interest paid to banks while awaiting development decisions by councils
• infrastructure costs, such as the laying of water pipes, sewerage, transport and the creation of parks.

The fund will assist State, Territory and local governments, in conjunction with the private sector, to address these market barriers and ensure that savings generated are passed on to the new home buyer.

---

22. Adapted from Australian Bureau of Statistics, 2006 Census tables, ‘Dwelling Structure and Number of Bedrooms by Number of Persons Usually Resident for Family Households’, ‘Dwelling Structure and Number of Bedrooms by Number of Persons Usually Resident for Group Households’, ‘Dwelling Structure and Number of Bedrooms by Number of Persons Usually Resident for Lone Person Households’, cat. no. 2068.0, ABS, Canberra, 2007.

23. Australian Bureau of Statistics, Year Book Australia 2008, ABS cat. no. 1301.0, ABS, Canberra, 2008; ABS, 2006 Census Community Profile Series: Time Series Profile, Australia, ‘T02: Selected averages and medians for time series’, cat. no. 2003.0, ABS, Canberra, 2007.

24. Australian Bureau of Statistics, Year Book Australia 2008, ABS cat. no. 1301.0, ABS, Canberra, 2008.

25. Western Australian Planning Commission, Land Development Program, State Lot Activity Supply Report, quarterly since January 1999, WAPC, <www.wapc.wa.gov.au>; and Thompson, M, The co-ordination of land release for Perth and Peel, Report of the Land Release Coordinator, Government of Western Australia, Perth, February 2007, p. 14

26. New South Wales Government Department of Planning, Metropolitan development program update, 2007, NSW Government Department of Planning, Sydney, February 2007, p. 7.

27. Victorian Department of Planning and Community Development, Urban Development Program Annual Report, Victorian Department of Planning and Community Development, Melbourne, 2007, Table 4.4.

28. Premier of Victoria, Melbourne @ 5 Million – UGB to be redrawn, Press release, Melbourne, 2 December ,2008.

29. New South Wales Department of Planning, Metropolitan Development Program Update 2007, Department of Planning, Sydney, 2007, p. 24, accessed 20 January 2008, <http://www.planning.nsw.gov.au/programservices/pdf/mdp_2007_update_bod.pdf>.

30. Productivity Commission, First home ownership: inquiry report, p. 20.

31. Inquiries include those by the Department of Community Services and Health, National Housing Strategy, AGPS, Canberra, 1991 and, more recently, the Productivity Commission (Productivity Commission, First home ownership) and the Senate Select Committee on Housing Affordability in Australia (Senate Select Committee on Housing Affordability in Australia, A good house is hard to find), June 2008.

32. N Gurran et al., Planning, government charges, and the costs of land and housing, Australian Housing and Urban Research Institute Position Paper no. 109, AHURI, Sydney, October 2008, pp. 20–1.

33. Development Assessment Forum was formed in 1998 to recommend ways to streamline development assessment and cut red tape – without sacrificing the quality of the decision making. Membership includes the three spheres of government, the development industry, and related professional associations.

34. Productivity Commission, First home ownership: inquiry report; Senate Select Committee on Housing Affordability in Australia, A good house is hard to find, June 2008.

35. ACIL Tasman, Landcost: The impact of land costs on housing affordability, report prepared for the Urban Development Institute of Australia, May 2006.

36. Productivity Commission, First home ownership: inquiry report, p. 176.

37. ACIL Tasman, Landcost: The impact of land costs on housing affordability, report prepared for the Urban Development Institute of Australia, May 2006.

38. Western Australian Department of Planning and Infrastructure, Revolution Road: Ideas to change the way we build’. WA DPI, Perth, 2006.

39. Queensland Government Department of Public Works, Smart and Sustainable Homes Program, 2004, Qld DPW, Brisbane, <www.smarthousing.qld.gov.au> accessed December 2008.

40. Queensland Government Department of Public Works, Smart and Sustainable Homes Program, 2004.

41. M Hele, ‘Hamilton waterfront development includes affordable apartments’, Courier Mail (Brisbane), 30 October 2008, accessed 1 December 2008 <www.news.com.au/couriermail/story.html>.

42. Australian Capital Territory, Affordable housing action plan: progress report 2008, ACT Government, Canberra, 2008, p. 2.

43. Australian Bureau of Statistics, 2006 Census Tables, Australia, ‘Tenure Type and Landlord Type by Dwelling Structure for Time Series: Count of occupied private dwellings’, cat. no. 2068.0, ABS, Canberra, 2007.

44. Wulff et al., Australia’s private rental market: changes (2001–2006) in the supply of, and demand for, low rent dwellings, Australian Housing and Urban Research Institute project no. 50502, forthcoming.

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