Australia’s housing push is bipartisan

The Liberal party has two traditions, conservatism and support for free markets. Normally, those movements are allies. But housing policy is an unusual issue on which they diverge. So the Liberal Party is divided.

The CIS is on one side of this divide. We support free markets, limited government, private property, opportunity and individual choice.

All of which leads CIS to support the Labor Allan government’s attempts to build more housing and the Labor Minns government’s similar efforts in NSW. We think housing affordability is one of Australia’s greatest problems and the solution is to allow more building.

The central problem is that zoning restricts supply. It stops building. Like any market, when you restrict supply, it pushes up the price. Economists measure this. The average apartment in Melbourne sells for $670,000 but only costs $540,000 to supply. That wedge of $130,000 or 24% is how we measure the effect of zoning. It’s huge; and even worse in Sydney.

Those estimates are in line with an enormous quantity of research, in Australia and overseas. There is a very strong consensus among researchers. There are criticisms on social media but most experts regard these as simple misunderstandings and they are not taken seriously.

To be clear, there are legitimate reasons for zoning restrictions. Many people believe the effect of zoning on affordability is worth incurring to preserve neighbourhood amenity. Some people think tall buildings are ugly. Or they dislike congestion. Or they like the atmosphere of their neighbourhood and don’t want it to change.

These are value judgements on which reasonable people should agree to disagree. They are legitimate concerns that I don’t want to argue against. However, I do want to challenge how strongly and widely these views are held.

You can gauge the importance of neighbourhood character and what drives it by looking at house prices. The value residents place on a location is reflected in their willingness to pay for it.

When a large increase in housing density occurs in a suburb, we do not see nearby houses change in value. Specifically, research we did at the CIS looked at Box Hill, Footscray and South Yarra – suburbs where large numbers of apartments were built – and compared prices elsewhere. There was no change in relative house prices in the suburbs where density increased. On balance, willingness to pay to live near new apartments did not change. We saw similar results in Sydney.

The conclusion we draw is that, while some residents disliked the new apartment buildings, many buyers felt the opposite, especially young people. They like a lively, walkable neighbourhood with the extra shops, entertainment options and transport that accompany extra density.

In short, while opponents of higher density are very vocal; those views do not seem to be representative of community values more broadly. They are not a sufficient reason for blocking supply and making housing unaffordable.

A related comment on local control. New apartments have concentrated costs and dispersed benefits. The losers are neighbours who see the character of their neighbourhood change. The beneficiaries are the potential residents who would move in and the renters and young home buyers who would gain from more affordable housing.

Leaving decisions up to local councils means that the losers get a say but not the winners. The costs are taken into account but not the benefits. That biases decisions against housing development and justifies the State government over-riding local objections.

Peter Tulip is chief economist at the Centre for Independent Studies. The above is taken from his speech to the Victorian Liberal Party State Conference Forum on Housing Policy