Housing development on the fringe of Sydney

Economics professors, housing peak bodies and the Committee for Sydney have joined together to pen an open letter asking that the NSW Government create a housing affordability strategy that goes beyond increasing supply, which has had limited effect in producing affordable housing stock.

Increasing housing supply has been the solution pushed by development lobbies for years. And providing support to the “illusory truth effect” – that if you repeat something often enough people will start to believe it – the government has bought in, becoming itself a staunch advocate for the supply equals affordability theory, despite strong evidence that supply alone has little effect on increasing affordability.

The open letter has been written by Wendy Hayhurst, chief executive of NSW Federation of Housing Associations; Katherine McKernan, chief executive of Homelessness NSW; Professor Peter Phibbs, chair of urban and regional planning and policy at the University of Sydney; Professor Bill Randolph, City Futures director at UNSW; and Dr Tim Williams, chief executive of the Committee for Sydney.

It congratulates the government for creating conditions that have increased supply, but notes that prices have shot up alongside supply, leading the authors to say the strategy is “clearly not working”.

As Professor Randolph told the Sydney Morning Herald, if the government understood the housing market at all it would come as no surprise that increased supply would not necessarily lower the price of housing.

“The problem is you can’t apply year 10 economic theory to a metropolitan housing market,” he said.

A slide from a recent presentation by SGS Economics and Planning’s Patrick Fensham: housing supply and housing cost have both increased in recent years.

“Nobody has ever shown … that you can supply enough housing into a market to effectively make prices fall. New supply is two per cent of the housing market. Even if that doubled, what impact would that have?”

Demand-side issues like low interest rates and investor incentives like negative gearing don’t help.

“Homes are unaffordable not because we are building too few but because the market is flooded with cheap credit,” Dr Williams said. “Increasingly access to this is being channelled to existing homeowners over first-time buyers, leading to many Sydneysiders owning two and three properties while the average 30-year-old cannot get into home ownership.

“We cannot build our way to affordability in such a market.”

Following is the entire text of the open letter to NSW Premier Mike Baird and Planning Minister Rob Stokes:

Dear Mr Baird and Mr Stokes,

At the recent 2016 Affordable Housing Conference there was consensus from the not-for-profit sector, property developers and the finance industry that further innovation is required from government to help increase the supply of affordable housing in Sydney. This problem is, as we know, no longer confined to one group. Housing stress is now being felt now not just by the very needy but also increasingly by those higher up the income scale.

We emphasise that the government is to be commended for creating an environment in which housing starts have more or less doubled in Sydney since 2011. However, it also has to be recognised that prices have still gone up significantly in this period. We believe that while increasing supply is a vital part of the strategy, relying solely on greater supply to moderate house prices and rents is clearly not working. Current approaches will not deliver for the growing numbers of aspiring first home buyers locked out of the market and lower income renters struggling to find affordable stock.

Something new needs to be tried not least to meet the housing needs of low paid but essential workers which are not being met currently by social housing provision or the current market. The government has a real opportunity to make a difference both to the number and mix of homes in Sydney and community wellbeing if it uses its resources and powers in partnership with community housing providers and the private sector.

We recognise and welcome recent government initiatives in relation to increasing social housing and private for sale supply through FACS-led projects in the new Communities Plus program. The fact that income from housing land sales has been ring-fenced to invest in new social housing is also welcomed, as is the formation of a Social and Affordable Housing Fund. We also understand there are moves towards an inclusionary zoning policy in the planning system which would apply only to certain precincts in those LGAs which want it – which we strongly support but which we would like to see more generally applied.

We recognise and endorse these shifts in government approaches but believe that there is a need for further innovation in relation to four key initiatives:

  1. Inclusionary zoning and affordable housing targets for privately owned development sites. Many in the private sector will support inclusionary zoning if they are involved in drawing up the rules and if there is up-front certainty about planning requirements so that these can be factored into the land purchase price.
  2. Use of government land destined for housing development – rather than seeking to maximise the return to the Treasury, the government should set an example by mandating ambitious affordable housing targets on its major land holdings slated for disposal (for example, regeneration sites) and accepting a slightly less-than-projected gain from the escalation in land values seen over recent years.
  3. Government incentives to trigger private and not-for-profit investment into affordable housing. This would include expanding the Social and Affordable Housing Fund through, for example, designating a fraction of stamp duty receipts again inflated by the dramatic rise in property transaction values seen since 2011.
  4. Using its role on the Commonwealth’s Affordable Housing Working Group to support the creation of an Affordable Housing Financial Intermediary. This would enable community housing providers to access well-priced long-term funds from institutional investors bringing down their costs and stretching the benefit of a fixed amount of government financial support.

For Sydney to continue to be a smart city that’s vibrant, exciting and liveable for everyone no matter how much they earn, we need a long term plan for housing affordability that provides policy certainty and a development pipeline. This is the key to unlocking the not for profit and private sectors’ expertise and entrepreneurship and attracting the large scale private investment we need to help solve this problem.

We all want a city where families, nurses, childcare workers and people on ordinary incomes can live, work, eat out and shop and continue to help Sydney thrive.

For the sake of those NSW households struggling to find somewhere affordable to live we need to act now.

Wendy Hayhurst (CEO, NSW Federation of Housing Associations)
Katherine McKernan (CEO, Homelessness NSW)
Professor Peter Phibbs (Faculty of Architecture, Design and Planning)
Professor Bill Randolph (Director, City Futures, UNSW)
Dr Tim Williams (CEO, Committee for Sydney)

Join the Conversation


Your email address will not be published.

  1. But about 1/2 to cost of a home is in the land.

    Land is a supply issue. Land use is a supply issue.

    TAX and other charges are also a major issue, I have read elsewhere that up to a third of the cost of a home is through government charges / taxes / levies.

    The government is the cause of most of these issues, not the developer / builder / banks.

  2. The Ministerial Advisory Committee for Plan Melbourne – our city’s strategic plan to the year 2050 – has been consistently of the view that increasing the supply of housing is not enough to make housing affordable. Metropolitan Melbourne has been experiencing a significant housing boom for more than a decade now and the price of housing continues to far outpace many people’s capacity to buy or rent housing. Supply alone is definitely not the panacea to this growing national problem. Solutions include planning interventions such as inclusionary zoning, tax reforms and more generous government subsidies to enable the community housing sector to scale up, build equity and borrow money to expand their social housing portfolios.

  3. Great to see some sense being written about affordability. Although the focus of these discussions tends to be on younger people, there is an older cohort also squeezed out too. Older single women, perhaps as a result of a divorce, are also victims of housing (in)affordability. Then there is the rental issue: older single people are trapped into abject poverty by needing to spend all their pension on rent.

  4. This is so welcome. I have lost track of the number of times I have heard governments justifying pushing through over development decisions on the back of the housing affordability argument. This was certainly the case during former minister hazzard’s planning reforms. Thank you to all those involved in writing this letter. Communities deserve the truth, especially those individuals and families who are desperately struggling to obtain secure housing in this increasingly expensive, out of reach market.