THE Planning Institute of Australia has described the Reserve Bank of Australia's recent research linking high housing prices with planning regulations as misleading and yet another attempt to shore up the popular misconception that removing land use controls will solve housing affordability.
According to the RBA's report, titled 'The Effect of Zoning on Housing Prices,' land use 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. Zoning also raised the price of apartments well above the marginal cost of supply, especially in Sydney, according to the report.
"Overall, our results suggest that development restrictions (interacting with increasing demand) have contributed materially to the significant rise in housing prices in Australia's largest cities since the late 1990s, pushing prices substantially above the supply costs of their physical inputs," the RBA report states.
"If housing demand continues to grow, as seems likely, then existing zoning restrictions will bind more tightly and place continuing upward pressure on housing prices.
"Policy changes that make zoning restrictions less binding, whether directly (e.g. increasing building height limits) or indirectly, via reducing underlying demand for land in areas where restrictions are binding (e.g. improving transport infrastructure), could reduce this upward pressure on housing prices," the report concludes.
In response to the report, PIA's National Principal Policy Officer, John Brockhoff, said the research missed the point about planning controls (including zoning) – which was that it improved the way society allocates and shares the use of land.
"Zoning is one of the keystones of good planning, which is entirely about helping the property market to work efficiently and effectively. Planning has a key role in preventing land-market failure leading to wider community costs – expressed in costs to doing business as well as social and environmental costs," Mr Brockhoff said.
"A classic example is planning for public utility services. The demand for land for sports fields, materials recycling facilities, and electricity sub-stations is rarely strong enough to be competitive in the market."
"Planning schemes enable these essential uses to be located where they are needed rather than be marginalised to the city fringe where they may be ineffective, inaccessible, or incur high costs on users."
Mr Brockhoff said the RBA researchers had just discovered something that planners have known for a long time – that good planning creates value, which is expressed in property prices.
"The RBA should know that just because you run a complex regression analysis doesn't mean the output is going to make sense. The basic assumption that you can completely uncouple the rights to use land from the land itself doesn't make sense," he said.
"Poor land-use decisions can restrict the productive use of land for generations, while good planning can generate spill-over benefits which can both strengthen economic output and improve social and environmental quality.
"Planning should not be seen by policy-makers as a hindrance – it is critical to Australia's productivity and the future wellbeing of our cities and regions. Using our land resources wisely and ensuring that our infrastructure investments are well considered will sustain our success and prosperity as a nation."
More information about the report, 'The Effect of Zoning on Housing Prices', is available from the Reserve Bank of Australia website at <http://www.rba.gov.au/publications/rdp/2018/2018-03.html>.