Release land to increase housing affordability

by 6 May 2013

Many Northern Australian mining regions have become victims of their own success when it comes to housing affordability. However, the large scale displacement of local communities that substantial increases bring can be avoided by simply releasing more land for development.

It is a fundamental principle that limiting supply of a good will raise prices. Nowhere is this truer than in housing. After over a decade of rental and housing increases WA’s LandCorp has finally begun the release of $1.5 billion of residential land in the Pilbara. That median house prices have begun to drop as a result would surprise no one.

Speaking after the announcement of these plans, Barry Hasse, the Federal Member for Durack, described the measures as “too little too late.”

House prices in the Pilbara have risen 20 per cent annually over the last decade. The average cost of renting a house in Karratha is around $1,800 a week. An average three bedroom rental in central Port Hedland demands rents over $8,000 a month. To put this in perspective a three bed room apartment with a doorman and pool access on the Upper West Side of Manhattan would be only marginally more expensive.

Unfortunately this problem is not confined to mining towns. Restrictive land release policies and slow planning approvals have had an impact on the affordability of housing in all major growth areas, substantially reducing the ability of young first home buyers to enter the market.

Speaking to a parliamentary committee in 2011, Reserve Bank Governor Glenn Stevens summed up the absurdity of the whole situation. “How is it that a country of our size – we are not short of land – cannot add to the dwelling stock for the marginal new entrant more cheaply than we seem to be able to do? I cannot get past that basic question.”

Indeed, the last place we are short of land is in our vast and often desolate North. Around four per cent of our population lives above the Tropic of Capricorn, which all but splits our country in half.

The thousands of jobs that have been created as a result of the mining boom, and the substantial wages on offer, should have created an incredible opportunity for increasing the population of the North. Yet due to a sever lack of affordable options many workers have chosen the rigours and difficulties associated with fly-in fly-out work.

As well as limiting population gains, this housing affordability crisis is also having a detrimental effect on economic diversity and hence the long term sustainability of Northern cities.

Earlier this year the chair of the Pilbara Regional Council, Lynne Craigie, decried the lack of shops and services opening in the area. “If you look at the retail sector, we could probably use more shops but they’re just not coming because there is nowhere to live.” Existing workers in the essential services and non resources sectors are also being forced out of the town. “Obviously you just couldn’t afford to rent a house if you’re on retail wages,” she said.

The Pilbara provides a salutary example of what must not occur in other regions experiencing rapid growth. The Hunter, Mackay and Fitzroy regions are all suffering from rapid increases in rental prices. While Darwin, home to a $34 billion gas project has seen prices grow faster than anywhere else in Australia.

Governments must start to respect the importance of the relationship between housing costs and land supply. For a city like Darwin the huge growth in demand for housing provides an opportunity to grow in to a capital city in real terms instead of simply name.

The best way to achieve this is to release more land for development and create a surplus of supply. A look to the liberal system of development that exists in Texas illustrates the huge decrease in housing prices that would soon follow. The Institute of Public Affairs’ Alan Moran, in 2011, predicted such policies could bring prices down by half. Furthermore, these policies have been shown to create a more stable housing market that is less susceptible to rapid booms and busts.

Responsive land use regulation must be implemented in Northern Australia to allow development to respond to market demands and create the incentive for population growth that will lead to thriving cities through Australia’s North.

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