A new report by the Grattan Institute calls for the adoption of a carrot and stick approach to councils in the pursuit of housing supply and affordability.
The report Housing affordability: reimagining the Australian dream, highlights the difficulty prospective buyers face. "House prices [have] more than doubled in real terms over the past 20 years. The strains are most acute in Sydney and Melbourne. Since 2012, house prices have risen 50 per cent in Melbourne and 70 per cent in Sydney."
The report is strongly in favour of increasing housing density in inner and middle ring suburbs as the main way, on the supply side, of improving housing affordability. It says all levels of government should “build the public case for increased density” and work together to achieve it.
But the report states that councils have a tendency to resist urban infill as they represent existing residents and not prospective residents. The existing residents "usually prefer their suburb to stay the same".
Further, regulation of council revenues by state governments "can give councils additional reasons to oppose development."
Rate capping is seen as a particular disincentive for councils to accept new developments. The Grattan Institute believes “new developments effectively increase the rates for existing residents.”
The report says state governments should set housing targets and make sure that local governments meet them. "Use carrots and sticks to ensure councils meet housing targets that align with long-term city plans."
These targets should be "realistic" and the targets and plans need to be effectively explained to the community as part of a larger vision. "Housing targets for each council need to be linked to overall plans for the growth of the city as a whole. Each council then needs to identify how its target will translate into additional housing for each particular area within its jurisdiction."
One carrot to get people to accept this process could be a state government commitment to improving local infrastructure. Another could be offering councils bonus payments if they meet or exceed housing targets.
But also "state government need to carry bigger ‘sticks’ to ensure councils meet the housing targets included within state strategic plans. These might include creating powers for the state government to take over authority for a larger share of development approvals if councils fail to back appropriate development."
The report also recommends the use of independent planning panels, of the kind recently made mandatory in Sydney and Wollongong, to assess "development applications where local councils fail to meet housing targets."
Planning laws and planning practice should also be changed "to make it easier to subdivide and increase housing supply in middle ring suburbs" and higher density development along key transport corridors should be allowed by state governments "as of right".
But if states are not prepared to reform their planning systems then the Commonwealth should consider "tapping the brakes on Australia’s migrant intake" to ease the pressure on the demand side.
The full report can be downloaded here.