Australian house prices caused by land use regulations

Australian house prices have been on a huge upward trajectory since the 1980s, far outpacing both
inflation and wages. The median price of all dwellings within Australia was $554,008 in June, 2014i.
Only a median house price to household income ratio of under 3.0 is considered affordable. In
Australia, this ratio is over 6ii, and in some markets like Sydney, is nearly 9.iii Even in Hobart, the
capital city of Tasmania, a small state struggling economically and with markedly less population
growth than all other states, the median house still costs $338,000.

Overseas, in markets like Houston, a large US city growing faster than any Australian city, with a
population of 6.18 million people in the greater area, the median house price is only $184,900iv,
merely half that of the small and economically depressed Hobart. In greater Atlanta, another fastgrowing United States city of population 5.48 million, the median house price is even less:
$150,000v.
According to the RBA, the cumulative rise in dwelling prices since 1970 has been more than twice
that for construction costsvi, so the culprit for our high house prices can not solely be bigger and
more lavish houses. The culprit, as it turns out, is the cost of land, or, more precisely, land
appropriately subdivided, zoned, and approved to build a house on. As Bob Day notes in his Home
Truths Revisted The politics of home ownership article, in South Australia, the cost of a new block
of land has gone from $15,000 a block (in inflation adjusted terms todays dollars) to $160,000 a
blockvii. Not only that the cost of building a 135 square metre house increased from $97,000 in

current dollars to just $102,000 over the same period, virtually no increase at all. viii Additionally,
blocks have got smaller, with the average block in South Australia now only 450 square metres,
down from 700 square metres in the 1990six.
Rural land on the fringe of any Australian town or city is not expensive. This can be confirmed by
anyone by simply looking up land for sale on any real estate website. Most of the time, this land is
available for $10,000 a hectare or less, which is the equivalent of only $400 for a quarter-acre. Yet at
the end of the process developers (and anyone else) must go through to actually build houses on
this land, the cost has ballooned to up to $1,000,000 a hectarex, and thats before any infrastructure
has been connected up to the new lots.
Then, lots need infrastructure, but it doesnt cost $280,000 (the cost of a lot on the fringe of
Sydneyxi) to supply basic infrastructure to a new lot. Lots outside Houston, Texas are as little as
$15,000 eachxii.
The reason for this cost disparity lies solely with government land use regulation. Alan Moran
writing in the Drum notes that in Melbourne, the Growth Area Authority identified 540 separate
regulatory ticks required from when the land was designated as approved for housing and a house's
completionxiii. This inordinately complex and expensive process is the sole reason for Australias
unaffordable housing.
The effect of strict land use regulation can be shown clearly when observing the difference in house
prices in California and Texas. California mandates counties comprehensively zone and planxiv, thus
restricting the amount of land available to build houses on. Texas, on the other hand, bans zoning by
counties, and thus in most areas of Texas there are no restrictions on building new houses for
people. Cities are allowed to zone, but developers can just build outside the city limits to avoid city
planning authority; this gives cities an incentive to develop efficient, fair planning processes.
Californian house prices, because of their land use regulations, are still some of the highest in the
United States, even after the 2008 crash. Texas house prices are some of the lowest, and there was
no crash in Texas. Texas is both richer than California and growing faster.

If there were no restrictions on the subdivision of rural land, and no restrictions on building on those
subdivisions, the cost of housing would fall dramatically. Anyone, including a developer, could
purchase a rural block of land, or multiple such ones, at $10,000 a hectare, subdivide and start
building houses. There would be no more paying $280,000 for a measly plot of land which is often
no bigger than 600 square metres.
Australia has no shortage of land. According to Demographiaxv only one quarter of one percent of
Australias land mass is used for urban purposes. We are not in danger of running out. Australia also
has more arable land per person than any other country in the world, at 2.13 hectares per personxvi.
We are not in danger of running out of that either.
Sometimes things like negative gearing, foreign investors, and high immigration are cited as reasons
for the cost of housing in Australia. These factors have nothing to do with the cost of Australian
housing. If housing supply in Australia could respond to housing demand, dwelling prices would not
increase at all. When people demand more iPhones, Apples factories crank out more iPhones. The
price per iPhone does not increase, because supply can meet demand. In Houston, Texas, and many
other states in the United States, housing supply is flexible in the same way. Texas population
growth, running at 2% a year between 2000 and 2010 (higher than Australia), did not yield higher
house prices. House prices stayed approximately the same in that period of time, because
developers could build new houses at an appropriate pace. This is because, as mentioned earlier, in
Texas, counties are banned from zoning, and the state does not play a role in land use regulation.
Restrictive covenants, which act like zoning, are used by developers to provide certainty to house
buyers. Australia has been building less houses than are demanded, and consequently, prices have
gone up. When banana plantations were destroyed by weather in Queensland, banana prices went
up. The same principle applies with housing: supply and demand.
There is no shortage of land outside any major Australian city to build houses on. It is only a matter
of the government letting us use it. This mismanagement of land has led to quite possibly one of the

biggest misallocations of resources in history. The Australian economy is getting bent and distorted
unprecedented ways. Business finds it difficult to get finance because all available capital is going in
to houses; households delay childbirth because it takes longer to save up for a deposit on a home;
households opt for both parents to work because a single income is no longer enough to afford a
house.
The longer this goes on, the worse the correction must be. It is time to deregulate land use outside
urban centres and see house prices plummet. This is the most urgent policy change needed in
Australia. Forget industrial relations, forget green energy mandates, and forget the taxation regime.
The cost of land, and thus rent, both commercial and residential, is the single biggest factor in
Australias competitiveness. Taking rent out of the equation, Australia is no longer one of the most
expensive countries in the world not by a long shot. Real wages would in fact soar.
The fix is simple: deregulate land use outside urban centres. Remove state and local government
interference in property rights, and the system will fix itself.
i

http://www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0
http://blog.rpdata.com/wp-content/uploads/2013/02/Dwelling-price-to-income-ratio-RBA.jpg
iii
http://www.rba.gov.au/publications/bulletin/2012/dec/images/graph-1212-2-04.gif
iv
http://blog.chron.com/primeproperty/2013/05/median-home-price-hits-all-time-high/#12494101=0
v
http://www.zillow.com/atlanta-metro-ga_r394347/home-values/
vi
http://www.rba.gov.au/publications/bulletin/2012/dec/pdf/bu-1212-2.pdf, page 15
vii
http://www.familyfirst.org.au/files/Home-Truths-Revisited-May-2013.pdf
viii
Ibid.
ix
http://www.adelaidenow.com.au/news/south-australia/adelaide-block-sizes-shrink/story-e6frea831225804976238
x
http://www.familyfirst.org.au/files/The-land-premium-thats-punishing-property.pdf
xi
http://www.renovationplanning.com.au/stories/Solid_ground_land_values_around_Sydney0000000057.html
xii
http://www.zillow.com/homes/for_sale/pmf,pf_pt/land_type/days_sort/30.337324,-94.5401,29.294783,96.324005_rect/9_zm/
xiii
http://www.abc.net.au/news/2012-06-21/moran-housing-regulations/4082380
xiv
http://www.markluce.org/napa-pipe-and-state-housing-mandates.html
xv
http://www.demographia.com/db-intlualand.htm
xvi
http://data.worldbank.org/indicator/AG.LND.ARBL.HA.PC/countries/1W?display=default
ii