Unlike the union-controlled construction industry, the house-building industry is characterised by highly efficient and flexible work practices. The industry is a haven of industrial tranquillity. Unions are unknown and instead we have independent businessmen -- sparkies, brickies, plumbers, chippies -- freely contracting with each other. In the process, Australia has created an industry equal in efficiency to anywhere in the world.
But a dark shadow has been cast across the industry. State governments seem intent on throttling the industry and on smothering the attempts of first home buyers to get a foot on the property ladder. The most visible aspect of this is restrictive zoning regulations and land set-aside requirements that have supercharged prices for the new-house-and-land package. In Melbourne 30 years ago, the house component of that package accounted for 76 per cent; today it is only 62 per cent. Land prices have soared as the Government has imposed ever more restrictive zoning laws that reduce the availability of land for building.
As a result of this, according to analysis of about 80 cities in North America and Australasia by Demographia International, Melbourne and other Australian cities are among the worst performers in terms of affordability. It takes more than twice an average household's income to buy a house in Melbourne than it would take in Houston, Dallas or Pittsburgh.
Concerned about rising house prices, Treasurer John Brumby asked the Victorian Competition and Efficiency Commission to report on housing regulation. A draft version of this was issued today. Unfortunately, the report's terms of reference excluded it from looking at the cancerous growth of regulatory costs associated with the land component of the house-and-land package.
Even so, the report highlights cost increases in the pipeline that will have a distressingly adverse effect on the affordability of housing to the new home buyer. Chief among these is the state's new 5-star energy housing regulations, which were jubilantly announced on June 30 by Planning Minister Rob Hulls and Deputy Premier John Thwaites. These foist costly energy-saving requirements on to the hapless new home buyer. Originally estimated to increase house costs by 1-2 per cent, it has become clear that the solar energy supply now required will add 3-6 per cent to average house costs. VCEC, in masterly understatement, says the regulation "could be improved to better deliver against its objectives".
An even more odious new regulation the VCEC report asks the Government to reconsider concerns the requirement that each new house install a water tank. This will be useless in supplementing water availability in a drought but involves a capital outlay of $1895, not to mention the maintenance costs and loss of usable space. The regulation is an empty but expensive gesture by a Government that is trying to persuade us it is "doing something" about water but is afraid to face the Green apoplexy that would accompany the sensible decision to build a new dam.
THE VCEC report also calls for reviews of other regulatory interventions. These include the de facto ability of busybodies in local councils to impose variations on the Australian Building Code provisions as a condition of approval.
In addition, the report seeks to lighten the regulatory burden by calling for an increase in the value of renovation work that triggers a need for approval.
Similarly, it calls for a review of practitioner regulation. In this respect, we have seen an unfortunate growth in "credentialism" over recent years. In the past, the house builder was normally a tradesman who gained sufficient experience to take on a project management role. The system of subcontracting greatly facilitated this.
Builders now have to take written tests covering a great number of disciplines. One outcome has been an increase in people purporting to be "owner-builders" -- accounting for 37 per cent of building permit applications in Victoria last year -- to escape the regulatory restraint.
As a result, provisions have been introduced that require new registered builders to demonstrate a wide range of skills, provisions that will limit the abilities of new builders to enter the market and thereby drive up prices.
The VCEC draft is a timely reminder of how regulation is adding to housing costs. Governments are imposing more layers of requirements on the industry that result in costs that largely fall on the new home buyer. They are, in short, a cruel blow by the baby boomers on their children's generation. It is time to build a bonfire of these regulations so housing affordability is improved.
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