Planning policies are destroying the dream

While rapidly rising housing prices have made some of us rich -- at least on paper -- they are doing great harm to many.

The median house price in Melbourne is now $352,000, with few houses of any quality priced at less than $200,000.  Sydney is far worse with a median house price of $505,000.

As a result, new home buyers are been forced to take out mortgages in the vicinity of $200,000-$300,000, or up to six times average annual earnings.

It is little wonder that household debt is sky high and younger people are putting off marriage and kids and staying with their parents.

It is little wonder that housing price inflation has long been a major public concern.

The accepted diagnosis is that house inflation is caused by preferential taxation and distorted speculation.  However, neither of these holds up to scrutiny.

First, tax treatment of housing in Australia is no more generous than in the United States, and houses are much more affordable there.

For example Atlanta, Georgia, is very similar to Melbourne in population size and average income, and has a much more rapidly growing population, yet its median house price is just $157,000 -- less half that of Melbourne.

And there are many other US cities with house prices in line with Atlanta's.

Second, while speculation has contributed to rising house prices, it surely has not been misplaced.

Housing has, before tax, generated double-digit returns on investment for more than five decades.  People have speculated that the demand for housing will continually exceed supply, and they have been right.

Instead the problem lies with our planning laws and imposts on developers.  Governments have purposely restricted land supply for housing under raft of planning initiatives.

These restrictions have become more acute over time, escalating land costs.

As a result, in Sydney the land component has increased over the past 30 years from 32 per cent to 62 per cent of house and land packages.

For Melbourne the 2030 Strategy has replaced zoning as the driver of house inflation.

For example, after the strategy was released, land bought inside Urban Growth Boundaries around Whittlesea, which previously sold for less than $200,000, increased by $600,000 a hectare -- a 300 per cent increase in the cost of new housing blocks in the area.

The other major contribution to rising house prices is red tape and mandatory charges.  In the past few years alone increased documentation requirements have added nearly $10,000 to the cost of a new house in NSW.  If anything the situation in Victoria is worse.

The Housing Industry Association estimates that that the upfront regulatory charge on new subdivisions in western Sydney is about $60,000 per housing block.

While some of this money is used to provide needed infrastructure, much of it used for unrelated functions and as such is nothing more than a hidden tax.

The worrying thing is that given the explicit anti-growth philosophy of the 2030 Strategy, land costs and red tape are set to escalate further, locking our children permanently out of the great Australian dream.

Is this what we want?

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