New housing prices could be so much cheaper

The State Government levies a charge of $95,000 a hectare on land on the urban fringe that it rezones for housing.  That's about $10,000 a housing block.

The Government claims this charge is a contribution for infrastructure.

But in new housing estates the local infrastructure is provided by the developer, not the Government.

The developer levels and drains the land, installs pipes and wires and builds local roads.  Those costs are passed on to the buyer.

Government incurs infrastructure costs for dams, long distance water pipelines and main roads, but these costs are present wherever people choose to live and are paid by rates and general taxation.

Moreover, local infrastructure costs are considerably greater in built-up areas than for new developments on the city edge.  It is far less expensive to start afresh than it is to maintain or improve existing roads or to replace ageing water pipes in established areas.

So the $95,000 a hectare infrastructure charge is simply a revenue grab.

Naturally, landowners object to the charge.  But, contrary to some claims, the $95,000 does not of itself increase the cost of land for housing.

This is because the charge creams off some of the inflated profits on land already present because of the Government's land use restrictions and other planning policies.

There is no physical shortage of land suitable for housing around Melbourne.  It is the regulatory-induced shortage created by the Melbourne 2030 plan and its accompanying armada of other planning restraints, environmental overlays and heritage obstacles that drives up prices.

Farmland around Melbourne is worth about $20,000 a hectare.  But once the Government stops preventing that land being used for housing it becomes worth $300,000 to $600,000 a hectare.  And the Treasury takes $95,000 of that.

Higher prices from regulatory-induced shortages of housing land, together with regulatory delays in approval processes, mean higher costs of new houses.  In Melbourne this translates into about $70,000 a new house.  And there is a ripple effect on all house prices in the metropolitan area.

Premier John Brumby claims he has released enough land from its regulatory shackles for 10 or 15 years of housing supply.  This is simply untrue.  There are 30,000 houses a year built in Greater Melbourne and we certainly don't have 300,000 blocks ready to be built on.

The Government's 10-year supply simply means that 300,000 potential blocks have passed the first of many regulatory hurdles that prevent land being used for housing.

Genuine removal of regulatory restrictions making 300,000 potential new houses available would bring a welcome fall in costs to new house buyers, but existing policy makes this unlikely because the Government's $95,000 a hectare "infrastructure contribution" tax gives it a vested interest in maintaining a shortage of housing land.

The consequent higher prices provide a bonus to the Government as well as to the landowners lucky enough to win the lottery of having their land rezoned for housing.

The losers are the people who don't own their home, few of whom would be able to recognise that housing unaffordability stems from government land use regulations.

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