Three-storey homes should be allowed to be built almost anywhere and planning rules should be radically rewritten to address Australia’s housing crisis, the federal government’s economic think tank says.
The Productivity Commission (PC) issued a major report this morning that outlined just how hard it is for Aussies to get their foot in the door of their first home.
It said “obtaining suitable housing in desirable locations has become increasingly out of reach” for many.
“It now takes the average household around 11 years to save a 20 per cent deposit on a typical home, up from eight years in 2005,” said PC Chairwoman Danielle Wood.
“When people can’t live near work or family the economy and the community suffers. We cannot solve our housing affordability problem unless we build more homes where people want to live.”
It urged state and local governments to simplify planning approvals and get rid of development restrictions to incentivise the construction of far more homes.
The report is the first step of an inquiry commissioned by Treasurer Jim Chalmers as the federal government looks certain to miss its target of building 1.2 million new homes by the middle of 2029. It puts forward ideas for reform ahead of the commission’s final recommendations due in March next year.
In March, the National Housing Supply and Affordability Council said the 1.2 million homes target was unlikely to be met until 2030, with the Northern Territory, Tasmania and NSW falling the furthest behind.
Three-storey homes should be built everywhere
Australian suburbia is famous for its abundance of single-story California bungalow-style homes with big yards, but it may be holding the nation back from building enough homes.
The Productivity Commission said governments should consider broadbased upzoning in cities, including allowing three-storey development on most residential land, reducing minimum lot sizes, enabling more mixed residential and commercial areas, and allowing more mid-rise and high-rise apartments in high-demand, well-serviced locations.
It said states should allow up to three-storey developments across all residential land. “Exceptions may be appropriate for areas with environmental protection or hazard-related overlays or heritage listed buildings, but exceptions should be supported by benefit-cost analysis to ensure the benefits of the exemptions exceed the costs of restricting housing supply,” the report stated.
It pointed to New Zealand, specifically in Auckland, where a similar idea was brought in.
“Multiple causal studies show that Auckland’s broad residential upzoning, which largely enabled medium-density housing such as townhouses and terrace houses, led to a significant increase in dwelling approvals,” it stated.
Four ideas to boost housing supply
The report sets out four principles for a better housing regulatory system: adopt a build mindset, regulate only where necessary, co-ordinate housing with infrastructure, and keep the process simple.
“Regulation is important, but too much or poorly designed regulation can stop new homes being built, make projects slower and more expensive, and reduce the types of housing available to us,” said Ms Wood.
“The rules should allow us to build enough housing in the right places, while still protecting the things Australians value.”
It said land-use rules — that determine where housing can be built, how much can be built, and what form it can take — are the biggest opportunity for reform.
The interim report says governments should consider broadbased upzoning in cities, including allowing three-storey development on most residential land, reducing minimum lot sizes, enabling more mixed residential and commercial areas, and allowing more mid-rise and high-rise apartments in high-demand, well-serviced locations.
“Regulation is essential – particularly where it ensures buildings are safe and built to a high standard. But too often, other rules are making it illegal or unviable to build the kinds of homes people need in the places they want to live,” said Commissioner Alison Roberts.
“The kind of rules that stop you adding a granny flat in your garden or replacing a single home with townhouses are at the core of our housing challenge.”
Housing and infrastructure need to be planned together
The report argues poorly co-ordinated infrastructure can also prevent new housing from being delivered, particularly in greenfield areas where roads, utilities and sewerage connections are often essential before homes can be built.
“You cannot build homes without the infrastructure that supports them,” said Dr Roberts.
“Housing plans and infrastructure plans need to work together. When they do not, land that has been rezoned for housing can sit unused for years.”
The report recommends that governments better align infrastructure plans with housing objectives, show how infrastructure will be funded and sequenced with land release, and improve consistency across levels of government, councils and utility providers.
The report also finds that slow and complex approval processes delay new housing and can make some developments unviable.
Approvals often involve multiple decision-makers across different levels of government, referral agencies and infrastructure providers. Poor co-ordination between these bodies can add months or years to projects.
“We heard examples of developers trying to navigate overlapping approvals and agencies that were not talking to each other,” said Ms Wood.
“One developer told us that preparing reports and waiting for approvals had added more than three years to the timeline of a 1,600 lot development in Melbourne’s growth corridor.
“Making approvals more efficient won’t be enough to shift the dial on housing supply by itself, but it will help when combined with other reforms.”
The interim report says governments should make greater use of fast-track pathways for simple developments, state-significant pathways where state-led assessment is needed, co-ordination bodies with the power to resolve disputes, better technology, and transparent reporting of approval outcomes.
‘Won’t make housing cheaper’: Report doesn’t go far enough
Some developers don’t believe the recommendations outlined in the report go far enough, and will not create a meaningful rise in the number of houses.
Intrapac Property chief executive Maxwell Shifman said the report missed “all the stuff that would actually make housing cheaper”.
“Simply zoning more land doesn’t of itself improve feasibility. It still comes back to cost, the time it takes to build with the labour pool we have and the cost of finance and – ultimately – buyer demand and capacity,” he told the AFR.
Alarmed by a sharp drop in home ownership among young families, several states have already started unpicking restrictive planning rules.
The Productivity Commission highlighted in its report that a chronic shortage of housing has driven this decline, pointing to figures showing the proportion of 25 to 34-year-olds owning a home plunged from 60 per cent in 1981 to just 42 per cent in 2021.
In New South Wales, the Minns government has pushed through changes to make semi-detached and dual-occupancy builds far easier in low-density zones, alongside reforms permitting six-storey apartment blocks near major transport links.
Meanwhile, Victoria has introduced a fast-track approval pathway for townhouses, duplexes, and low-rise apartments up to three storeys, effectively insulating compliant developments from council delays and local objections.
‘Everything is going down’: Housing in freefall
The report comes as the housing market faces a reckoning amid record low auction clearance rates and concerns about new tax rules in the budget
Melbourne’s property market has been leading the national downturn, with new data showing almost one in three homes are selling for tens of thousands of dollars less than first asked.
Analysis by property tracker Spachus found 29 per cent of dwellings for sale in the Victorian capital had reduced their original advertised price, and “that percentage continues to climb each day”.
Phil Seymour, founder of Spachus, told news.com.au that figure outstripped what was being seen in Sydney where up to 12 per cent of properties were decreasing.
Mr Seymour said there were some pockets of the Melbourne market still selling over asking price but most others were being smashed by a range of factors.
“(There are) a lot of reductions around units in Melbourne, that’s probably the most,” he said.
“The townhomes closest to the city are competitive but that’s probably the only thing we noticed. Everything else is going down.”
Over the past three months the median sold price for Melbourne properties was $23,750 less than the mark they went on the market for, according to Spachus data.
When broken down into types of dwellings and the corresponding discount, 27.5 per cent of homes were reduced by 14 per cent and 28.5 per cent of apartments were selling at 12.5 per cent less.
Just over a quarter of townhomes were reduced from original prices and selling at almost 20 per cent less, Spachus’ live data found.
Other areas like Sydney (-$70,000), the Central Coast (-$75,000), Wollongong (-$50,000), Geelong (-$45,500) and the Sunshine Coast (-$40,000) have posted significantly higher median discounts.
— with Heath Parkes-Hupton