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Can the cost of zoning in Sydney really be $489k per house?

Posted by on May 4th, 2018 · Affordability, Economy, Housing, Housing supply

By Laura Crommelin and Hal Pawson, City Futures Research Centre.

Can landuse planning restrictions be fairly blamed for Sydney’s unaffordable housing? Around 200 people attended a spirited yet erudite debate on this subject jointly staged by Sydney University’s Halloran Trust and UNSW City Futures last week. At issue was the striking claim made in a recent Reserve Bank of Australia discussion paper that the financial impact of ‘zoning’ in Sydney equates to $489,000 for a typical house and $399K for an apartment. Moreover, as the RBA paper argued, this ‘zoning effect’ had become more pronounced over recent years.

RBA report co-author, Dr Peter Tulip was on hand to explain his methodology. At the heart of the analysis was the estimation of ‘physical [residential] land’ price and the observation of an unexplained ‘residual’ when subtracting this from typical dwelling price, allowing for construction cost. This ‘residual’ amount, according to the RBA paper, is ‘the cost of zoning’.

The discussion paper’s approach was backed by the Grattan Institute’s Brendan Coates as in tune with the recent Grattan argument that overpriced capital city housing results substantially from undue planning restrictions on medium density redevelopment in middle suburban areas.

Contesting the RBA claim, meanwhile, were housing economists, Dr Cameron Murray (Australia Institute) and Prof Rachel Ong (Curtin University), as well as Sydney University Professor of Planning, Nicole Gurran. Professor Ong questioned the appropriateness of treating the entire ‘unexplained component’ of house prices as a ‘zoning effect’. As well as querying the treatment of land as a standard commodity akin to apples she noted that – even if accurate – claims about ‘the cost of zoning’ made in the absence of any attempt to quantify the benefits of planning problematically indicated a one-sided research agenda.

In a similar vein, Dr Murray argued that the RBA analysis paid insufficient regard to the special economic qualities of land  and that the method used to estimate the physical land value component of house prices was therefore inappropriate. To round out the presentations, Professor Gurran argued that the RBA paper had arrived at misleading conclusions due to its lack of engagement with the real world operation of planning systems, and its failure to explain the range of regulations it grouped under the ‘zoning’ label.

Last week’s event has already stimulated some lively press coverage. And going by the number of audience questions, it was clear that the panellists touched on some pressing and contentious issues, with the debates continuing over drinks long after the event’s conclusion. Our thanks to Sydney University for hosting the event, and to Dr Peter Tulip and the panellists for their thoughtful contributions to an important debate.

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