Housing costs reflect land prices says RBA

Housing costs reflect land prices, says RBAThe challenge of providing an adequate supply of affordable housing rests squarely on the shoulders of state governments and their supply policies, says Reserve Bank’s Deputy Governor Philip Lowe.Meeting the housing needs of an increasing population is dependent on the flexibility of land supply, and in particular the supply of well-located land, Lowe told the audience at a conference last week.”This is because high housing costs largely reflect high land prices, not high construction costs. Here, it is zoning regulations and the transportation infrastructure that can make a material difference. In both areas, progress has been made since 2010, but there is more to be done,” he said.Glenn Byres, Property Council’s chief of Policy and Housing, says Lowe is “one hundred per cent spot on”.”The states and local councils across the country have been too negligent for too long in delivering sufficient volume of land in the right locations to help meet demand,” he says.”The epicenter of that failure has been in Sydney – and it is no accident that house and land prices have escalated fastest in the market where there has been the biggest policy failing.”Byres says there are two parts to this equation: the inability of governments to create sufficient land supply, and then the high transaction and holding costs that projects incur as they move through planning systems.Housing approvals achieved a record run in 2015, but while the Australian Bureau of Statistics’ most recent data on building approvals reveals a 10.6 per cent growth in annual approvals seasonally adjusted, it also records a 7.5 per cent drop in approvals in January.Byres says we can’t afford complacency.”We’ve seen a good run on approvals and commencements, but that has only put a dent in the pent-up demand. “We need to fix our planning systems now, because while they are able to cope in a good market, they fail in struggling markets. Approvals grind to a halt as soon as there is a deterioration in broader economic conditions,” he says.There are some early signals of change. South Australia is trying to push through wholesale reforms to its planning system, and Byres is hopeful that the “haggling in Parliament” won’t reduce the dividend on those reforms.He is also optimistic about the new Greater Sydney Commission in NSW, but warns it can only achieve so much given the broader development assessment laws are “the worst in the country”.”The NSW Government will get a bigger bang for its buck with the Greater Sydney Commission if it also fixes chronically inept planning laws in the state,” he concludes.