The increasing burden of red tape is significantly inflating the cost of new homes in Australia, with estimates suggesting an additional $320,000 is required for construction due to regulatory measures. This alarming figure has prompted Danielle Wood, chair of the Productivity Commission, to urge governments to address these “regulatory hairballs” that contribute to the rising prices of housing.
A recent report from the Productivity Commission reveals that regulations surrounding new properties are costing home buyers as much as $47.5 billion annually. With home prices continuing to escalate, state governments are struggling to meet the federal objective of constructing 1.2 million homes over the next five years, currently falling behind schedule by approximately 70,000 homes.
Wood emphasized that the complexity of regulations is evident across various sectors, but housing remains a critical issue given its profound impact on the economy and society. She stated, “It’s particularly pointy when it comes to housing because it does have just such profound impacts on the broader economy and society.”
In response to the regulatory challenges, Victoria has introduced comprehensive planning reforms aimed at reducing approval times for new homes and low-rise apartments. These changes will limit residents’ rights to appeal decisions, while New South Wales has streamlined its laws to eliminate unnecessary duplications that have previously delayed applications.
The report indicates that restrictive zoning laws account for the largest portion of regulatory costs, representing between 50% and 80% of additional expenses for new homes. For residential units, which typically occupy less land, the primary regulatory burden stems from administrative and assessment paperwork, amounting to 33% to 36% of costs. Interestingly, the government costs associated with homes in Brisbane are nearly equivalent to those in Melbourne, while regulatory expenses are highest in Sydney.
While Wood acknowledges the necessity of safety and quality regulations to foster consumer confidence in home purchases, she argues that the balance between ensuring affordable home ownership and adhering to regulatory requirements has become skewed. “It’s a burden that sort of ratchets up, sometimes for good reasons, but often without enough consciousness of the trade-offs, and that trade-off is ultimately making houses more expensive and less easy to supply,” she noted.
Wood suggested that the federal government could incentivize regulatory changes managed by states, particularly in planning and heritage laws, rather than solely focusing on housing targets, which may be influenced by various factors beyond state control.
The Housing Industry Association (HIA) chief economist, Tim Reardon, pointed out that costs in Sydney and Melbourne are likely even higher, with HIA estimates indicating that regulatory expenses comprise about 50% of the cost of a new house and land package. He described the estimates provided by the Productivity Commission as conservative, particularly reflecting the financial realities faced by Australians in urban areas.
Reardon welcomed the proposed pause on the National Construction Code, which has expanded to include thousands of pages of requirements for new builds. He emphasized the need for further reforms to reduce housing prices, highlighting that the focus on energy efficiency has often overshadowed affordability.
Additionally, Denita Wawn, chief executive of Master Builders Australia, called for a reevaluation of the impact of regulations on the construction industry, urging the federal government to recognize the growing volume of regulation as a hindrance to productivity. Wawn advocated for a reduction of red tape by at least 25%, stressing that a fundamental shift in regulatory norms is essential for the long-term viability of the building sector.
As Australia confronts a housing affordability crisis, addressing the complexities of regulatory frameworks will be crucial for facilitating access to new homes and ensuring that the goals for housing development are met effectively.
