Government Policies Blamed for Australia's Housing Crisis as Land Prices Soar
A recent report attributes Australia's housing crisis to government policies, which are identified as contributors to surging land prices across the nation. The typical land plot in Australia reached a record high of $391,420 in September, a sixfold increase since 2000, with most capital cities experiencing significantly higher prices.
Factors Affecting Land Prices
The Housing Industry Association (HIA), a backer of the report, states that growing taxation and the obligation for developers to cover infrastructure costs—a practice not common in the early 1990s—have exacerbated price increases.
The HIA's Residential Land Report characterizes the national housing crisis as a "government policy induced market failure."
The report argues that consistent increases in land prices stem from a restricted supply of new land made available for development, thereby raising home construction costs.
The report suggests that "land scarcity in Australian cities is largely artificial," created by planning systems, infrastructure funding models, and regulatory processes that limit supply and transfer costs to new housing, rather than utilizing consolidated state government revenue.
Regional Price and Size Trends
Over the past decade, land parcel prices have approximately doubled in Melbourne, Brisbane, Adelaide, and Hobart, and increased by about 67% in Sydney. This occurred despite a reduction in the typical land block size in Sydney (from 450sq m to 388sq m) and Melbourne (from 419sq m to 391sq m). Brisbane was the only capital to see an increase in land size, rising from 450sq m to approximately 506sq m over the same period.
Consequently, the cost per square meter of land has surged. Buyers in Sydney now pay an additional $1,000 per square meter, while those in Melbourne, Adelaide, and Brisbane face an average increase of $500.
Expert Perspectives on Policy Impact
Tim Reardon, HIA chief economist, stated that land costs primarily reflect the expenses associated with making land available for construction, including connections for utilities and surrounding infrastructure in new housing estates. While developers initially cover these costs, they are typically passed on to the homebuyers.
Mr. Reardon proposed that governments could reduce land costs by altering policies that mandate upfront infrastructure fees from developers, instead taking on infrastructure installation themselves. He noted that governments collect approximately $200,000 in direct taxation per home, suggesting that covering upfront infrastructure costs would be revenue-positive.
He added that the process of shifting costs to developers began in the 1990s and has intensified since 2000. While governments are reportedly recognizing their role in price increases, Mr. Reardon indicated that reversing this trend could take a decade to mitigate the impact on already affected land.
Prominent property developer Rory Costelloe, boss of Villawood Properties, affirmed that government actions have inflated land prices. Mr. Costelloe identified significant price spikes caused by the Howard government's home grants in 2001, a land shortage in 2017, and the Morrison government's Homebuilder scheme in 2020 and 2021. He also mentioned that the Albanese government's expansion of the First Home Guarantee scheme has been linked to increased housing prices.
Mr. Costelloe acknowledged industry greed as a factor but emphasized that it would be less impactful if supply were higher. He also noted that government infrastructure projects contribute to cost spikes by increasing competition for trades and materials. Delays in land development can lead to higher holding costs for developers, such as land tax, which are then often transferred to homebuyers.