4 June 2018
The Planning Institute of Australia (PIA) has welcomed economist Peter Abelson’s assessment that interest rates are a more important determinant of capital city house prices and rents than the number of new houses built.
Presenting a paper examining house prices in the state capitals from 1970 to 2017, Professor Abelson told a University of Sydney/Henry Halloran Trust event on 31 May that “house prices are an asset pricing issue”.
“The key driver of house price inflation … over the past 18 years has been the large falls in the RBA and other bank rates and related borrowing rates,” he said.
Professor Abelson’s comments are the latest in a public debate sparked by the Reserve Bank of Australia’s claim that zoning increases the cost of an average Sydney house by about $489,000 – and by slightly smaller amounts in Melbourne and the other state capitals.
The validity of the Reserve’s claims, made in a research discussion paper published in March, has been questioned by planning academics and economists.
A short video critically examining the RBA’s research (produced by Professor Peter Phibbs through the Henry Halloran Trust) was shown at Professor Abelson’s presentation.
PIA National Principal Policy Officer John Brockhoff said Professor Abelson’s findings were a welcome injection of reality in a debate frequently centred around assertions that planning constraints and land supply were to blame for high housing prices and rents.
“Sydney and Melbourne are producing record amounts of new housing,” Mr Brockhoff said. “And while providing more quantity and diversity of housing stock with supporting infrastructure is vital to managing growth, it is no the panacea for improving housing affordability,
“The RBA’s claim that the difference between the average house price and construction costs is entirely attributable to ‘zoning’ missed the point about planning controls (including zoning) – which was that they improve the way society allocates and shares the use of land.
“Their claims did not respond to the effect of geography or ‘place’, nor the value-adding role of planning to improve amenity and make cities function more effectively,” he said.
At a previous forum hosted by the University of Sydney and the Henry Halloran Trust on 3 May, a number of planning academics and property economists challenged the validity of the RBA’s analysis and conclusions.
Dr Cameron Murray, a University of Queensland economist, argued that the attribution of the entire difference between the price of the housing and the marginal cost of supply to a single “zoning” effect ignored the full range of plausible alternative factors.
Professor Nicole Gurran, a planner at University of Sydney, noted that planning regulatory interventions into the market for land and housing were complex and diverse, and went well beyond just “zoning”.
Mr Brockhoff said: “Planning is not the problem. It’s part of the solution towards achieving sustainable cities and regions.
“Good planning can best do its job when housing demand is not superheated – and where incentives to trade housing as an asset rather than as shelter do not dominate,” he said.
Ends