Why the NSW planning overhaul will improve affordability

Angus Moore
Angus Moore

Sweeping reforms in NSW aimed at unlocking more housing supply in key locations could improve affordability - it's already working across the ditch.

The NSW government recently announced wide-reaching changes to help fast-track approvals for middle-density homes.

The experience in Auckland, which undertook similar changes in 2016, shows that it could ramp up housing construction activity and improve affordability.

What’s been announced

While we don’t have much detail beyond the press release at this stage, what’s been announced is:

  • Duplexes / dual occupancies will be allowed in all low-density (R2) zones across NSW.
  • Terraces, townhouses, and two-storey apartments will be allowed in low-density R2 zones near transport hubs and town centres.
  • Mid-rise (up to six storeys) apartments will be allowed in medium density (R3) zones near transport hubs and town centres.

These changes will overrule local council rules that currently apply to these R2 and R3 zones.

That will be a notable change. Currently, according to analysis put out by the government in mid-October, terraces and 1-2 storey apartments are permitted in just two of the 32 council plans.

These are wide-reaching changes

The vast majority of Sydney’s residential land – in the order of 70% or a little more – is zoned R2 for low density. Under these proposed changes, dual occupancies will be possible on most Sydney residential land.

Residential land is considered to be anything zoned R1 through R5, R, plus some mixed use zones, and local centre zones.

The proposed changes apply to a large portion of Sydney’s residential land. Picture: Getty

Allowing mid-rise apartments in medium-density zones close to train stations and town centres is also similarly wide-reaching. Even just focusing on train stations, around a third of the medium-density R3-zoned land across Sydney is within 800 metres of a train station.

Put another way, this change applies to a lot of Sydney’s residential land.

While these changes seem wide-reaching on face, details matter, and it remains to be seen how these changes will interact with other aspects of the planning system.

For instance, as SydneyYimby has pointed out, widespread use of heritage protection could prevent developments that would otherwise be permissible under these changes.

Auckland experience shows reforms can improve housing availability and affordability

Auckland undertook similar reforms in 2016 as part of the “Auckland Unitary Plan”, which upzoned roughly three-quarters of residential land across Auckland.

This change had a material effect on construction and housing affordability.

Auckland has seen a material uplift in housing supply following similar changes in 2016. Picture: Getty

A study by Greenaway-McGrevy and Phillips compares areas affected by the upzoning with areas that weren’t, and finds a substantial increase in construction in affected areas. They estimate that the upzoning led to an additional 21,000 new homes above and beyond the normal pace of building between 2016 and 2021.

Moreover, these new homes are better located – closer to transport access and jobs – and the planning reform shifted the pattern of development towards infill development closer to the CBD and away from outer suburban greenfield areas.

Upzoning also materially improved rents.

A companion study of the same upzoning change finds that the extra construction enabled by this upzoning drove down rents. Six years after the upzoning took place, rents for two-bedroom homes in Auckland were 20% lower, and rents for three-bedroom homes were as much as a third lower - compared to what rents would have been if the upzoning hadn’t taken place.

This change doesn’t solve all our problems, but it’s a good step

That’s not to say there aren’t challenges. Housing construction has become significantly more expensive in the past few years.

In the three and a half years from the start of the pandemic to the September quarter of this year, the cost of building a detached house has risen 37%, equivalent to 9.4% a year.

That’s nearly two and half times as quick as its historical growth rate. Surging prices for raw materials have been a key part of why the cost to build a home has increased so much.

The story is a bit better for apartments but still challenging. Costs have increased 18%, also faster than what’s been typical historically, but not as severe as the cost increase for detached houses.

A closely related challenge is that it has been taking longer to build homes of all types than it did pre-pandemic.

The time it takes to build a detached house has increased from a little over two quarters to more than three quarters – an increase of more than 40%. That change means we are lagging tens of thousands of homes behind where we would normally expect to be, just for detached houses alone.

Many factors have driven this increase, and not all of it is down to the pandemic – the time to build apartments had started increasing even before the pandemic. But pandemic-era supply chain disruptions and difficulties sourcing materials, as well as difficulties finding labour amid multi-decade low unemployment are an important part of the story.

These are real challenges, and will make it tough to deliver on the number of homes we need.

But making it easier to build low-rise density is the right first step in building more homes in the parts of NSW that most need more housing.

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