How the planning system and development levies are ruining NSW

Going Nowhere is a quantitative study.  It sets out, with ground-breaking clarity, how property development has collapsed in NSW since 2002. It shows how the breakdown in NSW has not been mirrored in other comparable states.

Going Nowhere has been prepared by respected economic forecaster BIS Shrapnel and has been published by the Urban Taskforce.

The key findings of the report are set out below:

• The 2005 Sydney Metropolitan Strategy has not delivered.
• The new targets for housing policy will not be delivered without reform
• The collapse in property development has seriously harmed the NSW economy
• NSW is not well positioned to manage the ageing of its population
• We need to get housing construction back to 1990s levels
• 12 point plan for reform

The 2005 Sydney Metropolitan Strategy has not delivered

The Metropolitan Strategy sought to deliver 245,500 extra homes for Sydney between 2004 and 2013. The actual number of additional homes for Sydney is likely to be between 160,000 and 180,000 falling short of the 2005 targets by more than 27 per cent.

The dearth of new homes in Sydney is having a profound social impact. Only 64 per cent of Sydney households own their own home down from 70 per cent at the beginning of the decade. Sydneys level of home ownership is now lower than every Australian capital city, bar Darwin. In contrast, Brisbanes level of home ownership has increased from 63 per cent to 68 per cent.

Thats an extra 45,000 Sydney households renting, instead of owning. It adds up to an extra 70,000 households renting state-wide. This report shows that, with an extra 10,000 new homes a year, it might have been possible to give NSW residents the same access to home ownership they enjoyed in 2001/2002.

The new targets for housing policy will not be delivered without reform

In March the government upped its targets for new Sydney housing - from 24,600 new homes each year to 26,550 dwellings a year.

These numbers envisage a return to development levels not seen since the 1990s, but no matching reforms to the planning system and levies are on the table. The gap between actual housing supply in recent years and the near-term projections are greatest in the most affordable parts of Sydney.

In the local government areas where land is expensive, supply is falling short of government targets by about 10 per cent. For the other local government areas the supply of new homes is falling short of government targets by 36 per cent.

The bottom line is that the latest targets for apartments and townhouses are more difficult to achieve in those suburbs where prices are more affordable. Higher income earners, buying in expensive areas are in a better position to pay home prices that reflect the excessive costs imposed by the planning system and development levies.

On the other hand, middle and low income Sydneysiders can't afford to pay those kinds of prices, so the much needed new homes in affordable areas simply aren't being built. If government policy remains unchanged the Metropolitan Strategy will be no more than a rear vision mirror. The Strategy will serve to remind us of what Sydney could have had if we retained the policy environment of the 1990s, when NSW housing production was strong.

The collapse in property development has seriously harmed the NSW economy

Over the past five years, Australia has had a ˜three-speed economy. While Queensland and Western Australia have led the way, NSW has lagged well behind Victoria and South Australia.

The roots of NSWs economic weakness lie in its residential property market. Relatively weak population growth has been the key distinction of the NSW economy.

The 'Sydney-is-full' policies of the then state government saw a spike in residential property prices from 1999 to 2003 leading to the rapid slowing in NSW population growth.

Going Nowhere shows that while population growth in NSW was very weak from 2002 to 2006, it was solid in Victoria, averaging 1.3 per cent compared to just 0.7 per cent in NSW

From 2003 to 2009, Victorias economy substantially outperformed NSW with average annual economic growth at 3.3 per cent in Victoria, compared to 1.7 per cent in NSW. Average annual job growth was 2.1 per cent in Victoria, compared to 1.4 per cent in NSW. Of all the states, NSW economic growth per capita was slowest at just 0.8 per cent a year.

Population growth tends to encourage per capita economic growth itself. It makes more sense to invest in infrastructure in high growth areas, with greater economies of scale.

NSW is not well positioned to manage the ageing of its population

Unlike the rest of Australia, beyond 2020 the annual projected increase in NSW's retiree population will exceed the rise in the workforce population.

Not only is NSW not gaining employment age workers from other states, it is also losing people from its current work pool. Increased overseas migration to NSW would help the state fund public services and maintain a sufficiently large labour force. Thats because overseas immigrants are, on average, younger than those already here. Their presence in NSW can help reduce the imbalances that would otherwise arise.

However, its our inability to produce enough homes that has led to a sharp fall in the NSW share of overseas migration. Prior to the dramatic rise in property prices in the late 1990s and early 2000s, NSW maintained a steady share of national net overseas migration, at about 42 per cent.

Over the past decade, the NSW share of overseas migration has fallen substantially, settling at about 30 per cent over the past three years.

We need to get housing construction back to 1990s levels

NSW was at record low levels of housing construction, and that there would inevitably be some recovery, even without reform by the government.

The issue is not whether or not there will be an increase in home construction we can't stay at rock bottom forever so a recovery of some sort is inevitable. The issue is, will the recovery in home construction be strong enough to address NSW and Sydney's fundamental social and economic problems?

The business as usual approach will merely return the rate of housing construction back to the 2000s average. In this event, Sydneys annual supply of extra homes would only reach 17,000 and the states annual supply would only increase to 29,000 homes.

At this level of construction, the NSW economy would be set for another extended period of performance below the national average. Going Nowhere finds that, at the very least, NSW must get housing supply back to the performance levels of the 1990s and meet the new targets of the Metropolitan Strategy.

This means we need a minimum annual average supply of about 25,000 extra homes for Sydney and 39,000 extra homes for NSW. While this scenario which requires a doubling of the current rate of housing construction - will alleviate housing shortages somewhat, it is a second best outcome.

Going Nowhere finds that NSW might recover the share of national overseas migration that has been taken by Queensland by boosting its annual construction of extra homes to 48,000 each year beyond 2015. This is two-and-a-half times the 2009 level of housing construction.

The NSW Government targets fall short of this goal. Going Nowhere find that the ˜no reform option will leave the states economy up to $8.3 billion worse off by 2035. The NSW budget would lose between up to $2.5 billion in revenue by 2020, and up to $10.5 billion in revenue by 2028.

12 point plan for reform

The Urban Taskforce is advocating a 12 point plan for the reform of NSWs planning system. This plan would:

1. introduce new statutory objectives for the planning system, based around the principles of:
   • supporting the states economy;
   • promoting ecologically sustainable development;
   • promoting liveable communities;
   • managing impacts on public infrastructure; and
   • promoting private investment by respecting property rights;
2. impose new rules to limit bureaucratic and political games by ensuring that development meeting pre-determined standards is entitled to approval;
3. force consent authorities to deal with matters promptly, within a deemed-to-comply timetable;
4. reduce uncertainty by clearly defining the matters that can be considered in the development assessment process;
5. ensure that a private property owner is properly compensated for removal of land use rights by the government;
6. reduce and reform the highest local council development levies in Australia;
7. redesign state infrastructure contribution levies so that economic distortions are reduced and there is greater transparency;
8. emulate Victoria by introducing stamp duty concessions for off-the-plan home purchases;
9. reform the template being used in the preparation of new local environmental plans - so it genuinely promotes good urban outcomes and reduces over-regulation;
10. progress the rezoning of land for development as promised in numerous strategies and give proponents Queensland-style appeal rights when rezoning proposals are unreasonably refused or delayed;
11. improve the handling of state and regionally significant projects by improving the expertise of those assessing the applications; and
12. remove the ability of bureaucrats and politicians to second guess the market and/or take into account the loss of trade that might be suffered by existing businesses as a result of new development.

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You can also purchase Going Nowhere as a book for $27.50 (inc. GST), plus postage, by e-mailing your details to This email address is being protected from spambots. You need JavaScript enabled to view it. .

You can learn more about the Urban Taskforce's 12 point plan by reading Deny Everything. This second report explains the detail behind the 12 point plan. It is an ideal resource for policy-makers and anyone else who cares about the future of our urban communities. Deny Everything was released simultaneously with Going Nowhere on 27 April 2010.

Download Deny Everything FREE as a PDF (1.5 MB)