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Sydney lurches to housing affordability disaster

By John Muscat - posted Tuesday, 6 December 2016

Now and again Australia erupts in controversy about housing affordability. Each time it follows the same course. Some new statistic or media story confirms that prices are out of control. A senior politician is prompted to call for deregulation and more supply, and is backed-up by the property industry. Then come progressive policy wonks saying no, the issue is high investor demand stimulated by tax concessions. Next emerge the welfare lobby, calling for tax reform as well as more social housing and “inclusionary zoning”. After a round of claims and counter-claims, it all fizzles out.

From the surveyed general public to the Reserve Bank, almost everyone agrees Sydney has a critical problem. The wrangling isn’t over whether to reduce prices, but how. And that depends on where you fit in the city’s system of interests with a stake in property development and construction.

Conflict of interests


Generally, these fall into three groups, with their distinct agendas.

First, the producers and beneficiaries of Big Projects; large-scale housing and urban renewal schemes, particularly high-end apartment developers, top-tier architectural practices, urban planners, rail transport engineers and “sustainability” consultants. Joining them are governments levying value-based property charges, financial institutions with large home mortgage books, and media groups dependent on luxury apartment advertising. “Three of the biggest forces pushing up dwelling prices (the banks, state governments and councils) are like drug addicts”, writes Robert Gottliebsen, “they are hooked on keeping dwelling prices at the current levels or increasing them further”.

In some waysa high-land-value coalition, their agenda encompasses residential densification, preferably on infill or brownfield sites, transit-oriented-development (TOD), and a tendency to CBD-centrism. On the whole, they are supply-solution advocates and support tax concessions.  

Second, progressive policy analysts and welfare advocates, closely aligned with the university system and highly educated knowledge-worker elite. They, too, promote inner-urban infill development, higher core and middle-ring densities, and public amenities associated with TOD. While the Big Project coalition is mostly driven by finances, cultural-lifestyle factors loom large for knowledge-welfare types. Hence their demands for more housing near “consumer city” localities crammed with trendy bars, pubs, nightclubs, restaurants, cafes, art galleries, theaters, museums and cinemas. This plays into “creative-class” perspectives on economic growth and an aversion to suburbanization as “unsustainable”. Some of them are supply-solution sceptics, leaning toward demand-management, and most are aggressive critics of tax concessions. They urge more social housing schemes and inclusionary zoning, which Big Project lobbies oppose (with good reason; the evidence suggests it reduces supply and raises prices).  

Third, fringe or greenfield detached house builders, the mass of low-to-middle income industrial or routine service workers, low-level government employees, marginal small traders, in industries like retail, wholesale, logistics, transport, distribution, manufacturing, construction and trades. This worker-trader class is particularly sensitive to input costs, including the impact of high land values on commercial rents. Many rely on real estate as security for financing and gravitate to homes, offices and plant in low-cost, peripheral, auto-oriented regions like Greater Western Sydney.

There is some overlap between the groups, with elements of the Big Projects coalition, architects, urban planners, sustainability consultants and engineers, crossing over to the knowledge-welfare elite. Apartment developers routinely deploy creative-class and green arguments for proposals which are integrated into broader densification—TOD zoning and infrastructure arrangements.


Past affordability eruptions were blown off course by the tax issue. Eventually, Labor embraced reform of negative gearing and CGT concessions as policy, urged on by think tanks like Grattan Institute and McKell Institute, prominent knowledge-welfare voices. Yet according to their own estimates, prices would fall by a measly 2 and 0.49 per cent respectively.

Considering that Sydney prices have escalated by a staggering 64 per cent since 2012, the focus on tax reform is a distraction. Economists like Judith Sloan and Stephen Koukoulas maintain that if there are any tax impacts at all, they are secondary to supply constraints rather than vice versa.

Retreat from the fringe

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This is an edited version of an article first published on The New City.

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About the Author

John Muscat is a co-editor, along with Jeremy Gilling, of The New City, a web journal of urban and political affairs.

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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