Wednesday Aug 30, 2023

Rental and Housing Affordability with Peter Tulip

We need to relax zoning restrictions to allow more housing. At a society level, this requires more acceptance of higher density and less opposition to new development. We need to put more weight on the interests of renters and future home buyers and
less weight on the interests of nearby residents. This rebalancing will shift the incentives for elected governments to act.

Societal pressure over the issue of housing affordability is growing, but needs to be encouraged. Were the Victorian government inclined to do something to improve housing affordability, there are
several measures it could take.

One increasingly popular and effective approach is for the state government to set conditions that apply across local plans. For example, NSW removed limits on the construction of granny flats. New Zealand’s ‘Medium Density Residential Standard’ requires large cities to permit up to three storeys and three dwellings on all existing residential parcels of land. California’s AB 2011 allowed medium-density residential development to proceed by right in commercial zones. American research lists dozens of similar reforms.

Minimum standards can prevent the worst restrictions. However, their uniformity is a limitation: different levels and forms of density are appropriate in different areas.

Granny flats are not efficient in the inner suburbs, while high-rises are not efficient on the outskirts. In practice, blanket over-rides such as Auckland’s Unitary Plan have tended to increase density most on the outskirts; whereas Melbourne arguably most needs development in inner suburbs.

A more flexible approach is for the state government to set and enforce construction targets for local councils, allowing each council to decide how the target should be met. Councils could choose a small number of high-density developments or a larger number of medium density developments.

Either choice improves housing affordability. The important thing is that councils need to allow more housing. The quantity should be decided centrally; the type can be decentralised. An approach like this is followed in NSW and many foreign jurisdictions, including England, California and some Canadian provinces. However, most of those targets are too low and inadequately enforced.

The rationale for the state government over-riding local councils is that the councils are biased against development. They represent nearby residents, not the direct beneficiaries — the
newcomers moving into the area – nor the indirect beneficiaries, the renters and future home buyers who pay lower housing costs. Local governments will act like a cartel, restricting supply and driving up the price of housing. That benefits local property owners, but this is more than outweighed by the harm done to potential residents from outside the area and future generations.

- Peter Tulip

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