Zoning rules push up house prices

Zoning restrictions restricting the supply of land on property are adding hundreds of thousands of dollars to the price of houses.

Research from the Reserve Bank of Australia has found that zoning regulations are in effect a tax on new house-and-land packages.

In Sydney, zoning restrictions raised prices 73 per cent above the cost of supply adding an extra $489 000. 

In Melbourne, zoning restrictions raised the average price of detached houses by 69 per cent. In Brisbane, it was 42 per cent in Brisbane and in Perth 54 per cent.

“This difference represents what home owners need to pay for the right to have a dwelling at that location, or the cost of “administrative’ scarcity,”   RBA researchers Ross Kendall and Peter Tulip said. 

The costs, they say, are “induced by government determined scarcity.”

With demand rising, they note that the “effect of zoning has increased dramatically over the past two decades.” 

“We also note that physical land costs are higher in Australian cities (particularly Sydney) than overseas. So even if zoning restrictions were relaxed, housing in Australia would remain expensive relative to cities where zoning is permissive and land is less physically scarce,” they say. 

Their research suggests it’s only going to get worse.

“If housing demand continues to grow, as seems likely, then existing zoning restrictions will bind more tightly and place continuing upward pressure on housing prices,” they say.

What’s needed, according to the study, are policy changes that make zoning restrictions less binding.

An award winning author and journalist, commentator, lecturer, and speaker, Leon is a freelance business journalist who covers a range of areas including politics, strategy, globalization, leadership and all the big trends ahead. His main skill is summing up all the news that’s around. For the last 30 years, his main focus has been on management issues. He also produces two podcasts for RMIT University, Talking Business and Talking Technology. Leon has worked for Fairfax, News Limited, AAP and the Herald and Weekly Times.

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