Sydney the worst capital city for land availability, Urban Development Institute report claims

Sydney has been ranked as the worst capital city when it comes to land availability in a new report released by the Urban Development Institute of Australia, which also argues the Government needs to pump more money into allowing the extension of city boundaries for developments.

The Housing Industry Association has welcomed the report, with economist Harley Dale saying the plan to open up the fringes of Sydney is required in order to drive down land costs and create easier planning procedures.

“We’re certainly concur with the themes of the report, which are in our own quarterly land report. We talk about these issues relating to planning, and lack of readily available land, and the unnecessary pressure that places on land values.”

“There is no doubt Sydney is in the worst position,” Dale says. “There has been very little greenfield development in those areas that are required to meet the demands of the population.”

The UDIA report recommends that the Government implement a long-term national strategy for urban developments, given that land availability has been falling in most capital cities since 2005.

This strategy would include initiatives such as pushing for each state to maintain a rolling supply of developments of 25-30 years in a range of growth areas, and a 15-year zoned land supply pipeline of serviceable land.

The UDIA has also recommended that the Productivity Commission undertake an inquiry into the financing of local infrastructure, and that the Federal Government should establish agreements with state governments regarding the environment protection conservation act.

“The findings in the Report demonstrate a clear need for greater focus from Government on housing supply and affordability, not a winding back of commitments,” chief executive Peter Sherrie said in a statement.

The report puts New South Wales as the worst state for land availability, with production still falling behind the other states. The UDIA report claims this is because there is an uncompetitive cost structure for new development, and a complex legal framework.

The report says that in 2009, dwelling completions accounted for 18.9% of the national total – this is down on the 25% share that it recorded during 2005, and the previous 35 years. And in 2010, completions fell by 9%.

In metropolitan Sydney, the amount of lots produced has fallen every year since 2000 – with only 1,723 produced in 2007-08.

However, it also identifies 131,057 potential dwellings in the total Metropolitan Development Program, and 68,636 of those are in zoned areas. Another 30,167 are in zones with lead-in infrastructure.

And while it also points out that some Government interventions, such as a $30,000 cap on local development contributions in greenfield locations, the creation of a Land and Housing Supply Coordination Taskforce and a program to update land release sequencing, may help matters, there is still more to do.

Some of the problems include a lack of coordination in the approval process, poor infrastructure servicing and the rezoning process all lack cohesion.

“The situation in Sydney is compounded by the fact that the Government refuses to release timely data on land supply and housing production. The Government has every reason to be embarrassed by the figures, but that’s no excuse to hide this information from the public.”

“Developers rely on these forecasts to make investment decisions. If there is no up-to-date data from Government, developers simply invest their capital elsewhere – but its new homebuyers that lose out.”

The report backs a proposal from the New South Wales opposition that argues land on the fringes of the city needs to be released, rather than focusing on suburban areas for developments – it wants to increase the share of housing built on the fringe from 30-50%.

Dale says the issue of deciding whether to develop inside or outside the city is one that is too often divided.

“You need a framework and an environment where you can engage in all forms of residential development. That includes greenfield development, that includes brown field development of residential sites.”

“It’s about having a framework of allowing people to have a choice where they want to live. I think the great shame in this whole debate is that everything is very polarised.”

The UDIA says the New South Wales government must facilitate the identification of land outside growth centres and require infrastructure and service agencies to produce grow the servicing plans for new developments.

The report also says that land supply constraints are also negatively impacting affordability – this undersupply is creating inflationary pressures and “there is a knock-on effect in the wider housing and rental markets”

“Furthermore, limited supply not only increases the costs of new dwellings, but also impacts on established dwellings, as there is little market incentive for existing homeowners to sell below the price of a new house,” the report states.

In other capital cities, the supply is better but not perfect. Melbourne “comfortably” leads the country in supply but the UDIA says rising prices indicate approval delays.

“While the steady and consistent rate of lot production has resulted in a relatively well priced market, some analysts suggest that the market may be headed towards a tipping point if prices continue to rise.”

Adelaide continues to offer reliable supplies of land but that supply is drying up, the report warns, and lot production in Perth is also on the decline. It also notes stronger population growth due to the mining boom may mean approval rates need to improve.

As for Brisbane, the UDIA report says it is the “most depressed” in the country. Lots coming on the market are rarely affordable, and high development levies are preventing more stock from entering the market.

Sherries says the Government needs to undertake a bi-annual audit of all Commonwealth land in order to update its register of surplus, so more affordable land can come on to the market quicker.

“The Report illustrates the growing gap between land supply and demand throughout Australia. It paints a concerning picture for policy makers and importantly, for new homebuyers looking to enter the market,” he said.