The Public Purpose
Number 85 - December 2004


By Wendell Cox

The New South Wales state government announced a "land release" that will allow building 160,000 new houses on greenfield sites to the northwest and southwest of Sydney over the next 30 years. While the government news release did not indicate the land area of the proposed development, analysis by Demographia indicates suggests that the new development will cover approximately 150 square kilometers (60 square miles).

The "land release" was authorized under the "compact city" (urban consolidation) policies of the Bob Carr state Labor government. In recent years, Sydney has emerged as perhaps the most aggressive example of "smart growth" anti-urban sprawl policies in the world. Beyond requiring all urban development to be inside an urban growth boundary (as in Portland), the state government has sought to require more than 60 percent of all new housing development to be within already developed areas. Unlike other Australian urban areas that have adopted similar regulations, Sydney's planned infill/greenfield distribution has been achieved in recent years.

As in the case of Portland, San Francisco, Los Angeles, London, San Diego, Denver, Boston and other urban areas that have implemented "land rationing" policies, Sydney has experienced an unprecedented loss in housing affordability. Indeed, Sydney may have become the most unaffordable housing market in the English speaking New World (USA, Canada, Australia & New Zealand). In 2001, housing affordability in Sydney had become worse than Portland as bad as the North American "champions" San Francisco and Vancouver.

But things have only gotten worse, and rapidly. By now, the median house price has increased nearly 40 percent from 2001. Needless to say, the incomes of Sydney residents have by no means kept up with that "smart growth" driven explosion.

Government leaders, civic leaders and citizens groups all agree that something must be done to solve the housing affordability problem. But everything seems to be on the agenda but what would work. For example, there are myopic proposals to create subsidies to improve affordability. Australia is a rich country, but no country is rich enough to pay the $200,000 to $300,000 per new buyer that would be necessary to remove the smart growth tax that urban consolidation policies have added to Sydney housing. As my friend Christchurch, New Zealand developer Hugh Pavletich put it, Sydney has strangled its housing market.

But there are no serious proposals to implement the only strategy that can return housing opportunity for the younger and less affluent households not fortunate enough to have climbed on the economic ladder before the planners pulled it up. The answer, unpopular as it might be to those who would take away futures to preserve a few square kilometers of overly abundant land, is to repeal the ill-conceived urban consolidation policies that have caused the problem. As basic economics teaches, rationing leads to higher prices. Regrettably this is beyond the comprehension of too many land use planners, whether releasing too little bread in the mercifully long-gone Soviet Union or releasing too little land to sustain economic opportunity in Sydney.

Has the Carr government loosened the noose enough to solve the problem? Not a chance. The government itself acknowledges that this is not enough. In Sydney, as with the recent relaxation of the urban growth boundary in Portland, housing cost escalation might slow down a bit. But allowing the future to be as good for future generations as it is already for their parents and grandparents will require a lot more. Without allowing the market to determine where development should occur, housing affordability for young and less affluent residents of Sydney is a thing of the past. And, with urban development occupying so little of coastal New South Wales, the argument that there is not enough land will make sense only to those who haven't ventured outside the urban area. There is plenty of land. Plenty of land has already been protected from development, yet there is still more than enough available land for any conceivable expansion of urbanization.

The government advocates prefer to think that Sydney's growth is the root of the housing affordability problem. Nothing could be further from the truth. Dallas-Fort Worth, Houston and Atlanta are the fastest growing large urban areas in the English speaking New World. Each is already larger than Sydney and growing faster. They also have the most affordable housing markets. This is because Dallas-Fort Worth, Houston and Atlanta have been careful not to apply Soviet bread line policies to their housing markets. While median house prices are certainly more than six times median household income in Sydney, Dallas-Fort Worth, Houston and Atlanta have multiples less than three. While the income Sydney household faces median house prices that would take more than 300 weeks of income to purchase, their counterparts in Dallas-Fort Worth, Houston and Atlanta would need less than 150 weeks.

The message is simple. Strangle housing markets and you risk strangling the future. More than a noose-loosening is in order. It's time to cut the rope.

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