The amount that red tape is adding to the cost of new homes

2 hours ago 2

Sprawling red tape from zoning laws to local council regulations is adding up to $320,000 to the cost of building a new home, prompting the head of the Productivity Commission to call for governments to deal with the “regulatory hairballs” that have made Australian homes so expensive.

A commission report into lifting the economy’s speed limit found regulation on new properties is costing home buyers up to $47.5 billion per year amid calls for burdensome regulation to be re-examined to ensure it is fit for purpose.

As home prices continue to soar, state governments are facing an uphill battle to meet the federal government’s target to build 1.2 million homes in five years, which is about 70,000 homes behind schedule.

Productivity Commission chair Danielle Wood said the red tape burden was symptomatic of the challenges across many sectors, but housing represented a crucial part of Australian life.

“It’s particularly pointy when it comes to housing because it does have just such profound impacts on the broader economy and society,” she said.

“We think there is a case that government should go to some of these areas where what I call the regulatory hairballs have developed and really take a good hard look on what regulation is needed, what you might be able to pare back and how to improve the speed of turnarounds of regulatory approvals.”

Red tape in the construction sector adds hundreds of thousands of dollars to the cost of new homes.

Victoria introduced sweeping planning reform in October that will see residents lose their rights to appeal new homes and low-rise apartment developments, in a move designed to slash maximum approval times.

NSW has overhauled its laws to remove steps that had already been addressed through strategic planning or through development controls, stripping out duplications that delayed applications.

The Productivity Commission’s report estimated that restrictive zoning laws were the largest regulatory cost on new homes, at 50-80 per cent.

For units, which use less land, the greatest regulatory cost is administrative and assessment paperwork, at 33-36 per cent.

The government costs on a home in Brisbane were about the same as a home built in Melbourne, while regulation cost the most in Sydney.

Wood said safety and quality regulations were essential to ensure consumer confidence in buying a home, but the balance with ensuring home ownership was affordable had been thrown out of whack over decades of creeping regulatory requirements.

“It’s a burden that sort of ratchets up, sometimes for good reasons, but often without enough consciousness of the trade-offs, and that trade-off is ultimately making houses more expensive and less easy to supply, and in a time where we have a real affordability challenge,” she said.

Wood said the federal government could focus on incentivising regulatory change that states oversee, such as in planning or heritage laws, rather than with housing targets – the success of which can be influenced by a range of factors not always within the states’ control.

Danielle Wood, the chair of the Productivity Commission, has called for the government to review regulatory hairballs.

Housing Industry Association chief economist Tim Reardon said his organisation’s modelling suggested the cost in Sydney and Melbourne, where a large portion of the population lived, was much higher.

He said HIA estimates 50 per cent of the cost of a new house and land package is regulatory.

“The upper bound that [the Productivity Commission] have there reflects the costs in Sydney and Melbourne … so it’s more accurate to reflect on that upper bound as being a conservative estimate of what the average Australian incurs,” he said.

He said a move to pause the National Construction Code – which had blown out to thousands of pages of requirements on new builds – was welcome but there was more to do to bring down house prices.

“That trade-off between accessibility and energy efficiency has taken precedence over affordability, and that same decision-making process we’ve seen over the course of 25 years is at the core of why housing is now very unaffordable,” he said.

Reardon said the system should be reformed so repeat approvals were only required once, and to encourage foreign investment in construction.

Master Builders Australia chief executive Denita Wawn said the report should be a wake-up call to the federal government, which should reassess regulation’s effect on growth.

“The growing volume of regulation imposed by all levels of government, including through the NCC, has contributed to poor construction productivity,” Wawn said.

She called on the government to slash red tape by 25 per cent, and said a fundamental shift to regulatory norms was required.

“Setting a target to reduce red tape and having a clear agenda for regulatory reform and regulatory burden reduction as recommended by the PC is critical to supporting a sustainable and viable building and construction industry over the long term,” Wawn said.