Not satire: The Utopia-style regulations holding Australia back from building homes

A local council tells a property developer they need more trees for their new building, but the local fire authority says they need to minimise canopy to avoid a fire risk.

A compact Sydney apartment wins design awards for its ‘clever’ and ‘thoughtful’ design, but falls afoul of the state’s design guide because its floor space is too small.

A family knocks down their home to build a prefabricated model in its place, only to discover council rules require the new home to be smaller.

Each story sounds fit for an episode of Utopia, but the real examples are symptoms of a rotten system of overlapping and contradictory regulations that make it too hard to build new and affordable homes, according to a new study by the Productivity Commission.

Tasked by Treasurer Jim Chalmers to study what governments can do to unlock more new homes, the taxpayer-funded research outfit called for a top-down rethink of regulations, replacing a restrictive system with a permissive “build mindset”.

The commission’s interim report did not make formal recommendations, but flagged its support for calls from the Grattan Institute and pro-housing groups to allow at least three storeys to be built on most residential land.

It also advocated the softening or total removal of rules that dictate minimum floor space, window or balcony size, car parking requirements, and subjective factors like ‘neighbourhood character’, while also reviewing heritage controls.

“Regulation is important, but too much or poorly designed regulation can stop new homes being built, make projects slower and more expensive, and reduce the types of housing available to us,” Productivity Commission chair Danielle Wood said.

“The rules should allow us to build enough housing in the right places, while still protecting the things Australians value.”

PC: Cut red tape to get closer to national homes target

Federal, state and territory governments have jointly agreed to target 1.2 million new homes between mid-2024 and mid-2029, on the basis that this will make housing more affordable for owners and renters. The target is just over 200,000 homes behind track.

The commission’s interim report came down in favour of this aspiration, finding a “strong causal link” from building more housing to lower house prices and cheaper rents, citing successful examples from Auckland and elsewhere.

But it warned efforts to make housing affordable would not be successful without a comprehensive review of the “thicket” of existing regulations or rules.

While the report identified “upzoning” — rezoning residential land to permit higher density — as the highest priority for state and local governments, it found the benefits would be limited if other rules did not change.

For example, recent reforms to allow townhouses or mid-rise apartments in designated areas had unlocked zoning capacity for 650,000 new homes in Sydney and 980,000 in Melbourne, but less than half of this was commercially feasible given other restrictions.

Other restrictions fingered in the report include height limits, ‘setbacks’ (the size of the gap that must be left between the edge of a parcel of land and the building), and ‘floor-space ratios’ which limit the total floor space that can be built on a lot.

The overlap between these rules could mean that, for example, a four-storey building is technically allowed on a parcel of land but is architecturally impossible because of a large setback or a short height restriction.

The report argued that other restrictions on aesthetics or amenities, such as mandates on windows, balconies, detailing, storage capacity, or parking space should be pared back, focusing only on essential requirements like ventilation or insulation.

One cited example was a Darlinghurst apartment designed by Brad Swartz, which won an architectural award in 2015 for making clever use of a small space with sliding doors, flaps and hatches, but which was incompatible with the NSW apartment style guide.

Another identified culprit was heritage listing, which the commission suggested should apply building by building or to small areas rather than to whole swathes of suburbs, and should be justified in each case by a cost-benefit study, not imposed subjectively.

Developers made to jump through hoops

The report also identified unnecessary burdens and duplication in the development process, saying these were costing would-be developers thousands of dollars, creating uncertainty, and making many new homes unfeasible.

The commission identified a cost of between $3,900 and $22,000 for development approval, and another $3,700 to $18,000 for building approval, adding to the cost of delivering homes and penalising smaller-scale developers.

Much of this money represents required spending on consultants to prepare documentation for various stages of the approval process. It does not include the extra costs of holding the land if approval timeframes blow out.

The commission also identified the fact that developers have to deal with multiple levels of government and with different rules in different council areas.

For example, Queensland’s Noosa Shire Council has 95 of its own variations to the standard Queensland Development Code, while the nearby Sunshine Coast Council has 51, many of them deemed “subjective or unquantifiable”.

In New South Wales, the commission found some developments needed referrals to 22 different government agencies before they could proceed, which could lead to confusing contradictions as well as additional delays.

In one example, a developer had to seek an exemption from the local council’s landscaping rules after the council deemed it needed more trees but the local fire authority warned that canopy would pose a fire risk.

“[Another] developer told us that preparing reports and waiting for approvals had added more than three years to the timeline of a 1,600-lot development in Melbourne’s growth corridor,” Ms Wood said.

Enabling infrastructure

While most of these regulations are for state and local governments, the commission also recommended further measures to plan and co-ordinate the infrastructure that can “enable” new housing, such as pipes and access roads.

The federal government has committed to fund some of this infrastructure in tandem with state and territory governments, but the commission also recommended councils scope out the infrastructure needs of their areas in advance to speed up the process.

All levels of government are under pressure to achieve the flagging national housing target, but official figures from the National Housing Supply and Affordability Council show some are faring better than others.

The Northern Territory, Tasmania and New South Wales are the furthest behind, while Victoria, Western Australia and the ACT are the closest to hitting their targets on schedule.

The federal government has also faced calls to take stronger co-ordinating action to improve the target, and has committed to review the National Construction Code, the main national regulatory framework for building design.

The Coalition has vowed to radically shorten the code, but the Productivity Commission said it had heard from developers that getting approval to build was not as difficult as approval to develop.

The commission has sought input from those with experience of the housing regulatory system ahead of its final report, which is due in March of next year.