The Reserve Bank of Australia (RBA) has blamed the government’s zoning policy for fuelling the rise in property prices in Sydney and Melbourne and making it unaffordable for new homeowners.

According to an RBA study, zoning regulations for residential areas are restricting housing supply and increasing property prices, effectively keeping homebuyers out of the property market.

Sydney and Melbourne, for instance, have seen the average property price go up by 40 percent due to zoning restrictions.

Calling for the government’s zoning policy to be re-examined, RBA’s research paper says these restrictions have been pushing prices substantially above supply costs.

The report by economists Ross Kendall and Peter Tulip reveals that as of 2016, zoning raised detached house prices 73 percent above marginal costs in Sydney, 69 percent in Melbourne, 42 percent in Brisbane and 54 percent in Perth.

For instance, the average Sydney house, valued at $1.16 million in 2016, represents a $395,000 structure on a $765,000 block of land. Willoughby and the Northern Beaches in Sydney's north shore, and Boroondara and Stonnington in Melbourne are some of the worst affected areas, says the report.

Rezoning in suburbs located in close proximity to the east coast CBDs has pushed up land prices: A 363- hectare site in Wyndham Vale, 40 kilometres west of Melbourne, was rezoned from rural to residential, increasing its value from $120 million to $400 million.

Zoning has also raised the price of apartments well above the marginal cost of supply, especially in Sydney.

RBA’s research paper indicates that development restrictions combined with increasing demand have contributed materially to the significant rise in housing prices in Australia’s largest cities since the late 1990s, pushing prices substantially above the supply costs of their physical inputs.

Calling on the State Government to rezone areas that have been trapped in a supply bottleneck, Treasurer Scott Morrison blames supply delays for the rising prices that have pushed housing beyond the reach of many middle-income Australians.

Shadow minister Chris Bowen says he will seek to impose a uniform vacant property tax across all major cities to loosen up land supply.

However, such efforts will likely be resisted by local councils who along with residents oppose the new developments needed to increase supply and reduce prices.

Victorian minister for Planning Richard Wynne has called for striking the right balance between protecting neighbourhood character and driving development in residential zones.

NSW Planning minister Anthony Roberts views zoning as just one element of housing affordability, with infrastructure development in the form of new roads, sewers, power, transport, schools and hospitals adding to the value of land.

Observing that Australia is confronting a housing affordability crisis, John Daley and Trent Wiltshire of The Grattan Institute sum up the debate by asking whether the costs of planning rules outweigh the benefits.

Architecture & Design Team

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