The Planning Minister in New South Wales has slammed a paper which suggests that average building heights could be raised by up to 20 storeys in some Sydney suburbs, saying that the paper ignores wider costs associated with the removal of planning controls and relies excessively upon evidence presented by a property industry lobby group.
In a research paper released last week, the Reserve Bank of Australia suggested that planning restrictions were adding $355,000, $97,000 and $10,000 to the average cost of apartments across Sydney, Melbourne and Brisbane respectively.
It suggested that affordability could be improved by building up to ten storeys higher across metropolitan Sydney and up to 20 storeys higher in some inner-Sydney suburbs.
However, NSW Planning Minister Rob Stokes has slammed the report.
During comments in Parliament last week, Stokes said the report failed to adequately consider wider costs associated with greater building heights across several areas.
This includes costs associated with localised traffic congestion, retrofitting sewer, water and power infrastructure to cater for more residents; retrofitting health and education resources to accommodate more families and additional land costs which taller buildings necessitate for open space provision.
As well, further costs include noise, overshadowing, wind corridors, heritage and urban character,” Stokes says.
“I do not agree that removing planning controls is the best way to build a more efficient, sustainable, productive and just city,” he continues.
“Yet this is the pretty clear implication of the RBA report, which makes the fairly obvious point that if we added 20 storeys to the height of residential apartment buildings the price of individual units would fall.
"Specifically using 2018 data, the report suggests that if we were to double the number of high-density apartments built each year the cost of housing would decline by 2.5 per cent per annum—a modest potential benefit to an individual homebuyer but a massive potential cost to everyone else in New South Wales.
“While the report focuses on the marginal costs imposed by development control, it completely fails to consider the wider community costs avoided or minimised by an efficient strategic planning system …”.
“Again, the costs of retrofitting vitally important education and health resources are entirely overlooked in the RBA research. Then there are amenity costs to urban character and heritage, overshadowing, wind corridors—all costs incurred by any simplistic notion that planning inhibits city shaping.”
Stokes challenged claims in the paper about greater density being associated with higher wages, greater innovation and more efficient energy use.
The correlation between density and wages has more to do with location, demographics and education than built form, he says.
That between density and innovation relates more to employment density and where people work as opposed to residential density and where people live.
Finally, notions about higher structures being correlated with lower the energy use are misplaced, Stokes says.
While higher residential densities can lower transport energy use, research suggests that built-form energy use can escalate with building height as there are limited opportunities for decentralised energy production, he says.
Stokes’ comments are supported by others.
John Brockhoff, National Policy Manager of the Planning Institute of Australia, told Sourceable that the RBA paper methodology has, ‘deep flaws in its application to property markets’.
Resulting conclusions, Brockhoff says, were ‘misguided’ and suggest ‘ludicrous policy responses’.
In its aforementioned paper, the RBA suggested that apartments in Sydney’s inner suburbs could be raised by as many as 20 storeys to help improve affordability.
It suggested that excessive planning controls were adding $355,000, $97,000 and $10,000 to the price of individual apartments across metropolitan Sydney, Melbourne and Brisbane respectively.
Across metropolitan Sydney, for example, the RBA says average apartment prices came in at $873,000 during calendar 2018.
Even after accounting for taxes and developer margins, however, the cost of supplying those apartments was only $519,000.
This left a $355,000 discrepancy which the RBA attributes to excessive planning restrictions.
In Melbourne and Brisbane, meanwhile, the RBA said purchasers paid an average of $598,000 and $470,000 despite the cost of supply being $491,000 and $460,000 respectively.
Moreover, the RBA said the cost of planning restrictions get stronger as we move closer to the centre.
In inner-ring areas such as the eastern suburbs, Leichhardt and Northern Sydney, it said the cost of planning restrictions over a five-year period spanning 2011 until 2016 amounted to more than $450,000 per apartment.
Speaking particularly about Sydney, the RBA said much of the problem lay in restrictions on building heights.
Particularly in Sydney and the idea of constructing more buildings as opposed to raising building heights, the RBA said that the cost of land meant that medium density housing delivered through low-rise apartment buildings was more expensive to provide compared with high-rise apartments.
This, it says, more than offset extra costs associated with taller buildings such as the need for stronger reinforcing, more space for lift wells and additional safety requirements.
As a result, it says that whilst typical building heights in Sydney averaged around ten storeys, the crossover point above which taller buildings become more expensive to construct as opposed to a greater number of smaller ones did not occur until buildings reached around 20 storeys in height.
Looking at inner suburbs specifically, it says taller buildings could be cost effective to construct up until a point of 30 storeys.
By contrast, the RBA said benefits of raising building height are less pronounced in Brisbane and Melbourne as land is less expensive and buildings in these cities are already close to their economically efficient height.
“While we focus on the cost of adding additional floors to apartment buildings, an alternative way of supplying apartments would be to construct more buildings,” the RBA said.
“This requires the purchase of land, which is expensive, especially in Sydney. For short buildings, land costs amount to hundreds of thousands of dollars per apartment.
"For this reason, medium-density housing in the form of low-rise apartment buildings is much more expensive to provide than high-density housing.
“As building height increases, however, the per-apartment cost of land declines while construction costs increase.
"So, above a certain height, tall buildings become more costly to build than more, shorter buildings. In Sydney, under central assumptions and on average across the metropolitan area, this crossover point occurs at 20 storeys, much higher than the typical apartment building, which is 10 storeys.
"This cost advantage of taller buildings is largest in Sydney’s inner suburbs, where land costs are very high and where, in the absence of height restrictions, it would be economic to raise building heights by 20 storeys or more above their current heights.”
Property industry lobby groups welcomed the findings.
“The RBA has independently compared the planning regulation cost of bringing a new home to completion in NSW with other jurisdictions.
"The findings highlight the need for significant reform to planning regulation in NSW”, Tom Forrest, chief executive officer of the Urban Taskforce says.
“Given the economic shock created by COVID-19, the RBA’s independent confirmation of the excessive costs associated with the NSW planning system presents an opportunity for the NSW Government to cut housing prices by approving more supply and allowing for more height”
“This important piece of independent research cannot be ignored by policy makers in NSW.”
Stokes, however, criticises the RBA paper for relying upon evidence from the Urban Taskforce.
“The Reserve Bank of Australia report relies heavily on evidence provided by the Urban Taskforce, an expert and effective developer lobby group,” Stokes says.
“It is to be expected that the Urban Taskforce would promote the view that more and bigger towers be provided across Sydney and other Australian capitals.
"However, it should also be expected that the Reserve Bank of Australia takes a broader and more objective view on matters of real complexity rather than simply using a contested methodology to produce findings that are both superficial and misleading.
“It is very important that we cast a critical eye over such claims and consider the very real, very human impacts of development in shaping the way citizens live their daily lives and the opportunities for people to make decisions about choosing how and where to live.
"While identifying and removing unnecessary development control should of course be encouraged—and here in New South Wales we are doing just that—it does not therefore follow that all development control is unnecessary.”