RBA research paper blames zoning restrictions for high housing prices

Recently the RBA released a research paper concerning the effects of zoning regulations on housing prices. The paper concluded that zoning laws restrict housing supply, thus raising property prices.

The Reserve Bank found that in some cities house prices are as much as 73% above marginal costs of supply (the cost of making another house).

Zoning laws are designed to appease nimbyism and regulate urban sprawl in an attempt to sustain housing livability and affordability. The AFR asserts that due to zoning regulations, the price of an average detached house in Sydney is pushed from $671,00 to $1.16 million.

House prices are only exasperated by an increasing demand from an exponentially rising population and tax incentives for investors. The RBA research paper emphasizes that the estimated cost of zoning won’t necessarily equal the fall in house prices if zoning measures are removed. This is because supply and demand will still be the most significant factor in determining house prices.

Furthermore, physical land costs in Australia are relatively higher than their global counterparts and Australian housing will still be more expensive. This trend is also present in the market for high density dwellings like apartments.

Property groups agree that cities require proper planning to discourage overzealous property developers, but believe that the government needs to address unnecessary costs that arise from zoning laws. These costs make it harder for each subsequent generation to realize the Australian dream of home ownership.

Increasing housing demand will only cement zoning restrictions and raise house prices. It is evident from the RBA’s research paper that policy change regarding zoning laws is required to reduce upward pressure to housing prices.

The ATA continues to call for zoning law reform to free up more land and property in order to cater to our growing population and provide a free market solution to the housing affordability crisis that will lower housing prices and ease the immense burden faced by working Aussie families.

Conan Feng is a Research Associate at the Australian Taxpayers’ Alliance.

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