How the National Housing Accord could change your suburb

Supply, supply, supply. Talk to any expert or advocate in the housing space about affordability and that's the word that's going to come up time and again.

The reason is simple. The affordability of buying or renting a home in Australia isn't going to be addressed unless more homes are built for people to live in.

"Better supply is really the only long-term fix for our housing woes. It's the critical factor in making housing more affordable," says Joey Moloney, the deputy program director for economic policy at the Grattan Institute, the public policy think tank.

"We spend a lot of the debate talking about demand-side factors like the run-up in prices, low interest rates, higher rates of migration and tax breaks for investors.

"All of that matters, but the key point is that it would have mattered a lot less if supply were more flexible. If the supply side of our housing market was more responsive to demand, all of those demand-side factors would matter a lot less."

Moloney says that, as a rule of thumb, economists who have looked into the relationship between supply and affordability have found that for every 1% increase in housing supply, the price 
of property and rents ends up being 2.5% lower than otherwise.

"That's why economists fixate on supply, because if we loosen up our housing market, we can have our cake and eat it too."

Governments certainly hope so.

What is the National Housing Accord?

That's why in October 2022 the Federal government unveiled the National Housing Accord - a new policy designed to tackle the issue of housing affordability by directly targeting supply.

The Accord, which also has the support of State and Territory governments, has set a target of building 1.2 million new, well-located homes over five years, starting in July 2024. That includes delivering 20,000 affordable homes.

The States and Territories have also been incentivised to go beyond their share of that figure, with $3 billion worth of performance-based funding up for grabs for any extra homes built above target.

"The Accord rightly recognises that more supply is the long-term fix to our housing affordability problems," says Moloney.

"It's the right framework because it gets at the key issue: it's saying that more houses is the answer, so we're going to pay the States if they take the necessary steps to get more houses built."

What does the National Housing Accord mean for States and Territories?

The Federal government is relying on the States and Territories to shoulder a lot of the burden - not only in terms of the quota of homes each has committed to build, but from a regulatory perspective.

That's because while the Federal government has plenty of power at its disposal, when it comes to demand-side factors such as tax and migration, the States are the ones that oversee land use planning and planning regulation.

The former gives States the power over rezoning land for residential use, while the latter gives them a degree of control over new developments.

"Ultimately, what the Accord rightly recognises is that it's the States that really hold the most power on the frameworks and processes that dictate housing supply. So, right now it's basically up to them to reform both land use and planning regimes, and to get as close to the target as possible," says Moloney.

With the start date of the Accord's five-year target just around the corner, the States have already begun announcing some big shifts in policy, which could have a substantial impact on the housing make-up in many parts of the country, particularly urban areas.

Take NSW, for instance, which has a target of building 377,000 new homes by 2029 under the Housing Accord.

To work towards that goal, the State government has concluded that more medium-density homes such as duplexes, terraces, townhouses and smaller apartment buildings will need to be built in larger population centres.

In practice, that requires reforming the laws around where these types of homes can be built. For example, the NSW government has proposed changes that will allow duplexes to be built on single lots in all low-density residential zones across the State.

Terraces, townhouses and two-storey unit blocks could also be built near transport hubs and town centres in low-density residential zones across the Central Coast, Greater Sydney, Hunter and Illawarra regions, while mid-rise apartment blocks (three to six storeys) could be developed near transport hubs and town centres in medium-density zones.

Why are some local councils pushing back against the Accord?

The NSW government has already proposed changes to existing zoning laws as part of a new Transport Oriented Development State Environmental Planning Policy (SEPP).

This will allow for higher-density development within 1200 metres of eight major Sydney rail and metro stations initially (Bankstown, Bays West, Bella Vista, Crows Nest, Homebush, Hornsby, Kellyville, Macquarie Park), before expanding to 31 stations, with development restrictions eased within 400 metres of each station.

The NSW government estimates that these changes could help lay the groundwork to build around a third (112,000 new homes) of the dwellings needed to hit its share of the Accord target.

While State governments are building up a head of steam as they start laying the foundations to meet their housing targets, there is already evidence that local councils might not share the same enthusiasm about the scope and speed of these changes.

One of the more vocal members of a local government pushing back in NSW is in Sydney's northern suburbs. The Ku-ring-gai council area contains four stations named in the State government's transport development policy.

Mayor Sam Ngai acknowledges the need for more housing, but believes a slower, more considered approach should be taken to planning changes to address the character and heritage concerns of some local residents and to ensure that existing infrastructure is able to cope.

"I'm fully supportive of providing more homes near transport hubs, but it needs to be a carefully planned approach that involves community consultation," Ngai wrote in a recent social media post.

"The State government's proposal of rushing a SEPP in four months does not meet community expectations. Given our construction bottlenecks, a responsible approach would be to allow councils 18-24 months to properly plan for where the density should go, as well as the infrastructure and amenities to support."

At the heart of any potential friction between State and local governments is the traditional roles each has played in housing development.

"Right now, local government has a pretty substantial role in housing supply. It starts with State government planning and land use regulations, but a lot of the power devolves to local governments, which set the zones in their geographic areas and overlay that with heritage overlays, character overlays and zone development overlays," says Moloney.

"Then, at the final hurdle, developments will often go through formal approval processes at the local government level and councillors will have some degree of power to stop developments happening."

At the end of the day, State governments could wrest a lot of this power back from local governments. In fact, Moloney can see the local government role in the housing space shrink if the changes being enacted by the States prove successful.

"The role of local government is a bit tricky," he says, "because, in my view, the Accord is a deal between the Federal government and State governments, and it's saying, 'Here are incentives for you to reform the broad frameworks that dictate what gets built where.'

"I would argue that a necessary outcome of the reforms would be a reduction in the power of local governments because I think that the power of local government intrinsically has a status quo bias. You could argue that their answer is often 'no' by default, rather than 'yes' by default.

"So, I would hazard a guess that if this process proves successful over the long run, it would actually lead to a smaller role for local governments vis-a-vis housing supply."

Why are more areas being zoned medium density?

Well located. These two words are not only part of the National Housing Accord's mission statement, they're potentially the most significant when it comes to where homes are built and what kind of homes they are. And, ultimately, how the look and feel of neighbourhoods around the country may change.

As the populations of our major cities have grown over the decades, so too has their geographical size. We've spread outward by building new suburbs and housing developments on bush or farm land - so-called greenfield developments.

But as the changes already being put forward in NSW demonstrate, infilling existing suburbs with medium-density homes is likely to be the name of the game for much of the supply introduced under the Accord.

Tone Wheeler, president of the Australian Architecture Association, sees the shift away from building at the fringes of our cities as a positive, and overdue, development for three reasons: demographics, efficiency and sustainability.

"The first one is that we just don't need the same number of family homes because less than half of our households are families now. They're mostly made up of singles, couples, people in share 
houses - there's myriad diversity in our population," he says.

"Demographics have completely changed and a lot of it has to do with the fact that people don't necessarily subscribe to the traditional idea of a house on a suburban lot with a backyard. We don't have enough apartments, we don't have enough townhouses and we don't have enough of the spaces and places that people want to live in."

The second point comes down to the efficiency and cost of building homes in areas with established infrastructure and services such as roads, public transport, schools and hospitals versus having to create them from scratch.

"Infrastructure Victoria published a report about a year ago that worked out that it is far cheaper to build a new site within an existing suburb than it is to develop a greenfield site. The costs vary between being three and seven times cheaper," says Wheeler.

"Then the third part of it is that it's just much more sustainable. It reduces the footprint of the building that you're working on, the amount of material that it takes, the embodied energy, and the fact that you don't have to cart materials to the edge of town."

Moloney agrees with the idea of building more housing in existing areas rather than continuing to expand outward, and says there are also economic benefits to our cities becoming denser.

"Economists refer to a concept called agglomeration benefits when employees and employers are able to locate closer together. What that does is increase knowledge spillovers between workers and firms, and between firms and firms as well.

"In denser cities where there are more employment opportunities for workers, you're going to get them allocating themselves to their most productive use.

"In aggregate, what that all means is that you have a more dynamic and productive economy. So, there's a strong economic argument for denser cities where people are able to locate closer together and for building more medium density in our inner-city areas."

What about heritage issues?

Addressing the issue of housing supply in Australia is clearly no simple task, and achieving the goals set out under the Accord won't be without hurdles.

One is allaying concerns around changes to the existing make-up of suburbs around the country.

While many politicians and housing experts will point to the pressing need to address supply and affordability, it's clear that there are questions around issues of heritage and the 'character' 
of neighbourhoods that are yet to be answered.

Related to that is the infrastructure and services side of the equation. It may be more cost-effective to build new housing around existing public transport hubs, roads, schools and hospitals, but those will need increased support if they're to function adequately with greater population density.

Then there's the simple fact that new home approvals are currently nowhere near where they need to be. Just over 160,000 dwellings were approved in the year to February, but that will need to 
pick up to 240,000 a year for the goal of 1.2 million homes over five years to be met.

There is hope that regulatory reforms will go some way to improving the pipeline of new builds, but issues with material supplies and financing within the sector are also stymieing new builds.

Did a similar project work in New Zealand?

Governments in Australia may be looking to New Zealand for a success story if they are able to overcome these hurdles and encourage more medium-density housing supply to come online though.

In 2016, new zoning rules introduced by Auckland Council came into effect in parts of the city that allow for medium- and high-density housing to be built on traditional suburban blocks. As a result, the number of dwelling approvals shot up and the impact on rents and property prices seems clear.

"The econometric work that's been done by researchers in New Zealand basically points to it being a roaring success in increasing the supply of these homes in just five years. And that then led to at least 15% lower rents than would have been the case otherwise," says Moloney.

"Auckland's rents are lower, in real terms, than they were in 2016, whereas they've shot up in other cities. So that's something that gives economists a lot of heart, that if you do make it easier to build more homes in desirable areas, you will get more homes and cheaper homes as well."

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