AUSTRALIA: The Mixed-Up World of Federal Labor and NSW Labor
The Australian Property Institute recently released its commentary on the NSW Budget and, on face value, the assessment appears reasonable. The NSW Government has clearly recognised that housing supply remains one of the most significant economic and social challenges facing the State and has introduced a number of initiatives designed to improve housing delivery.
Measures such as support for Modern Methods of Construction, expanded project financing assistance and the establishment of a Development Coordination Authority are all aimed at increasing the number of dwellings ultimately delivered to the market.
The difficulty, however, is that housing markets do not operate within the boundaries of State Government policy.
Whilst NSW Labor appears increasingly focused on addressing supply constraints, Federal Labor continues to pursue broader economic and population policies which have the effect of increasing housing demand. This creates an interesting contradiction whereby one level of government is attempting to solve a housing shortage while another continues to add to the number of households requiring accommodation.
From a property valuation and investment perspective, this contradiction is arguably more important than any individual measure contained within the Budget itself.
Housing Markets Respond to Fundamentals, Not Targets
The starting point is recognising that the housing market ultimately responds to the balance between people, money and dwellings.
Governments may announce targets, strategies and reforms; however, markets respond to population growth, access to finance, employment conditions and the availability of housing stock.
At present Australia’s population continues to grow, employment remains comparatively strong and there is increasing expectation that interest rates may continue to ease. All three factors support housing demand. Against this backdrop, housing completions continue to lag behind the levels required to accommodate population growth.
This is why housing shortages have persisted despite years of policy announcements and ambitious housing targets.
NSW Has Identified the Right Problem
To its credit, the NSW Government appears to have correctly identified that increasing housing supply is the central challenge.
The establishment of the Development Coordination Authority, support for Modern Methods of Construction and initiatives designed to assist project delivery are all sensible measures. Few industry participants would argue against reducing bureaucracy, improving coordination between government agencies or creating greater certainty within the development process.
The challenge is that planning reform alone does not guarantee housing delivery.
Approvals create opportunity. They do not necessarily create feasibility.
The Feasibility Problem
This is where much of the public debate becomes disconnected from commercial reality.
The assumption often made by policymakers is that faster approvals will automatically translate into more housing. While planning reform is undoubtedly beneficial, planning approval alone does not create a viable development.
Across Sydney there are numerous examples of sites that are appropriately zoned, have development approval in place and are located within areas experiencing strong housing demand. Despite this, many remain undeveloped.
The reason is relatively simple.
The feasibility equation does not stack up.
Development projects are ultimately driven by economics rather than planning theory. A developer assessing a residential project must consider construction costs, finance costs, professional fees, infrastructure contributions, marketing costs and an appropriate return on capital.
Over recent years virtually every component of that equation has increased. Construction costs remain significantly above historical norms, finance costs have risen, insurance premiums have increased and builder insolvency risks have become a genuine consideration.
While planning approvals may have become easier to obtain, the cost of converting those approvals into completed dwellings has increased substantially.
Follow the Capital
Perhaps the strongest evidence of this can be found in developer behaviour itself.
Many of Australia’s largest residential developers are sitting on significant approved development pipelines. If approvals were the primary obstacle, one would expect these projects to be proceeding.
Instead, many remain dormant while developers increasingly assess opportunities in Queensland, Western Australia and other jurisdictions where project economics are perceived to be more favourable.
Industry commentary regarding groups such as Meriton becoming increasingly selective in NSW should be viewed as a signal worth paying attention to.
Capital tends to flow towards opportunity and when sophisticated developers choose to deploy capital elsewhere, it is usually because they believe risk-adjusted returns are superior.
If some of Australia’s most experienced developers are reluctant to commence projects in NSW despite strong housing demand, policymakers should ask whether the issue is planning or economics.
The answer is increasingly pointing towards economics.
The Federal-State Contradiction
This is where the contradiction between State and Federal policy becomes most apparent.
NSW is attempting to stimulate housing supply through planning and administrative reform.
At the same time, Federal policy settings continue to support population growth, economic expansion and migration, all of which increase demand for housing.
Individually, none of these policies are necessarily problematic. Collectively, however, they create a situation where supply-side reforms are competing against demand-side growth occurring elsewhere within the system.
One level of government is attempting to increase the number of homes being delivered.
The other is increasing the number of people who require them.
What Does This Mean for Investors?
For investors, this may ultimately prove supportive of residential property values.
Most of the NSW Budget initiatives will take years to translate into completed housing stock. In the meantime, population growth continues, rental vacancy rates remain constrained and housing shortages persist.
Unless dwelling completions materially exceed household formation, the underlying supply-demand imbalance is likely to remain.
This suggests continued support for residential rents, land values and established housing in many parts of Sydney and other major metropolitan markets.
What Does This Mean for Valuers?
For valuers, the lesson is slightly different.
Valuers do not assess government intentions; they assess market evidence.
The relevant questions are whether developers begin paying more for development sites, whether projects commence construction, whether approval risks genuinely reduce and whether completed housing supply increases.
Until those outcomes become evident within the market, policy announcements remain aspirations rather than valuation evidence.
Ultimately, land value reflects what a prudent purchaser can profitably do with a site, not simply what a planning instrument theoretically permits.
Final Thoughts
The NSW Government should be commended for recognising the supply challenge. However, the reality is that Australia’s housing issues are no longer solely planning issues. They are increasingly feasibility issues.
Housing targets do not build homes.
Development approvals do not build homes.
Homes are built when developers, financiers and investors are satisfied that projects can be delivered profitably and with an acceptable level of risk.
Until that occurs, Australia’s housing market remains stuck in the middle.
On one side sits NSW Labor attempting to increase housing supply through planning reform, development coordination and delivery initiatives.
On the other sits Federal Labor pursuing population growth, migration and economic expansion, all of which increase demand for housing.
Neither objective is inherently wrong. In fact, both are understandable. The challenge is that when one level of government is focused on increasing supply while another is simultaneously increasing demand, the net result can be frustratingly familiar — housing shortages persist, rents remain elevated and affordability remains elusive.
The housing market therefore finds itself caught between two policy settings, each pursuing legitimate objectives, but often pulling in different directions.
For investors, that may continue to support values.
For valuers, it reinforces the importance of focusing on evidence rather than announcements.
And for aspiring homeowners, it may feel a little like the old Stealers Wheel song:
“Stuck in the middle with you.”