Three-storey townhouses should be automatically allowed on city residential blocks: leading think tank

Houses across the nation will have to be replaced with townhouses and apartments to fix a chronic shortage caused by immigration and the work-from-home revolution, some of the nation’s leading policy experts say.

To overcome delays from planning authorities, three-storey homes should be automatically allowed to be built on every residential block in all capital cities, the Grattan Institute recommended, replacing the standalone one and two-storey houses with gardens and lawns that have dominated Australian suburbs for generations.

Under the plan, houses with their own backyards would become rare within 30km of city centres, Grattan Institute housing economist Joey Moloney said.

“We’re going to have to make sharp trade-offs,” he told The Nightly. “The closer to the city you want to live, the less likely it is that you’re going to be able to secure yourself a large plot of land with a backyard.

“We have to make choices. As our cities get bigger and as our economy urbanises, and people increasingly want to live close to the good jobs in the city and close to the transport.”

Overriding councils

Mr Moloney said private and public certifiers should replace local councils spending months debating the merits of a new development.

“When you do that with local councils, then you’re going to get local politics,” he said.

State governments have also been called on to allow units with a minimum of six storeys around transport and commercial hubs, with the Grattan Institute arguing this would lead to more cafes in the suburbs.

“I don’t think it’s a natural law that the more dense the cities, the less liveable it is. That’s not true at all,” Mr Moloney said.

“A lot of people visit Paris and Paris is a city of six-storey apartment buildings.”

An undersupply of housing means the middle-market capital city house in Australia costs $1.1 million, making a home with a backyard only possible for working couples in full-time jobs or high-income earners.

Sydney’s mid-point apartment price is also approaching $900,000, which means average-income earners can only afford a small unit in an outer suburb, often a long way from work.

The Grattan Institute argued that allowing three-storey townhouses and apartments on all residential land in capital cities would deliver more than one million new homes in Sydney alone.

Relaxing planning rules would lead to 67,000 more homes across Australia a year, it said, which over a decade would cut rents by 12 per cent and reduce median home prices by $100,000.

“Australia needs a housing policy revolution. The equation is simple: If we build more homes where people most want to live, housing will be cheaper and our cities will be wealthier, healthier, and more vibrant,” it said.

In Australia’s biggest cities, the vast majority of residential land within 30km of the central business district is zoned for housing of three storeys or less.

In Sydney, where the median house price is now $1.6 million, that figure stands at 80 per cent, rising to 87 per cent in Melbourne, where homes with a backyard typically cost $1 million.

In Brisbane, Perth and Adelaide — Australia’s fastest-growing big city markets — three-quarters of land is for low-rise housing and these cities have some of Australia’s steepest house price growth, Cotality figures for October show.

The Grattan Institute has also called on State governments to make local councils rezone new areas for housing to offset new heritage protections.

Housing squeeze causes

Since COVID, average household sizes have shrunk, while one in three professionals now also work from home. This has only fuelled housing demand.

“As we get richer, we want bigger homes or to live with fewer people. This means as long as incomes are growing, housing demand will rise faster than population growth,” the Grattan Institute said.

“And more recently, the work-from-home revolution has spurred a ‘race for space’, which further increased demand for housing.”

Net immigration levels soared to record high levels approaching 550,000 in late 2023. The 316,000 level for the year to March is still well above the pre-pandemic intake of 194,000 for 2019-20.

Almost nine in ten new migrants, or 86 per cent, live in capital cities, which intensifies demand for housing in major centres.

The Federal Government is particularly reliant on personal income tax revenue to fund its programs, leading to a big intake of skilled migrants.

But Mr Moloney said slowing down immigration would only hurt the economy, which is already weak despite the population influx.

“That probably would lead to prices and rents growing slower than otherwise but it would leave Australia poorer,” he said.

“The more people that we have, the more houses that we need. That’s obviously undeniable.”

The National Housing Accord goal of building 1.2 million homes over five years is looking shaky, little more than a year after it started.

This aspiration, agreed to by the Federal and State governments, would require 240,000 new homes a year, on average, but in the year to September, just 192,216 new residential dwellings were approved for construction, new Australian Bureau of Statistics figures released this week showed.

Life is also tough for renters with the capital city vacancy rate at just 1.2 per cent in September, SQM Research figures showed.

Even if planning rules were relaxed, as the Grattan Institute is advocating, construction firms are more likely to be under administration, with insolvency data from the Australian Securities and Investments Commission showing builders are struggling with higher costs, even more than hospitality businesses.

Planning Institute Australia chief executive Matt Collins said diluting planning rules would also lead to more congestion.

“Simply rezoning more land won’t deliver more homes if the construction industry can’t build them and if the infrastructure isn’t in place,” he said.

“Simpler processes and better planning systems are essential, but weakening planning just adds pressure to infrastructure, increases congestion, and makes communities worse off.”

But Mr Moloney argued more urban sprawl would produce even more traffic congestion.

“If we stop building in established suburbs, closer to public transport, and keep building out into the urban sprawl, then that strikes me that we’re going to have the same number of people but just doing longer trips,” he said.