Allowing one extra storey in residential neighbourhoods could make a big difference to Australian cities – and Australians' wallets.
The struggle over how dense Australian cities should be has long been the subject of debate.
With a shortage of housing driving prices to new heights and Australian municipalities across the country looking to rapidly increase the pace of home-building, density has quickly become a flashpoint for communities. This is nowhere more evident than in Sydney – the city with the highest median dwelling price in the nation, which currently sits at $1.2m according to PropTrack data.
Five kilometres east of the city's CBD, Woollahra Council has officially opposed the state-led rezoning that would see up to 10,000 homes added to the area, primarily around two train stations. The council is reportedly taking advice on a legal challenge.
And Sydney’s Inner West council only narrowly passed its rezoning plan that would allow up to 30,000 new homes to be constructed over 15 years, with just one vote separating the yeas from the nays.
If Sydney were to become as dense as Toronto, that would add another 250,000 homes to the city. Image: Getty
But a new report from the Grattan Institute that specifically examines the repercussions of rezoning has highlighted a number of surprising effects that could take place if Australian capital cities were to pursue broad rezoning plans.
Specifically, the Grattan report recommended that Australian capitals adopt a “low-rise housing standard” allowing three-storey townhouses to be permitted on all residential-zoned land across the major cities. Current low-density zonings around Australia often only allow up to two storeys.
Furthermore, the paper also pushed for the adoption of a “mid-rise housing standard” that would permit residential buildings up to six storeys around transit hubs, and higher density where there is unmet demand.
Together, these proposals are very similar to what New Zealand adopted in 2020 with its National Policy Statement on Urban Development.
It may not seem like much of an increase, given that governments across the country have been pushing to upzone around transit centres as well as in inner-city areas. And indeed, it’s not a radical level of rezoning. But even the modest uplift it might deliver – particularly by the addition of an extra story in many suburban areas – could have a significant impact.
Australian density on an international scale
By examining similar rezoning efforts around the world, as well as comparing the density of major international cities to that of Australia’s, Grattan was able to paint a picture of what similar efforts might mean for capital city neighbourhoods in Australia.
For example, a broad upzoning of 75% of urban land area in Auckland doubled the rate of homes approved in five years. That resulted in an a 4% increase in dwelling stock, while reducing rents by as much as 35% for two-and-three bedroom homes.
Were Melbourne to become as dense as a city like Los Angeles, for example – which is not particularly known as a high-rise residential city – the Victorian capital would have an additional 431,000 homes in its suburbs.
Or if Sydney were to mirror Toronto – a municipal area with a similar quality-of-life rating – that would see an additional 250,000 well-located homes built in the city.
The bottom line
Perhaps one of the most convincing arguments for Grattan's rezoning proposal is just how much it would impact Australians’ financial futures.
If the Grattan Institute’s proposed reforms had the same impact on housing construction as similar reforms in New Zealand are expected to have, they would increase dwelling starts in Australia by roughly 67,000 homes each year over the next ten years.
Each year, that uplift would increase Australia’s housing stock by about 0.6% of the existing level, dampening the substantial price increases that have become almost expected year after year thanks to demand outweighing supply. According to PropTrack's most recent Home Price Index, values are currently 7.5% higher than they were a year ago.
Broad rezoning could be expected to slow this price growth, putting spending money back in Australians' wallets, while also making homeownership more attainable.
It’s estimated that after five years, rents and house prices would be 7% lower than otherwise expected. In 10 years, they could be as much as 12% lower than current projections. That could be the equivalent of up to $100,000 dollars off the price of a median-priced home.
This is money that Australians then in turn are likely to spend in their communities, injecting funding into local businesses and strengthening the commercial landscape.
Additionally, by upzoning around major transit centres, as well as in high-demand areas, Grattan’s evidence suggests that incomes could be expected to rise based on a significant increase in access to Australia’s economic centres for work.
Planning systems that constrain dwelling creation close to economic hubs drive people farther out from the city.
Relaxing planning controls to allow people people to work where they want – rather than working close to where they can find housing – would be expected to boost Australians’ incomes by up to $25 billion a year in today’s dollars or 1 per cent of GDP by 2050, according to Grattan’s modelling.
This is due to allowing more Australians to live in high-wage locations, as well as the productivity benefits that arise when firms and individuals gather in urban areas – knowns as "agglomeration economies".
And beyond the dollars and cents, rezoning would also deliver also tangible benefits to quality of life, government savings, and a reduction in carbon emissions, according to the think tank.
Cities across the world that draw Australian tourists in droves – from Barcelona and Berlin to Toronto and Tokyo – are much denser than Australia's largest homegrown metropolitan centres of Sydney and Melbourne. The question now facing Australians is whether they want their capitals to grow closer to those counterparts, or if they’re just for visiting.
Are you interested in learning more about Australian home building? Check out our dedicated New Homes section.
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