Hotspotting

There’s endless commentary about housing affordability in Australia but very little awareness that the fundamental issue is the high cost of creating new homes – and that our politicians are the cause of the problem.

The value of dwellings across the nation is underpinned by the cost in building new ones – and, in Australia, that cost is incredibly, ridiculously high.

And it’s high because of the policies of our elected representatives, at all levels of government, but particularly state government politicians.

Right now, after massive increases in building costs in recent years, you cannot build a new house in Sydney, for example, for less than half a million dollars.

A new study has found that the minimum cost of building a Sydney house is $2,300 per square metre – and based on the average size of a new house in New South Wales, that means the cheapest you can build the standard brick and tile house is $550,000.

Now, Sydney is the most expensive capital city in Australia to build a new home, but it’s not significantly cheaper elsewhere.

Research published earlier this year by Master Builders Australia found that the average cost of building a new house nationwide was $490,000 – having increased 53% in the past three years.

Keep in mind that that figure does not include the cost of the land – just the construction cost for the average brick and tile new house.

Master Builders said the cost of building homes had been inflated by higher government taxes, new government regulations which have added massively to the cost of construction, bureaucratic delays in getting building approvals, the increasing cost of materials and the shortage of tradespeople.

Tradies are in short supply primarily because so many are now working on big-ticket government infrastructure projects and are no longer available to work in the home building industry.

Keep in mind, all the figures I have quoted relate to the cost of construction and do not include land cost.

According to the recent study on Sydney home construction costs, the average price of vacant residential land in Sydney is over $640,000. However, it depends on where you buy land and you may have to pay far more than that, especially in established suburbs.

It means that establishing a new house on a block of land can typically cost more than a million dollars in Sydney.

It’s cheaper, but still incredibly expensive, elsewhere in Australia.

I have had recent conversations with a number of builders and developers of residential estates – people doing projects in outer-ring areas of capital cities and in regional towns – and they all say the same thing: they cannot produce a new house on a (very small) block of land for less than $750,000.

I have also spoken to the head of one of the largest development companies in Queensland who says the biggest cost escalations in the residential property industry have been in building high-rise apartments.

The costs have risen so much that it’s unviable for this company to build apartments unless they can be sold for at least $1 million each.

We know from other reports that dozens of major apartment developments have been cancelled because the cost of construction is too high to make them viable.

These outcomes speak to all the major issues afflicting residential property at moment – the shortage of new dwellings, the serious shortage of rental homes and rising rents, and the overall affordability issue.

For those facing the high cost of building new homes in Australia, the reality is that (depending on location with Australia) between 35% and 50% of the cost is government taxes, fees and charges.

All levels of government – local, state and federal – treat the housing industry as a cash cow. In other words, they milk the housing industry for taxation revenue, while claiming to care about the high cost of housing.

They have further inflated the costs of creating new homes by passing laws that change the design of homes – theoretically to make them safer, more accessible or more energy efficient. These imposed design changes have added massively to the cost of building dwellings.

The new construction code imposed by our elected representatives, alone, has added up to $40,000 to cost of building a new house in Australia.

The same problems exist everywhere in Australia. That includes in Canberra, where housing has become a major issue in the lead-up to the ACT election.

A peak body for residential housing wants the next ACT government to implement a four-year moratorium on new regulation and taxes on home building, to give the industry a chance to recover and deal with the shortages.

The Housing Industry Association ACT also wants the government to relax planning rules across some of the territory's residential zones to allow for larger homes and higher density.

It says the ACT is failing "across almost every housing metric".

He pointed to a reduction in residential dwelling commencements, the increased costs to service mortgages and low rental vacancy rates.

The HIA says: "The private housing market has been squeezed by a lack of shovel-ready land, and an explosion in regulation, red tape and taxation. Yet, at the same time as the private construction and rental sectors are constrained, there has been a failure of government to meet its obligations for public housing.

"The ACT has a housing emergency. To do nothing other than continue with the status quo is not an option."

Now, those comments are directed at the dire situation in Canberra, but could be applied equally to most cities across the nation.

Politicians have created the problems and are clueless about how to resolve the issues that are causing prices and rents to rise, and the cost of building new homes to escalate.