Land supply restrictions main cause of rampant house prices

The Treasury, Reserve Bank and the Housing and Urban Development Ministry formed the Housing Technical Working Group and published a joint paper providing an assessment of the key boosters of house prices and rents and their impacts on households over two decades. The group found regulations and other constraints to urban intensification (building up) and expansion (building out), particularly in the main urban areas, restricted land supply with implications for house prices and rents.

The group’s chairman Dominick Stephens , who is also chief economic adviser at the Treasury, says factors such as population growth and construction costs played a more modest role in the market.

“The global decline in interest rates inevitably led to a sustained reduction in borrowing, increasing demand to buy houses,” he says.

“If land supply had been more responsive this would have sparked bigger housing supply, moderating any initial lift in house prices and putting downward pressure on rents. Instead, restrictions to land supply meant that much of the fall in interest rates was capitalised into, or captured by, higher urban land prices.”