Heritage protection imposing high costs

sp-so-150514-graph3

The head of the Financial Stability Department at the Reserve Bank of Australia, Luci Ellis, delivered an excellent speech last week on Space and Stability: Some reflections on the Housing-Finance System. In the speech she observed:

The cumulation of individual decisions and government policies over many years has given us comparatively low-density cities that create large price premiums for the most convenient districts in those cities.

Australia’s low urban population density is clearly seen in the chart above copied and pasted from Luci Ellis’s speech.

One relevant government policy is the protection of heritage houses, such as old Queenslanders. While the excessive protection of heritage houses has only occurred in the last few decades, and urban sprawl had commenced before the restrictions came into place, there is no doubt heritage protection now plays some role in constraining supply and raising prices in older suburbs. My friend and colleague Brad Rogers has previously written on this topic and has just posted a fuller exposition of his views:

House prices, Council monopoly and a historic village

I’m sure the RBA would welcome a relaxation of heritage protection by our Councils. As Luci Ellis noted:

I am hopeful that, over time, Australia’s urban structure can evolve to offer better choices and greater financial stability. This might require some changes to the way we plan, build, and live, as well as ongoing prudence in how we borrow.

Currently, heritage protection is a major impediment to the provision of better choices in our older suburbs.

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6 Responses to Heritage protection imposing high costs

  1. kirbyp says:

    Wow. That’s a great, but concerning, chart Gene.
    How are we going to build out our sharing economy (http://www.wired.com/2014/04/trust-in-the-share-economy/) when we all live so far apart?!

    • Gene Tunny says:

      Fascinating article. Thanks Kirby. I agree it would be easier to build a sharing economy in a more densely populated city. There are huge returns from agglomeration.

  2. Jim says:

    Once again I get the impression yourself and Brad are looking at heritage and environmental regulations as a government failure and the major driver of perceived or real low housing affordability. This when the research indicates it is other obvious market factors and government policies that are driving up housing prices and the costs of building.

    I cannot imagine how removing heritage protection would materially change Australia’s urban population density ratios to anything like those for most of the countries in the graph above. Is high urban density an objective that the mass market of housing consumers actually want? I suspect the answer is no. That is why the majority of new builds are McMansions in the outer suburbs.

    So what point is the person from the Reserve Bank trying to make, or is the graph taken out of context with respect to heritage and density? How do you explain the high densities in Germany, France, Italy etc., and the fact those countries all have significant heritage restrictions?

    When I look at that graph it says, “Australia, Canada and NZ are countries with low population to land mass ratios. Most consumers have a preference to build out – not up, because the benefits of a back yard far outweigh the incremental cost of a longer commute.” No government failure there.

    I’ll get off my soapbox now…..

    • Gene Tunny says:

      Jim, I agree we won’t see anything like the urban density ratios of European cities in Australia, but we can certainly increase our urban density a lot. Heritage protection may not be a huge influence but it’s certainly constraining development to some extent and in most cases I think the constraint is unjustifiable. Sure, protect genuine heritage sites such as the tower mill or Newstead House, but Brisbane is full of old Queenslanders and I can’t see any real justification for protecting them.

      • Jim says:

        Gene

        Your reply above is a lot more balanced than the previous posts that seemed to send a message that all heritage protection is bad. I agree entirely that blanket protection of all pre WW2 properties is not a good solution. It protects very ordinary houses of no realistic heritage value, while post WW2 buildings (or precincts) that do have some form of heritage value are afforded no protection unless they are individually listed.

        So now the challenge for your blog is to clearly outline what problem you are really trying to address.

        Is it affordability? If so, for whom (low incomes, first home buyers, or reducing mortgage stress)? What is really causing it (clearly it isn’t just heritage or environmental regulations)? What are the suite of measures that could be used to address affordability?

        Is it low density? If so, why is this a problem (higher infrastructure costs, longer commutes)? What are the suites of measures that could be used to address the problem?

        These are “wicked” policy and planning problems and I look forward to some analysis and debate in this blog about them.

  3. Gene Tunny says:

    Thanks, Jim. I’ll do my best!

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