Increasing multi unit housing supply

There’s a feature in yesterday’s issue of The Age, The Outer Limits (clever title!), which is the first shot in a new series the newspaper is publishing under the banner, Project Melbourne: Towards a Sustainable City, on the challenges facing Melbourne as it hurtles towards a projected population of seven million sometime around 2050.

One of the key themes developed in the article is the need to increase the proportion of new dwellings constructed within the existing urban fabric rather than on the urban fringe. Another key theme is the need to increase housing affordability across all price segments.

I’m a strong supporter of these priorities. We do need to lessen the constraints on new construction in the suburbs but not, as The Age implies, because sprawl is intrinsically bad – it’s deficiencies are greatly exaggerated. Rather, the key reason is to increase affordability.

Most Melburnites want to live within established areas where they’re closer to everything else that’s going on in the city. They can do their grocery shopping and get their hair done anywhere, but living closer in usually means greater proximity to family, work and major sporting, cultural and entertainment facilities.

Contrary to much of the rhetoric on this issue, most households looking to settle in established areas do not have the option of locating in the buzzy inner city. It’s way too expensive. Redevelopment opportunities are constrained by heritage protection, by high property values, by highly organised resident opposition and by small lot sizes that are difficult to assemble into viable redevelopment opportunities. The inner city is also much smaller than most commentators realise – only 8% of Melbourne’s population live within 5 km of the CBD despite the considerable growth experienced in this region over the last 15-20 years.

The reality is that the great bulk of households looking to settle in the established areas have to look to the middle and outer suburbs. In the short term there are some large old industrial sites such as the Alphington paper mill site that can be redeveloped, but there is a finite supply of these and hence it is not a sustainable solution. There might also be better uses than housing for these redundant sites, such as open space, employment centres, education services or specialist scientific facilities. Large vacant sites close to existing urban resources may be a key competitive business advantage for Melbourne as the metropolitan economy becomes increasingly knowledge-centred e.g. think Synchrotron.

The downside to greater accessibility is households usually have to accept a relatively small town house or apartment compared to more distant locations, where a detached house and larger lot is a feasible option. It also means living physically closer to neighbours and is often accompanied by more congestion and noise than the outer suburban alternative.

For most of these households these are compromises they’re quite willing to make – the outer suburbs are not even on their radar. Of course they would prefer both space and accessibility, but only a select few like the Governor of Victoria get to enjoy that privilege.

However there is a serious obstacle to multi unit living. There is little if any price advantage compared to the cost of a detached house in the outer suburbs. This is partly due to factors like the high cost of land in established locations (reflecting its greater accessibility), the time and difficulty of land assembly when dealing with multiple land owners, and the high cost of constructing multi unit housing on redevelopment sites.

But it’s also partly due to planning regulations and processes that seriously restrict the supply of new medium density housing in established areas. Councils and residents frequently oppose multi unit housing because they fear it will reduce their amenity and ultimately their property values. Sometimes they’re right and sometimes they’re wrong. The result however is that there is insufficient supply of multi unit housing to meet demand and prices consequently rise.

Hence the key warrant for public policy action to increase the supply of housing in established suburbs is increased affordability. That is sufficient justification. The argument that it increases sustainability by reducing sprawl is over exaggerated (I address this issue in an OpEd the The Age is planning to publish as part of its current series on Project Melbourne, so I’ll keep my powder dry for the moment).

The way to increase supply is to tip the balance between the interests of established residents and new settlers in favour of the latter group. No matter how much spin is applied to this simple equation, that is the reality. This is of course tremendously hard politically and few Government’s have shown they have the leadership required to increase supply while bringing all sides with them. I’m not holding my breath on this one.

There are some self-evident ways to enhance the prospects of success. For example, smaller scale developments with a mix of detached houses on small lots and two story town houses are likely to be more palatable to existing residents than large developments involving many units and three or more floors. Tall buildings may only be politically viable in a limited number of locations.

There is however a key strategy that would do much to increase supply. The current philosophy of focussing multi unit housing near activity centres and public transport routes greatly restricts the number of locations where multi unit housing might be viable.

The implicit idea that residents will shift from cars to public transport in significant numbers is contradicted by the evidence on travel behaviour. The fact is that the vast bulk of suburban households show very little interest in public transport because driving is almost always faster, more comfortable and more convenient. It is important to remember that only a small proportion of middle and outer suburban households work in the CBD, which is the only location in Melbourne that can be accessed more easily from the suburbs by public transport than by car.

The rational strategy would be to mandate environmentally efficient cars and introduce road pricing – see my earlier OpEd in The Age, Efficiency the key to car culture, and my post of March 9, Melbourne will be a car city for a long time yet.

Developers by and large are not driven by wishful thinking but rather by the desires of their (predominantly car-owning) customers. They have regard to key matters like the ease of acquiring and assembling properties into viable redevelopment sites and of course the cost of acquisition. These sorts of opportunities are not always conveniently clustered around public transport routes and activity centres.

The ‘take home’ message is that the supply of multi unit housing in Melbourne needs to be increased in order to enhance affordability within the established suburbs. Unfortunately, the unthinking promotion of ‘sustainability’ to justify almost any policy without regard to the evidence makes this task harder. It also risks damaging and cheapening the value of ‘sustainability’.