Just as painful if slightly less so, the impact is similar across other big cities, led by Melbourne where it costs buyers $324,000; Brisbane $159,000 and Perth $206,000, the report said.

Combined with increasing demand from rising population and tax incentives for investors, development restrictions are a massive contributor to the incredible surge in house prices since the late 1990s - pushing prices, in the words of the Reserve Bank - "substantially above the supply costs of their physical inputs".

The research paper prominently cites by way of example a story published last July in The Australian Financial Review of a Chinese development company that paid a record $400 million for a 363-hectare site in Melbourne's west after it was rezoned.

Prior to the rezoning it had been valued a little over a year earlier at $120 million, and was bought by the vendor in 2004 for just $14.5 million.

RBA

"Such large increases in values as a result of zoning changes are inconsistent with the view that a physical shortage of land itself is the main cause of high land values and housing prices," write Reserve Bank authors Ross Kendall and Peter Tulip.

While the team warns that their estimates of the cost of zoning are not the amounts by which house prices would fall if such restrictions were not in place - determining that would require estimating supply and demand responses - they do show that the effect of zoning has "increased dramatically over the past two decades".

This is "likely due to existing restrictions binding more tightly as demand has risen," they said.


"We also note that physical land costs are higher in Australian cities (particularly Sydney) than overseas. So even if zoning restrictions were relaxed housing in Australia would remain expensive relative to cities where zoning is permissive and land is less physically scarce."

RBA

Property groups said the research provides a much-needed wake-up call for state governments to overhaul planning rules, which have ensured supply hasn't met demand.

"No one is arguing for a planning free-for-all - cities need proper planning," said Ken Morrison, chief executive of the Property Council. "But what the RBA is pointing to is a whole range of unnecessary costs that must be addressed.

"The cost of not fixing our planning system is felt by every young person who gives up on the great Australian dream of home ownership...every family taking on a mortgage of $100,000 higher than it needs to be".

The research showed zoning effects are having a similarly costly impact on apartment prices - adding around $399,000 to the average $870,000 sale price in Sydney, an extra $120,000 (taking the price to $510,000) Melbourne, and $110,000 ($539,000) in Brisbane.

RBA

"We... find evidence of a large gap opening up between apartment sale prices and construction costs over recent years, especially in Sydney.


"This suggests that zoning constraints are also important in the market for high-density dwellings," they said.

They warn further likely increases in housing demand will bind existing zoning restrictions "more tightly" and continue putting upward pressure on prices.

"Policy changes that make zoning restrictions less binding, whether directly (e.g. increasing building height limits) or indirectly, via reducing underlying demand for land in areas where restrictions are binding (e.g. improving transport infrastructure), could reduce this upward pressure on housing prices."