By Leith van Onselen

If you want a text book example of how Australia’s various state and territory governments manipulate urban land supply in order to force-up the cost of housing, look no further than the ACT Government.

In January 2003, just days before bush fires hit the outlying suburbs, my girlfriend (now wife) and I moved to Canberra from Melbourne so that I could commence work as an economist at the Australian Treasury. Fortunately for us, we had secured rental accommodation in December 2002, so were unaffected by the severe rental squeeze caused by the destruction of around 500 homes in the capital.

The supply situation in Canberra was already very tight, and the cost of renting prior to the bush fires was well beyond what could be found in Melbourne. Many others that arrived into the ACT after the bush fires were forced into expensive share accommodation, often located in the far outer suburbs or in regional New South Wales.

One thing that separates Canberra from the major capitals is that there are swathes of vacant land located close by to the various activity centres in Civic, Woden, Tuggeranong, Belconnen, and Gungahlin. In an open market, free from excessive government interference, such land would be made open to development, ensuring that land prices remained affordable for housing.

However, such a situation does not exist in the ACT. Instead, the government owns most of the available land, which it rations to the market via a quota system, thus ensuring that land prices remain high and homes are overly expensive.

A 2011 report from the ACT Auditor General found Canberra’s land supply policies to be lacking, resulting in a structural undersupply of land made available for development and deteriorating housing affordability:

…the land supply and release process and programs to date have not been effective in achieving the Government’s stated objectives, which include meeting demand, providing affordable land and housing and establishing an inventory of serviced land…. ACT Government agencies have not used a robust model in identifying residential dwelling demand… Agencies have consistently under-estimated the apparent demand for residential dwellings within the ACT, and ACT Government land release targets have been significantly and frequently revised upwards in recent years. Despite the current accelerated land programs, there was evidence of a shortage of the supply of residential land, capable of being built on, to meet the pent-up and on-going strong demand.

Indeed, the artificial strangulation of supply by the ACT Government has led to buyers literally camping-out for lots:

The ACT’s government resorted to a “virtual” ballot after buyers camped out for a week in freezing temperatures to secure blocks of land… In Canberra’s Forde, a new suburb 14km north of the city, hopeful buyers spent up to a week queuing and camping… Developers eventually allocated numbers to potential buyers and sent them home… “There were campervans, people in caravans and tents – it was quite a sight,” Mr Lynch said of the buyers queuing a week ago to get a toehold in the Canberra market…

And while the ACT Government has since moved to a balloting system, it continues to drip feed lots to the market via a quota system, thereby ensuring land prices remained high.

Now, with the ACT’s economy facing headwinds following Federal Budget cuts, the ACT Government has announced that it will slash its land release program by 25% over the next two years in a bid to maintain the capital’s artificial scarcity of land supply and sky high land prices:

As a result of the decisions of the Commonwealth Government to significantly reduce the size of the Australian Public Service and the subsequent impacts, the ACT Government has written down the overall size of its Indicative Residential Land Release Program by 3,000 dwelling sites across the next three years. The Indicative Residential Land Release Program now includes a sale target of 13,500 dwelling sites between 2014-15 and 2017-18. The annual number of dwelling sites expected to be sold has dropped from 4,700 to 3,600 in 2014-15; from 4,500 to 3,300 dwelling sites in 2015-16; and will remain at 3,300 dwelling sites in each year to 2017-18. Should demand exceed these sales targets, the Government will adjust supply upwards.

The median house price in the ACT is a whopping $557,871 according to APM, with median house rents a ludicrous $455 per week – ludicrous because the ACT is effectively a large town with abundant vacant land in and around the “city”. This decision by the Government to strangle land supply makes a mockery of its “Affordable Housing Action Plan” and will maintain the status quo, to the detriment of younger Canberrans and those locked-out of home ownership and stuck paying inflated rents.

Further, given the ACT Government has failed so dismally to accurately predict housing demand in the past – as acknowledged by the Auditor General – what makes it think that it can accurately assess the situation this time around, or will be able to “adjust supply upwards” in a timely manner “should demand exceed these sales targets”?

Funny how state and territory governments never show as much urgency to lift land supply when prices are escalating as they do to slow land release at the first sign of weakness.

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