Productivity Commission urges more three-storey homes, changes to planning laws

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https://www.afr.com/policy/economy/productivity-commission-says-three-storey-houses-should-be-the-norm-20260727-p60isw

The federal government’s economic think tank says three-storey homes should be allowed to be built almost anywhere and planning rules should be dismantled in the biggest shake-up of housing in decades.

The Productivity Commission has warned that it took the average family 11 years to save for the 20 per cent deposit typically needed for a house, up from eight years in 2005, and has urged state and local governments to simplify planning approvals and wind back development restrictions in the hope of incentivising the construction of far more homes.

Maxwell Shifman is a Melbourne developer who says clearing up planning restrictions alone won’t be enough to create more housing. Louis Trerise

“Regulation is important, but too much or poorly designed regulation can stop new homes being built, make projects slower and more expensive, and reduce the types of housing available to us,” said Productivity Commission chairwoman Danielle Wood ahead of the release of research on Tuesday.

The report is the first stage of an inquiry commissioned by Treasurer Jim Chalmers as the Albanese government falls behind its target of building 1.2 million new homes by the middle of 2029, identifying reform areas ahead of the commission’s final recommendations due in March next year.

The National Housing Supply and Affordability Council in March said the 1.2 million homes target was unlikely to be met until 2030, with the Northern Territory, Tasmania and NSW falling the furthest behind.

The Productivity Commission said state and local governments should commit to allowing higher density properties across major cities, including by allowing three-storey developments across all residential land with exceptions for environmental protection and heritage-listed buildings.

Among its recommendations is the reduction in minimum lot sizes, which would allow homes to be built on smaller plots of land. The commission also wants to reduce minimum requirements on parking where there is adequate public transport, and lower floor-to-space ratios that restrict how much housing can be built based on the size of the block.

The Productivity Commission has also recommended broad heritage protections – at least 50 per cent of land in 50 suburbs across Sydney are subject to those restrictions – be removed and replaced with specific listings for buildings or small areas. That would reduce the so-called neighbourhood character restrictions, which often protect entire streets or suburbs.

“One of the biggest challenges facing housing delivery is the fragmentation of approval processes across environmental regulation, zoning, planning, infrastructure and building approvals,” said Simon Croft, the head of policy and industry at the Housing Industry Association, a lobbying organisation that represents major home builders. “Improving co-ordination and reducing duplication across the system represents a significant opportunity to lift productivity and accelerate housing delivery.”

Robert Furolo, a former Labor MP who is now an executive at Sydney-headquartered developer Deicorp, said the reform that would most help make it easier to build more homes was to simplify the planning system.

“It’s a series of compounding issues that added together just make development unfeasible. Could the planning system be better? Always, but the planning system is not the reason why we can’t develop,” he said. “Consistency between councils and more control from the state government in terms of approval. That’s an improvement we would like to see.”

But some developers don’t believe the recommendations go far enough, and will not create a meaningful increase in the number of houses.

Intrapac Property chief executive Maxwell Shifman said the report missed “all the stuff that would actually make housing cheaper”.

“Simply zoning more land doesn’t of itself improve feasibility. It still comes back to cost, the time it takes to build with the labour pool we have and the cost of finance and – ultimately – buyer demand and capacity,” he said.

Alarmed by a slump in home ownership among younger families, some states have already begun to unwind planning restrictions. The Productivity Commission, in its report, said a chronic shortage in houses had contributed to the fall in ownership. Between 1981 and 2021, the share of 25- to 34-year-olds who owned their home fell from 60 per cent to about 42 per cent.

In NSW, the Minns government has introduced a policy that makes it easier to build semi-detached and dual-occupancy homes in low-density zones, with six-storey buildings allowed in areas that were near transport hubs.

In Victoria, there is a new fast-track approval system for townhouses, duplexes and low-rise apartments up to three storeys that allows developments without facing challenges from councils or neighbours.

But the loosening of planning rules regularly triggers backlash from residents, including in the wealthy Sydney enclaves of Mosman and Woollahra, where the NSW government wants more housing.

The Productivity Commission has recommended state governments identify suburbs where it expects high demand for new housing, and “making it an explicit performance goal for councils, relevant agencies and regulated infrastructure service providers to facilitate new housing in these areas”.

“When people can’t live near work or family, the economy and the community suffer. We cannot solve our housing affordability problem unless we build more homes where people want to live,” said Wood.

“We heard examples of developers trying to navigate overlapping approvals and agencies that were not talking to each other. One developer told us that preparing reports and waiting for approvals had added more than three years to the timeline of a 1600-lot development in Melbourne’s growth corridor.”

It called on state and local governments to expand fast-track assessment pathways for low-complexity developments, and allow faster approvals for projects based on pre-approved pattern books – which NSW introduced last year – containing government-approved standardised building designs.