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- Housing crisis
The hidden downside to Sydney’s love affair with shiny new trains
By Matt Wade
A long infrastructure boom has delivered Sydney state-of-the-art roads, metros and light rail services. But influential NSW Productivity and Equality Commissioner Peter Achterstraat says there’s a hidden cost to the transport upgrades: it is limiting the capacity of builders to address the housing crisis.
A new report by the commissioner says government spending on big infrastructure is “crowding out” housing construction.
Infrastructure spending is “crowding out” housing construction, says the NSW Productivity and Equality Comissioner.Credit: Wolter Peeters
“A major reason the construction sector is struggling to deliver homes across Australia is because governments are diverting resources from home building to public infrastructure projects,” it says.
“Australian governments have spent significantly on major infrastructure over the past 10 years. These projects are outbidding developers for labour and materials. This makes many residential projects unfeasible and holds back the supply of new homes.”
When public infrastructure projects come online faster than the construction sector can grow, governments bid up the price of labour and materials, making residential development less feasible.
NSW housing has been hit especially hard by this trend; the commissioner points out that since the onset of the COVID-19 pandemic, the value of construction work yet to be done by the NSW public sector has surged nearly 40 per cent, while growth in the private sector – which includes most home building - has remained relatively flat.
The upshot? While commuters have benefited from new transport infrastructure, the process of delivering it has exacerbated the housing crisis now affecting families across NSW, especially in Sydney.
Achterstraat recommends the NSW government “immediately prioritise and sequence infrastructure spending according to what is essential to delivering homes quickly”.
Cost pressures
The combined effects of higher interest rates and elevated construction costs have made residential developments in many parts of Sydney unviable – despite the deepening housing crisis.
The report says the cost of delivering a typical mid-rise apartment in Sydney stood at $905,000 in 2023, which exceeded the expected sale price of $885,000.
“Housing projects in many areas currently do not stack up,” it says.
Achterstraat’s analysis reveals annual dwelling completions per 1000 people have fallen sharply in NSW during the past five years and now lag the other big states of Victoria, Queensland and Western Australia.
Annual dwelling completions per 1000 people in NSW slumped to a decade low of 5.63 in December 2023, well below Victoria’s ratio of 8.14.
Housing supply will need to ramp up quickly to achieve the Minn’s government’s aim to build 377,000 new homes by mid-2029. Achterstraat estimates a new home would need to be completed “every seven minutes” to hit that number.
Earlier this year the NSW government released new targets and incentives for councils to approve more housing and increase residential densities.
Achterstraat’s report identified four areas of reform, separate to planning regulations, that could boost housing supply:
- Free up capacity in the home building sector by “re-prioritising” infrastructure spending;
- streamline development approvals to speed up the completion of residential projects;
- lift the number of skilled workers (especially skilled migrants) in residential building;
- ensure a diversity of dwelling types.
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