frequently asked question

Aren't tax concessions the biggest cause of the housing crisis? Why focus on zoning and planning?

The research is clear that tax concessions drive up the demand for housing and that removing them would decrease house prices. In 2019, it was estimated the effect of tax reform would be an approximately a 3.3% reduction in existing home prices and a 2.9% reduction in new house prices on average across Australia (in Greater Melbourne, the effect would be 8.3% and 6.3%, respectively). There also is a strong case against these concessions on grounds of perpetuating both wealth and generational inequality.

However, this is only a complementary explanation for the high home prices, because the tax concessions themselves can only be inflationary if there is a supply constraint—because prices increase as a function of scarcity. 

Zoning restrictions increase home prices far more than 3.3%. We can highlight the difference in the effect between tax concessions and zoning restrictions through the work of Jenner and Tulip (2020) undertaken at the Reserve Bank of Australia. They found that planning restrictions inflated home prices in Melbourne by 20%, and in Sydney by an astronomical 68%. This means that, as Peter Tulip argues, of the $873,000 average 2018 sale price of a new Sydney apartment, $355,000 was attributable to the costs relating to planning restrictions. In Melbourne, planning restrictions added $120,000 to the cost of an apartment in Melbourne.

While YIMBY Melbourne supports tax reform, we also recognise that it is not the core contributor to the housing crisis. Addressing tax settings will only provide temporary relief to prices, as the supply-demand balance (the number of houses demanded vs the number of houses built) in the medium term is projected to trend downward into the negatives

This means that over time the chronic undersupply of housing will put upward pressure on prices and, in particular, rents. This is because the rent a given landlord charges is an explicit expression of housing supply and demand—landlords in general will always charge exactly what the market is willing to pay.

Now, this does not mean that policies aimed at reducing demand for housing should be ignored. The revenue increases possible from tax concession reforms are vital to providing governments with the financial capacity to deliver critical priorities such as infrastructure and social housing—tax concession reform needs to be seen as a part of a policy mix rather than a catch-all solution.

Your hottest YIMBY Queries, Answered

Frequently Asked Questions

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Are YIMBYs aligned with any political parties?
Aren't Melbourne apartments low-quality? Why do you want more of them?
Aren't tax concessions the biggest cause of the housing crisis? Why focus on zoning and planning?
Can't we just keep building greenfield/outer suburban developments?
Can't we just stop foreign investment to combat the housing crisis?
Can't we just stop immigration to solve the housing crisis?
Do you support stronger renter protections?
Doesn't new development just push poor people out of the city?
Don't high permit approval rates show that planning isn't the issue?
How does market-rate housing supply benefit those most in need?
Isn't zoning and planning reform just a giveaway to developers?
Local councillors are democratically elected representatives. What’s wrong with them having final decision-making powers over planning matters?
Loosening planning controls may result in more ugly modern buildings. Shouldn't new buildings be beautiful?
Shouldn't the local community get the final say on what happens in their "backyard"?
There are already so many apartments. Do we need more?
What about parking? Won't new developments create massive congestion in our cities?
What about those one million vacant homes?
What can we do about land banking?
What if I don’t want to live in an apartment?
What's the problem with building setbacks?
Why build denser cities? Isn't it better to decentralise?
Why can't the government just build public housing for all?
Why did rental prices go up during COVID?
Why do you hold councils accountable for housing supply delivery?
Why does YIMBY Melbourne have such a problem with heritage overlays?
Why doesn't YIMBY Melbourne endorse mandatory inclusionary zoning?