Today I received a letter from my local MP, Adam Bandt, arguing for tighter restrictions on the supply of housing in inner-Melbourne:

Following years of poor decisions by governments, we have a planning system that puts developers – not people – first.  

Many of us accept that Melbourne can’t keep sprawling outwards. But bringing more people into the city will only work if we invest in infrastructure, keep our open spaces and preserve Melbourne’s character and liveability.

Housing is becoming less affordable in inner-city Melbourne, but the guiding principle seems to be to turn every old warehouse or vacant site into expensive, high-rise apartments.

Adam Bandt wants more affordable housing, yet laments the trend to turn warehouses and vacant sites into new dwellings. This seems to be a widely-held view. People like affordable housing (at least in the abstract), but they don’t like change. I don’t understand the model of the housing market that people carry around in their heads if they think this way.

How can you reconcile a desire to see:

  • consistent population growth;
  • access to affordable housing;
  • no expansion of the urban growth boundary; and
  • strict restrictions on new development in existing areas?

The way I understand the housing market, the price is determined by the supply and demand for housing. If supply is artificially restricted, the price will rise. That may be a policy goal you wish to pursue, but it is not consistent with the policy goal of increasing access to affordable housing. There are trade-offs here that cannot just be waved away.

The negative effects of housing supply restrictions on productivity, creativity, and affordability are covered in a well-argued new Kindle single by Ryan Avent (of The Economist)  called The Gated City. Avent understands what motivates people to want to resist development:

Their actions aren’t necessarily nefarious. Most just want to protect neighborhoods, views, and buildings they love from changes they fear. But the cumulative effect of this battle against change is dramatic.

This is the key point. The small decisions to restrict housing supply, one apartment block or subdivision at a time, add up to less affordable cities.

The problem, as Avent says, is that:

No one in the city represents the residents or businesses that might want to live or operate in the developments yet to be built. But their interests should matter…

[T]he lion’s share of the cost of exclusion falls on the excluded. That’s why the practice of shutting others out is so attractive and so common. No policy I can suggest will be as effective as the understanding that the welfare of outsiders matters. 

Choose to support stringent restrictions on housing development, or support access to affordable housing. You can’t choose both.

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