How Do Property Developers Impact Housing Affordability?

Are property developers the heroes or villains when it comes to the housing affordability crisis in Australia? It's a question that sparks lively debates and passionate opinions.

The Supply Challenge:

Picture this: a high demand for housing and a limited supply. This imbalance drives prices up, making it increasingly challenging for aspiring homeowners to enter the market.

Here's where, in theory, property developers step in as key players. They hold the power to shape the housing supply, potentially impacting affordability in the process. But do they fulfill this role effectively?

One common argument is that developers prioritise profits over providing affordable housing options. Critics claim that existing incentives for developers only line their pockets, leaving affordability concerns unresolved. A major point of concern is land banking – a practice where developers acquire land for future development, but delay construction to maximize profits. Of course, this means land banking reduces available housing supply, exacerbating affordability challenges.

In a recent study of nine master-planned community developments across the nation, economic research firm Prosper, found that developers consistently employed a “staged release” schedule for new properties – specially crafted to avoid any supply-driven price decreases.

Development of Springfield typified this practice:

“Springfield, near Ipswich in Queensland, was the largest development we analysed, with 43,000 rezoned lots. At no point during its 20-year development window had all that supply seen prices fall for longer than just a few months. They are building an entire city from scratch and prices have only headed one way – upward.”

But are property developers really to blame for employing these kinds of strategies?

Like any other business, property developers operate in a market where profits are the name of the game. Staged releases and land banking help them carefully manage supply, minimise risk, and ensure steady demand for their properties.

From the developer’s perspective, there’s no denying that land banking a sensible (and completely legal) strategy. However, the impact these practices have on housing affordability is undoubtedly a concern for prospective home buyers.

So, what might be done do to address this issue and improve affordability?

Research suggests that a policy-based approach, such as ratcheting land taxes, may be effective at eliminating the financial incentives driving land banking. Alternatively, this might work best in combination with tighter regulations, ensuring developers adhere to specific timelines for construction and occupancy. Penalties or rewards tied to meeting affordability obligations could further motivate compliance.

Of course, addressing affordability isn't solely the responsibility of developers. Governments must step up and invest in social and affordable housing initiatives. By increasing the supply of affordable housing through direct investment or partnerships with developers, governments can provide more options for those struggling with affordability. This requires long-term funding commitments and sustainable housing policies that prioritize the needs of vulnerable communities.

Finding the right balance between market-driven development and housing affordability is no easy task. It requires collaboration and proactive measures from developers and governments alike. By implementing policies that incentivize affordability, promoting transparency and accountability in development practices, and investing in social and affordable housing, we can correct practices that hinder affordability and create a housing market that benefits everyone.

Are you looking to navigate the complex world of property investment? Look no further. Our team at Search Party Property are here to help you every step of the way. Whether you're a first-time buyer or an experienced investor, our personalised approach and in-depth market knowledge can cater to your unique needs. Book a phone call here to discuss your investment goals, receive expert guidance, and embark on the exciting journey of property