New housing desperately needed but often not wanted
Our largest cities have been adding population at high rates for almost two decades. This made housing affordability the most pressing issue in these cities.
Major policy reform (killing stamp duty to introduce a land tax, negative gearing reform, a state-owned housing developer) seem off the table and the political consensus seems that more housing supply is the only way forward.
But if increasing supply is the solution, why do both renter-dominated and homeowner-dominated areas often oppose new residential developments?
Australia leans heavily toward homeownership. About two-thirds of Australians own their home either outright or with a mortgage. Contrast this with Berlin, where 85 per cent of households rent.
The differences between these two models reveal why new housing often faces resistance, regardless of who dominates the area.
Let’s start with the basics. When a city is booming and the population grows, housing becomes more expensive – simple supply and demand.
However, opposition to new developments takes different forms in owner-occupier suburbs compared to renter-heavy neighbourhoods.
In areas dominated by homeowners, rising house prices pose challenges for those trying to enter the market, like young people moving out of their parents’ homes.
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However, for those who already own, rising prices increase their wealth. For many Australians, their home is their most significant financial asset.
Homeowners not only benefit from rising prices but often actively work to keep them high. New developments are frequently opposed due to fears they will reduce property values or change the character of a neighbourhood.
This results in widespread resistance to increased housing supply, particularly in wealthier suburbs. The term NIMBYism (Not In My Backyard) captures this mindset– homeowners might pay lip service to the idea of new housing but resist it when proposed in their own neighbourhood.
This form of opposition keeps housing supply low and worsens affordability issues. Put bluntly, in owner-occupied suburbs, residents have little incentive to support lower house prices.
But what about booming areas dominated by renters?
In Australia, that’s the inner suburbs. Unlike homeowners, renters don’t benefit from rising property values. For them, a housing boom means only higher rents. And in some cases, they fear that new developments will fuel gentrification, making their neighbourhoods even more expensive.
Berlin provides an extreme example. As housing costs rose, renters (who famously make up 85 per cent of the population) saw no financial upside.
This led to widespread public support for radical policies, such as the proposed expropriation of large property investors.
The idea, floated by a prominent member of the SPD (Germany’s Labor Party), has not been implemented, but it demonstrates the level of frustration among renters.
One common fear is that new developments, particularly high-end apartments, attract wealthier residents who drive up local living costs.
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New businesses cater to these newcomers, making everything from groceries to coffee more expensive. Renters, facing higher housing costs and rising expenses across the board, often blame developers for making their neighbourhoods unaffordable.
However, blaming developers ignores the economic reality. Without private investment, housing shortages worsen, pushing rents up even faster.
Property development is risky and expensive. Developers are an agnostic bunch. They build whatever people are willing to pay for before the thing gets build and then charge 15 per cent or so on top of the development cost.
Developers can and do go bankrupt when projects go wrong – a cost overrun of 15 per cent isn’t unheard of.
Unless governments are willing to take on the financial risk of large-scale housing construction, cities will always rely on profit-driven investors to increase housing supply.
Recent research highlights an overlooked benefit of luxury developments.
Economist Evan Mast examined how new high-end apartment buildings impact local housing markets. He found that adding new apartments in lower-income areas of the US reduced rents within a 250-metre radius by $154 per month compared to areas without new construction.
This happens through a cascading effect: high-income earners move into new luxury apartments, vacating older, more affordable units.
Middle-income renters then move into those vacancies, freeing up even cheaper housing for lower-income residents. The result? More movement within the housing market and reduced pressure on rents at multiple levels – real estate agents certainly like the sound of so much movement in the market.
The lesson from Mast’s research is clear – restricting new housing, even high-end apartments, can be counterproductive. While concerns about gentrification are valid, limiting supply only worsens affordability issues in the long run.
The housing crisis is too complex to be solved in a single column, but ideologically opposing new developments, particularly luxury apartments, may make the problem worse.
If we want to improve affordability, we need more housing, and the type of housing doesn’t matter all that much.
Simon Kuestenmacher is a co-founder of The Demographics Group. His columns, media commentary and public speaking focus on current socio-demographic trends and how these impact Australia. His podcast, Demographics Decoded, explores the world through the demographic lens. Follow Simon on Twitter (X), Facebook, or LinkedIn.
