Sydney Regulations Boost Apartment Prices 68%, RBA Research Finds

(Bloomberg) -- Sydney’s planning regulations substantially increases the price of apartments and adds more to the price than in Australia’s other large cities, research by Reserve Bank of Australia staff found.

Planning regulations related to building heights increase the cost of apartments by 68% in Sydney, 20% in Melbourne and 2% in Brisbane, according to a research report published by RBA’s Keaton Jenner and Peter Tulip released Wednesday. While construction costs of apartment towers rise as the height increases, the land cost per-apartment falls.

“Tall buildings are a substantially less costly way of increasing supply,” they said in the paper. “This cost advantage of taller buildings is largest in Sydney’s inner suburbs, where land costs are very high and where, in the absence of height restrictions, it would be economic to raise building heights by 20 storeys or more above their current heights.”

The RBA research finds the benefits of raising building heights in Melbourne and Brisbane to be smaller.

“This is partly because land is less expensive, so it does not need to be used so intensively. And partly because apartment buildings in those cities are already close to the economically efficient height.” Jenner and Tulip said.

Their paper measures that the effect of planning restrictions in Australia’s three largest cities see home buyers pay an additional:

• A$355,000 ($255,000) for an apartment in Sydney, on top of the A$519,000 in construction costs;
• A$97,000 in Melbourne, with constructions costs at A$491,000; and
• A$10,000 in Brisbane, with costs of A$460,000

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