Urban sprawl should carry environmental impact fee, says Harvard housing expert

Housing shortages, record low rental-vacancy rates, rising rents and high purchase prices are causing significant stress on Australian households, says CEDA Chief Economist Cassandra Winzar.

During a CEDA livestream discussion with Harvard Professor Edward Glaeser on the way housing and cities shape how we live, Ms Winzar said many Australians were struggling to afford to live near their work and family.

“How we use our cities, including existing infrastructure, housing stock, office buildings, needs to change to match how we work and how lifestyles change,” Ms Winzar said.

“The demographics of Australia are also changing, but our current housing stock is not meeting the demands of our population.”

A key issue in our sprawling cities is how we can increase housing supply while providing proximity to jobs and capitalising on the knowledge-transfer effects of city living.

Ms Winzar said moves to build higher density developments were continually thwarted by community opposition and strict planning requirements.

“Housing policy that focuses on stimulating demand continues to encourage urban sprawl and low-rise developments,” she said.

She later added: “It's often cheaper to build, at least for the person building the house and developing it, on the outer edges of the of suburbs and new greenfields development than it is to do the cost of urban infill and brownfields.”

Professor Glaeser said the environmental and social impact of urban sprawl should be measured and builders taxed appropriately in the form of an “impact fee”.

“You really want to make sure that the builders are paying the full social cost of their actions wherever they're going, and I would include for that the congestion and environmental harm that's created by the car commuter as well,” he said.

“Now, it may still be that with that building in the urban core is more expensive and we can't turn down market signals like that.

“We should look at, first of all, making sure the people on the edges are paying the social costs of their decision to be on the edges, and secondly, whether or not we've done all we can to make the price of building as low as it can, both in the urban core and on the urban periphery.”

While Australia has development levies that help fund the physical infrastructure needed to support new developments, this fee generally doesn’t consider the environmental or other societal costs of outer suburban developments.

The benefits of higher density housing over suburban sprawl also included increased productivity and a clustering of economic activity, Professor Glaeser said.

“At their hearts, cities are the absence of physical space between people,” he said.

“This is something that economists call agglomeration economies – the fact that we become more productive when we are enmeshed in a maelstrom of economic activity.”

COVID-19 represented a shift how we work in our city spaces, with office occupancy rates now ranging from 50 per cent in Melbourne to 80 per cent in Perth.

This rise in remote work meant high-skilled workers could be flexible with their location and the attractiveness of cities would become increasingly important, Professor Glaeser said.

“I think Australia as a country, with a very high level of quality of life in many dimensions, is poised probably to benefit from this trend,” Glaeser said.

“It does require our cities throughout the world to just understand that the competition with global talent has just gotten hotter, and that it's more important than ever that they make sure they bring their A-game to provide the kind of amenities which attract the most talented producers and empower them to be productive.”

While COVID-19 marked a turning point in how we work, housing affordability in Australia and globally had only gotten worse, Ms Winzar said.

“Australia, as with many global nations, is really struggling with housing affordability and particularly with the ability to keep up housing supply with the pace of population growth,” she said.